Welcome back to The Rate of Change with York
Wealth Management. The Rate of Change is a podcast
designed to help you in the pursuit of building
long -term wealth through the insights of some
of the brightest minds in asset management. I'm
your host, Murdoch Gaddy, and we welcome back
a guest, Michael Frazes from Frazes Capital Partners,
to get into what I love, you know, global growth.
you know, AI, you know, what's happening in the
world today. There's a lot happening in the world
today and his beloved life science companies.
So, Michael, welcome back to The Rated Change
and let's get into it. Thanks so much for having
me on, Myrtle. Looking forward to it. Fantastic.
Okay, so why don't we just quickly do an introduction
to yourself? You know, who's Michael? What do
you do for the people that are just joining us
for the first time? Yeah, sure. I mean, we run
a wholesale fund, invest globally in growth.
The key things we do different is we really focus
on the fastest growing companies we can find,
mostly in healthcare and tech, but increasingly
in other sectors of note defence. You know, it's
never a dull moment at the moment. These are
pretty wild markets. So being able to look more
broadly for growth is really helpful. And we
also are very quantitative. So we have quantitative
risk models. which help us scale in and out of
positions, you know, systematized profit -taking
and levels at which we'll close positions and
then re -enter them when markets recover. And
that's quite topical because there's a lot going
on at the moment. Wartime markets, I think was
the exact tagline you dropped before we hopped
on. I think it's a good way to... Kind of stated,
it's kind of like a four or five speed economy.
On one hand, people are getting their bums handed
to them. On another hand, you know, in some of
the resources sector, it's doing quite well.
So I suppose, you know, what does wartime markets
look like for you guys? Yeah, you know, interestingly
enough, there's a pretty well -established playbook.
And I'd say, actually, this is a very typical
example of that. So in war, typically resources
go up a lot. Energy, resources, there's immense
demand for rearmament. In fact, if you think
about it from first principles, people are just
blowing stuff up, right? It has to be replaced.
In this case, every missile that's been fired,
certainly from the United States in Israel's
case, will have to be replaced. And also, there's
a whole set of new technologies that are being
pioneered in this particular conflict, as there
usually is. And some of them have been pretty
impressive. For example, laser defense systems,
drone defense systems. And it remains true that
the vast majority of air bases and militaries
do not have these capabilities. And they're getting
a very clear demonstration of why they desperately
need them. So that's likely to trigger a huge
amount of spending as well. And the downside
is commodities going up might be good for commodity
producers, but for consumers, it's terrible.
It's like an extra tax. So if a family has to
pay an extra $1 ,500 for fuel every week, then
that comes directly out of their purchasing power.
And if the conflict's short, it doesn't really
matter. You know, if this is over and resolved,
then we'd never pretend to have any better idea
of anybody else of how long these things go,
other than the fact that these things always
seem to go on way longer than people expect.
You know, four years in Ukraine, even Israel
and Gaza, that was two years plus. These things
are always longer than everybody expects. The
longer that goes on, you know, that extra $1
,500 drain a week starts to really hurt consumers.
And in Australia, it's even worse because inflation
is high. It's nearly 4%. So before the war, it
looked like we're about to enter a rate -rising
environment, which would further squeeze wallets.
So the combination of all these things makes
it pretty bad for consumers and pretty good for
a very small subset of the economy, which is
commodities, energy, defence, and some industrials.
Yeah, this is wild. where to begin but i suppose
where did where to begin with this is the normal
human being like you know i've got a isuzu ute
you know i was loving and enjoying so much i
think it was a dollar 60 about like a month ago
um it's two dollars 60 now and then up in queensland
it's 280 going on in some places three dollars
where essentially all they drive is you know
diesel utes like that's a lot people see it on
the pump but i think what a lot of people when
you agree don't realize is think about all the
people hauling your products. Think about essentially
your Amazon orders bill, right? They're all essentially
diesel -based trucks. The cost, that's a 40 %
to 50 % increase on those prices. It has to go
somewhere. Yeah, it's massive. And ultimately,
it comes out of consumer pockets and consumer
wallets. And to the extent that cutback spending,
that's bad for all kinds of companies that might
not even be directly affected. And to the extent
it affects equity markets, it's one of the reasons
why these environments are so bad for stocks
is... you know equities are kind of like the
end of that purchasing thing you know that's
the money you have left over you might invest
and that's certainly getting drained so there's
there's that to consider as well so all up it's
a pretty uh It's this war kind of came out of
nowhere. I think it's a bit surprising. I mean,
obviously, people did comment on the build up
in the weeks leading up to it of the US moving
so many military assets in close proximity or
in, I guess, in range of Iran. So there was maybe
a couple of weeks warning. But really, you know,
before this was happening, the debate was around
memory, semiconductors, how much, you know, the
800 billion capex or trillion dollars of capex
was going to affect industrials. You know, that
was the kind of things that we're talking about
only a few weeks ago. And now there's another
huge factor going on. And that is these wartime
markets. And it's absolutely going to affect
everybody the longer it goes on. That's what
I love chatting to you, Michael. You know, what
I see compared to what you see, compare notes
and then try to make a play. But what was very
interesting is someone said it to me. They found
it very interesting that, you know, Trump went
into Venezuela. And now you look at it now, like,
you know, on the 4D chessboard, it kind of makes
a lot of sense. Like, why would you go? and potentially
impact the straight and shut down essentially,
you know, access, well, you need another source.
So essentially now they've got access to those
Venezuelan, you know, oil fields and gas. It
just changes everything. And the other thing
as well, if you think people wonder how it impacts
people, we're about to move into the European
summer holidays. You're Greek, my wife's Greek,
you know, good luck trying to get to Greece,
you know, through the Emirates these days. It's,
you know, pretty much everyone's on standby.
Yeah, you can't risk it. I mean, why would you
risk going through Dubai and be stuck there for
two or three days in an airport hotel at best?
You know what has been interesting? It's been
interesting to see the Aussie dollar kind of
break out of a range and strengthen. This happened
before the war, and I think the war will, if
anything, kind of strengthen that, particularly
against heavy energy importers like the euro,
because Australia is somewhat shielded because
we export gas, we export energy, we export commodities.
But because we're already higher inflation than
most of the developed world, for various reasons
that maybe we won't go into, it's political of
nature. So it looked like Australia was going
to enter into a rising rate environment ahead
of the rest of the world. And that was pushing
up the Aussie dollar. But now you've got this
demand for energy and commodities, which fortunately
Australia does export a lot of it. So we can
all things equal expect our currency to strengthen
against. commodity importing nations and currencies
yeah the currency is a really interesting one
like you look at whenever a lot of people invest
so hypothetically buy nvidia shares right everyone
goes oh it's great it's doing well but then the
currency's going from 60 cents up near 72 and
then you know one i used to work in foreign currency
back in the day so i had a conversation with
a guy that i know the only reason why some asx
listed businesses showed a profit for the year
was his currency calls and Again, not advice
anyone, but they're forecasting for their firm
like 80 cents by the end of the year potentially.
And over the next five to eight -year period,
they're also forecasting parity. Interesting.
