Murdoch Gatti (00:01.822)
Michael Goldberg, welcome to the rate of change with York Wealth Management.

Michael (00:06.616)
Thanks for having me, Murdoch. the invitation. I'm glad to be here.

Murdoch Gatti (00:10.346)
Michael, why don't we kick things off as we always do and tell everyone a little bit about yourself and how you got into finance.

Michael (00:15.584)
Yeah, not fair enough. I suppose I'm a Melbourne boy born and bred. I grew up in a, I suppose, a Jewish community, went to a Jewish private school for primary school. Eventually made my way across to Kofu Grammar where I graduated. I didn't take the ordinary route through education into funds management. Instead, I decided to take a gap year overseas and study for a year in seminary.

One year turned into two, turned into three, and eventually I was there on and off around my university studies for about four or five years. So bit of a different approach, but a really good opportunity to, I suppose, get out in the wider world, experience some different culture, experience some different people, and get some life experience, I think made a big difference for when I did eventually come back and get my job and start investing in equities in professional sense. That was certainly an interesting journey. In terms of my interest in business and my interest in equities,

Murdoch Gatti (00:57.356)
people and get some life experience which I think made a big difference when I did eventually come back and get my job as site investing in equities in professional sense. That was certainly an interesting journey. In terms of my interest in business and my interest in equities, think it goes all the way back. My grandparents essentially came from Europe with nothing but a on their back, a righteous work ethic, and a drive for entrepreneurialism. And I think that certainly translated across to my...

Michael (01:12.376)
I mean, I think that goes all the way back. My grandparents essentially came from Europe with nothing but the shirt on their back, a righteous work ethic, and a drive for entrepreneurialism. And I think that certainly translated across to my dad and his brothers and sisters. And then on to us. I remember from the earliest days, dad would take us with him when he would go and do the shopping for his small retail empire. I would come along with him and watch him negotiate the purchase of...

Murdoch Gatti (01:27.76)
and then onto us. I remember from the earliest days, Dad would take us with him when he would go and do the shopping for these small retail empire. come along with him and watch him negotiate.

purchase of whatever costumes or outfits or whatever was his buying at the time. That was a wonderful experience. When he was coaching us during the winter in our soccer team, he dragged us along. Sometimes within the league, sometimes kicking and screaming to help out at the Queen Big Market where he ran the store for probably 30 or 40 years. Some of my fondest memories are quote unquote helping him at the Queen Big Market. But in terms of equities specifically,

Michael (01:40.536)
whatever costumes or outfits or whatever it was he's buying at the time. And that was a wonderful experience. You know, when he wasn't coaching us during the winter in our soccer team, he'd drag us along, sometimes willingly, sometimes kicking and screaming to help out in the Queen Vic market where he ran a stall for probably 30 or 40 years. Some of my fondest memories are quote unquote helping him at the Queen Vic market. But in terms of equity specifically,

I think probably my first experience was a Bar Mitzvah present from one of my aunts. She bought me, I think it was a hundred bucks worth of CSR shares back in the nineties. And from then on, the only sugar mum was allowed to buy in the supermarket was CSR sugar. And while I didn't really know how businesses worked, how equities worked, there was sort of, I suppose, the beginnings of the planting of a seed, you know, the concept of owning a great Australian business.

Murdoch Gatti (02:10.748)
experience was a Bumbix for presents from one of my aunts. She bought me hundred bucks worth of CSR shares back in the 90s. from then on, the only sugar a was allowed to buy in the supermarket was CSR sugar. And while I didn't really know how

business has worked, how equity has worked, there was sort of I suppose the beginnings of the planning of the city, the concept of owning a great Australian business, where the CSI was a great Australian business at times, potentially a debate for another time, but certainly the way I felt was that I owned part of this wonderful, unrecognizable Aussie company. Shortly thereafter, my other auntie actually put me in touch with her stock broker.

Michael (02:37.484)
where the CSR was a great Australian business at time is potentially a debate for another time. But certainly the way I felt was that I owned a part of this wonderful, recognizable Aussie company. Shortly thereafter, my other auntie actually put me in touch with her stockbroker. And back in the day, it was a full server stockbroker. It wasn't like nowadays where you jump online. Yeah, you click your way through and decide you're going to pick what you're going to pick based on whatever tip you heard or whatever article you read. Back then, you got some

Murdoch Gatti (02:54.028)
and back in the day it was a full service stopper, it wasn't like now, it was when you jumped online, yeah, you clicked your way through into signing and pick what you didn't pick based on whatever tip you heard or whatever, I'd literally read back then.

you got some personal attention from a stockbroker and then you paid and you paid well for that personal attention but I remember walking away from this conversation and probably had a half hour chat, again me and a 13, 14 year old kid talking to a broker and I walked away thinking, Jemez, you this guy really has a deep insight into this business and the business we ended up buying was the National Australia Bank.

Michael (03:07.16)
personal attention from a stockbroker and then you paid and you paid well for that personal attention. But I remember walking away from this conversation, we probably had a half an hour chat. Again, me a 13, 14 year old kid talking to a broker. And I walked away thinking, J-Biz, know, this guy really has a deep insight into this business. And the business that we ended up buying was National Australia Bank. Surely there must be some way to take this information advantage that this guy has and turn it into...

Murdoch Gatti (03:27.788)
Surely there must be some way to take this information advantage that this guy has and turn it into a long term plan for profitability. Again, I didn't exactly know what to do with that. didn't connect the dots at that point, but I certainly went away already having established an interesting business through my dad's entrepreneurship. Realizing that there was something to be said about owning and buying.

Michael (03:33.814)
a long term plan for profitability. Again, I didn't exactly know what to do with it. I didn't connect the dots at that point, but I certainly went away already having established an interest in business through my dad and his entrepreneurship, realizing that there was something to be said about owning and buying publicly listed stocks. And surely there was a way to take this information advantage and leverage it into a way to make returns. Now, I grew up and came through the university system at about the same time.

that ComSec and E-Trade and the discount brokers did. And I think after having gone through my studies at Monash University, I was resigned to the fact that I would probably be a disgruntled back office worker in some large bank somewhere and was thrilled, thrilled, as thrilled as I could possibly be when I finally found my first professional job working for a small boutique wealth management firm called Leyland Private Asset Management, who essentially did exactly what I was looking for.

Murdoch Gatti (04:10.767)
I was designed to the fact that would probably be a disgruntled back office worker in some large bank somewhere. And was thrills. Thrills I could possibly be when I finally found my professional job working for a small boutique or a firm called Leyland Private Asset Management, who essentially did exactly what I was looking for. Now with the Berto clients I've seen for years, I recognize now that what I imagined stockbroking was, was not actually what stockbroking was.

Michael (04:30.872)
Now, with the benefit of hindsight and some experience, I recognize now that what I imagined stockbroking was, was not actually what stockbroking was. But the job that I found was right in line for what was after. Essentially, our role was to build relationships with clients, build a tailor-made portfolio for those clients, and then manage that portfolio going forwards. So that's, suppose, where I kicked off. That's where I started. I worked at Leyland for about eight years, where I met my now business partner.

Murdoch Gatti (04:39.774)
that I found was right in line for what I was after. Essentially our role was to build relationships with clients, build a tailor-made portfolio for those clients, and then manage that portfolio going forwards. So that's, suppose, where I kicked off, that's where I started. I worked at Leyland for about eight years where I met my business partner.

Michael (04:59.864)
Subsequently, we both decided that we wanted to take our business to the next level. We recognized that perhaps we weren't the best party to do every part of the funds management business. We felt we were very good at certainly picking stocks and managing a portfolio. We thought that if we could get economies of scale, potentially we could bring in people to do the bits of the business that we weren't as good at. So for instance, sales. We launched...

Murdoch Gatti (05:00.62)
subsequently we both decided that wanted to take our business to the next level. We recognized that perhaps we weren't the best party to do every part of funds making a business. We felt we were very good at certainly picking stocks and a management portfolio. We thought that if we could get economies of scale potentially we bring in people to do the bits of the business that we weren't as good at. So for instance, sales.

We launched the company almost 10 years ago now. We opened it to public for investment about nine years ago. And now we find ourselves here with Construte Aspen Entertainment. Our financial funding, Construte Value Fund, has done pretty well over the journey. think we're it around about 14 % since inception, which I think puts us somewhere between 4 and 5 % better than what the broader market has done. it's been a journey. It's certainly been a journey. It's been fun. It's been frightening. It's been fulfilling.

Michael (05:28.152)
We launched the company almost 10 years ago now. We opened it to the public for investment about nine years ago. And now we find ourselves here with Collin Street Asset Management, our flagship fund being the Collin Street Value Fund. It's done pretty well over the journey. I think we're running at around about 14 % since inception, which I think puts us somewhere between four and 5 % better than what the broader market has done. So it's been a journey. It's certainly been a journey. It's been fun. It's been frightening. It's been fulfilling.

and we're very proud of what we've been able to achieve so far.

Murdoch Gatti (06:00.466)
Yeah, it's definitely a interesting journey you've had. I've always found it as well. Like, you know, when I was coming up in as a broker at one of these, you know, houses, a lot's changed, hasn't it? But it's just, I say, I say every single time, I find some of the most interesting people in finance never had a straight path into finance. And wouldn't you agree that, you know, the people that kind of went out and then came in?

What they actually got was perspective from a different light. And then they and what's interesting is you just you mentioned like, you know, the religious side of things, like I went to Joey's, which is, know, very much a Mars, you're a Christian based school, or the Jewish or whatever religion it is, what's so interesting there is you've looked back 1000s of years, what it really is, is how do you essentially govern a culture, right? You know, what do you put in place as a means of, you how do you behave? How do you do things? How do you perform society? How do you communicate?

within your peers, what are the rules, you know, available to essentially dictate, you know, how we do trade, how we do business, right? And I just find it very interesting that you went the seminary path, you know, especially from coming and the other thing which I find very interesting with both families of immigrants, my family is Hungarian, Italian, my wife's Greek. But what I've noticed is if look at many families, which we run money from, everyone comes across, but they all tend to stay incredibly tight and strong together.

have their own business, right? And then they weren't the best things for the kids back then it was universities that kind of pushed through. But what's interesting now is how over numerous years that position kind of changes a little bit, right? And they've pushed so much about, don't work for the family business, go get a job, know, be the best individual, right? And then you have a household of individuals, right? And maybe that's the Netflix model as in, you know, if you split a family 10 different ways, there's 10 different rents, 10 different Netflix accounts, you know.

What's so interesting now is after the covert times, the families I'm starting to realize maybe you are as well, maybe you've seen the pattern, families are starting to come back, be tighter together, they're now starting to ask questions like, you know, if I have my own family business, you know, what does that mean? Can I employ the children? You know, can I help them get you know, assets? Can I help them build their portfolios? It's just very interesting to hear your journey about how you went went through and then looking at you know,

Murdoch Gatti (08:15.48)
young young kids today looking to get into our industries, you know, ask yourself a question. go stockbroking path. That's the other reason reason I like getting yourself on Michael like speaking to portfolio managers, but I really, really enjoy speaking to people like yourself who actually look after the business, so to speak, because it's such an interesting perspective on how it works. So suppose, in that rambling sentence, my main question is, you know, how did the head that I was far away.

Michael (08:39.512)
We've touched on a lot of topics just then, so I'm thinking here this is going.

Murdoch Gatti (08:43.136)
We can have a whole conversation based on about the 15 things we got on, I suppose, how about we start with the philosophy, right? So how did essentially you mentioned your family business, you mentioned joining the seminary and then likening investment. How did essentially that create the foundation for the investment philosophy of Collins Street?

Michael (09:02.306)
Look, I mean, I think the starting point is the culture of support from the family is of utmost importance. One of the conversations I've heard come up quite a lot recently when I spent some time on the road is I've met some, I suppose, heads of family officers who broached the question, how do we get our kids and our grandkids to come and be a part of the business? And I always found that to be an interesting question because I come from a fairly large family myself.

I'm from a family of six, I'm the eldest of six. And the idea that my brother who ended up becoming a chippy or my brother that ended up working in health science would be a good fit in the same way that I might be a good fit for a clothing retail empire is just a really strange concept to me. And what I found from my grandparents and then subsequently from my parents was that they were highly supportive of us pursuing whatever we wanted to pursue. And you know, in...

Murdoch Gatti (09:43.628)
would be a good fit for a retail empire. It's just a really strange concept to me. And what I found from my grandparents and the subsequent of my parents was that they were highly supportive of us pursuing whatever we wanted to pursue. And in our young years, if that meant trying out little, cute and interesting ways to make money, then they were supportive of that. I don't know.

Michael (10:01.432)
In our younger years, if that meant trying out, you know, little cute and interesting ways to make money, then they were supportive of that. know, I remember, I remember in school, I used to, I used to leverage my dad's connections and would, would sell Michael Jordan t-shirts at lunchtime to my mates, you know. I remember, I remember, you know, buying boxes of basketball cards when basketball cards were all the rage in the early and mid 1990s. I might be aging myself a little bit here and you know.

Murdoch Gatti (10:09.886)
Remember in school I used to leverage my dad's connections and would sell Michael Jordan t-shirts.

Murdoch Gatti (10:18.371)
I buying boxes of basketball cards, and basketball cards were all the rage in early, early 1990s. I'm engaging myself a little bit here. going in on a couple boxes with some mates, and then selling them to other mates for a discount for them as well. But it was all weird. I still recall with a little bit of delight, perhaps my first ever investment.

Michael (10:27.606)
going in on a couple of boxes for some mates and then selling them to other mates for a discount for them as well. But a premium to what we had paid. I still recall with a little bit of delight, perhaps my first ever investment was an arbitrage investment. This is a little bit on a tangent here, I apologize. You can can drag me back in if you want to

Murdoch Gatti (10:41.228)
The whole point of these long format conversations is the tangents are the most enjoyable part. We'll get back to finance later.

