1 00:00:00,040 --> 00:00:02,200 Ladies and gentlemen, welcome to The Business Brew. 2 00:00:02,200 --> 00:00:05,560 I'm your host, Bill Brewster. This episode features Elliott 3 00:00:05,560 --> 00:00:08,440 Turner of RGA Investment Advisors. 4 00:00:08,440 --> 00:00:12,240 Elliott is a repeat guest. This is his second appearance. 5 00:00:12,240 --> 00:00:17,000 You may know him from the Manual of Ideas podcast. 6 00:00:17,000 --> 00:00:20,240 You may know him from some of his investment commentary. 7 00:00:20,800 --> 00:00:24,520 I know him from a connection that I made at Manual of Ideas a 8 00:00:24,520 --> 00:00:29,080 number of years ago and Elliot and I have become friends I'd 9 00:00:29,080 --> 00:00:31,880 like to say. And I really enjoy speaking with 10 00:00:31,880 --> 00:00:36,760 him and I think that he brought a good perspective to the show 11 00:00:36,920 --> 00:00:38,800 in this episode and I hope you all enjoy it. 12 00:00:38,880 --> 00:00:42,400 An additional disclosure for this episode, RGA Investment 13 00:00:42,400 --> 00:00:45,320 advisors may own positions in the companies discussed. 14 00:00:45,840 --> 00:00:48,840 Past performance is not indicative of future results. 15 00:00:49,160 --> 00:00:52,200 Investing involves risks, including the loss of capital. 16 00:00:52,200 --> 00:00:54,480 Please remember that the securities identified and 17 00:00:54,480 --> 00:00:57,480 described throughout this podcast do not represent all of 18 00:00:57,480 --> 00:01:01,080 the securities RGA Investment advisors purchase, sold, or 19 00:01:01,080 --> 00:01:04,040 recommended for client accounts. As a listener, you should not 20 00:01:04,040 --> 00:01:07,400 assume that an investment in the securities identified was or 21 00:01:07,400 --> 00:01:11,520 will be profitable. As always, nothing in the show 22 00:01:11,800 --> 00:01:14,920 is financial advice. Please consult an investment 23 00:01:14,920 --> 00:01:16,960 advisor before making investment decisions. 24 00:01:17,360 --> 00:01:19,760 Everything in this show is for entertainment purposes and 25 00:01:19,760 --> 00:01:22,800 educational purposes. And do your own due diligence. 26 00:01:43,080 --> 00:01:47,640 All right, ladies and gentlemen, I am happy to be rejoined by 27 00:01:47,640 --> 00:01:50,160 Elliot Turner. Things have changed quite a bit 28 00:01:50,160 --> 00:01:53,040 since our first conversation. A couple things have happened in 29 00:01:53,040 --> 00:01:57,440 the world, but we have seen each other in the flesh and IRL as 30 00:01:57,440 --> 00:02:01,360 the kids say and you know, been nice to keep in touch. 31 00:02:01,360 --> 00:02:02,640 Thanks for coming back on the show. 32 00:02:03,040 --> 00:02:05,240 Yeah, Thank you for having me. That's definitely one of the 33 00:02:05,240 --> 00:02:09,080 better changes, right? Getting together in Manhattan at 34 00:02:09,080 --> 00:02:13,480 awesome events and it's good to have this part of our life back. 35 00:02:13,520 --> 00:02:15,920 Definitely. You know, some of the things 36 00:02:15,920 --> 00:02:20,400 that have changed since we last spoke are not for the better in 37 00:02:20,400 --> 00:02:23,760 terms of like my appreciation for my own ability to move 38 00:02:23,760 --> 00:02:25,880 through challenging market environments. 39 00:02:26,360 --> 00:02:28,880 But you know, we all live and learn along the way. 40 00:02:28,880 --> 00:02:31,240 Definitely part of the roller coaster that is life. 41 00:02:31,680 --> 00:02:34,280 Well, experience is what you get when you don't get what you 42 00:02:34,280 --> 00:02:36,280 want. Or something like that. 43 00:02:36,840 --> 00:02:38,240 Exactly. And, you know, I'd always 44 00:02:38,240 --> 00:02:40,760 appreciated the notion that we can learn from other people's 45 00:02:40,760 --> 00:02:42,840 experience to try to apply it well to ourselves. 46 00:02:42,840 --> 00:02:46,720 But I do think, you know, given what's transpired these last few 47 00:02:46,720 --> 00:02:49,520 years, I don't think many people have experience that was 48 00:02:49,520 --> 00:02:53,080 directly relatable to what we'd all gone through. 49 00:02:54,160 --> 00:02:56,320 Yes, that was a bizarre time. It was. 50 00:02:56,320 --> 00:02:58,680 It was our time to do it on the Internet, I suppose. 51 00:02:58,680 --> 00:03:02,080 Back in the old days, as my kids like to say, they asked me if I 52 00:03:02,080 --> 00:03:04,800 was born in the old days. Define the old days. 53 00:03:04,800 --> 00:03:07,440 But anyway, I guess they had message boards and stuff in 54 00:03:07,440 --> 00:03:10,440 the.com bubble, but the social media element was kind of 55 00:03:10,440 --> 00:03:12,440 interesting. I don't know, man, what? 56 00:03:12,440 --> 00:03:14,040 What? What have some of your takeaways 57 00:03:14,040 --> 00:03:16,440 been from all that? Yeah. 58 00:03:16,440 --> 00:03:19,680 I mean, you know, I think one of the biggest problems that I had 59 00:03:19,680 --> 00:03:23,200 is too much of the portfolio was trading exactly the same and it 60 00:03:23,200 --> 00:03:26,200 all became one thing and I'd recognize that, but I didn't act 61 00:03:26,200 --> 00:03:28,200 on it and it was something I thought about. 62 00:03:28,200 --> 00:03:31,960 I think it's easier to kind of act on when it's to the 63 00:03:31,960 --> 00:03:35,120 downside, like when markets are all getting hit and you're like, 64 00:03:35,120 --> 00:03:37,960 well, you know, I know my stuff's OK and I'm going to ride 65 00:03:37,960 --> 00:03:40,280 out the storm. It's a lot harder to be 66 00:03:40,280 --> 00:03:43,880 conscious of like what you need to do to pair things back and 67 00:03:44,400 --> 00:03:47,680 sell things down. And I think the tax man, we've 68 00:03:48,160 --> 00:03:51,800 by and large invest for taxable investors, so not pensions and 69 00:03:51,800 --> 00:03:55,200 endowments that have the benefit of not having to think about 70 00:03:55,200 --> 00:03:57,280 after tax returns. And I'd started thinking a 71 00:03:57,280 --> 00:04:01,960 little too much about how I could maneuver around minimizing 72 00:04:01,960 --> 00:04:06,240 tax over the course of time. And I think markets do what they 73 00:04:06,240 --> 00:04:09,640 tend to do, which is they take away your flexibility like they 74 00:04:09,640 --> 00:04:12,680 take away your best laid plans. You can't really think in those 75 00:04:12,680 --> 00:04:15,960 terms if it's something that you feel you need to do and do it. 76 00:04:16,360 --> 00:04:20,680 And this was the most meaningful drawdown I've experienced. 77 00:04:21,040 --> 00:04:23,520 And it's one thing to say you're going to hold some of these 78 00:04:23,520 --> 00:04:26,960 positions through drawdown. It's another thing to do it when 79 00:04:26,960 --> 00:04:31,480 it's like several positions all acting the same and pulling 80 00:04:31,480 --> 00:04:33,480 everything down. When it's one position drawing 81 00:04:33,480 --> 00:04:37,520 down heavily, markets down and the rest of your book is kind of 82 00:04:37,640 --> 00:04:40,680 like here and there, you know some plus, some minus versus the 83 00:04:40,680 --> 00:04:42,800 market. That's a little easier than when 84 00:04:42,800 --> 00:04:45,600 it's like a lot of things at once acting exactly the same and 85 00:04:45,600 --> 00:04:48,360 are pretty tough. So it makes it pretty 86 00:04:48,520 --> 00:04:51,560 challenging and puts a different kind of stress on you 87 00:04:51,560 --> 00:04:55,120 personally. And I had AI had a take myself 88 00:04:55,160 --> 00:04:58,080 away from the situation, like force myself to step back a 89 00:04:58,080 --> 00:05:03,600 little bit and view me and what I was looking at in the markets 90 00:05:03,600 --> 00:05:06,640 from afar as opposed to from within. 91 00:05:06,640 --> 00:05:09,040 And I think that really helped and got me to a much better 92 00:05:09,040 --> 00:05:11,280 place. One of the other ones that I've 93 00:05:11,280 --> 00:05:14,680 really honed in on and I think we'll probably talk about it as 94 00:05:14,680 --> 00:05:18,360 we get into some of the more substance substantive rather 95 00:05:18,360 --> 00:05:22,160 than philosophical stuff. Resiliency, like I underrated 96 00:05:22,160 --> 00:05:26,080 how important resiliency was from a portfolio, but also from 97 00:05:26,080 --> 00:05:29,600 a business perspective. I think one of the areas where 98 00:05:29,600 --> 00:05:32,920 I'd really witnessed this is certain small companies in 99 00:05:32,920 --> 00:05:37,440 particular resiliency is just a lot more challenging than it is 100 00:05:37,440 --> 00:05:40,440 for really large, really diverse businesses. 101 00:05:40,760 --> 00:05:46,480 And I think it happens on every dimension from multiple revenue 102 00:05:46,480 --> 00:05:50,440 streams to multiple sources to operating in multiple 103 00:05:50,440 --> 00:05:53,160 geographies. And there's no one thing that 104 00:05:53,160 --> 00:05:55,920 could actually take you down when you're really big and 105 00:05:55,920 --> 00:05:59,120 really diverse to the same degree that if you're fairly 106 00:05:59,120 --> 00:06:02,920 small and you're reliant on one supplier, for example, or one 107 00:06:02,920 --> 00:06:07,680 factory, when that particular geography that your supplier is 108 00:06:07,680 --> 00:06:11,720 in experiences a different kind of problem than where you're in 109 00:06:11,720 --> 00:06:14,840 market that you're actually selling to might have. 110 00:06:15,240 --> 00:06:19,400 And that kind of resiliency created challenges for 111 00:06:19,400 --> 00:06:24,840 businesses where they had to focus on making things work as 112 00:06:24,840 --> 00:06:28,480 opposed to executing on their actual business plans. 113 00:06:28,880 --> 00:06:31,720 That sort of challenge has real consequences. 114 00:06:31,720 --> 00:06:35,240 And I was a little too willing to give certain companies. 115 00:06:35,400 --> 00:06:39,040 I give them the benefit of the doubt insofar as it was 116 00:06:39,720 --> 00:06:43,280 absolutely one of the hardest environments to make decisions 117 00:06:43,800 --> 00:06:46,560 within. I don't necessarily fault people 118 00:06:46,560 --> 00:06:50,520 for having made bad decisions, for having assumed some degree 119 00:06:50,520 --> 00:06:55,640 of demand that came during COVID would stay to a greater extent 120 00:06:55,640 --> 00:07:00,200 than had happened. But it's also impossible not to 121 00:07:01,200 --> 00:07:05,720 like key in on the fact that these companies, the small ones 122 00:07:05,720 --> 00:07:09,880 in particular, because they had a focus on making things work as 123 00:07:09,880 --> 00:07:13,200 opposed to making their business as good as it could possibly be. 124 00:07:13,520 --> 00:07:16,520 It's a distraction and it's something that changes the the 125 00:07:16,520 --> 00:07:19,880 course of the business and and what they're able to do going 126 00:07:19,880 --> 00:07:21,840 forward. And so it's not about whether 127 00:07:21,840 --> 00:07:23,480 I'm willing to give them leniency or not. 128 00:07:23,480 --> 00:07:26,600 It's about being realistic and acknowledging that when 129 00:07:26,600 --> 00:07:30,960 challenges emerge. You got to me at least from AP 130 00:07:30,960 --> 00:07:34,520 Ms. perspective stress test, how many companies might face 131 00:07:34,800 --> 00:07:38,800 significant like they might be fine on top line but the margin 132 00:07:38,800 --> 00:07:41,040 pressures that they'd experienced can meaningfully 133 00:07:41,040 --> 00:07:43,760 change my expectations going forward, the market's 134 00:07:43,760 --> 00:07:48,920 expectations and what they're able to to create going forward. 135 00:07:48,960 --> 00:07:52,800 So that's been that, that's been one of the ones that I one of 136 00:07:52,800 --> 00:07:55,720 the high level questions I've asked myself through this all is 137 00:07:56,240 --> 00:08:00,040 it's actually more damaging to learn the wrong lessons than to 138 00:08:00,120 --> 00:08:02,120 take no lessons out of a period at all. 139 00:08:02,800 --> 00:08:05,840 So I've asked myself to what degree is is what we just 140 00:08:05,840 --> 00:08:09,880 witnessed something that will never happen again that is so 141 00:08:09,880 --> 00:08:13,640 atypical where the lessons may be wrong ones. 142 00:08:13,640 --> 00:08:18,080 But I do think you know the ones that I'm talking about here, I I 143 00:08:18,080 --> 00:08:20,280 really think are the right ones For me personally. 144 00:08:20,280 --> 00:08:22,960 I don't know if everyone would share the same ones but for me 145 00:08:22,960 --> 00:08:24,960 I'm I'm very confident they're the right ones. 146 00:08:25,280 --> 00:08:28,720 There's someones that I've mused about along the way that I don't 147 00:08:28,720 --> 00:08:33,159 necessarily think as I've more fully reflected on things and 148 00:08:33,159 --> 00:08:36,240 have a little further removal from the heat of the moment. 149 00:08:37,039 --> 00:08:39,720 Like I don't necessarily think they were the right lessons, but 150 00:08:39,720 --> 00:08:41,400 time kind of helps give perspective. 151 00:08:41,400 --> 00:08:42,960 So I've been trying to take advantage of that. 152 00:08:43,760 --> 00:08:47,960 How did you remove yourself a little bit and step back? 153 00:08:49,800 --> 00:08:54,120 Yeah, I mean, part of that was I wasn't giving myself any breaks. 154 00:08:54,160 --> 00:08:59,080 Like I wasn't letting myself get away from first thing I'd do in 155 00:08:59,080 --> 00:09:03,680 the morning was check quotes. I'd start reading like the news 156 00:09:03,680 --> 00:09:05,960 on specific things even when there was nothing, and trying to 157 00:09:05,960 --> 00:09:09,480 find explanations for why certain things were happening in 158 00:09:09,480 --> 00:09:14,760 terms of price, action. And I also was being like really 159 00:09:14,920 --> 00:09:17,360 hard on myself. Like this is the time to work, 160 00:09:17,360 --> 00:09:20,160 work, work. And I actually had to one. 161 00:09:20,400 --> 00:09:24,440 I created a rule where I don't even look at my phone until I 162 00:09:24,440 --> 00:09:28,920 get downstairs and my kids are taken care of in the beginning 163 00:09:28,920 --> 00:09:33,280 of the day, so I have some distance before I actually start 164 00:09:33,280 --> 00:09:34,440 looking at things. So. 165 00:09:34,480 --> 00:09:38,120 Are you are you suggesting that this morning when I woke up at 166 00:09:38,120 --> 00:09:40,760 4:00 AM and looked at my phone and then couldn't go back to 167 00:09:40,760 --> 00:09:43,320 bed, that that was maybe not the right thing to do? 168 00:09:43,760 --> 00:09:46,440 Yeah, yeah, that's the That's a tough thing to do, right. 169 00:09:46,600 --> 00:09:48,440 I'm. Pretty sure I got a 63 on my 170 00:09:48,440 --> 00:09:50,840 sleep score. That's not terrible. 171 00:09:51,040 --> 00:09:53,440 No, it's not failing, but it's not great. 172 00:09:54,040 --> 00:09:55,520 Yeah, I had a hockey game last night. 173 00:09:55,520 --> 00:09:58,000 I got a 12 on my sleep score. It was not good. 174 00:09:59,520 --> 00:10:01,640 Not good. My preparedness is kind of on 175 00:10:01,640 --> 00:10:05,120 par with the sleep score. Good as is mine, so this should 176 00:10:05,120 --> 00:10:07,520 be a fantastic podcast. Yeah, exactly. 177 00:10:07,520 --> 00:10:10,280 I see you got the coffee. Rollings right the the 12:30 178 00:10:10,280 --> 00:10:11,400 coffee. I needed it. 179 00:10:11,720 --> 00:10:14,480 Yeah, yeah, I hear ya. I I stopped playing some of my 180 00:10:14,480 --> 00:10:16,760 hockey games because I'm like, I need to work. 181 00:10:16,760 --> 00:10:18,680 I need to be more focused. And actually, I thought that was 182 00:10:18,680 --> 00:10:21,880 a really bad thing. Yeah, in retrospect, probably 183 00:10:22,200 --> 00:10:23,640 got to take care of the body first. 184 00:10:24,040 --> 00:10:25,520 Yeah, yeah. So that was one of the 185 00:10:25,520 --> 00:10:27,520 commitments I made, right? I was like, when this bear 186 00:10:27,520 --> 00:10:29,400 market ends, I'm going to be in the best shape of my life. 187 00:10:29,400 --> 00:10:32,040 And I did start working out a lot more. 188 00:10:32,040 --> 00:10:34,800 And you know, every day I'd sweat, I'd feel more connected 189 00:10:35,000 --> 00:10:37,320 to myself and to the world around me. 190 00:10:37,320 --> 00:10:40,400 And I thought that was one of the most effective kind of self 191 00:10:40,400 --> 00:10:42,520 help courses I'd taken along the way. 192 00:10:43,000 --> 00:10:46,120 And yeah, I'd, I'd actually encourage everyone to do that. 193 00:10:46,200 --> 00:10:50,480 And I definitely made myself spend more time with the family 194 00:10:50,480 --> 00:10:54,400 where I totally not look at my phone because I'd find myself 195 00:10:54,400 --> 00:10:57,080 stuck in multiple worlds. And I think part of that was a 196 00:10:57,080 --> 00:10:59,840 function of COVID, because my wife and I both work. 197 00:10:59,840 --> 00:11:03,200 We had our kids at home during a good chunk of COVID, and I 198 00:11:03,200 --> 00:11:05,680 didn't really have good separation between when I was 199 00:11:05,680 --> 00:11:09,480 parenting, when I was having leisure time and when I was 200 00:11:09,480 --> 00:11:13,440 working like everything blurred together and creating more 201 00:11:13,440 --> 00:11:15,880 distinct silos for each I think was super helpful. 202 00:11:16,200 --> 00:11:18,560 But I'd totally recommend you adopt the Don't look at the 203 00:11:18,560 --> 00:11:23,360 phone until like plenty of life is underway in the morning, and 204 00:11:23,360 --> 00:11:26,560 then everything feels a lot better and it's less 205 00:11:26,560 --> 00:11:29,720 reactionary. And I find also that you know 206 00:11:29,720 --> 00:11:32,200 there will be days where you wake up and and you're not 207 00:11:32,200 --> 00:11:34,680 pleased with certain things that you see in your inbox or 208 00:11:34,680 --> 00:11:38,360 wherever else. And it's nice to have had some 209 00:11:38,560 --> 00:11:42,200 lighter moments before you actually see that stuff. 210 00:11:42,480 --> 00:11:45,800 And I do feel you're able to deal with it better and with a 211 00:11:45,800 --> 00:11:50,000 clearer mind when you don't wake up with whatever negative is out 212 00:11:50,000 --> 00:11:52,120 there as your very first thought. 213 00:11:52,280 --> 00:11:55,280 Yeah, well, Vitali would say wake up and write, you know, 214 00:11:55,280 --> 00:11:57,720 that's his, That's his version, I think, of getting away and 215 00:11:57,720 --> 00:11:59,960 getting in his head. And I I think that's whatever it 216 00:11:59,960 --> 00:12:01,960 is. I think getting some space 217 00:12:02,440 --> 00:12:06,200 between when you start to react to the world outside and when 218 00:12:06,200 --> 00:12:09,400 you're actually like driving the world that you want to be is 219 00:12:09,400 --> 00:12:11,480 probably a pretty good way to start the day. 220 00:12:12,360 --> 00:12:14,920 Yeah, yeah. I wish I could get myself to get 221 00:12:14,920 --> 00:12:17,560 up and write. I don't remember my dreams well 222 00:12:17,560 --> 00:12:22,360 enough and definitely would be like a good exercise. 223 00:12:22,720 --> 00:12:25,360 And then the kids do wake up and it's a little too chaotic. 224 00:12:25,360 --> 00:12:28,160 So writing isn't the easiest, but it's in in it's good to 225 00:12:28,160 --> 00:12:32,800 embrace the chaos of the kids. Waking up before I deal with any 226 00:12:32,800 --> 00:12:35,120 even like positive stuff is great. 227 00:12:35,120 --> 00:12:36,880 Like, I love waking up with good news too. 228 00:12:37,320 --> 00:12:39,880 I I don't know why I'm honing in on the negative like. 229 00:12:39,880 --> 00:12:42,440 I do this giving it some long look. 230 00:12:42,560 --> 00:12:46,320 It was a very interesting time. I certainly had. 231 00:12:46,320 --> 00:12:49,240 I mean, the cannabis stocks that I owned were objectively a 232 00:12:49,240 --> 00:12:51,680 bubble. They are objectively destroyed. 