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Hi, I'm Murdoch Gaddy and thanks for listening to the Rate of Change with York Wealth Management.

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The Rate of Change is a podcast which explores the ever shifting momentum of financial markets

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through the eyes of the leading managers in wealth management.

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In today's Rockcast, I'm really excited to speak with Nick Thompson, the portfolio manager

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at Lakehouse Capital Global Growth Fund.

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Lakehouse Capital is an Australian-based fund manager launched in 2016.

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They have a long-term investing approach targeting asymmetric outcomes for a high-conviction

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strategy in mid- to large-cap growth companies outside of Australia.

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Based on January's fund fact sheet, the fund has averaged 13.6% for the past five years,

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saw the highs of 2021 with returns in the 30% region before experiencing a drawdown

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alongside most gross managers due to a rising rate environment.

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Recently the fund's up 10.9% for the past month while still being down 15% for the year.

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Today we dive into some interesting topics which are the forefront of most investors'

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minds such as where they think the market's going in this rising rate environment, how

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the fund is positioned to either defensively deal with the volatility and take advantage

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of this volatility, and we also cover specific holdings in the portfolio.

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I found the conversation on Google and Microsoft fascinating, specifically regarding chat GPT.

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For a giggle, I asked chat GPT via OpenAI to write a one-of-a-kind investment quote

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based on Lakehouse's investment approach in the style of Warren Buffett and Howard

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Marx.

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Successful investing requires a combination of rational analysis and emotional discipline.

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It's not about trying to predict the future, but about recognising and valuing the opportunities

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that are present to you and having the patience and conviction to hold onto them for the long

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term.

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Quite remarkable, isn't it?

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So with that being said, I hope you enjoy our conversation with Nick as much as I did,

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so sit back and relax and enjoy it.

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Nick Thompson, welcome to The Rate of Change with your Cloth Management.

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Good to see you Murdoch, great to be here.

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Why don't we kick things off and why don't you tell us a little bit about yourself and

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how you got into financial markets?

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Yeah, sure.

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Look, I think for me getting into finance was very much sort of a natural progression

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from early on.

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My father, he worked in the industry, so I was always around from a very early age, even

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by high school.

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I kind of became fascinated with really trying to understand what drives asset prices, aside

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from underlying fundamentals.

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It was pretty clear to me that there was also a significant sort of irrational and erratic

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nature to markets that was largely related to human psychology.

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That curiosity naturally led me to Sydney University, where I studied commerce and then

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after that I did an additional year where I did finance honours and I was studying behavioural

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finance.

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In terms of my professional experience to date, prior to Lake House, the bulk of my

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experience was with Dakota Capital.

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They're an investment firm that focuses on private markets.

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I was there for about six years and we typically had more of a distressed lean there in terms

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of our investing style.

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I actually joined that shop pretty early on, was employee number four.

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I was also fortunate enough with them to actually get the opportunity to live and work over

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in New York towards the end of my time at Dakota, which was obviously a great experience.

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Fast forward to 2018 and I joined Lake House Capital.

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Ever since then, it's kind of been head down, bum up, very interesting markets and I've

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been directly focused on the Global Growth Fund.

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New York, New York.

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Something like that.

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Good place to cut your teeth.

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Very much so.

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So let's talk about Lake House Capital Growth Fund.

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What is the philosophy of the fund?

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Our approach is very much anchored around our philosophy.

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I mean that we are long term concentrated and seeking asymmetric setups.

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So that is in situations where we feel we have multiple ways to win and few ways to

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lose.

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In terms of I guess what makes us unique, I would say there are a few things, but I

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think the big one is really our focus.

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That really starts by being clear on where we don't want to invest.

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So we'll typically avoid commoditized, cyclical and capital intensive industries.

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Bank, airlines, real estate, auto manufacturers.

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As the reality is, the bulk of companies in these industries just aren't good businesses.

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Their fortunes are often determined by a number of external factors that are beyond their

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control and over the course of the cycle, they tend to earn pretty poor returns on capital.

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So for us as long term investors with very much a long term time horizon, it's a risk

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we're not really willing to take investing in those types of businesses.

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Instead for us, we focus on trying to find companies with one of three core economic

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models and that's really centered around network effects, extremely loyal customers and unique

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and enduring IP.

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We believe that these core economic models are the primary driver of companies resilience

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and durability and over the long term allow them to earn excess returns and compound shareholder

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capital.

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So that's why we have a deliberate focus on them and this is what we refer to as our fascinations

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in house.

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So I guess to give you a sense on one of them, extremely loyal customers, just so it's a

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bit clearer to you because it can sometimes sound a little foreign.

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What we're really looking for there is really companies that have products and services

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that are deeply embedded in either an individual's life or a business's process.

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So companies that are really kind of maniacally focused on customer satisfaction and retention.

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Obviously the more mission critical these products are, the deeper the lock in as there's

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pretty significant costs in terms of operational risk and also time and money to change to

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a competitor.

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When you find these companies, they tend to be in a very powerful position and there's

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a number of things they have, but the top three I'd say is very valuable, recurring

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revenue streams tend to have a significant degree of pricing power and also often under

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appreciated in terms of their ability to develop new solutions or cross an upsell.

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So I think we think a number of the companies we have in our portfolio are almost akin to

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sort of modern day digital utilities in that sense.

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And really I'm talking about our enterprise software holdings, our e-commerce positions,

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our payment processes for example.

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So I guess that gives you a sense of the philosophy and the type of companies we're after there.

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Enduring IP, give a bit of colour around that?

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Sure.

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So I guess on the IP front what we're really looking for is businesses that have intangible

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assets that essentially lead to pricing power but aren't captured on the balance sheet.

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So I think brands, patents come to mind, I think the most obvious one for people to really

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relate to is consumer brands.

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So if you think about MS with their Birkin handbags that will go for anywhere from call

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it $20,000 to $60,000.

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The question you have to ask is why is MS able to sell that Birkin handbag at extremely

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high gross margins and make a ton of money?

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Why are people willing to pay for that?

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And in our view it's the unique and enduring IP that they have and that they've built

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up over more than a century in terms of building up that brand.

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I guess to really think about it from the consumer's perspective it's what does that

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do for the individual?

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And at the end of the day it says, hey, look at me, I have a lot of money and it turns

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out people will pay a decent premium if they can have a product that conveys that social

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status to other people.

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So that's kind of an example of something on the IP front.

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So with the mandate of the fund, how is it structured?

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We have a pretty broad mandate in terms of what we can invest in from a geographical

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and industry perspective.

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That said we have typically and most likely will continue to be sort of skewed towards

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developed markets.

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We do have a bit of emerging market exposure but that's typically around about 15 to 20

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percent of the fund.

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But we are long only.

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So that is we do not hedge, we do not short, we do not use derivatives or options or anything

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else there.

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It's purely long only.

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And as I said earlier on, high conviction concentrated approach.

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So we'll only ever have between 20 and 30 positions in the portfolio at any one time

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and at the moment we're kind of on the lower bound there around about 20, 21.

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I guess the only other thing from an investor's perspective is maybe around liquidity.

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So the fund is not listed but we do have daily liquidity so a very liquid fund.

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What's the size of the fund?

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Two hundred and fifty million.

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Is that AUD or USD?

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AUD.

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And how can investors access direct?

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Is it on platform?

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Yes, we are on platforms and they can also come direct.

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So there's plenty of different ways to invest but we do not have a leak at the moment or

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anything like that.

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It's not listed.

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Would you consider that?

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Or actually here's a question, right?

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Because a lot of people want to know pros and cons between having a listed version of

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the fund compared to just having a private.

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Why has Lakehouse chosen the private path?

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I think that is just the way we did it initially and the way the fund is set up.

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I think we've had discussions about possibly doing a leak.

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I wouldn't say it's something that we won't do.

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It obviously has some access benefits for investors.

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Makes it much easier for them to trade just like another stock day to day.

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So I think we've thought about it.

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But to be honest, I don't think we've had a huge amount of inbound demand that has made

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us think that this is something super necessary we need to do.

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I mean most investors are pretty happy with direct access to the fund and also the platforms

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that we're on like the NetWells of the world and everything.

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Is there an amount of money in the fund where it essentially reaches a cap and then the

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fund doesn't make sense?

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Or is it essentially an unlimited fund?

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You have the capacity to run billions?

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I think for the global fund, we're only 250 million in AUM.

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So one thing I will say to you with certainty is that capacity is not an issue for us.

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If we were sitting here having discussions around hitting our capacity limits, I would

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be a very happy man.

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What is the capacity limit?

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So look, we've got a small companies fund, which you would obviously you're familiar

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with.

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That's got a capacity limit around four to 500 million AUM and that's really liquidity

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driven, right?

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You rule yourself out of certain opportunities and it gets a bit harder to run the strategy.

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So we've made that sort of decision there.

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The fund is open at the moment though.

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Look, there's a number of different ways you can calculate capacity.

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For us, we tend to be mid and large cap focus.

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So it's incredibly liquid.

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I mean, we're talking, you know, it might be 10 plus billion before that would really

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become a concern for us if we were thinking about constraints or our ability to invest

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in the smaller end of the market.

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How's the performance been with the fund?

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Since inception, we've caged, I think it's roughly around 12% after fees, which compares

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to our benchmark of need to recheck the latest exact numbers, but roughly around 8%.

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So I think there's about 4% of alpha there.

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So, you know, in terms of what we're trying to do for investors, you know, we're very

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happy with it.

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It's really generated decent, not just absolute, but relative returns to our benchmark.

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So we're quite happy.

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The fund is a little bit over five years old now, which is also pleasing.

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It's a decent track record.

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We get a little less questions about being very young.

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So we're pleased with that.

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Probably 2022 was a challenging year though, as it was for many equity managers, especially

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long only and growth focused.

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But you know, thankfully, things have started to turn around the last few months.

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We've seen a few green shoots and yeah, we'll see what happens from here.

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It's been a very interesting past five years.

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That is true.

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I can tell you I've lived it.

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Actually, this is a very good point regarding on those five years.

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A lot of people want to know as well as how do you manage the volatility in the portfolio?

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Do you have the you have the capacity to go to cash?

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How much cash could you go to?

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Have you gone to and essentially how are you managing the volatility we're saying?

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You know, a lot of people consider volatility risk.