Michael (10:51.808)
So perhaps my best ever return on investment on an IRR basis was as a 13 or 14 year old kid, I was at my mate's house and we were mucking around, driving around town on our bicycles, trying to find something to do. And we found ourselves headed towards a $2 shop, which in those days was a new concept. And both he and I were mad keen sports fans and we collected footy cards and cricket cards and basketball cards and whatever it may be. And we went into this $2 shop and we found they were selling

boxes of cricket cards for two bucks for a box. And we thought to ourselves, hang on a second, let's smash open our piggy banks. We know that a set of cricket cards goes for well more than two bucks per set. Let's buy a couple of boxes, whatever we can. We'll make some sets and we'll ride our bikes down to the collector card store down the road and we'll see what we can get for these things. So I think we had four bucks to start off with between us. Back in those days for your millennial listeners, four bucks could go a long, long way.

So we bought a couple of boxes of cricket cards. We took them home. We brought them up to sets. I think we got six or eight sets. We took them to the cricket cart to the card shop and we're able to sell each set for nine bucks. So, you know, we made a significant return in not a significant amount of time. So the guy paid us our nine bucks per set. We went back with our now 20, 30 bucks and bought whatever was left in the dollar shop and came back and tried to do it again.

Murdoch Gatti (11:52.492)
We took them only for other bucks per set, I we got six or eight sets, took to the car shop and we were able to sell each set for nine bucks. we made a significant return and not a significant amount of time. So the car pay us our nine bucks per set, we went back with our now 20, 30 bucks and bought what was left in the car shop and came back and tried to do it again.

Michael (12:13.784)
The owner of the shop was just inclined to pay the full nine bucks per set the second time around. He asked us what we were up to and I think he paid us four or six bucks per set. you know, the idea being that if all you see money as is an opportunity to buy, you know, the next lolly or the next pack of the cards or whatever your next outing might be, I think that you limit yourself to the opportunities. Whereas my upbringing, watching my dad run his business.

Murdoch Gatti (12:19.711)
The being that all you see money as is an opportunity to buy the next loli or next pack of cards.

or whatever your next outing might be. I think that you limit yourself to the opportunities, whereas my upbringing, watching my dad run his business, sort of gave us a sense that money can be leveraged, that money can be invested in money's capital, not just something that you used to sell. And passing on that lesson to my kids is very ingrained in difficulty. My older kids have certainly taken that on board. My younger kids not at all. And to be fair, apart from the

Michael (12:43.608)
sort of gave us a sense that money can be leveraged, that money can be an investment, that money is capital, not just something that you used to sell. And passing on that lesson to my kids is varying degrees of difficulty. My elder kids have certainly taken that on board, my younger kids not at all. And to be fair, apart from the educational aspect of teaching kids about the cash is capital, I'm not sure that it makes a ton of sense for kids to be saving. Again, aside from the...

Murdoch Gatti (13:02.046)
the educational aspect of teaching kids about the cash's capital. I'm not sure that it makes a ton of sense for kids to be saving, again, aside from the benefits of education. yeah, look, I mean, I was fortunate to grow up in that environment. And it wasn't always for us. It was certainly the family that threw a lot of challenges during the 1990s recession we had to have.

Michael (13:13.304)
the benefits of education. yeah, look, I mean, I was fortunate to grow up in that environment. And it wasn't always roses. Certainly, certainly the family went through a lot of challenges during the 1990s recession we had to have. You learn lessons in good times, you learn lessons in bad times as well, you know. One of the lessons you learn in bad times is the importance of being close to your family. And certainly my father and his siblings have always been very, very close. And during the tough times to get their support was, you know, the value was immeasurable. And similarly,

Murdoch Gatti (13:27.052)
You learn lessons in good times and learn lessons in bad times as well. My lessons you learn in bad times is the importance of being close to your family. Certainly my father and his siblings have always been very, close. During the tough times to get their support was, know, the family was a natural one. Similarly, my siblings and I, we fought like you wouldn't believe as children, but growing up we grew up very, close. And again, our support for each other and the way that we are there for each other is as important as anything.

Michael (13:42.668)
My siblings and I, we fought like you wouldn't believe as children, but growing up, we grew up very, very close. And again, our support for each other and the way that we are there for each other is as important as anything. So, you while I'm certainly hopeful that I can pass on the financial lessons to the next generation, I think as important as passing on those into family relationships, the lessons of how important it is to have community, to have family and to support one another.

Again, this is a massive tangent. I'm not even sure how we quite got here, but, you know,

Murdoch Gatti (14:12.336)
No, but this is no, but this is actually quite important like, you we'll get into column strip. I'll just

These conversations to understand how you think Michael, right? You know, and, and, know, why do people, you know, seek to invest and what should it be they're doing? Cause there's probably a lot of families out there. think let me say it a bit differently. A lot of my clients, a lot of the fund managers I deal with, a lot of the wealthy families, very wealthy families we deal with actually saying that the number one most important topic is not making an extra one or three or 5 % and you know, should I buy the next video shares? The question they're asking is how do I help my family, my descendants, my grandkids?

without interning them, excuse my French, into entitled little brats, right? Which, you know, we're seeing right now, and I think my father was a banker for 20 something years at NAB. And he always had an expression. The first generation makes it, the second generation manages it, and the third generation loses it. And ask yourself a question, why is that a saying within the banks?

And I pondered that for years so much so I wrote an article and I went to research essentially the like old school families, which is completely different. And now if look at the Vanderbilt's and the Ross childs, the Rockefellers and what we learned from that study was the Ross childs, like many families would create trusts and then essentially give money to the children. Meanwhile, the other families and this is in just very, very large families. is a lot of other families have a similar mandate. They created like a family bank kind of perspective.

And what they did, didn't give any money at all, but then they had an emphasis on starting financial education, which is outlawed in Australia, like at the age of 12. And what they mean by that, anyone listening, I highly recommend that, you know, if you have a community around you across all services, lawyers, taxes, know, mortgage brokers, know, whoever it is, your mates, right? Drag your kid along when you go see the accountant or whatever it is, they might hate you for it. And they might sit in the corner and just be like, no iPhone.

Murdoch Gatti (16:10.176)
but they'd learned that at this time of year, this is just part of the process. And when they get older, they learn through osmosis, they kind of hear what's going on and it just becomes part of the process. Wouldn't you agree? And the other point, sorry, the other point I make on that as well is then these young people, your family's connections become your connections, right? And the other thing which they learned with behavioral psychology is

Michael (16:20.864)
Yeah, I'm

Murdoch Gatti (16:35.016)
human beings, as you mentioned with your family, you might not want to go into the rag trade, even though that's the family business, but you want an opportunity and your family wants to support you in the opportunity which you choose. So the question becomes, why can some people take that opportunity and not take that opportunity? Nine times out of 10, it comes access to cheap capital, right? So the problem is, if you don't have assets, which you can go to a bank and borrow from, which is the reason I've done a whole lot of podcasts and speaking with a lot of whole lot of

private lenders, the whole industry of private lending has boomed, because you can't get access from particular institutions. But if you can instead of borrow money at 12, go to the family and potentially get cash, you know, the cash rate, it's just a fair loan, you could potentially help the family, you know, earn together, you know, find the cards at $2, which is probably now $20, you know, selling 500, right, you know, find that arbitrage, or, you know, seek seeking opportunity, you know, maybe a mining transaction or property transaction, right.

But and then what's great about that you spent five or six years as a kid understanding the process. And then what happens is you build that pitch deck with it could be a SaaS company, could be a brand new tech company, you can might have figured out a brand new way to bring medical devices, whatever it is. But then you've gone the actual process, which is the right way to do it. And then you take that deal back to the family, the family might not have the money, but the network may have the money and then they help you go get that. And if you want to buy that Ferrari,

then you figure out how much the Ferrari costs and what pro forma you need out of the entire deal. Do that transaction and turn it is time. You've got the capital to go buy that house, buy that Ferrari, right? Or build that family business. And I think that's what you and I are discussing right now. How, you know, how the question becomes, which we're always speaking a lot about clients is how do you help the family, you know, educate the kids to give them the skills that they need to do well in this life. And then by the sound of it, Michael, you're,

You're doing the same thing with yourself, your own family and a colon strip.

Michael (18:32.076)
I mean, look, we certainly try. I think the point that you're making, think, correct me if I'm wrong, but I think the point you're making is that all things being equal, if you've got access to capital, your opportunity set is much, wider. But I would say it starts before that. I think it starts at first education and then secondly, having that, know, in footy we call it the mongrel spirit. You know, I've got two boys who both love playing footy. One of them has...

an unhealthy disregard for his own wellbeing and the other one has a sensible regard for his own wellbeing. And it's the kid with the mongrel spirit that makes a big difference on the footy field. And I think to some degree, what you might see across two or three generations is a losing of that mongrel spirit. And so, part of that comes back to education, part of that comes down to expectations, but.

Murdoch Gatti (19:13.152)
I think to some degree what you might see across two three generations is a losing of that muggle spirit. Part of that comes back to education, part that comes down to expectations. But as an example with my kids, when they were keen to invest their own bar and bottom is for money. I've got kids from 18 down to eight. So now I'm 15 year old and now 18 year olds want to invest their money for the future. Again, we can have another conversation later about...

Michael (19:26.642)
As an example with my kids, they were keen to invest their own bar and bus myths for money, I've got kids from 18 down to eight. So when my now 15-year-old and now 18-year-olds wanted to invest their money for the future, again, we can have another conversation later about their own internal rate of inflation versus what they can hope to achieve through investing in equities. That's a conversation for another day. But they were keen and the education value is there. And so when they first came to me, they said,

Murdoch Gatti (19:42.732)
their own internal rate of inflation versus what they can achieve through investing equity in terms of competition. But they will achieve an education value that is there. And so when they first came, they said, hey, Dad, we'd like to invest in your fund. I said, that's not how this is going to go down. I said,

Michael (19:54.658)
Hey dad, you know, we'd like to invest in your fund. And I said, no, that's not how this is going to go down. I said, I said, you know, you've got to understand what you're doing. You've got to understand the businesses that you're investing in. And you've got to come to understand the process, both of buying and then eventually of voting or trading or selling or exchanging. And so, you know, rather than just picking a few stocks for them, rather than just having them come on board with our fund, instead, what I did was I picked out 20 companies from the ASX top 50.

Murdoch Gatti (20:00.396)
I said, you've got to understand what you're doing, you've got to understand the businesses that you're investing in, and you've got to come to understand the process of buying and then eventually of voting or trading, selling or exchanging. So rather than just picking a few stocks for them, rather than just having them come on board with our fund, the mistake I think was I picked out 20 companies from them.

I said, stop 15. And I sat down with the kids. said, kids, it's your job to do research on these stocks. And between you, you guys pick four or five stocks and we'll buy you a portfolio that you guys can share, that you guys can co-invest in. And so we spent the day sitting down where they would jump online and I'd give them some guidance explaining what a P is, explaining what a return on investment is, and what a dividend was, and what frankie credits were. And they'd pick some stocks based on what interest it had. I was quite surprised at what they ended up picking. Pleasantly.

Michael (20:23.596)
and I sat down with the kids and I said, kids, it's your job to do research on these stocks. And between you, you guys can pick four or five stocks and we'll buy you a portfolio that you guys can share, that you guys can co-invest in. And so we spent a day sitting down where they would jump online and I'd give them some guidance and explain to them what a P meant and explain to them what a return on investment meant and what a dividend was and what franking credits were. And they picked some stocks based on what interested them. I was quite surprised in what they ended up picking, pleasantly surprised.

The performance hasn't been great. They would have been better off investing in my fund. But the experience is invaluable. mean, you now when we get their dividend statements or their voting, their voting forms from, you know, CSL or from Intertech Pivot or Woodside Petroleum, you know, like, Dad, what does this mean? I say, well, read it. You tell me what you think it means and then we'll have the conversation. know, certainly to your point, Murdoch, it is a massive leg up if you've got access to capital and access to networks. Not everyone has access to that.

Murdoch Gatti (20:53.79)
the performance hasn't been great, they would think that I'm investing in my fun, but the experience is invaluable. mean, now when we get their given assignment, so their voting forms from CSL or from Intertecta or Woodside Petroleum, they're like, that's it means, I say, well, read it, and tell me what you think it means, and then we'll have the conversation.

Certainly to your point, Murdoch, it is a massive leaguer if you've got access to capital and access to networks. Not everyone has access to that, but everybody does have access to the way they view the world and to adjust the way they view the world and the education that they can pursue. Again, not everyone's going to get the opportunity to go to private schools like you and I might have, but libraries are free. You can read whatever you like and if you are motivated.

Michael (21:22.346)
access to that, but everybody does have access to the way they view the world and to adjust the way they view the world and the education that they can pursue. Again, not everyone's going to get the opportunity to go to private schools like you and I might have, but libraries are free. You can read whatever you like. And if you are motivated, would be completely... It's amazing what you can learn from a keen interest in a topic.

Murdoch Gatti (21:42.54)
you would be completely... It's amazing what you can learn from a keen interest in a topic and a lot of people. It's just phenomenal. I'm certainly keen to provide a chance for my kids to leverage their ideas. But first step is, I suppose, developing those ideas. And that's the end education. That's cool.

Michael (21:50.016)
and a library card is just phenomenal. so, yeah, I mean, I'm certainly keen to provide an opportunity for my kids to able to leverage their ideas, but the first step is, I suppose, developing those ideas. And to that end, that's the importance of education and support.

Murdoch Gatti (22:07.756)
It looks sorry, apologies. I use those two cases and you're right. I didn't just mean that the finance side I meant 100 % the education, right? But how does the education, you know, begin how to get access to it. And some of the smartest minds I've ever met have essentially just bootstrapped like their entire family and like never went to university equivalent. And they decided, you know what, and the other thing as well as I went to great mentors, you know, you find someone in your life, you know, you might just read a book, a newspaper, you bump into a guy.

person on the street or a cafe and you have those conversations. So just that network in the community around you. I think it's fantastic.