233 00:12:51,680 --> 00:12:55,960 It has not been a very fun experience. 234 00:12:56,480 --> 00:13:00,240 I think I made a number of errors entering something like 235 00:13:00,240 --> 00:13:01,480 that. I think there's a lot of areas 236 00:13:01,480 --> 00:13:03,200 of the market that were like that. 237 00:13:03,720 --> 00:13:07,440 Thankfully, no catastrophic mistakes, but it's an 238 00:13:07,440 --> 00:13:13,080 interesting time to reflect on that period because I think that 239 00:13:14,200 --> 00:13:18,880 it is objectively true that valuations were very, very high. 240 00:13:19,400 --> 00:13:23,320 I also think you can go back and check the tape that at least 241 00:13:23,320 --> 00:13:25,240 like, that's the nice thing about doing pods for me. 242 00:13:25,240 --> 00:13:28,480 I can go back and check what I said a lot of the time. 243 00:13:29,040 --> 00:13:34,160 I felt back then, yes, I could sell what I own, but like, what 244 00:13:34,160 --> 00:13:37,000 am I going to do with this money, right? 245 00:13:37,000 --> 00:13:40,440 It's not as if there's like a ton of real estate wasn't super 246 00:13:40,440 --> 00:13:43,080 cheap, other stocks weren't super cheap. 247 00:13:43,080 --> 00:13:46,640 You can go to cash, you can pay the taxes and you can go to 248 00:13:46,640 --> 00:13:49,680 cash. Historically, I don't think 249 00:13:49,680 --> 00:13:52,160 market timing has turned out very well if you have a long 250 00:13:52,160 --> 00:13:55,720 term time horizon. And maybe it was one of those 251 00:13:55,720 --> 00:13:58,920 times that was so objectively obvious that it was truly a 252 00:13:58,920 --> 00:14:01,080 bubble. I think it there's certainly 253 00:14:01,080 --> 00:14:05,880 were bubbly spots, but I also can't help but think that a lot 254 00:14:05,880 --> 00:14:08,960 of the people that are emphatic about that it was a bubble, 255 00:14:08,960 --> 00:14:11,440 seemed to see 10 out of everyone bubbles, right? 256 00:14:11,440 --> 00:14:15,400 So I would argue some of the current valuations are as 257 00:14:15,400 --> 00:14:19,120 confusing to me today as they were back then and it probably 258 00:14:19,120 --> 00:14:21,840 just means I don't have the right mental model to understand 259 00:14:21,840 --> 00:14:25,400 them rather than writing it off as that's a bubble. 260 00:14:25,960 --> 00:14:29,880 What I'm trying to do this time around is just a hyper focused 261 00:14:29,880 --> 00:14:33,400 on what I think I know and the other recent underperformance 262 00:14:33,400 --> 00:14:34,840 has been super fun to live through. 263 00:14:34,840 --> 00:14:37,280 But you know, whatever, hopefully, hopefully it changes 264 00:14:37,280 --> 00:14:39,840 and if it doesn't then I can always change my ways. 265 00:14:40,680 --> 00:14:43,560 Yeah, I think you phrased that really well, this whole idea 266 00:14:43,560 --> 00:14:48,360 like it, it probably was not everything as a bubble, but like 267 00:14:48,360 --> 00:14:52,000 these pockets distinctly were. But I think part of the problem, 268 00:14:52,000 --> 00:14:55,080 one of the things maybe this this was a lesson, I don't know 269 00:14:55,080 --> 00:14:57,960 if it's an enduring one, but during that period I noticed a 270 00:14:57,960 --> 00:15:02,640 lot of people turn to just this hyper focus on 2nd derivative. 271 00:15:03,200 --> 00:15:07,480 And it started with the earliest months of the COVID crash when 272 00:15:07,480 --> 00:15:11,800 you're like looking for any pocket of anything turning 273 00:15:11,800 --> 00:15:16,200 upwards. And then it kind of continued as 274 00:15:16,200 --> 00:15:18,920 things kept getting better. They kept getting better at an 275 00:15:18,920 --> 00:15:21,240 accelerating rate. But once a second derivative 276 00:15:21,240 --> 00:15:23,840 turned negative, then everything looked worse. 277 00:15:24,480 --> 00:15:27,160 You know, people talk about it in terms of comps and lapping 278 00:15:27,160 --> 00:15:29,360 tough comps and it started looking more challenging for 279 00:15:29,360 --> 00:15:32,320 some of the businesses that did really well and easier for some 280 00:15:32,320 --> 00:15:33,760 of the businesses that were most hurt. 281 00:15:34,160 --> 00:15:37,600 But I think a lot of this chasing the 2nd derivative has 282 00:15:37,600 --> 00:15:40,720 led to so much momentum chasing in markets. 283 00:15:40,720 --> 00:15:44,880 And I think it's part of why like today, I don't know, if you 284 00:15:44,880 --> 00:15:48,240 ask me like are things really expensive? 285 00:15:48,720 --> 00:15:52,040 I feel like, yeah, there are absolutely pockets where things 286 00:15:52,040 --> 00:15:56,120 are really expensive, but there are also some very large park 287 00:15:56,200 --> 00:16:01,800 pockets where things are insanely cheap, like relatively 288 00:16:01,800 --> 00:16:04,720 cheap, cheap on an absolute level. 289 00:16:05,120 --> 00:16:09,520 And there are some really, really compelling opportunities 290 00:16:09,840 --> 00:16:12,160 that are lost in the muck. And I know you know it. 291 00:16:12,360 --> 00:16:16,680 Mario Sabelli's been a a mentor of mine and he's talked probably 292 00:16:16,680 --> 00:16:20,800 a little early, but talked a lot about how this has some 293 00:16:20,800 --> 00:16:25,840 resemblances to 99 two thousand where a lot of people talk about 294 00:16:25,840 --> 00:16:28,680 it as the.com bubble. But there was also a large cap 295 00:16:28,680 --> 00:16:31,640 bubble. Stocks like GE and Coke traded 296 00:16:31,760 --> 00:16:36,200 at insane valuations and everything else that wasn't part 297 00:16:36,200 --> 00:16:40,120 of the zeitgeist wasn't one of these large caps that that could 298 00:16:40,120 --> 00:16:43,680 do no wrong. ora.com was left behind. 299 00:16:43,760 --> 00:16:45,960 Berkshire was one of those kinds of stocks at the time. 300 00:16:46,720 --> 00:16:48,280 I don't think. Not now. 301 00:16:48,280 --> 00:16:51,680 No, no, no, no. No, we'll we'll see how forward 302 00:16:51,680 --> 00:16:53,480 returns look. But I think some of them have 303 00:16:53,480 --> 00:16:56,320 been pulled forward in that one and Buffett's laid off the 304 00:16:56,320 --> 00:16:58,680 buybacks a tad. I think he might agree with me. 305 00:16:59,360 --> 00:17:02,400 Yeah, and Apple's gonna become a thorny problem if it keeps 306 00:17:02,400 --> 00:17:04,920 performing this week. Or or or maybe they're the 307 00:17:04,920 --> 00:17:07,359 'cause right 'cause they definitely were selling some 308 00:17:07,359 --> 00:17:08,960 shares toward the end of last year. 309 00:17:09,720 --> 00:17:14,160 I would be remiss to not hear Mario's name and at least bring 310 00:17:14,160 --> 00:17:17,599 up because any time I ask him about this, he's like, make sure 311 00:17:17,839 --> 00:17:20,040 that you remember that. I think that there's a chance 312 00:17:20,040 --> 00:17:23,920 that big tech can continue to outperform and and they have a 313 00:17:23,920 --> 00:17:25,960 lot of costs that they could take out and there's a lot of 314 00:17:25,960 --> 00:17:27,520 different ways that they could potentially win. 315 00:17:27,520 --> 00:17:31,920 So I don't want anybody to hear this and associate if big tech 316 00:17:31,920 --> 00:17:35,040 rips don't associate anything negative with him. 317 00:17:35,360 --> 00:17:38,160 And if it doesn't, I said it or whatever, I don't know. 318 00:17:38,160 --> 00:17:40,000 But it's fun talking to him, man. 319 00:17:40,000 --> 00:17:44,440 He started to agitate for change is probably the best way I know 320 00:17:44,440 --> 00:17:46,680 how to say it. Yeah, a couple of headlines 321 00:17:46,680 --> 00:17:50,120 lately and he's helped me do some work behind the scenes in a 322 00:17:50,120 --> 00:17:53,560 couple places as well. I think the environment's really 323 00:17:53,560 --> 00:17:55,760 ripe for that. I've seen other young managers 324 00:17:55,760 --> 00:17:59,400 who are very focused on activism. 325 00:17:59,920 --> 00:18:05,080 And I think there are like numerous reasons why now is the 326 00:18:05,080 --> 00:18:10,720 right time, ranging from just there were so many companies 327 00:18:10,720 --> 00:18:15,680 that came public in 2021 and had too much cash. 328 00:18:15,760 --> 00:18:18,960 Like some of those companies are really interesting to companies 329 00:18:18,960 --> 00:18:23,320 that use 2021 and the success they'd had at the time to 330 00:18:23,320 --> 00:18:27,360 increase their cost base and try to capture a growth opportunity 331 00:18:27,360 --> 00:18:31,320 that changed once we realized COVID changes weren't permanent 332 00:18:31,720 --> 00:18:33,760 but haven't pared back their expenses yet. 333 00:18:33,760 --> 00:18:37,520 Like, those companies need discipline and they sometimes 334 00:18:37,520 --> 00:18:39,480 need the cover of an activist to get it done. 335 00:18:39,480 --> 00:18:41,320 They're like we want to make these changes, but it's really 336 00:18:41,320 --> 00:18:43,960 hard because you know, we promised this great culture to 337 00:18:43,960 --> 00:18:46,880 our employees who we can't do that without some kind of cover. 338 00:18:47,200 --> 00:18:52,080 Like I still think I look back on meta in the Q 3/20/22 report 339 00:18:52,480 --> 00:18:56,400 and the stock got absolutely walloped because people had 340 00:18:56,400 --> 00:18:59,800 hoped coming into that they'd pull back on some spend and 341 00:18:59,800 --> 00:19:02,960 whatnot and and the stock got walloped because they didn't. 342 00:19:03,360 --> 00:19:05,920 And then a week and a half later, they're like, yeah, we're 343 00:19:05,920 --> 00:19:09,680 cutting all these expenses and cutting Cap X and everything 344 00:19:09,680 --> 00:19:12,960 started to suddenly turn right. That was the worst it got. 345 00:19:13,360 --> 00:19:18,520 And I, I wonder if it took the cover of a really bad day in the 346 00:19:18,520 --> 00:19:21,840 market in order to say like, hey, look, you know, we have 347 00:19:21,840 --> 00:19:24,760 this letter from prominent investor Gerstner at Altimeter 348 00:19:24,760 --> 00:19:28,200 had had written his letter like, we need to do this not because 349 00:19:28,200 --> 00:19:30,840 we think it's the right thing to do, but because we have to do 350 00:19:30,840 --> 00:19:33,800 it. And I think that hasn't really 351 00:19:33,800 --> 00:19:36,360 trickled down to some smaller companies. 352 00:19:36,360 --> 00:19:40,240 I I still think some smaller companies are stuck with the 353 00:19:40,240 --> 00:19:44,200 bloat that that stemmed from like misshaped COVID beliefs. 354 00:19:44,600 --> 00:19:46,760 So that that needs some activism. 355 00:19:47,200 --> 00:19:50,360 And then you know, there's a certain classic company that 356 00:19:50,400 --> 00:19:53,560 probably shouldn't even be public, that they're in public 357 00:19:53,560 --> 00:19:56,720 markets, but hey, they shouldn't be there. 358 00:19:56,720 --> 00:20:00,560 And so someone's got to stand up and and say it's time think 359 00:20:00,560 --> 00:20:04,320 about something different here. Yeah, yeah. 360 00:20:04,960 --> 00:20:08,000 I say this often, but I look forward to like three to five 361 00:20:08,000 --> 00:20:09,560 years from now seeing what happens. 362 00:20:09,560 --> 00:20:13,040 I mean, to your point, Costco is like the best example of 363 00:20:13,040 --> 00:20:15,480 something that I've never. I've always said it's expensive. 364 00:20:15,480 --> 00:20:18,520 I've never, you know, I've always been wrong. 365 00:20:19,040 --> 00:20:22,520 But I I just at some point it seems like it should matter. 366 00:20:22,520 --> 00:20:25,720 But it does matter. And the fact of the matter is if 367 00:20:25,720 --> 00:20:29,920 you're worried about inflation, they have a they can get through 368 00:20:29,920 --> 00:20:30,960 it. If you're worried about 369 00:20:30,960 --> 00:20:35,040 protecting real wealth, is a high probability that you can 370 00:20:35,040 --> 00:20:39,400 over time in an entity like that, you know, will you have to 371 00:20:39,400 --> 00:20:40,760 incur a drawdown? Maybe. 372 00:20:41,240 --> 00:20:43,520 Is it a get rich stock? Probably not. 373 00:20:43,520 --> 00:20:46,000 Does everything need to be won? No, right? 374 00:20:46,000 --> 00:20:48,240 I mean, I don't know. I kind of get it it. 375 00:20:48,240 --> 00:20:53,200 It bugs me that I haven't owned it, but I kind of get it. 376 00:20:54,360 --> 00:20:58,000 Yeah, but you know, last year at this time, stocks like Hershey's 377 00:20:58,000 --> 00:21:02,120 and Coke were trading at basically their highest PES in 378 00:21:02,360 --> 00:21:04,560 over 20 years. Yeah, that's right. 379 00:21:05,040 --> 00:21:09,160 And now they're at nearing their lowest PS in 20 years, right? 380 00:21:09,920 --> 00:21:12,840 And this all happened with the backdrop of, yeah, they're 381 00:21:12,840 --> 00:21:15,280 resilient. They passed on costs. 382 00:21:15,280 --> 00:21:17,520 So top line growth looks nice, right? 383 00:21:17,520 --> 00:21:20,520 It was as high as it had been in a couple years talking about 384 00:21:20,520 --> 00:21:25,240 like the mid to borderline high single digits, but their volumes 385 00:21:25,240 --> 00:21:26,880 actually turn negative. Yeah. 386 00:21:27,640 --> 00:21:31,680 And it's like, oh boy, like, is that a good thing or is that not 387 00:21:31,680 --> 00:21:36,480 like, to a degree, you know, what on the surface looks super 388 00:21:36,480 --> 00:21:38,600 resilient, actually has some cracks in it. 389 00:21:39,560 --> 00:21:41,880 In the long run, everything's a cigarette company. 390 00:21:43,400 --> 00:21:45,560 Yeah, yeah, singling out the sugar companies. 391 00:21:45,560 --> 00:21:48,160 Sugar's definitely being perceived as the new cigarettes 392 00:21:48,160 --> 00:21:50,840 by some people, but. Well, I just mean declining 393 00:21:50,840 --> 00:21:54,360 volumes, pushing price. But so, all right, one thing I 394 00:21:54,360 --> 00:21:57,360 do want to talk to you and and it's kind of hard to go to wrong 395 00:21:57,360 --> 00:22:00,080 lessons. Maybe let's let's put a pin in, 396 00:22:00,080 --> 00:22:04,120 in lessons that you thought about but decided were wrong. 397 00:22:04,120 --> 00:22:08,400 Because I I think that right now is a good time to bring up an 398 00:22:08,520 --> 00:22:11,280 interesting idea that I've been doing a little bit of work on. 399 00:22:11,280 --> 00:22:14,560 And I'm very interested to hear your take on it because I know 400 00:22:14,560 --> 00:22:17,320 how much work you've done. But we're talking Coke. 401 00:22:17,840 --> 00:22:20,600 We're talking areas of the market that are cheap. 402 00:22:20,640 --> 00:22:24,080 There's a beverage company out there that's not named Celsius. 403 00:22:24,080 --> 00:22:27,200 That's kind of interesting and I think you know where I'm going 404 00:22:27,200 --> 00:22:29,480 with this and I'd be curious to hear what you think of a a 405 00:22:29,480 --> 00:22:32,680 certain London listed beverage company that's known for its 406 00:22:32,680 --> 00:22:36,040 mixer quality. Yeah, Fever Tree drinks, right? 407 00:22:36,240 --> 00:22:39,120 You know, it's a fun product to diligence. 408 00:22:39,720 --> 00:22:43,040 And I you know, I've gotten to know this company pretty well 409 00:22:43,040 --> 00:22:44,880 over the last few years. I bought my first shares a 410 00:22:44,880 --> 00:22:50,480 little too early, but it definitely is 1 where I I was 411 00:22:50,480 --> 00:22:53,360 thinking of Fever Tree in a lot of ways when I talked about 412 00:22:53,360 --> 00:22:55,520 resiliency. And kind of thought you were or 413 00:22:55,520 --> 00:22:57,440 maybe naked. Those are the two that I was 414 00:22:57,440 --> 00:22:58,480 thinking that maybe you were thinking. 415 00:22:58,600 --> 00:22:59,120 Of. Yeah. 416 00:22:59,120 --> 00:23:01,200 And they're more like they're more small caps. 417 00:23:01,200 --> 00:23:04,520 I could name where I really felt those effects. 418 00:23:04,520 --> 00:23:06,440 And they're even ones in the digital world, right? 419 00:23:06,440 --> 00:23:08,920 These are very physical companies and they made specific 420 00:23:09,360 --> 00:23:12,320 or they had specific problems that stemmed directly from how 421 00:23:12,320 --> 00:23:14,840 challenging the supply chain at the time was. 422 00:23:15,200 --> 00:23:18,920 And I I I think one of the things that really intrigues me 423 00:23:19,480 --> 00:23:25,360 about Fever Tree in particular is they have created a market. 424 00:23:25,760 --> 00:23:30,160 There was no such thing as a premium mixer until Fever Tree 425 00:23:30,160 --> 00:23:34,160 came along and they basically use that to build an annuity 426 00:23:34,160 --> 00:23:38,360 like business in the UK. They are the tonic to go with 427 00:23:38,400 --> 00:23:44,160 basically any kind of gin that's not low end and they have really 428 00:23:44,160 --> 00:23:48,320 unique position vis A vis the incumbents in the space, the 429 00:23:48,680 --> 00:23:53,960 Schweppes, Seagram's of the world where those guys can't 430 00:23:53,960 --> 00:23:59,480 really compete with a high end natural sourced ingredient, 431 00:23:59,480 --> 00:24:01,280 right. There's real quinine in it as 432 00:24:01,280 --> 00:24:05,800 opposed to some artificial flavor that has been pursued to 433 00:24:05,800 --> 00:24:08,120 optimize margin for the last 30 years. 434 00:24:08,680 --> 00:24:13,360 And it's something where although the product is premium, 435 00:24:13,640 --> 00:24:16,600 it in and of itself is not a big ticket. 436 00:24:17,320 --> 00:24:22,120 So for just a couple dollars, which is admittedly more than 437 00:24:22,120 --> 00:24:27,120 you'd pay for, not premium for like a run-of-the-mill brand, 438 00:24:27,400 --> 00:24:29,400 you can make yourself feel a lot better. 439 00:24:29,440 --> 00:24:32,600 I'd heard of this notion called the lipstick effect, where in 440 00:24:32,600 --> 00:24:35,920 recessions even people still spend on women still spend a 441 00:24:35,920 --> 00:24:38,560 lipstick because it's something that makes them feel good, even 442 00:24:38,560 --> 00:24:41,280 if if it's a little expensive. You don't cut back on that sort 443 00:24:41,280 --> 00:24:43,800 of thing. And actually I've seen now that 444 00:24:43,800 --> 00:24:47,240 we've had a period of trade down in spirits which is happening in 445 00:24:47,240 --> 00:24:51,320 the US where you know inflation and I I think aggressive price 446 00:24:51,320 --> 00:24:53,160 action from some of these companies push things a little 447 00:24:53,160 --> 00:24:55,680 too far. You are seeing trade down in 448 00:24:55,720 --> 00:24:58,680 spirit brands, but you're not seeing it in mixer. 449 00:24:58,680 --> 00:25:00,240 So Fever tree's doing really well. 450 00:25:00,720 --> 00:25:03,840 But back to like where the opportunity stems from, Fever 451 00:25:03,840 --> 00:25:09,000 Tree was a 50% gross margin business with 30% operating 452 00:25:09,000 --> 00:25:15,400 margins before COVID. Yeah, And they went to a gross 453 00:25:15,400 --> 00:25:19,600 margin consistent with their operating margin from like. 454 00:25:19,680 --> 00:25:23,640 So they went down to a 30% gross margin and a single digit 455 00:25:24,160 --> 00:25:26,680 operating margin in the past year. 456 00:25:27,640 --> 00:25:33,560 And what happened is everything that could go wrong went wrong 457 00:25:33,840 --> 00:25:36,280 for them on a supply chain level. 458 00:25:36,800 --> 00:25:41,800 The first big problem was that they would manufacture their 459 00:25:42,120 --> 00:25:45,920 drinks for the US market, which was their fastest growing next 460 00:25:45,920 --> 00:25:47,560 biggest market to the UK at the time. 461 00:25:47,560 --> 00:25:49,840 Now it's their biggest market. They would they would, they 462 00:25:49,840 --> 00:25:54,880 would produce the the drink in the UK and ship it transatlantic 463 00:25:55,200 --> 00:25:59,280 to the US and those rates went sky high. 464 00:25:59,480 --> 00:26:01,920 Through the roof. Through the roof, no doubt. 