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I would definitely argue against that and say, you know, the volatility we see in markets

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day to day is more or less an opportunity as long as you capitalize on it in the right

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way.

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So, you know, risk for us is permanent impairment of capital that's investing in a business

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where the fundamentals deteriorate or, you know, the whole thesis goes south and we take

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a serious hit to our capital that we invested.

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Volatility, you know, does not bother us so much, obviously, for the end investor.

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They want to try and minimize that because it's never comfortable.

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But for us, you know, it's really trying to take advantage of that volatility.

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And when we see, you know, what we consider, you know, extremely high quality growth companies

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out there, you know, true compounders that we'd really love to own, you know, sometimes

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that volatility provides the opportunity for us to actually get established.

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Any examples?

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Yeah, I mean, plenty of examples.

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If you even go back and look at, you know, and this is one thing I spend a bit of time

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on and I'm quite passionate about, but people think, you know, if you look at the top 10

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businesses in the world, you know, people often wonder why you would ever invest in

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them.

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They kind of say, well, how can there be any edge or alpha investing in those companies?

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But even prior to the pandemic, if you looked at the top 10 companies and said, OK, how

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far do they swing from trough to peak in any given year?

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You know, most of them are moving 40 or 50 percent.

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And you know, that is just they're crazy swings.

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And I can tell you that the underlying economic value of those businesses is not shifting

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as much.

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You know, there's a lot of short term trading flows, narratives that really drives that.

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I think for us right now, one of our larger positions is Amazon.

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You know, we think it's one of the most attractive and dominant companies out there globally.

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You know, they're the number one cloud infrastructure provider and also e-commerce player globally.

236
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And, you know, fast approaching one of the big boys in digital advertising as well.

237
00:15:23,560 --> 00:15:28,960
It's obviously been sold off on concerns around near term profitability and some cost impacts

238
00:15:28,960 --> 00:15:31,300
that it's had on the back of the pandemic.

239
00:15:31,300 --> 00:15:37,040
But in our view, you know, we think the growth potential three and five years out and where

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the business will be is still very much intact from an earnings power perspective.

241
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So it's very much a case of temporary issues providing, you know, what we think is one

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of the highest quality businesses at a very attractive price.

243
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And that's, you know, to be honest, one of our ideal situations to lean into.

244
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And that's why it's one of the largest positions at the moment.

245
00:15:55,720 --> 00:16:01,420
So when money comes into the fund, say a new investor allocates via the fund or goes direct,

246
00:16:01,420 --> 00:16:03,560
what happens with that money?

247
00:16:03,560 --> 00:16:08,360
Does it on the day the money gets allocated and spread across the portfolio, as soon as

248
00:16:08,360 --> 00:16:14,440
the capital comes in, do you pull the capital and essentially wait for, I don't know, a

249
00:16:14,440 --> 00:16:16,720
pullback in a particular company, which you like then allocate?

250
00:16:16,720 --> 00:16:17,720
How's the process work?

251
00:16:17,720 --> 00:16:21,400
Oh, I'll actually briefly touch on what was part of your previous question, because I

252
00:16:21,400 --> 00:16:24,520
realized I just didn't answer it now after you brought up cash again.

253
00:16:24,520 --> 00:16:30,400
But look, we've got a range of five to 15% indicative for our cash, but we can go above

254
00:16:30,400 --> 00:16:34,460
that up to 20 or slightly below five on the lower bound, depending on our conviction levels

255
00:16:34,460 --> 00:16:37,740
and how we're seeing the opportunity at any particular point in time.

256
00:16:37,740 --> 00:16:42,160
So that has been in flux over the years.

257
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When the market got incredibly hot in our view, our cash position naturally built up

258
00:16:48,000 --> 00:16:52,980
and that wasn't necessarily saying, hey, we're going to start building up cash because we

259
00:16:52,980 --> 00:16:54,240
think this is just getting unsustainable.

260
00:16:54,240 --> 00:16:58,320
It was more a factor of just finding it hard to try and find opportunities bottom up out

261
00:16:58,320 --> 00:17:02,720
there where the returns stacked up and the math worked.

262
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Equally at the moment, we're very much on the lower end of that bound.

263
00:17:06,720 --> 00:17:11,740
So we're down around about 5% and that's because we think the opportunity is incredibly compelling

264
00:17:11,740 --> 00:17:12,740
at the moment.

265
00:17:12,740 --> 00:17:15,760
We're seeing plenty of companies and places to allocate capital.

266
00:17:15,760 --> 00:17:22,400
To your question around flows, they're not normally that significant on any given day.

267
00:17:22,400 --> 00:17:26,160
I mean, obviously we've got daily liquidity, so flows are quite spread out.

268
00:17:26,160 --> 00:17:32,320
But to the extent we get cash in, that just simply goes into our cash account and we won't

269
00:17:32,320 --> 00:17:34,880
be making a decision based on that.

270
00:17:34,880 --> 00:17:39,840
So unless it was an incredibly large chunk of money and we needed to because it was going

271
00:17:39,840 --> 00:17:48,080
to breach our required range of that ruffle, 5 to 15 or 5 to 20%, we're not really forced

272
00:17:48,080 --> 00:17:50,640
to do anything because we got some new money in or anything like that.

273
00:17:50,640 --> 00:17:54,160
It's very much driven by the opportunity set and what we see in front of us.

274
00:17:54,160 --> 00:17:55,160
Yeah.

275
00:17:55,160 --> 00:17:58,080
And the reason why I like understanding this is because it touches on behavioral psychology,

276
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which is what you said you majored in, right?

277
00:18:00,920 --> 00:18:01,920
Sure.

278
00:18:01,920 --> 00:18:05,200
I'm a big believer that the markets are not rational.

279
00:18:05,200 --> 00:18:06,960
The markets are not rational.

280
00:18:06,960 --> 00:18:15,480
So with behavioral psychology, can you give an understanding about how you're remunerated,

281
00:18:15,480 --> 00:18:18,080
how the funds remunerated?

282
00:18:18,080 --> 00:18:23,160
And the reason why we ask this question is when money goes in, people want to understand

283
00:18:23,160 --> 00:18:27,640
what type of opportunity you're taking, what level of risk you're taking to hit your targets

284
00:18:27,640 --> 00:18:29,800
so you get more money in your pocket.

285
00:18:29,800 --> 00:18:37,280
But how does that translate into the returns in the fund for the investors?

286
00:18:37,280 --> 00:18:43,400
I think the first thing I'd just say around alignment starting out before we get into

287
00:18:43,400 --> 00:18:48,800
performance fees and how we're remunerated, I think for myself, my personal investment

288
00:18:48,800 --> 00:18:53,520
in the Lake House Global Growth Fund is my biggest asset and that includes anything from

289
00:18:53,520 --> 00:18:55,160
stocks to real estate, whatever.

290
00:18:55,160 --> 00:19:02,200
So I am very much personally invested in the fund, I will eat my own cooking and live or

291
00:19:02,200 --> 00:19:04,280
die by those returns we will generate.

292
00:19:04,280 --> 00:19:07,520
Obviously, I believe we will do very well over the long term.

293
00:19:07,520 --> 00:19:08,960
So I'm happy to be there.

294
00:19:08,960 --> 00:19:13,760
But on the performance fee side, look, we earn a performance fee if we outperform the

295
00:19:13,760 --> 00:19:15,200
benchmark.

296
00:19:15,200 --> 00:19:18,560
So we have a 15% performance fee there.

297
00:19:18,560 --> 00:19:22,160
So it's very much a performance fee culture at the end of the day.

298
00:19:22,160 --> 00:19:28,040
If we're not outperforming, that compensation is basically the bulk of our incentives.

299
00:19:28,040 --> 00:19:32,120
So we need to really perform to get paid at the end of the day.

300
00:19:32,120 --> 00:19:36,280
And I don't think anyone is really in this business to underperform, to be honest.

301
00:19:36,280 --> 00:19:37,280
What's the benchmark?

302
00:19:37,280 --> 00:19:43,600
So the benchmark is the MSCI or Country World Index in AUD terms, as the fund is in AUD

303
00:19:43,600 --> 00:19:44,600
as well.

304
00:19:44,600 --> 00:19:46,380
So look, we've historically done that well.

305
00:19:46,380 --> 00:19:51,840
One thing I will say is that we also have a high watermark, which we think is best practice.

306
00:19:51,840 --> 00:19:56,320
So at the moment, it wouldn't surprise you that given the year we've had, we're significantly

307
00:19:56,320 --> 00:20:00,620
underwater, which means we need to get back to that level before we could ever capture

308
00:20:00,620 --> 00:20:01,620
fees again.

309
00:20:01,620 --> 00:20:04,640
So it's not on an absolute basis relative to the benchmark.

310
00:20:04,640 --> 00:20:05,640
We do have a high watermark.

311
00:20:05,640 --> 00:20:09,160
The market's had a pretty big bounce since before Christmas.

312
00:20:09,160 --> 00:20:12,620
So they might have pushed it up a bit in your favor.

313
00:20:12,620 --> 00:20:15,320
It's going in the right direction, but it's a long game.

314
00:20:15,320 --> 00:20:16,600
We've got some ground to catch up.

315
00:20:16,600 --> 00:20:20,840
So to be honest, anyone who invests, it kind of gets a bit of a free kick on that.

316
00:20:20,840 --> 00:20:24,880
It's the way the fund's structured and we think it's the best way to do it to ensure

317
00:20:24,880 --> 00:20:26,160
that we're aligned with our investors.

318
00:20:26,160 --> 00:20:31,200
We wouldn't feel comfortable if the market's had a drawdown and we were able to reset,

319
00:20:31,200 --> 00:20:33,380
you know, essentially where we take performance fees.

320
00:20:33,380 --> 00:20:34,600
It wouldn't make much sense to us.

321
00:20:34,600 --> 00:20:38,520
So I think having the high watermark is the way to do it.

322
00:20:38,520 --> 00:20:42,800
And with the fund itself, who owns the fund?

323
00:20:42,800 --> 00:20:46,000
Is there a Chinese wall?

324
00:20:46,000 --> 00:20:47,000
Good question.

325
00:20:47,000 --> 00:20:52,000
The Chinese wall is owned by the Chinese company, the Chinese bank house capital is

326
00:20:52,000 --> 00:20:56,600
actually owned by the Motley Fool, who is the parent company in the US.