Michael (22:41.104)
So at the risk of getting a bit religious on your hair, you have to keep in mind I did spend a number of years in seminary, so I apologize in advance, but there is actually an ancient Jewish wisdom that says if you want to become an expert in a topic, you've got to two things. You've got to find yourself a teacher and you've got to find yourself a friend. And I say that all the time when it comes to investing. The first thing you've got to do is you've got to work out what your philosophy is and find someone that can mentor you. I the valid mentor is just indescribable. If you don't have someone to set you on the right path, then...

Murdoch Gatti (23:08.364)
If you don't have someone to sit on the right path then you can't...

Michael (23:10.646)
you can't even really start. But I think what's undervalued in the wider world is the value of a buddy. I call it an investing buddy often in the quarterly reports we write or in the communications we have with our investors. And just the value of having a compatriot, not someone who's smarter than you, not someone who's senior or junior to you, someone who's on your level where you can battle out and test ideas, where you can challenge each other, where you're not afraid to feel like a fool when you make a mistake. You can make mistakes in front of them, they can make mistakes in front of you.

Murdoch Gatti (23:25.58)
not someone who's smarter than you, not someone who's senior or junior to you, someone who's on your level, where you can battle out and test ideas, where you can challenge each other, where you're not afraid to feel like a fool when you make a mistake. You make mistakes in front of them, they can make mistakes in front of you. And I was very fortunate that in developing this business, in going through my early days in the industry, I was able to meet Bass, who's now a business partner, where we're very comfortable.

Michael (23:40.396)
And I was very fortunate that in developing this business, in going through my early days in the industry, I was able to meet Bass, who's now my business partner, where we're very comfortable, perhaps a little bit too comfortable, challenging each other. But what it means is, you know, it's very easy to lie to yourself. It's much more difficult to lie to somebody who isn't equal. And what it means is that you get much better outcomes. So whether you're a professional running a fund or whether you're somebody looking to get into investment for the first time, you know,

Murdoch Gatti (23:55.924)
It's very easy to lie to yourself. It's much more difficult to lie to somebody who isn't able. What it means is that get much better outcomes. whether you're a professional running a fund or whether you're somebody looking to get into investment for the first time, the first step is you've got to work out what makes sense for us to start investing. And I was very fortunate to find a mentor in Charles Island in my early days. But once you establish that, once you set yourself on the right path,

Michael (24:09.878)
The first step is you've got to work out what makes sense for you. For us, it's value investing. And I was very fortunate to find a mentor in Charles Island in my early days. But once you've established that, once you've set yourself on the right path, keeping on the path, finding a way to get emotions out of your decision making, there's no better way than having what I call an investing buddy. It just makes the world of difference.

Murdoch Gatti (24:33.961)
So taking that to Colin straight because look, we're discussing before, you know how how essentially that all works, you know, with the families, the buddies, and I think the point I made before was teams make more money, right, and they have more fun doing it, right.

So who is in your team? And what's the different skill sets they bring and personalities?

Michael (24:55.232)
Yeah, look, life is always much more fun with a partner, that's for sure. Look, I mean, we've grown a little bit recently. I think at the moment we've got two full-time analysts being Vass and Steve. And we've got myself, I would call myself part-time analyst or portfolio manager, part-time business operator. We've got one guy in compliance and we've got two people in distribution and also somebody to help us with the day-to-day operations. So we're a much bigger fund now, a much bigger business, I suppose, than we were when we first started.

When we first started it was myself and Das and Anton who we brought on as a compliance and strategy fellow. But certainly things are much more fun when you do it as part of a team. People say, so there's only three people or four people in your stock picking team, in your investment committee meetings. And I say, well, I mean, technically that might be true, but you

The whole office is made up of grownups. The whole office is made up of people who understand finance, who are passionate about investing, who are passionate about value investing. And so the other day, for instance, we found ourselves having a conversation about how could we, on the one hand, have the massive uptake in dietary drugs like Azempik, and on the other hand, have big growth expectations for a company like ResMed, which does sleep apnea.

Murdoch Gatti (25:56.044)
The other day for instance, we found ourselves having a conversation.

Murdoch Gatti (26:04.33)
the massive uptake in dietary drugs like azephyl. And on the other hand...

Michael (26:15.86)
and somewhat is reliant on people being overweight. And it wasn't just me and Vass having the conversation. It wasn't even just me, Vass, and the other analysts having the conversation. The entire office got involved in this conversation trying to work out how you can have a J-curve in both Azembeck and essentially in ResMed. And when it came down to it, I think the difference in opinions could come down to who has faith in humanity and who has less faith in humanity.

Murdoch Gatti (26:19.5)
And it wasn't just me and Bas and the other analysts having the conversation. The entire office got involved in this conversation trying to work out how you can have...

you know, a jager of both the second and essentially in West Bay. And when it came down to it, I think the difference in opinions could come down to who has faith in humanity and who has less faith in humanity, who believes that people can be trusted to do the right thing, and who believes that people can be trusted to be lazy. And I think a lot of life comes down to that sort of question, but ultimately, I suppose it came down to...

Michael (26:42.808)
who believes that people can be trusted to do the right thing and who believes that people can be trusted to be lazy. And I think a lot of life comes down to that sort of question. But ultimately, I suppose it came down to, we couldn't come to terms and ResMed got put in the too hard basket. But oftentimes we'll find that Vass and I will both start at a different place but end in the same place. So, for instance,

Murdoch Gatti (26:58.892)
We couldn't come and turn to the... The rest of it got put in the too hard basket. know, often times we'll find that and I were both... ...staff at a different place but end in the same place. So, you know, for instance, we've got a material stake in Goldstocks and in our portfolio. We've even got a special situation fund that's specifically invested in Goldstocks. And when Bass first brought the idea to me, we don't make any changes to the status quo, unless both Bass and I can.

Michael (27:11.67)
you know, we've got a material stake in gold stocks within our portfolio. We've even got a special situation fund that specifically invests in gold stocks. And when Vass first brought the idea to me, we don't make any changes to the status quo unless both Vass and I can agree. And when he first brought it me, he was pitching the idea that there were a tremendous amount of tailwinds for gold, the commodity. Now, as is often the case, Vass turned out to be right, even though I disagree with him at the time. And I said, look, you know...

Murdoch Gatti (27:25.516)
And when he first bought it to me, he was pitching the idea that there were a tremendous amount of tailwaters for gold to commodity. As is often the case, that's turned out to be right, even though I disagree with him at the time. And I said, look, you know, I hear the point you're making. hear that production is down. I hear exploration is down. I hear that investments are up and central banks are buying more gold than they ever have. Gold prices have gone from 1,200 to I think 1,800 bucks at the time we were having this conversation.

Michael (27:39.768)
I hear the points you're making. hear that production is down. I hear exploration is down. I hear that investments up and central banks are buying more gold than they ever have. But gold prices have gone from 1200 to I think 1800 bucks at the time we were having this conversation. I'm happy to invest in gold stocks, but I don't want it to be reliant on gold prices going higher. And so rather than just taking a massive macro view on what gold might do, we tried to pick the eyes out of the investment thesis and we picked stocks that didn't require gold prices to go higher.

Murdoch Gatti (27:53.152)
I haven't invested in gold stocks, but I don't want to be reliant on gold prices going higher. And so rather than just taking a massive backer review on what gold might do, we tried to pick the eyes out of the investment thesis and we picked the stocks that didn't require gold prices to up.

Michael (28:07.672)
but instead would do quite well if gold prices even stayed where they were. And that's often the case. Again, Bass has a significantly different background to me, but we are both deep value investors. And so ultimately, it tends to happen 90 % plus at a time that if I bring an idea to him or he brings an idea to me, eventually, even though we might come at it from different angles, and even though our journey from point A to point B might be quite different, we do tend to end up at point B together and in an agreement.

Murdoch Gatti (28:08.204)
and said we would do quite well if GoPrice was even stayed where they were. And that's often the case. Again, Bass has a significantly different background to me, but we are both deep-dwell investors, and so ultimately, it tends to happen 90 % plus at a time. If I bring an idea to Ian, or who brings an idea to me, eventually, even though we might come at it from different angles, even though our journey from point A to point B might be quite different, we do tend to end up at point B.

Michael (28:37.314)
Yellow coming.

Michael (28:41.42)
the importance of having a team around you.

Murdoch Gatti (28:41.846)
The importance of having a team around you. Okay, it's all well and but the most things are more fun, and certainly you can leverage it. Certainly people are better qualified at one part of business than the other, and you can leverage that for sure. But I've seen plenty of times, people who are far smarter than me, who have forged the portfolio.

Michael (28:45.536)
Again, it's all well and good that it makes things more fun and certainly you can leverage it. Certainly people are better qualified at one part of business than the other and you can leverage that for sure. But I've seen plenty of times people who are far smarter than me, who have launched a portfolio, bought into their own story. And then with the benefit of hindsight, when you look back, when they look back, they can see the glaring mistakes that they made or why they might have been...

Murdoch Gatti (29:04.074)
brought into their own story. then with the benefit of high tech, you look back, when they look back, they can see the glaring mistakes that they made or why they might have been massively overweight or in particular position, being driven by having thought about the business rather than the dynamics of the business or the whole of it.

Michael (29:14.712)
massively overweight in particular position, being driven by how they felt about the business rather than the dynamics of the business or the fundamental valuations of the business, and then they get themselves in trouble. If you have people around you, they keep you honest. But yeah, certainly it's nice to have a team around you that are all experts in their field. Going back to the genesis, when Bass and I first launched the fund together, we both imagined that we'd be picking stocks and managing the portfolio together. And we quickly realized that you can't run a...

Murdoch Gatti (29:23.756)
fundamental elevations, and they get themselves in trouble. If you have people around you, they keep you honest. But yeah, certainly it's nice to have a team around you that are all experts in the field. Going back to the genesis, when Bass and I first launched the fund together, we both imagined that we'd be getting stocks and managing the portfolio together, and we quickly realized that you can't run a managed fund business where...

Michael (29:43.096)
a managed fund business where both of us are doing the same thing. And so very quickly we had to come to terms with one of us being a better stock picker. Sadly, that wasn't me and the other being better at some of the other aspects of the business. And we had a separation of duties somewhat. know, fortunately, we did quite well in our first couple of years and then we were able to bring on somebody who was key on distribution. We had Anton there as compliance. But to the extent that we can outsource all the things that aren't our core competencies, that's what we sought to do.

Murdoch Gatti (29:47.34)
both of us are doing the same thing. so very quickly we had to come to terms with one of us being a better stock picker, sadly that wasn't me, and the other being better at some of the other aspects of the business. And we had a separation of duties somewhat. know, fortunately we did quite well in our first couple years, and then we were able to bring on somebody who was a key distribution. We had Amazon there as compliance, but to the extent that we can outsource all the things that aren't out

That's what we sort of do since we launched. So I would rather that Gus spend 100 % of his time picking stocks and managing the portfolio. He probably spends about 90 % of his time. I would also like to spend much more time doing that. That is what I love. I do get excited about finding a great new idea. But at the stage of the business we're currently at, I'm probably spending about 60 % of my time running the business and 30-40 % of time.

Michael (30:12.184)
since we launched. So I would rather that Vass spend 100 % of his time picking stocks and managing the portfolio. He probably spends about 90 % of his time. I would also like to spend much more time doing that. That is what I love. I do get excited about finding a great new idea. But at the stage of the business we're currently at, I'm probably spending about 60 % of my time running the business and 30, 40 % of the time being over the stocks and having these enjoyable arguments and these wild and wonderful stories.

Murdoch Gatti (30:40.04)
I'll say it again teams have more fun and teams make more money More fun and more Equally important they go hand in hand with the philosophy we kind of been discussing it, but it should cover this to get a bit of a direct

Michael (30:41.49)
about the different sorts of ways we go about doing our research.

Michael (30:48.662)
That's it. More fun and more money. And I guess that those are equally important when you're running a business.

Murdoch Gatti (31:03.988)
understanding.

What's the foot? What is the philosophy? Right? Because we've mentioned a number of companies like I look at, you know, the holdings that are in the portfolio, a lot of them are Australian centric, but then you discuss, you know, Zempik, right, which is not essentially on. So hypothetically, it does the portfolio and then there's a whole bunch of resources, infrastructure. Is it a go anywhere strategy? Do you have the complete ability just to go, you know what dollars not now, fave?

you know, or you know, as an example, what was it when Julia Gillard came in and she announced the super tax, and you went, Okay, right. There is no more profit in this because essentially it's at its apex, this thing is coming off. Do you have the capacity just to go to asset? I know your bottom up, but do you look at things based as an asset class? And you look resources is where we should be right now, we should be looking at a different asset class or

Michael (32:02.264)
You certainly can't be blind to what's going on in the wider world and that will influence how you pick stocks. ultimately, we are Australian centric because our mandate is to invest in Aussie equities. That's our flagship fund. Anything else we've done and we have done some other funds that have had global exposures. But that's been by way of research we've done for the value fund. We found an interesting idea. We wanted to invest in it. We're investors. We thought perhaps some of our investors would be interested in coming along as well. And so we've opened it the public.

Murdoch Gatti (32:02.378)
How does it work? How do you think?

Michael (32:31.96)
and then we've launched a second fund. But we've never sought to launch a new fund just for the sake of launching another fund. I suppose the heart of your question is, what are we trying to achieve? know, we're value investors and the way I see that is that we're looking to buy a dollar worth of earnings or assets for 50 cents. Now, that might sound obvious and great if it does, but I say to distinguish ourselves from people who might invest in an asset that's worth a dollar today and they're happy to pay a dollar today for an asset that might be worth two or three or four dollars in the future.