That does help for a year. Very interesting.
It helps for holidays. Absolutely. But, yeah,
no, it's just an interesting – yeah, look, I
know we just jumped straight into wartime, all
the topics, but it's just so fascinating from
like an asset allocation. perspective on like
global equities like how are you playing this
market right now considering you know what's
happening well it's been interesting you know
i think it's been a pretty tough year for growth
managers We started getting sell signals across
software, you know, almost six months ago. You
know, a lot of those companies really peaked
in September and they're down 75 % plus, even
like big names that Australians would know, like
Atlassian. Certainly a lot of companies like
Adobe, even companies like Microsoft are in some
of their biggest sell -offs in the last decade.
So we've been selling before this kind of happened,
but we have a lot of positions on our risk models
that are basically hovering just above. So one
of the things that our risk approach does is
focus on price and momentum to cut things out
when things really turn south. And it looks like
we might enter one of those periods now. And
before this war, there was no real reason to
think that the global economy was going to roll
over. And the reason for that is there was that
enormous CapEx build out in the United States
and everywhere. Every country needs sovereign
data center and AI capabilities now. It's not
just big tech companies. And so while that CapEx
was going, there was no reason to assume that
wouldn't support markets, support economies,
support all kinds of industrials that help in
semiconductors, even things like refrigeration
units or tools that are used to create something
like a data warehouse. All those things were
getting excess demand. But now there's going
to be a lot of demand destruction, right? Again,
this is if the war continues, if it ends quickly,
which might be optimistic, but it's certainly
possible, then... then that would be a huge relief
to markets. But if this continues and energy
stays where it is and every week that those energy
prices stay high, consumer wallets are drained.
And in places like Australia and elsewhere, that
translates into higher inflation, demand for
higher wages, higher interest rates, consumer
wallets get drained more until you reach a point
where you actually do start triggering that demand
destruction, which is what you sometimes need
to bring down that level of inflation. That's
a pretty... bearish outlook so we're trying to
be pretty focused we do have about 10 of the
fund in defense equities that seems like a bit
low now if anything but you've got to be careful
especially you know you know you know how many
twists and turns there are in the world and in
markets you know the war could end and then all
these trades reverse almost overnight that's
that's very possible so i don't think it necessarily
makes sense to pile into something just because
it's a war beneficiary either um but we own some
We own a little bit of drone shield. We own electrical
optical systems, which was in the news recently
over controversial contracts. But the reality
is, you know, they have, if you think about drone
shield, that's like drone jamming. That's like
part of the puzzle. It's like a small part of
what you need on the battlefield now. You certainly
need to jam the airwaves so that people can't
just fly a super cheap drone at a tank. You know,
you need to jam those things. But sophisticated
drones won't be defeated by that. and potentially
and and you actually need to destroy the drone
if you really want to want to be sure that you're
safe and so computer aiming projectiles you know
guns lasers things like that that's probably
where the bulk of the spending will go to from
here and eos just happens to be a local company
there's there's a couple in the united states
and offshore that you can invest in as well just
so happen to sell these things um there's huge
demand for lasers already from data centers and
the next generation of semiconductors and there's
also demand for lasers now in defense so ultra
high -powered lasers that can dazzle missiles
and shoot them down and dazzle drones you know
there there's no doubt there'll be a multi -year
build -out and even if the war does end people
are going to need these devices they're going
to need them on their ships they're going to
need them surrounding their airbases arguably
they'll need them around They're major cities
if they're in a conflict area. So the demand
prospects are pretty strong for some of these
companies. Other than that, I think Australians,
you know, the beauty of what you do, which is
kind of very different to what I do, is that
you can play the asset allocation thing, right?
Like, ideally going into this, you already had
some commodity exposure, some energy exposure,
maybe a little bit of defence. It's harder in
Australia. Obviously, in the US, there's, you
know, a whole sector of massive high -quality
companies. to invest in. Here, the sector is
smaller. But, you know, I imagine most people
do have some of this stuff in their portfolios,
particularly in Australia with commodities. And,
you know, we won't see it. When the Aussie dollar
strengthens, it's not like your portfolio goes
up. If anything, it goes down because so many
of us hold up foreign stocks. But in a way, you
kind of are getting wealthier. So we can all
take comfort from that. Unless you're smart enough
to hedge the US dollar. Yeah. I mean, the problem
with hedging, you see there's famous... You're
damned if you do, you're damned if you don't,
if you get it wrong. You're damned if you don't.
And sometimes it's better just to go with your
market. So if you're unhedged, you know, usually
prices will adjust so a whole industry doesn't
go under. You know, there's all these like feedback
loops that come into play. But if you hedge,
the worst thing you can do is hedge, make a ton
of money, then you've got a treasurer of your
company that's like, I just made $800 million
personally, a dwarf, the entire profits of the
business. Why don't you give me more capital
to invest? And that's been the source of a number
of like very high profile blow ups over the years
where somebody got a hedge right. Five years
later, they blow up. You know, the treasurer
starts becoming much more vocal, much more powerful,
starts running a team of traders and that therein
lie the seeds of destruction, because these things
are inherently unpredictable. I don't think you
can predict which countries will be at war this
time next year, for example. But if you're going
to hedge, that's probably a time frame that you're
looking at. Yeah, I think it's hard. In some
ways, it's better not to hedge. For example,
if you're an airline and you're only partially
hedged or mostly exposed to energy prices, as
energy prices go up, it's going to affect all
your competitors as well. So you'll all have
to lift prices together and that will soften
the blow. They're the kind of feedback loops
you can do when you're... when you hedge less.
Well, with your portfolio, if you're not going
to hedge, but I suppose you're purchasing assets,
you know, your global growth, you can go anywhere.
Does that mean that you focus on, like, say,
the Australian market or the international market?
Like, what do you do in that situation? Do you
look towards where potentially the currency is
favorable and try to, you know, maybe increase
the percentage weighting of, like, say, Australian
-based businesses that you like? Or do you just
go based on, you know, what businesses are the
best regardless of? you know, geographical locations?
Yeah, look, I think in our fund, in our strategy,
in our companies, currency is usually a rounding
error, right? Like we're targeting two and a
half to four X returns out of everything that
we invest in. And the movements on both the upside
and the downside are quite large. So it's not
really something that we take into account in
a major way. We're looking for the best opportunities
and we're going to risk manage them. One thing
I will say, though, is it's a huge part. It's
an unappreciated part of the dynamics of Australian
fund management industry. So maybe, I guess we're
getting older now, aren't we? Say 15 years ago,
you know, the Aussie dollar was really high.
You know, it was well above parity. And then
it dropped, you know, to 60 cents, basically.
It dropped 40 % plus. And that was basically
a five, I think some people calculated over eight
or nine years, it was a six or 7 % tailwind to
offshore funds. to Australian funds that invested
offshore to global funds. So some of those managers
were investing in very low return, basically
underperforming assets, but got like a 6%, 7
% or more tailwind every single year from currency
and massively outperformed anybody who either
hedged or anybody that was investing locally.