327
00:20:56,600 --> 00:21:03,040
But in terms of resources and work and everything like that, in terms of research, there is

328
00:21:03,040 --> 00:21:04,040
absolutely no crossover.

329
00:21:04,040 --> 00:21:07,040
So we do 100% of our own cooking.

330
00:21:07,040 --> 00:21:10,120
It's actually the businesses are actually regulated in different jurisdictions.

331
00:21:10,120 --> 00:21:14,000
So we're actually by law, not even allowed to talk stock.

332
00:21:14,000 --> 00:21:18,040
You know, we're very much, you know, the boutique here that you see is what we're running with.

333
00:21:18,040 --> 00:21:21,080
There's no other resources or anything like that or relationships.

334
00:21:21,080 --> 00:21:25,400
So speaking of cooking, how do you actually cook the steak in a day to day basis?

335
00:21:25,400 --> 00:21:32,440
Look, I guess in terms of what we're looking for out there, I kind of talked already to,

336
00:21:32,440 --> 00:21:35,680
you know, the economic models that we're trying to find.

337
00:21:35,680 --> 00:21:39,400
And I think I kind of gave a bit of an intro there on that.

338
00:21:39,400 --> 00:21:42,680
But beyond that, what I would say is, you know, there's a number of different attributes.

339
00:21:42,680 --> 00:21:47,560
We're looking to invest with and also looking to avoid.

340
00:21:47,560 --> 00:21:52,840
So you know, as I said, we're looking for those asymmetric setups.

341
00:21:52,840 --> 00:21:59,040
So obviously, I guess I'll speak to the upside first, really what we like to see.

342
00:21:59,040 --> 00:22:03,720
You know, one thing would be gaining share of a growing market.

343
00:22:03,720 --> 00:22:07,160
It's obviously not the be all and end all but all else equal.

344
00:22:07,160 --> 00:22:10,600
If you have a company that's gaining share within a growing market tends to be that they

345
00:22:10,600 --> 00:22:14,480
are doing something right, that they have a unique value proposition that is really

346
00:22:14,480 --> 00:22:16,160
resonating with the market.

347
00:22:16,160 --> 00:22:20,360
Obviously there are a number of other factors you need to think through in terms of, you

348
00:22:20,360 --> 00:22:24,520
know, the industry structure, the rate of innovation in the industry, what are the economics

349
00:22:24,520 --> 00:22:25,680
associated with their growth.

350
00:22:25,680 --> 00:22:30,240
But it's definitely a positive market we like to align ourselves with.

351
00:22:30,240 --> 00:22:34,200
You know, one other thing we have a penchant for is founder led businesses.

352
00:22:34,200 --> 00:22:40,960
You can look at a number of studies that show that founders tend to outperform and that's

353
00:22:40,960 --> 00:22:45,240
no surprise, no founder, you know, no business is really cared for like any other by its

354
00:22:45,240 --> 00:22:47,160
founder.

355
00:22:47,160 --> 00:22:50,120
And obviously in most cases there you have pretty strong alignment in terms of insider

356
00:22:50,120 --> 00:22:51,120
ownership.

357
00:22:51,120 --> 00:22:54,480
So not all our companies are founder led, but when we like to, you know, when we can get

358
00:22:54,480 --> 00:22:57,000
it, we like to have it, I guess.

359
00:22:57,000 --> 00:23:01,960
And then one last thing I'd just say is, you know, pricing power, which is effectively

360
00:23:01,960 --> 00:23:06,600
a distillation of, you know, a company's competitive position and the industry structure.

361
00:23:06,600 --> 00:23:11,520
So I think, you know, by and large, when you find companies that have pricing power, the

362
00:23:11,520 --> 00:23:15,640
ability to push price increases onto the end customer without impairing demand.

363
00:23:15,640 --> 00:23:19,720
You typically have a high quality business, especially from a competitive standpoint.

364
00:23:19,720 --> 00:23:24,200
And, you know, that's something we have, we think we have in spades across the portfolio

365
00:23:24,200 --> 00:23:27,640
and it's definitely served us very well over the last few years in the higher inflationary

366
00:23:27,640 --> 00:23:29,920
environment.

367
00:23:29,920 --> 00:23:33,640
I guess just quickly on the downside, a few things we would avoid.

368
00:23:33,640 --> 00:23:39,080
Reliance on leverage, pretty self-explanatory, but really reduces the tail risks and also

369
00:23:39,080 --> 00:23:44,240
provides I guess more optionality to businesses, particularly in tough times like we're in

370
00:23:44,240 --> 00:23:45,240
now.

371
00:23:45,240 --> 00:23:48,680
If you don't have a constrained balance sheet, it can often allow you to go on the offense,

372
00:23:48,680 --> 00:23:52,040
particularly if your competitors are hurting.

373
00:23:52,040 --> 00:23:56,840
Another one would be concentrated customer bases or a reliance on someone else's business

374
00:23:56,840 --> 00:23:59,360
for a critical piece of infrastructure.

375
00:23:59,360 --> 00:24:03,320
So if you found a company that you thought had a great product, was doing really well,

376
00:24:03,320 --> 00:24:09,520
growing really fast, but you know, for their distribution, they relied 95% on one partner.

377
00:24:09,520 --> 00:24:12,880
That's a key risk that, you know, we're not really willing to take because it can obviously

378
00:24:12,880 --> 00:24:17,920
change overnight and have drastic impacts for the business.

379
00:24:17,920 --> 00:24:20,920
And then one other thing I'd just say is around cyclicality.

380
00:24:20,920 --> 00:24:22,400
Once again, just removing that tail risk.

381
00:24:22,400 --> 00:24:27,060
So that gives you a sense, I guess, of the elements we're looking for and looking to

382
00:24:27,060 --> 00:24:29,600
avoid in any typical investment.

383
00:24:29,600 --> 00:24:35,160
Let's stay on the companies before we pivot into the wild world of macroeconomics.

384
00:24:35,160 --> 00:24:42,000
Can you give a couple of examples regarding companies that are currently in the portfolio

385
00:24:42,000 --> 00:24:46,440
that meet that criteria of what you're looking for and how they're performing?

386
00:24:46,440 --> 00:24:51,920
I think a great example here would be Mercado Libre.

387
00:24:51,920 --> 00:24:57,440
So it is actually one of, actually it may be, depending on the day, the largest position

388
00:24:57,440 --> 00:24:58,440
in the fund.

389
00:24:58,440 --> 00:25:02,200
So I think it's probably a good one to talk to.

390
00:25:02,200 --> 00:25:03,200
But you know, for listeners...

391
00:25:03,200 --> 00:25:06,400
If anyone hasn't heard about Mercado Libre, I just have to bring this up because it's

392
00:25:06,400 --> 00:25:08,640
been in the papers quite a bit.

393
00:25:08,640 --> 00:25:16,420
So essentially, they had their largest competitor fall 80% in one day, I believe.

394
00:25:16,420 --> 00:25:21,520
And I believe it was due to a $3.88 billion accounting scandal.

395
00:25:21,520 --> 00:25:26,760
Yes, you were referring to Americana's there.

396
00:25:26,760 --> 00:25:31,280
There were some issues they had on their supply chain financing or something of the like.

397
00:25:31,280 --> 00:25:35,960
But it basically looks like it was just internal human errors, or at least what they've said.

398
00:25:35,960 --> 00:25:39,880
But you can't really plan for that occurring, can you?

399
00:25:39,880 --> 00:25:41,400
You can't.

400
00:25:41,400 --> 00:25:42,920
And these things do happen.

401
00:25:42,920 --> 00:25:49,320
But look, I mean, I think how you really manage for that is the quality of management.

402
00:25:49,320 --> 00:25:57,760
And Mercado Libre, I would say, being founder led, and also having that founder very aligned

403
00:25:57,760 --> 00:26:01,720
through owning about 8% of the business, kind of helps take away some of that risk that

404
00:26:01,720 --> 00:26:03,140
there's going to be that oversight.

405
00:26:03,140 --> 00:26:07,160
He's been doing this day in, day out for the last 23 years, building this business up from

406
00:26:07,160 --> 00:26:08,160
when it was a baby.

407
00:26:08,160 --> 00:26:13,800
And he has a good $5 or so billion of equity on the line.

408
00:26:13,800 --> 00:26:19,520
I think it just puts a different degree of oversight there in our minds.

409
00:26:19,520 --> 00:26:22,840
But yes, you're right, you can never completely rule it out.

410
00:26:22,840 --> 00:26:28,580
But a bit of an update there, they've recently, I think it was on the 20th of January, formally

411
00:26:28,580 --> 00:26:30,600
filed for bankruptcy Americana's.

412
00:26:30,600 --> 00:26:35,200
So obviously that's been a bit of a boon for Mercado Libre, given that they were one of

413
00:26:35,200 --> 00:26:37,640
the largest competitors in the Brazilian e-commerce space.

414
00:26:37,640 --> 00:26:41,320
So a nice positive to have, but obviously we weren't planning for that one.

415
00:26:41,320 --> 00:26:46,400
Have you looked into the numbers, like percentage wise, how big an impact that was going to

416
00:26:46,400 --> 00:26:50,040
have positively for the company, for Mercado Libre?

417
00:26:50,040 --> 00:26:55,440
Hard to know now, given they haven't reported, they actually report later this week.

418
00:26:55,440 --> 00:27:00,160
So we will get some fresh numbers, but we have seen some traffic share numbers and their

419
00:27:00,160 --> 00:27:04,800
traffic has spiked along with the decline in Americana's.

420
00:27:04,800 --> 00:27:09,800
So there's initial indications there that they've benefited pretty materially, as you

421
00:27:09,800 --> 00:27:10,800
would expect.

422
00:27:10,800 --> 00:27:17,360
But maybe just back on Mercado Libre quickly and I might just run through in terms of the

423
00:27:17,360 --> 00:27:18,360
business.

424
00:27:18,360 --> 00:27:21,360
But yeah, like I said, I think it ticks a lot of the boxes for what we're looking for.

425
00:27:21,360 --> 00:27:26,600
And those that aren't familiar with the business, it's the leading e-commerce player in Latin

426
00:27:26,600 --> 00:27:27,600
America.