Murdoch Gatti (32:51.219)
and great it does, but I say to distinguish ourselves from people who might invest in an asset that's worth a dollar today and they haven't paid all day, for an asset that might be worth two or three four dollars in the future. That's all well and good and plenty of people who make plenty of money doing that. That's just not how I suppose we play cricket. I think there are two things that are essential when it comes to investing. Number one is you want to make an adequate return and number two, and again I think this is equally important, you want to be able to sleep well at night.

Michael (33:01.602)
That's all well and good and plenty of people have made plenty of money doing that. That's just not how I suppose we play cricket. I think there are two things that are essential when it comes to investing. Number one is you want to make an adequate return and number two, and again, I think this is equally important, you want to be able to sleep well at night. And what we like to find, what we love to find, what we're passionate about are finding stocks that are cheap based on the current status quo, where the market is either emotionally disinterested in the company

Murdoch Gatti (33:18.912)
what we like to find, what we love to find, what we're passionate about are finding stocks that are cheap based on the current status quo, where the market is either emotionally disinterested in the company or the company is flying under the radar. And I suppose the challenge, you know...

Michael (33:30.88)
or the company's flying under the radar. And I suppose the challenge, you know,

think value investing, I think Buffett has previously said, you know, it's simple but not easy. And in China, find what we call that information advantage. You've got to do some weird and wonderful things from time to time. You know, think Rob's mentioned you've got to do what other people won't to achieve what other people don't. And, you know, some of the stories of our research, while I think it seems pretty straightforward, time and time again, we hear from our investors and from the people who are speaking to in the broad industry that...

Murdoch Gatti (33:38.988)
I think better investing in buffer disappearances is simple but not easy. And in trying to find what we call that information advantage, you've got to do some weird and wonderful things from time to time.

Yep.

Michael (34:05.29)
some reason the wider investment world isn't doing the sort of stuff that we're doing and what we're doing is not particularly complicated. I remember one of our earlier investments in the fund was in Metcash. You know the Metcash business? Basically, for anyone who doesn't know the Metcash business, they're essentially IGA. If IGA does well, Metcash does well. And for some time before we were looking at the company just being in the doldrums, it had fallen I think from $3.50 down to about $1.60 or thereabouts when we started to get interested in

Murdoch Gatti (34:20.908)
They're essentially IGA. If IGA does well, Metcash does well. And for some time before we were looking at it, the company just being in adultery. It had fallen, I think, from $3.50 down to about $1.60 or thereabouts when we started to get interested. And we reached out to Management would tell them a pretty interesting story. They were saying, look, guys, listen, market, we're turning this around. It's not just that we're going to turn it around.

Michael (34:35.596)
We reached out to management and management were telling a pretty interesting story. They were saying, look, guys, listen, market, we're turning this around. It's not just that we're going to turn around. We've already started turning around. We've recognized the problems with IGA's and we've implemented some strategies to fix it. And if you stick around for the next six or nine months, you'll see that what we've done has actually worked. And again, I don't know what your experience is shopping at IGA's, but the three strategies they came up with were number one, price match.

Murdoch Gatti (34:45.42)
So did I.

Michael (35:03.0)
Certainly, I historically had always thought of IGA as being the more expensive place you'll go if you can't get to a Coles or a Woolies. And they said, you know what? Yeah. So if you go to the proper sized IGAs, they have an ongoing price matching policy where they'll identify everyday items from Coles and Woolies and they all match those prices. So number one, let's not be thought of as just the expensive alternative if you want to get specialty items or if it's convenient. Number one.

Murdoch Gatti (35:11.712)
Yeah, that's that in my mind. That's what I think it is. It's the more expensive version and it's smaller.

Michael (35:32.5)
Number two, again, I don't know what your shopping experience is, Murdoch, but some of those IGA's are gorgeous. And some of those IGA's are, let's just say, not so gorgeous. Similarly, some of those IGA's are run by fantastic operators, and some are just, you know, one store, one operator, and they do the best they can do. So they came out with three strategies. Number one, they were going to price match. Number two, they were going to pay to refurb.

Murdoch Gatti (35:37.206)
sound

Murdoch Gatti (35:43.478)
Similarly, so does I.

Murdoch Gatti (35:56.972)
to price match number two, they were going to pay to refer stores in sort of like a JD with a store owner, it wasn't a loan. If you went in at $100,000, Metcash would match you by $100,000 to refer your store, and then they went and they retrained a lot of stuff to get best access to that network. So you you read the broken notes on the one hand, and they will assure you that Metcash, you you can't run a supermarket business through a frame.

Michael (36:01.144)
stores in sort of like a jV with the store owners. So it wasn't a loan. If you went in $100,000, Metcash would match you for $100,000 to refurbish your store. And then they went and they retrained a lot of stuff to get best practices throughout the whole network. So you read the broken notes on the one hand, and they will assure you that Metcash, you can't run a supermarket business through a franchise model. You listen to management. Management are telling you that, hey, guys, you can. And if you just stick around, you'll see that we are.

Murdoch Gatti (36:24.524)
Well, you'll see some management telling you that, guys, you can, and you can just stick around and see that we are. So, know, we're sitting there wondering, how do we know if the market's right or how do we know if management's right? And from my understanding, again, I took a bit of a unique journey to find some management. But the way I understand it, certainly, is that in the brokerage world and the stockbroker world.

Michael (36:29.814)
So we're sitting there wondering, how do we know if the market's right or how do we know if management's right? And from my understanding, again, I took a bit of a unique journey to find management. But the way I understand it certainly is that in the brokerage world, in the stockbroking world, the brokers don't really get access to management. And they basically make their decisions. And Murdoch, can correct me if I'm wrong here. Their decisions and their guidance is basically off the back of

guidance from the analyst and the analyst has access to the company. Is that about right?

Murdoch Gatti (37:01.057)
So it's essentially it's it's analyst in house, but there's the firm was that there's a problem with analysts in house when one analyst only does finance one only does resources one only does industrial one does tech

because what happens is when that particular asset class is out of cycle, they will still pitch their favorite business as that's gonna be fine in two years and write a 42 page document about how amazing it's gonna be in 12 months. Meanwhile, the money's not there, the wind is in the sour, the MACD, the technicals is not looking great. The thing will still come off and hurt you even though it should be going up in three years, right? So that's a problem. The other place we get, we got information for...

Michael (37:20.632)
Mm.

Michael (37:43.8)
I think what you're saying is it's not their absolute favorite ideas, it's their favorite ideas within a guideline.

Murdoch Gatti (37:49.548)
They don't have the ability to go anywhere. They're doing the best they can within the slice of the world which they've been given. But unfortunately, the pie is a large piece. They're just giving me one slice. So we take that information. Then you get access to Reuters, IRS, on the data side. We did have fund managers coming in. Hence the reason I do these now because I find this fascinating. And the only real access we had to

companies was when essentially the company was looking to raise equity, do a convertible note or essentially. So the problem there becomes the coming in a pitch to need money. So essentially it just becomes conflicted remuneration. know, you essentially is coming in and saying to someone, Hey, we'll pay you a 3 % stamping fee to potentially do an asset class that might not be the best fit right now. And then it doesn't, you know what I mean? It, it's an issue.

Michael (38:28.482)
Well, I-I-I-I-

Michael (38:46.098)
So how is that not correct?

Murdoch Gatti (38:48.108)
It's a reason I do do stockbroking right now purely because a lot of people that have, you know, come or bank shares or legacy or you know, have a comp sec counter for tirewares. But I say, you know, I do it as it's a stepping point to running wealth correctly, which is essentially an asset allocation, I do it in order to help them on the journey. But I don't like it as well, because it's conflict remuneration, because you're purely charging a client on the transactional in and out. And once you get paid, you flip to you sell $2 million, you buy

million dollars of the stock, know, selling NAB or buying Westpac for no reason purely just to pick up a 40 grand ticket. You know I mean? Like I anyway, I've got big issues with the broken industry to an extent, but

Michael (39:26.328)
I wasn't asking, I was...

I'm not causing aspersions and I wasn't asking the question to be negative towards the broken world, but just to make the point. Well, no, certainly they do. Certainly they do. My point is that I didn't, neither Vass nor I took that route. Both Vass and I have run and operated and eventually moved on from companies, companies that have been quite successful. Vass is again more successful than I am. But the way we view shares is that it's a share in a business.

Murdoch Gatti (39:37.366)
but they do have a place.

Michael (40:00.312)
And I want to do the sort of work that I would do if I were looking to buy a whole business, if I'm looking to buy a meaningful amount of shares in that business. you know, back to the Metcash example, I'll put it to your murder. I'm sorry to put you on the spot here. But if you're trying to work out if management's right or the market's right, as a guy who's making investment decisions, what can you do? What would you do?

Murdoch Gatti (40:25.9)
The only logical explanation I would have is look at what their competitors are doing, find out who's top three in the industry. I think it's like fund managers, right? You know, who is the best right now, but I also, it's also past, present, and then looking at the future. So one model used to work in the past, but then you need look at the regular changes are called one door opens, one door closes, like the Julia Gila thing, she puts in a super tax, you know, and then essentially the entire industry is dead.

So if regulation comes out and makes things more attractive, and again, what's their other business model like, know, Woolworths, their main competitors have gone the McDonald's model, where essentially they're not necessarily targeting the revenue component, they're essentially major property players. So the other the other question becomes, you know, what are the big players doing right now? What are they looking at? And why are they doing it? And then the other question becomes as well, where's where's trends going? So right now, a lot of people have health problems.

In the current things with the new raging shift, I think that in the Senate, they were discussing one of the guys made a comment and goes, when you go shopping, have you ever noticed that where you shop for groceries, IGA or all this, whatever, it's got a health food section.

Ask yourself a question. If it has one aisle, that's a health food section. What does that say about the rest of the food that they're selling? Right? Let that sink in for a second. Right? There's a reason why we chop at Harris Farm and other, you know, places that, you know, what's called farm to table or whatever to try to get away from a lot of the things that have given myself and my kids and family health problems. So the other one as well, which I'll be looking at is on the behavior side. So essentially, you know,

Michael (41:45.912)
That's the way it is. Yeah.

Murdoch Gatti (42:07.98)
not from a money standpoint, but you know, what, what are people starting to do? Like there's a, there's a bigger culture now. I think people are discussing schoolies. That's something ridiculous. Like 50 % of kids, 50 % of kids going to school is don't just drink and have a great time anymore. They're going to go to fitness and gym and climbing mountains. What I'm saying is that the behaviors of the people coming through for the next 10 years will be different to now and different to the past. So, remember I'm 38 now when I was 24 was I thinking this way?

Absolutely not. But it's just if you ask the question how I would I would look at it, I would look at it based on a whole not necessarily just on the specific that business in comparison to AB and what's coming from C.

Michael (42:49.528)
Samer, I am loving this. I am loving this because what you're giving me is an insight into the institutional world of investing that I've not really had the exposure to. You, it sounds like, are far smarter than I. I'd be very interested to see your models and come have a chat over a coffee at some point. But when...

Murdoch Gatti (43:04.844)
No, mate, I'm like Joe Rogan. I know 70 % about everything and I know nothing. I'm speaking to you guys to learn. I just ask questions.

Michael (43:10.584)
Well, let me tell you what we tend to do with these sorts of things. We get out on the road and we ask the questions to the people that call face. So with Metcash, we picked 15 stores in Greater Victoria that were early adopters of these initiatives and we'd rock up unannounced. We'd introduce ourselves to the checkout person and ask for direction to the manager. Again, we'd introduce ourselves to the manager and just strike up a conversation, ask how business has been going since they implemented these new policies and these new systems. And you would be...

equal parts surprised and somewhat horrified by how much information you can get when you express an interest and passion and you're talking to people who themselves are interested and passionate about an idea. And I remember one time we ended up spending half an hour 45 minutes with the son of the owner of the biggest IGA franchise in Australia at the bottom of a staircase that led up to a pizzeria just near the entrance of his IGA talking about how it's been going.

Murdoch Gatti (43:55.02)
half an hour and 45 minutes with the son of the owner of the biggest IGA franchise in Australia. At the bottom of his deck, he goes to a pizza area just near the entrance of his IGA talking about how it's been going, how the network sees it, and he gave us a sort of feedback that was invaluable. remember we were talking and he said, know, imagine everything he's been speaking about rolling out this program over 18 months.

Michael (44:09.324)
how the network sees it. And he gave us a sort of feedback that was invaluable. I remember we were talking and he said, you know, management have been speaking about rolling out this program over 18 months. But at their recent, I think was annual or bi-annual conference where everyone comes together for, I suppose, a bit of a junket and a catch up. He said the feedback had been so overwhelmingly positive that he would be surprised if it wasn't rolled out across the whole network in six months. So again, you know, if you're happy to get out from behind the desk and you go ask,

Murdoch Gatti (44:20.832)
I it was an annual or bi-annual conference where everyone comes together for I suppose a bit of a junket and a catch up. So the feedback had been so overwhelmingly positive that you would be surprised if it wasn't all that across the whole network in six months. Yeah, right. If you're happy to get out from behind the desk and you go ask human beings, human being questions, it's quite...

Michael (44:39.062)
human beings, human being questions. It's amazing how much information you can get. across the 15 stores we visited, the feedback was almost identical. There was one shop that I would exclude from that. There was one shop where we turned up, introduced ourselves, got pointed to the manager or alleged manager. He was checking prices in the aisles. We didn't think he was a manager. It was a beautiful store and you could see the offices were actually upstairs, but whatever we thought would introduce ourselves and then hopefully get put in touch with the right person. He took offense to our questions.

Murdoch Gatti (44:43.116)
Amazing how much information you can get. So across the 15 stores we visited, the feedback was almost identical. There was one shop that we excluded from that. We sent up issues ourselves, got pointed to the manager, well, alleged manager, was checking prices in the aisles. We didn't think he was the manager. It was a beautiful store and you see the offices and the lights downstairs. whatever, we thought we'd introduce ourselves and then hopefully get a good time with the live person.

