1 00:00:05,640 --> 00:00:08,000 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm sure 2 00:00:08,039 --> 00:00:11,080 Speaker 1: al mum. There aren't a lot of old style listed 3 00:00:11,119 --> 00:00:13,960 Speaker 1: conglomerates on the AX anymore, but one of the oldest 4 00:00:13,960 --> 00:00:18,840 Speaker 1: and most interesting is Washington Hate Sol Patterson. On the surface, 5 00:00:18,880 --> 00:00:21,240 Speaker 1: some of the numbers look quite ordinary. It's net profit 6 00:00:21,320 --> 00:00:23,560 Speaker 1: fell twenty eight percent for the financial year, but the 7 00:00:23,600 --> 00:00:26,480 Speaker 1: story behind it is fascinating, with a long, long history 8 00:00:26,520 --> 00:00:30,240 Speaker 1: of strong returns for investors. Remember this is general information 9 00:00:30,400 --> 00:00:33,240 Speaker 1: only and you should always seek professional advice before making 10 00:00:33,280 --> 00:00:37,279 Speaker 1: investment decisions. Gourab Soodi is the deputy head of research 11 00:00:37,360 --> 00:00:40,280 Speaker 1: at Intelligent Investor. Gorev Welcome back to Fear and Greed. 12 00:00:40,800 --> 00:00:44,120 Speaker 1: Nice to be with you, Sean, Thank you cracking company. 13 00:00:44,159 --> 00:00:46,440 Speaker 1: This one I remember as a journalist when I first 14 00:00:46,440 --> 00:00:50,920 Speaker 1: started twenty five years ago, trying to understand Soul Pats 15 00:00:51,400 --> 00:00:54,040 Speaker 1: and probably failing. It's been listed for one hundred and 16 00:00:54,080 --> 00:00:57,720 Speaker 1: twenty years, started as a pharmacy. Give us the sort 17 00:00:57,760 --> 00:00:59,200 Speaker 1: of a snapshot of its history. 18 00:00:59,480 --> 00:01:03,800 Speaker 2: Yes, often called Australia's version of Berkshire Hathaway and compared 19 00:01:03,800 --> 00:01:06,360 Speaker 2: to Warren Buffett's business. And I think part of that 20 00:01:06,480 --> 00:01:09,400 Speaker 2: is because it does run a conglomerate structure. It owns 21 00:01:09,400 --> 00:01:11,800 Speaker 2: a whole bunch of businesses in a whole bunch of 22 00:01:11,840 --> 00:01:15,720 Speaker 2: different industries. And also because I think it's run by 23 00:01:15,920 --> 00:01:20,880 Speaker 2: a genteel billionaire who demonstrates the patience and the wisdom 24 00:01:21,040 --> 00:01:24,520 Speaker 2: of Uncle Warren himself. And that's part of the appeal 25 00:01:24,520 --> 00:01:27,440 Speaker 2: of this business. It's not only about what the company does, 26 00:01:27,560 --> 00:01:30,200 Speaker 2: and as you say, it's got this long history, it's 27 00:01:30,240 --> 00:01:34,920 Speaker 2: also a business that's characterized by the amazing traits of 28 00:01:34,959 --> 00:01:37,080 Speaker 2: the family that has run it for generations. 29 00:01:37,200 --> 00:01:38,240 Speaker 1: Tell us about the family. 30 00:01:38,520 --> 00:01:41,640 Speaker 2: Yes, it's the Milner family who's run this business for 31 00:01:42,720 --> 00:01:47,119 Speaker 2: multi generations, and they're a billionaire investor family. I've gone 32 00:01:47,280 --> 00:01:51,280 Speaker 2: met them many times, gone to the Berkshey Meeting, met 33 00:01:51,320 --> 00:01:54,200 Speaker 2: them at the Berkshey Meeting in the US time War 34 00:01:54,240 --> 00:01:58,240 Speaker 2: two as well, and they are as conservative, as patient, 35 00:01:58,280 --> 00:02:00,840 Speaker 2: and as wise as they appear on the outset. This 36 00:02:00,920 --> 00:02:03,640 Speaker 2: is a business run with great care and dedication, with 37 00:02:03,760 --> 00:02:07,720 Speaker 2: great conservatism, and it's run with the aim of generating 38 00:02:07,760 --> 00:02:10,560 Speaker 2: cash and paying dividends. So I think one of the 39 00:02:10,639 --> 00:02:15,240 Speaker 2: great lessons from Soul Paths for individual investors in particular, 40 00:02:15,960 --> 00:02:18,320 Speaker 2: is that you don't need to chase trends. You don't 41 00:02:18,320 --> 00:02:21,120 Speaker 2: need to find sexy stories to do well on the market. 