427
00:27:27,600 --> 00:27:33,360
But in addition to having that core marketplace, they also have a number of ancillary businesses

428
00:27:33,360 --> 00:27:37,920
that strap on around that with advertising, payments and shipping.

429
00:27:37,920 --> 00:27:44,560
And importantly, in our view, not only do these increase their market opportunity, but

430
00:27:44,560 --> 00:27:48,040
they're also pretty important in terms of increasing the stickiness of the platform

431
00:27:48,040 --> 00:27:51,600
to consumers and merchants alike.

432
00:27:51,600 --> 00:27:57,080
So the business has been incredibly successful to date and executed very well, to give you

433
00:27:57,080 --> 00:27:58,080
a sense.

434
00:27:58,080 --> 00:28:03,600
Obviously, they were a pandemic beneficiary, being an internet first company.

435
00:28:03,600 --> 00:28:10,800
But between 2019 and today, so over the last three years, roughly, they're 4.5x their revenue

436
00:28:10,800 --> 00:28:11,800
base.

437
00:28:11,800 --> 00:28:16,320
So growing at a very, very healthy clip.

438
00:28:16,320 --> 00:28:21,240
In terms of what we like about the business and the boxes it ticks, look, it's founder

439
00:28:21,240 --> 00:28:24,840
led, it's gaining share of a growing market.

440
00:28:24,840 --> 00:28:29,400
It also has some very strong network dynamics at play, thanks to its marketplace and also

441
00:28:29,400 --> 00:28:35,240
its payments business, and also has a very long growth runway.

442
00:28:35,240 --> 00:28:40,360
And that really comes from the fact that not only is it still very early in Latin America

443
00:28:40,360 --> 00:28:46,700
in terms of overall penetration levels of e-commerce, but there's also a material percentage

444
00:28:46,700 --> 00:28:49,280
of the population that remain unbanked.

445
00:28:49,280 --> 00:28:51,760
So plenty of opportunity for them.

446
00:28:51,760 --> 00:28:59,200
I think one last thing I'd just touch on to kind of bring it home is really about valuation.

447
00:28:59,200 --> 00:29:05,360
I think with the broad based drawdown that we saw in 2022 across the market in general,

448
00:29:05,360 --> 00:29:10,520
obviously, valuations have come back a lot, but that's been very acute with a lot of internet

449
00:29:10,520 --> 00:29:11,520
and growth businesses.

450
00:29:11,520 --> 00:29:18,760
And our view would be that the baby's kind of been thrown out with the bath water there.

451
00:29:18,760 --> 00:29:24,040
Your fundamentals haven't mattered too much or your competitive position or whatever dynamics.

452
00:29:24,040 --> 00:29:26,040
And I think Mercado Libre is an example of that.

453
00:29:26,040 --> 00:29:32,360
It's trading it despite continuing to execute very well and going from strength to strength.

454
00:29:32,360 --> 00:29:35,640
It's trading at about five times forward revenue, which is the cheapest.

455
00:29:35,640 --> 00:29:38,480
It's basically been its entire history outside of the GFC.

456
00:29:38,480 --> 00:29:40,880
So a very compelling valuation.

457
00:29:40,880 --> 00:29:45,240
And we think the risk reward here is incredibly attractive and hence why we've got a very

458
00:29:45,240 --> 00:29:46,560
large position.

459
00:29:46,560 --> 00:29:48,680
What are the big techs in the portfolio?

460
00:29:48,680 --> 00:29:50,960
So we actually have a few names.

461
00:29:50,960 --> 00:29:59,080
So we have Amazon and also Alphabet, some of our larger positions.

462
00:29:59,080 --> 00:30:01,480
I think you also mentioned Microsoft as well.

463
00:30:01,480 --> 00:30:05,880
Yes, Microsoft we added towards the midpoint of last year.

464
00:30:05,880 --> 00:30:08,600
And let's discuss chat GPT.

465
00:30:08,600 --> 00:30:14,280
I'm sure there's not a person that's listening to this has not heard about artificial intelligence

466
00:30:14,280 --> 00:30:16,160
pretty much taken over the headlines.

467
00:30:16,160 --> 00:30:21,840
I believe the statistics on it was 16 years for the World Wide Web to rack up 100 million

468
00:30:21,840 --> 00:30:26,680
users and what was it 100 million in 60 days or maybe even 30 days.

469
00:30:26,680 --> 00:30:27,680
It might have been a month.

470
00:30:27,680 --> 00:30:29,480
I did see that stat flying around.

471
00:30:29,480 --> 00:30:31,040
Look, it's obviously, that's incredible.

472
00:30:31,040 --> 00:30:35,440
Ever since it's been released in the consumer model, it's had incredible success.

473
00:30:35,440 --> 00:30:38,800
And I think blown a few minds with the responses everyone's seen online.

474
00:30:38,800 --> 00:30:45,280
Can you give me the color around what is chat GPT and essentially the impacts it has on

475
00:30:45,280 --> 00:30:46,720
these big tech companies.

476
00:30:46,720 --> 00:30:52,120
Some are discussing whether or not like say Google with Baird to use it to monetize it

477
00:30:52,120 --> 00:30:55,200
immediately whilst Microsoft's gone down a different angle.

478
00:30:55,200 --> 00:30:56,800
And what are your thoughts?

479
00:30:56,800 --> 00:31:02,200
Chat GPT is a large language model, what they call a LLM.

480
00:31:02,200 --> 00:31:06,400
So I'm sure you've heard that term thrown around and everyone's probably equally confused

481
00:31:06,400 --> 00:31:08,640
what they're even talking about with large language models.

482
00:31:08,640 --> 00:31:15,800
But the actual definition is an artificial neural network, which they train on a vast

483
00:31:15,800 --> 00:31:22,000
data set to basically generate natural language responses to queries.

484
00:31:22,000 --> 00:31:27,160
So you've got a lot of data scientists and whatnot training these data sets such that

485
00:31:27,160 --> 00:31:30,560
when you put in a certain query, you'll get something that comes back in a relatively

486
00:31:30,560 --> 00:31:32,720
conversational tone.

487
00:31:32,720 --> 00:31:37,640
So look, it's definitely taken the hype cycle by storm.

488
00:31:37,640 --> 00:31:43,160
Everyone seems to have forgotten about crypto and then the metaverse and now we're onto

489
00:31:43,160 --> 00:31:45,000
large language models pretty quickly.

490
00:31:45,000 --> 00:31:48,480
So I think things are definitely, we seem to move the hype cycle seems to be moving

491
00:31:48,480 --> 00:31:49,840
a little bit quicker these days.

492
00:31:49,840 --> 00:31:56,880
But there is clearly something beneath it in terms of the technology, obviously, I think

493
00:31:56,880 --> 00:32:01,560
where exactly that all goes, not many people know right now, I'm sure like chat bots and

494
00:32:01,560 --> 00:32:05,440
various business functions or work processes.

495
00:32:05,440 --> 00:32:09,040
The question is, to what degree can they be automated and done better by a system like

496
00:32:09,040 --> 00:32:10,040
this?

497
00:32:10,040 --> 00:32:13,920
And I'm sure we'll see a lot more of it in the years to come.

498
00:32:13,920 --> 00:32:21,200
I think our direct focus right now is really, you know, around chat GPT and its ability

499
00:32:21,200 --> 00:32:26,720
or the potential that it could disrupt Google's core search business.

500
00:32:26,720 --> 00:32:27,720
Good question.

501
00:32:27,720 --> 00:32:30,080
I'm not as convinced as most people out there.

502
00:32:30,080 --> 00:32:34,680
But look, Microsoft held an event last week where they announced that they're going to

503
00:32:34,680 --> 00:32:40,080
incorporate an early version of chat GPT into Bing, which is their search engine and essentially

504
00:32:40,080 --> 00:32:41,600
run with that.

505
00:32:41,600 --> 00:32:45,920
That led to a pretty vicious share price response to Alphabet.

506
00:32:45,920 --> 00:32:51,400
I think the company lost, call it 100 billion or a bit over 100 billion in market cap just

507
00:32:51,400 --> 00:32:52,400
last week alone.

508
00:32:52,400 --> 00:32:53,400
So people are pretty nervous.

509
00:32:53,400 --> 00:32:55,640
And I think uncertainty is high.

510
00:32:55,640 --> 00:33:02,020
But you know, I'd say their ability to disrupt search is probably being exaggerated to some

511
00:33:02,020 --> 00:33:07,780
degree at this point, not least because, you know, Alphabet themselves is largely regarded

512
00:33:07,780 --> 00:33:12,240
as a leader in AI and he's been spending a ton of money and working on such technologies

513
00:33:12,240 --> 00:33:14,120
for an incredibly long period of time.

514
00:33:14,120 --> 00:33:18,560
So they would clearly have the technology there to roll something out similar themselves

515
00:33:18,560 --> 00:33:20,720
if they wanted to.

516
00:33:20,720 --> 00:33:22,040
And indeed, I believe they will.

517
00:33:22,040 --> 00:33:23,280
They obviously already kind of are.

518
00:33:23,280 --> 00:33:30,520
They tried to do an event in response to Microsoft's last week, which wasn't exactly that convincing

519
00:33:30,520 --> 00:33:31,520
and had a few errors in it.

520
00:33:31,520 --> 00:33:35,960
And I think fumbling that response, they were clearly rushed, kind of led to, you know,

521
00:33:35,960 --> 00:33:38,120
fed into the uncertainty around the business.

522
00:33:38,120 --> 00:33:42,960
But there's still a way to go in terms of the technology to get it to a point where

523
00:33:42,960 --> 00:33:43,960
it can disrupt search.

524
00:33:43,960 --> 00:33:49,160
And I say that for a few reasons, but you know, it's incredibly computationally intensive

525
00:33:49,160 --> 00:33:54,960
and expensive to incorporate a large language model like chat GPT into search.

526
00:33:54,960 --> 00:33:58,740
I think the estimates I saw is roughly it's, you know, eight to 10 times more expensive

527
00:33:58,740 --> 00:34:00,240
than a search query.

528
00:34:00,240 --> 00:34:04,160
There's also the fact that, you know, the data sets that you're running off are typically

529
00:34:04,160 --> 00:34:05,160
somewhat dated.

530
00:34:05,160 --> 00:34:09,240
So it's not giving you information of the day it might be to the end of say 2022 or

531
00:34:09,240 --> 00:34:14,040
something, which obviously is not ideal as well.