He took offense to our questions. We think he thought that we were competition, but he physically escorted us out of school. that was a little bit confrontational for me and more than what I was used to, but certainly an interesting learning experience. we went back home and said, you know what, management aren't just telling stories. This is actually happening. And the share price, of course, fell from $1.60 to $1.40 to $1.20 to $1.00. I think it warmed out in the 90s or something.

Michael (45:09.016)
we think he thought that we were competition, but he physically escorted us out of the store. So that was a little bit confrontational for me and more than what I was used to, but certainly an interesting learning experience. we went back home and said, you know what? Management aren't just telling stories. This is actually happening. And the share price, of course, fell from $1.60 to $1.40 to $1.20 to $1. I think it bottomed out in the 90s or something. And as an investor, and I'm sure everybody listening to this have had this experience,

Murdoch Gatti (45:35.468)
As an investor, and I'm sure everybody listening to this has had this experience, if the only thing you've got to judge your investment decision by is what the share price has done, then to see it fall from $1.60 down to, 95 cents can be incredibly, incredibly frightening. But if you know the story and you understand that the market just doesn't get it, and then if you wait, you'll see the other potential outcome come through.

Michael (45:39.504)
If the only thing you've got to judge your investment decision by is what the share price has done, then to see a fall from $1.60 down to, $0.95 can be incredibly, incredibly frightening. But if you know the story and you understand that the market just doesn't get it, and that if you wait, you'll see the eventual outcome come through, then you can be confident not just holding on, but even averaging down. And that's what we tend to do. The vast majority of our transactions

Murdoch Gatti (46:00.332)
then you can be confident not just pull them up but you can actually count them. And that's what we tend to do. The past majority of our transactions aren't in your ideas. It's buying more of the stocks that we've already got than the market. It's not really fully appreciated.

Michael (46:06.228)
aren't in new ideas. It's in buying more of the stocks that we've already got when the market is not really fully appreciating them. We did similar things when we looked at the reject shop. When we were looking at a company that had a hair tonic, this is a funny one, there was a company that had a hair tonic slash shampoo that promised to thicken and regrow your hair. And I know it sounds like the script from a movie, but this was legitimately what they were pitching.

Murdoch Gatti (46:12.338)
We did similar things when we looked at the reject shop. When we were looking at a company that had a hair tonic, this is a funny one, there was a company that had a hair tonic, hair tonic slash shampoo that promised to thicken and regrow your hair. And I know it sounds like the...

like the script from a movie. But this was legitimately what they were pitching. And they had the science-chic studies and they were squaring back on, look, this thing works fantastically. And so we thought to ourselves, well, how are we to go and work out how to secure it up? We went to the local pharmacy that sold this particular product. We bought 10 bottles of the shampoo and we distributed to our following challenge, Fannamundus, who for the next couple months had to simply buy WhatsApp, a fortnightly report on how their hair was going. The shampoo was great, but the investment didn't happen for us.

Michael (46:35.352)
And they had the scientific studies and they were swearing back in blue, this thing works fantastically. And so we thought to ourselves, well, how are we going to go and work out if this is true or not? We went to the local pharmacy that sold this particular product. We bought 10 bottles of the shampoo and we distributed it to our follicly challenged family members who for the next couple of months had to send me via WhatsApp a fortnightly report on how their hair was going. The shampoo was great, but the investment didn't pan out for us. didn't invest in them. But we're just looking to try and do...

Murdoch Gatti (47:01.774)
But, you know, we're just trying to do that a little bit more than what the world is doing to get that information out there and take it back to that. And it strikes me every time, every time we go out to these shops and we visit, speak to people and we ask, have you had other fun lunches come? you had other broken stuff?

Michael (47:05.72)
that little bit more than what the broader world is doing to get that information advantage and then take advantage of that. And it strikes me every time, every time we go out to these shops and we visit and we speak to people and we ask, have you had other fund managers come? Have you had other brokers come? Is anybody speaking to you? I never believe the answer is always no. it it strikes me as strange that people who are making investment decisions in businesses

aren't getting out there to better understand the underlying businesses. And that's what we're trying to do. We're just trying to get out there. It does not express your company.

Murdoch Gatti (47:41.033)
I couldn't agree. I couldn't. There's so many different things I want to discuss and understand and mechanics and everything as well. But let's keep going to this. I find this fascinating because I experienced the exact same thing when I was back in the broken days.

specifically it was around BHP and also specifically when the saga came out with Newcrest mines and what I think the price came off and no one can understand what was happening but then what I found out and what I realized is every single or nearly every single analyst in the industry who are all great analysts what they were doing is because okay so one thing people don't understand is access to information right

If you don't have something and then all of a sudden you get a particular terminal, right? And then all of a sudden you get access to that terminal and that terminal spits out data, which makes your life easier, more efficient, right? Which is now we're seeing with chat GPT. It doesn't mean it's right. What happens is something becomes faster and more efficient in that these days it was the Bloomberg terminal. People forget and they don't understand that essentially those numbers that are put in are essentially consensus numbers and everyone's doing their modeling based off

consensus numbers, no one actually has the time or whatever it is to physically go out and check the numbers. You know, is this the number of ships coming through? Is this what he's saying is correct? You know, the weather reports corrects everyone's building next year spreadsheets, because you just press a button, pull out a bunch of data, run your analysis, and then essentially write your report based on that. And I think that's what you're discussing. No, no one actually gets off their bum. no, that's not true. Not no one. I'm not not a large percentage of people get off their bum and go have a look and

Okay, I'll give everyone a reference that people don't understand.

Michael (49:23.234)
Well, it's more than that. It's a structural problem now. mean, the point you're making is that no one's going out there to do price discovery.

Murdoch Gatti (49:30.996)
Yeah, correct. But I'll give everyone a fun one. If anyone watches Billions out there, God Billions is a great show. What's that chick's name with the bald head? I can't remember her name, but she's practically went out, came back. Taylor, Taylor, absolute legend. So in one of the last episodes, she's bought every bit of electronic machinery that was essentially a sale of the local JB Hi-Fi.

Michael (49:44.875)
Tyler. Tyler was the name.

Murdoch Gatti (49:58.292)
She brings it back into the office and everyone just hears this noise smashing. And I was like, what's going on? She's got a baseball bat and this girl is thin. She's not a strong chick and she's just beating the living crap out of all these machines. And everyone's like, what are you doing? And then she's got a stack of data chips, of processing chips right on the table. And then she dropped some ridiculous statistic and she goes, did you know out of all these machines, 86 % of them just come from the one company. And then

Like five or six people in the room and then the penny just drops.

Michael (50:33.58)
Yep. Yep. I mean, I mean, that story is a great story because anyone can go buy those, those smart devices and do the same thing that, that Taylor's done, but people just don't do it. People just don't do it. And I don't completely understand why. Look.

Michael (50:52.44)
Maybe it's an institutional structural issue with the way people come through the system. I don't know. Maybe it's the sort of people that tend to be attracted to investing in numbers aren't also the same sorts of people that would have the personalities or the will, the drive to go and actually interact with the wider world. But I can't tell you how many times just chatting with my wife or my kids about a particular idea has driven our investment decisions.

Murdoch Gatti (51:19.064)
I recall a number years ago when Myers had a really tough time and the brokers were all finally coming around to it. And that's how we're the conversation. said, look, I mean, it's all well and good that we're at all these numbers, but I said all of these numbers are broadly consensus numbers. And consensus numbers are based off consensus numbers.

Michael (51:19.958)
I recall a number of years ago when Myers had had a really tough time and the brokers were all finally coming around to it. And Vass and I were having the conversation. said, look, I mean, it's all well and good that we're looking at all these numbers, but as you said, all of these numbers are broadly consensus numbers. And if consensus numbers are based off consensus numbers, well then, you know, what's the real value in there? I said, let me just go have a chat to my daughters and my wife. And all I did was I went and I asked my daughters on the Sunday afternoon. said, Hey, do you guys want to go shopping? Yeah, that'd be great. Let's go shopping. I said, do you want to go to Myers?

Murdoch Gatti (51:39.083)
I said, let me just go and chat to my daughters and my wife. All I did was I went and I asked my daughters on Sunday afternoon, said, hey, you guys want to go shopping? Yeah, that would be great, let's go shopping. I said, you want to go to Myers? And two or two, all of them, said, no thank you, not interested in going to Myers. So you can tell whatever turnaround stories you want, but if the teenage girls and the young mums aren't going to shop at Myers, at the time, things might have changed since then, but at the time that was the case.

Michael (51:49.432)
And two or two or two or two or or or two or two two or two or two or or or two or or or two two two two two or two or two two or two two or two or two or two

Murdoch Gatti (52:06.666)
then how much confidence can you have in the EPS or the general earnings profile that's being pitched by management or brokers. There are plenty of books out there, there are plenty of valid investors to talk about it, but I think one of books that best sums it up is One Up on Wall Street by Gita Lentridge, basically just the best. If you keep your eyes open in the line of world, you'll find better ideas sooner than Wall Street will.

Michael (52:17.752)
There are plenty of books out there, there are plenty of value investors that talk about it, but I think one of the books that best sums it up is One Up on Wall Street by Peter Lynch, which basically just suggests if you keep your eyes open in the wider world, you'll find better ideas sooner than Wall Street will because you'll have a better insight into the actual underlying businesses. And it doesn't seem like a complicated concept, but again, you've got to be prepared to get out there and do the work.

Murdoch Gatti (52:38.577)
Sydney.

Michael (52:47.856)
We say all the time within the office, we've got to get comfortable being uncomfortable. And I try and teach the same thing to my kids. Again, a bit of a tangent here, I apologize. But I remember during the COVID lockdown, I emailed, basically, a Sydney-based. I didn't catch. OK, so you don't understand the emotional toll that we suffered here in Victoria. But let me tell you, it was a journey. But we owned for quite some time at that point a company called National Tyre and Wheels. They were

Murdoch Gatti (53:08.5)
Yeah, was pretty bad.

Michael (53:16.886)
and I think still the largest distributor of tires and wheels to Australia and New Zealand. And and I were trying to work out from our home detentions what we could do to try and work out if the market were right and the share price fall was justified or if the market was wrong and it wasn't the end for tires and wheels. And, you know, we couldn't work out what to do. And we agreed that we'd think on it. We'd think on it, we'd talk again later in the day, we'd talk again the next day. And I hung up the phone and literally almost immediately,

There was a knock on my door. It was my then I think 14 year old daughter. She came in and she said, look daddy, I apologize to interrupt you. I said, no worries. Hi, love you. Glad for the distraction. What's up? She said, look, we've got a class and a project where the teacher wants us to work out the effects of COVID-19 on local businesses. So I had a light bulb moment. I said, you know what? I've got a perfect, perfect job for you. I said, you and me are going to do research together.

Murdoch Gatti (54:00.94)
Did you want us to work out the effects of

Murdoch Gatti (54:13.58)
you and me are going to do research together. We're going to call a bunch of local tire and wheel shops and find out what the impact of COVID-19 has been. The market at that point, the stock market, was priced in national tire releases. There was like 80 % wipeout confidence going forward. that was the starting point. They were trading, I think, about 50 or 60 % of their inventory value. So it was trading very, very cheaply.

Michael (54:15.032)
We're going to call a bunch of local tire and wheel shops and find out what the impact of COVID-19 has been. Now, the market at that point, the stock market was pricing national tire and wheels as if there was like an 80 % wipeout of earnings going forward. So that was the starting point. They were trading, I think, at about 50 or 60 % of their inventory value. So it was trading very, very cheaply at the time. So we agreed after much arm twisting and debate that she would call two.

Murdoch Gatti (54:39.372)
So we agreed after much arm twisting and debate that she would call two and I would call six. And then we shared the information. We did it on speakerphone and we shared the information. She would go and write her assignment and I would make a decision in terms of whether we should buy more or whether we should buy a lot. So we called around and the feedback was pretty much the same across both their calls and my calls. The industry was down about 30 % of its work so they hadn't seen ever in their career.

Michael (54:43.83)
and I would call six and then we'd share the information. We did on speakerphone, but we'd share the information. She'd go and write her assignment and I'd make a decision in terms of whether we should buy more or whether we should bail out. So we called around and the feedback was pretty much the same across both her calls and my calls. The industry was down about 30%. It was the worst I'd ever seen ever in their career. But again, being down 30 % isn't the same as being down 80%.

Murdoch Gatti (55:06.796)
But again, being down 30 % isn't the same as being down 80%. So I walked over two lessons that day, maybe three lessons. The first one was, number one, it wasn't as bad as I might have thought and there was opportunity out here. Number two, the Western world doesn't properly appreciate the value of child labour. And number three, random people who don't know are far more prepared to give their time to a 14 year old girl calling about a school project than they are.

Michael (55:11.298)
So I walked away with two lessons that day, maybe three lessons. The first one was number one, it wasn't as bad as a market thought and there was an opportunity to be had here. Number two, the Western world doesn't properly appreciate the value of child labor. And number three, random people who you don't know are far more prepared to give their time to a 14 year old girl calling about a school project than they are to give their time to a fund manager looking to do research on his equity's portfolio.

Murdoch Gatti (55:34.988)
to give their time to a fund manager when they do research on his portfolio. Not surprisingly, a weeks later when the company came out with an update, that update said they were down 30 % and the price probably very, very aggressively. So we were fortunate we were able to almost double down at that point. And my daughter was very fortunate she was able to get an A for her assignment. look, again, it's all about doing that little bit extra and the leverage returns you can get on that little bit extra are sometimes

Michael (55:40.568)
Not surprisingly, a couple of weeks later when the company came out with their update, their update said they were down 30 % and the share price rallied very, very aggressively. So we were fortunate we were able to almost double down at that point. And my daughter was very fortunate that she was able to get an A on her assignment. look, again, it's all about doing that little bit extra and the leverage returns you can get on that little bit extra are sometimes just amazing.

