Ladies and gentlemen, welcome to The Business Brew.
I'm your host, Bill Brewster. This episode features Elliott
Turner of RGA Investment Advisors.
Elliott is a repeat guest. This is his second appearance.
You may know him from the Manual of Ideas podcast.
You may know him from some of his investment commentary.
I know him from a connection that I made at Manual of Ideas a
number of years ago and Elliot and I have become friends I'd
like to say. And I really enjoy speaking with
him and I think that he brought a good perspective to the show
in this episode and I hope you all enjoy it.
An additional disclosure for this episode, RGA Investment
advisors may own positions in the companies discussed.
Past performance is not indicative of future results.
Investing involves risks, including the loss of capital.
Please remember that the securities identified and
described throughout this podcast do not represent all of
the securities RGA Investment advisors purchase, sold, or
recommended for client accounts. As a listener, you should not
assume that an investment in the securities identified was or
will be profitable. As always, nothing in the show
is financial advice. Please consult an investment
advisor before making investment decisions.
Everything in this show is for entertainment purposes and
educational purposes. And do your own due diligence.
All right, ladies and gentlemen, I am happy to be rejoined by
Elliot Turner. Things have changed quite a bit
since our first conversation. A couple things have happened in
the world, but we have seen each other in the flesh and IRL as
the kids say and you know, been nice to keep in touch.
Thanks for coming back on the show.
Yeah, Thank you for having me. That's definitely one of the
better changes, right? Getting together in Manhattan at
awesome events and it's good to have this part of our life back.
Definitely. You know, some of the things
that have changed since we last spoke are not for the better in
terms of like my appreciation for my own ability to move
through challenging market environments.
But you know, we all live and learn along the way.
Definitely part of the roller coaster that is life.
Well, experience is what you get when you don't get what you
want. Or something like that.
Exactly. And, you know, I'd always
appreciated the notion that we can learn from other people's
experience to try to apply it well to ourselves.
But I do think, you know, given what's transpired these last few
years, I don't think many people have experience that was
directly relatable to what we'd all gone through.
Yes, that was a bizarre time. It was.
It was our time to do it on the Internet, I suppose.
Back in the old days, as my kids like to say, they asked me if I
was born in the old days. Define the old days.
But anyway, I guess they had message boards and stuff in
the.com bubble, but the social media element was kind of
interesting. I don't know, man, what?
What? What have some of your takeaways
been from all that? Yeah.
I mean, you know, I think one of the biggest problems that I had
is too much of the portfolio was trading exactly the same and it
all became one thing and I'd recognize that, but I didn't act
on it and it was something I thought about.
I think it's easier to kind of act on when it's to the
downside, like when markets are all getting hit and you're like,
well, you know, I know my stuff's OK and I'm going to ride
out the storm. It's a lot harder to be
conscious of like what you need to do to pair things back and
sell things down. And I think the tax man, we've
by and large invest for taxable investors, so not pensions and
endowments that have the benefit of not having to think about
after tax returns. And I'd started thinking a
little too much about how I could maneuver around minimizing
tax over the course of time. And I think markets do what they
tend to do, which is they take away your flexibility like they
take away your best laid plans. You can't really think in those
terms if it's something that you feel you need to do and do it.
And this was the most meaningful drawdown I've experienced.
And it's one thing to say you're going to hold some of these
positions through drawdown. It's another thing to do it when
it's like several positions all acting the same and pulling
everything down. When it's one position drawing
down heavily, markets down and the rest of your book is kind of
like here and there, you know some plus, some minus versus the
market. That's a little easier than when
it's like a lot of things at once acting exactly the same and
are pretty tough. So it makes it pretty
challenging and puts a different kind of stress on you
personally. And I had AI had a take myself
away from the situation, like force myself to step back a
little bit and view me and what I was looking at in the markets
from afar as opposed to from within.
And I think that really helped and got me to a much better
place. One of the other ones that I've
really honed in on and I think we'll probably talk about it as
we get into some of the more substance substantive rather
than philosophical stuff. Resiliency, like I underrated
how important resiliency was from a portfolio, but also from
a business perspective. I think one of the areas where
I'd really witnessed this is certain small companies in
particular resiliency is just a lot more challenging than it is
for really large, really diverse businesses.
And I think it happens on every dimension from multiple revenue
streams to multiple sources to operating in multiple
geographies. And there's no one thing that
could actually take you down when you're really big and
really diverse to the same degree that if you're fairly
small and you're reliant on one supplier, for example, or one
factory, when that particular geography that your supplier is
in experiences a different kind of problem than where you're in
market that you're actually selling to might have.
And that kind of resiliency created challenges for
businesses where they had to focus on making things work as
opposed to executing on their actual business plans.
That sort of challenge has real consequences.
And I was a little too willing to give certain companies.
I give them the benefit of the doubt insofar as it was
absolutely one of the hardest environments to make decisions
within. I don't necessarily fault people
for having made bad decisions, for having assumed some degree
of demand that came during COVID would stay to a greater extent
than had happened. But it's also impossible not to
like key in on the fact that these companies, the small ones
in particular, because they had a focus on making things work as
opposed to making their business as good as it could possibly be.
It's a distraction and it's something that changes the the
course of the business and and what they're able to do going
forward. And so it's not about whether
I'm willing to give them leniency or not.
It's about being realistic and acknowledging that when
challenges emerge. You got to me at least from AP
Ms. perspective stress test, how many companies might face
significant like they might be fine on top line but the margin
pressures that they'd experienced can meaningfully
change my expectations going forward, the market's
expectations and what they're able to to create going forward.
So that's been that, that's been one of the ones that I one of
the high level questions I've asked myself through this all is
it's actually more damaging to learn the wrong lessons than to
take no lessons out of a period at all.
So I've asked myself to what degree is is what we just
witnessed something that will never happen again that is so
atypical where the lessons may be wrong ones.
But I do think you know the ones that I'm talking about here, I I
really think are the right ones For me personally.
I don't know if everyone would share the same ones but for me
I'm I'm very confident they're the right ones.
There's someones that I've mused about along the way that I don't
necessarily think as I've more fully reflected on things and
have a little further removal from the heat of the moment.
Like I don't necessarily think they were the right lessons, but
time kind of helps give perspective.
So I've been trying to take advantage of that.
How did you remove yourself a little bit and step back?
Yeah, I mean, part of that was I wasn't giving myself any breaks.
Like I wasn't letting myself get away from first thing I'd do in
the morning was check quotes. I'd start reading like the news
on specific things even when there was nothing, and trying to
find explanations for why certain things were happening in
terms of price, action. And I also was being like really
hard on myself. Like this is the time to work,
work, work. And I actually had to one.
I created a rule where I don't even look at my phone until I
get downstairs and my kids are taken care of in the beginning
of the day, so I have some distance before I actually start
looking at things. So.
Are you are you suggesting that this morning when I woke up at
4:00 AM and looked at my phone and then couldn't go back to
bed, that that was maybe not the right thing to do?
Yeah, yeah, that's the That's a tough thing to do, right.
I'm. Pretty sure I got a 63 on my
sleep score. That's not terrible.
No, it's not failing, but it's not great.
Yeah, I had a hockey game last night.
I got a 12 on my sleep score. It was not good.
Not good. My preparedness is kind of on
par with the sleep score. Good as is mine, so this should
be a fantastic podcast. Yeah, exactly.
I see you got the coffee. Rollings right the the 12:30
coffee. I needed it.
Yeah, yeah, I hear ya. I I stopped playing some of my
hockey games because I'm like, I need to work.
I need to be more focused. And actually, I thought that was
a really bad thing. Yeah, in retrospect, probably
got to take care of the body first.
Yeah, yeah. So that was one of the
commitments I made, right? I was like, when this bear
market ends, I'm going to be in the best shape of my life.
And I did start working out a lot more.
And you know, every day I'd sweat, I'd feel more connected
to myself and to the world around me.
And I thought that was one of the most effective kind of self
help courses I'd taken along the way.
And yeah, I'd, I'd actually encourage everyone to do that.
And I definitely made myself spend more time with the family
where I totally not look at my phone because I'd find myself
stuck in multiple worlds. And I think part of that was a
function of COVID, because my wife and I both work.
We had our kids at home during a good chunk of COVID, and I
didn't really have good separation between when I was
parenting, when I was having leisure time and when I was
working like everything blurred together and creating more
distinct silos for each I think was super helpful.
But I'd totally recommend you adopt the Don't look at the
phone until like plenty of life is underway in the morning, and
then everything feels a lot better and it's less
reactionary. And I find also that you know
there will be days where you wake up and and you're not
pleased with certain things that you see in your inbox or
wherever else. And it's nice to have had some
lighter moments before you actually see that stuff.
And I do feel you're able to deal with it better and with a
clearer mind when you don't wake up with whatever negative is out
there as your very first thought.
Yeah, well, Vitali would say wake up and write, you know,
that's his, That's his version, I think, of getting away and
getting in his head. And I I think that's whatever it
is. I think getting some space
between when you start to react to the world outside and when
you're actually like driving the world that you want to be is
probably a pretty good way to start the day.
Yeah, yeah. I wish I could get myself to get
up and write. I don't remember my dreams well
enough and definitely would be like a good exercise.
And then the kids do wake up and it's a little too chaotic.
So writing isn't the easiest, but it's in in it's good to
embrace the chaos of the kids. Waking up before I deal with any
even like positive stuff is great.
Like, I love waking up with good news too.
I I don't know why I'm honing in on the negative like.
I do this giving it some long look.
It was a very interesting time. I certainly had.