Effectively, they could market a 15 % net return
on very low returning stocks in a portfolio that
actually underperformed. Now, when the currency
has kind of been stable and low for a long time,
When that performance kind of vanished, you saw
a lot of these funds come unstuck. And I'm talking
about like some of the biggest names. Now it's
actually even worse. Now you're going to see
if this bull case continues and, you know, I
don't think anybody can say whether the Aussie
dollar should be at 80, 90 cents or 60 cents
or 50 cents. You know, these are things that
will come. As interest rates unfold, as the war
situation unfolds either way, the factors that
will drive it up $0 .10 or $0 .20 or down $0
.10 or $0 .20 all lie in the future. The carry
trade is really relevant to it. So there's a
huge suck of money into Japan out of other countries
as their market recovers and their interest rates
recover. There's so many factors that lie in
the future. But let's say there is a scenario
where we do go back to parity or even $0 .80,
$0 .90. That could be a 5 % headwind that every
global growth fund manager has to face. And there's
basically no currency hedge funds. That was something
that everybody did. The last time there was that
huge rip in the Aussie dollar, the hedge currency
funds did a lot better. But after so many years
of the currency falling and such a big disparity
between hedged and unhedged, basically all those
funds disappeared one way or another and the
money went to unhedged funds. Now we're in a
rising dollar environment, which is when you
want a hedge fund and nobody is really doing
it. And so it'll be interesting to see. If that
happens, how the industry reacts to a 5 % return
headwind from holding US dollar stocks or offshore
stocks? Something to think about. Yeah. I've
been thinking about it. A good mate of mine with
a currency fund knocked at the door going, if
you do this, you can do that. So, you know, got
to go see him Wednesday. Always interesting to
have a look into that. But the one question I
suppose everyone wants to know, right, is...
Where are we on the cycle? And let me tee this
one up nicely with our good old insider trading
friend, Nancy Pelosi, right? Come on, you have
to have a giggle. I love it that Trump and their
policy actually created an anti -insider trading
and called it the Pelosi bill or whatever it
was. So she sold out of, what was it, Apple and
Nvidia pretty much at the top, like $50 million
out of the top. which is a massive sign. I think
it was around about the Christmas, New Year's
Eve time. But what I found fascinating was she
did long -dated cover calls for, say, NVIDIA
at $100 with like a three -year strike price.
So the question becomes, considering using NVIDIA
where the price is currently now, it's mid -range,
is where do you think we are currently in the
cycle of this current correction and drawdown?
Do you think there's further to go? Do you think
essentially it's starting to stabilize around
about here or if this continues? Yeah, you know,
like we've been talking about war, right? But
the reality is this is the biggest technology
shift anybody's seen. Like it's enormous. And
you've got these companies like, I'll use the
Australian example, Atlassian, but there's a
host of them. Their business model is going to
be under threat and it's not going to be, it's
not under threat today by any means at all. Over
the next five years, absolutely it is. You know,
as contracts go. up for renewal as there's a
host of low -cost competitors, as people build
out their internal tooling, as new VC, it's cheaper
than ever to launch competitors to these products,
whereas in the past it would have required substantial
investment. I think you need to have a bull case.
I don't think it makes sense to just buy things
because they're down a lot because there are
huge risks out there. There's going to be immense
change. It's not like one big change that's going
to slowly happen. There's going to be many, many
twists and turns. There was a moment where it
looked like Google was going to lose search dominance.
Now Google is on top. They're building their
own chips. They basically got their own little
NVIDIA along with 9 billion consumer plus products.
All of a sudden, it's gone from the loser's basket
to the winner's basket. NVIDIA is doing exceptionally
well. growth there what if and i'm not saying
they'll lose money or anything goes wrong there
i'm just saying what if 2027 capex is the same
as 2026 capex you know that means their growth
stops what does that what does that do for them
in the market and where's the you know it's it's
it's hard it's hard to have a clear answer but
on the cycle comment i think we're still late
cycle you know, indices are pretty close to their
highs. You're just starting to see major indices
cross the average, which is one definition of
a bear market. So some companies are entering
a bear market. The other definition that they're
down more than 20 % was still pretty far away
from that on most major indices. They're probably
the two definitions I like most. And then you
have in Australia in particular, you had this
huge speculative or this huge increase in real
estate prices way beyond the capability. of a
wage earner to afford and the impact of that
has been softened by extremely high immigration
firstly and secondly the fact that there was
a lot of housing stock a lot of people made a
lot of money and the bank of mum and dad has
come in to help their kids you know get their
next property like there's been a huge amount
of equity creation as those prices have risen
that's sitting on australian balance sheets it's
softened the blow but that can only last for
so long sooner or later you need wage earning
Australians to be able to afford an apartment.
And that's a challenge. And you combine that
with a surprise uptick in inflation before the
war, another surprise uptick in inflation because
of the war. And it's kind of like, it's kind
of like a, it's a very, it's a very dangerous
situation. And I'm not the first to notice it,
but it's very similar to 2008. But actually markets
weren't down that much in 2008. There were isolated
credit blow ups and markets were rolling over.
But then actually commodity prices, that's when
oil went up to $150 and everyone thought we were
running out of oil. That's when shipping rates
went up from $10 ,000 a day to $200 ,000 a day.
There was this huge squeeze, which it seems like
if the war continues, we could see it again.
And that destroyed, that was like mid -2008,
that destroyed consumer purchasing power. It
sucked money out of consumers. By the end of
2008, it was catastrophe. The bank went under.
It was the shock that... It shocked the market.
And then markets sold off until March, April
next year. You know, it was the stimulus had
gone through. It was all the bottom came in six
months later. So that's like the worst case scenario.
But we are on that track now. Well, the interesting
correlation on OA, which I found very interesting.
Apparently the only two times where gold and
equities have gone up at the same time was 2007.
And don't quote me the year, but what was the
year of the tech? Essentially like the tech crash
previously. Yeah, the dot -com crash. When was
that? I think early 2000, then bottom. Yeah,
so the same thing happened there. The year before
that crash, gold and equities were rallying in
unison. And it was very interesting that towards
the beginning of this year, they were rallying
in unison. And now the other thing I say to mates
and clients, I always find it entertaining. They're
like, what do you think is going to happen this
year? I go, look, it's probably going to be the
exact same thing as the market goes up. And then
at some point when it gets overinflated, an event's
going to occur. No one knows what it's going
to be. It's going to be something random. No
one can guess what it's going to be. And then
everything comes back down again and it consolidates
to six months. The smart money's already kind
of moved into different asset classes. It's just
kind of like, you know, one comes out and say
the tech sector and goes into resources and then
everyone reassesses again and goes again. Pretty
much. Exactly. And I mean, what you often see
in these sell -offs is you see the growth stocks
sell off six months before. Which just so happens
to be about six months since they've picked.
They've got isolated sectors of the market that
have severe stress. So in this case, it's software.