Murdoch Gatti (56:04.136)
I love that. I love every single thing about that. Why don't we just quickly cover off some of the mechanics. I normally do go through this in the beginning, God has been interesting conversation. Okay, so you have how many funds underneath Collins Strip?

Michael (56:20.77)
Look, the flagship one is the one that gets all of our focus. We have a couple of offshoots that have come along the journey. All of them are closed except for our gold fund, which is occasionally open. But we manage around about $350-odd million across the suite of funds. About 220 of that is the flagship fund. We've got a gold and precious metals fund, which is still live. We've got an offshore oil and gas services fund, which is in wind up.

That was a three-year lock-in and investors made about 90%. Most people have taken all of their money to the table and recognized that return. A few people have expressed an interest in sticking around and so we've extended that by another year, but that's essentially a wind-up. A convertible notes fund, which is also closed and a small joint venture on a PE fund as well, which is also closed. So our main game is the value fund.

Murdoch Gatti (57:17.036)
again.

Michael (57:18.264)
It's currently, like I said, about $220 million. And based on how we invest, based on our concentration, our focus, we think that we've got capacity constraints once we get to about $400, $450 million. We'll have to work out what we do after we get there, but hopefully we'll get there soon.

Murdoch Gatti (57:21.484)
Based on how we invest, based on our concentration, we think we've got the passive extract, I think get about $440. I'm not sure how much we'll get there, but we'll get this. What are the minimum investment, the management fee, performance? When do you pay the distributions, the monthly? What are the mechanics?

Michael (57:45.122)
Well, it's a unit trust. So we distribute every year all realized capital gains and all income. The distributions have varied quite broadly. I if you take the average over the last nine years or so, you'd probably find it's around about three or 4 % distribution per annum. But in terms of return, we've run around about 14-ish percent since inception. And over the long term, I think over the last 12 months to the end of October, it's been a good period, obviously, with

Murdoch Gatti (57:55.66)
Take it out.

Michael (58:14.36)
US rate cuts and Chinese stimulus promises. I think we did about 23 % for the last 12 months, around about 13 % for two years, about the same, I think it's about 13 and a quarter for five years and almost 14 % since inception, which is coming up to nine years now. In terms of management fee, it was actually a contentious point when we first launched the fund and people told us we were crazy and that it wouldn't work and that we couldn't sustain the business doing this.

Murdoch Gatti (58:17.58)
did about 23 % for the last 12 months. I ran about 13 % for two years. About the same, I think it's about 13 and a quarter for five years. And almost 14%, since it's actually just coming out to nine years now. In terms of management fee, it was actually a contentious point when we first launched the fund. And people told us we were crazy and that it wouldn't work and that we couldn't sustain business doing this. But one of the lessons I learned through

Michael (58:43.224)
You know, one of the lessons I learned through the GFC was that clients appreciate our performance, but they don't like paying fees for losses. know, I remember one of many conversations I remember during, I think it must have been 2009, maybe 2010. It was probably 2009. I was meeting with a client for a coffee. And I think at that time, the market was down some 25%. And his portfolio was down about 5%.

Murdoch Gatti (58:46.754)
What's that?

Murdoch Gatti (58:54.54)
They don't pay any fees for losses. I remember one of the many conversations I remember during, I think it must have been 2009, maybe 2010. was probably 2009. I was meeting with a client for a coffee and I think at that time the market was down some 25 % and his portfolio was down about 5%. I actually ended up just meeting expecting tickets at Grey and perhaps with that.

Michael (59:12.426)
I turned up to this meeting expecting a ticket tape parade, pats on the back, congratulations and introductions to all of his friends. But while I'm sitting there, all this particular client was interested, was discussing why the portfolio was down. I said, his name was Peter. I said, Peter, what do you want from my life? The market's down 25%. We're down 5%. And said, Michael, I appreciate that you've beat the market, but I can't eat relative returns. And that sort of stuck with me. And so when we launched the fund, when we were looking to launch the fund, one of the key things for us was,

Murdoch Gatti (59:17.488)
I'm there, all this particular climate was discussing what the was down, and I said, my name is Peter, I said Peter, what do you want from my life? In the market it's down 25%, we're down 5%. I said, Michael, I appreciate that you beat the market, but I can't beat relative returns. And that sort of stuck with me. And so when we launched the fund, when we moving to launch the fund, one of the key things for us was we wanted to build something that we'd be proud of, happy to invest in ourselves.

Michael (59:42.04)
We wanted to build something that we'd be proud and happy to invest in ourselves. And we took a look at the standard way that the finance industry charges fees, and we just thought that wasn't very fair. So we don't charge a fixed management fee. We only charge a fee based on performance, only if we generate real performance. So it's subject to both a high watermark and also a benchmark. The benchmark rate is a 10-year government bond rate, which at the time when we were first having these conversations was around about the five, five and a half percent mark.

Murdoch Gatti (59:47.02)
We took a look at the standard way that the financing industry charges fees and we just thought that wasn't very fair. So we don't charge, particularly management fee. We only charge a fee based on performance, only if we generate real performance, so it's subject to both a high water mark and also a benchmark. A benchmark rate is a senior government one way, which at the time when we were first having these conversations with the RAAD.

Michael (01:00:12.12)
But yeah, our view is if we don't do well, we ought not be asking for full freight and cheese. And if we do do well, then we've found that our client base are happy to pay and happy to pay very well sometimes. Again, it's not everybody's cup of tea. I think certainly entrepreneurs and heads of businesses, know, family businesses, it's really, really resonated with them. When we speak to the institutional investors, it's

Murdoch Gatti (01:00:13.504)
But yeah, our view is if we don't do well, we ought not be asking for full freight and fees. And if we do do well, then we've found that our client base are happy to pay and happy to pay very well sometimes. Again, it's not everybody's cup of tea. I think certainly entrepreneurs and heads of businesses, know, found businesses, it's really, really resonated with them. When we speak to the institutional investors, it's certainly in the early days there was a lot of pushback.

Michael (01:00:39.552)
Certainly in the early days, there was a lot of pushback and a lot of concern. I think over the last eight, nine years, slowly, slowly, there have been other funds that have come out doing something similar or perhaps offering it as an alternative to their standard freight and fee approach. so it's getting, people are getting more comfortable with it. But yeah, our view is if we don't generate a return, we ought not get paid. The worst that'll happen is, thank God I come from a big family.

Murdoch Gatti (01:00:43.244)
I think over the last nine years slowly slowly there have been other funds that have come out doing something similar or past offering it as an alternative to their standard frame.

Michael (01:01:07.19)
my children can suffer from hand-me-downs for a little while. And in an absolute worst case scenario, they can have toast for breakfast, lunch and dinner, but we have an exceptionally lazy balance sheet and haven't got there yet and hopefully never will.

Murdoch Gatti (01:01:18.888)
I appreciate that. I've had this conversation numerous times about

how you get remunerated. my sister's the computer context. My sister is the head of remuneration at Sydney water. Numerous other fund managers mates seen I've seen it with my own career. You probably agree from what you just said that how people get remunerated essentially dictates behavior. And and why I love that entrepreneurial path is a lot of families which we deal with have businesses or where it comes from. And

Michael (01:01:44.098)
Absolutely.

Murdoch Gatti (01:01:53.792)
when you can't rest in your lowest one, the one comment I hate the most, and maybe I sound sound like your client, right, was as an advisor is when I speak to say other investors or fund managers, and then the market did crack in 2021. And it was brutal. I found that the key tagline that they went with is, you know, we're still beating, you know, market, we didn't perform as bad as the market, or they went back to

Our historical performance of is X and I'm thinking to myself, that doesn't help the 75 year old that's in these markets for these particular outcomes. And I suppose that as I can say, you can never put an old head on a young shoulders. But that definitely dictates how I personally invest. now a lot of families as I speak to, it used to be grow, then protect, but right now it's protect.

and then grow. But there's different ways of doing it. And but what I like about having conversations with people like yourself is like to understand how these asset class work, how you think how you work. And then one thing we haven't discussed, which we'll get into now is macroeconomics. And then looking when particular regime changes happen, you know, the past four years were different to the four years before that. And now we're seeing the net, you know, it's been very much globalist the past four years, you know, changing policies, doing things now with the regime change, we're seeing very much a

nationalistic focus start kicking off with Hungary, Poland, the states, lot of, you know, ground roots, you know, pushing back on various things and starting to ask questions why Australia has got an election coming up. But I suppose it's very interesting to hear different perspectives on, know, have you got to go anywhere strategy? Can you essentially, if the US dollar, those are going to weaken, can you go US, you know, I mean, like, how do you if you're essentially can only allocate in Australia? You know, how can you

position the portfolio to, I suppose, protect and grow.

Michael (01:03:54.69)
Look, mean, protect I can answer. Grow is a more complicated question, I suppose. mean, our general approach is to buy a dollar worth of assets for 50 cents today. So that's quite, I it's not easy. It's simple, it's not easy. That means that we're finding ourselves buying companies on extremely low price earnings ratios, three, four, five, six times. And it means that we're buying companies with net tangible assets, saleable equipment or whatnot that's worth a premium to the value of their current share price.

That's how you can protect for starters. that's, that's, we believe the rule number one investing is protect the downside, you don't lose money. It's a bit like Fight Club, right? The number one rule of investing is don't lose money. The number two rule of investing is don't lose money. But I mean,

Our general view is that if an investment only makes sense in certain circumstances, it probably doesn't fit the bill for our portfolio. Again, mean, we've got a flexible mandate in so much as we can hold as much stock as we want. We can hold as much cash as we like. We can be in whatever sectors we like. We're very focused in so much as we're very concentrated into our favorite ideas. I think that also goes some ways to de-risk our investment. And like we said, we try to try to provide a fair offering.

Murdoch Gatti (01:04:40.172)
general view, if an investment all makes sense in certain circumstances, it's a colleague.

And I'm gonna go.

Murdoch Gatti (01:04:55.148)
being what it's set to be like. We're very focused in so much as we're very concentrated in general. think that also goes some ways to de-risk our investment. And like we said, we try to provide a fair offering by aligning our interests with our investors. But in terms of the impact of the US elections or potentially the Australian elections, I think generally speaking, it's an investment idea only stacks up.

Michael (01:05:07.192)
by aligning our interests with our investors. in terms of the impact of the US elections or potentially the Australian elections, I think generally speaking, if an investment idea only stacks up some of the time, then it doesn't fit our mandate. I'm fascinated by what's going on globally, both in Australia and in America in particular. But in terms of how it would dictate how we invest,

Murdoch Gatti (01:05:24.548)
I'm fascinated by what's going on globally, both in Australia and in America in particular. But in terms of how we've declared how we invest, not so much. mean, we fortunate, I think, in that we have a fair amount of exposure to traditional energy and traditional energy services, which will presumably do quite well under Trump.

Michael (01:05:35.51)
Not so much. mean, we were fortunate, I think, in that we have a fair amount of exposure to traditional energy and traditional energy services, which will presumably do quite well under a Trump government. We also have a fair amount, like I said, gold exposure, which I thought would have probably done much better than it has done since Trump got elected. markets are fickle things.

Murdoch Gatti (01:05:56.796)
That's what happens when everyone holds gold and Bitcoin

Michael (01:06:00.194)
Yeah, I don't know. It's hard to explain. I don't know. But look, mean, in terms of policy, in terms of government, I think it's a bad idea to base your investments on those things that are out of your control and unreadable. In terms of macro drivers, things like, you know, more buying from central banks, a decoupling from the US dollar.

as a reserve currency. Those sorts of things have a fundamental impact on certain commodities and certain trading globally. And that might have an impact. But broadly speaking, we're pretty boring. mean, we're value investors. Our bread and butter is industrial companies in Australia. Every now and again, we venture out to something like commodities if we see a very clear and distinct opportunity. But we're not trying to pick what interest rates are going to be. We're not trying to pick who the next government is going to be. We're just trying to find good companies that are misunderstood in trading so cheaply.

that even if things go against us, the downside is certain.

Murdoch Gatti (01:07:01.296)
Right, because that's what I want to get my head around a little bit because you made the comment that you're not really heavy on the commodities you normally go, you know, business by businesses, right, but I was looking at the

the presentation that came out today. And it said significant portfolio holdings, beach energy, boom logistics, carnivore and energy, catalyst metals, hum group, litigation, capital management, NTAW holdings, Ramillas resources, retail food group, 7West media, which is quite interesting. You're holding a yeah. And then again, West gold resources. So you do have a little resource exposure in the portfolio.

Michael (01:07:34.008)
We do, yeah. So about, we bought about 20 % of our portfolio in gold stocks and that's reflected in some of those stocks you read from that list. We do have a stake in Beech, although it's much, much smaller than it was a couple of years ago. Our...

Michael (01:07:52.824)
The largest stake or the largest position we've got in, I suppose we'll call it the dirty word, fossil fuels, is our position in Carnarvon. And I do think that the future is not as dour or as broken as perhaps mainstream media might have you think when it comes to fossil fuels, especially gas. I I don't know how you make an argument for a transition to renewables without gas and really nuclear energy playing a part of that transition. But let's set that aside.

So, Carnarvon has exposure obviously to oil and gas, but you don't need the oil and gas exposure to make Carnarvon work. I Carnarvon's got 18 cents worth of cash or cash call against the current, I think, share price of about 16, 17 cents. They've also got assets that are worth probably on the low end, easily another 15 or 16 cents based on transactions that were done in the last 12 or 18 months. you know, to make an investment in Carnarvon, for instance, and this sort of goes to my point, you don't...

Murdoch Gatti (01:08:28.172)
to make Carnarvon work. I Carnarvon's got 18 cents worth of cash or cash cold against the current, I think, share price of about 16, 17 cents. They've also got assets that are worth probably on the low end easily another 15 or 16 cents based on transactions that were done in the last 12 or 18 months. you know, to make an investment in Carnarvon, for instance, and this sort of goes back quite, you know, we don't want to rely on the commodity to out to be able to prompt from the other line the stock we're investing in.