I mean, the cannabis stocks that I owned were objectively a
bubble. They are objectively destroyed.
It has not been a very fun experience.
I think I made a number of errors entering something like
that. I think there's a lot of areas
of the market that were like that.
Thankfully, no catastrophic mistakes, but it's an
interesting time to reflect on that period because I think that
it is objectively true that valuations were very, very high.
I also think you can go back and check the tape that at least
like, that's the nice thing about doing pods for me.
I can go back and check what I said a lot of the time.
I felt back then, yes, I could sell what I own, but like, what
am I going to do with this money, right?
It's not as if there's like a ton of real estate wasn't super
cheap, other stocks weren't super cheap.
You can go to cash, you can pay the taxes and you can go to
cash. Historically, I don't think
market timing has turned out very well if you have a long
term time horizon. And maybe it was one of those
times that was so objectively obvious that it was truly a
bubble. I think it there's certainly
were bubbly spots, but I also can't help but think that a lot
of the people that are emphatic about that it was a bubble,
seemed to see 10 out of everyone bubbles, right?
So I would argue some of the current valuations are as
confusing to me today as they were back then and it probably
just means I don't have the right mental model to understand
them rather than writing it off as that's a bubble.
What I'm trying to do this time around is just a hyper focused
on what I think I know and the other recent underperformance
has been super fun to live through.
But you know, whatever, hopefully, hopefully it changes
and if it doesn't then I can always change my ways.
Yeah, I think you phrased that really well, this whole idea
like it, it probably was not everything as a bubble, but like
these pockets distinctly were. But I think part of the problem,
one of the things maybe this this was a lesson, I don't know
if it's an enduring one, but during that period I noticed a
lot of people turn to just this hyper focus on 2nd derivative.
And it started with the earliest months of the COVID crash when
you're like looking for any pocket of anything turning
upwards. And then it kind of continued as
things kept getting better. They kept getting better at an
accelerating rate. But once a second derivative
turned negative, then everything looked worse.
You know, people talk about it in terms of comps and lapping
tough comps and it started looking more challenging for
some of the businesses that did really well and easier for some
of the businesses that were most hurt.
But I think a lot of this chasing the 2nd derivative has
led to so much momentum chasing in markets.
And I think it's part of why like today, I don't know, if you
ask me like are things really expensive?
I feel like, yeah, there are absolutely pockets where things
are really expensive, but there are also some very large park
pockets where things are insanely cheap, like relatively
cheap, cheap on an absolute level.
And there are some really, really compelling opportunities
that are lost in the muck. And I know you know it.
Mario Sabelli's been a a mentor of mine and he's talked probably
a little early, but talked a lot about how this has some
resemblances to 99 two thousand where a lot of people talk about
it as the.com bubble. But there was also a large cap
bubble. Stocks like GE and Coke traded
at insane valuations and everything else that wasn't part
of the zeitgeist wasn't one of these large caps that that could
do no wrong. ora.com was left behind.
Berkshire was one of those kinds of stocks at the time.
I don't think. Not now.
No, no, no, no. No, we'll we'll see how forward
returns look. But I think some of them have
been pulled forward in that one and Buffett's laid off the
buybacks a tad. I think he might agree with me.
Yeah, and Apple's gonna become a thorny problem if it keeps
performing this week. Or or or maybe they're the
'cause right 'cause they definitely were selling some
shares toward the end of last year.
I would be remiss to not hear Mario's name and at least bring
up because any time I ask him about this, he's like, make sure
that you remember that. I think that there's a chance
that big tech can continue to outperform and and they have a
lot of costs that they could take out and there's a lot of
different ways that they could potentially win.
So I don't want anybody to hear this and associate if big tech
rips don't associate anything negative with him.
And if it doesn't, I said it or whatever, I don't know.
But it's fun talking to him, man.
He started to agitate for change is probably the best way I know
how to say it. Yeah, a couple of headlines
lately and he's helped me do some work behind the scenes in a
couple places as well. I think the environment's really
ripe for that. I've seen other young managers
who are very focused on activism.
And I think there are like numerous reasons why now is the
right time, ranging from just there were so many companies
that came public in 2021 and had too much cash.
Like some of those companies are really interesting to companies
that use 2021 and the success they'd had at the time to
increase their cost base and try to capture a growth opportunity
that changed once we realized COVID changes weren't permanent
but haven't pared back their expenses yet.
Like, those companies need discipline and they sometimes
need the cover of an activist to get it done.
They're like we want to make these changes, but it's really
hard because you know, we promised this great culture to
our employees who we can't do that without some kind of cover.
Like I still think I look back on meta in the Q 3/20/22 report
and the stock got absolutely walloped because people had
hoped coming into that they'd pull back on some spend and
whatnot and and the stock got walloped because they didn't.
And then a week and a half later, they're like, yeah, we're
cutting all these expenses and cutting Cap X and everything
started to suddenly turn right. That was the worst it got.
And I, I wonder if it took the cover of a really bad day in the
market in order to say like, hey, look, you know, we have
this letter from prominent investor Gerstner at Altimeter
had had written his letter like, we need to do this not because
we think it's the right thing to do, but because we have to do
it. And I think that hasn't really
trickled down to some smaller companies.
I I still think some smaller companies are stuck with the
bloat that that stemmed from like misshaped COVID beliefs.
So that that needs some activism.
And then you know, there's a certain classic company that
probably shouldn't even be public, that they're in public
markets, but hey, they shouldn't be there.
And so someone's got to stand up and and say it's time think
about something different here. Yeah, yeah.
I say this often, but I look forward to like three to five
years from now seeing what happens.
I mean, to your point, Costco is like the best example of
something that I've never. I've always said it's expensive.
I've never, you know, I've always been wrong.
But I I just at some point it seems like it should matter.
But it does matter. And the fact of the matter is if
you're worried about inflation, they have a they can get through
it. If you're worried about
protecting real wealth, is a high probability that you can
over time in an entity like that, you know, will you have to
incur a drawdown? Maybe.
Is it a get rich stock? Probably not.
Does everything need to be won? No, right?
I mean, I don't know. I kind of get it it.
It bugs me that I haven't owned it, but I kind of get it.
Yeah, but you know, last year at this time, stocks like Hershey's
and Coke were trading at basically their highest PES in
over 20 years. Yeah, that's right.
And now they're at nearing their lowest PS in 20 years, right?
And this all happened with the backdrop of, yeah, they're
resilient. They passed on costs.
So top line growth looks nice, right?
It was as high as it had been in a couple years talking about
like the mid to borderline high single digits, but their volumes
actually turn negative. Yeah.
And it's like, oh boy, like, is that a good thing or is that not
like, to a degree, you know, what on the surface looks super
resilient, actually has some cracks in it.
In the long run, everything's a cigarette company.
Yeah, yeah, singling out the sugar companies.
Sugar's definitely being perceived as the new cigarettes
by some people, but. Well, I just mean declining
volumes, pushing price. But so, all right, one thing I
do want to talk to you and and it's kind of hard to go to wrong
lessons. Maybe let's let's put a pin in,
in lessons that you thought about but decided were wrong.
Because I I think that right now is a good time to bring up an
interesting idea that I've been doing a little bit of work on.
And I'm very interested to hear your take on it because I know
how much work you've done. But we're talking Coke.
We're talking areas of the market that are cheap.
There's a beverage company out there that's not named Celsius.
That's kind of interesting and I think you know where I'm going
with this and I'd be curious to hear what you think of a a
certain London listed beverage company that's known for its
mixer quality. Yeah, Fever Tree drinks, right?
You know, it's a fun product to diligence.
And I you know, I've gotten to know this company pretty well
over the last few years. I bought my first shares a
little too early, but it definitely is 1 where I I was
thinking of Fever Tree in a lot of ways when I talked about
resiliency. And kind of thought you were or
maybe naked. Those are the two that I was
thinking that maybe you were thinking.
Of. Yeah.
And they're more like they're more small caps.
I could name where I really felt those effects.
And they're even ones in the digital world, right?
These are very physical companies and they made specific
or they had specific problems that stemmed directly from how
challenging the supply chain at the time was.
And I I I think one of the things that really intrigues me
about Fever Tree in particular is they have created a market.
There was no such thing as a premium mixer until Fever Tree
came along and they basically use that to build an annuity
like business in the UK. They are the tonic to go with
basically any kind of gin that's not low end and they have really
unique position vis A vis the incumbents in the space, the
Schweppes, Seagram's of the world where those guys can't
really compete with a high end natural sourced ingredient,
right. There's real quinine in it as
opposed to some artificial flavor that has been pursued to
optimize margin for the last 30 years.
And it's something where although the product is premium,
it in and of itself is not a big ticket.
So for just a couple dollars, which is admittedly more than
you'd pay for, not premium for like a run-of-the-mill brand,
you can make yourself feel a lot better.
I'd heard of this notion called the lipstick effect, where in
recessions even people still spend on women still spend a
lipstick because it's something that makes them feel good, even
if if it's a little expensive. You don't cut back on that sort
of thing. And actually I've seen now that
we've had a period of trade down in spirits which is happening in
the US where you know inflation and I I think aggressive price
action from some of these companies push things a little
too far. You are seeing trade down in
spirit brands, but you're not seeing it in mixer.
So Fever tree's doing really well.
But back to like where the opportunity stems from, Fever
Tree was a 50% gross margin business with 30% operating
margins before COVID. Yeah, And they went to a gross
margin consistent with their operating margin from like.
So they went down to a 30% gross margin and a single digit
operating margin in the past year.
And what happened is everything that could go wrong went wrong
for them on a supply chain level.