The software boom was so strong and so long lasting
that it looks like some of these credit funds
seem to have, offshore seem to have 20 to 25
% of their loan portfolios to software companies,
which is strange because usually you think of
credit busts as being real estate driven. This
looks like there's a real credit bus going on
in software because no one really knows what
a loss -making software company that's growing
at 20 % is worth anymore because the outlook
is so unclear because of AI. It's extremely hard
to value. Before the AI revolution of only a
few months ago, so if you think about the chat
GPT era, it was like November 2002 to November
2005. Basically, it was just chat. If you want
to code something, you can dump the files into
a chat box and it'll tell you what to do. And
then Cloud Code in November wasn't even that
much of a better model than what you could get
a couple of months before. But they basically
hooked it all up so the output and the text could
go into your computer and the harness, it just
all worked. So you could actually get the chat
bot to control your computer. They also figured
out how to get agents running in loops and checking
things and breaking... big tasks into lots of
little small tasks that can be checked and accumulated
up. All that's only a few months old. So now
it's before that agentic revolution, you kind
of had an idea that these companies could when
they wanted to reduce headcount and turn on the
cash. And, you know, something's five or 10 times
sales, even if it's growing, was very justified
traditionally. But now you don't have that. You
don't have that. You don't have that comfort
that that's the case because there's just going
to be so much competition in software. The cost
to build software is so low, so easy to clone
bases. It's so easy to migrate them from one
language to another. Things in the past were
so difficult that people said never do them under
any circumstances or get bogged down for two
years. You know, all that has become trivial.
And so if you had some loans out to these software
companies, that puts you in a really sticky position.
I think the main fund was a BlackRock or Blackstone
just essentially had to stop all redemptions
because of that exact scenario. They had a massive
loan book out. But again, what people must understand
is just to understand this is not a conversation
to make everyone run for the doors when it comes
to private credit. You must understand that with
private credit, there are different types, right?
So Australia is predominantly... short -term
loans, like, you know, first mortgage, second
mortgage, short -term base, like, you know, six
months, 12 months, you know, looking, I want
to buy that house. And essentially, you know,
I need to sell my house first. You need a bridging
loan. Over in the States, it's completely different.
Like, they're three to seven -year loans, some
of them. Like, Blue Hour ran into a big problem.
So, but the other thing as well with these loans,
as you're mentioning, one of our friends knows,
Very good friends with one of the big founders
of a SaaS business. He said it took him about
four or five years to build that business. He
reckons it's about four to five months now. So
how in the world can yourself as an investor,
running capital, when you're looking at these
businesses, identify where to allocate money
in these fast -moving businesses that benefit
from the... ai boom when it's almost like it's
completely like two or three speeds on one hand
you're having the fastest arms race you know
as you mentioned you know in in tech in you know
literally arms uh but on the other side you've
got businesses that are potentially non -existent
or going obsolete at the same time they have
all this debt hanging out like how do you how
do you even think about allocating into markets
like that and how's it look i think you keep
it simple i mean we're lucky we've got a momentum
based risk management. So to some extent we will,
we can definitely get clipped 20, 30%, you know,
cause we try and stay long and invested through
the book, through the, through the long uptrends.
Um, but on the downside, you know, we should,
we shouldn't lose that much more than that. Um,
that that's helpful because that means you can
watch something like an Atlassian and just see
how they react. Remember there's, there's a two
way loop because if some of these, these CEOs
are all taking vastly different. So you would
have seen Block said they're going to cut the
headcount by 30%. Atlassian, I think it was 30
% in Australia, but maybe 10 % globally. I think
there were documents or Meta said they're going
to cut maybe 20 % of their workforce. There's
two ways that these companies can benefit. They
can either take full advantage of the AI capabilities
and generate huge efficiencies, in which case
they can... switch on the cash fountain, certainly
over the next few years, where revenues are actually
relatively clear. This is a change that's going
to happen over the next few years. It's not the
change that's going to happen over the next few
weeks. Some of these companies will actually
find ways to implement AI and get people to pay
for it. I think most of them won't. It doesn't
make any sense. We have a software -developed
business, so we're very much on the cold face
of this. You're not going to go... Like, for
example, to use Salesforce as an example, they're
trying to set up their own agents within Salesforce.
That doesn't really make sense. It's not the
best flow. Ideally, you have one language model
or a couple that you use across everything. You
don't just use it across Salesforce. You give
it access to your emails. You give it access
to your company hard drive, your company storage,
your company databases. And then by giving it
access to all the different tools, it can then
do a much better job. You're not going to go
to each different tool and use their own. particular
agent particular intelligence i've pretty like
that's that's that's like a thesis i have a pretty
strong view it could be incorrect but my view
is people will not use um a different ai agent
on every one of these software platforms so they
won't be able to get that long -term growth that
they'll need um in terms of where to invest i
do think that it's usually best just to keep
it simple like there's winners and losers in
this current regime stick to the winners avoid
the losers And the regime will change at some
point. But at the moment, it's pretty clear.
You know, there's immense CapEx. There's a handful
of companies. The semiconductor industry is extremely
consolidated. It is boom and bust. There's been
multiple booms and busts in, say, NVIDIA in the
last five years. You know, there was a crypto
boom and bust. There was another boom and bust.
And then there was the AI boom. So far, no bust.
It will be cyclical, but this is the regime we're
in. So I don't think it makes sense to fight
the regime. So I wouldn't want to be like picking
through the busted up software companies trying
to decide which ones are actually going to recover.
I think you need to see the evidence of that
and then maybe there'll be an opportunity. And
if there's a software recovery and a software
boom, it'll go for five years after a sell -off
like this. It's not something you need to get
right to the day. But to give you some warning,
like... instances where it didn't work like adobe's
gone down basically consistently everyone thought
git lab where companies it's kind of like a enterprise
version or enterprise enterprise version of github
where people keep their keep their code you know
that came out with results stock collapsed um
even even block you know 30 reduction in head
count still it's still not above its 200 day
moving average it's still still down over basically
any period of the last five years um it's it's
not clear and i don't think I don't think capital
is going to pour into those. And the fact that
Adobe trades at a P of 15, I mean, who knows?
You know, like BlackBerry, you know, grew for
years after the release of the iPhone and was
doing very well for years after it peaked. But
if you bought that, obviously it was basically
a one -way ticket down. Same with most media
companies. There are a ton of people that bought
media companies on the way down and they continue
to go down. Maybe Amazon and... Online and physical
retail is a good example. You know, Amazon, one
of the original dot -com companies, has been
around for ages. It was clear, it was super clear
where the dollars were going to spend, like people
were going to buy stuff online. And they grew
basically every year, even when the stock was
down, you know, 90 % plus or 95%. But at the
same time, you know, there were a ton of value
measures, one by one, year by year, that would
go into like Macy's or one of these like big
brand name e -commerce. And they all, you know,
just bled out. And there was no recovery. And
was there a solution for it? Was there strategic
ways those companies could have adapted? Possibly,
but very few found a way forward. You know, Costco
did well. Walmart did well. It probably concentrated
things into the handful of companies that were
big, had scale, and then eventually had the time
and capital to find the right strategy to do
physical retail well. But, you know, the whole
sector basically got annihilated. So did everything
advertising related, right? When advertising
dollars went to Google and Meta. So I feel like
you could do a lot of work trying to sort through
the software companies. Most of them probably
are going to lose. It's just not going to be
justifiable to spend, have 50, 10, 20, 30, 50,
$100 million expense lines going to a software
company. To give a local example, WiseTech, their
biggest client is building their own internal
software. Now, I think it was, I should know
this off the top of my head, but I think it was
DHL or somebody tried to build, tried to replace
WiseTech and failed, spent a fortune doing it.