465 00:26:02,440 --> 00:26:07,240 It cost them a mid single digit percent of their margin alone, 466 00:26:07,640 --> 00:26:09,800 right on gross margin that flows all the way down. 467 00:26:10,880 --> 00:26:14,680 And they also had to build inventory because ports were 468 00:26:14,680 --> 00:26:16,760 backed up. So you'd have to have more 469 00:26:16,760 --> 00:26:21,000 bottles sitting on ships waiting just for the opportunity to be 470 00:26:21,000 --> 00:26:26,760 unloaded into the market. And then when the Russia war on 471 00:26:26,760 --> 00:26:31,440 Ukraine commenced, a European glass rates went through the 472 00:26:31,440 --> 00:26:33,560 roof. The biggest input cost into 473 00:26:33,560 --> 00:26:38,120 glass is actually energy, natural gas in particular in in 474 00:26:38,120 --> 00:26:40,760 Europe. And those prices went sky high 475 00:26:40,760 --> 00:26:44,120 and Ukraine actually was a pretty, it still is but a pretty 476 00:26:44,120 --> 00:26:47,760 big source of glass into the European market. 477 00:26:48,040 --> 00:26:52,440 And their suppliers pulled force majeure and forced upward 478 00:26:52,440 --> 00:26:56,080 meaningfully their price that they paid for glass bottles. 479 00:26:56,080 --> 00:27:00,240 And at the time they were not exclusively but very, very 480 00:27:00,240 --> 00:27:03,520 heavily skewed to glass as opposed to cans. 481 00:27:04,040 --> 00:27:06,640 And and that was the case globally for them. 482 00:27:06,920 --> 00:27:08,560 They're gonna remain that way, aren't they? 483 00:27:08,560 --> 00:27:11,160 I've seen they're they're bringing out some ready to drink 484 00:27:11,360 --> 00:27:18,440 products that are in cans, which I I initially said Self, I don't 485 00:27:18,440 --> 00:27:21,240 think I like this 'cause I haven't had a good one yet. 486 00:27:21,600 --> 00:27:27,520 And then I said, but most of the drink is the mixer, so Fever 487 00:27:27,520 --> 00:27:31,040 Tree might actually be perfectly positioned to do pretty well 488 00:27:31,040 --> 00:27:33,560 here. Yeah, yeah, you got their motto 489 00:27:33,560 --> 00:27:37,000 down pretty tight, right? I looked at ABM Bev for a while 490 00:27:37,000 --> 00:27:40,080 and owned it for a bit, but like cut water, right, Is something 491 00:27:40,080 --> 00:27:42,640 that they bought. I don't know that. 492 00:27:42,760 --> 00:27:46,080 I mean it's it's I would need to look at reviews and do surveys 493 00:27:46,080 --> 00:27:49,960 and whatnot, but I think that cut water is an inferior product 494 00:27:50,000 --> 00:27:52,760 to a mixed drink. But I kind of wonder if it's 495 00:27:52,760 --> 00:27:56,640 because they're skimping a little on the mixer part of the 496 00:27:56,640 --> 00:27:59,920 drink, right? And like Fever Tree, I bought 497 00:27:59,920 --> 00:28:04,640 the the grapefruit to try my My wife likes gin, so I helped her 498 00:28:05,000 --> 00:28:07,360 make a little gin drink. It's quite good. 499 00:28:08,240 --> 00:28:10,000 Yeah, the grapefruit's even better with tequila. 500 00:28:10,000 --> 00:28:12,400 I know if your wife likes it and it's hard to change it, but 501 00:28:12,400 --> 00:28:15,000 yeah. Well, someone you're talking to 502 00:28:15,000 --> 00:28:17,920 doesn't mind tequila. Yeah, It's the best Paloma that 503 00:28:17,920 --> 00:28:19,360 I know of. Yeah. 504 00:28:20,080 --> 00:28:21,400 Yeah. And I was actually introduced to 505 00:28:21,400 --> 00:28:24,560 that by a bartender, not a self discovery And and and it's 506 00:28:24,560 --> 00:28:27,040 fantastic. It's so easy to make and I think 507 00:28:27,040 --> 00:28:30,280 that's been their MO. Like really simplify, having a 508 00:28:31,360 --> 00:28:34,720 high end cocktail at home for the average person. 509 00:28:35,280 --> 00:28:40,480 Well, and when I read they work with with mixologists, right, to 510 00:28:40,600 --> 00:28:44,520 get deep in the in the channel in bars, right? 511 00:28:44,600 --> 00:28:49,960 And then I guess now they're starting to get more shelf space 512 00:28:49,960 --> 00:28:54,080 at like in grocery, right? Shout out to my man the science 513 00:28:54,080 --> 00:28:56,440 of hitting. I got to give him a plug here. 514 00:28:56,720 --> 00:28:59,600 I don't know if you read it. He did a a write up where he 515 00:28:59,600 --> 00:29:04,240 compared the price per unit between Fever Tree and Coca-Cola 516 00:29:04,720 --> 00:29:10,920 and and it's Fever Tree is 10X more expensive than the private 517 00:29:10,920 --> 00:29:16,400 label brand and it looks like 3.8% more expensive than 518 00:29:16,400 --> 00:29:21,800 something like Coke. And I and I was curious, I and I 519 00:29:21,800 --> 00:29:25,440 asked you this offline, I'll ask you again why if they're so 520 00:29:25,440 --> 00:29:28,800 premium, have margins been hit so bad? 521 00:29:28,800 --> 00:29:31,080 Because I would think if you're that premium you could push 522 00:29:31,080 --> 00:29:34,520 price. But I I think I was asking the 523 00:29:34,520 --> 00:29:36,480 wrong question. Yeah. 524 00:29:36,480 --> 00:29:41,080 No, it ties into a a lot of choices that the business was 525 00:29:41,080 --> 00:29:45,240 faced with. There was this question whether 526 00:29:45,400 --> 00:29:50,720 inflation and cost pressures were structural forces or 527 00:29:50,720 --> 00:29:54,400 transitory forces. And forget about the actual 528 00:29:54,400 --> 00:29:57,400 debate. What's unquestionable is there 529 00:29:57,400 --> 00:30:02,760 is a degree to which fever trees cost pressures were transitory. 530 00:30:03,320 --> 00:30:06,200 They knew there would be a day when certain of these cost 531 00:30:06,200 --> 00:30:09,400 pressures would not exist in the same way. 532 00:30:09,400 --> 00:30:11,880 And they tried to do things to take matters into their own 533 00:30:11,880 --> 00:30:15,280 hands like push more manufacturing to the US so you 534 00:30:15,280 --> 00:30:18,400 don't even have to think about transatlantic shipping rates. 535 00:30:18,400 --> 00:30:20,440 That becomes an afterthought at that point. 536 00:30:21,040 --> 00:30:23,360 But you know it's hard to get that done. 537 00:30:23,840 --> 00:30:27,440 During COVID rolling lockdowns, UK stayed locked down longer and 538 00:30:27,440 --> 00:30:33,600 all these other problems and what they decided to do was they 539 00:30:33,600 --> 00:30:37,760 felt it was more important to pursue their growth objectives 540 00:30:38,080 --> 00:30:41,960 as a business than it was to optimize for margin. 541 00:30:42,440 --> 00:30:46,520 They cut their price in 2020 to help get more shelf space. 542 00:30:46,520 --> 00:30:50,080 So they've taken down some of the premium they'd had and that 543 00:30:50,080 --> 00:30:52,280 earned them a lot of respect with some of the retail 544 00:30:52,280 --> 00:30:53,880 partners, so. You don't want to go back 545 00:30:53,920 --> 00:30:56,120 necessarily and say now we're raising price, right? 546 00:30:56,360 --> 00:30:57,880 Yeah, they didn't want to raise price. 547 00:30:57,880 --> 00:31:00,480 What what they didn't want to do was they didn't want to just 548 00:31:00,480 --> 00:31:04,240 raise price because cost had gone up and say we're covering 549 00:31:04,320 --> 00:31:08,320 all our cost and and we know that we could pass this through 550 00:31:08,680 --> 00:31:12,640 because they didn't want to raise what was only transitory. 551 00:31:12,960 --> 00:31:16,040 One of the things I I remember back from the financial crisis 552 00:31:16,040 --> 00:31:19,480 period from from a paper on real estate was this notion that 553 00:31:19,480 --> 00:31:23,920 prices rise with inflation. They rise with cost pressures 554 00:31:23,920 --> 00:31:28,080 but they never go down when any of the pressures that push them 555 00:31:28,080 --> 00:31:29,840 up abate. Yeah. 556 00:31:29,880 --> 00:31:33,040 So you don't want to end up in a position where these transitory 557 00:31:33,040 --> 00:31:36,640 cost pressures are gone and you've raised your product to 558 00:31:36,640 --> 00:31:39,880 such a point where you then have to like go back and like cut it. 559 00:31:40,280 --> 00:31:43,160 So that's that's sloppy. They wanted to see to what 560 00:31:43,160 --> 00:31:46,760 degree things were actually like they knew some costs were not 561 00:31:46,760 --> 00:31:49,640 transitory and facing pressure, so they wanted to be able to 562 00:31:49,640 --> 00:31:52,520 deduce which was which. And then you could take it a 563 00:31:52,520 --> 00:31:54,640 little further. I mean for the business they 564 00:31:54,640 --> 00:31:58,120 were still fairly young, fairly immature and trying to grow in 565 00:31:58,120 --> 00:32:03,600 the US So I I'd imagine there was a different elasticity for 566 00:32:03,600 --> 00:32:06,960 existing customers who love it versus trying to bring in new 567 00:32:06,960 --> 00:32:08,640 customers. So if you push it too far, 568 00:32:08,960 --> 00:32:12,080 that's a big impediment to get new customers to come into the 569 00:32:12,080 --> 00:32:13,720 brand. You might do well with your 570 00:32:13,720 --> 00:32:16,480 existing customers, kind of like what I was talking about with 571 00:32:16,920 --> 00:32:19,600 Coke and Hershey's where you get this, you know, high single 572 00:32:19,600 --> 00:32:23,040 digit growth, but with declining volumes that that looks great 573 00:32:23,040 --> 00:32:24,960 superficially. But for someone like Fever Tree, 574 00:32:24,960 --> 00:32:27,120 who's trying to expand the number of households they reach, 575 00:32:27,640 --> 00:32:29,160 that's Contra what they're trying to do. 576 00:32:29,160 --> 00:32:32,960 And it's not exactly what you'd want for creating long term 577 00:32:32,960 --> 00:32:35,280 value over the course of a decade, maybe over a course of a 578 00:32:35,280 --> 00:32:37,880 year or two, that would create value, but not over the course 579 00:32:37,880 --> 00:32:40,120 of a decade. And then the other thing is they 580 00:32:40,120 --> 00:32:43,640 did have this profit pool in the UK that was still doing pretty 581 00:32:43,640 --> 00:32:45,720 damn well. And if you'd looked at things, I 582 00:32:45,720 --> 00:32:48,760 think in the last year, basically 100% of their EBITDA 583 00:32:48,760 --> 00:32:51,720 came from the UK market. And so that means they're losing 584 00:32:51,720 --> 00:32:54,880 money or break even in the US And what that did was they put 585 00:32:54,880 --> 00:32:57,280 their competitors entirely on the ropes. 586 00:32:57,640 --> 00:33:00,760 And there's a great call, Antiguas with the CEO of Q 587 00:33:00,760 --> 00:33:02,440 Drinks. And now I think he's a former 588 00:33:02,760 --> 00:33:06,960 and he talks about how Fever Trees pricing is completely 589 00:33:06,960 --> 00:33:09,560 irrational and it's doing crazy things for the industry. 590 00:33:09,560 --> 00:33:13,480 But you know when you look at it at the time I'd spoken to 591 00:33:13,480 --> 00:33:16,520 someone who short the stock during that period and the 592 00:33:16,520 --> 00:33:19,680 contention was they're actually using the supply chain in order 593 00:33:19,680 --> 00:33:21,800 to mask the fact that the US growth opportunity was 594 00:33:21,800 --> 00:33:24,440 completely tapped out already and that there's not going to be 595 00:33:24,440 --> 00:33:27,360 nearly as much growth as they had been guiding to. 596 00:33:28,040 --> 00:33:30,320 And now you know you Fast forward a year and it's very 597 00:33:30,320 --> 00:33:33,760 clear actually once the supply chain pressures abated and they 598 00:33:33,760 --> 00:33:38,120 got better supply back on the market, they re accelerated 599 00:33:38,120 --> 00:33:39,720 their growth. Their growth doubled in the US 600 00:33:39,720 --> 00:33:41,760 from year over year and was in the mid 20%. 601 00:33:41,960 --> 00:33:44,480 And they actually think their sell through was better than the 602 00:33:44,480 --> 00:33:46,800 headline number they were able to report in the US market. 603 00:33:47,160 --> 00:33:50,640 So they took meaningful share from their competitors by 604 00:33:50,640 --> 00:33:54,640 putting them on the ropes in the prior couple years and it helped 605 00:33:54,640 --> 00:33:57,120 with their retail partners. Their retail partners love that, 606 00:33:57,120 --> 00:33:59,800 gave them more shelf space. Retail partners actually make 607 00:33:59,800 --> 00:34:02,600 more money selling Fever Tree than any other product in the 608 00:34:02,600 --> 00:34:05,560 category. That's a huge boon to a retail 609 00:34:05,560 --> 00:34:07,920 partner. You want to get what's a high 610 00:34:07,920 --> 00:34:10,960 turnover but premium product on your shelves because you just 611 00:34:10,960 --> 00:34:14,199 get, you get better margin yourself, you make more money. 612 00:34:14,560 --> 00:34:17,920 So why not get Fever Tree and more space even if perhaps they 613 00:34:17,920 --> 00:34:19,719 should have pushed price a little more aggressively. 614 00:34:20,080 --> 00:34:22,360 So now you end up in. It's a little bit of the 615 00:34:22,360 --> 00:34:24,360 capacity to suffer type thing, right? 616 00:34:24,960 --> 00:34:27,840 I was just, I was just scrolling to see if Gardner Russo was a 617 00:34:27,840 --> 00:34:31,840 shareholder yet maybe they never will be, but sort of sounds like 618 00:34:32,000 --> 00:34:34,560 the type of thing that Tom has probably studied. 619 00:34:35,120 --> 00:34:37,159 They have it right. I think that I'm glad you threw 620 00:34:37,159 --> 00:34:40,239 out capacity to suffer there because I do think you know 621 00:34:40,239 --> 00:34:45,280 their largest owners are their two founders, CEO is one of 622 00:34:45,280 --> 00:34:48,600 those two guys, Tim Warelow. And so they have meaningful skin 623 00:34:48,600 --> 00:34:52,280 in the game and their large shareholders support them. 624 00:34:52,280 --> 00:34:55,880 Lindsay Train and Fundsmith like absolutely support them and 625 00:34:55,880 --> 00:35:00,120 pursuing like highest NPV strategies. 626 00:35:00,200 --> 00:35:02,640 They don't necessarily care about optimizing for this year 627 00:35:02,920 --> 00:35:05,320 and that year's margin. And I think, you know, in my 628 00:35:05,320 --> 00:35:08,120 conversations with them, they've been pretty candid that that 629 00:35:08,120 --> 00:35:12,160 they do feel like there will be a day down the line where they 630 00:35:12,160 --> 00:35:15,000 can optimize for margin, but they want to optimize for growth 631 00:35:15,000 --> 00:35:17,840 today because they think the opportunity is so damn big. 632 00:35:18,200 --> 00:35:20,280 So why not attack it? You know, they still think they 633 00:35:20,280 --> 00:35:24,520 could more than double the US business from here based on 634 00:35:24,520 --> 00:35:26,040 their goals that they'd set out a few years ago. 635 00:35:26,040 --> 00:35:28,120 It would be nice to see them revisit exactly how big they 636 00:35:28,120 --> 00:35:31,480 think they could that could get. But the US market is multiples 637 00:35:31,480 --> 00:35:35,240 that of the UK market and they only just this year passed just 638 00:35:35,240 --> 00:35:39,600 last year, sorry the recent report, but in 2023 only then 639 00:35:39,600 --> 00:35:41,800 did the US become a bigger market than the UK. 640 00:35:42,240 --> 00:35:46,160 So there should be a really good runway and I think it's smart to 641 00:35:46,160 --> 00:35:48,760 pursue this growth, but it's really challenging I think 642 00:35:48,760 --> 00:35:51,880 because especially in the UK, investors never like seeing 643 00:35:51,880 --> 00:35:55,680 margins go backwards and you never know to what degree. 644 00:35:55,680 --> 00:35:58,840 I mean there there is a case to be made that maybe the US is 645 00:35:58,840 --> 00:36:03,560 going to be lower margin than the UK for structural reasons. 646 00:36:03,560 --> 00:36:08,480 So like what does a normalized margin profile look like for 647 00:36:08,480 --> 00:36:11,360 this business going forward? And they've been unwilling to 648 00:36:11,400 --> 00:36:15,960 kind of truly put that out, but they are guiding to double 649 00:36:16,200 --> 00:36:20,280 EBITDA margins this year from last and have 200 BPS of margin 650 00:36:20,280 --> 00:36:24,040 improvement each year thereafter over the midterm. 651 00:36:25,080 --> 00:36:28,800 And yet I still think because they three times the UK investor 652 00:36:28,800 --> 00:36:30,880 base doesn't want to buy into the fact that they have this 653 00:36:31,240 --> 00:36:33,720 kind of tailwind for margin going forward from here. 654 00:36:34,280 --> 00:36:37,480 You know who doesn't seem to care very much is Kevin 655 00:36:37,480 --> 00:36:43,840 Havelock, who is on. I mean, if I'm looking at this, 656 00:36:43,840 --> 00:36:48,720 first of all, he's an insider. Second of all, see, it looks 657 00:36:48,720 --> 00:36:51,680 like he's from Unilever. If my dad is is correct. 658 00:36:51,680 --> 00:36:54,160 And I don't know, man, that somebody checked, I mean, if 659 00:36:54,160 --> 00:36:55,600 you're listening, check your own records. 660 00:36:55,600 --> 00:36:59,280 But the insider purchases from this guy are not small. 661 00:37:00,680 --> 00:37:04,600 Yeah, they've had after each report when their quiet period 662 00:37:04,600 --> 00:37:10,200 ends, their insiders have been, I'd say, buying like 500 K to 663 00:37:10,200 --> 00:37:13,120 $1,000,000 of stock each time, yeah. 664 00:37:13,520 --> 00:37:16,040 I guess I yeah, I need to check it out on a currency adjusted 665 00:37:16,040 --> 00:37:18,160 basis, but yeah, this guy's interesting. 666 00:37:18,640 --> 00:37:20,440 Huh. He bought a lot of stock last 667 00:37:20,440 --> 00:37:21,920 year too, which is pretty damn nice. 668 00:37:22,440 --> 00:37:26,920 So how you know, you started out talking about resiliency and how 669 00:37:26,920 --> 00:37:29,520 do you think about, you know, not every idea. 670 00:37:29,520 --> 00:37:32,120 First of all, not every idea has to be right in a portfolio. 671 00:37:32,720 --> 00:37:36,160 So how do you, how do you think about when you're looking at a 672 00:37:36,160 --> 00:37:42,480 name like this that's smaller but but growing like sizing just 673 00:37:42,480 --> 00:37:46,280 theoretically right sizing and kind of like its role in a 674 00:37:46,280 --> 00:37:49,800 broader portfolio context and how resilient it is and how do 675 00:37:49,800 --> 00:37:53,360 you kind of weigh those in the in the PM seat? 676 00:37:54,640 --> 00:37:57,440 Yeah, So I think that's one of the areas I've I've, I've been 677 00:37:57,440 --> 00:37:59,920 revisiting a little bit. I I'd gotten a little more 678 00:37:59,920 --> 00:38:02,800 concentrated during the COVID period than I had been before 679 00:38:02,800 --> 00:38:04,800 and I really like being semi concentrated. 680 00:38:04,800 --> 00:38:08,120 I think that fits my personality and the kinds of companies I 681 00:38:08,120 --> 00:38:12,320 look at a lot better. So that means like 25 positions 682 00:38:12,320 --> 00:38:15,440 or so is the central tendency. I'd pull that down to high teens 683 00:38:15,440 --> 00:38:20,400 partly because in COVID like coming in, I'd had like certain 684 00:38:20,400 --> 00:38:22,280 industries that I was like, well, I just don't want to own 685 00:38:22,280 --> 00:38:25,120 this if we're going back to Zerp and some of these other problems 686 00:38:25,120 --> 00:38:28,000 are here, so. So I'd pulled back things, but I 687 00:38:28,000 --> 00:38:31,440 like being in that 25 position range, which means like an 688 00:38:31,440 --> 00:38:34,360 average size position should be 4%, right. 