The first big problem was that they would manufacture their
drinks for the US market, which was their fastest growing next
biggest market to the UK at the time.
Now it's their biggest market. They would they would, they
would produce the the drink in the UK and ship it transatlantic
to the US and those rates went sky high.
Through the roof. Through the roof, no doubt.
It cost them a mid single digit percent of their margin alone,
right on gross margin that flows all the way down.
And they also had to build inventory because ports were
backed up. So you'd have to have more
bottles sitting on ships waiting just for the opportunity to be
unloaded into the market. And then when the Russia war on
Ukraine commenced, a European glass rates went through the
roof. The biggest input cost into
glass is actually energy, natural gas in particular in in
Europe. And those prices went sky high
and Ukraine actually was a pretty, it still is but a pretty
big source of glass into the European market.
And their suppliers pulled force majeure and forced upward
meaningfully their price that they paid for glass bottles.
And at the time they were not exclusively but very, very
heavily skewed to glass as opposed to cans.
And and that was the case globally for them.
They're gonna remain that way, aren't they?
I've seen they're they're bringing out some ready to drink
products that are in cans, which I I initially said Self, I don't
think I like this 'cause I haven't had a good one yet.
And then I said, but most of the drink is the mixer, so Fever
Tree might actually be perfectly positioned to do pretty well
here. Yeah, yeah, you got their motto
down pretty tight, right? I looked at ABM Bev for a while
and owned it for a bit, but like cut water, right, Is something
that they bought. I don't know that.
I mean it's it's I would need to look at reviews and do surveys
and whatnot, but I think that cut water is an inferior product
to a mixed drink. But I kind of wonder if it's
because they're skimping a little on the mixer part of the
drink, right? And like Fever Tree, I bought
the the grapefruit to try my My wife likes gin, so I helped her
make a little gin drink. It's quite good.
Yeah, the grapefruit's even better with tequila.
I know if your wife likes it and it's hard to change it, but
yeah. Well, someone you're talking to
doesn't mind tequila. Yeah, It's the best Paloma that
I know of. Yeah.
And I was actually introduced to
that by a bartender, not a self discovery And and and it's
fantastic. It's so easy to make and I think
that's been their MO. Like really simplify, having a
high end cocktail at home for the average person.
Well, and when I read they work with with mixologists, right, to
get deep in the in the channel in bars, right?
And then I guess now they're starting to get more shelf space
at like in grocery, right? Shout out to my man the science
of hitting. I got to give him a plug here.
I don't know if you read it. He did a a write up where he
compared the price per unit between Fever Tree and Coca-Cola
and and it's Fever Tree is 10X more expensive than the private
label brand and it looks like 3.8% more expensive than
something like Coke. And I and I was curious, I and I
asked you this offline, I'll ask you again why if they're so
premium, have margins been hit so bad?
Because I would think if you're that premium you could push
price. But I I think I was asking the
wrong question. Yeah.
No, it ties into a a lot of choices that the business was
faced with. There was this question whether
inflation and cost pressures were structural forces or
transitory forces. And forget about the actual
debate. What's unquestionable is there
is a degree to which fever trees cost pressures were transitory.
They knew there would be a day when certain of these cost
pressures would not exist in the same way.
And they tried to do things to take matters into their own
hands like push more manufacturing to the US so you
don't even have to think about transatlantic shipping rates.
That becomes an afterthought at that point.
But you know it's hard to get that done.
During COVID rolling lockdowns, UK stayed locked down longer and
all these other problems and what they decided to do was they
felt it was more important to pursue their growth objectives
as a business than it was to optimize for margin.
They cut their price in 2020 to help get more shelf space.
So they've taken down some of the premium they'd had and that
earned them a lot of respect with some of the retail
partners, so. You don't want to go back
necessarily and say now we're raising price, right?
Yeah, they didn't want to raise price.
What what they didn't want to do was they didn't want to just
raise price because cost had gone up and say we're covering
all our cost and and we know that we could pass this through
because they didn't want to raise what was only transitory.
One of the things I I remember back from the financial crisis
period from from a paper on real estate was this notion that
prices rise with inflation. They rise with cost pressures
but they never go down when any of the pressures that push them
up abate. Yeah.
So you don't want to end up in a position where these transitory
cost pressures are gone and you've raised your product to
such a point where you then have to like go back and like cut it.
So that's that's sloppy. They wanted to see to what
degree things were actually like they knew some costs were not
transitory and facing pressure, so they wanted to be able to
deduce which was which. And then you could take it a
little further. I mean for the business they
were still fairly young, fairly immature and trying to grow in
the US So I I'd imagine there was a different elasticity for
existing customers who love it versus trying to bring in new
customers. So if you push it too far,
that's a big impediment to get new customers to come into the
brand. You might do well with your
existing customers, kind of like what I was talking about with
Coke and Hershey's where you get this, you know, high single
digit growth, but with declining volumes that that looks great
superficially. But for someone like Fever Tree,
who's trying to expand the number of households they reach,
that's Contra what they're trying to do.
And it's not exactly what you'd want for creating long term
value over the course of a decade, maybe over a course of a
year or two, that would create value, but not over the course
of a decade. And then the other thing is they
did have this profit pool in the UK that was still doing pretty
damn well. And if you'd looked at things, I
think in the last year, basically 100% of their EBITDA
came from the UK market. And so that means they're losing
money or break even in the US And what that did was they put
their competitors entirely on the ropes.
And there's a great call, Antiguas with the CEO of Q
Drinks. And now I think he's a former
and he talks about how Fever Trees pricing is completely
irrational and it's doing crazy things for the industry.
But you know when you look at it at the time I'd spoken to
someone who short the stock during that period and the
contention was they're actually using the supply chain in order
to mask the fact that the US growth opportunity was
completely tapped out already and that there's not going to be
nearly as much growth as they had been guiding to.
And now you know you Fast forward a year and it's very
clear actually once the supply chain pressures abated and they
got better supply back on the market, they re accelerated
their growth. Their growth doubled in the US
from year over year and was in the mid 20%.
And they actually think their sell through was better than the
headline number they were able to report in the US market.
So they took meaningful share from their competitors by
putting them on the ropes in the prior couple years and it helped
with their retail partners. Their retail partners love that,
gave them more shelf space. Retail partners actually make
more money selling Fever Tree than any other product in the
category. That's a huge boon to a retail
partner. You want to get what's a high
turnover but premium product on your shelves because you just
get, you get better margin yourself, you make more money.
So why not get Fever Tree and more space even if perhaps they
should have pushed price a little more aggressively.
So now you end up in. It's a little bit of the
capacity to suffer type thing, right?
I was just, I was just scrolling to see if Gardner Russo was a
shareholder yet maybe they never will be, but sort of sounds like
the type of thing that Tom has probably studied.
They have it right. I think that I'm glad you threw
out capacity to suffer there because I do think you know
their largest owners are their two founders, CEO is one of
those two guys, Tim Warelow. And so they have meaningful skin
in the game and their large shareholders support them.
Lindsay Train and Fundsmith like absolutely support them and
pursuing like highest NPV strategies.
They don't necessarily care about optimizing for this year
and that year's margin. And I think, you know, in my
conversations with them, they've been pretty candid that that
they do feel like there will be a day down the line where they
can optimize for margin, but they want to optimize for growth
today because they think the opportunity is so damn big.
So why not attack it? You know, they still think they
could more than double the US business from here based on
their goals that they'd set out a few years ago.
It would be nice to see them revisit exactly how big they
think they could that could get. But the US market is multiples
that of the UK market and they only just this year passed just
last year, sorry the recent report, but in 2023 only then
did the US become a bigger market than the UK.
So there should be a really good runway and I think it's smart to
pursue this growth, but it's really challenging I think
because especially in the UK, investors never like seeing
margins go backwards and you never know to what degree.
I mean there there is a case to be made that maybe the US is
going to be lower margin than the UK for structural reasons.
So like what does a normalized margin profile look like for
this business going forward? And they've been unwilling to
kind of truly put that out, but they are guiding to double
EBITDA margins this year from last and have 200 BPS of margin
improvement each year thereafter over the midterm.
And yet I still think because they three times the UK investor
base doesn't want to buy into the fact that they have this
kind of tailwind for margin going forward from here.
You know who doesn't seem to care very much is Kevin
Havelock, who is on. I mean, if I'm looking at this,
first of all, he's an insider. Second of all, see, it looks
like he's from Unilever. If my dad is is correct.
And I don't know, man, that somebody checked, I mean, if
you're listening, check your own records.
But the insider purchases from this guy are not small.
Yeah, they've had after each report when their quiet period
ends, their insiders have been, I'd say, buying like 500 K to
$1,000,000 of stock each time, yeah.
I guess I yeah, I need to check it out on a currency adjusted
basis, but yeah, this guy's interesting.
Huh. He bought a lot of stock last
year too, which is pretty damn nice.
So how you know, you started out talking about resiliency and how
do you think about, you know, not every idea.
First of all, not every idea has to be right in a portfolio.
So how do you, how do you think about when you're looking at a
name like this that's smaller but but growing like sizing just
theoretically right sizing and kind of like its role in a
broader portfolio context and how resilient it is and how do
you kind of weigh those in the in the PM seat?
Yeah, So I think that's one of the areas I've I've, I've been
revisiting a little bit. I I'd gotten a little more
concentrated during the COVID period than I had been before
and I really like being semi concentrated.