42 00:02:21,400 --> 00:02:25,240 Speaker 2: You won't find soul paths chasing decarbonization or an aging 43 00:02:25,280 --> 00:02:29,600 Speaker 2: population or Chinese middle class or AI. They do business 44 00:02:29,600 --> 00:02:32,119 Speaker 2: the old fashioned way in that they look for businesses 45 00:02:32,120 --> 00:02:35,320 Speaker 2: that generate lots of cash, They buy them at sensible prices, 46 00:02:35,320 --> 00:02:38,280 Speaker 2: and they hold them for a long time, partnering with 47 00:02:38,560 --> 00:02:42,280 Speaker 2: incentivized management. And when you buy into this business, that's 48 00:02:42,320 --> 00:02:44,840 Speaker 2: the sort of philosophy you're buying into, and you can 49 00:02:44,880 --> 00:02:47,959 Speaker 2: be confident that that sort of philosophy won't change. 50 00:02:48,680 --> 00:02:53,359 Speaker 1: Okay, So they've got sizable stakes in mid sized companies 51 00:02:53,400 --> 00:02:56,320 Speaker 1: like Brick Works, which does exactly as you would expect 52 00:02:56,320 --> 00:03:00,720 Speaker 1: Brick Works to do, New Hope, which is coal, TPG Telco. 53 00:03:01,600 --> 00:03:04,480 Speaker 1: I suppose you have just explained their philosophy, but leaving 54 00:03:04,520 --> 00:03:07,760 Speaker 1: the large caps out of it, why do they invest 55 00:03:07,840 --> 00:03:08,920 Speaker 1: in these mid caps? 56 00:03:09,400 --> 00:03:11,960 Speaker 2: Yeah, so they actually came to each of these opportunities. 57 00:03:12,040 --> 00:03:16,440 Speaker 2: The companies you just mentioned, actually Shanna, TPG, Brickworks, and 58 00:03:16,520 --> 00:03:20,160 Speaker 2: New Hope they make up something about around forty percent 59 00:03:20,200 --> 00:03:22,919 Speaker 2: of the entire portfolio. They actually came to these businesses 60 00:03:22,960 --> 00:03:25,920 Speaker 2: when these were tiny little companies. So TPG was founded 61 00:03:25,919 --> 00:03:29,600 Speaker 2: by David TiO. Saltpats Management found David Tia when he 62 00:03:29,680 --> 00:03:32,160 Speaker 2: was running a microcap business when it was ten or 63 00:03:32,200 --> 00:03:35,880 Speaker 2: twenty million dollars when TPG was fraction of sense, and 64 00:03:35,920 --> 00:03:38,560 Speaker 2: they invested heavily into that and back that all the 65 00:03:38,600 --> 00:03:41,440 Speaker 2: way as it was sold to Vodafone, and they still 66 00:03:41,440 --> 00:03:44,160 Speaker 2: own a stake today when it's a multi billion dollar business. 67 00:03:44,680 --> 00:03:47,280 Speaker 2: Did a New Hope? New Hopes started out as an 68 00:03:47,280 --> 00:03:52,680 Speaker 2: Indonesian coal miner of small volume and nascent profitability. It 69 00:03:52,760 --> 00:03:55,400 Speaker 2: is now a multi billion dollar business. They've held that 70 00:03:55,440 --> 00:03:59,000 Speaker 2: thing for decades and it's provided tens of billions of 71 00:03:59,040 --> 00:04:01,680 Speaker 2: dollars in dividends to think so you can see a 72 00:04:01,680 --> 00:04:04,440 Speaker 2: pattern emerging here. They buy these businesses when they're small. 73 00:04:04,480 --> 00:04:07,760 Speaker 2: They often identify individuals who are talented at running them 74 00:04:08,000 --> 00:04:12,480 Speaker 2: or in a specific business with a enduring competitive advantage, 75 00:04:12,520 --> 00:04:15,080 Speaker 2: and they hold them for decades. They harvest the cash 76 00:04:15,240 --> 00:04:19,080 Speaker 2: and reinvested in other ventures. That's why they maintain holdings 77 00:04:19,120 --> 00:04:22,480 Speaker 2: in those businesses. They've taken cash earned from those businesses 78 00:04:22,480 --> 00:04:25,120 Speaker 2: and they're now investing