532
00:34:14,040 --> 00:34:15,480
So there's a few constraints like that.

533
00:34:15,480 --> 00:34:19,920
And then, you know, obviously when you really step back and think from first principles,

534
00:34:19,920 --> 00:34:25,320
okay, well, what is Google's dominance in search really predicated upon or protected

535
00:34:25,320 --> 00:34:26,320
by?

536
00:34:26,320 --> 00:34:31,640
So I think a lot of it comes back to, you know, the hardware and the operating system,

537
00:34:31,640 --> 00:34:34,360
you know, advantage that they do have.

538
00:34:34,360 --> 00:34:38,240
Also the fact that, you know, they largely have the brand equity and the consumer mind

539
00:34:38,240 --> 00:34:41,680
share when it comes to search and arguably the best search product.

540
00:34:41,680 --> 00:34:45,960
So when you put all that together with their data advantage, it's not entirely clear to

541
00:34:45,960 --> 00:34:49,240
me how Microsoft's going to disrupt that.

542
00:34:49,240 --> 00:34:56,160
I think one key stat is just 61% or a little over 60% of, you know, search queries are

543
00:34:56,160 --> 00:35:01,080
actually done on mobile, where Microsoft has absolutely no presence.

544
00:35:01,080 --> 00:35:06,440
So unless they're willing to pay Apple the 15 to 20 billion a year that Alphabet pays

545
00:35:06,440 --> 00:35:12,360
for, you know, the priority placement within the Safari browser, it's unclear to me how

546
00:35:12,360 --> 00:35:14,440
they're exactly going to steal that pot from Alphabet.

547
00:35:14,440 --> 00:35:18,920
So there's, what I'm saying is there's a lot more to it than just a fancy technology and

548
00:35:18,920 --> 00:35:20,440
this is going to be so much better than search.

549
00:35:20,440 --> 00:35:21,440
Let's roll it out.

550
00:35:21,440 --> 00:35:25,760
I think, you know, there's a lot more hype and it's a bit exaggerated right now in terms

551
00:35:25,760 --> 00:35:27,560
of the disruption risk to Alphabet.

552
00:35:27,560 --> 00:35:29,840
Well, isn't that the biggest question?

553
00:35:29,840 --> 00:35:31,120
Like what is it?

554
00:35:31,120 --> 00:35:32,620
What does it actually do?

555
00:35:32,620 --> 00:35:37,320
Is it like, you know, the Colonel's secret recipe, you know, is that the code or is it

556
00:35:37,320 --> 00:35:42,320
actually the thing that's makes this thing so fascinating is the data set, as you mentioned

557
00:35:42,320 --> 00:35:43,800
before that it can go through.

558
00:35:43,800 --> 00:35:49,360
So if say I'm using it right now to figure out which fund manager I'm going to use, right?

559
00:35:49,360 --> 00:35:55,720
Are you saying that the AI is only there as the data set, which you can access or is it

560
00:35:55,720 --> 00:35:56,720
the algorithm?

561
00:35:56,720 --> 00:35:58,220
I think it's both.

562
00:35:58,220 --> 00:36:03,640
I think it's the data set that it can access and also how well it's been trained.

563
00:36:03,640 --> 00:36:04,720
So there's a few different variables here.

564
00:36:04,720 --> 00:36:10,720
I think the reality is we'll probably have numerous versions of chat GPT like, you know,

565
00:36:10,720 --> 00:36:16,320
talks in the future with different companies, different companies offering them.

566
00:36:16,320 --> 00:36:17,320
But it's hard, right?

567
00:36:17,320 --> 00:36:23,280
I mean, even at the moment, you know, there's instances where if it doesn't know the perfect

568
00:36:23,280 --> 00:36:26,180
answer, it will hallucinate and make things up.

569
00:36:26,180 --> 00:36:30,120
Now that could be a bit of a problem if you really rely, you know, if you think about

570
00:36:30,120 --> 00:36:32,160
Google search, it's a utility, right?

571
00:36:32,160 --> 00:36:36,480
And what you want is speed, accuracy and reliability.

572
00:36:36,480 --> 00:36:40,840
And that's why I just think, you know, people are making a bit of a leap here to think that

573
00:36:40,840 --> 00:36:44,200
suddenly tomorrow, you know, Microsoft being because it has.

574
00:36:44,200 --> 00:36:48,120
What's interesting about that is I've heard a couple of people that are, you know, either

575
00:36:48,120 --> 00:36:52,760
portfolio managers, data engineers, or just anyone that requires a large data set.

576
00:36:52,760 --> 00:36:56,720
Some of them actually just for a giggle have had Google up and then had chat GPT up and

577
00:36:56,720 --> 00:36:58,320
they're asking the exact same questions.

578
00:36:58,320 --> 00:37:06,200
But what they're experiencing is via Google, you're getting the answer, but also 15 ads.

579
00:37:06,200 --> 00:37:12,000
Whilst chat GPT, there's no ads and essentially refines and changes or I could put up this

580
00:37:12,000 --> 00:37:16,800
podcast transcript and remove all the arms, the arms and, you know, maybe a comment I

581
00:37:16,800 --> 00:37:19,640
shouldn't have made quite cleanly and it puts it up.

582
00:37:19,640 --> 00:37:23,500
And it can even rewrite the entire works of Shakespeare, you know, in the language of

583
00:37:23,500 --> 00:37:24,500
Harry Potter.

584
00:37:24,500 --> 00:37:25,500
It's fascinating.

585
00:37:25,500 --> 00:37:30,520
But I suppose the question I'm asking, I really like to hear your thoughts on is that's on

586
00:37:30,520 --> 00:37:35,160
the search component, but you also have a myriad of other companies out there.

587
00:37:35,160 --> 00:37:40,720
Does this artificial intelligence have the potential to improve the efficiencies of these

588
00:37:40,720 --> 00:37:41,720
businesses?

589
00:37:41,720 --> 00:37:43,680
Because what do you think?

590
00:37:43,680 --> 00:37:51,880
Is it purely a search engine or does the individual who's doing their job now have a better source

591
00:37:51,880 --> 00:37:54,360
of information to fine tune everything?

592
00:37:54,360 --> 00:37:57,700
And then do the companies internally become better?

593
00:37:57,700 --> 00:38:02,520
Like as an example, in the States, in America, they banned kids and universities for using

594
00:38:02,520 --> 00:38:07,120
chat GPT because kids were spitting out perfect 100% essays.

595
00:38:07,120 --> 00:38:11,220
There's a lot of use cases, I think that, you know, when you really think through it

596
00:38:11,220 --> 00:38:15,760
opens a lot of trap doors and questions, even some moral and ethical ones, right?

597
00:38:15,760 --> 00:38:20,680
Like can you ask, you know, for instance, what information do you block?

598
00:38:20,680 --> 00:38:22,560
Which is obviously a decision Google has to make as well.

599
00:38:22,560 --> 00:38:28,200
But if you're asking chat GPT St. Nefarious around how do I build a bomb or xyz.

600
00:38:28,200 --> 00:38:29,200
Elon Musk said that.

601
00:38:29,200 --> 00:38:33,160
Yeah, so you get into a lot of, you know, different areas.

602
00:38:33,160 --> 00:38:35,760
And I think over time that will all be worked out.

603
00:38:35,760 --> 00:38:40,800
But to your bigger point, I think this will, you know, it'll end up permeating, you know,

604
00:38:40,800 --> 00:38:45,180
not just the consumer's life in sort of whether it's search or whether it's even just a different

605
00:38:45,180 --> 00:38:49,800
use case of writing text or, you know, different things like that, but definitely within businesses.

606
00:38:49,800 --> 00:38:54,000
I mean, call center functionality, I could see how this could easily, you know, once

607
00:38:54,000 --> 00:38:57,720
you've trained the models and it's at a certain level and it continues to learn itself and

608
00:38:57,720 --> 00:39:00,960
compound, I mean, be way better than having human call centers, for example.

609
00:39:00,960 --> 00:39:01,960
Right.

610
00:39:01,960 --> 00:39:05,720
So there's definitely big areas that I think it will change whether we're there yet with

611
00:39:05,720 --> 00:39:06,720
the technology.

612
00:39:06,720 --> 00:39:07,720
I don't know.

613
00:39:07,720 --> 00:39:13,760
But yes, obviously, my primary concern being with my with my investor hat on is really

614
00:39:13,760 --> 00:39:17,960
around, you know, what could this potentially do for or against any of our portfolio companies?

615
00:39:17,960 --> 00:39:19,560
And that's what we're kind of thinking about right now.

616
00:39:19,560 --> 00:39:23,560
But I think, you know, we'll continue to read widely and there'll be a lot more that comes

617
00:39:23,560 --> 00:39:24,640
out around it.

618
00:39:24,640 --> 00:39:27,600
As for the narrative around this disrupting Google search.

619
00:39:27,600 --> 00:39:30,760
This isn't the first time we've seen such a narrative, right?

620
00:39:30,760 --> 00:39:34,160
We had it when there was vertical applications back in the day when people said, oh, the

621
00:39:34,160 --> 00:39:38,880
trip advisors of the world are going to weed up search and search is going to decline.

622
00:39:38,880 --> 00:39:39,880
Didn't prove to be the case.

623
00:39:39,880 --> 00:39:43,840
Google just strapped on, you know, various vertical search things onto its own platform.

624
00:39:43,840 --> 00:39:47,760
And also with Alexa, we're going to shift a voice and suddenly Google's not going to

625
00:39:47,760 --> 00:39:48,760
have a world.

626
00:39:48,760 --> 00:39:52,600
You know, if you jump at that first sort of headline every time, you're going to find

627
00:39:52,600 --> 00:39:57,240
yourself, you know, jumping out of all these incredibly dominant businesses very frequently.

628
00:39:57,240 --> 00:39:58,240
Right.

629
00:39:58,240 --> 00:40:02,680
So I think it takes, you know, it's worth taking a step back, deep breath and actually

630
00:40:02,680 --> 00:40:05,920
thinking through, well, hang on, what does this technology do?

631
00:40:05,920 --> 00:40:06,920
What does it really mean?

632
00:40:06,920 --> 00:40:10,840
Is it really a search, you know, purely a search functionality, you know, and going

633
00:40:10,840 --> 00:40:12,680
through the elements.