And that was one of the reasons why WiseTech
was trading so strongly. Because everyone was
like, look, this huge company tried to copy their
software and couldn't. Now there's another company
that their biggest customers publicly stated,
it's publicly this company that they're going
to migrate to an internal solution. And you'll
only know this for the biggest companies. Now,
pre -agentic AI, that was still really risky.
There's a chance they'd lose way more than the
$50 or $100 million. I don't think it's disclosed
how much they spend at WiseTech to be the biggest
customer. But now, with agentic intelligence,
that this time next year is going to be vastly
better than it is now, you know, the... Claude
Code, they only have a few months of data with
which to improve their models. Soon there'll
be a year of data, a year of tens of millions
of people using it extensively with which to
improve the product. These things, these migrations
are not going to fail. They will be able to do
it with the help of intelligence. They might
have been able to do it before. And what does
that mean? What does that mean for a company
like WiseTech? It's not clear. But I don't think
these are safe bets. It's not. They're not safe
bets. And most of them, the Australian companies
actually are probably better at this, probably
because under pressure from fund managers in
Australia, very focused on profits, cash flows.
But offshore, a lot of these big companies, they
actually lose money. You know, the last thing
is never really made money. You know, look at
its income statement. You will not think this
is a mature, successful business. And that has
been hit twice. It was already so mature that
there was an up and coming like linear and alternatives
that were like, that were basically doing to
Atlassian what Atlassian did to the prior workflow.
Everyone's like, this is a better workflow. The
early leavers were already using it. The startups
that are switched on in Silicon Valley were already
not using Jira. They're already under threat.
And now they've got this other threat. They waited
so long to turn on the cash flow. that they're
actually now the mature company that's being
disrupted. So what do you pay for that company?
And can you, even if you get the price right,
can you get 2, 3, 4x return, which is kind of
the return you need to invest in companies this
risky? That's a big ask. It's a big ask. It's
a big ask. I like the TV show Silicon Valley.
It's hilarious. And there's a scene in there
where he's discussing, oh, Pied Piper, we should
do revenue. And the billionaire pops up and goes,
whoa, whoa, whoa, whoa, whoa, whoa, whoa, whoa.
Revenue, revenue. No, no, no. You want to be
pre -revenue. And the guy goes, but isn't the
point of running a business to show revenue?
No, Jeff Bezos is the goat. He never showed any
revenue. You want to be pre -revenue, so you're
a pure player. And everyone's like, how the hell
does that make sense? He goes, but that makes
sense. Otherwise, you'd be a two times dog, or
you could be a hundred times megastar. Nobody
knows, and that's the game. Yeah, I mean, it's
true. I mean, look at Adobe. That's trading on
a low P &R. It hasn't helped the stock at all.
i'd say like instead of obviously these aren't
pre -revenue but they're pre -gap profits and
that never seemed to bother anybody attract growth
attract growth investors um the problem is growth
investors have such a hard time like i don't
know if there's any left but who imagine if you
like were bought a long -term position in in
atlasia and was like i'm gonna hold this for
10 years Um, and actually, you know, you probably
bought it a billion dollars of revenue and now
it's doing 5 billion, you know, and that's over
a short, like five, six, seven years, like a
short, like they've actually executed. They've,
they've built a huge amount of revenue and that's
not an easy thing to do. Um, but you know, you
had the, you had a 70, 80 % drawdown in 2022.
And again, again, now, um, how do you even justify
that? Like at that point, you're just wrong.
It's not. So what do you do in this situation?
I heard another very good trader out of the States
said the money has come out of the MAG7 and it's
going towards more the bottleneck now, like companies
like Lamb Research and other components type
companies that kind of play into some of these
larger businesses. Are you finding that rotation
is still there or it's kind of run its course
on the bottleneck side? I mean, one of our big
winners was a company called Ticker AI. And,
you know, there's just this rolling shortage.
You know, it was memory. Now it looks like it's
optical companies who can network these GPUs
together so they can handle large models, large
training runs. There is this rolling shortage.
And funnily enough, NVIDIA hasn't been the top
performer. That's gone sideways down. Better
part of the year now. Or certainly the last seven
or eight months. Look, I think one thing that
is interesting is I think actually big tech and
the mags, I don't know about all the mags 7,
but most of them are positioned really well.
So if I think about winners now, it's probably
the right semiconductors, anything defence and
commodity and energy related while the war goes
on. Industrials that are related to the data
centre build out. Even if you're selling refrigeration
units and you've got 10 % extra demand, these
are stodgy, cheap, cash flow generating businesses
that all of a sudden have got growth. You know,
they've been really strong performers. But the
other one, which is probably the easiest one
for people to access, is the NASDAQ 100. Like
I go through that top list of companies, I'm
like, wow, each one is positioned well. Like
Google, you know, was it 9 or 11? Yeah, about
nine, maybe nine separate businesses with over
a billion users, like Android, Chrome, Gmail.
You know, you can just go through the list. And
they've got their own GPUs. And they've probably
got some of the best models, not necessarily
the best models in every category, but some of
the best models. Then you go through Microsoft
and AWS and Amazon. Huge beneficiaries of compute
spend, whichever large language model is winning.
It's got to be hosted somewhere and big people
are going to host it on Google, Microsoft or
Amazon. Amazon's got huge efficiencies. When
I think about AI and robotics, they're probably
the clearest beneficiary. They're going to have
an unassailable lead in what they do. They already
have an unassailable lead. Now that it's going
to require huge capex in robots and AI robotic
technologies, the lead's just going to continue.
And they do have the lever to cut staff. Meta's
an interesting one because their Lama model is
way behind and might be so far behind that they
can't catch up. But still, if you need to advertise,
it's either Google or Instagram and Facebook.
It's one or the other, typically both. They've
still got the billions of users. What else do
we have? Apple missed the CapEx spend, which
now looks genius. And they've also got these
phones and computers, which they invested in
their own chip designs with Broadcom, which is
also... I guess, top 10 stock in the NASDAQ 100,
also a beneficiary. And those chips just so happen
to be perfect for running local large language
models. And as those models get better and better,
the ability to run them locally is insane. You
don't have to pay anything. If you buy enough
hardware, they can be super fast. You don't have
to share your data. It's quite likely that companies
do this, that they host their own models. You
can just go through that list. I don't know if
I've missed any of them, but the top... you know
the top 10 companies look really really strong
and if you look at their numbers as well they're
growing eps at 25 35 probably on average 20 to
25 and all things equal and they're not trading
expensively they're not trading dirt cheap but
they're not they're kind of middle of the range
to get that 20 25 earnings growth in the next
few years that's going to be most Well, it sounds
like from this conversation, the biggest risk
to current markets is just human beings and psychology
and just behavior, like how people will perceive
these events to unfold and just a good old -fashioned
run on the bank if what you're saying is accurate,
that these companies are actually looking quite
healthy in particular spaces. Is that what we're
looking at predominantly, just like a run on
the bank? Yeah, so the big tech companies are
rock solid. The small companies are under huge
pressure, but it is true. Like, as you say, this
is narrative driven. You know, this is a run
on those companies. For this run to continue,
for the bear case to manifest, it's going to
have to show up in the numbers. So over the next
this year, we've probably got three quarterlies.