I think that fits my personality and the kinds of companies I
look at a lot better. So that means like 25 positions
or so is the central tendency. I'd pull that down to high teens
partly because in COVID like coming in, I'd had like certain
industries that I was like, well, I just don't want to own
this if we're going back to Zerp and some of these other problems
are here, so. So I'd pulled back things, but I
like being in that 25 position range, which means like an
average size position should be 4%, right.
And I don't like buying that full amount right away.
I think I like getting comfortable with things over
time and have a sense of what's really driving them.
So I've really started spacing that out.
I think time compressed in COVID and I've been a little quicker
to act on some of those things. So you know 4% is my central
tendency on positions and I don't that doesn't mean that I
like cut back on things if they start working or take a
different shape in the portfolio, but it gives me
opportunity to add to things too if they kind of underperform the
rest of the book. I think it, I think it's a
really good good round Number. So that gives you a sense of the
sizing in this position. But also like most positions and
I definitely have a couple outsized positions that I'm
willing to let bigger when I see a fat pitch, I'm, I'm willing to
go there. And I'm also still very willing
to let the ones that I think are truly special run pretty far
into meaningfully bigger positions.
So they're definitely some outsized positions.
So that means at the end of the book there are, there are
absolutely some smaller positions.
So not everything's in the 4% range, but.
So when when they run though has has the 2021 period till now if
it if it's multiple expansion are you thinking a little bit
more of trimming or are like is that one of the law of the wrong
lessons that maybe is being learned.
Said said differently, like you know, I, I don't know how, how
does valuation? Has that become more of a part
of the process or is that not the right take away?
Yeah, I used to say I'm willing to hold things when they get
overvalued, and I know that my answer is yes.
I'm still willing to hold things when they get overvalued if I
have a good basis. I really like the company and
really believe longer term. But if that happens to like 6
positions at once, I definitely need to be saying there's
something wrong here. Like it's not about holding one
position through a period of overvaluation.
It's something different, fundamentally different going on
in the market and by fundamentally different almost
the absence of fundamentals is what's driving things.
So that was something that I think was very acute in 2021.
So I'm still willing to hold things through those periods,
but what I'm not willing to do at all anymore, like I've been I
I was very clear with myself and my investors that I thought
certain things were overvalued. And I'd even sold a meaningful
slice of one of them in particular and got like,
lambasted for like my tax bill's going to be way too big.
I'm never going to let those kinds of concerns keep me in
something that I think is overvalued and worth trimming
for the sake of spreading it out.
I'm just going to sell it today. I think it's overvalued and I'll
live with the consequences if it keeps going up.
But I think that's how I I have to do it.
Some people have argued like box it in, but then then it's like,
well, you kind of have like trap capital in that case, yeah.
And it's not cheap. So, yeah, that's right.
And I'm not sure. I mean, I haven't done all the
math on the taxes, but I don't think it's gonna be particularly
tax advantage. I guess you'd you'd defer your
your big liability. But I I'm just.
I'm not sure that that's not one step too cute, at least for me.
Yeah, I could see doing it in one position.
I can't see doing it in a handful.
Yeah, if that's how you want to think about it, great.
But like, one idea is you could potentially give it back who if
you have only a fund. And that's one of my problems.
We're doing an SMA and a fund separately.
If you have only a fund, you could carve out that position
and give it to investors and let them decide on their own.
Oh, you distribute it in kind. Yeah.
Each person, based on their own sensitivity, can make their own
decision as opposed to you having to deal with the
consequences of that. Because I did have some clients
who are like, yeah, I'm, I'm fine with the tax, you know, I
did get lambasted by a few. But it's, you know, something
where I could be very clear about what I think is the right
decision, but say, hey, you know, for your own needs, make
your own decision. Interesting.
Yeah, that makes sense. I haven't thought about it that
way. All right.
I didn't mean to cut you off. I just it was a tangent that
I've been thinking more about, you know, the portfolio side
given I guess what's gone on in my life.
I used to be more about, like a single idea, and now I'm much
less about that than I ever was. Yeah, I.
Love the portfolio management tangents.
I think it's one of the biggest areas where there's a lot of
value you can add, but there's no great playbook that's out
there. Like you know, the buffet
letters are for being a value investor and evolving over time.
And you know, I think it's one of those areas that a lot of
people don't like to talk or think about and it's a very soft
science, but I do think you could be way more like rigidly
scientific with it and and and get better.
So I try to push myself to be better and I come from a trade
desk and I know people who like basically their core skill is
portfolio management, not security selection at all and
they do phenomenally well because that's a great core
skill. So I challenge myself to be
better at at it all the time. I was reading a paper on tax
loss harvesting and like whether or not you can sort of
outperform an index if you're if you use tax losses in the right
way. And the the fundamental issue
with the paper is it assumes that the person that is reading
it assumes that there is no alpha in stock picking or that
their ability is nil. And I'm reading it and I'm like,
well, I don't know that that's the right assumption, right?
So not not to say that the assumption is invalid, but I'm
not sure that the person that's running the strategy myself
specifically would assume that. So, alas, it's what's been on my
mind a lot. Well, it's kind of an oxymoron.
You shouldn't even be in a position a tax loss harvest if
there is no alpha and buying individual positions you should
just buy the index anyway. Yeah, well, that's kind of where
the paper was going. And and lo and behold, it was
put forth by a Black Rock company.
So who would have thought? Yeah, it's a tautological
argument. Then yes, they got exactly the
conclusion they wanted. This is the problem with the you
know, you start saying, OK, well, who's telling me what?
And you start pulling on some threads and you realize a lot of
the times there's some incentives behind what you're
reading. Absolutely.
It's hard. And you you do want people who
are putting things forward to be like incentivized to believe
what they're putting forward. So there's something that's not
necessarily bad in that, but but you definitely got to ask like,
is it coming from the right place?
Yes, you want them to be putting something forward that they
believe in, right? Like you and you want them to
have buy in, but you also don't want them to go in with like the
conclusion that cannot be like some of some of the issue when I
read some some things is it's like OK, well if you're if
you're selling this product you can't possibly be rational about
whether or not the product makes sense right.
Like your livelihood depends on it, so.
Hopefully you are selling that product because you went there
in the 1st place because you truly believe in it.
That's correct. Definitely not categorically the
case. Yes, that's correct.
Yes, I agree. All right, we, I digress.
My apologies. Yeah, I want to point out a
paradox in in one of the things that I'm saying and thinking
though, right, because I talked about resiliency and then here I
am. I'm like I love Fever Tree,
despite the fact that they suffered from a lack thereof.
Right. You can say.
I think you're saying you respect Fever Tree.
I don't know that you're saying that you love them, but yes, OK.
No, I said. I love them.
Well, OK. All right.
Yeah, yeah, noted. I think small caps in general,
right? Like because of this period,
because of their lack of resiliency, because there were
so many of these esoteric problems, because of all these,
because of many structural forces like the move from active
to passive in the market, small caps have just become so out of
favor. And so although they lack
resiliency, I think it's like the most amazing pocket of the
market to be hunting in right now.
I think it's part of what I was like ultimately gearing toward
when I was saying the 2nd derivative stuff.
Like I think a lot of the momentum in markets is like
exacerbate everything good and everything bad.
And small caps now are like I I think one of the most
interesting setups that I've ever seen doing this
professionally. Well and that's kind of why I
brought up the portfolio perspective.
I mean it's you know I I can't help but see some feedback on on
some ideas that come on the pod right.
I it's just that's natural and I think it's important to
contextualize. If somebody's saying, well I
like XYZ company or in this case you know Fever Trees interest
somebody, OK well, you know there's a way to build
resiliency in a portfolio that doesn't necessarily have to be
in each individual position. Now each individual position
should have some hurdle to get into a portfolio, but there's a
lot more context around how somebody implements the idea
than just this is the idea. And you know, I I think to the
extent that I talked to a younger audience, I would say
that a younger me would have maybe found a small cap and been
like, boy, I got to be all in this thing.
And the older me has a different, potentially different
set of risk factors, right, And would be more apt to tap the
brakes on my excitement than than the younger me would.
Yeah, yeah, There's still ways to capitalize by being small and
things. And it also depends on what
you're playing for. I mean if you want some things
that will and and I think this gets to your feedback point on
on certain things that you hear out there on the world of X or
Twitter or whatever. You know, if if if your goal is
to own things that'll like give you a multiple of your initial
investment over a few years. They're definitely going to be
some things that don't do very well.
And in periods when it's great, you're absolutely going to have,
you know a few things that do pretty damn well.
And if you're doing things right the ones you get right should
make up for what happens in periods when things are not
going well, where you will take some like real pain in a few
positions if not more. And that's something that
portfolio management like with with greater diversification and
with some sort of like cash buffer recycling of capital
along the way could end up an enhancer of returns, not
something that detracts from them.
Yeah. A stock that you and I talked
about that people may have heard about is NVIDIA.
And I'd like you to tell the story of how you started to
follow NVIDIA, because I think it could segue into the next
little segment nicely. Oh man, Nvidia's a painful one
for me. I mean like 3 splits ago.
The year is 2013. NVIDIA was actually a high
dividend, yielding really low EV to EBITDA multiple stock.
And by that, my first foray with NVIDIA was in 2008 when I
literally knew nothing about markets.
I mean, I mean, I've been working on a trade desk for a
little, but that still meant I literally knew nothing about
markets. I did a screen for companies
that were with over half cash as a percent of their market cap.
And if I'm I, I may be wrong on the exact prices because I might
be confusing NVIDIA with Akamai at the time.
But NVIDIA was trading for, if if I'm right, it was like 6 1/2
to 7 dollars with $5 per share of cash.
And so I bought that and I flipped it.
You know, obviously I was like, yes, this is, this is great
because when, you know, the tide came back in.