689 00:38:34,760 --> 00:38:38,240 And I don't like buying that full amount right away. 690 00:38:38,240 --> 00:38:40,480 I think I like getting comfortable with things over 691 00:38:40,480 --> 00:38:42,320 time and have a sense of what's really driving them. 692 00:38:42,320 --> 00:38:44,040 So I've really started spacing that out. 693 00:38:44,040 --> 00:38:46,840 I think time compressed in COVID and I've been a little quicker 694 00:38:46,840 --> 00:38:50,600 to act on some of those things. So you know 4% is my central 695 00:38:50,600 --> 00:38:53,880 tendency on positions and I don't that doesn't mean that I 696 00:38:54,160 --> 00:38:57,280 like cut back on things if they start working or take a 697 00:38:57,280 --> 00:38:59,360 different shape in the portfolio, but it gives me 698 00:38:59,360 --> 00:39:03,280 opportunity to add to things too if they kind of underperform the 699 00:39:03,280 --> 00:39:05,520 rest of the book. I think it, I think it's a 700 00:39:05,520 --> 00:39:09,040 really good good round Number. So that gives you a sense of the 701 00:39:09,040 --> 00:39:12,240 sizing in this position. But also like most positions and 702 00:39:12,640 --> 00:39:16,600 I definitely have a couple outsized positions that I'm 703 00:39:16,600 --> 00:39:19,360 willing to let bigger when I see a fat pitch, I'm, I'm willing to 704 00:39:19,360 --> 00:39:23,000 go there. And I'm also still very willing 705 00:39:23,000 --> 00:39:26,200 to let the ones that I think are truly special run pretty far 706 00:39:26,200 --> 00:39:27,680 into meaningfully bigger positions. 707 00:39:27,680 --> 00:39:29,120 So they're definitely some outsized positions. 708 00:39:29,120 --> 00:39:31,320 So that means at the end of the book there are, there are 709 00:39:31,320 --> 00:39:32,720 absolutely some smaller positions. 710 00:39:32,720 --> 00:39:36,000 So not everything's in the 4% range, but. 711 00:39:36,160 --> 00:39:43,360 So when when they run though has has the 2021 period till now if 712 00:39:43,360 --> 00:39:47,160 it if it's multiple expansion are you thinking a little bit 713 00:39:47,160 --> 00:39:51,760 more of trimming or are like is that one of the law of the wrong 714 00:39:51,760 --> 00:39:54,840 lessons that maybe is being learned. 715 00:39:55,320 --> 00:39:59,440 Said said differently, like you know, I, I don't know how, how 716 00:39:59,440 --> 00:40:03,120 does valuation? Has that become more of a part 717 00:40:03,240 --> 00:40:06,240 of the process or is that not the right take away? 718 00:40:07,120 --> 00:40:10,600 Yeah, I used to say I'm willing to hold things when they get 719 00:40:10,600 --> 00:40:14,880 overvalued, and I know that my answer is yes. 720 00:40:14,880 --> 00:40:18,320 I'm still willing to hold things when they get overvalued if I 721 00:40:18,320 --> 00:40:20,600 have a good basis. I really like the company and 722 00:40:20,600 --> 00:40:23,560 really believe longer term. But if that happens to like 6 723 00:40:23,560 --> 00:40:27,480 positions at once, I definitely need to be saying there's 724 00:40:27,480 --> 00:40:30,360 something wrong here. Like it's not about holding one 725 00:40:30,360 --> 00:40:33,960 position through a period of overvaluation. 726 00:40:34,240 --> 00:40:37,160 It's something different, fundamentally different going on 727 00:40:37,160 --> 00:40:40,160 in the market and by fundamentally different almost 728 00:40:40,160 --> 00:40:42,880 the absence of fundamentals is what's driving things. 729 00:40:43,200 --> 00:40:47,680 So that was something that I think was very acute in 2021. 730 00:40:47,960 --> 00:40:50,920 So I'm still willing to hold things through those periods, 731 00:40:50,920 --> 00:40:54,880 but what I'm not willing to do at all anymore, like I've been I 732 00:40:54,880 --> 00:40:58,120 I was very clear with myself and my investors that I thought 733 00:40:58,120 --> 00:41:01,480 certain things were overvalued. And I'd even sold a meaningful 734 00:41:01,480 --> 00:41:05,080 slice of one of them in particular and got like, 735 00:41:05,080 --> 00:41:08,080 lambasted for like my tax bill's going to be way too big. 736 00:41:08,640 --> 00:41:13,080 I'm never going to let those kinds of concerns keep me in 737 00:41:13,080 --> 00:41:16,800 something that I think is overvalued and worth trimming 738 00:41:17,160 --> 00:41:18,480 for the sake of spreading it out. 739 00:41:18,480 --> 00:41:20,920 I'm just going to sell it today. I think it's overvalued and I'll 740 00:41:21,200 --> 00:41:23,280 live with the consequences if it keeps going up. 741 00:41:23,280 --> 00:41:26,160 But I think that's how I I have to do it. 742 00:41:27,080 --> 00:41:30,360 Some people have argued like box it in, but then then it's like, 743 00:41:30,360 --> 00:41:34,400 well, you kind of have like trap capital in that case, yeah. 744 00:41:34,400 --> 00:41:37,000 And it's not cheap. So, yeah, that's right. 745 00:41:37,000 --> 00:41:39,280 And I'm not sure. I mean, I haven't done all the 746 00:41:39,280 --> 00:41:42,600 math on the taxes, but I don't think it's gonna be particularly 747 00:41:42,600 --> 00:41:44,760 tax advantage. I guess you'd you'd defer your 748 00:41:45,320 --> 00:41:47,400 your big liability. But I I'm just. 749 00:41:47,440 --> 00:41:50,240 I'm not sure that that's not one step too cute, at least for me. 750 00:41:50,840 --> 00:41:52,920 Yeah, I could see doing it in one position. 751 00:41:52,920 --> 00:41:54,520 I can't see doing it in a handful. 752 00:41:54,640 --> 00:41:57,640 Yeah, if that's how you want to think about it, great. 753 00:41:57,640 --> 00:42:02,160 But like, one idea is you could potentially give it back who if 754 00:42:02,160 --> 00:42:05,080 you have only a fund. And that's one of my problems. 755 00:42:05,080 --> 00:42:07,400 We're doing an SMA and a fund separately. 756 00:42:07,720 --> 00:42:10,080 If you have only a fund, you could carve out that position 757 00:42:10,080 --> 00:42:12,200 and give it to investors and let them decide on their own. 758 00:42:12,520 --> 00:42:14,640 Oh, you distribute it in kind. Yeah. 759 00:42:14,640 --> 00:42:16,920 Each person, based on their own sensitivity, can make their own 760 00:42:16,920 --> 00:42:18,720 decision as opposed to you having to deal with the 761 00:42:18,720 --> 00:42:22,720 consequences of that. Because I did have some clients 762 00:42:22,720 --> 00:42:25,360 who are like, yeah, I'm, I'm fine with the tax, you know, I 763 00:42:25,360 --> 00:42:29,560 did get lambasted by a few. But it's, you know, something 764 00:42:29,560 --> 00:42:31,880 where I could be very clear about what I think is the right 765 00:42:31,880 --> 00:42:34,840 decision, but say, hey, you know, for your own needs, make 766 00:42:34,840 --> 00:42:37,800 your own decision. Interesting. 767 00:42:38,320 --> 00:42:40,680 Yeah, that makes sense. I haven't thought about it that 768 00:42:40,680 --> 00:42:43,000 way. All right. 769 00:42:43,000 --> 00:42:45,960 I didn't mean to cut you off. I just it was a tangent that 770 00:42:46,280 --> 00:42:49,240 I've been thinking more about, you know, the portfolio side 771 00:42:49,240 --> 00:42:51,640 given I guess what's gone on in my life. 772 00:42:51,640 --> 00:42:56,840 I used to be more about, like a single idea, and now I'm much 773 00:42:56,840 --> 00:42:59,800 less about that than I ever was. Yeah, I. 774 00:42:59,800 --> 00:43:01,600 Love the portfolio management tangents. 775 00:43:01,600 --> 00:43:04,200 I think it's one of the biggest areas where there's a lot of 776 00:43:04,200 --> 00:43:07,880 value you can add, but there's no great playbook that's out 777 00:43:07,880 --> 00:43:09,880 there. Like you know, the buffet 778 00:43:09,880 --> 00:43:13,080 letters are for being a value investor and evolving over time. 779 00:43:14,080 --> 00:43:17,720 And you know, I think it's one of those areas that a lot of 780 00:43:17,720 --> 00:43:21,400 people don't like to talk or think about and it's a very soft 781 00:43:21,840 --> 00:43:26,600 science, but I do think you could be way more like rigidly 782 00:43:26,600 --> 00:43:28,640 scientific with it and and and get better. 783 00:43:28,640 --> 00:43:31,160 So I try to push myself to be better and I come from a trade 784 00:43:31,160 --> 00:43:34,600 desk and I know people who like basically their core skill is 785 00:43:34,960 --> 00:43:38,080 portfolio management, not security selection at all and 786 00:43:38,080 --> 00:43:40,000 they do phenomenally well because that's a great core 787 00:43:40,000 --> 00:43:41,760 skill. So I challenge myself to be 788 00:43:41,760 --> 00:43:45,440 better at at it all the time. I was reading a paper on tax 789 00:43:45,440 --> 00:43:48,000 loss harvesting and like whether or not you can sort of 790 00:43:48,000 --> 00:43:52,800 outperform an index if you're if you use tax losses in the right 791 00:43:52,800 --> 00:43:55,920 way. And the the fundamental issue 792 00:43:55,920 --> 00:43:58,760 with the paper is it assumes that the person that is reading 793 00:43:58,760 --> 00:44:03,160 it assumes that there is no alpha in stock picking or that 794 00:44:03,160 --> 00:44:06,680 their ability is nil. And I'm reading it and I'm like, 795 00:44:06,680 --> 00:44:09,160 well, I don't know that that's the right assumption, right? 796 00:44:09,680 --> 00:44:14,680 So not not to say that the assumption is invalid, but I'm 797 00:44:14,680 --> 00:44:17,160 not sure that the person that's running the strategy myself 798 00:44:17,560 --> 00:44:21,440 specifically would assume that. So, alas, it's what's been on my 799 00:44:21,440 --> 00:44:24,400 mind a lot. Well, it's kind of an oxymoron. 800 00:44:24,400 --> 00:44:26,840 You shouldn't even be in a position a tax loss harvest if 801 00:44:26,840 --> 00:44:29,480 there is no alpha and buying individual positions you should 802 00:44:29,480 --> 00:44:32,040 just buy the index anyway. Yeah, well, that's kind of where 803 00:44:32,040 --> 00:44:34,680 the paper was going. And and lo and behold, it was 804 00:44:34,680 --> 00:44:36,360 put forth by a Black Rock company. 805 00:44:36,360 --> 00:44:38,600 So who would have thought? Yeah, it's a tautological 806 00:44:38,600 --> 00:44:41,240 argument. Then yes, they got exactly the 807 00:44:41,240 --> 00:44:44,560 conclusion they wanted. This is the problem with the you 808 00:44:44,560 --> 00:44:47,280 know, you start saying, OK, well, who's telling me what? 809 00:44:47,280 --> 00:44:49,840 And you start pulling on some threads and you realize a lot of 810 00:44:49,840 --> 00:44:52,040 the times there's some incentives behind what you're 811 00:44:52,040 --> 00:44:53,440 reading. Absolutely. 812 00:44:53,440 --> 00:44:55,760 It's hard. And you you do want people who 813 00:44:55,760 --> 00:44:59,440 are putting things forward to be like incentivized to believe 814 00:44:59,440 --> 00:45:02,560 what they're putting forward. So there's something that's not 815 00:45:02,560 --> 00:45:07,000 necessarily bad in that, but but you definitely got to ask like, 816 00:45:07,120 --> 00:45:08,840 is it coming from the right place? 817 00:45:09,440 --> 00:45:11,960 Yes, you want them to be putting something forward that they 818 00:45:11,960 --> 00:45:14,320 believe in, right? Like you and you want them to 819 00:45:14,320 --> 00:45:17,960 have buy in, but you also don't want them to go in with like the 820 00:45:18,200 --> 00:45:24,280 conclusion that cannot be like some of some of the issue when I 821 00:45:24,280 --> 00:45:28,120 read some some things is it's like OK, well if you're if 822 00:45:28,120 --> 00:45:31,840 you're selling this product you can't possibly be rational about 823 00:45:31,840 --> 00:45:33,640 whether or not the product makes sense right. 824 00:45:33,640 --> 00:45:36,200 Like your livelihood depends on it, so. 825 00:45:36,440 --> 00:45:39,080 Hopefully you are selling that product because you went there 826 00:45:39,080 --> 00:45:41,080 in the 1st place because you truly believe in it. 827 00:45:41,440 --> 00:45:43,360 That's correct. Definitely not categorically the 828 00:45:43,360 --> 00:45:45,280 case. Yes, that's correct. 829 00:45:45,520 --> 00:45:48,920 Yes, I agree. All right, we, I digress. 830 00:45:48,920 --> 00:45:51,280 My apologies. Yeah, I want to point out a 831 00:45:51,280 --> 00:45:53,840 paradox in in one of the things that I'm saying and thinking 832 00:45:53,840 --> 00:45:56,280 though, right, because I talked about resiliency and then here I 833 00:45:56,280 --> 00:45:57,680 am. I'm like I love Fever Tree, 834 00:45:57,760 --> 00:46:01,040 despite the fact that they suffered from a lack thereof. 835 00:46:02,200 --> 00:46:02,920 Right. You can say. 836 00:46:02,960 --> 00:46:04,840 I think you're saying you respect Fever Tree. 837 00:46:04,840 --> 00:46:07,120 I don't know that you're saying that you love them, but yes, OK. 838 00:46:07,440 --> 00:46:08,240 No, I said. I love them. 839 00:46:08,240 --> 00:46:09,360 Well, OK. All right. 840 00:46:09,360 --> 00:46:12,400 Yeah, yeah, noted. I think small caps in general, 841 00:46:12,400 --> 00:46:14,560 right? Like because of this period, 842 00:46:14,560 --> 00:46:16,840 because of their lack of resiliency, because there were 843 00:46:16,840 --> 00:46:19,760 so many of these esoteric problems, because of all these, 844 00:46:20,080 --> 00:46:23,960 because of many structural forces like the move from active 845 00:46:23,960 --> 00:46:26,840 to passive in the market, small caps have just become so out of 846 00:46:26,840 --> 00:46:29,000 favor. And so although they lack 847 00:46:29,000 --> 00:46:32,520 resiliency, I think it's like the most amazing pocket of the 848 00:46:32,520 --> 00:46:34,080 market to be hunting in right now. 849 00:46:34,080 --> 00:46:37,200 I think it's part of what I was like ultimately gearing toward 850 00:46:37,200 --> 00:46:38,920 when I was saying the 2nd derivative stuff. 851 00:46:38,920 --> 00:46:42,040 Like I think a lot of the momentum in markets is like 852 00:46:42,240 --> 00:46:45,720 exacerbate everything good and everything bad. 853 00:46:45,720 --> 00:46:49,240 And small caps now are like I I think one of the most 854 00:46:49,240 --> 00:46:51,280 interesting setups that I've ever seen doing this 855 00:46:51,280 --> 00:46:55,400 professionally. Well and that's kind of why I 856 00:46:55,400 --> 00:46:57,400 brought up the portfolio perspective. 857 00:46:57,400 --> 00:47:02,280 I mean it's you know I I can't help but see some feedback on on 858 00:47:02,280 --> 00:47:04,200 some ideas that come on the pod right. 859 00:47:04,200 --> 00:47:08,240 I it's just that's natural and I think it's important to 860 00:47:08,240 --> 00:47:10,840 contextualize. If somebody's saying, well I 861 00:47:10,840 --> 00:47:14,280 like XYZ company or in this case you know Fever Trees interest 862 00:47:14,280 --> 00:47:18,880 somebody, OK well, you know there's a way to build 863 00:47:18,880 --> 00:47:21,800 resiliency in a portfolio that doesn't necessarily have to be 864 00:47:21,800 --> 00:47:24,520 in each individual position. Now each individual position 865 00:47:24,520 --> 00:47:28,320 should have some hurdle to get into a portfolio, but there's a 866 00:47:28,320 --> 00:47:32,240 lot more context around how somebody implements the idea 867 00:47:32,600 --> 00:47:36,280 than just this is the idea. And you know, I I think to the 868 00:47:36,280 --> 00:47:38,560 extent that I talked to a younger audience, I would say 869 00:47:38,560 --> 00:47:42,600 that a younger me would have maybe found a small cap and been 870 00:47:42,600 --> 00:47:44,480 like, boy, I got to be all in this thing. 871 00:47:44,880 --> 00:47:50,320 And the older me has a different, potentially different 872 00:47:50,320 --> 00:47:54,840 set of risk factors, right, And would be more apt to tap the 873 00:47:54,840 --> 00:47:57,320 brakes on my excitement than than the younger me would. 874 00:47:58,040 --> 00:48:01,440 Yeah, yeah, There's still ways to capitalize by being small and 875 00:48:01,440 --> 00:48:03,320 things. And it also depends on what 876 00:48:03,320 --> 00:48:06,640 you're playing for. I mean if you want some things 877 00:48:06,640 --> 00:48:10,440 that will and and I think this gets to your feedback point on 878 00:48:10,520 --> 00:48:13,600 on certain things that you hear out there on the world of X or 879 00:48:13,600 --> 00:48:17,720 Twitter or whatever. You know, if if if your goal is 880 00:48:17,720 --> 00:48:21,160 to own things that'll like give you a multiple of your initial 881 00:48:21,160 --> 00:48:23,440 investment over a few years. They're definitely going to be 882 00:48:23,440 --> 00:48:25,280 some things that don't do very well. 883 00:48:25,760 --> 00:48:28,840 And in periods when it's great, you're absolutely going to have, 884 00:48:29,360 --> 00:48:31,320 you know a few things that do pretty damn well. 885 00:48:31,600 --> 00:48:34,840 And if you're doing things right the ones you get right should 886 00:48:34,840 --> 00:48:37,480 make up for what happens in periods when things are not 887 00:48:37,480 --> 00:48:41,800 going well, where you will take some like real pain in a few 888 00:48:41,800 --> 00:48:44,800 positions if not more. And that's something that 889 00:48:45,200 --> 00:48:49,320 portfolio management like with with greater diversification and 890 00:48:49,320 --> 00:48:54,080 with some sort of like cash buffer recycling of capital 891 00:48:54,080 --> 00:48:56,880 along the way could end up an enhancer of returns, not 892 00:48:56,880 --> 00:48:58,080 something that detracts from them. 893 00:48:58,840 --> 00:49:01,960 Yeah. A stock that you and I talked 894 00:49:01,960 --> 00:49:06,120 about that people may have heard about is NVIDIA. 895 00:49:06,600 --> 00:49:09,120 And I'd like you to tell the story of how you started to 896 00:49:09,120 --> 00:49:13,000 follow NVIDIA, because I think it could segue into the next 897 00:49:13,000 --> 00:49:16,280 little segment nicely. Oh man, Nvidia's a painful one 898 00:49:16,280 --> 00:49:19,640 for me. I mean like 3 splits ago. 899 00:49:19,800 --> 00:49:25,320 The year is 2013. NVIDIA was actually a high 900 00:49:25,320 --> 00:49:30,760 dividend, yielding really low EV to EBITDA multiple stock. 901 00:49:31,480 --> 00:49:36,400 And by that, my first foray with NVIDIA was in 2008 when I 902 00:49:36,400 --> 00:49:38,960 literally knew nothing about markets. 903 00:49:39,440 --> 00:49:41,480 I mean, I mean, I've been working on a trade desk for a 904 00:49:41,480 --> 00:49:44,080 little, but that still meant I literally knew nothing about 905 00:49:44,080 --> 00:49:47,320 markets. I did a screen for companies 906 00:49:47,720 --> 00:49:53,120 that were with over half cash as a percent of their market cap. 907 00:49:53,920 --> 00:49:58,760 And if I'm I, I may be wrong on the exact prices because I might 908 00:49:58,760 --> 00:50:02,280 be confusing NVIDIA with Akamai at the time. 909 00:50:02,760 --> 00:50:07,520 But NVIDIA was trading for, if if I'm right, it was like 6 1/2 910 00:50:07,520 --> 00:50:11,600 to 7 dollars with $5 per share of cash. 911 00:50:11,680 --> 00:50:13,840 And so I bought that and I flipped it. 912 00:50:14,280 --> 00:50:17,120 You know, obviously I was like, yes, this is, this is great 913 00:50:17,120 --> 00:50:19,200 because when, you know, the tide came back in. 914 00:50:19,800 --> 00:50:21,800 One thing I'd say that was really interesting to me at that 915 00:50:21,800 --> 00:50:26,640 time was NVIDIA made Lowe's in November of O8IN March of O9 916 00:50:26,640 --> 00:50:28,560 when the market bottomed. It never made new lows. 917 00:50:28,560 --> 00:50:31,640 I found I I always found that to be interesting and a lot of like 918 00:50:31,640 --> 00:50:33,920 really good companies didn't do that. 919 00:50:33,920 --> 00:50:36,840 But I digress. Back to the like the 2013 920 00:50:36,840 --> 00:50:39,920 period, NVIDIA hadn't really gone very far. 921 00:50:40,120 --> 00:50:42,520 They had accreted cash each of these years. 