634
00:40:12,680 --> 00:40:16,160
And I think when you do that, you realize that it's not as clear cut as maybe some headlines

635
00:40:16,160 --> 00:40:17,160
are suggesting.

636
00:40:17,160 --> 00:40:19,760
Do you own any social media businesses in the country?

637
00:40:19,760 --> 00:40:22,320
We do have a small holding in Facebook.

638
00:40:22,320 --> 00:40:23,400
So here's a question, right?

639
00:40:23,400 --> 00:40:28,200
If the metaverse clearly didn't work, if Facebook pivots and essentially incorporates

640
00:40:28,200 --> 00:40:32,800
chat, GPC or the AI into essentially what they're doing, what does that do for the company?

641
00:40:32,800 --> 00:40:33,800
Well, that's a good question.

642
00:40:33,800 --> 00:40:37,560
I mean, there's maybe that's kind of what I was getting at earlier.

643
00:40:37,560 --> 00:40:41,800
Maybe a lot of businesses just incorporate this chat GPT like functionality into their

644
00:40:41,800 --> 00:40:44,200
websites or applications.

645
00:40:44,200 --> 00:40:45,200
And everyone's kind of running it.

646
00:40:45,200 --> 00:40:50,360
I mean, but at the end of the day, if you don't own anything that's proprietary or unique

647
00:40:50,360 --> 00:40:54,120
and it's all relatively like a commodity, then that's not going to be a great business.

648
00:40:54,120 --> 00:40:55,120
Right.

649
00:40:55,120 --> 00:40:56,120
Yeah.

650
00:40:56,120 --> 00:40:58,640
So I think you've got to think through the barriers to entry and what it's really offering

651
00:40:58,640 --> 00:41:01,760
and then who could really monetize that in a proprietary sense.

652
00:41:01,760 --> 00:41:07,120
And I have no idea at this point, but to your point exactly, I'm sure Facebook is meta.

653
00:41:07,120 --> 00:41:10,760
So from what you're saying, it sounds like it's more like a tool that will essentially

654
00:41:10,760 --> 00:41:14,920
improve the inner workings of these businesses, which I think is fascinating in comparison

655
00:41:14,920 --> 00:41:17,320
to something that could be quickly monetized.

656
00:41:17,320 --> 00:41:18,320
I think so.

657
00:41:18,320 --> 00:41:21,400
But from the consumer facing side, it's hard to exactly see where it fits in.

658
00:41:21,400 --> 00:41:25,720
I mean, maybe you do go to google.com and you've got Google search and then right on

659
00:41:25,720 --> 00:41:32,680
the right hand side, you have, you know, BARD, which is or whatever, you know, their GPT chat

660
00:41:32,680 --> 00:41:34,120
GPT functionality as well.

661
00:41:34,120 --> 00:41:35,120
I'm sure you will see that.

662
00:41:35,120 --> 00:41:38,520
Well, let's put a pin in this because I think we'll talk about this for the next hour because

663
00:41:38,520 --> 00:41:41,320
it's just mind blowing because to your point, you don't, I don't think anyone knows where

664
00:41:41,320 --> 00:41:43,800
this is going, but it's fantastic.

665
00:41:43,800 --> 00:41:44,800
Fascinating space.

666
00:41:44,800 --> 00:41:48,600
It's going to change a lot of things, so I definitely want to keep an eye on it.

667
00:41:48,600 --> 00:41:50,520
Let's talk about things that definitely change.

668
00:41:50,520 --> 00:41:51,520
Let's discuss China.

669
00:41:51,520 --> 00:41:54,720
It was the first one into the crash and it appears it's potentially one of the first

670
00:41:54,720 --> 00:41:55,960
ones out of it.

671
00:41:55,960 --> 00:41:59,200
So I believe as long as I've known your favorite company in the entire world, it's probably

672
00:41:59,200 --> 00:42:00,200
been Tencent.

673
00:42:00,200 --> 00:42:03,760
So how is Tencent going and what's your opinion on what's happening in China now?

674
00:42:03,760 --> 00:42:04,760
Yeah, sure.

675
00:42:04,760 --> 00:42:08,380
Look, yeah, we've been bullish on Tencent for a while.

676
00:42:08,380 --> 00:42:10,460
We think it is a fantastic business.

677
00:42:10,460 --> 00:42:14,680
One thing I will preface that with is obviously it's a mainland China stock, so it comes with

678
00:42:14,680 --> 00:42:16,680
other risks, right?

679
00:42:16,680 --> 00:42:21,240
So that's why it's never been a very large holding in the fund.

680
00:42:21,240 --> 00:42:26,280
But to your bigger point on China, yes, I think what we saw in 2022 for them was almost

681
00:42:26,280 --> 00:42:27,280
the perfect storm.

682
00:42:27,280 --> 00:42:33,720
They had a pretty acute real estate slowdown, very significant regulatory crackdown, COVID

683
00:42:33,720 --> 00:42:35,900
lockdowns round two.

684
00:42:35,900 --> 00:42:38,340
It was really hard for it to get much more pessimistic for them.

685
00:42:38,340 --> 00:42:42,080
You had some incredibly cheap valuations over there.

686
00:42:42,080 --> 00:42:46,880
I think Tencent, if you stripped out their portfolio, you were talking a seven, sorry,

687
00:42:46,880 --> 00:42:49,120
a single digit PE.

688
00:42:49,120 --> 00:42:53,400
And that was largely on what was trough earnings as well.

689
00:42:53,400 --> 00:43:01,000
So since the country reopened a couple of months ago, we've seen that kind of rip completely

690
00:43:01,000 --> 00:43:02,160
the other way.

691
00:43:02,160 --> 00:43:08,060
I think even businesses like Tencent, now up roughly 100% out of their October lows.

692
00:43:08,060 --> 00:43:11,680
So there's definitely been a bit of a shift there in sentiment.

693
00:43:11,680 --> 00:43:15,800
I think over the next, you know, we're still comfortable with Tencent.

694
00:43:15,800 --> 00:43:18,640
It's a moderate holding in the portfolio.

695
00:43:18,640 --> 00:43:22,440
And I think China is probably in a good place to perform over the next, you know, short

696
00:43:22,440 --> 00:43:23,440
to medium term.

697
00:43:23,440 --> 00:43:31,600
I think the longer term there though is definitely in my mind becoming more cloudy.

698
00:43:31,600 --> 00:43:35,320
And I just think the ongoing decoupling that you're seeing between the East and the West

699
00:43:35,320 --> 00:43:37,040
is certainly raising the geopolitical risk.

700
00:43:37,040 --> 00:43:42,320
So that's something we're thinking about a lot as to whether we really want to have

701
00:43:42,320 --> 00:43:43,320
that mainland exposure.

702
00:43:43,320 --> 00:43:46,360
You know, now we're very comfortable with it and we think it's a phenomenal business

703
00:43:46,360 --> 00:43:47,720
and we'll do well.

704
00:43:47,720 --> 00:43:49,640
But it's definitely saying we're monitoring closely.

705
00:43:49,640 --> 00:43:53,320
Obviously, the other option is to get exposure to China through companies that are not listed

706
00:43:53,320 --> 00:43:54,320
there.

707
00:43:54,320 --> 00:43:59,200
We do have that as well, like an LVMH, which, you know, the Chinese seem to have an insatiable

708
00:43:59,200 --> 00:44:01,440
appetite for luxury.

709
00:44:01,440 --> 00:44:03,920
And you know, LVMH has been a big beneficiary there.

710
00:44:03,920 --> 00:44:07,240
And that's obviously, you know, that's also performed very well for the fund as well.

711
00:44:07,240 --> 00:44:08,780
Thoughts on UK and Europe?

712
00:44:08,780 --> 00:44:10,360
Any exposure in the fund there?

713
00:44:10,360 --> 00:44:11,760
We do have some exposure.

714
00:44:11,760 --> 00:44:15,880
So I just mentioned LVMH and obviously a lot of our businesses are global.

715
00:44:15,880 --> 00:44:18,000
So they sell all around the world.

716
00:44:18,000 --> 00:44:22,240
But we also have Hemnet, which is a Swedish online property portal.

717
00:44:22,240 --> 00:44:23,760
So think of the REA.

718
00:44:23,760 --> 00:44:28,240
Basically, you can think of REA group here without a competitor.

719
00:44:28,240 --> 00:44:31,200
So they're about 10 times the size of the next closest platform.

720
00:44:31,200 --> 00:44:36,680
So more or less, you know, consumer facing monopoly, great business, very stable end

721
00:44:36,680 --> 00:44:38,080
market as well.

722
00:44:38,080 --> 00:44:39,480
So we very much like that.

723
00:44:39,480 --> 00:44:44,800
But our Europe and UK exposure at the moment is probably on the lighter side.

724
00:44:44,800 --> 00:44:46,240
And that is a deliberate decision.

725
00:44:46,240 --> 00:44:49,720
The inflation picture around the world is very different.

726
00:44:49,720 --> 00:44:51,920
The US has largely rolled over here.

727
00:44:51,920 --> 00:44:53,200
Maybe we're about to roll over China.

728
00:44:53,200 --> 00:44:55,640
No real inflationary problem at all at the moment.

729
00:44:55,640 --> 00:44:57,840
Europe, bit of a basket case.

730
00:44:57,840 --> 00:45:05,240
Obviously they have the issues in the East, given the war with Russia and Ukraine, but

731
00:45:05,240 --> 00:45:07,640
also a pretty significant energy crisis.

732
00:45:07,640 --> 00:45:12,320
So inflation over there is taking a real toll and it's a region that we've been underweight

733
00:45:12,320 --> 00:45:14,040
for a little bit now.

734
00:45:14,040 --> 00:45:16,600
Very wary about.

735
00:45:16,600 --> 00:45:21,920
So I think I read a statistic that about 80% of central banks worldwide are currently in

736
00:45:21,920 --> 00:45:23,460
tightening phase.

737
00:45:23,460 --> 00:45:24,640
So what's your...

738
00:45:24,640 --> 00:45:25,760
Certainly feels like it.

739
00:45:25,760 --> 00:45:27,120
Certainly feels like it.

740
00:45:27,120 --> 00:45:29,520
So how's it impacting the fund?