Michael (01:08:50.68)
We don't want to rely on the commodity to go up to be able to profit from the underlying stock that we're investing in. Not a lot has to go right for a company that's trading at 17 cents against 30 or 35 cents worth of cash and saleable assets to see the share price go higher. Now there's obviously complexity. I mean, if it was simple, then the share price would be trading at a premium or at its intrinsic value. With Carnarvon, for instance, the problem was previous management.

Murdoch Gatti (01:08:56.716)
not a lot has to go right for a company trading at 17 cents against 30 or 35 cents worth of cash and saleable assets to see the share price go higher. Now there's obviously complexity. I mean, if it was simple, then the share price would be trading at a premium or at its intrinsic value. know, with Canary for instance, the problem was...

Previous management was trying to spend their cash that raised for the development of the Coal Project, is an offshore oil and gas project off the coast of W.A. T1 jurisdiction, very T1 asset, probably the biggest un-developed discovery in a generation.

Michael (01:09:18.552)
were threatened to spend their cash that they had raised for the development of their core project, which is an offshore oil and gas project off the coast of WA, tier one jurisdiction, very tier one asset, probably the biggest undeveloped discovery in a generation anywhere in the region. And they were threatened to spend it on tier two projects and tier two jurisdictions. And so we were a major shareholder. came to us, they pitched the idea to us and said, hey guys, don't spend money you need on projects you don't need. Stick to your knitting.

Murdoch Gatti (01:09:34.732)
anywhere in the region. And they were threatened to spend it on tier 2 projects and tier 2 jurisdictions. And so we were a major shareholder that came to us and hey guys, don't spend money you need on projects you're doing. Stay tuned in, cut costs, focus on Dorado, don't waste your money. So extent that can influence San Jose is the major JV part. don't try push them to go forward, but your job is don't waste money, cut costs, and that's their whole job.

Michael (01:09:48.12)
cut costs, focus on Dorado, don't waste your money. To the extent that can influence Santos, who's the major JV partner, try and push them to go forwards. But your job is don't waste money, cut costs, and that's your whole job. They came to us a second time with an idea. We said, again, guys, don't use the money that you need on projects you don't need. They came to us a third time, at which point we said, OK, three strikes and you're out. We...

Murdoch Gatti (01:10:04.364)
They came to us a second time with an idea and said again guys, don't use the money that need on projects you don't need. And they came to us a third time, for which part we said okay class, three strikes near out. We reached out to some other fund managers who had had into your holdings. We agreed to where we'd like to see Knapp was going, which is basically cut costs.

Michael (01:10:16.568)
We reached out to some other fund managers who had material holdings. We agreed to where we'd like to see Carnarvon going, which is basically cut costs, don't waste your money and see if you can monetize the assets. And then we reached out to management and said, guys, we think it's time for you guys to move on. And what we found historically, with large companies, I think it takes a very special kind of human being to fundamentally break.

Murdoch Gatti (01:10:27.852)
and then we reached out to Matt and said guys, I think it's time for you guys to move on. And what we found historically, with large companies, I think it takes a very special kind of human being to fundamentally break or ruin a stock.

Michael (01:10:45.6)
or ruin a stock. We've met some of those special individuals, certainly over our journey, but it takes a very special effort and a very special individual to ruin a large cap company. When you move into the mid cap space and the small cap space, you are very much reliant on management as much as you are reliant on the assets. And in this particular case, management owned less than 1 % of the stock on issue. over the previous, think, two or three years, they'd raised about $205 million to which management themselves had contributed.

Murdoch Gatti (01:10:47.692)
We've met some of special individuals, certainly over our journey, but it takes a very special effort and a very special individual to rule out our last check-out. When you move into the mid-cast space and the small-cast space, you are very much reliant.

management

Michael (01:11:15.338)
a grand sum total of $15,000. And so it was very clear that their interests weren't exactly aligned with ours. We understood the, I suppose, institutional imperative to get bigger, especially if you're getting paid a salary rather than being an equity owner. But we said it's time to move on. And so we put in a new board. We're very hands off. We don't really want to get involved in activism. Certainly we don't want to get involved in running a business. But the people in there now, including one of the directors of one of the other funds,

Murdoch Gatti (01:11:31.322)
So we put in a new board. We're very hands-off, we don't really want to get involved in activism. Certainly we don't want to get involved in running a business. But the people in there now, including one of the directors of one of their funds, can't cost by 40%. They've promised not to spend any money on anything other than their core business. And they've hired bankers to market and sell their assets.

Michael (01:11:44.022)
have cut costs by 40%. They've promised not to spend any money on anything other than their core business. And they've hired bankers to market and sell their assets. I think the broader market is still confused by what the timeframe is, how quickly can they get Santos to come to the party. But broadly speaking, management now are doing all the things that you could possibly want them to do. And it seems to me like it's unlikely that with the management in place now and the upside prospects that they're likely to be trading.

Murdoch Gatti (01:11:52.524)
So I think the broader market is still confused by a lot of times and is how quickly can they get Santa Claus to come to the party? But broadly speaking, management now are doing all the things that you possibly want them to do. And it seems to me like it's unlikely that with the management in place now and the outside prospects that they'll likely be trading at these sorts of levels. Again, I'm cognizant that this is going out of line and I'm not offering...

Michael (01:12:13.464)
at these sorts of levels forever. I that just makes sense. Again, I'm cognizant that this is going out wide and I'm not offering financial advice to anybody. But my suggestion is that if you can find a business that's not reliant on the macro, but can also benefit just from the micro, from the company specific goings on, then that's ideal. If you can get the macro tailwind as well, fantastic. But we're always looking from the bottom up. We're always looking to make sure that on their own steam, the company is worth more.

than what the current share price is. Does that make sense?

Murdoch Gatti (01:12:44.687)
The other thing that yeah, no it does and the other thing you

touched on, which I think we've touched on numerous times is how do people get remunerated because how you get remunerated dictates the behavior. But the other thing, the other thing we're saying is well, there's

Michael (01:12:54.04)
I think Charlie Munger used to say, show me the incentive, I'll show you the outcomes. I think it was the Charlie Munger-ism.

Murdoch Gatti (01:13:00.254)
Who said that sorry?

Yeah, it sounds like it. The other one as well is I've seen it time and time again resource companies is that numerous resource businesses are phenomenal engineers. These guys can pull all out of places you didn't even think there was all but because they've been they're also very good salespeople a large portion of them and because they've been on the warpath and they get a large you know amount of cash if you have if you've been for people that don't understand mining mining is a difficult game because you have an idea

You need other people to finance it and you may have found yourself in a scenario where it could be two years or 20 years where you're poor, you're broke and you have no capital.

And you go down this path trying to raise, raise, raise. And then finally you get a large chunk of money like that $200 million. There's this thing about money when it sits in your pocket. It can make you go mad, right? And the other thing as well, as you mentioned, if you're getting a salary or whatever, you need to be seen to be doing things is how people think. And human beings have a very short mind and they don't have patience. If you've got $200 million sitting in your pocket and assets are

Michael (01:13:54.626)
and to haul in your pocket.

Murdoch Gatti (01:14:11.884)
I think what what gas hit what 2019 $9 now it's back down that natural gas is down to two and you need to do a deal. That is not a good time to do a deal. You know, you know, I mean, I've just used that as an example, right? And then and essentially that that changes behavior, and then essentially outcomes.

Michael (01:14:29.816)
have sympathy for their emotional state of being and what drove their decisions. And that's all well and good, but just don't do it in my capital.

Murdoch Gatti (01:14:38.252)
I couldn't have said better myself. Now, I'm very heavily invested in, been a long time help to the seed and in essentially the Betelgeuse Basin, Tamborin. If you want to talk about a story where it's exactly what you're talking about, but essentially the problem isn't necessarily the board or the company, they're fantastic. The issue is essentially fiscal policy and government policy within Australia and just the inability to access it.

And then so much so that's taken an asset which was Australian domicile, which would have paid tax into Australia and forced that asset now to be licensed and debt or the states and we're going to lose all that revenue. It's just madness when to your point before, you know, energy and gas, there are some industries and some products that we need for farming and one of that you cannot create without having natural gas. Like it's just, I often wonder again with

Michael (01:15:19.852)
It is.

Michael (01:15:31.992)
I

Murdoch Gatti (01:15:34.666)
with geopolitics, whether or not lot of these policies are actually designed by foreign players to essentially weaken us for other alternatives. And yeah, if the regime didn't change, you know, what's happening in the States now, it'll be a very interesting landscape. Might be speaking a different language.

Michael (01:15:43.201)
I'll just sleep.

Michael (01:15:54.102)
Look, I don't know. think there is a cultural shift certainly in Australia as well when it comes to energy. I mean, I know that energy still seems to be a bit of a dirty word. And on the occasion that I drive to the office, which is about once or twice a week, I still see those signs saying end fossil fuels, stop oil, whatever the complaints are, to end fossil fuels. And as I drive past these people and see them in their puffer coats and synthetic...

clothing, you know, I can't help but wonder, do they actually understand that everything they're wearing and all their signs are probably made out of some derivative of oil? That's besides the point, but... but...

Murdoch Gatti (01:16:34.1)
No, I think I think that is the point. It's kind of like, you know, when people are tweeting about, know, don't use plastic in stores and dolphins in a phone that essentially has got, you know, full of everything known to man. Plus, it's got cobalt in it where something ridiculous like 70 or 80 % of the cobalt comes from the Congo, which is essentially, you know, a Tizian mind. If people don't know what a Tizian mining means, that means bare hands, bare backs, babies on the backs, right, you know, and essentially

Michael (01:16:57.975)
Go, John.

Murdoch Gatti (01:17:01.952)
through a huge, huge number of various entities and shell companies, know, big institutions, even Apple, whatever they buy the stuff from them and Google phones, people just seem to want to be seen to care. But then at the end of the day, they just don't care.

Michael (01:17:13.24)
If you care about ethical investing, then you should have a problem with cobalt for sure and several other minerals. I mean, even something much more simple than that. Think about the emissions generated mining, something like copper, which is needed in everything, in everything technological. I mean, the process of getting from, if it's doable, and I'm not sure that is, but if it's doable to get to a fully renewable future, the cost from emissions, from an emissions perspective between

where we are now and where we need to get to is just astronomical. Just astronomical. Not to speak of the inflation that it tends to cause. Again, I would like to see the world move towards cleaner energy. I think that it is the proper view and approach to take. But to suggest for a second that A, it's cheaper or B, that it's going to be clean to get there is just to be dislocated from the reality of the world.

Murdoch Gatti (01:18:07.794)
Yeah, we're just talking and I just reminded me of a company that another farmer told me about that I've just been paying close attention to where

Things happened in the past, it was a very dirty process, you lost a bunch and now they've changed it, it's essentially titanium. Have you been following Iperia and Exodol?

Michael (01:18:25.272)
No. Tell me, it sounds like it's an interesting story.

Murdoch Gatti (01:18:26.506)
Okay, that's right. No, no, no, they just changed the look, I'll do a terrible injustice. I appear in X titanium. So current process about titanium loses 80 % of the material. And then the current process, you can't take scrap and then convert it into something else. This new company has got tech that essentially has the ability to break it down like into a powder form. And then essentially use hydrogen gas to re forge

into everything from a frying pan through to satellites and so but so titanium titanium so it's a titanium titanium so they can recycle both so they can they can recycle they're the only one right now that can recycle what currently exists plus once the scrap runs out they can go mine to manufacture but yeah i just wonder if it came across your

Michael (01:18:59.814)
Sorry, for better recovery or for recycling?

Michael (01:19:05.24)
for better recovery or for recycling.

Michael (01:19:23.126)
Yeah. No, I mean, but you see the impact if you've got the technology to recycle properly, you can see the impact it can have on a commodity. mean, you think now about the, I don't know if you can call it strength, but certainly iron ore plays a big part in our international trade. And people think of iron ore as being something that will be there forever, certainly as long as China is growing. But that's because China

China creates their own iron. Almost 100 % of their iron is new iron that they have forged. If you look at a country like the USA, I read the other day that greater than 60 % of the iron that they use in projects is recycled iron. So if you're recycling iron, you're not going to need iron ore. Certainly not the volumes that you're doing right now. So it's very interesting how dramatically a

Murdoch Gatti (01:20:17.004)
normal volumes that you're right now. So, you know, it's very interesting how dramatically a sector could potentially, or a commodity could shift if you have a way to either improve recovery or recycle. And you saw that a little bit, think, as well during the deep, trough in the uranium market.

Michael (01:20:22.826)
a sector could potentially or a commodity could shift if you have a way to either improve recovery or recycle. And you saw that a little bit, I think, as well during the deep, deep trough in the uranium markets. I don't know if you follow them for a while.

Murdoch Gatti (01:20:38.941)
I've been following, we met a lot of money on the uranium and then we got out before the most recent turn, which was kind of lucky just looking at the technical analysis on the MACD, just saw the golden cross go through and we just go watch this go by. But everything that's happening in France and everything looks fantastic, but Australia just can't catch a bid based on policy.

Michael (01:20:50.754)
Yeah, so.

Yeah. We were probably in and out before you actually invested. We first invested in 2017 when spot price was at $18. And that was against an average cost of production globally, including the super low cost out of Canada and

Kazakhstan. Canada and Kazakhstan are the two biggest producers in the world and Kazakhstan has a low cost of production. even including the lowest cost production producers, the average global cost was $45 against a spot price at the time that was $18.19.

Murdoch Gatti (01:21:35.808)
And that was coming from Cameco from Canada.

Michael (01:21:38.52)
Tamiko is Canada, correct, correct. But their cost of production is much, much higher as well. And it was able to get so low because energy at that point was so cheap that companies were able to generate significantly better recoveries and sell that excess uranium at rock bottom prices. Now the market sort of naturalized and neutralized a little bit since then. And now you've seen, seen...