922 00:50:42,520 --> 00:50:45,800 They actually instated A dividend that was growing each 923 00:50:45,800 --> 00:50:48,840 of these years and Novitia was like $12.00 a share. 924 00:50:48,840 --> 00:50:51,680 So it had doubled over the course of five years, but was 925 00:50:51,680 --> 00:50:56,480 also paying out like a a dividend that was like decently 926 00:50:56,480 --> 00:50:58,840 greater than the 10 year Treasury at the time or maybe 927 00:50:59,160 --> 00:51:01,480 maybe just a little bit. I think it was the Euro crisis 928 00:51:01,480 --> 00:51:03,160 time. So, you know, 10 year Treasury 929 00:51:03,160 --> 00:51:05,360 was pretty damn low. And I'm like, wow, this 930 00:51:05,360 --> 00:51:07,760 company's great and I made it an average size position in My 931 00:51:07,760 --> 00:51:10,840 Portfolio. And you know what? 932 00:51:10,840 --> 00:51:13,760 What was different at NVIDIA at the time was the stock moved 933 00:51:13,760 --> 00:51:20,040 almost entirely on the PC cycle. They were trying to build this 934 00:51:20,040 --> 00:51:25,200 chip called the Tegra to get into smartphones. 935 00:51:25,720 --> 00:51:29,600 They'd actually built their own gaming device to showcase how 936 00:51:29,600 --> 00:51:31,680 good the Tegra was. They built a tablet. 937 00:51:31,680 --> 00:51:34,760 I still have the NVIDIA tablet in my office at home from back 938 00:51:34,760 --> 00:51:37,280 in the day. They did everything possible to 939 00:51:37,280 --> 00:51:40,320 get the Tegra chip. And you know, you'd see 940 00:51:40,320 --> 00:51:43,120 underneath like, wow, this data center business is actually 941 00:51:43,120 --> 00:51:44,760 starting to look like a real thing. 942 00:51:45,240 --> 00:51:47,920 Like it's starting to be a bigger and bigger share of what 943 00:51:48,200 --> 00:51:50,720 the company does. And so, you know, Fast forward 944 00:51:50,720 --> 00:51:55,200 to the stock, the stock like goes up 50% from 12 to 18 all 945 00:51:55,200 --> 00:51:59,520 the way back down to 12, from 12 to 18 again all the way back 946 00:51:59,520 --> 00:52:01,720 down to 12. And each earnings call was like, 947 00:52:01,920 --> 00:52:05,040 the only thing analysts wanted to ask about was, did you get 948 00:52:05,040 --> 00:52:07,440 any design wins with Tegra? Did you get any design wins with 949 00:52:07,440 --> 00:52:08,840 Tegra? What's happening with the PC 950 00:52:08,840 --> 00:52:11,440 cycle? And meanwhile, you know, they're 951 00:52:11,440 --> 00:52:14,240 like, yeah, there's this thing called the data center business 952 00:52:14,240 --> 00:52:15,240 that's actually doing pretty well. 953 00:52:15,240 --> 00:52:17,120 But, you know, please ask about that. 954 00:52:17,480 --> 00:52:20,040 No, no, no. Just Tegra this, Tegra that. 955 00:52:20,360 --> 00:52:23,000 And it finally got back up to 18 the third time. 956 00:52:23,360 --> 00:52:26,240 And I'm like, I'm out. I'm taking my 50% gain of moving 957 00:52:26,240 --> 00:52:28,640 on. And what happened was they ended 958 00:52:28,640 --> 00:52:34,520 up shutting the Tegra and and the data center story became the 959 00:52:34,520 --> 00:52:36,560 big thing for the stock. And I think I have a lot of 960 00:52:36,560 --> 00:52:40,760 lessons out of that. One is about how myopic Wall 961 00:52:40,760 --> 00:52:43,160 Street can be. They focus on what's their 962 00:52:43,160 --> 00:52:46,040 interest, not what's most important to the business. 963 00:52:46,560 --> 00:52:49,920 My impatience, like it's really hard in some of these companies, 964 00:52:49,920 --> 00:52:53,120 you could see where things are going, but it's really hard to 965 00:52:53,120 --> 00:52:55,480 withstand some of the volatility along the way. 966 00:52:55,480 --> 00:52:58,040 Like presumably NVIDIA should not have been all that volatile. 967 00:52:58,360 --> 00:53:00,840 It was a cheap stock, right. You're talking a mid single 968 00:53:00,840 --> 00:53:02,320 digit EBITDA multiple at the time. 969 00:53:02,320 --> 00:53:04,680 That's part of what made the return thereafter so 970 00:53:04,680 --> 00:53:07,960 spectacular. And so a very small change in 971 00:53:07,960 --> 00:53:10,400 the rating was a very big change in the stock, right? 972 00:53:10,400 --> 00:53:13,600 Two turns of multiple was like a 30% move in this damn thing. 973 00:53:13,880 --> 00:53:15,480 Even though it's like growing through it. 974 00:53:15,840 --> 00:53:20,200 It's also one where like I have to be more mentally flexible and 975 00:53:20,200 --> 00:53:23,320 be willing to revisit something that I'd moved on from, even if 976 00:53:23,320 --> 00:53:25,880 it's at a higher price. Like I really need to be able to 977 00:53:25,880 --> 00:53:27,920 like get back there because I don't. 978 00:53:27,920 --> 00:53:30,280 I don't a moment like three years down the line where I'm 979 00:53:30,280 --> 00:53:33,880 like wow, this still looks good and and I just like I wasn't 980 00:53:33,880 --> 00:53:37,120 able to to stomach the fact that I'd sold it at 18. 981 00:53:37,200 --> 00:53:40,880 You know, I was sitting there at like 50 bucks a share, not like 982 00:53:40,880 --> 00:53:43,720 that was that much higher. And again, I'm talking 3 splits 983 00:53:43,720 --> 00:53:46,520 ago. So where it is today is, is 984 00:53:46,560 --> 00:53:48,680 multiples of where it was back then. 985 00:53:49,080 --> 00:53:52,280 So it was, it was quite a quite a eye opening lesson. 986 00:53:52,640 --> 00:53:55,440 And I do think it's really telling that if you go back to 987 00:53:55,440 --> 00:54:00,920 those early 2010's days, no one wanted to be a semiconductor 988 00:54:01,280 --> 00:54:05,000 investor. I remember like KLA and Lamb 989 00:54:05,000 --> 00:54:09,680 were trading at like 5X EBIT. A Times have changed. 990 00:54:09,760 --> 00:54:12,600 Yeah yeah I remembered like Tapper pitching those things and 991 00:54:12,920 --> 00:54:17,640 and it's like those things were so cyclical now in like the the 992 00:54:17,640 --> 00:54:20,080 through of the cycle and that that was when things were not 993 00:54:20,080 --> 00:54:22,200 troughing at all in the through of the cycle. 994 00:54:22,200 --> 00:54:24,440 Now these things trade at over the EBITA. 995 00:54:24,440 --> 00:54:27,960 So it's it's amazing how far the whole sector had come. 996 00:54:28,320 --> 00:54:31,680 And I do think there's similar kinds of phenomena, not to the 997 00:54:31,680 --> 00:54:33,440 same degree. I think part of that was coming 998 00:54:33,440 --> 00:54:38,160 out of like the semiconductor sector in generalcomingoutof.com 999 00:54:38,160 --> 00:54:39,480 and dot bomb. There were way too many 1000 00:54:39,480 --> 00:54:41,720 companies. You had a wave of consolidation 1001 00:54:41,720 --> 00:54:44,320 heading into the financial crisis, which really did a 1002 00:54:44,320 --> 00:54:47,560 number on these companies too. So you had like 2 crises within 1003 00:54:47,560 --> 00:54:51,160 a decade where where this area was was really troubled and it's 1004 00:54:51,160 --> 00:54:54,600 part of how you ended up with a NVIDIA that would basically you 1005 00:54:54,600 --> 00:54:57,600 were buying cash not company when you when you were picking 1006 00:54:57,600 --> 00:54:59,200 up shares. It's amazing. 1007 00:55:00,040 --> 00:55:04,520 Yeah, it's amazing that that out of that hunting ground, this 1008 00:55:04,520 --> 00:55:06,400 company came right. Yep. 1009 00:55:07,360 --> 00:55:11,880 Yep, exactly, exactly. And it feels like something 1010 00:55:11,880 --> 00:55:14,800 similar is going on in the life sciences space right now. 1011 00:55:15,160 --> 00:55:19,520 It feels to me like COVID was kind of likethe.com moment for 1012 00:55:19,520 --> 00:55:21,960 them in some ways. Where where like everything got 1013 00:55:21,960 --> 00:55:26,000 so damn euphoric. But you know, they're like life, 1014 00:55:26,000 --> 00:55:28,080 Healthcare is changing our world, biotech's changing the 1015 00:55:28,080 --> 00:55:30,920 world, be able to spin up this vaccine so quickly, yadda yadda. 1016 00:55:30,920 --> 00:55:33,440 We all know the stories that happened during that time and 1017 00:55:33,440 --> 00:55:38,880 it's something that also at it wasn't cyclical at all. 1018 00:55:38,880 --> 00:55:41,600 Over the prior 10 years there, there was not really 1019 00:55:41,600 --> 00:55:43,760 cyclicality. It was just biologics growing 1020 00:55:44,200 --> 00:55:47,600 every single year and the whole industry benefiting accordingly. 1021 00:55:47,880 --> 00:55:51,520 And then now you end up with what looks like a really severe 1022 00:55:51,520 --> 00:55:54,040 cycle. And that's an area where I've 1023 00:55:54,040 --> 00:55:57,400 spent like just so much of my time in the last two years, 1024 00:55:57,720 --> 00:56:00,360 starting slow, doing a lot of learning. 1025 00:56:00,360 --> 00:56:03,360 And it's the third time in my career around the same time as 1026 00:56:03,360 --> 00:56:07,720 as the NVIDIA forays. In the beginning, I just my my 1027 00:56:07,720 --> 00:56:10,160 really dumb stuff early on worked so damn well. 1028 00:56:10,160 --> 00:56:12,560 I followed these guys called the Baker brothers into some 1029 00:56:12,560 --> 00:56:16,080 biotechs that were trading at or below their cash that they were 1030 00:56:16,080 --> 00:56:18,400 buying tons of. I was like, I I'd heard that 1031 00:56:18,400 --> 00:56:19,840 they had the best reputation in the space. 1032 00:56:19,840 --> 00:56:21,400 I was like, well, what are they buying? 1033 00:56:21,400 --> 00:56:24,720 A ton of bought shares in this company called Insight. 1034 00:56:25,120 --> 00:56:28,320 My wife still yells at me that I that I sold them, you know, it 1035 00:56:28,320 --> 00:56:31,880 was $2.00 a share and and the thing went well past 100. 1036 00:56:32,600 --> 00:56:35,840 Wow, yeah. You don't need many of those. 1037 00:56:35,840 --> 00:56:38,240 I'll tell you what you do need in that instance. 1038 00:56:38,240 --> 00:56:41,600 You need the willingness to live with concentration. 1039 00:56:42,360 --> 00:56:46,320 Yeah, I did not but but also like, yeah, it starts as not 1040 00:56:46,320 --> 00:56:48,040 concentrated. So you need to think more about 1041 00:56:48,040 --> 00:56:50,040 your starting points in some ways too with that. 1042 00:56:50,240 --> 00:56:52,840 No doubt, no doubt. But to the extent that you care 1043 00:56:52,840 --> 00:56:55,640 about your balance sheet, you got to be willing to look at a 1044 00:56:55,640 --> 00:56:57,960 balance sheet that's concentrated in a position. 1045 00:56:58,640 --> 00:57:00,640 Yeah. Yeah, you know, I mean, it's 1046 00:57:00,640 --> 00:57:02,800 it's just something that you gotta, you gotta be able to 1047 00:57:02,800 --> 00:57:04,880 stomach. It's part of that the game of 1048 00:57:04,880 --> 00:57:07,440 having a, you know, 50 bagger or whatever. 1049 00:57:08,040 --> 00:57:10,720 Yeah, I was, I was just checking out on the Delupa machine. 1050 00:57:10,720 --> 00:57:14,840 I was just checking out NVIDIA and man, its revenue growth is 1051 00:57:14,840 --> 00:57:17,600 wild. Good for them, good for them, 1052 00:57:17,600 --> 00:57:22,040 and hopefully good for humanity. Now I got to ask you about life 1053 00:57:22,040 --> 00:57:26,560 sciences, because I was. I I've heard you now talk about 1054 00:57:26,560 --> 00:57:28,840 this for what, 2 1/2 years? Yep. 1055 00:57:29,640 --> 00:57:36,320 OK. What is going on in in biologics 1056 00:57:36,320 --> 00:57:41,960 and gene therapy and do you mind setting the stage for sort of 1057 00:57:41,960 --> 00:57:48,680 the cycle and what's gone on with the FDA as to why maybe 1058 00:57:49,480 --> 00:57:55,280 it's a a bullwhip effect hangover of COVID or or not I I 1059 00:57:55,280 --> 00:57:58,160 might be phrasing that wrong. Yeah. 1060 00:57:58,160 --> 00:58:02,320 Let me take one step upwards and speak high level of part of 1061 00:58:02,320 --> 00:58:05,680 where my intrigue in the space stems from. 1062 00:58:06,360 --> 00:58:09,560 And then I'll talk about the cyclical forces that are 1063 00:58:09,560 --> 00:58:12,520 happening today and what's happening in the sector. 1064 00:58:13,160 --> 00:58:17,520 I I read this book recently called The Cloud Revolution, How 1065 00:58:17,520 --> 00:58:19,720 the Convergence of New Technologies Will Unleash the 1066 00:58:19,720 --> 00:58:23,280 Next Economic Boom and I think it was a fascinating book. 1067 00:58:23,280 --> 00:58:26,600 I think it's worth reading if you want to understand how the 1068 00:58:26,600 --> 00:58:29,760 cloud in general changes things for technology. 1069 00:58:29,760 --> 00:58:31,880 And what I'm going to say has nothing to do with the cloud 1070 00:58:32,000 --> 00:58:36,080 itself per SE. But but the author proposes this 1071 00:58:36,080 --> 00:58:41,560 rule of three and how phase change innovations require 3 1072 00:58:41,560 --> 00:58:46,720 underlying the confluence of three underlying pieces in order 1073 00:58:46,720 --> 00:58:52,360 to come to fruition. And so I think we have three 1074 00:58:52,640 --> 00:58:58,680 really unique forces that come together today to make life 1075 00:58:58,680 --> 00:59:00,880 sciences an amazing. Space. 1076 00:59:00,880 --> 00:59:02,040 Oh, he doesn't give you the three. 1077 00:59:02,040 --> 00:59:03,840 You have to come up with your own 3. 1078 00:59:04,040 --> 00:59:05,640 Yeah, well, he gives the three for the. 1079 00:59:05,640 --> 00:59:06,840 Cloud. I thought it was a paint by 1080 00:59:06,840 --> 00:59:09,080 numbers one no. Yeah, he gave the three for the 1081 00:59:09,080 --> 00:59:11,320 cloud, but I've got my 3 for life sciences. 1082 00:59:11,320 --> 00:59:12,440 What are the three for the cloud? 1083 00:59:12,440 --> 00:59:14,520 Can you? I don't remember off the. 1084 00:59:14,520 --> 00:59:16,000 Top All right, that's fine. That's fine. 1085 00:59:16,200 --> 00:59:17,960 All right, let's go for the three for life sciences. 1086 00:59:17,960 --> 00:59:22,480 Actually I do know one of the three is the GPU for the cloud, 1087 00:59:22,480 --> 00:59:24,800 so so there is that. I can't remember the other two. 1088 00:59:25,080 --> 00:59:27,840 A confluence of three factors. That's how you get a 1089 00:59:27,840 --> 00:59:29,880 Lollapalooza. Exactly. 1090 00:59:30,080 --> 00:59:31,320 OK, exactly. And I've been. 1091 00:59:31,880 --> 00:59:35,160 Shout out to Charlie, Michigan. Yeah, they use the word 1092 00:59:35,160 --> 00:59:38,080 Lollapalooza insight mugger in in the cloud book as well as 1093 00:59:38,080 --> 00:59:41,440 well they should. And you know, I I mused about 1094 00:59:41,440 --> 00:59:43,960 each of these things, but to have a framework to speak about 1095 00:59:43,960 --> 00:59:46,640 it I think is quite helpful because these three things are 1096 00:59:46,640 --> 00:59:50,200 profound, right? We mapped the first human genome 1097 00:59:50,680 --> 00:59:56,520 in 2000 and we thought genomics would unleash this amazing wave 1098 00:59:56,520 --> 00:59:59,680 of innovation. But really it's only pillar 1099 00:59:59,680 --> 01:00:03,840 number one or you know, if you view them as like 3 overlapping 1100 01:00:03,840 --> 01:00:07,920 circles, one one of the three pillars underlying this 1101 01:00:08,160 --> 01:00:10,440 confluence. Lollapalooza, if you will. 1102 01:00:10,800 --> 01:00:14,880 So genomics like it took a long time for it to start producing 1103 01:00:14,880 --> 01:00:16,840 results. In life sciences, it very much 1104 01:00:16,840 --> 01:00:20,200 is today. But especially as the cost of 1105 01:00:20,320 --> 01:00:25,360 sequencing A genome goes down, we're greatly increasing our 1106 01:00:25,360 --> 01:00:29,080 trove of data. We didn't know what we could do 1107 01:00:29,080 --> 01:00:32,920 with all this data. And even before AI emerged as 1108 01:00:32,920 --> 01:00:36,680 this buzzwordy thing, machine learning, machine learning, big 1109 01:00:36,680 --> 01:00:40,200 data slash AI, whatever you want to call it, was becoming one of 1110 01:00:40,200 --> 01:00:44,680 these other pillars underlying what will support life sciences 1111 01:00:45,040 --> 01:00:48,800 for the next decade. These capabilities, 1112 01:00:49,120 --> 01:00:53,040 computational capabilities in order to take big data sets and 1113 01:00:53,040 --> 01:00:55,760 divine insights. They're increasingly important 1114 01:00:55,760 --> 01:00:59,400 because the first applications of genomics were kind of like 1115 01:00:59,440 --> 01:01:03,520 brute force figuring out one target at a time, kind of like 1116 01:01:03,520 --> 01:01:08,280 the CPU world before GPUs were able to take this. 1117 01:01:08,280 --> 01:01:11,920 I I'd say much more dynamic approach in order to find in 1118 01:01:11,920 --> 01:01:13,760 connections between and amongst things. 1119 01:01:13,760 --> 01:01:17,440 So before you be able to identify one target at a time, 1120 01:01:17,440 --> 01:01:20,880 do it by dumb luck and you know you you'd be able to come up 1121 01:01:20,880 --> 01:01:23,080 with something nice for a genomics based treatment. 1122 01:01:23,400 --> 01:01:25,680 But now you also have to increasingly focus on how 1123 01:01:25,680 --> 01:01:28,680 different pieces of the genome interact with with one another. 1124 01:01:28,680 --> 01:01:31,520 So big data machine learning AI super helpful. 1125 01:01:31,800 --> 01:01:34,760 So that's number two and #3 is CRISPR. 1126 01:01:35,000 --> 01:01:38,400 If you go back to 2012, we the early days of 2012, we didn't 1127 01:01:38,400 --> 01:01:42,320 even know that you could actually, we there were some 1128 01:01:42,320 --> 01:01:45,560 people who theorized that you could do this, but we didn't 1129 01:01:45,560 --> 01:01:50,080 know that you actually could change someone's genome. 1130 01:01:50,720 --> 01:01:53,240 And we learned that yes, you could. 1131 01:01:53,680 --> 01:01:58,160 And then we figured out how to apply that in other organisms. 1132 01:01:58,160 --> 01:02:00,680 And now humans, like we're sitting here today. 1133 01:02:00,880 --> 01:02:04,400 Just a couple months ago was the first ever approval of a CRISPR 1134 01:02:04,400 --> 01:02:07,600 based treatment that effectively take someone who's born with 1135 01:02:07,600 --> 01:02:10,560 sickle cell disease and makes them free of it. 1136 01:02:11,640 --> 01:02:13,440 That's that's amazing. We didn't even have the 1137 01:02:13,440 --> 01:02:16,400 underlying technology to be able to do that a decade ago. 1138 01:02:16,720 --> 01:02:18,760 But you need to be able to figure out the gene in the 1st 1139 01:02:18,760 --> 01:02:21,680 place you need CRISPR. And now to take it to the next 1140 01:02:21,680 --> 01:02:25,600 level, you need big data AI. And so part of my intrigue in 1141 01:02:25,600 --> 01:02:28,080 the space is that if you look at the last decade, we've had some 1142 01:02:28,080 --> 01:02:31,640 of the most profound innovations ever and yet the whole space has 1143 01:02:31,640 --> 01:02:36,320 been absolutely mauled in the Last Post COVID period. 1144 01:02:36,560 --> 01:02:39,280 And if you go back even further, if you think about biotech as 1145 01:02:39,280 --> 01:02:43,040 kind of the reference point for the space, it's been almost a 1146 01:02:43,040 --> 01:02:47,880 decade of stagnation for biotech as represented by the XBI or 1147 01:02:47,920 --> 01:02:50,360 IBB. Those things have gone nowhere 1148 01:02:50,680 --> 01:02:53,200 over the last decade. Now someone that I've talked to 1149 01:02:53,200 --> 01:02:56,160 has said this an index construction issue, not so much 1150 01:02:56,240 --> 01:03:01,480 a technology or or like certain companies within the index maybe 1151 01:03:01,480 --> 01:03:03,320 have gone well. Is that is that a fair 1152 01:03:03,320 --> 01:03:04,840 criticism? Sure. 1153 01:03:04,840 --> 01:03:08,080 But that's true anytime an index goes nowhere for a long time, 1154 01:03:08,080 --> 01:03:10,600 right? When the S&P went nowhere from 1155 01:03:10,720 --> 01:03:14,720 2000 through 2014, when it made new highs again, there were 1156 01:03:14,720 --> 01:03:17,320 plenty of individual stocks that did exceedingly well. 1157 01:03:17,320 --> 01:03:19,400 So like, some stock pickers did really well. 1158 01:03:19,800 --> 01:03:21,880 Some areas did horribly. I mean, if you didn't own 1159 01:03:21,880 --> 01:03:24,440 financials, you got a better return than you did if you own 1160 01:03:24,440 --> 01:03:25,880 the index during that period, right? 