741
00:45:29,520 --> 00:45:35,640
And I suppose, what are your thoughts on macroeconomics and where rates are going and the bigger picture?

742
00:45:35,640 --> 00:45:42,600
I think on the macro front, look, we're by no means macro investors.

743
00:45:42,600 --> 00:45:48,360
You know that very much business focused bottom up analysts looking for companies and focusing

744
00:45:48,360 --> 00:45:50,040
on the fundamentals.

745
00:45:50,040 --> 00:45:54,040
But what I would say with that is it's impossible to ignore the macro, particularly in today's

746
00:45:54,040 --> 00:45:55,040
world, right?

747
00:45:55,040 --> 00:45:56,040
We're always looking at it.

748
00:45:56,040 --> 00:46:01,840
So definitely, if I had to kind of sense our macro or how we think about it, it's very

749
00:46:01,840 --> 00:46:05,480
much macro aware, but micro focused, right?

750
00:46:05,480 --> 00:46:08,640
So it does shape things we do, like I said, with Europe.

751
00:46:08,640 --> 00:46:13,920
But I think on the interest rate front, I think inflation is more or less yesterday's

752
00:46:13,920 --> 00:46:14,920
war.

753
00:46:14,920 --> 00:46:19,960
I think last year, central banks were going incredibly hard to tamp down on inflation

754
00:46:19,960 --> 00:46:22,980
and raise rates.

755
00:46:22,980 --> 00:46:28,000
And I think, you know, in our view, we're probably closer to the back end of that called

756
00:46:28,000 --> 00:46:29,720
the seventh or eighth inning.

757
00:46:29,720 --> 00:46:32,800
I think you largely saw that with Power's press conference recently.

758
00:46:32,800 --> 00:46:34,560
The market obviously reacted well.

759
00:46:34,560 --> 00:46:39,320
And whilst I would say he didn't say anything that was too optimistic, to be honest, very,

760
00:46:39,320 --> 00:46:40,920
very nuanced.

761
00:46:40,920 --> 00:46:44,480
What he did was he provided some certainty, I think.

762
00:46:44,480 --> 00:46:50,440
And really, that's all the market or all investors really wanted to see, which was, you know,

763
00:46:50,440 --> 00:46:54,120
just some certainty about where rates would end up and at least know that the rate of

764
00:46:54,120 --> 00:47:01,040
change, for lack of a better word there, better saying, I should say, was slowing down.

765
00:47:01,040 --> 00:47:04,880
And as soon as they saw that, you know, it kind of, I guess, gave a lot of people who

766
00:47:04,880 --> 00:47:08,280
were sitting on the sidelines, there's plenty of capital out there just waiting for this

767
00:47:08,280 --> 00:47:10,080
to end to lean in.

768
00:47:10,080 --> 00:47:15,320
So I think the inflation and interest rate picture is improving from here.

769
00:47:15,320 --> 00:47:19,600
I think the bigger risk as we look at over the next 12 months is really the recession

770
00:47:19,600 --> 00:47:20,600
risk.

771
00:47:20,600 --> 00:47:26,320
So, you know, the question now is we've had this incredibly steep and quick ramp in interest

772
00:47:26,320 --> 00:47:27,320
rates.

773
00:47:27,320 --> 00:47:29,560
What's the demand destruction going to look like on the other side?

774
00:47:29,560 --> 00:47:34,240
And, you know, to that point, I think it's incredibly hard to know because you have a

775
00:47:34,240 --> 00:47:35,240
lot of mixed signals.

776
00:47:35,240 --> 00:47:39,400
So, you know, on one hand, you have the yield curve in the United States, which is basically

777
00:47:39,400 --> 00:47:43,880
the most inverted it's been the last 40 years, which is telling you the next 12 to 18 months,

778
00:47:43,880 --> 00:47:47,960
there is a seriously high probability of a meaningful recession.

779
00:47:47,960 --> 00:47:53,920
But then on the other hand, you look at the consumer data, the employment data, and it

780
00:47:53,920 --> 00:47:56,480
just continues to be incredibly strong.

781
00:47:56,480 --> 00:48:03,480
You know, the fact that the last print we had for the US unemployment rate, 3.4, 3.3,

782
00:48:03,480 --> 00:48:10,120
mid threes call it percent is the lowest unemployment's been since 1969 kind of tells you everything

783
00:48:10,120 --> 00:48:13,000
like the labor market over there is red hot.

784
00:48:13,000 --> 00:48:18,320
So I think, you know, that's the real risk from here thinking about the recession and

785
00:48:18,320 --> 00:48:24,240
just how sticky inflation proves to be on the downside given wage inflation will probably,

786
00:48:24,240 --> 00:48:26,880
you know, stay stay at least warmish on the other side.

787
00:48:26,880 --> 00:48:28,440
I get this question all the time.

788
00:48:28,440 --> 00:48:33,720
So essentially, what what does this rally we've seen almost doubling from the lows

789
00:48:33,720 --> 00:48:36,120
Tesla a number of different tech companies, right?

790
00:48:36,120 --> 00:48:38,860
So is this a bit do you think this is a bear market bounce?

791
00:48:38,860 --> 00:48:43,080
Or do you think this is the beginning of a long slowed recovery?

792
00:48:43,080 --> 00:48:45,320
Or do you think this is trend is still down?

793
00:48:45,320 --> 00:48:50,200
Because we also from the research we're currently receiving, there's also talks, as you said,

794
00:48:50,200 --> 00:48:57,120
with inflation situation of potentially companies suffering a profit crisis, just as you said,

795
00:48:57,120 --> 00:48:59,740
the impact of discretionary spending.

796
00:48:59,740 --> 00:49:05,160
And then potentially, if that occurs, it would hate to see it, but potentially a credit crisis

797
00:49:05,160 --> 00:49:08,520
of some sort down down down the end.

798
00:49:08,520 --> 00:49:11,080
Do you think that's where this is going?

799
00:49:11,080 --> 00:49:13,640
Or do you think this is the beginning of the recovery?

800
00:49:13,640 --> 00:49:14,920
Or what's your current opinion?

801
00:49:14,920 --> 00:49:20,800
Yeah, I think on that, obviously, the markets have had a really good start to the year.

802
00:49:20,800 --> 00:49:27,440
I don't think I or I should say we at Lake House have much of an edge in terms of predicting

803
00:49:27,440 --> 00:49:30,400
recessions, credit crises or anything like that.

804
00:49:30,400 --> 00:49:36,120
In fact, I would argue that, you know, if you look back over history, you know, no one

805
00:49:36,120 --> 00:49:38,520
really has a consistent edge there.

806
00:49:38,520 --> 00:49:42,000
And even if you do, trying to make money off it can be quite a tricky game.

807
00:49:42,000 --> 00:49:46,200
So you know, for us, it's all just bring it back to fundamentals.

808
00:49:46,200 --> 00:49:50,000
Like I said, despite all the doom and gloom, you're constantly getting headlines saying

809
00:49:50,000 --> 00:49:51,360
this or that is about to occur.

810
00:49:51,360 --> 00:49:55,560
The recession is coming, which, you know, if you're betting on that's fine.

811
00:49:55,560 --> 00:49:58,120
But it's also the most predicted recession of all time.

812
00:49:58,120 --> 00:50:02,600
But you know, for us, the portfolio companies continue to grow, I think over the last quarter,

813
00:50:02,600 --> 00:50:06,000
the weighted average revenue growth across the portfolio is still north of 20%.

814
00:50:06,000 --> 00:50:10,400
So things are still very healthy from a fundamental perspective.

815
00:50:10,400 --> 00:50:13,920
So I'm not too sure where we go from here.

816
00:50:13,920 --> 00:50:18,240
We do have an inflation print this week, and there is an extreme amount of volatility out

817
00:50:18,240 --> 00:50:19,240
there.

818
00:50:19,240 --> 00:50:20,240
So things could change quickly.

819
00:50:20,240 --> 00:50:24,080
But you know, my personal sense is that, you know, I think I'm starting to get much more

820
00:50:24,080 --> 00:50:26,640
constructive here from a risk perspective.

821
00:50:26,640 --> 00:50:28,120
And I say that for a few reasons.

822
00:50:28,120 --> 00:50:31,680
But you know, at least in the US, inflation appears to have peaked.

823
00:50:31,680 --> 00:50:34,920
And that's the most important market given the Fed sets the cost of capital for the rest

824
00:50:34,920 --> 00:50:36,080
of the world.

825
00:50:36,080 --> 00:50:40,240
You've also got freight rates, commodity prices that are down significantly, which is a pretty

826
00:50:40,240 --> 00:50:42,720
good forward looking indicator for where inflation is going.

827
00:50:42,720 --> 00:50:49,080
You've already got a 5% terminal Fed funds rate priced in versus 0% 18 months ago.

828
00:50:49,080 --> 00:50:53,920
So a lot of that dislocation we saw and that value adjustment has already played out.

829
00:50:53,920 --> 00:50:58,840
And then you already have, you know, the NASDAQ down 25% and valuations at much more attractive

830
00:50:58,840 --> 00:50:59,960
levels than what they were.

831
00:50:59,960 --> 00:51:07,400
So I think right now, if you can focus on fundamentals and tune out the noise, and really

832
00:51:07,400 --> 00:51:12,520
if you know, if you can take that three to five year view, I think, you know, it'll prove

833
00:51:12,520 --> 00:51:14,920
a pretty good time to invest.

834
00:51:14,920 --> 00:51:16,980
I'm definitely more constructive right now.

835
00:51:16,980 --> 00:51:22,760
So using that exact theory, what has been the most recent allocations of the portfolio

836
00:51:22,760 --> 00:51:23,760
of which company?

837
00:51:23,760 --> 00:51:24,760
Sure.

838
00:51:24,760 --> 00:51:29,840
So in terms of recent additions, we've added Hemnet, which I mentioned, we've also

839
00:51:29,840 --> 00:51:36,520
added Charles Schwab, which is one of the largest discount brokerages, an asset, well,

840
00:51:36,520 --> 00:51:41,680
turning into almost an asset management firm over in the States.

841
00:51:41,680 --> 00:51:44,560
And we've also added to a number of our higher conviction positions.