One thing I'd say that was really interesting to me at that
time was NVIDIA made Lowe's in November of O8IN March of O9
when the market bottomed. It never made new lows.
I found I I always found that to be interesting and a lot of like
really good companies didn't do that.
But I digress. Back to the like the 2013
period, NVIDIA hadn't really gone very far.
They had accreted cash each of these years.
They actually instated A dividend that was growing each
of these years and Novitia was like $12.00 a share.
So it had doubled over the course of five years, but was
also paying out like a a dividend that was like decently
greater than the 10 year Treasury at the time or maybe
maybe just a little bit. I think it was the Euro crisis
time. So, you know, 10 year Treasury
was pretty damn low. And I'm like, wow, this
company's great and I made it an average size position in My
Portfolio. And you know what?
What was different at NVIDIA at the time was the stock moved
almost entirely on the PC cycle. They were trying to build this
chip called the Tegra to get into smartphones.
They'd actually built their own gaming device to showcase how
good the Tegra was. They built a tablet.
I still have the NVIDIA tablet in my office at home from back
in the day. They did everything possible to
get the Tegra chip. And you know, you'd see
underneath like, wow, this data center business is actually
starting to look like a real thing.
Like it's starting to be a bigger and bigger share of what
the company does. And so, you know, Fast forward
to the stock, the stock like goes up 50% from 12 to 18 all
the way back down to 12, from 12 to 18 again all the way back
down to 12. And each earnings call was like,
the only thing analysts wanted to ask about was, did you get
any design wins with Tegra? Did you get any design wins with
Tegra? What's happening with the PC
cycle? And meanwhile, you know, they're
like, yeah, there's this thing called the data center business
that's actually doing pretty well.
But, you know, please ask about that.
No, no, no. Just Tegra this, Tegra that.
And it finally got back up to 18 the third time.
And I'm like, I'm out. I'm taking my 50% gain of moving
on. And what happened was they ended
up shutting the Tegra and and the data center story became the
big thing for the stock. And I think I have a lot of
lessons out of that. One is about how myopic Wall
Street can be. They focus on what's their
interest, not what's most important to the business.
My impatience, like it's really hard in some of these companies,
you could see where things are going, but it's really hard to
withstand some of the volatility along the way.
Like presumably NVIDIA should not have been all that volatile.
It was a cheap stock, right. You're talking a mid single
digit EBITDA multiple at the time.
That's part of what made the return thereafter so
spectacular. And so a very small change in
the rating was a very big change in the stock, right?
Two turns of multiple was like a 30% move in this damn thing.
Even though it's like growing through it.
It's also one where like I have to be more mentally flexible and
be willing to revisit something that I'd moved on from, even if
it's at a higher price. Like I really need to be able to
like get back there because I don't.
I don't a moment like three years down the line where I'm
like wow, this still looks good and and I just like I wasn't
able to to stomach the fact that I'd sold it at 18.
You know, I was sitting there at like 50 bucks a share, not like
that was that much higher. And again, I'm talking 3 splits
ago. So where it is today is, is
multiples of where it was back then.
So it was, it was quite a quite a eye opening lesson.
And I do think it's really telling that if you go back to
those early 2010's days, no one wanted to be a semiconductor
investor. I remember like KLA and Lamb
were trading at like 5X EBIT. A Times have changed.
Yeah yeah I remembered like Tapper pitching those things and
and it's like those things were so cyclical now in like the the
through of the cycle and that that was when things were not
troughing at all in the through of the cycle.
Now these things trade at over the EBITA.
So it's it's amazing how far the whole sector had come.
And I do think there's similar kinds of phenomena, not to the
same degree. I think part of that was coming
out of like the semiconductor sector in generalcomingoutof.com
and dot bomb. There were way too many
companies. You had a wave of consolidation
heading into the financial crisis, which really did a
number on these companies too. So you had like 2 crises within
a decade where where this area was was really troubled and it's
part of how you ended up with a NVIDIA that would basically you
were buying cash not company when you when you were picking
up shares. It's amazing.
Yeah, it's amazing that that out of that hunting ground, this
company came right. Yep.
Yep, exactly, exactly. And it feels like something
similar is going on in the life sciences space right now.
It feels to me like COVID was kind of likethe.com moment for
them in some ways. Where where like everything got
so damn euphoric. But you know, they're like life,
Healthcare is changing our world, biotech's changing the
world, be able to spin up this vaccine so quickly, yadda yadda.
We all know the stories that happened during that time and
it's something that also at it wasn't cyclical at all.
Over the prior 10 years there, there was not really
cyclicality. It was just biologics growing
every single year and the whole industry benefiting accordingly.
And then now you end up with what looks like a really severe
cycle. And that's an area where I've
spent like just so much of my time in the last two years,
starting slow, doing a lot of learning.
And it's the third time in my career around the same time as
as the NVIDIA forays. In the beginning, I just my my
really dumb stuff early on worked so damn well.
I followed these guys called the Baker brothers into some
biotechs that were trading at or below their cash that they were
buying tons of. I was like, I I'd heard that
they had the best reputation in the space.
I was like, well, what are they buying?
A ton of bought shares in this company called Insight.
My wife still yells at me that I that I sold them, you know, it
was $2.00 a share and and the thing went well past 100.
Wow, yeah. You don't need many of those.
I'll tell you what you do need in that instance.
You need the willingness to live with concentration.
Yeah, I did not but but also like, yeah, it starts as not
concentrated. So you need to think more about
your starting points in some ways too with that.
No doubt, no doubt. But to the extent that you care
about your balance sheet, you got to be willing to look at a
balance sheet that's concentrated in a position.
Yeah. Yeah, you know, I mean, it's
it's just something that you gotta, you gotta be able to
stomach. It's part of that the game of
having a, you know, 50 bagger or whatever.
Yeah, I was, I was just checking out on the Delupa machine.
I was just checking out NVIDIA and man, its revenue growth is
wild. Good for them, good for them,
and hopefully good for humanity. Now I got to ask you about life
sciences, because I was. I I've heard you now talk about
this for what, 2 1/2 years? Yep.
OK. What is going on in in biologics
and gene therapy and do you mind setting the stage for sort of
the cycle and what's gone on with the FDA as to why maybe
it's a a bullwhip effect hangover of COVID or or not I I
might be phrasing that wrong. Yeah.
Let me take one step upwards and speak high level of part of
where my intrigue in the space stems from.
And then I'll talk about the cyclical forces that are
happening today and what's happening in the sector.
I I read this book recently called The Cloud Revolution, How
the Convergence of New Technologies Will Unleash the
Next Economic Boom and I think it was a fascinating book.
I think it's worth reading if you want to understand how the
cloud in general changes things for technology.
And what I'm going to say has nothing to do with the cloud
itself per SE. But but the author proposes this
rule of three and how phase change innovations require 3
underlying the confluence of three underlying pieces in order
to come to fruition. And so I think we have three
really unique forces that come together today to make life
sciences an amazing. Space.
Oh, he doesn't give you the three.
You have to come up with your own 3.
Yeah, well, he gives the three for the.
Cloud. I thought it was a paint by
numbers one no. Yeah, he gave the three for the
cloud, but I've got my 3 for life sciences.
What are the three for the cloud?
Can you? I don't remember off the.
Top All right, that's fine. That's fine.
All right, let's go for the three for life sciences.
Actually I do know one of the three is the GPU for the cloud,
so so there is that. I can't remember the other two.
A confluence of three factors. That's how you get a
Lollapalooza. Exactly.
OK, exactly. And I've been.
Shout out to Charlie, Michigan. Yeah, they use the word
Lollapalooza insight mugger in in the cloud book as well as
well they should. And you know, I I mused about
each of these things, but to have a framework to speak about
it I think is quite helpful because these three things are
profound, right? We mapped the first human genome
in 2000 and we thought genomics would unleash this amazing wave
of innovation. But really it's only pillar
number one or you know, if you view them as like 3 overlapping
circles, one one of the three pillars underlying this
confluence. Lollapalooza, if you will.
So genomics like it took a long time for it to start producing
results. In life sciences, it very much
is today. But especially as the cost of
sequencing A genome goes down, we're greatly increasing our
trove of data. We didn't know what we could do
with all this data. And even before AI emerged as
this buzzwordy thing, machine learning, machine learning, big
data slash AI, whatever you want to call it, was becoming one of
these other pillars underlying what will support life sciences
for the next decade. These capabilities,
computational capabilities in order to take big data sets and
divine insights. They're increasingly important
because the first applications of genomics were kind of like
brute force figuring out one target at a time, kind of like
the CPU world before GPUs were able to take this.
I I'd say much more dynamic approach in order to find in
connections between and amongst things.
So before you be able to identify one target at a time,
do it by dumb luck and you know you you'd be able to come up
with something nice for a genomics based treatment.
But now you also have to increasingly focus on how
different pieces of the genome interact with with one another.
So big data machine learning AI super helpful.
So that's number two and #3 is CRISPR.
If you go back to 2012, we the early days of 2012, we didn't
even know that you could actually, we there were some
people who theorized that you could do this, but we didn't
know that you actually could change someone's genome.
And we learned that yes, you could.
And then we figured out how to apply that in other organisms.
And now humans, like we're sitting here today.
Just a couple months ago was the first ever approval of a CRISPR
based treatment that effectively take someone who's born with
sickle cell disease and makes them free of it.
That's that's amazing. We didn't even have the
underlying technology to be able to do that a decade ago.