1161 01:03:26,320 --> 01:03:29,160 But yeah, I mean, that's a fairpoint, but I don't think 1162 01:03:29,160 --> 01:03:31,840 it's a fair critique of the fact that things really have gone 1163 01:03:31,840 --> 01:03:36,280 nowhere for the space. I mean as you talk it, it like 1164 01:03:36,280 --> 01:03:41,000 feels very tech bubbly and then tech went on a pretty 1165 01:03:41,000 --> 01:03:42,280 interesting run. It'll be. 1166 01:03:42,400 --> 01:03:44,880 It'll be interesting to see if this is Part 2. 1167 01:03:45,600 --> 01:03:47,200 Yeah. I mean part of what I've been 1168 01:03:47,360 --> 01:03:49,960 thinking and saying just to like make it sound a little better, 1169 01:03:49,960 --> 01:03:54,160 but I really do believe it is this idea that I think the life 1170 01:03:54,160 --> 01:03:57,080 science companies, not biotech per SE, I think biotech's really 1171 01:03:57,080 --> 01:03:59,120 hard. But the life science tools and 1172 01:03:59,120 --> 01:04:02,680 instrument companies that support the discovery, the 1173 01:04:02,680 --> 01:04:06,720 research, development and manufacturing of these 1174 01:04:06,840 --> 01:04:12,520 treatments and therapeutics and those companies I think are are 1175 01:04:12,520 --> 01:04:15,920 set up to be kind of like the semi companies of the next 10 to 1176 01:04:15,920 --> 01:04:18,440 20 years. And like you could point to 1177 01:04:18,440 --> 01:04:21,600 NVIDIA and say like they started with Nvidia's starting point 1178 01:04:21,600 --> 01:04:25,480 multiple was considerably lower than the starting point multiple 1179 01:04:25,480 --> 01:04:27,640 of some of these life science companies. 1180 01:04:28,080 --> 01:04:30,240 But at the end of the day, like you said, look at their revenue 1181 01:04:30,240 --> 01:04:32,080 growth, their revenue growth's been phenomenal. 1182 01:04:32,360 --> 01:04:34,800 Who cares about how much the multiples appreciated in terms 1183 01:04:34,800 --> 01:04:37,880 of driving the total return? It's far more driven by the 1184 01:04:37,880 --> 01:04:40,360 actual results of the business, how much they've been able to 1185 01:04:40,360 --> 01:04:44,000 increase their scale. Yeah, that's multiples I think 1186 01:04:44,000 --> 01:04:46,160 create multiple derangement syndrome. 1187 01:04:47,360 --> 01:04:49,120 Yeah. So you, you asked about the 1188 01:04:49,120 --> 01:04:52,040 cyclical stuff, right. And that's where it gets even 1189 01:04:52,160 --> 01:04:54,720 more challenging too because like you could point and say 1190 01:04:54,720 --> 01:04:58,960 like oh, the multiples of some of these companies are not super 1191 01:04:58,960 --> 01:05:01,520 cheap right now. But the fact is some of the 1192 01:05:01,520 --> 01:05:03,480 companies that I find most interesting, they've never been 1193 01:05:03,480 --> 01:05:08,320 cyclical in their history and they are in a really, really 1194 01:05:08,320 --> 01:05:12,400 harsh down cycle today. And they have a lot of fixed 1195 01:05:12,400 --> 01:05:15,760 cost. So the de levering on the, the 1196 01:05:15,760 --> 01:05:18,920 descaling on the top line DE levers their margin so they get 1197 01:05:18,920 --> 01:05:21,520 hit twice. So the multiple I don't think 1198 01:05:21,520 --> 01:05:24,840 truly represents the underlying reality of the business as 1199 01:05:24,840 --> 01:05:27,480 things stand today. So these tools and instruments 1200 01:05:27,480 --> 01:05:30,840 companies that help support the biotech industry from beginning 1201 01:05:30,840 --> 01:05:34,080 to end, what's happened is during COVID because supply 1202 01:05:34,080 --> 01:05:38,200 chains got so wonky, all these companies that are making things 1203 01:05:38,200 --> 01:05:42,960 that are researching things started ordering extra inventory 1204 01:05:43,600 --> 01:05:47,280 in order to have the raw material, the substrate of 1205 01:05:47,280 --> 01:05:51,480 everything they do available. And when you think about it, 1206 01:05:51,560 --> 01:05:54,480 I'll, I'll give you one of the more extreme examples, but I 1207 01:05:54,480 --> 01:05:57,760 think it's, it's very illustrative of what's happened. 1208 01:05:58,160 --> 01:06:03,640 If you have an approved cell therapy and you're manufacturing 1209 01:06:03,760 --> 01:06:08,880 that cell therapy as needed by patients, you're subject to 1210 01:06:08,880 --> 01:06:12,840 periodic inspections by the FDA in your manufacturing process. 1211 01:06:13,120 --> 01:06:15,680 And if you're not operating on the day they show up, that's a 1212 01:06:15,680 --> 01:06:18,280 really big problem and can set you back and can take you off 1213 01:06:18,280 --> 01:06:22,240 market for a period of time. And so it was really important 1214 01:06:22,240 --> 01:06:27,080 that you didn't end up any on any day without any of the key 1215 01:06:27,080 --> 01:06:28,800 materials in order to operate your stuff. 1216 01:06:28,800 --> 01:06:33,520 So what what what happened is if you think about industry levels 1217 01:06:33,520 --> 01:06:37,280 of consumables, just using round numbers here, but they went 1218 01:06:37,280 --> 01:06:40,080 something from like having six months of extra inventory on 1219 01:06:40,080 --> 01:06:44,240 hand to 18 months in some cases of extra inventory on hand. 1220 01:06:44,280 --> 01:06:47,920 And that made sense at the time because you didn't know how long 1221 01:06:47,920 --> 01:06:50,640 the supply chain problems would persist. 1222 01:06:50,920 --> 01:06:53,440 You didn't know to what degree your business would actually 1223 01:06:53,440 --> 01:06:55,840 grow during this period. So you had to support future 1224 01:06:55,840 --> 01:06:59,400 scale with it. And you wanted to make sure a 1225 01:06:59,400 --> 01:07:01,560 more frequent ordering cadence kept you higher up in the 1226 01:07:01,560 --> 01:07:04,120 priority with the companies you were ordering from. 1227 01:07:04,400 --> 01:07:06,160 So you wanted to make sure that you were ordering on a 1228 01:07:06,160 --> 01:07:09,120 continuing basis even as things kept rolling. 1229 01:07:09,560 --> 01:07:13,920 And So what happened was once we got to a more normalized period, 1230 01:07:13,920 --> 01:07:16,680 some of these companies were like, whoa, whoa, whoa, we're 1231 01:07:16,680 --> 01:07:18,880 still buying, but we have way too much. 1232 01:07:19,480 --> 01:07:22,480 Yeah. And then to make matters worse, 1233 01:07:22,600 --> 01:07:25,320 because of the COVID, like the bubbly stuff that we talked 1234 01:07:25,320 --> 01:07:29,840 about, there were way too many companies that raised money in 1235 01:07:29,840 --> 01:07:33,320 biotech who didn't necessarily deserve it, that rode the 1236 01:07:33,320 --> 01:07:37,320 zeitgeist of that brief window of time in order to raise money. 1237 01:07:37,320 --> 01:07:39,000 So there's way too much experimentation. 1238 01:07:39,000 --> 01:07:41,680 And even good companies, they had so much money that they were 1239 01:07:41,680 --> 01:07:45,880 doing more targets than they'd actually needed during that time 1240 01:07:45,880 --> 01:07:48,480 period. And so you know, there was a bit 1241 01:07:48,480 --> 01:07:51,480 of a, a financial force where there was too much money 1242 01:07:51,480 --> 01:07:54,960 floating around and so that supported even more purchasing 1243 01:07:54,960 --> 01:07:56,560 behavior. So there's 1° where you had to 1244 01:07:56,560 --> 01:07:59,920 burn off the financial accesses and then you had to burn off the 1245 01:08:00,120 --> 01:08:03,800 supply chain accesses once you got to this more normal period. 1246 01:08:04,080 --> 01:08:07,480 So venture capital funding completely dried up and 1247 01:08:07,480 --> 01:08:11,080 companies manufacturing, they're like, well, let's go back from 1248 01:08:11,080 --> 01:08:14,440 this 18 months of inventory to a normal six months level. 1249 01:08:14,440 --> 01:08:18,359 And you could imagine to go from a year of extra inventory to 1250 01:08:18,359 --> 01:08:21,840 normal levels takes more than a year to to get there. 1251 01:08:22,600 --> 01:08:24,200 And you can't really just stop ordering. 1252 01:08:24,200 --> 01:08:26,279 Some of these things have limited shelf life too. 1253 01:08:26,279 --> 01:08:29,640 So you kind of start hitting a logical limit in terms of how 1254 01:08:29,640 --> 01:08:33,080 long you can keep it. And here we are today where you 1255 01:08:33,080 --> 01:08:37,200 know, sometime between when we're recording this today and 1256 01:08:37,479 --> 01:08:39,359 3-4 months ago, we'll have been the through. 1257 01:08:39,399 --> 01:08:40,760 And I think it's really interesting. 1258 01:08:40,760 --> 01:08:43,200 I reflect back on my early NVIDIA days when everyone wanted 1259 01:08:43,200 --> 01:08:46,720 to ask about Tegra. If you look at what happens on a 1260 01:08:46,720 --> 01:08:49,920 typical earnings call these days for one of these companies, like 1261 01:08:49,920 --> 01:08:54,399 every question is like when will the supply chain problems be 1262 01:08:54,399 --> 01:08:55,240 over? Like when? 1263 01:08:55,240 --> 01:08:56,319 When are we gonna be done burning? 1264 01:08:56,399 --> 01:08:58,439 Up. Inventory, none of the questions 1265 01:08:58,439 --> 01:09:01,279 are about like what underlying growth looks like, where you see 1266 01:09:01,279 --> 01:09:04,040 the industry going. In five years, Thermo Thermo, 1267 01:09:04,040 --> 01:09:06,279 they ask about China, right? They're like, what's going on 1268 01:09:06,279 --> 01:09:10,560 with China, but it's within the context of burning through the 1269 01:09:11,040 --> 01:09:13,640 what's in the system? Yeah, but like, so that's more 1270 01:09:13,640 --> 01:09:16,520 like the PC cycle than Tegra for NVIDIA where it's like it's 1271 01:09:16,520 --> 01:09:19,439 something that matters, but it's not the biggest thing that 1272 01:09:19,439 --> 01:09:20,920 matters. It's not where things are going 1273 01:09:20,920 --> 01:09:23,399 to be in a few years. And it's like it's one of the 1274 01:09:23,399 --> 01:09:25,680 things that I, I don't know, it's almost a waste of time in 1275 01:09:25,680 --> 01:09:27,399 some ways for a lot of these companies. 1276 01:09:27,399 --> 01:09:29,680 I mean the way I approach it is I assume China won't even be a 1277 01:09:29,680 --> 01:09:33,520 market for them in five years because it is really hard to 1278 01:09:33,520 --> 01:09:36,920 know if if it will or won't be. And I don't necessarily want to 1279 01:09:36,920 --> 01:09:40,680 have to rely on it being a market when who knows what will 1280 01:09:40,680 --> 01:09:44,080 happen on the policy side, even in the US we're making there's a 1281 01:09:44,080 --> 01:09:49,160 bill out there today that might make Chinese companies incapable 1282 01:09:49,160 --> 01:09:53,760 of selling certain key life science pieces to US and 1283 01:09:53,920 --> 01:09:56,840 European companies. So like that street cuts both 1284 01:09:56,840 --> 01:09:58,160 ways. So I I definitely should be 1285 01:09:58,160 --> 01:10:04,360 conscious of what that means and yet that China and this 1286 01:10:04,360 --> 01:10:06,960 inventory cycle are basically like most of the questions on 1287 01:10:06,960 --> 01:10:10,160 Turbo nowadays. Yeah, they it does seem to be 1288 01:10:10,200 --> 01:10:12,680 what people are talking about when they ask the company 1289 01:10:12,680 --> 01:10:15,000 questions. And they're very clear that they 1290 01:10:15,000 --> 01:10:17,960 think that underlying industry growth hasn't changed at all 1291 01:10:18,120 --> 01:10:21,480 through this whole period and if anything has accelerated like. 1292 01:10:21,920 --> 01:10:25,960 That particular management team strikes me as financially 1293 01:10:26,360 --> 01:10:28,680 oriented, but but I don't disagree with what you're 1294 01:10:28,680 --> 01:10:30,640 saying. Yep, Yep. 1295 01:10:30,840 --> 01:10:32,240 And you know, I think it's interesting. 1296 01:10:32,280 --> 01:10:35,280 One of the things I've seen is like the specialist love Thermo 1297 01:10:35,840 --> 01:10:41,120 and generalists do find Danaher more interesting if you're going 1298 01:10:41,120 --> 01:10:44,240 to come into the space. DBS gives you the warm and 1299 01:10:44,240 --> 01:10:46,680 fuzzies. Yeah, the, the specialists tend 1300 01:10:46,680 --> 01:10:49,680 not to like Danaher. Yeah, that's interesting. 1301 01:10:50,320 --> 01:10:52,760 Yeah. And I think Danaher is like one 1302 01:10:52,760 --> 01:10:55,760 of the most appealing in the space they're in, like the areas 1303 01:10:55,760 --> 01:11:00,480 that I'd most want to be exposed to in life sciences and DBS is 1304 01:11:00,480 --> 01:11:04,280 real and it's got a proven track record and they've just created 1305 01:11:04,280 --> 01:11:08,200 like a pureplay in life sciences coming sometime it it, it 1306 01:11:08,200 --> 01:11:11,280 happened almost exactly aligned with the through in the space. 1307 01:11:11,920 --> 01:11:17,000 What do you think about there's there's a line in Mckinsey's 1308 01:11:17,000 --> 01:11:21,760 valuation book where they say life sciences is one of those 1309 01:11:21,760 --> 01:11:24,320 industries that's created just immense value. 1310 01:11:24,320 --> 01:11:28,720 But a lot of it accrues to those that get acquired and not 1311 01:11:28,720 --> 01:11:31,920 necessarily the acquirers. If you look on returns on total 1312 01:11:31,920 --> 01:11:36,200 capital and you include intangibles, the picture is not 1313 01:11:36,200 --> 01:11:39,240 as rosy as the return on tangible capital looks. 1314 01:11:40,200 --> 01:11:42,120 Yeah. Although you could see the value 1315 01:11:42,120 --> 01:11:46,800 creation that thermos generated in the market since I I mean I 1316 01:11:46,800 --> 01:11:49,280 read McKinsey on valuation before we. 1317 01:11:49,280 --> 01:11:51,200 Really. This is the 7th edition. 1318 01:11:51,200 --> 01:11:52,720 They still haven't changed the sentence. 1319 01:11:52,720 --> 01:11:56,840 Yeah, you know, look at what Danaher's done, right? 1320 01:11:57,120 --> 01:11:58,680 Yeah. Well, that's I'd look at the 1321 01:11:58,680 --> 01:12:01,040 stock and then I look at that and then I look at what they're 1322 01:12:01,040 --> 01:12:03,600 saying and I think there's like a little truth to everything. 1323 01:12:04,000 --> 01:12:07,600 Yeah, yeah. I mean it's definitely, I think 1324 01:12:07,600 --> 01:12:12,960 that's probably more true and like the biotech subspace within 1325 01:12:12,960 --> 01:12:14,960 life sciences than the tools and instruments. 1326 01:12:14,960 --> 01:12:20,360 I think the acquirers and the acquired have cream created 1327 01:12:20,360 --> 01:12:23,680 tremendous value and McKinsey valuation does point it as one 1328 01:12:23,680 --> 01:12:27,240 of the highest ROIC areas. So at the end of the day, it's 1329 01:12:27,640 --> 01:12:30,720 persistent. Yeah, I do think some of these 1330 01:12:30,720 --> 01:12:35,600 companies may have gone a little far out on the curve in terms of 1331 01:12:35,600 --> 01:12:37,040 it. Let's, let's just call it spade 1332 01:12:37,040 --> 01:12:40,960 a spade paying too much for companies during the heavier 1333 01:12:40,960 --> 01:12:45,600 days, which meant you, you know, with lower rates, they were OK 1334 01:12:45,600 --> 01:12:50,440 and willing to say like my ROI, my, my WAC is really low and I'm 1335 01:12:50,440 --> 01:12:55,320 willing to take five years to get to my ROIC target, which is 1336 01:12:55,400 --> 01:12:59,440 like WAC +2. That's not great, but you don't 1337 01:12:59,440 --> 01:13:01,840 have to be encumbered by those decisions today. 1338 01:13:02,160 --> 01:13:04,520 And I do think the companies have been very clear, like the 1339 01:13:04,520 --> 01:13:07,080 environment's changed and they definitely are accommodating it 1340 01:13:07,440 --> 01:13:09,840 in certain ways. And they're definitely changing 1341 01:13:10,040 --> 01:13:12,120 some of their strategies and gearing them differently. 1342 01:13:12,120 --> 01:13:14,160 Like, I think one of the changes, I'm really intrigued to 1343 01:13:14,160 --> 01:13:17,000 see how it plays out in Danaher. Danaher had always been a 1344 01:13:17,000 --> 01:13:20,280 decentralized operator of acquired businesses, so they 1345 01:13:20,280 --> 01:13:22,000 weren't relying on financial synergies. 1346 01:13:22,000 --> 01:13:24,680 To your point about Thermo, Thermo is very much like a 1347 01:13:24,920 --> 01:13:29,600 financial player. Danaher today is undergoing its 1348 01:13:29,600 --> 01:13:35,800 biggest kind of like true merger where they're taking Paul and G 1349 01:13:35,920 --> 01:13:39,640 Bioprocessing assets and combining them into one entity 1350 01:13:39,640 --> 01:13:41,920 called Sativa. They've never done this kind of 1351 01:13:41,920 --> 01:13:44,160 exercise before and I think it's really interesting their 1352 01:13:44,160 --> 01:13:47,400 investment they're they're obviously still going to be 1353 01:13:47,440 --> 01:13:51,120 acquisitive using their framework, but they're also 1354 01:13:51,120 --> 01:13:55,880 going to be investing in research and development in a 1355 01:13:55,880 --> 01:13:58,640 way with this combined asset that I don't think they really 1356 01:13:58,640 --> 01:14:00,600 have before. And I think that's really 1357 01:14:00,600 --> 01:14:02,520 exciting and and very interesting. 1358 01:14:03,200 --> 01:14:06,120 And I think you know one of the things that attracts me to the 1359 01:14:06,120 --> 01:14:10,120 space is leaving aside questions of how perfect some of these 1360 01:14:10,120 --> 01:14:14,040 acquire acquisitive companies are at at generating returns. 1361 01:14:14,600 --> 01:14:18,040 Like this space has amazing structural tailwinds like 1362 01:14:18,040 --> 01:14:22,400 starting with a growing population that is aging, like 1363 01:14:22,400 --> 01:14:25,000 the aging population is growing faster than the population at 1364 01:14:25,000 --> 01:14:29,680 large and people need more pharmaceutical and biological 1365 01:14:29,680 --> 01:14:34,000 material as they get older. Like that's unquestioned and you 1366 01:14:34,000 --> 01:14:36,200 have like a growing middle class globally. 1367 01:14:36,200 --> 01:14:41,360 So an emergent middle class requires more for their 1368 01:14:41,360 --> 01:14:44,320 healthcare than does a really poor populace. 1369 01:14:44,320 --> 01:14:47,080 So, so that this is something that's happening globally and 1370 01:14:47,080 --> 01:14:49,720 some sovereigns are actually investing in creating some of 1371 01:14:49,720 --> 01:14:53,600 these not not the highest value pieces but having the pieces in 1372 01:14:53,600 --> 01:14:56,040 place to do some of this domestically themselves. 1373 01:14:56,880 --> 01:15:01,080 And there are amazing regulatory barriers to entry like in order 1374 01:15:01,080 --> 01:15:04,720 to be CGMP certified to reach the standards for like good 1375 01:15:04,720 --> 01:15:08,440 manufacturing by the FDA, it's like a nine figure upfront 1376 01:15:08,440 --> 01:15:10,960 investment. So you can't just say tomorrow 1377 01:15:10,960 --> 01:15:13,720 I'm going to go start something in this space. 1378 01:15:14,040 --> 01:15:15,680 You know you need massive investment. 