Actually, yeah, we've got all the quarterly reports
for this year yet to come. Obviously, last reporting
season was the end of last year. If Atlassian
is going to continue to go down, at some point
it's going to have to show up in the numbers.
You know, at some point they're going to have
to, their pricing is going to have to come down
or they're going to have to start using losers,
losing users. If they continue growing and generate
efficiencies and get to gap profitability and
all of a sudden there's a gap EPS growth story,
then the bear case is wrong and people will pile
back in. At the moment, everybody's just guessing.
It's purely narrative driven. This is what makes
me wonder, you know, how this is all going to
play out. If you look at how Trump and the government
are currently behaving and operating, if the
war would have kicked off in the Biden times,
we'd have been screwed because it's kind of like
Australia. We're screwed a bit. We've given away
too much. Oh, perfect one. Perfect one was, I
can't remember the name. Is it Pocock? Pocock's
been out and about. Some absolute great memes
from that guy in Australia. He worked out that
Australia's making... 2 .5 billion dollars in
taxes out of alcohol taxes, beer. Meanwhile,
our gas from exporting is only 1 .7 billion.
So we're making more tax income from selling
beer than exporting our gas and oil, which is
one of the biggest exports in the entire world.
It mathematically makes no sense. But then if
you look into it deeper, Australia used to have
12 refineries. Do you know how many we have now?
We have two. We have two refineries. But the
reason why I'm bringing this up is I'm just finding
it a very interesting, you know, world politics
right now because the current US government almost
went intentionally with the tariffs, dragging
everything back in, cutting the deal with Nvidia
where they get 25%, right? They've almost...
dragged everything back in, fixed up essentially
the base, and then gone, right, let's go try
to solve a whole bunch of problems. If Australia
tried to do that right now, it wouldn't really
work because, you know, it's leaky. But I don't
know. I'm just wondering. It's been politically
mismanaged. And it's kind of clear where all
the money's gone as well. So, you know, look
at Norway and look at – there's so many different
examples of countries that had – extensive resource
wealth and some of them managed it really well
and some of them did it. And companies like Norway
have like this huge sovereign wealth fund that
is, you know, one of the major holders of every
equity and it holds on behalf of their citizens.
And there's all kinds of benefits that accrue
to everybody because of that. We haven't done
that. You know, there was that attempt to do
a mining tax, which got defeated. And also, ultimately,
we've gone down a different route where it's
extremely high welfare, extremely high welfare.
like the NDIS, you know, a whole new welfare
program that's going to exceed defence shortly.
That money's gone. It's every year. So it might
only be $50 billion this year, but it's probably
$700, $800 billion over the next decade. You
know, that's wealth that is out of everybody's
pockets in the country or is out of the nation's
pockets. And that ideally would be sitting in
a sovereign wealth fund, which could then easily
afford... to look after civilly disabled. Similarly,
if there was some kind of way of capturing more
of that resource wealth, but it just hasn't been
done. It's kind of been mismanaged on both ends,
on the spending and on the revenue. But, you
know, NDIS wasn't really put to a vote, certainly
not in the state that it is now. Mining tax was
put to a vote, so that was a live political issue.
So I don't think you can really blame anybody
for that. You know, that was something that the
nation decided collectively. But while I was
mainly bringing it up from a growth stocks perspective,
it's kind of like you're looking at foresight
of it all. Why would the US go to these military
war times if they didn't feel their base was
stable, right? And the definition of why, if
they felt their home was stable, what does that
mean? Well, that would mean that they feel comfortable
that they've brought in enough domestically to
essentially not repeat COVID where essentially
you can't. move a car because you're missing
like a transponder or like like some some views
or something silly like you know a gas line or
something the equivalent which you know because
they make it out of you know china or something
the equivalent i kind of feel like they've nationalized
and then they've now they've gone outbound so
i'm just i'm just really starting to wonder with
these this current market cycle we're in is this
you know sell the rumor by the fact If companies,
as you're saying, are looking quite healthy,
but we are seeing this profit taking off the
lofty highs, or are we going to see like a March
step out of COVID where all of a sudden it just
drops again another 20%, 30 % before it stabilizes?
Look, I think that lies in the future. It really
lies in the future and the outcome of this war.
I mean, like I said, our risk models are basically
like stay long, but they're rolling over now.
from complete risk on to complete risk off. I
think the points you made about the United States
were really interesting. You've got to remember,
like, they're the biggest energy producer, right?
Certainly one of. And their companies are now
making hundreds of billions of dollars of excess
profits at these current prices. Now, it's quite
unlikely. It's quite possible that, you know,
the spot price today is not the price that they
realise over the next year. But at current spot
prices, they're going to make an absolute fortune.
And then on the AI stuff, they're the major beneficiary
there as well. Other than the Chinese labs, the
vast bulk of the spending will happen in the
United States. The boom is centered, the CapEx
boom is centered in the United States. And it's
the U .S. big tech companies that will be building
most of the data centers and managing most of
the AI revenue. Most of the AI revenue around
the world will flow through those U .S. big tech
companies. U .S. is sitting very strong. And
you mentioned earlier - Plus the weaker U .S.
dollar, right? If you look at how China was built
when they pegged it against the U .S. dollar,
an intentionally attracted income into china
because it was cheap to build right but and that's
trump's thing said multiple times that he wants
essentially the us dollar to be weak to essentially
attract money to come into the states to essentially
grow back up again before re -strengthening it
yeah i mean if you're a domestic political leader
lower yeah it's it's obviously hugely beneficial
um the other thing is interesting is you're talking
about venezuela Like, it's pretty interesting
geopolitically. I mean, China is a massive loser
here. Like, they've lost Venezuela, their ally.
They're all producing ally. They've lost Iran
now. They're all producing ally. People have
seen on TV, you know, the Venezuelan president,
I guess it was, being kidnapped in a helicopter
and the Iranian leadership killed in airstrikes.
Like, imagine how it feels from Shisi. And then
also they've got... to deal with high energy
prices. They're not energy producers. They don't
have that release valve the United States has
or Australia has. They're going to have to cop
it. And they've lost these energy -producing
allies. So it's a really tight spot for China.
And to be honest, it's probably good because...
Most people who seem, most people closest to
it say that they actually are serious about taking
Taiwan. And I think, obviously, we're not really,
we're kind of straying away from markets. But,
you know, there was a meeting between Xi and
Putin right before the Ukraine war. There's no
doubt there were secret agreements done there.