But you need to be able to figure out the gene in the 1st
place you need CRISPR. And now to take it to the next
level, you need big data AI. And so part of my intrigue in
the space is that if you look at the last decade, we've had some
of the most profound innovations ever and yet the whole space has
been absolutely mauled in the Last Post COVID period.
And if you go back even further, if you think about biotech as
kind of the reference point for the space, it's been almost a
decade of stagnation for biotech as represented by the XBI or
IBB. Those things have gone nowhere
over the last decade. Now someone that I've talked to
has said this an index construction issue, not so much
a technology or or like certain companies within the index maybe
have gone well. Is that is that a fair
criticism? Sure.
But that's true anytime an index goes nowhere for a long time,
right? When the S&P went nowhere from
2000 through 2014, when it made new highs again, there were
plenty of individual stocks that did exceedingly well.
So like, some stock pickers did really well.
Some areas did horribly. I mean, if you didn't own
financials, you got a better return than you did if you own
the index during that period, right?
But yeah, I mean, that's a fairpoint, but I don't think
it's a fair critique of the fact that things really have gone
nowhere for the space. I mean as you talk it, it like
feels very tech bubbly and then tech went on a pretty
interesting run. It'll be.
It'll be interesting to see if this is Part 2.
Yeah. I mean part of what I've been
thinking and saying just to like make it sound a little better,
but I really do believe it is this idea that I think the life
science companies, not biotech per SE, I think biotech's really
hard. But the life science tools and
instrument companies that support the discovery, the
research, development and manufacturing of these
treatments and therapeutics and those companies I think are are
set up to be kind of like the semi companies of the next 10 to
20 years. And like you could point to
NVIDIA and say like they started with Nvidia's starting point
multiple was considerably lower than the starting point multiple
of some of these life science companies.
But at the end of the day, like you said, look at their revenue
growth, their revenue growth's been phenomenal.
Who cares about how much the multiples appreciated in terms
of driving the total return? It's far more driven by the
actual results of the business, how much they've been able to
increase their scale. Yeah, that's multiples I think
create multiple derangement syndrome.
Yeah. So you, you asked about the
cyclical stuff, right. And that's where it gets even
more challenging too because like you could point and say
like oh, the multiples of some of these companies are not super
cheap right now. But the fact is some of the
companies that I find most interesting, they've never been
cyclical in their history and they are in a really, really
harsh down cycle today. And they have a lot of fixed
cost. So the de levering on the, the
descaling on the top line DE levers their margin so they get
hit twice. So the multiple I don't think
truly represents the underlying reality of the business as
things stand today. So these tools and instruments
companies that help support the biotech industry from beginning
to end, what's happened is during COVID because supply
chains got so wonky, all these companies that are making things
that are researching things started ordering extra inventory
in order to have the raw material, the substrate of
everything they do available. And when you think about it,
I'll, I'll give you one of the more extreme examples, but I
think it's, it's very illustrative of what's happened.
If you have an approved cell therapy and you're manufacturing
that cell therapy as needed by patients, you're subject to
periodic inspections by the FDA in your manufacturing process.
And if you're not operating on the day they show up, that's a
really big problem and can set you back and can take you off
market for a period of time. And so it was really important
that you didn't end up any on any day without any of the key
materials in order to operate your stuff.
So what what what happened is if you think about industry levels
of consumables, just using round numbers here, but they went
something from like having six months of extra inventory on
hand to 18 months in some cases of extra inventory on hand.
And that made sense at the time because you didn't know how long
the supply chain problems would persist.
You didn't know to what degree your business would actually
grow during this period. So you had to support future
scale with it. And you wanted to make sure a
more frequent ordering cadence kept you higher up in the
priority with the companies you were ordering from.
So you wanted to make sure that you were ordering on a
continuing basis even as things kept rolling.
And So what happened was once we got to a more normalized period,
some of these companies were like, whoa, whoa, whoa, we're
still buying, but we have way too much.
Yeah. And then to make matters worse,
because of the COVID, like the bubbly stuff that we talked
about, there were way too many companies that raised money in
biotech who didn't necessarily deserve it, that rode the
zeitgeist of that brief window of time in order to raise money.
So there's way too much experimentation.
And even good companies, they had so much money that they were
doing more targets than they'd actually needed during that time
period. And so you know, there was a bit
of a, a financial force where there was too much money
floating around and so that supported even more purchasing
behavior. So there's 1° where you had to
burn off the financial accesses and then you had to burn off the
supply chain accesses once you got to this more normal period.
So venture capital funding completely dried up and
companies manufacturing, they're like, well, let's go back from
this 18 months of inventory to a normal six months level.
And you could imagine to go from a year of extra inventory to
normal levels takes more than a year to to get there.
And you can't really just stop ordering.
Some of these things have limited shelf life too.
So you kind of start hitting a logical limit in terms of how
long you can keep it. And here we are today where you
know, sometime between when we're recording this today and
3-4 months ago, we'll have been the through.
And I think it's really interesting.
I reflect back on my early NVIDIA days when everyone wanted
to ask about Tegra. If you look at what happens on a
typical earnings call these days for one of these companies, like
every question is like when will the supply chain problems be
over? Like when?
When are we gonna be done burning?
Up. Inventory, none of the questions
are about like what underlying growth looks like, where you see
the industry going. In five years, Thermo Thermo,
they ask about China, right? They're like, what's going on
with China, but it's within the context of burning through the
what's in the system? Yeah, but like, so that's more
like the PC cycle than Tegra for NVIDIA where it's like it's
something that matters, but it's not the biggest thing that
matters. It's not where things are going
to be in a few years. And it's like it's one of the
things that I, I don't know, it's almost a waste of time in
some ways for a lot of these companies.
I mean the way I approach it is I assume China won't even be a
market for them in five years because it is really hard to
know if if it will or won't be. And I don't necessarily want to
have to rely on it being a market when who knows what will
happen on the policy side, even in the US we're making there's a
bill out there today that might make Chinese companies incapable
of selling certain key life science pieces to US and
European companies. So like that street cuts both
ways. So I I definitely should be
conscious of what that means and yet that China and this
inventory cycle are basically like most of the questions on
Turbo nowadays. Yeah, they it does seem to be
what people are talking about when they ask the company
questions. And they're very clear that they
think that underlying industry growth hasn't changed at all
through this whole period and if anything has accelerated like.
That particular management team strikes me as financially
oriented, but but I don't disagree with what you're
saying. Yep, Yep.
And you know, I think it's interesting.
One of the things I've seen is like the specialist love Thermo
and generalists do find Danaher more interesting if you're going
to come into the space. DBS gives you the warm and
fuzzies. Yeah, the, the specialists tend
not to like Danaher. Yeah, that's interesting.
Yeah. And I think Danaher is like one
of the most appealing in the space they're in, like the areas
that I'd most want to be exposed to in life sciences and DBS is
real and it's got a proven track record and they've just created
like a pureplay in life sciences coming sometime it it, it
happened almost exactly aligned with the through in the space.
What do you think about there's there's a line in Mckinsey's
valuation book where they say life sciences is one of those
industries that's created just immense value.
But a lot of it accrues to those that get acquired and not
necessarily the acquirers. If you look on returns on total
capital and you include intangibles, the picture is not
as rosy as the return on tangible capital looks.
Yeah. Although you could see the value
creation that thermos generated in the market since I I mean I
read McKinsey on valuation before we.
Really. This is the 7th edition.
They still haven't changed the sentence.
Yeah, you know, look at what Danaher's done, right?
Yeah. Well, that's I'd look at the
stock and then I look at that and then I look at what they're
saying and I think there's like a little truth to everything.
Yeah, yeah. I mean it's definitely, I think
that's probably more true and like the biotech subspace within
life sciences than the tools and instruments.
I think the acquirers and the acquired have cream created
tremendous value and McKinsey valuation does point it as one
of the highest ROIC areas. So at the end of the day, it's
persistent. Yeah, I do think some of these
companies may have gone a little far out on the curve in terms of
it. Let's, let's just call it spade
a spade paying too much for companies during the heavier
days, which meant you, you know, with lower rates, they were OK
and willing to say like my ROI, my, my WAC is really low and I'm
willing to take five years to get to my ROIC target, which is
like WAC +2. That's not great, but you don't
have to be encumbered by those decisions today.
And I do think the companies have been very clear, like the
environment's changed and they definitely are accommodating it
in certain ways. And they're definitely changing
some of their strategies and gearing them differently.
Like, I think one of the changes, I'm really intrigued to
see how it plays out in Danaher. Danaher had always been a
decentralized operator of acquired businesses, so they
weren't relying on financial synergies.
To your point about Thermo, Thermo is very much like a
financial player. Danaher today is undergoing its
biggest kind of like true merger where they're taking Paul and G
Bioprocessing assets and combining them into one entity
called Sativa. They've never done this kind of
exercise before and I think it's really interesting their
investment they're they're obviously still going to be
acquisitive using their framework, but they're also
going to be investing in research and development in a
way with this combined asset that I don't think they really
have before. And I think that's really
exciting and and very interesting.
And I think you know one of the things that attracts me to the
space is leaving aside questions of how perfect some of these
acquire acquisitive companies are at at generating returns.
Like this space has amazing structural tailwinds like
starting with a growing population that is aging, like
the aging population is growing faster than the population at
large and people need more pharmaceutical and biological
material as they get older. Like that's unquestioned and you
have like a growing middle class globally.
So an emergent middle class requires more for their
healthcare than does a really poor populace.
So, so that this is something that's happening globally and
some sovereigns are actually investing in creating some of
these not not the highest value pieces but having the pieces in
place to do some of this domestically themselves.