1379 01:15:15,680 --> 01:15:19,320 It takes years to get in position in order to even get 1380 01:15:19,320 --> 01:15:23,440 certified to sell into this industry And that's not even 1381 01:15:23,440 --> 01:15:26,120 mentioning the R&D that you that you need first. 1382 01:15:26,120 --> 01:15:27,640 That's just the regulatory barriers. 1383 01:15:27,960 --> 01:15:31,400 So they're immense barriers to entry and there are so many 1384 01:15:31,400 --> 01:15:33,800 different razor and blade business models where like once 1385 01:15:33,800 --> 01:15:38,880 you sell the instrument you get a really long afterlife of 1386 01:15:39,240 --> 01:15:42,360 consumable pull through and the margins tend to be phenomenal. 1387 01:15:42,360 --> 01:15:45,680 So McKinsey evaluation talks about the spaces basically the 1388 01:15:45,680 --> 01:15:50,360 highest and most persistently high ROICROIC space there is. 1389 01:15:50,880 --> 01:15:54,720 And I think that's that's very real like hard to argue with it. 1390 01:15:54,720 --> 01:15:56,880 It's it's really interesting to find a lot of different 1391 01:15:56,880 --> 01:16:02,880 companies in the space there. There was I think in abundance 1392 01:16:02,880 --> 01:16:06,120 of new IPOs that came public in 2021 and some of these companies 1393 01:16:06,120 --> 01:16:08,600 ended up like way over capitalized. 1394 01:16:08,600 --> 01:16:11,480 Some of them are like heaping piles of junk that you should 1395 01:16:11,480 --> 01:16:16,200 absolutely stay as far away from as humanly possible and will go 1396 01:16:16,200 --> 01:16:19,760 bankrupt and are going bankrupt. But there are some babies out 1397 01:16:19,760 --> 01:16:22,040 with the bathwater and there's some really, really amazing 1398 01:16:22,040 --> 01:16:25,200 companies in there. Well, one that has a management 1399 01:16:25,200 --> 01:16:28,040 team that I'm almost certain is ex Thermo. 1400 01:16:28,200 --> 01:16:31,840 Like how do I pronounce it? Maravai or is it, is it Marva? 1401 01:16:31,840 --> 01:16:34,720 Yeah, yeah, yeah. I mean, Stanaher and Thermo, 1402 01:16:34,720 --> 01:16:36,720 they're like all all of that is there. 1403 01:16:36,880 --> 01:16:39,080 Came out and missed and missed and missed and missed. 1404 01:16:39,880 --> 01:16:42,360 So you know what happens in the future. 1405 01:16:42,920 --> 01:16:46,040 To your point on being somewhat empathetic or forgiving or 1406 01:16:46,040 --> 01:16:48,360 whatever. Like man, that was a hard time 1407 01:16:48,360 --> 01:16:51,720 to come out and hit your your projections. 1408 01:16:51,720 --> 01:16:54,960 And and might people have been too rosy to raise capital? 1409 01:16:54,960 --> 01:16:56,680 Yes. Would they be the only ones? 1410 01:16:56,680 --> 01:16:59,320 I don't think so. Yeah, I'll say something unkind 1411 01:16:59,320 --> 01:17:03,120 and then get kinder about Marvi first, which is that GTCR knew 1412 01:17:03,120 --> 01:17:05,960 what they were doing when they sold that asset to the market in 1413 01:17:05,960 --> 01:17:08,520 2021, right. So this was a private equity 1414 01:17:08,520 --> 01:17:11,280 owned asset. They exited, had a really good 1415 01:17:11,280 --> 01:17:14,080 time and they did the same with Sotera Health at the same time. 1416 01:17:14,080 --> 01:17:17,080 And it's like, Oh, yeah, they're two healthcare slash Life 1417 01:17:17,080 --> 01:17:20,640 science IPOs obviously have DE rated significantly. 1418 01:17:21,040 --> 01:17:24,640 And yet there have been several junctures along the way since 1419 01:17:24,640 --> 01:17:27,640 that DE rating started. Three specific like known 1420 01:17:27,640 --> 01:17:31,320 instances where acquirers try to step in and buy Marvi and 1421 01:17:31,320 --> 01:17:33,880 they're like, no, no, no, we're, we're not selling this company 1422 01:17:33,880 --> 01:17:38,160 at all because things, you know, the pendulum goes too far in 1423 01:17:38,160 --> 01:17:42,400 both ways, not just one way. And it's, I think, a really 1424 01:17:42,400 --> 01:17:44,520 interesting company. I've never seen a company lose 1425 01:17:44,520 --> 01:17:49,560 2/3 of their sale sales and still have 30% EBITDA margins. 1426 01:17:49,920 --> 01:17:53,200 Like, that's insane to me, that a company could lose that much 1427 01:17:53,200 --> 01:17:55,800 in sales and still be that profitable, which says something 1428 01:17:55,800 --> 01:17:59,760 about how like structurally profitable their businesses and 1429 01:17:59,760 --> 01:18:02,280 how unique it is. And you know, you might be 1430 01:18:02,280 --> 01:18:04,640 wondering like, how on earth could a company lose 2/3 of 1431 01:18:04,640 --> 01:18:07,640 their sales? Well, they were one of the key 1432 01:18:07,640 --> 01:18:10,680 pieces in creating the bio N tech COVID vaccine. 1433 01:18:11,280 --> 01:18:15,000 And so there was obviously this frenzy of demand to get the 1434 01:18:15,320 --> 01:18:18,280 COVID vaccine to the market. And now that's basically dried 1435 01:18:18,280 --> 01:18:19,880 up to 0. So they have to rely on their 1436 01:18:19,880 --> 01:18:22,360 existing underlying business and core growth. 1437 01:18:22,440 --> 01:18:24,800 That took us there. And what they do specifically is 1438 01:18:25,120 --> 01:18:27,640 what's called RNA capping. It's the very end piece that 1439 01:18:27,640 --> 01:18:32,160 helps the RNA get you know, into a cell and affect its change, if 1440 01:18:32,160 --> 01:18:35,840 you will. And they have a patent on the 1441 01:18:35,840 --> 01:18:40,320 way to cap RNA that most closely mimics Mother Nature herself. 1442 01:18:40,760 --> 01:18:43,520 And so once you have this patent protection and you continuously 1443 01:18:43,520 --> 01:18:46,040 develop and iterate your product and build a suite of services 1444 01:18:46,040 --> 01:18:48,680 around it, that's a uniquely defensible business. 1445 01:18:48,680 --> 01:18:51,960 And it's something that you know I think say what you will about 1446 01:18:51,960 --> 01:18:56,880 the COVID vaccine itself, but mRNA is been proven and de 1447 01:18:56,880 --> 01:19:01,520 risked as a platform and it could have like it. 1448 01:19:01,520 --> 01:19:05,960 It's one of those specific platform that like most directly 1449 01:19:05,960 --> 01:19:09,960 relates to this three legged stool if you will the the 1450 01:19:09,960 --> 01:19:13,240 Lollapalooza of genomics, CRISPR and big data AI. 1451 01:19:13,600 --> 01:19:19,120 It's a way to program ourselves or to express a elicit a protein 1452 01:19:19,120 --> 01:19:22,560 expression and it could I I think it will over the next 1453 01:19:22,560 --> 01:19:25,960 decade be something that's like truly profound for all of us. 1454 01:19:25,960 --> 01:19:29,800 I think one of the areas you see it being research right now is 1455 01:19:29,800 --> 01:19:34,040 developing vaccines for cancers. And a vaccine for cancer doesn't 1456 01:19:34,040 --> 01:19:36,760 mean that you inject someone and they can't get cancer 1457 01:19:36,760 --> 01:19:39,560 thereafter. It's someone who has cancer. 1458 01:19:39,560 --> 01:19:43,720 You're able to take the cells and create a way for your body 1459 01:19:43,720 --> 01:19:48,600 to defend and defend against it, stop its growth and and kill it. 1460 01:19:49,160 --> 01:19:53,360 And I think that's something that I mean say what you will 1461 01:19:53,360 --> 01:19:57,400 about the COVID vaccine again, I think we we all could agree that 1462 01:19:57,440 --> 01:20:01,720 something like that for cancer would would would be really 1463 01:20:01,720 --> 01:20:03,440 welcomed and a total game changer. 1464 01:20:03,880 --> 01:20:08,760 Yeah, One, one of the the criticisms that I've heard is 1465 01:20:08,760 --> 01:20:13,440 most of the big diseases are already sort of solved. 1466 01:20:13,920 --> 01:20:18,000 I don't know how real or not that is the other, the other 1467 01:20:18,160 --> 01:20:21,680 kind of thing that I've ruminated on a little bit is 1468 01:20:22,080 --> 01:20:24,920 drug dealers tend to make their money on the comeback, not on 1469 01:20:24,920 --> 01:20:28,160 the sale. And I wonder to the extent that 1470 01:20:28,160 --> 01:20:32,440 you're curing people, the cash flow dynamics of everything, you 1471 01:20:32,440 --> 01:20:34,360 know, that's like a big outlay up front. 1472 01:20:34,800 --> 01:20:40,120 Does that create a problem with how our system is sort of built 1473 01:20:40,640 --> 01:20:43,960 and are there some adverse incentives along that? 1474 01:20:43,960 --> 01:20:46,400 But anything that I'm saying make any sense or no? 1475 01:20:46,840 --> 01:20:49,680 Yeah, I've heard that like the big diseases, the big stuff is 1476 01:20:49,680 --> 01:20:53,920 all solved for for so long. And I'd say, you know, go back 1477 01:20:53,920 --> 01:20:57,240 two years ago, think about where things were with obesity and 1478 01:20:57,240 --> 01:21:02,120 where we are today with Lily Novartis and and GLP ones. 1479 01:21:02,720 --> 01:21:06,040 I mean, shit, does that look solved right now? 1480 01:21:06,040 --> 01:21:09,640 It does, But but people were saying that like all the big 1481 01:21:09,640 --> 01:21:12,200 things were solved several years ago. 1482 01:21:12,440 --> 01:21:15,840 And I I you know to the extent that gene editing or or 1483 01:21:15,840 --> 01:21:19,760 something like that can can attack obesity. 1484 01:21:20,200 --> 01:21:23,200 I think that there are some legitimate, I mean obviously if 1485 01:21:23,200 --> 01:21:27,400 I if you're diabetic or or truly obese, I think that the GLP ones 1486 01:21:27,400 --> 01:21:28,800 have a lot of make a lot of sense. 1487 01:21:28,800 --> 01:21:34,760 However, the does seem to be, you know, the loss of muscle 1488 01:21:34,760 --> 01:21:38,000 mass or some other side effects that maybe there's a better way 1489 01:21:38,000 --> 01:21:41,080 to go about this. Yeah, I mean, Regeneron, which 1490 01:21:41,080 --> 01:21:44,040 I've been involved in for a while, they think they found a 1491 01:21:44,040 --> 01:21:48,160 better target that leads to no sarcopenia like GLP wants to, 1492 01:21:48,160 --> 01:21:51,000 which is what you're talking about with the muscle loss where 1493 01:21:51,160 --> 01:21:54,680 to your point, like because of the muscle loss you basically 1494 01:21:54,680 --> 01:21:56,120 have to stay on those things forever. 1495 01:21:56,120 --> 01:22:00,600 So the drug dealer thing is, is very much in effect Regeneron is 1496 01:22:00,600 --> 01:22:04,520 working on this GPR 75 target that they think is going to be 1497 01:22:04,520 --> 01:22:07,480 even better. So I kind of think the market's 1498 01:22:07,480 --> 01:22:10,560 proven and now there's more opportunity for people to attack 1499 01:22:10,560 --> 01:22:13,000 obesity. I remember when obesity was kind 1500 01:22:13,000 --> 01:22:15,680 of a wastewater in biotech like any company that did, it was 1501 01:22:15,880 --> 01:22:17,560 thought of as a somewhat slimy company. 1502 01:22:18,040 --> 01:22:20,200 And now it's basically the biggest product the industry's 1503 01:22:20,200 --> 01:22:24,960 ever created. So you know I think these things 1504 01:22:24,960 --> 01:22:27,880 come and go in waves, but there are all different kinds of 1505 01:22:27,920 --> 01:22:31,280 problems that humans deal with that require different kinds of 1506 01:22:31,280 --> 01:22:33,280 treatments. And I do think there's a degree 1507 01:22:33,280 --> 01:22:36,920 to which like the industry over focused on what they call like 1508 01:22:37,120 --> 01:22:39,320 orphan indications. So they're super rare 1509 01:22:39,320 --> 01:22:42,360 indications and you could get special designation with the FDA 1510 01:22:42,840 --> 01:22:46,520 which effectively accelerates your, your path to market which 1511 01:22:46,520 --> 01:22:48,400 means better ROI on drug development. 1512 01:22:48,400 --> 01:22:51,440 So too much of the industry had been focused on orphan drugs for 1513 01:22:51,440 --> 01:22:54,480 a while. But with genomics, with this 1514 01:22:54,480 --> 01:22:58,640 cure curative kind of treatment for some of these areas, you 1515 01:22:58,640 --> 01:23:01,320 could attack one target after another is really what it boils 1516 01:23:01,320 --> 01:23:06,040 down to. And yeah, it's a good thing, but 1517 01:23:06,040 --> 01:23:07,600 it's a tough thing. You look at a company like 1518 01:23:07,600 --> 01:23:11,920 Gilead, which effectively cured hepatitis C and they've been 1519 01:23:11,920 --> 01:23:16,320 stuck in the muck ever since. So, you know, I do think there, 1520 01:23:16,400 --> 01:23:19,960 there are some questions about certain business models, but the 1521 01:23:19,960 --> 01:23:23,000 companies who sell the pieces for it, there will be one target 1522 01:23:23,000 --> 01:23:25,240 after another that they're going to keep selling those pieces 1523 01:23:25,240 --> 01:23:26,840 for. And by the way, it doesn't 1524 01:23:26,840 --> 01:23:29,880 change the germline. So just because someone with 1525 01:23:29,880 --> 01:23:32,320 sickle cell disease is cured of it, well, they could have kids 1526 01:23:32,320 --> 01:23:34,320 with it. So there's another generation 1527 01:23:34,320 --> 01:23:37,520 that will that makes sense. So it's not gone forever. 1528 01:23:37,720 --> 01:23:41,040 And there are definitely important moral questions to ask 1529 01:23:41,040 --> 01:23:45,120 about if and how we should be editing things in the germline. 1530 01:23:46,200 --> 01:23:49,880 You know, there's a future where we make sure a baby's not born 1531 01:23:49,880 --> 01:23:52,240 with it. Actually in some ways you could 1532 01:23:52,240 --> 01:23:54,560 do that in the present, like people could artificially 1533 01:23:54,560 --> 01:23:58,480 inseminate to avoid BRCA gene for example. 1534 01:23:59,000 --> 01:24:01,360 So we we are and can do some of those things. 1535 01:24:01,360 --> 01:24:05,680 So yeah, it's a really good question, but I but I think that 1536 01:24:05,680 --> 01:24:08,680 there will always be another problem to tackle this is life 1537 01:24:08,680 --> 01:24:11,680 that we're talking about. It's very different and far more 1538 01:24:11,680 --> 01:24:14,320 dynamic than everyday kind of problems. 1539 01:24:15,040 --> 01:24:18,680 Yeah, well, I was. I was looking at Gilead stuck in 1540 01:24:18,680 --> 01:24:21,240 the mud, which is not an untrue statement. 1541 01:24:21,240 --> 01:24:25,520 However, stuck in the mud at 7.4 billion of free cash flow is not 1542 01:24:25,520 --> 01:24:27,320 the worst way to be stuck in the mud. 1543 01:24:28,120 --> 01:24:29,880 Yep. Yep, exactly right. 1544 01:24:30,320 --> 01:24:31,560 Like exactly. Right. 1545 01:24:31,560 --> 01:24:34,600 I wouldn't mind be showering and stick me in that mud. 1546 01:24:35,440 --> 01:24:37,960 Well, hey, you want you want to make sure you're not paying. 1547 01:24:37,960 --> 01:24:40,920 You want to make sure you're not paying peak peak multiple on 1548 01:24:40,920 --> 01:24:44,280 peak profits. But not the end of the world to 1549 01:24:44,280 --> 01:24:47,360 be extracting that kind of cash from society and delivering a 1550 01:24:47,360 --> 01:24:50,960 good outcome in the meantime. Yeah, yeah, absolutely. 1551 01:24:50,960 --> 01:24:53,720 It's interesting though, I mean like one one of the fundamental 1552 01:24:53,720 --> 01:24:56,280 realities with these companies Speaking of your, your, your 1553 01:24:56,280 --> 01:24:59,320 point about the, the, the drug dealer point is even if they do 1554 01:24:59,320 --> 01:25:02,120 have a recurring revenue product, you can't just slap a 1555 01:25:02,120 --> 01:25:06,120 terminal multiple on everything on anything in biotech for that 1556 01:25:06,120 --> 01:25:07,880 matter. You can in the tools and 1557 01:25:07,880 --> 01:25:09,600 instruments companies. I think it's very different 1558 01:25:09,600 --> 01:25:11,760 there, which is part of why I like it so much. 1559 01:25:11,760 --> 01:25:14,600 In biotech, you have to treat everything as finite duration 1560 01:25:14,600 --> 01:25:17,680 because once your patent expires, there could be a 1561 01:25:17,680 --> 01:25:20,280 generic and your pricing paradigm is going to change 1562 01:25:20,280 --> 01:25:24,000 entirely and your ability to capture the market is going to 1563 01:25:24,000 --> 01:25:25,720 change. So you're going to get lower 1564 01:25:25,720 --> 01:25:28,320 pricing on a smaller portion of the market. 1565 01:25:28,600 --> 01:25:32,200 So patent Cliff is very real and and it changes the dynamics for 1566 01:25:32,200 --> 01:25:35,920 some of these businesses. So 7 1/2 billion in cash flow, 1567 01:25:35,920 --> 01:25:39,880 yes, but like their pipeline, you know, you you'd have to ask 1568 01:25:39,880 --> 01:25:42,480 yourself does it look like it's the kind of thing that could 1569 01:25:42,480 --> 01:25:47,000 maintain that that cash flow? Whereas the life sciences, what 1570 01:25:47,000 --> 01:25:52,920 you're really hoping for is 1 indication was approved using 1571 01:25:52,920 --> 01:25:55,480 these tools. Therefore, it should be probably 1572 01:25:55,480 --> 01:25:59,200 easier to get through the FDA with another as long as I'm 1573 01:25:59,200 --> 01:26:01,640 using these tools. And what what you're hoping for 1574 01:26:01,640 --> 01:26:05,280 is over time, there are more people trying to solve problems 1575 01:26:05,280 --> 01:26:09,080 that use the same tools that the previous exactly. 1576 01:26:09,840 --> 01:26:13,920 And then also when you go to generics, right, they still have 1577 01:26:13,920 --> 01:26:18,360 to pay the tools makers for the pieces to make the generic and 1578 01:26:18,360 --> 01:26:20,320 they're not going to give them a discount just because it's 1579 01:26:20,320 --> 01:26:22,320 generic. You know, it's the generic 1580 01:26:22,320 --> 01:26:26,840 company's job in order to find a way to do it profitably. 1581 01:26:26,840 --> 01:26:31,960 So they might pursue things in slightly different manners along 1582 01:26:31,960 --> 01:26:33,880 the way. And I'm speaking very broadly 1583 01:26:33,880 --> 01:26:37,480 because there are differences in the small molecule versus 1584 01:26:37,480 --> 01:26:41,080 antibody world and I'm trying to speak paint, paint it all with 1585 01:26:41,080 --> 01:26:45,040 one brush, but the tools maker still get to make their money 1586 01:26:45,400 --> 01:26:47,880 even in the generic world even in the aftermarket. 1587 01:26:48,320 --> 01:26:53,000 Well in in in the generic world, in life, in the with the tool 1588 01:26:53,000 --> 01:26:58,440 makers, does the generic company when they like you have to be 1589 01:26:58,440 --> 01:27:02,360 approved to to sell the generic. Yep. 1590 01:27:02,400 --> 01:27:07,360 So would it not make more sense to use the same tools that have 1591 01:27:07,360 --> 01:27:11,360 been proven with the branded treatment. 1592 01:27:11,360 --> 01:27:16,280 So even if it does go to a generic treatment the tool 1593 01:27:16,680 --> 01:27:20,920 unless you want to run your own like full blown, I mean do they 1594 01:27:20,920 --> 01:27:23,080 have to run phase one, phase two, phase three. 1595 01:27:23,080 --> 01:27:26,920 I I apologize for such a dumb question, but it it seems to me 1596 01:27:26,920 --> 01:27:30,560 like it would be much smoother to use the same exact process 1597 01:27:30,560 --> 01:27:36,840 than to try to introduce different variables that could 1598 01:27:36,840 --> 01:27:40,280 throw something off. So it's even more true in 1599 01:27:40,320 --> 01:27:44,360 biologics, in antibodies where it's called a biosimilar that 1600 01:27:44,360 --> 01:27:47,400 you'd bring to market than than in small molecule where you can 1601 01:27:47,920 --> 01:27:53,000 do where it's more chemistry, right, than creating like a cell 1602 01:27:53,040 --> 01:27:55,480 and a life based process 'cause that's what antibody 1603 01:27:55,480 --> 01:27:58,120 manufacturing is like. You take a number of cells, you 1604 01:27:58,120 --> 01:28:02,840 scale up the number massively and then you filter out for the 1605 01:28:02,840 --> 01:28:06,200 protein that you want, right? That's a really complex process. 