them in new lines of business, 79 00:04:25,200 --> 00:04:28,800 Speaker 2: in private credit, in funds management, They're in a whole 80 00:04:28,839 --> 00:04:33,240 Speaker 2: suite of private businesses, including swim pool tuitions. So if 81 00:04:33,279 --> 00:04:35,680 Speaker 2: if you send your kid to to swimming classes, there's 82 00:04:35,839 --> 00:04:38,599 Speaker 2: there's a decent shot that that swim class might be 83 00:04:38,640 --> 00:04:41,440 Speaker 2: owned by soul Pats. And there's a lot of little 84 00:04:41,440 --> 00:04:44,359 Speaker 2: private businesses in here that no one would ever he 85 00:04:44,360 --> 00:04:47,599 Speaker 2: hear of and aren't necessarily listed or well known, but 86 00:04:47,640 --> 00:04:50,840 Speaker 2: they are owned and managed very conservatively by this business. 87 00:04:51,680 --> 00:04:53,800 Speaker 1: Is that something that's new or is that always been 88 00:04:53,839 --> 00:04:56,680 Speaker 1: the strategy? I A TPG new hope. We're tiny little 89 00:04:56,680 --> 00:04:59,279 Speaker 1: companies none of us knew about decades ago and look 90 00:04:59,279 --> 00:05:02,040 Speaker 1: at them now. Is that just par for the course 91 00:05:02,240 --> 00:05:02,839 Speaker 1: for soul. 92 00:05:02,720 --> 00:05:05,960 Speaker 2: Pads, Yes, it is. The Other thing that characterizes soul 93 00:05:06,040 --> 00:05:09,120 Speaker 2: Pats is the long history of dividends. So, as I said, 94 00:05:09,120 --> 00:05:11,200 Speaker 2: this is a business that's one hundred and twenty years old, 95 00:05:11,560 --> 00:05:14,640 Speaker 2: they have increased dividends every year for the last twenty 96 00:05:14,640 --> 00:05:16,520 Speaker 2: five years. I don't think any other business on the 97 00:05:16,560 --> 00:05:19,720 Speaker 2: AX can claim that. And they paid a dividend consistently 98 00:05:19,760 --> 00:05:23,760 Speaker 2: for at least on to say, half a century at least. 99 00:05:24,279 --> 00:05:27,240 Speaker 2: And so the aim of the business really that the 100 00:05:27,240 --> 00:05:30,520 Speaker 2: aim of buying all these collective businesses is to is 101 00:05:30,560 --> 00:05:33,240 Speaker 2: to pull together cash flows and then to pay cash 102 00:05:33,320 --> 00:05:38,400 Speaker 2: flows consistently and with regularity to shareholders. That's how the 103 00:05:38,440 --> 00:05:41,599 Speaker 2: Milner family has really built its wealth and that's why 104 00:05:41,640 --> 00:05:46,400 Speaker 2: there are so many successful investors inside New Hope and 105 00:05:46,560 --> 00:05:50,320 Speaker 2: its sister companies. If you look at the last twenty years, 106 00:05:50,320 --> 00:05:52,880 Speaker 2: when we've crunched the numbers, it looks like they've generated 107 00:05:52,880 --> 00:05:56,320 Speaker 2: about thirteen percent annualized returns of the last twenty years, 108 00:05:56,360 --> 00:05:58,520 Speaker 2: which I think would put it in the top two 109 00:05:58,640 --> 00:06:00,880 Speaker 2: or three percent of any funds management business. I mean, 110 00:06:00,880 --> 00:06:04,799 Speaker 2: it's enough to make any big name, high feed generating 111 00:06:04,880 --> 00:06:08,640 Speaker 2: fund manager blush. And that's why soul Pats is a 112 00:06:08,680 --> 00:06:12,719 Speaker 2: good alternative in my view for a managed fund or 113 00:06:12,760 --> 00:06:14,279 Speaker 2: a LICK or an ETF. 114 00:06:14,839 --> 00:06:23,440 Speaker 1: Stay with me, we'll be back in a minute. I'm 115 00:06:23,480 --> 00:06:29,040 Speaker 1: speaking to Gurav Sodi, deputy head of research at Intelligent Investor. Okay, 116 00:06:29,040 --> 00:06:31,280 Speaker 1: so let's delve into that a little bit about where 117 00:06:31,440 --> 00:06:34,680 Speaker 1: a company like soul Pats can fit into your portfolio. 118 00:06:35,240 --> 00:06:40,000 Speaker 1: You're not buying a sector or you're not buying a stock. 