842
00:51:44,560 --> 00:51:49,760
So talking the Amazons of the world, CoStar, ServiceNow, Constellation Software, really

843
00:51:49,760 --> 00:51:57,120
a number of positions that we feel, you know, have been sold off pretty, not irrationally,

844
00:51:57,120 --> 00:52:01,840
but just, you know, sold off way more than they should have been.

845
00:52:01,840 --> 00:52:03,600
Fundamentals are holding up quite well.

846
00:52:03,600 --> 00:52:09,360
And for these businesses, we feel that whatever comes down the pike, they're pretty well placed

847
00:52:09,360 --> 00:52:10,360
to deal with it.

848
00:52:10,360 --> 00:52:16,040
And, you know, that's not just due to our philosophy, but, you know, if you have, you

849
00:52:16,040 --> 00:52:19,680
know, the world we're talking about right now, and it depends who you ask, but if we're

850
00:52:19,680 --> 00:52:25,100
looking at slower growth, maybe, you know, moderating, but pretty persistent, higher

851
00:52:25,100 --> 00:52:29,360
inflation than we've had previously and higher interest rates, the question is, well, what

852
00:52:29,360 --> 00:52:32,680
kind of business do you want to invest in in that environment?

853
00:52:32,680 --> 00:52:35,360
And we definitely feel we're in the right companies to deal with that.

854
00:52:35,360 --> 00:52:40,080
And I'd say, you know, the things you want to secular growth, you know, businesses that

855
00:52:40,080 --> 00:52:44,920
can continue growing, even if you get the broader economic weakness, high gross margins

856
00:52:44,920 --> 00:52:51,040
and pricing power, so you can deal with inflation, definitely, you know, maybe dominant businesses

857
00:52:51,040 --> 00:52:53,240
that are at least dominant within their markets.

858
00:52:53,240 --> 00:52:58,240
And I say that from the perspective of, you know, not only are they best placed to, you

859
00:52:58,240 --> 00:53:03,480
know, survive a recession if we get one, but the ability to play, I wouldn't underestimate

860
00:53:03,480 --> 00:53:07,560
the ability to play offense when everyone else is playing defense, you know, if it is

861
00:53:07,560 --> 00:53:12,880
a very tough market, and a lot of your competitors are reeling and you're able to reinvest and

862
00:53:12,880 --> 00:53:16,080
really try to capture the upside coming out of that, you know, rapid market share gains

863
00:53:16,080 --> 00:53:18,400
can happen.

864
00:53:18,400 --> 00:53:23,160
And then the last one I'd just say is minimal leverage, obviously, in a rising rate environment.

865
00:53:23,160 --> 00:53:27,760
It's obvious, if your capital structure gets strained, you're going to come under pressure.

866
00:53:27,760 --> 00:53:29,480
So I think those are the four kind of key things.

867
00:53:29,480 --> 00:53:34,640
And I'd say it's pretty consistent, not only with how our philosophy and strategy has always

868
00:53:34,640 --> 00:53:41,640
been, but we think we've positioned the portfolio accordingly such that whatever plays out,

869
00:53:41,640 --> 00:53:44,880
hopefully our businesses will continue to thrive and grow for many years.

870
00:53:44,880 --> 00:53:49,560
And you know, that will play out in share prices eventually over the long term.

871
00:53:49,560 --> 00:53:51,680
So they're the things that you're currently looking at.

872
00:53:51,680 --> 00:53:56,040
Is there any themes that aren't in the portfolio now that you're considering?

873
00:53:56,040 --> 00:53:59,440
A lot of themes that many people are discussing, obviously, as you said, you're not going to

874
00:53:59,440 --> 00:54:00,440
touch airlines.

875
00:54:00,440 --> 00:54:08,280
So what about in the renewable space, you've got all the cars, the lithium batteries, solid

876
00:54:08,280 --> 00:54:11,640
state batteries starting to pop up everywhere.

877
00:54:11,640 --> 00:54:13,520
What about cybersecurity?

878
00:54:13,520 --> 00:54:15,920
Anything like this you're considering or just not on your radar?

879
00:54:15,920 --> 00:54:18,080
Look, I wouldn't say it's not on our radar.

880
00:54:18,080 --> 00:54:20,240
We'll look at anything.

881
00:54:20,240 --> 00:54:25,040
As I said, we're really searching from a bottom up perspective, looking for those core economic

882
00:54:25,040 --> 00:54:29,640
models first, and the businesses that are set to benefit from those secular trends.

883
00:54:29,640 --> 00:54:31,240
So you noted a few there.

884
00:54:31,240 --> 00:54:33,320
Cybersecurity, we've looked at it here and there.

885
00:54:33,320 --> 00:54:38,840
We don't own any direct plays there in terms of, you know, pure cybersecurity companies.

886
00:54:38,840 --> 00:54:40,400
But there's obviously a huge opportunity there.

887
00:54:40,400 --> 00:54:44,680
I'd say, you know, the rate of change in the industry for us is something we kind of struggle

888
00:54:44,680 --> 00:54:45,680
with.

889
00:54:45,680 --> 00:54:47,680
It does kind of move pretty quick.

890
00:54:47,680 --> 00:54:50,680
So it's hard for us to really feel like we have an edge in predicting how that's going

891
00:54:50,680 --> 00:54:52,000
to turn out.

892
00:54:52,000 --> 00:54:56,520
But we do have some exposure through the likes of Microsoft, for example, which has, you

893
00:54:56,520 --> 00:55:02,240
know, an absolutely massive cybersecurity business in and of its own right, right now.

894
00:55:02,240 --> 00:55:06,280
So we kind of get a bit of that without having to take the direct bet on any individual player.

895
00:55:06,280 --> 00:55:09,160
But it's very conceivable we could going forward.

896
00:55:09,160 --> 00:55:13,400
I mean, it's a very attractive market and there's some businesses there, which I know

897
00:55:13,400 --> 00:55:17,200
you're familiar with, like the cloud players of the world and whatnot that are, you know,

898
00:55:17,200 --> 00:55:19,120
very high quality and there's some opportunities.

899
00:55:19,120 --> 00:55:21,040
So we'll always, always be looking.

900
00:55:21,040 --> 00:55:25,080
Just to finish off, is there any thoughts you want to leave our listeners with?

901
00:55:25,080 --> 00:55:29,620
Yeah, look, the only, I guess the only one thing I would say is that, and I was kind

902
00:55:29,620 --> 00:55:34,960
of touching on this earlier, is really just around the macro and uncertainty that's out

903
00:55:34,960 --> 00:55:35,960
there.

904
00:55:35,960 --> 00:55:39,760
Obviously, sentiment's incredibly depressed and there's a lot of fear.

905
00:55:39,760 --> 00:55:45,280
But I think at times like this, what really pays is to take a step back, deep breath and

906
00:55:45,280 --> 00:55:48,080
focus on fundamentals.

907
00:55:48,080 --> 00:55:52,880
So if you can find those companies that you think are still performing very well, momentum

908
00:55:52,880 --> 00:55:56,640
is strong, their competitive position is strong and you think they have, you know, great opportunity

909
00:55:56,640 --> 00:56:03,920
and potential over the next three, five, 10 years to continue growing and they're trading

910
00:56:03,920 --> 00:56:06,640
at what is very, you know, very attractive valuations today.

911
00:56:06,640 --> 00:56:07,680
I think it's a time to lean in.

912
00:56:07,680 --> 00:56:14,560
So I'm not suggesting that the bottom is in or I have any magical crystal ball.

913
00:56:14,560 --> 00:56:19,880
But you know, when everyone is fearful is often the time as Warren would say that, you

914
00:56:19,880 --> 00:56:21,600
know, opportunity presents itself.

915
00:56:21,600 --> 00:56:25,400
So I just think, you know, now is not a time to put your head in the sand.

916
00:56:25,400 --> 00:56:26,800
Markets are forward looking.

917
00:56:26,800 --> 00:56:31,200
By the time all these storm clouds have dissipated and we're back here talking like it's a good

918
00:56:31,200 --> 00:56:35,880
old glory days, markets will be 30, 40, 50% off their lows and, you know, we'll be back

919
00:56:35,880 --> 00:56:38,000
to back on the cycle.

920
00:56:38,000 --> 00:56:46,000
So just like chat, GPD, nobody knows, but up, up it goes.

921
00:56:46,000 --> 00:56:47,000
Nice one.

922
00:56:47,000 --> 00:56:50,120
You should should trademark that.

923
00:56:50,120 --> 00:56:55,720
If anyone wants to learn more about Lake House or the global strategy, how can they find

924
00:56:55,720 --> 00:56:56,720
you?

925
00:56:56,720 --> 00:56:58,240
Lakehousecapital.com.au.

926
00:56:58,240 --> 00:57:00,920
We try to be pretty transparent in everything we do.

927
00:57:00,920 --> 00:57:02,840
So we pump, we publish a monthly letter.

928
00:57:02,840 --> 00:57:04,180
You can see our top 10 holdings there.

929
00:57:04,180 --> 00:57:08,760
We also talk about, you know, the material holdings when they report each quarter.

930
00:57:08,760 --> 00:57:11,960
So definitely try to be transparent with investors.

931
00:57:11,960 --> 00:57:15,280
And we've got quarterly webinars we run so they can find all that information there.

932
00:57:15,280 --> 00:57:18,080
And I think it gives you a pretty good sense of what we're about.

933
00:57:18,080 --> 00:57:19,600
Thanks Nick for coming on the rate of change.

934
00:57:19,600 --> 00:57:23,040
It's been really enjoyable hearing your thoughts and I hope you have a great day.

935
00:57:23,040 --> 00:57:24,040
No problem.

936
00:57:24,040 --> 00:57:25,040
Thanks Murdoch.

937
00:57:25,040 --> 00:57:32,680
It was a pleasure.

938
00:57:32,680 --> 00:57:36,560
Any views expressed in this recording do not represent the view of any other third party

939
00:57:36,560 --> 00:57:39,320
and other sole personal opinions of the speaker.

940
00:57:39,320 --> 00:57:43,080
Any reference to financial product does not constitute advice or recommendation.

941
00:57:43,080 --> 00:57:47,320
And before any action, you should seek proper advice from your financial professional.

942
00:57:47,320 --> 00:57:54,120
Australian listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

943
00:57:54,120 --> 00:57:55,120
advice.

944
00:57:55,120 --> 00:58:02,880
To get in touch with York, head to our website www.yorkwealth.com.au.