1606 01:28:06,640 --> 01:28:11,080 And to get a biosimilar right, to have the same kind of safety 1607 01:28:11,080 --> 01:28:14,160 profile and efficacy, you basically have to follow the 1608 01:28:14,160 --> 01:28:16,400 same set of procedures. And following the same set of 1609 01:28:16,400 --> 01:28:19,680 procedures, you know, they're only so many sellers into the 1610 01:28:19,680 --> 01:28:22,440 space in the 1st place. But to get it right and to make 1611 01:28:22,440 --> 01:28:24,840 sure you have the same recipe like, you basically have to use 1612 01:28:24,840 --> 01:28:29,000 the same vendors. And in some cases, I don't know 1613 01:28:29,000 --> 01:28:32,200 enough about the exact regulatory edifice, but in some 1614 01:28:32,200 --> 01:28:35,880 cases you're basically required to use the same vendors for 1615 01:28:35,880 --> 01:28:38,960 particular pieces of it. Not necessarily all of it, but 1616 01:28:38,960 --> 01:28:43,360 for for particular pieces of it. Well, I I think even if you're 1617 01:28:43,360 --> 01:28:46,720 not required, it seems to me if if you have to have a very close 1618 01:28:46,720 --> 01:28:55,800 biosimilar and you have a a test and the test fails, the more 1619 01:28:55,800 --> 01:29:00,360 variables that you introduce the harder it is to to hone in on 1620 01:29:00,360 --> 01:29:02,640 what is actually gone wrong. Yep. 1621 01:29:03,240 --> 01:29:07,440 Absolutely. I if I were running that test, I 1622 01:29:07,440 --> 01:29:13,720 would say let's let's try to control what we can control and 1623 01:29:13,800 --> 01:29:18,480 and the way to narrow down what is an outside influence versus 1624 01:29:18,480 --> 01:29:22,840 what we can control is to use most of the same things to the 1625 01:29:22,840 --> 01:29:25,680 extent that it makes sense. Absolutely. 1626 01:29:25,680 --> 01:29:28,360 And there really aren't that many vendors that you could 1627 01:29:28,360 --> 01:29:32,000 choose from because this stuff is there's been a lot of 1628 01:29:32,000 --> 01:29:36,240 consolidation in the 1st place. But it like like I was saying 1629 01:29:36,240 --> 01:29:38,360 earlier, the barriers to entry are so damn high. 1630 01:29:38,760 --> 01:29:44,920 So like your your reason to switch might be trying to find 1631 01:29:44,920 --> 01:29:48,880 lower cost and the only way that people have been able to find 1632 01:29:48,880 --> 01:29:53,240 lower cost is to potentially pursue suppliers in China. 1633 01:29:54,200 --> 01:29:57,960 And there you're going to have to face questions about the 1634 01:29:57,960 --> 01:30:05,200 integrity of the supply and about, you know whether you 1635 01:30:05,200 --> 01:30:10,680 could trust your supply chain will last as is for the duration 1636 01:30:10,680 --> 01:30:13,280 in which you expect to have this product on market. 1637 01:30:13,480 --> 01:30:16,320 This may be current narrative, but I think it's closer to 1638 01:30:16,320 --> 01:30:17,920 reality. I'm not sure that I would want 1639 01:30:17,920 --> 01:30:21,280 to be doing health tests with Chinese equipment, given the 1640 01:30:21,280 --> 01:30:25,800 distrust between two potential superpowers, yeah. 1641 01:30:25,800 --> 01:30:28,320 And if you're talking about injecting populations with with 1642 01:30:28,360 --> 01:30:33,120 genomics, I'm not sure that that just seems like a risk I'd 1643 01:30:33,120 --> 01:30:35,640 avoid. Well, and let even leave that 1644 01:30:35,640 --> 01:30:37,720 aside, right? Because I I agree with you 1645 01:30:37,720 --> 01:30:39,560 personally, but like, leave that aside. 1646 01:30:39,840 --> 01:30:43,640 If you're someone who wants to like, build a resilient company 1647 01:30:44,080 --> 01:30:50,640 and you want to manufacture therapeutic, right, you have no 1648 01:30:50,640 --> 01:30:53,960 clue what's going to happen with US relations with China. 1649 01:30:54,280 --> 01:30:57,600 But you do know that in order to change the supplier for one of 1650 01:30:57,600 --> 01:31:00,560 your critical pieces, you actually have to restart your 1651 01:31:00,680 --> 01:31:03,240 phases. You have to like, go back to the 1652 01:31:03,240 --> 01:31:05,560 beginning and it's insanely expensive. 1653 01:31:05,920 --> 01:31:09,160 So why would you start with something that might have to be 1654 01:31:09,160 --> 01:31:11,200 changed? Yeah. 1655 01:31:11,200 --> 01:31:12,960 You're in the risk mitigation business, right? 1656 01:31:13,000 --> 01:31:15,640 Like, why? Why introduce more risk I would 1657 01:31:15,640 --> 01:31:17,840 think. Yeah, interesting. 1658 01:31:18,920 --> 01:31:21,760 I saw something about like from an operator from Merck where 1659 01:31:21,760 --> 01:31:25,600 like with one of the CDM OS where they were manufacturing 1660 01:31:25,920 --> 01:31:31,120 Keytruda and they're like this bag the the bags are used for 1661 01:31:31,120 --> 01:31:35,800 single use. Bioreactors had $20 million of 1662 01:31:35,800 --> 01:31:38,000 Keytruda in it. Like that's how much you're 1663 01:31:38,000 --> 01:31:40,720 producing in a batch and that's how valuable what's in there is. 1664 01:31:41,440 --> 01:31:44,040 And the bag is basically like one of the least expensive 1665 01:31:44,040 --> 01:31:48,240 pieces of their cogs and that's one of the most accessible areas 1666 01:31:48,280 --> 01:31:51,880 to get from China. But like the they gave an 1667 01:31:51,880 --> 01:31:55,120 example of like you see one black dot on the back and you 1668 01:31:55,120 --> 01:31:57,400 have to throw out all $20 million a product. 1669 01:31:57,920 --> 01:32:00,080 Oh, wow. So like, do you want to take a 1670 01:32:00,080 --> 01:32:02,600 chance where like, everything's not perfect or you want to work 1671 01:32:02,600 --> 01:32:05,160 with companies where you know everything is perfect? 1672 01:32:05,160 --> 01:32:08,280 And yeah, it's not an area where you want to take chances. 1673 01:32:08,280 --> 01:32:10,560 And a lot of people get introduced to certain suppliers 1674 01:32:10,560 --> 01:32:14,400 while they're in academia and they just like stick with them 1675 01:32:14,800 --> 01:32:17,680 for affinity reasons. So once you start with someone, 1676 01:32:17,680 --> 01:32:20,440 you don't ever change. Like a lot of the names for 1677 01:32:20,440 --> 01:32:24,920 specific things come from the companies that people use and 1678 01:32:24,920 --> 01:32:27,640 and and it becomes like colloquial in the industry. 1679 01:32:28,720 --> 01:32:30,240 So I found that to be really interesting. 1680 01:32:30,240 --> 01:32:33,000 That's like a very different force than happens in a lot of 1681 01:32:33,000 --> 01:32:35,720 other places. This is something I did not 1682 01:32:35,720 --> 01:32:38,360 verify because I trusted the person that told me they were 1683 01:32:38,360 --> 01:32:41,840 higher up at A at a job. But I I believe that was Henry 1684 01:32:41,840 --> 01:32:48,200 Shines strategy to get dental tools in dental schools because 1685 01:32:48,200 --> 01:32:51,640 once the dentist got used to the tools like they didn't want to 1686 01:32:51,640 --> 01:32:55,800 change what they learned on and now it's like a dominant dental 1687 01:32:55,800 --> 01:32:58,520 company. As the kid of two dentists, 1688 01:32:58,520 --> 01:33:00,480 Like, absolutely. Like, they didn't. 1689 01:33:00,480 --> 01:33:03,880 They didn't change anything. Yeah, yeah, I wouldn't either. 1690 01:33:04,480 --> 01:33:07,520 Well man, I I appreciate you coming on and this is a good 1691 01:33:07,520 --> 01:33:10,080 follow up conversation to the Peter Mantis one that I did. 1692 01:33:10,080 --> 01:33:15,040 I I need to I gotta I gotta I gotta sit down and and really 1693 01:33:15,040 --> 01:33:17,680 learn this stuff. I have cursory knowledge on it. 1694 01:33:17,680 --> 01:33:19,800 I gotta be honest man. I've I've felt like an 1695 01:33:19,800 --> 01:33:23,760 existential meaning issue. It could be a midlife crisis I 1696 01:33:23,760 --> 01:33:27,320 don't know if I would deem it that but I've enjoyed working. 1697 01:33:27,320 --> 01:33:30,800 I've questioned a lot whether or not it's worth my time to do 1698 01:33:30,960 --> 01:33:36,040 especially on my own and not you know in a business structure and 1699 01:33:36,040 --> 01:33:40,360 and I wouldn't say I've been demotivated but I I've had a hit 1700 01:33:40,360 --> 01:33:42,120 an interesting patch in life man. 1701 01:33:42,200 --> 01:33:46,080 Something wrapping up my grandma's estate has created 1702 01:33:46,080 --> 01:33:52,960 this finality to what was very long and big part of my life and 1703 01:33:52,960 --> 01:33:55,560 I'm I'm a little lost on where to go next. 1704 01:33:55,560 --> 01:33:58,400 But, you know, talking to you about stuff like this gets me 1705 01:33:58,400 --> 01:34:03,120 excited about researching and and like the idea of things that 1706 01:34:03,120 --> 01:34:08,680 make me excited for the future as opposed to, you know, I, I 1707 01:34:08,680 --> 01:34:10,360 don't know. Some other things are just kind 1708 01:34:10,360 --> 01:34:14,200 of hard to get up out of bed and do not not, you know, I'm not 1709 01:34:14,200 --> 01:34:17,840 saying, you know what I mean. Well, First off, be kind to 1710 01:34:17,840 --> 01:34:20,720 yourself. Like, you know, take it easy on 1711 01:34:20,720 --> 01:34:23,240 yourself. This is not an easy area. 1712 01:34:23,840 --> 01:34:29,120 It's like got a unique vocabulary, its own lexicon to 1713 01:34:29,360 --> 01:34:34,000 literally every everything. And it's an area in the markets 1714 01:34:34,000 --> 01:34:36,360 that is dominated by specialists, which I think is 1715 01:34:36,360 --> 01:34:38,440 part of the opportunity because all the specialists are so 1716 01:34:38,440 --> 01:34:40,480 beaten down and money's been coming out of them for a couple 1717 01:34:40,480 --> 01:34:43,320 years. And it's one where I think the 1718 01:34:43,320 --> 01:34:47,040 opportunity is so open-ended over the long term that you 1719 01:34:47,040 --> 01:34:50,760 don't have to rush your work, you don't have to get it right. 1720 01:34:50,760 --> 01:34:53,720 I think there are going to be like numerous chances to get 1721 01:34:53,720 --> 01:34:55,680 there. And in the grand scheme of 1722 01:34:55,680 --> 01:34:58,720 things like, we're both pretty young doing this, even though we 1723 01:34:58,720 --> 01:35:00,240 turned 40 at about the same time. 1724 01:35:02,000 --> 01:35:05,960 We're both young enough that, like, this is something that 1725 01:35:06,240 --> 01:35:09,600 it's not going anywhere. I feel like it'll be as relevant 1726 01:35:09,600 --> 01:35:14,520 and important a theme when we're twice as old as it is today. 1727 01:35:14,520 --> 01:35:16,960 It might be even more personal when we're twice. 1728 01:35:16,960 --> 01:35:17,960 As old? Yeah, that's right. 1729 01:35:17,960 --> 01:35:21,560 I hope so. Yeah, well, hope not for as long 1730 01:35:21,560 --> 01:35:24,440 as possible. But yeah, it it's a reality, 1731 01:35:24,440 --> 01:35:28,280 right? And I I also think like to the 1732 01:35:28,320 --> 01:35:31,960 degree that it's it's hard and it's not as accessible as some 1733 01:35:31,960 --> 01:35:35,120 other areas. I do feel like generalists, when 1734 01:35:35,120 --> 01:35:38,800 they really want to find a way to get into areas like semis, 1735 01:35:38,800 --> 01:35:42,960 are really freaking complex. And I know people who are like 1736 01:35:43,200 --> 01:35:45,400 balls to the wall logs some semis. 1737 01:35:45,920 --> 01:35:50,520 And they're like, yeah, life sciences is too hard for me. 1738 01:35:51,200 --> 01:35:54,960 Meanwhile, you know, I mean, semis were once one of the most 1739 01:35:54,960 --> 01:35:57,960 cyclical industries. There is part of why Clayton 1740 01:35:57,960 --> 01:36:01,600 Christensen used that sector to describe the innovator's dilemma 1741 01:36:01,960 --> 01:36:05,920 is that things move so damn fast in that one area in particular. 1742 01:36:05,920 --> 01:36:07,080 I think people forget about that. 1743 01:36:07,080 --> 01:36:09,960 That was like the starting point of innovator's dilemma. 1744 01:36:09,960 --> 01:36:12,440 It's like, oh, let's look at semis because they move faster 1745 01:36:12,440 --> 01:36:14,880 than even the fastest moving pieces in tech. 1746 01:36:16,600 --> 01:36:19,720 Semi manufacturing is insanely complex. 1747 01:36:20,080 --> 01:36:24,160 It's almost more complex than the manufacturing of biologics. 1748 01:36:24,600 --> 01:36:26,640 The business models are really complex. 1749 01:36:27,120 --> 01:36:31,160 The end markets are complex. Like you know this isn't to say 1750 01:36:31,160 --> 01:36:34,240 don't invest in semis. It's to say that like if you put 1751 01:36:34,240 --> 01:36:37,760 your brain to it, you can figure out why some of these tools and 1752 01:36:37,760 --> 01:36:40,240 instruments companies are really interesting. 1753 01:36:40,240 --> 01:36:43,000 Their business models in a lot of ways are much simpler. 1754 01:36:43,280 --> 01:36:46,080 Some of the terms and areas you're exposed to, sure, sure 1755 01:36:46,080 --> 01:36:47,600 they're they're a little more challenging. 1756 01:36:47,600 --> 01:36:51,440 But you know, I I don't. I don't think anyone needs to 1757 01:36:51,440 --> 01:36:54,560 know circuitry to invest in semiconductors. 1758 01:36:54,560 --> 01:36:57,800 Nor do you need to know. I don't know genomics to invest 1759 01:36:57,800 --> 01:37:04,320 in in life sciences. Yeah, I I read the IT must have 1760 01:37:04,320 --> 01:37:07,880 been Danaher GE, the European Commission case. 1761 01:37:08,400 --> 01:37:11,440 And I was like, OK, this kind of hits me over the head with the 1762 01:37:11,440 --> 01:37:13,360 business quality side of this, right. 1763 01:37:13,360 --> 01:37:18,000 So, so then it's like OK, well now now drill down and it's, 1764 01:37:18,200 --> 01:37:19,720 it's a matter of focus and just doing it. 1765 01:37:19,840 --> 01:37:22,160 So we'll see. It'll probably take a year or 1766 01:37:22,160 --> 01:37:24,760 two or three. Yeah, some of those, like 1767 01:37:24,800 --> 01:37:27,720 antitrust papers are some of the best. 1768 01:37:27,720 --> 01:37:32,680 The FTC paper on the Grail merger with Illumina is awesome. 1769 01:37:32,680 --> 01:37:36,920 They basically, line by line in very accessible layman's 1770 01:37:36,920 --> 01:37:41,480 language, tell you in what ways Illumina's a monopoly and it's 1771 01:37:41,480 --> 01:37:44,760 like oh wow, they just like put this all on paper for you. 1772 01:37:44,760 --> 01:37:48,160 This is better than any piece of sell side research I've seen on 1773 01:37:48,160 --> 01:37:51,560 the company in explaining where they do and don't have lock in 1774 01:37:51,560 --> 01:37:53,760 and like what they do and don't do as a business. 1775 01:37:54,200 --> 01:37:57,160 Buffett often says I don't use private stuff. 1776 01:37:57,160 --> 01:37:59,360 Now I think he's got enough private information from 1777 01:37:59,360 --> 01:38:02,320 Berkshire. But I I think one of the things 1778 01:38:02,320 --> 01:38:05,640 that people, at least I didn't hear, I'll just personalize. 1779 01:38:05,640 --> 01:38:09,800 It is like the government resources, right, Like like the 1780 01:38:09,800 --> 01:38:12,680 trans dime, when you read the trans dime in front of the 1781 01:38:12,680 --> 01:38:17,040 Congress and basically how he's like, look, if you don't like 1782 01:38:17,040 --> 01:38:19,800 what we do, go go do it right. Like you can go do it if you 1783 01:38:19,800 --> 01:38:22,320 want to go do it. But he lays out like why it 1784 01:38:22,320 --> 01:38:26,040 doesn't make any sense to do it. And and they're tremendous 1785 01:38:26,040 --> 01:38:28,960 resources if you just kind of look outside. 1786 01:38:29,960 --> 01:38:31,960 Yeah, it's really amazing because, you know, they have to 1787 01:38:31,960 --> 01:38:33,880 be candid and they're not being salesy. 1788 01:38:35,080 --> 01:38:36,520 They have to. Yeah, I mean, you're in front of 1789 01:38:36,520 --> 01:38:38,560 Congress, right? Underoath. 1790 01:38:39,200 --> 01:38:41,240 Yeah, yeah. So it's a different beast right 1791 01:38:41,240 --> 01:38:44,800 off the bat. And also like, I don't know, say 1792 01:38:44,800 --> 01:38:47,280 what you will about these congressmen, but like, there's a 1793 01:38:47,280 --> 01:38:50,280 lot of work that goes on in the background to prepare for these 1794 01:38:50,280 --> 01:38:52,880 things, and some more than others. 1795 01:38:52,880 --> 01:38:55,840 But but a good chunk of them come very prepared with really 1796 01:38:55,840 --> 01:38:59,480 good information, and they could extract really good insights 1797 01:38:59,480 --> 01:39:01,960 along the way. You gotta find the ones that are 1798 01:39:01,960 --> 01:39:04,280 not political theater. Right, Yeah. 1799 01:39:04,600 --> 01:39:06,880 It's one thing if Facebook's in front of people when they're 1800 01:39:06,880 --> 01:39:09,480 doing their little thing. It's it's another thing if 1801 01:39:09,480 --> 01:39:11,200 you've got some niche little topic. 1802 01:39:11,880 --> 01:39:16,640 And like, I I remember I was, I was researching 5G and Democrats 1803 01:39:16,640 --> 01:39:19,080 and Republicans completely agreed on a line of questioning. 1804 01:39:19,080 --> 01:39:20,560 And I was like, oh shit, this is real. 1805 01:39:21,840 --> 01:39:24,160 This has to be right, yeah. That's right. 1806 01:39:24,760 --> 01:39:26,160 They don't agree on anything. This. 1807 01:39:26,320 --> 01:39:28,120 This has got to be legit. Yep. 1808 01:39:28,880 --> 01:39:30,760 Yep. No, it's so true. 1809 01:39:31,200 --> 01:39:33,360 It's so true. It is a great continuous 1810 01:39:33,360 --> 01:39:34,880 resource. Like there's there's always 1811 01:39:34,880 --> 01:39:36,640 something you can get from the FTC. 1812 01:39:36,640 --> 01:39:38,840 Stuff in particular is awesome. Like these people are really 1813 01:39:38,840 --> 01:39:41,320 expert. Yes, I agree. 1814 01:39:41,520 --> 01:39:43,200 I think. I think sometimes it's hard to 1815 01:39:43,280 --> 01:39:46,480 not let politics kind of color, you know, But that's the job, 1816 01:39:46,480 --> 01:39:48,760 right? The job of figuring out the 1817 01:39:48,760 --> 01:39:51,320 truth is to not let your personal biases get in the way 1818 01:39:51,320 --> 01:39:53,240 of what you're seeing. Right. 1819 01:39:53,240 --> 01:39:56,680 So, you know, we listen to them at a conference, but they're 1820 01:39:56,960 --> 01:39:59,520 like, it's not politics, it's marketing. 1821 01:39:59,960 --> 01:40:02,040 And marketing isn't necessarily all that different than 1822 01:40:02,040 --> 01:40:04,160 politics. Yeah, that's right. 1823 01:40:05,320 --> 01:40:07,240 That is right. It actually is the same. 1824 01:40:07,240 --> 01:40:09,680 Like political theater and marketing are exactly the same. 1825 01:40:09,800 --> 01:40:12,160 That's what they're doing. They're marketing to their voter 1826 01:40:12,160 --> 01:40:14,320 base. Yeah, no doubt. 1827 01:40:15,240 --> 01:40:18,400 Well, man, as always, I enjoy speaking with you. 1828 01:40:18,400 --> 01:40:21,480 You've been one of one of my true joys of the investing 1829 01:40:21,480 --> 01:40:22,680 journey has been getting to know you. 1830 01:40:22,680 --> 01:40:26,920 So it's nice to do this likewise recorded and I look forward to 1831 01:40:26,920 --> 01:40:30,640 the next time we see each other. Same, same sooner rather than 1832 01:40:30,640 --> 01:40:31,880 later. No doubt. 1833 01:40:32,360 --> 01:40:33,360 All right, take care of yourself. 1834 01:40:33,880 --> 01:40:34,440 You as well.