China's support or acquiescence to Ukraine invasion
returned to some kind of Russian support over
Taiwan. Now, the Russian thing was a disaster.
for Putin, no matter how you cut it, like it
wasn't what he was expecting. And if he knew
it was going to be a four -year stalemate, there's
no way he would have done it. So that was one
thing. And then now to see the United States
military capabilities against their two other
allies, Venezuela and Iran, who they completely
depend on for energy, to see their leadership
get decapitated or kidnapped and potentially
those oil flows going onto the international
market. where they kind of benefit everybody
because China's playing below market, this is
a huge loss. And it probably makes Taiwan probably
much safer from the failure of the Russian invasion
in Ukraine and these military actions. In that
case, that's a good outcome. Well, I think this
completely impacts markets, definitely from like
an asset allocation. I know the space that you're
playing. You're playing growth. You're playing
the life sciences, right? These companies will
either fail or essentially benefit from these
major macro changes at a massive scale. It's
just going to reshuffle the deck, so to speak.
Everyone thought that this is how it was going
to go for 20 years. Now this has just turned
on its head. But we discussed it off air. Why
don't we actually get into it? You also, just
a different perspective, you run a business,
another business, right? So you run, what is
it exactly again? Because we're always discussing
stocks and everyone's thinking like as an investor,
how do I look at these businesses, you know,
outside in? And why I like this analogy, it's
kind of like when you're listening to a, you
know, Wayne Rooney or something like that that
used to play, right? He's got an opinion when
he was actually playing. Now he's a commentator.
He can't play. He can't actually impact the game
and kind of sitting on the sidelines and kind
of taking backs with his tab account, right?
That's kind of how sometimes it feels being an
investor. But you're running, what is the business
you're running? How are you, you know, seeing
things from, you know, running a business? How's
that impacting you? Yeah. So I'm more of a shareholder
than running it. So 50 % shareholder of a software
development business where we basically build
software for clients. So maybe 25 clients, all
kinds of different startups, levels of maturity,
but generally early stage, early stage stuff.
You know, the people probably had 20, 25, probably
25 staff. We're cutting that down. We're cutting
it down by 70, 80 % because of these new technologies.
Wow. And how that's helping us is, you know,
a project that, how would I put the numbers?
Let's say it was a 75 to 100K build. We can now
price that at like 20, 30, 40 and basically keep
most of the bulk of the margin. So we've cut
the cost of the project massively, but because
the cost of delivery is so much cheaper, we're
still doing roughly the same. But it's been interesting
because we've had to have all those conversations
internally. And there was huge resistance by
some people. Basically, there were three years
in the ChatGP era from November 2022 to November
2025 when Cloud Code got launched. There were
so many issues with using AI. You know, it hallucinated.
It couldn't handle large code bases. Couldn't
be trusted. All that changed overnight. And then
it's not just me. Like, I could see it because...
I went from being able to not do some of these
projects to actually being able to. So the change
in capabilities was obvious to me, but like the
real leaders, the thought leaders in the United
States, the car pathies, the people that built,
you know, Tesla self -driving, you know, the
people that built Linux, you know, these people
all came out and said, all of a sudden this stuff
works for coding, whereas it didn't before. And
whereas they were... skeptics for the last three
years so a software developer i'd be like well
look what these leaders are saying they're all
saying it's not good enough all of a sudden those
leaders said actually this is wild this is the
biggest thing that's happened in software ever
this is the first time the biggest change in
writing software since you know since software
started being written um and then yeah they're
pretty fierce arguments i feel like now the arguments
are pretty settled like three or four months
ago it was ahead of the game to be saying these
capabilities are enormous everything's going
to change batten down the hatches Make sure you're,
I think I read a piece saying, you know, safest
in the barrel, like be at the forefront. You're
safest at the forefront using these capabilities
to the absolute maximum. That's probably the
safest place to be. Because at least then you're
useful because you're useful to people because
you're using them. You're using the capabilities.
And, you know, even now, like we've done a number
of projects using these capabilities. And so
we have one eye in the land of the blind. You
know, we have like some minimum level experience
that somebody who hasn't used them to this extent
has. um but it's interesting also it's also interesting
because a lot of these tools i've never actually
used but obviously software business users. So
we have engineers who have like very strong opinions
on MongoDB as a database or Jira as project management
or all these other companies. In the past, I'd
only seen through an investor lens. All of a
sudden I was seeing from a user lens and, you
know, paying business owner who has to get the
bills and seize them and can calculate, wait,
should we just build this ourselves? Can we just
use WhatsApp? Like how robust is this? You know,
okay, if we have a team of 20, can we just ship
this tool? And like maybe it's just, $30 a month.
But if you've got 20 people, that could be 10
grand, 10 grand here, 5 grand there, 10 grand
there. All of a sudden you're spending 30, 40,
50K and we're a tiny business in the scale of
things. You know, we talk about WiseTech, you
know, they're in the tens of millions of dollars.
And you can actually run those numbers on what
it takes to replace a tool. And there's no doubt
that it's going in that direction. Like the future
of probably work is basically databases and data
sources, whether it's Excel files, whether it's
just... databases, and then using AI to interact
with that directly. Not going through Salesforce,
not going through some middle platform. You do
not need that middle layer. That middle layer
just gets in the way. You've got your data, you've
got your sales data, your customer data. Whatever
it is you want to do with that, maybe you want
to email every person. Maybe you want to email
every person with a personalized comment. All
that stuff can now be automated simply by typing
that in. to a large language model like i really
i'm like super bearish from all these companies
long term i don't know about the short term i
do know they're very oversold and i understand
how people can i i you know i that's what makes
a market right i i understand why people are
running the numbers and will buy the dip especially
when they're down 75 percent especially when
the 10 -year valuation lows but you know personally
i think it's I don't think it's a safe place
to bet. I don't think it's a high returning opportunity.
I think they're bottom feeding opportunities
where maybe you can make a 50 % or 100 % on a
bounce. But in my mind, there's no doubt the
world's going in a direction where most of these
middle layer of software companies are simply
not needed. You know, you'll interact directly
with your data and anything you need will be
generated for you. Just say, this is what I want.
And maybe you just need one smart person in a
business who... builds like some useful tools
on top of that data layer. Whereas in the past,
there might've been literally thousands of people
or certainly large teams of people managing this
software. So yeah, I mean, it's given interesting
perspectives to see that stuff from inside and
to run those numbers on Byverse build, even at
a tiny scale. So yeah, be careful out there.
I think it's a difficult time. Like we have our
risk management thing. We're basically aggressively
long in most environments, but we do have a way
that we're going to exit and that will happen
based on price. It won't rely on our judgment.
It won't depend on our judgment. It won't depend
on predictions of the future. I think if you're
going to invest in these kinds of environments,
you need something like that. You know, taking
a long -term view and buying something when everything's
up in the air. And it might go your way, but
it might not. And the reasons why it goes your
way or doesn't all lie in the future. I think
that's a really dangerous way to invest at the
moment. The one last thing which I want to get
into, this is just a good old personal one for
me, which I find fascinating. My kids do nippers
down at Balmoral. If anyone wants to do nippers,
it's awesome. Get your kids into the nippers.