Murdoch Gatti (01:21:43.052)
I was able to get so low because energy at that point was so cheap that companies were able to generate significantly better recoveries and sell that excess uranium at world foreign prices. Now the market's sort of naturalized and neutralized a little bit since then and now you've seen the year-end price of gold by I times $80, $80 per

Michael (01:22:04.536)
You've seen year-end prices go up, think, as high as $80 per pound quite recently. We got in in 2017. We sat on our thumbs doing nothing for about three or four years and then got out after the first big run up in 2020, 2021. So using Paladin as a proxy, we bought it in, I think, an average price of about 8 cents. And then when it got to about 55 cents, we said to ourselves, what's this worth? And we did like a DCF. We figured that...

Murdoch Gatti (01:22:10.572)
We got in in 2017, we sat in our thumbs doing nothing for about three or four years. And then got our first big round up in 2020, 2021. So using Paladin as a proxy, we bought it in a thing that was 8 cents. And then when it got to about 55 cents, we did like a big year. We figured that it's reasonable to expect your end prices long term to be 70 to 80 bucks. And on that basis, got 55 cents with our round up, got out. Almost.

Michael (01:22:30.902)
It's reasonable to expect your end in price as long term to be 70 to 80 bucks. And on that basis, we thought 55 cents was about right. We got out almost, almost precisely after we got out within two weeks, the share price, sorry, the share price, yeah, the share price of Paladin went to 75 cents and within a month it was at a dollar. So we left a ton of money on table for the next guy. but I'm, I, I imagine that we were in and out before you probably gave in. were very early adapters and probably too early and early Exodus again, probably too early, but

Murdoch Gatti (01:22:40.3)
Almost precisely after we got out. Within two weeks the share price of the Pelletum went to 75 cents and within a month it in dollars. So we left the money on table for the next guy. But I imagine that we were in and out before you published it. We were very early in practice and probably too early and early exit as again probably too early. But such is the life of a Pelletum investor. were early in and early out.

Michael (01:23:00.116)
such is the life of a value investor. We're early in and early out.

Murdoch Gatti (01:23:03.788)
I do like the analysis quite a lot. We spend a lot of time and resources gel off i can't help myself this is what this is again broking's fantastic because with with this stock broking model we come up with if anyone wants to learn about minors starting a stockbroking firm because essentially it's raise raise raise and you learn a lot but. Where i didn't have that much you know i bring a knowledge in is you know companies that are already ingrained or mainstream so i'm very curious.

is why you have seven West media in the portfolio, considering where now people would say, look, we're doing it right now, the podcast generation, right? You know, some, some of these just individuals running a podcast, doing a YouTube video, they're getting more eyeballs, more revenue, or just more interesting topics. Like, you know, it's just two blokes having a chat or two girls having a chat, you know I mean? In a room. And there's essentially no filter. And you know, there's not like

The other great thing about long format, we'd be going for nearly an hour and a half. What's great about this is imagine being in a conversation where the single most interesting part of the conversation happens right now and you go, you've got two minutes to answer. just, it just, you know, I've got a lot of friends that work.

Michael (01:24:17.932)
You gotta keep wanting more, isn't that the premise for every hook in every TV series ever?

Murdoch Gatti (01:24:23.756)
Yeah, yeah. Yeah, but what happens if I don't speak to you again for another two years? You know what I mean? Like, you know, I'm just using that as an example. So I'm very curious as into the thesis behind, you know, seven West media or like a mainstream media style business.

Michael (01:24:38.38)
Look, mean, seven, it all comes down to evaluation. So, you know, I think the business is deeply, deeply misunderstood by the broader world and fairly so, I think. mean, you know, when I think of media or traditional media, it's not hard to think or to understand why. People view it as, I suppose, yesterday's news. Pardon the pun, I suppose. You know, when my kids, again, I've got six kids, they range from eight to 18.

Murdoch Gatti (01:25:06.252)
They were my younger kids. They were for entertainment. watched what happened to Leon. They go into YouTube. Or they go into, God help me, TikTok.

Michael (01:25:07.576)
You know, my younger kids are looking for entertainment. They're not switching on the TV to watch whatever happens to be on. They're going to YouTube or they're going, God help me to tick tock or, or one of these other services where they can, you know, where they can access it and interact in a way that they can't interact and access through, through channel seven. And my older kids similarly, you know, they'll, be on Instagram or they'll be on, on, Netflix or whatever the case may be rather than going onto channel seven. Cause you can pick whatever, whatever you want to watch. can watch whenever you want to watch it.

Murdoch Gatti (01:25:19.532)
where they can act and interact in a way that they can't interact with through Channel 7. And my older kids, similarly, they'll be on Instagram or they'll be on Netflix or whatever they actually eat rather than going off to Channel 7. Because can pick whatever you want watch, can watch whenever you want to watch it. But Channel 7 is more than just...

Michael (01:25:36.376)
But Channel 7 is more than just what we think of as traditional media. It's not just Channel 7. It's also all of the digital assets and it's also their newspaper assets, particularly the Western. And I think people don't appreciate that it's still a cash cow. Certainly, they have been the number one advertiser in the market, I think four years running now. They have reached over 90 % of the Australian population.

And I think they own about 41 % of the advertising dollar for that market. So they're the number one player by a long, way. And I think people underappreciate the value of maybe three things that they do, and they do better than anybody else. Although, as I started to see, Netflix is potentially going to become a competitor in the future. But local news is number one. Local programming is number two. And sports. Sports.

Murdoch Gatti (01:26:13.57)
I was about to say sport I was about to

Michael (01:26:35.256)
massive, massive driver and especially on the digital platform. I I haven't turned on my TV in forever, but when the Olympics were on, I was logging in to the digital channels like you wouldn't believe. And Channel 7 views that as their future, I believe. It now represents, I think, better than 40 % of their earnings and has grown at an extraordinary rate over the last few years. And in recognition of that, what they've set up is...

Murdoch Gatti (01:26:37.11)
Yeah.

Murdoch Gatti (01:27:02.602)
and increase the mission of

Michael (01:27:05.048)
I think they call it the Phoenix platform, which basically tries to do what all the mainstream social media companies do, which is give advertisers the ability to pinpoint target their audience. So just like you can say, I want to send my ad to everyone between 20 and 40 who follows whatever sports team or earns between X and Y. And you can shoot out those ads on Facebook. You can shoot those ads out on Google.

Murdoch Gatti (01:27:07.084)
you need some platforms basically tries to do what all the mainstream social media companies do which is give advertisers the ability to pinpoint target their own needs. So just like you can say I want to send my ad to everyone between 20 and 40 who follows whatever sports team or earns between X and Y and you can shoot out those ads on Facebook and you can shoot those ads out on Google. They do the same thing now on the channel 7 network.

Michael (01:27:33.464)
They're doing the same thing now on the Channel 7 network that they can very, very specifically target their clientele through those digital offerings. And I think sports in particular and the digital offerings have a lot to offer. But you look at the business, they've cut costs by 30%, I think, in the last year. They bought back, I think it was about 5 or 6 % of their shares, recognizing how cheap they are. And they're trading on 3.5 to 4.5 times

Murdoch Gatti (01:27:36.204)
so they can very, very specifically target their clientele through those digital offerings. And I think sports in particular and digital offerings have a lot to offer, but you look at the business, they've cut costs by 30 % I think in the last year. They bought back, think it was about...

5 or 6 % of their shares recognising a cheap day out and they're trading on 3.5 to 4.5 times what I would say is trough earnings. People talk about how the economy is doing just fine but I think if speak to the regular diamond trade that's not how people feel. I think if you look at per capita basis you would probably lose 6 or 7 to quarter of actually negative growth. So I'm going to go out and let them suggest that we're probably at or near trough earnings for the advertising market.

Michael (01:28:01.996)
What I would say is trough earnings. you know, people talk about how the economy is doing just fine. But I think if you speak to the regular guy in the street, that's not how people feel. I think if you look at a per capita basis, I think we're probably in the sixth or seventh quarter of actually negative growth. So I'm going to go out on a limb and suggest that we're probably at or near trough earnings for the advertising market. Yet even on those trough earnings, it's trading at four times.

And to my mind, that makes it probably the cheapest advertising company, certainly in Australia, possibly in the world. And that's attractive to us. It's not sexy, it's not exciting, but it's a cashflow generating machine that the market just hates.

Murdoch Gatti (01:28:43.4)
It's interesting how people look at my brain sees patterns. That's why I like the fun managing universe as more pattern recognition just see where things go. So you look at the numbers component. What I heard from what you just said was

platforms that do well offer a product which you can't access anywhere else. And I'll give a very good example, right? I hated Optus with a passion, especially after all the big scandals and everything like that. But I keep paying $25 a month. Why? Because I am a premier league and know, international football absolute enthusiast, right? And it blows my mind that, you know, the soccer rules or that, whenever their games are on, aren't on Optus, right?

they're actually, you know, on a mainstream network. I think it's channel 10, right? So what I'm finding, what I think was what Australian networks have done is they still have managed to capture the Australian sport component. And as a byproduct, people will still have that app installed on their television, you know, seven, nine or 10 purely for a specific event. Then as a byproduct, they might accidentally go, I didn't realize dancing with the stars. I've been saying that, is it still trash? You know, I want to have a look at that.

Michael (01:29:29.687)
Yeah.

Michael (01:29:37.932)
Yep. Yep.

Murdoch Gatti (01:29:55.472)
whatever it is you want to make and then you look at it you watch an episode and you catch a couple of ads you know what I'm saying I think they've done a great job there

Michael (01:29:56.429)
Wait, wait.

Michael (01:30:00.152)
People love trash. Trash is the best sound stuff, but you're right. I I view the world through the prism of my experiences. So for me, something like having the rights to the AFL for the next five years is very, powerful. My wife, not so much. She might be more interested in far more than what's a wife or, I don't know, dancing with the stars or whatever the case may be, but each to their own. And again, we're not betting on return.

Murdoch Gatti (01:30:05.888)
very interesting.

Murdoch Gatti (01:30:14.891)
Yeah, brilliant.

Michael (01:30:28.13)
to the heyday of free-to-air television, we're simply suggesting that it's so cheap right now that even if you base your expectations substantially, it's too cheap.

Murdoch Gatti (01:30:39.82)
But the other benefit is what I can remember the company's name, but it's actually happened in the past 12 months or 18 months. There's a company out there that's

has the ability to actually target those ads. It's only just recently come out. I can't remember the name. Do you know the name of the company? Because Netflix is starting to use it. There's a particular company that will help a network take the data of who's watching what and then specifically.

Michael (01:31:06.104)
I mean, that's the Google and Facebook model. And that's what we're trying to develop in the house.

Murdoch Gatti (01:31:08.808)
Yeah, but why this is why this is just what's really interesting now is Netflix ran the model where they would never charge ads. But then in order to bring back ads, the only way they were palatable is if the consumer would actually be given something that I actually wanted to see so they wouldn't switch off. So so why I'm finding that interesting that mainstream is adopting that. I think the biggest problem that I ever have in mainstream, I just didn't want to see hungry Jacks every day. Yeah, like it just you know, I didn't want to eat hungry Jacks. You know what mean? Like it's just

Michael (01:31:34.392)
you

I'm the kind of weird guy that will change the channel if an ad I don't like turns up.

Murdoch Gatti (01:31:41.12)
Thank you. So I think what's been very good with culturally as well is if you can give people what they're at least half interested to say they won't change the channel, which is very interesting as well.

Michael (01:31:50.738)
Fascinating, interesting. Yeah.

Murdoch Gatti (01:31:52.94)
Anyway, Michael, we've been going for a long time. I appreciate this. It's very interesting to see all the insights and everything and how you guys, guys and girls manage money. Is there anything, any thoughts that you want to leave people with?

Michael (01:32:09.132)
I guess I'd say if people are on the journey, and I think you made the point earlier, everything is more fun to do as part of a team or with a partner. And I think that is true, but I would suggest even more. I would say if you're looking to start on the journey, you've got to find a way to be honest with yourself and set yourself on the right track and do that. You've got to read a lot for sure. You've got to find yourself a mentor. I mean, the importance of finding a mentor, I can't understate it.

and then you've got to find yourself an investment buddy. It might be your brother, it might be your cousin, it might be an old classmate. You've got to find someone to help keep you honest. And then yeah, if you do really well, reach out to us through our website and we'd have to have a chat, I suppose. If the next warm-up comes about thanks to this podcast, please be sure to call out to Collins Street Asset Management before you reach out to everybody else. Keen to have a chat.

Murdoch Gatti (01:32:55.179)
Bye.

Murdoch Gatti (01:33:02.691)
I love that. How can I rate you?

Michael (01:33:05.986)
Look, the easiest way is through our website, which is csvf.com.au. So it's an acronym for Collins Street Valley Fund. There you can find our reports, our podcasts, our interviews, and then you can also reach out to us if you want us to pop by. Meet us when on the road or meet us in Melbourne. That's the best way to find us.

Murdoch Gatti (01:33:15.244)
Thank you.

Murdoch Gatti (01:33:25.268)
If anyone wants to follow you and keep track you on all the standard social media platforms, LinkedIn and such.

Michael (01:33:31.391)
We're on LinkedIn, but that's about it. Like I said, we're pretty boring value investors. We don't have a lot of social media reach. We're focusing on what we're good at. sometimes that means some other aspects of the business might be lacking. But yeah, you can certainly find us on our website and through LinkedIn. Either way would work.

Murdoch Gatti (01:33:54.934)
Brilliant. Michael, thank you very much for coming on the rate of change and I hope you have a great day.

Michael (01:33:59.136)
Murdoch, it was my pleasure. I'm looking forward to doing it again sometime soon.

Murdoch Gatti (01:34:02.678)
Sounds good.