And there are amazing regulatory barriers to entry like in order
to be CGMP certified to reach the standards for like good
manufacturing by the FDA, it's like a nine figure upfront
investment. So you can't just say tomorrow
I'm going to go start something in this space.
You know you need massive investment.
It takes years to get in position in order to even get
certified to sell into this industry And that's not even
mentioning the R&D that you that you need first.
That's just the regulatory barriers.
So they're immense barriers to entry and there are so many
different razor and blade business models where like once
you sell the instrument you get a really long afterlife of
consumable pull through and the margins tend to be phenomenal.
So McKinsey evaluation talks about the spaces basically the
highest and most persistently high ROICROIC space there is.
And I think that's that's very real like hard to argue with it.
It's it's really interesting to find a lot of different
companies in the space there. There was I think in abundance
of new IPOs that came public in 2021 and some of these companies
ended up like way over capitalized.
Some of them are like heaping piles of junk that you should
absolutely stay as far away from as humanly possible and will go
bankrupt and are going bankrupt. But there are some babies out
with the bathwater and there's some really, really amazing
companies in there. Well, one that has a management
team that I'm almost certain is ex Thermo.
Like how do I pronounce it? Maravai or is it, is it Marva?
Yeah, yeah, yeah. I mean, Stanaher and Thermo,
they're like all all of that is there.
Came out and missed and missed and missed and missed.
So you know what happens in the future.
To your point on being somewhat empathetic or forgiving or
whatever. Like man, that was a hard time
to come out and hit your your projections.
And and might people have been too rosy to raise capital?
Yes. Would they be the only ones?
I don't think so. Yeah, I'll say something unkind
and then get kinder about Marvi first, which is that GTCR knew
what they were doing when they sold that asset to the market in
2021, right. So this was a private equity
owned asset. They exited, had a really good
time and they did the same with Sotera Health at the same time.
And it's like, Oh, yeah, they're two healthcare slash Life
science IPOs obviously have DE rated significantly.
And yet there have been several junctures along the way since
that DE rating started. Three specific like known
instances where acquirers try to step in and buy Marvi and
they're like, no, no, no, we're, we're not selling this company
at all because things, you know, the pendulum goes too far in
both ways, not just one way. And it's, I think, a really
interesting company. I've never seen a company lose
2/3 of their sale sales and still have 30% EBITDA margins.
Like, that's insane to me, that a company could lose that much
in sales and still be that profitable, which says something
about how like structurally profitable their businesses and
how unique it is. And you know, you might be
wondering like, how on earth could a company lose 2/3 of
their sales? Well, they were one of the key
pieces in creating the bio N tech COVID vaccine.
And so there was obviously this frenzy of demand to get the
COVID vaccine to the market. And now that's basically dried
up to 0. So they have to rely on their
existing underlying business and core growth.
That took us there. And what they do specifically is
what's called RNA capping. It's the very end piece that
helps the RNA get you know, into a cell and affect its change, if
you will. And they have a patent on the
way to cap RNA that most closely mimics Mother Nature herself.
And so once you have this patent protection and you continuously
develop and iterate your product and build a suite of services
around it, that's a uniquely defensible business.
And it's something that you know I think say what you will about
the COVID vaccine itself, but mRNA is been proven and de
risked as a platform and it could have like it.
It's one of those specific platform that like most directly
relates to this three legged stool if you will the the
Lollapalooza of genomics, CRISPR and big data AI.
It's a way to program ourselves or to express a elicit a protein
expression and it could I I think it will over the next
decade be something that's like truly profound for all of us.
I think one of the areas you see it being research right now is
developing vaccines for cancers. And a vaccine for cancer doesn't
mean that you inject someone and they can't get cancer
thereafter. It's someone who has cancer.
You're able to take the cells and create a way for your body
to defend and defend against it, stop its growth and and kill it.
And I think that's something that I mean say what you will
about the COVID vaccine again, I think we we all could agree that
something like that for cancer would would would be really
welcomed and a total game changer.
Yeah, One, one of the the criticisms that I've heard is
most of the big diseases are already sort of solved.
I don't know how real or not that is the other, the other
kind of thing that I've ruminated on a little bit is
drug dealers tend to make their money on the comeback, not on
the sale. And I wonder to the extent that
you're curing people, the cash flow dynamics of everything, you
know, that's like a big outlay up front.
Does that create a problem with how our system is sort of built
and are there some adverse incentives along that?
But anything that I'm saying make any sense or no?
Yeah, I've heard that like the big diseases, the big stuff is
all solved for for so long. And I'd say, you know, go back
two years ago, think about where things were with obesity and
where we are today with Lily Novartis and and GLP ones.
I mean, shit, does that look solved right now?
It does, But but people were saying that like all the big
things were solved several years ago.
And I I you know to the extent that gene editing or or
something like that can can attack obesity.
I think that there are some legitimate, I mean obviously if
I if you're diabetic or or truly obese, I think that the GLP ones
have a lot of make a lot of sense.
However, the does seem to be, you know, the loss of muscle
mass or some other side effects that maybe there's a better way
to go about this. Yeah, I mean, Regeneron, which
I've been involved in for a while, they think they found a
better target that leads to no sarcopenia like GLP wants to,
which is what you're talking about with the muscle loss where
to your point, like because of the muscle loss you basically
have to stay on those things forever.
So the drug dealer thing is, is very much in effect Regeneron is
working on this GPR 75 target that they think is going to be
even better. So I kind of think the market's
proven and now there's more opportunity for people to attack
obesity. I remember when obesity was kind
of a wastewater in biotech like any company that did, it was
thought of as a somewhat slimy company.
And now it's basically the biggest product the industry's
ever created. So you know I think these things
come and go in waves, but there are all different kinds of
problems that humans deal with that require different kinds of
treatments. And I do think there's a degree
to which like the industry over focused on what they call like
orphan indications. So they're super rare
indications and you could get special designation with the FDA
which effectively accelerates your, your path to market which
means better ROI on drug development.
So too much of the industry had been focused on orphan drugs for
a while. But with genomics, with this
cure curative kind of treatment for some of these areas, you
could attack one target after another is really what it boils
down to. And yeah, it's a good thing, but
it's a tough thing. You look at a company like
Gilead, which effectively cured hepatitis C and they've been
stuck in the muck ever since. So, you know, I do think there,
there are some questions about certain business models, but the
companies who sell the pieces for it, there will be one target
after another that they're going to keep selling those pieces
for. And by the way, it doesn't
change the germline. So just because someone with
sickle cell disease is cured of it, well, they could have kids
with it. So there's another generation
that will that makes sense. So it's not gone forever.
And there are definitely important moral questions to ask
about if and how we should be editing things in the germline.
You know, there's a future where we make sure a baby's not born
with it. Actually in some ways you could
do that in the present, like people could artificially
inseminate to avoid BRCA gene for example.
So we we are and can do some of those things.
So yeah, it's a really good question, but I but I think that
there will always be another problem to tackle this is life
that we're talking about. It's very different and far more
dynamic than everyday kind of problems.
Yeah, well, I was. I was looking at Gilead stuck in
the mud, which is not an untrue statement.
However, stuck in the mud at 7.4 billion of free cash flow is not
the worst way to be stuck in the mud.
Yep. Yep, exactly right.
Like exactly. Right.
I wouldn't mind be showering and stick me in that mud.
Well, hey, you want you want to make sure you're not paying.
You want to make sure you're not paying peak peak multiple on
peak profits. But not the end of the world to
be extracting that kind of cash from society and delivering a
good outcome in the meantime. Yeah, yeah, absolutely.
It's interesting though, I mean like one one of the fundamental
realities with these companies Speaking of your, your, your
point about the, the, the drug dealer point is even if they do
have a recurring revenue product, you can't just slap a
terminal multiple on everything on anything in biotech for that
matter. You can in the tools and
instruments companies. I think it's very different
there, which is part of why I like it so much.
In biotech, you have to treat everything as finite duration
because once your patent expires, there could be a
generic and your pricing paradigm is going to change
entirely and your ability to capture the market is going to
change. So you're going to get lower
pricing on a smaller portion of the market.
So patent Cliff is very real and and it changes the dynamics for
some of these businesses. So 7 1/2 billion in cash flow,
yes, but like their pipeline, you know, you you'd have to ask
yourself does it look like it's the kind of thing that could
maintain that that cash flow? Whereas the life sciences, what
you're really hoping for is 1 indication was approved using
these tools. Therefore, it should be probably
easier to get through the FDA with another as long as I'm
using these tools. And what what you're hoping for
is over time, there are more people trying to solve problems
that use the same tools that the previous exactly.
And then also when you go to generics, right, they still have
to pay the tools makers for the pieces to make the generic and
they're not going to give them a discount just because it's
generic. You know, it's the generic
company's job in order to find a way to do it profitably.
So they might pursue things in slightly different manners along
the way. And I'm speaking very broadly
because there are differences in the small molecule versus
antibody world and I'm trying to speak paint, paint it all with
one brush, but the tools maker still get to make their money
even in the generic world even in the aftermarket.
Well in in in the generic world, in life, in the with the tool
makers, does the generic company when they like you have to be
approved to to sell the generic. Yep.
So would it not make more sense to use the same tools that have
been proven with the branded treatment.
So even if it does go to a generic treatment the tool
unless you want to run your own like full blown, I mean do they
have to run phase one, phase two, phase three.