Give it a plug. fun you know it's great but what's
interesting on the beach everyone's discussing
how AI is starting to impact their lives and
a number of the families including us have realized
that AI and like AI tutors in education for the
kids they always say like you know with businesses
you know the parents control the wallet of the
kids spend for all particular things how have
you seen You know, AI -based tutors, you know,
potentially revolutionizing. Have you seen anything,
you know, regarding the education space? Because
I know a lot of the stuff you spoke about in
your business you're covering is like, you know,
AI largely involves improved work, improved efficiencies.
Have you seen this kind of really hit, say, the
education piece yet? I sadly don't have kids.
I don't have personal experience. But I will
say, yeah. When I was studying, I used to do
the Chemistry Olympiad, really hard questions,
and there's no answers in any books. You'd be
going through university textbooks trying to
find some kind of clue. At the moment, you'd
be able to personally advance so much faster
by getting a detailed explanation on anything
you want and then just saying, dig deeper. What
does this mean? How does that? And if you had
the AI tools that kind of do some of that for
you so they give you the next step. which I think
is basically where AI goes. Everyone's trying
to put AI chatbots on their websites. I think
it's too much work for a user. At least if a
user wants to speak to their data. I'm like,
oh, I want to speak to my data. I don't want
to do that. I just want to see the stuff I need
there and the next steps and click or direct
it. Yeah, it comes back to that stay in the barrel.
Be at the forefront. Use all the tools. Google
was amazing. You could just type things in and
get like a Wikipedia page or something. But this
is like complete next level. I can explain it
in as much detail as you need and give you infinite
practice problems with work solutions. You know,
all these things that would have been so useful
back in the day that we had to spend so much
time sourcing and maybe found a handful of questions
on a particular problem and that was it. And
maybe there was no work solutions or maybe no
solutions at all. So you didn't even know if
you got it right. It's barely helpful. You know,
that's... you can you can be smarter you can
be better you can use this intelligence to make
you smarter to know more about more things um
and yeah i think it's super interesting like
even personally definitely i'm definitely talking
my own book and i'll give you something to uh
me to have a look into i'd love to hear your
opinion next time we talk so it's called alpha
school it's currently one of the fastest growing
schools um in america have you heard about it
i think i've heard about it yeah is that It's
Mackenzie Price and Joe Liedman worth $6 .6 billion,
but I think it's been going on for about 10 years
now. But the comment Joe made was, to your point,
when these large language models came out, he
realized now he can actually scale the business.
What's interesting, what they're discussing is,
like imagine this, right? They're saying that
if you go to classroom, my kid's in year three,
if he would have gone into that class, there
would have been 31 kids, right? I don't know
how you learn anything, right? But imagine you
had an AI program that could teach reading, writing,
maths, like the whole nine yards. But a one -on
-one chewed up that just like, you know, how,
I don't know, Suri knows you really well. Then
they know exactly who you are, how you operate,
how you think and communicate and the instantaneous
gamification of information and feedback. Like
it's insane. So this has been going for 10 years
now. I'm looking into it personally. They have
their entire thing is they call it two times
learning where they only do their education piece
in the morning. But instead of taking six hours
to teach coursework, they knock it over in two
hours. Then you get the afternoon. So when a
kid hits 12 and 13 years old, they have no longer
teachers. They have a thing called guides where
their entire thing is to figure out the kid's
purpose. Like I'm different to you, Michael,
and find out what you want. They help the kids
go build businesses. produced her first ever
broadway musical live there's you know tech week
was on what a month or two ago yeah one of their
students a 16 year old kid essentially built
uh you know some tech app or something equivalent
to standing ovation at the event like it's unheard
of i just i'm just it's fascinating how everyone
discusses how it's impacting businesses but i
just wonder how you know, this AI revolution
is going to impact, you know, education because
it's happening over in the States and whenever
it's going to hit here. And can you think about,
imagine having the ability to, you know, have
a crack at starting your own business at, you
know, 15, 16, 17 years old, instead of waiting
until 25 years old and finishing a degree that,
you know, you spent a bunch of money, you couldn't
get a job for it. Isn't it just crazy? I reckon
that's the path forward for education. Because
if you think about it, there are going to be
heavy, heavy job losses. There's no way around
it. Like even in our firm, on a small scale,
on a medium scale, on a big scale, there's already
big layoffs being announced in the United States,
big layoffs announced by local tech companies.
But what's staying the same is you've still got
a lot of people glued to their phones. It's still
super easy. It's cheaper and easier than ever
for a million. It could cost you in the order
of thousands of dollars or certainly like $10
,000 to get a product in front of a million people.
If you have agency and you're building things
and you can create something, maybe not on the
first try, maybe on the fifth, sixth, seventh,
20th, 30th time that a lot of people find useful,
you can get that in front of millions of people
for very little. So in some way, it's like this
huge opportunity for people with that agency
that are willing to learn how to use these tools
and build things. And it's a super scary and
super exciting time at the same time. So, yeah,
I mean, I don't know much about it, but it sounds
like that's exactly what an education system
should be doing, you know, tailoring it, finding
people's interests, getting them to, you know,
think and then to potentially do things and helping
them get through the roadblocks. They want to
start a business, start a business. It's wild.
And it's not just businesses. It's even the arts.
Like you mentioned Broadway musical. We'll post
a clip. If it's good, you're going to get millions
of views. Actually, that was one of the main
things they're discussing is you have all these
things. Don't be a user, right? Some of the kids,
all they want to do is play Fortnite. Christ,
they're a 15 -year -old kid. I would want to
play Fortnite being a 15 -year -old kid. But
if you knock over everything in the morning,
then you get your privilege. right? Good old
word, privilege. Your privilege is you get to
play Fortnite, but you're not just going to play
Fortnite. We'll teach you how to essentially
build a business with Fortnite. We'll teach you
how to stream, how to create content, how to
get users, how to essentially get a donations
account, actually making a business and make
it work for you. You can still have fun, but
actually to give you the skills. So then when
you hit 25, the other one is with music. The
other one's with music, right? Say you're just
an artist. Could you imagine essentially being
in the 70s? And then you make like Guns N' Roses
or something equivalent, you sign a contract
and 50%, you get 50%, but all the costs end up
in your bucket, you end up being broke. Isn't
it amazing that an artist like, you know, a painter,
a musician or something equivalent, they may
not what they've been inclined. Using AI as a
tutor could potentially just open their eyes
to actually ask the question, do I need a lawyer
for this instead of signing the contract? And
then, you know, giving away the next 20 years
for the one song that I made, that was amazing.
I just, I think it's going to be great. Everybody,
we all need to stay at the forefront, whether
we want to or not. None of us built this AI.
None of us have any control over the direction
and the pace of the change. All we can do is
really kind of try and be at the forefront and
take full advantage of the tools and the intelligence
that comes to us. Always been fun chatting to
you, Michael. Is there any thoughts you want
to leave everyone with? I think we've covered
a lot. Thanks so much for having me on, mate.
It's been a pleasure. It's always having fun
chatting with you, Michael. For anyone that wants
to learn more about Michael Frazis and Frazis
Capital Partners, how can they find you? Just
go to www .fraziscapitalpartners .com and you
can follow us from there. Fantastic. All right,
Michael, catch up with you soon. Thanks, Murdoch.
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