I I apologize for such a dumb question, but it it seems to me
like it would be much smoother to use the same exact process
than to try to introduce different variables that could
throw something off. So it's even more true in
biologics, in antibodies where it's called a biosimilar that
you'd bring to market than than in small molecule where you can
do where it's more chemistry, right, than creating like a cell
and a life based process 'cause that's what antibody
manufacturing is like. You take a number of cells, you
scale up the number massively and then you filter out for the
protein that you want, right? That's a really complex process.
And to get a biosimilar right, to have the same kind of safety
profile and efficacy, you basically have to follow the
same set of procedures. And following the same set of
procedures, you know, they're only so many sellers into the
space in the 1st place. But to get it right and to make
sure you have the same recipe like, you basically have to use
the same vendors. And in some cases, I don't know
enough about the exact regulatory edifice, but in some
cases you're basically required to use the same vendors for
particular pieces of it. Not necessarily all of it, but
for for particular pieces of it. Well, I I think even if you're
not required, it seems to me if if you have to have a very close
biosimilar and you have a a test and the test fails, the more
variables that you introduce the harder it is to to hone in on
what is actually gone wrong. Yep.
Absolutely. I if I were running that test, I
would say let's let's try to control what we can control and
and the way to narrow down what is an outside influence versus
what we can control is to use most of the same things to the
extent that it makes sense. Absolutely.
And there really aren't that many vendors that you could
choose from because this stuff is there's been a lot of
consolidation in the 1st place. But it like like I was saying
earlier, the barriers to entry are so damn high.
So like your your reason to switch might be trying to find
lower cost and the only way that people have been able to find
lower cost is to potentially pursue suppliers in China.
And there you're going to have to face questions about the
integrity of the supply and about, you know whether you
could trust your supply chain will last as is for the duration
in which you expect to have this product on market.
This may be current narrative, but I think it's closer to
reality. I'm not sure that I would want
to be doing health tests with Chinese equipment, given the
distrust between two potential superpowers, yeah.
And if you're talking about injecting populations with with
genomics, I'm not sure that that just seems like a risk I'd
avoid. Well, and let even leave that
aside, right? Because I I agree with you
personally, but like, leave that aside.
If you're someone who wants to like, build a resilient company
and you want to manufacture therapeutic, right, you have no
clue what's going to happen with US relations with China.
But you do know that in order to change the supplier for one of
your critical pieces, you actually have to restart your
phases. You have to like, go back to the
beginning and it's insanely expensive.
So why would you start with something that might have to be
changed? Yeah.
You're in the risk mitigation business, right?
Like, why? Why introduce more risk I would
think. Yeah, interesting.
I saw something about like from an operator from Merck where
like with one of the CDM OS where they were manufacturing
Keytruda and they're like this bag the the bags are used for
single use. Bioreactors had $20 million of
Keytruda in it. Like that's how much you're
producing in a batch and that's how valuable what's in there is.
And the bag is basically like one of the least expensive
pieces of their cogs and that's one of the most accessible areas
to get from China. But like the they gave an
example of like you see one black dot on the back and you
have to throw out all $20 million a product.
Oh, wow. So like, do you want to take a
chance where like, everything's not perfect or you want to work
with companies where you know everything is perfect?
And yeah, it's not an area where you want to take chances.
And a lot of people get introduced to certain suppliers
while they're in academia and they just like stick with them
for affinity reasons. So once you start with someone,
you don't ever change. Like a lot of the names for
specific things come from the companies that people use and
and and it becomes like colloquial in the industry.
So I found that to be really interesting.
That's like a very different force than happens in a lot of
other places. This is something I did not
verify because I trusted the person that told me they were
higher up at A at a job. But I I believe that was Henry
Shines strategy to get dental tools in dental schools because
once the dentist got used to the tools like they didn't want to
change what they learned on and now it's like a dominant dental
company. As the kid of two dentists,
Like, absolutely. Like, they didn't.
They didn't change anything. Yeah, yeah, I wouldn't either.
Well man, I I appreciate you coming on and this is a good
follow up conversation to the Peter Mantis one that I did.
I I need to I gotta I gotta I gotta sit down and and really
learn this stuff. I have cursory knowledge on it.
I gotta be honest man. I've I've felt like an
existential meaning issue. It could be a midlife crisis I
don't know if I would deem it that but I've enjoyed working.
I've questioned a lot whether or not it's worth my time to do
especially on my own and not you know in a business structure and
and I wouldn't say I've been demotivated but I I've had a hit
an interesting patch in life man.
Something wrapping up my grandma's estate has created
this finality to what was very long and big part of my life and
I'm I'm a little lost on where to go next.
But, you know, talking to you about stuff like this gets me
excited about researching and and like the idea of things that
make me excited for the future as opposed to, you know, I, I
don't know. Some other things are just kind
of hard to get up out of bed and do not not, you know, I'm not
saying, you know what I mean. Well, First off, be kind to
yourself. Like, you know, take it easy on
yourself. This is not an easy area.
It's like got a unique vocabulary, its own lexicon to
literally every everything. And it's an area in the markets
that is dominated by specialists, which I think is
part of the opportunity because all the specialists are so
beaten down and money's been coming out of them for a couple
years. And it's one where I think the
opportunity is so open-ended over the long term that you
don't have to rush your work, you don't have to get it right.
I think there are going to be like numerous chances to get
there. And in the grand scheme of
things like, we're both pretty young doing this, even though we
turned 40 at about the same time.
We're both young enough that, like, this is something that
it's not going anywhere. I feel like it'll be as relevant
and important a theme when we're twice as old as it is today.
It might be even more personal when we're twice.
As old? Yeah, that's right.
I hope so. Yeah, well, hope not for as long
as possible. But yeah, it it's a reality,
right? And I I also think like to the
degree that it's it's hard and it's not as accessible as some
other areas. I do feel like generalists, when
they really want to find a way to get into areas like semis,
are really freaking complex. And I know people who are like
balls to the wall logs some semis.
And they're like, yeah, life sciences is too hard for me.
Meanwhile, you know, I mean, semis were once one of the most
cyclical industries. There is part of why Clayton
Christensen used that sector to describe the innovator's dilemma
is that things move so damn fast in that one area in particular.
I think people forget about that.
That was like the starting point of innovator's dilemma.
It's like, oh, let's look at semis because they move faster
than even the fastest moving pieces in tech.
Semi manufacturing is insanely complex.
It's almost more complex than the manufacturing of biologics.
The business models are really complex.
The end markets are complex. Like you know this isn't to say
don't invest in semis. It's to say that like if you put
your brain to it, you can figure out why some of these tools and
instruments companies are really interesting.
Their business models in a lot of ways are much simpler.
Some of the terms and areas you're exposed to, sure, sure
they're they're a little more challenging.
But you know, I I don't. I don't think anyone needs to
know circuitry to invest in semiconductors.
Nor do you need to know. I don't know genomics to invest
in in life sciences. Yeah, I I read the IT must have
been Danaher GE, the European Commission case.
And I was like, OK, this kind of hits me over the head with the
business quality side of this, right.
So, so then it's like OK, well now now drill down and it's,
it's a matter of focus and just doing it.
So we'll see. It'll probably take a year or
two or three. Yeah, some of those, like
antitrust papers are some of the best.
The FTC paper on the Grail merger with Illumina is awesome.
They basically, line by line in very accessible layman's
language, tell you in what ways Illumina's a monopoly and it's
like oh wow, they just like put this all on paper for you.
This is better than any piece of sell side research I've seen on
the company in explaining where they do and don't have lock in
and like what they do and don't do as a business.
Buffett often says I don't use private stuff.
Now I think he's got enough private information from
Berkshire. But I I think one of the things
that people, at least I didn't hear, I'll just personalize.
It is like the government resources, right, Like like the
trans dime, when you read the trans dime in front of the
Congress and basically how he's like, look, if you don't like
what we do, go go do it right. Like you can go do it if you
want to go do it. But he lays out like why it
doesn't make any sense to do it. And and they're tremendous
resources if you just kind of look outside.
Yeah, it's really amazing because, you know, they have to
be candid and they're not being salesy.
They have to. Yeah, I mean, you're in front of
Congress, right? Underoath.
Yeah, yeah. So it's a different beast right
off the bat. And also like, I don't know, say
what you will about these congressmen, but like, there's a
lot of work that goes on in the background to prepare for these
things, and some more than others.
But but a good chunk of them come very prepared with really
good information, and they could extract really good insights
along the way. You gotta find the ones that are
not political theater. Right, Yeah.
It's one thing if Facebook's in front of people when they're
doing their little thing. It's it's another thing if
you've got some niche little topic.
And like, I I remember I was, I was researching 5G and Democrats
and Republicans completely agreed on a line of questioning.
And I was like, oh shit, this is real.
This has to be right, yeah. That's right.
They don't agree on anything. This.
This has got to be legit. Yep.
No, it's so true.
It's so true. It is a great continuous
resource. Like there's there's always
something you can get from the FTC.
Stuff in particular is awesome. Like these people are really
expert. Yes, I agree.
I think. I think sometimes it's hard to
not let politics kind of color, you know, But that's the job,
right? The job of figuring out the
truth is to not let your personal biases get in the way
of what you're seeing. Right.
So, you know, we listen to them at a conference, but they're
like, it's not politics, it's marketing.
And marketing isn't necessarily all that different than
politics. Yeah, that's right.
That is right. It actually is the same.
Like political theater and marketing are exactly the same.
That's what they're doing. They're marketing to their voter
base. Yeah, no doubt.
Well, man, as always, I enjoy speaking with you.
You've been one of one of my true joys of the investing
journey has been getting to know you.
So it's nice to do this likewise recorded and I look forward to
the next time we see each other. Same, same sooner rather than
later. No doubt.
All right, take care of yourself.
You as well.