119 00:06:40,080 --> 00:06:41,799 Speaker 1: You're kind of buying a bit of everything. 120 00:06:42,000 --> 00:06:45,320 Speaker 2: Yes, what you're buying is an investment approach, and you're 121 00:06:45,360 --> 00:06:49,200 Speaker 2: buying the conservatism and patience of people who have done 122 00:06:49,200 --> 00:06:53,840 Speaker 2: this for one hundred years. So I would I would 123 00:06:53,880 --> 00:06:58,000 Speaker 2: hesitate to look at this business as a standalone company 124 00:06:58,000 --> 00:07:00,640 Speaker 2: today the way it is, because in ten years it's 125 00:07:00,839 --> 00:07:03,279 Speaker 2: likely going to look a little bit different. So you 126 00:07:03,320 --> 00:07:05,920 Speaker 2: don't want to be focused on the numbers too much. 127 00:07:05,920 --> 00:07:10,200 Speaker 2: You know, they don't think ratio analysis, pe row, these 128 00:07:10,240 --> 00:07:13,880 Speaker 2: sort of things are largely irrelevant for a bit this business. Now. 129 00:07:13,960 --> 00:07:17,400 Speaker 2: That's partly because of the way accounting rules work in 130 00:07:17,480 --> 00:07:20,040 Speaker 2: enforcing the business to recognize profits and debt and that 131 00:07:20,080 --> 00:07:22,320 Speaker 2: sort of thing, but it's also because this is a 132 00:07:22,360 --> 00:07:25,000 Speaker 2: company that's going to allocate capital to new areas, it's 133 00:07:25,040 --> 00:07:27,800 Speaker 2: going to buy and sell businesses. It's going to look different, 134 00:07:28,120 --> 00:07:30,640 Speaker 2: so those sort of things don't look don't work. We 135 00:07:30,760 --> 00:07:32,960 Speaker 2: typically value this on a some of the parts basis. 136 00:07:33,160 --> 00:07:35,560 Speaker 2: We make estimates of what the whole business is worth 137 00:07:35,960 --> 00:07:38,280 Speaker 2: and then try and put those pieces back together to 138 00:07:38,280 --> 00:07:41,040 Speaker 2: get a share price. I reckon it's probably a little 139 00:07:41,080 --> 00:07:43,920 Speaker 2: bit expensive, but it's never going to be cheap. This business. 140 00:07:43,960 --> 00:07:47,760 Speaker 2: This is one company, and this is rare for us 141 00:07:47,800 --> 00:07:50,120 Speaker 2: to say. I'm going to say Now, this is one 142 00:07:50,200 --> 00:07:52,760 Speaker 2: company where it's okay to pay a little bit too 143 00:07:52,840 --> 00:07:56,160 Speaker 2: much because you're never going to get this cheaply and 144 00:07:56,240 --> 00:07:59,280 Speaker 2: you're going to be holding this for decades ideally. 145 00:08:00,160 --> 00:08:02,840 Speaker 1: So every I mean, that's a great rep for the company. 146 00:08:02,960 --> 00:08:05,320 Speaker 1: What worries you about it, though, because of course every 147 00:08:06,040 --> 00:08:07,880 Speaker 1: investment has an upside and a downside. 148 00:08:08,640 --> 00:08:11,360 Speaker 2: Look, I think the thing that worries me with most 149 00:08:11,400 --> 00:08:15,280 Speaker 2: businesses is the way cash is reinvested in the profits 150 00:08:15,640 --> 00:08:19,600 Speaker 2: are spent. I have no such class in this business. Look, 151 00:08:19,640 --> 00:08:23,400 Speaker 2: they'll make mistakes and they've lost money on investments before. Again, 152 00:08:23,440 --> 00:08:26,360 Speaker 2: that doesn't really concern me because it's the aggregate accounts 153 00:08:26,360 --> 00:08:29,000 Speaker 2: and the aggregate is solid. I think where you can 154 00:08:29,000 --> 00:08:31,360 Speaker 2: get wrong is just paying too much for the company 155 00:08:31,600 --> 00:08:34,600 Speaker 2: and selling too early. This is not a business where 156 00:08:34,640 --> 00:08:37,040 Speaker 2: the management's likely going to make errors. It's a business 157 00:08:37,080 --> 00:08:40,000 Speaker 2: where the shareholder is probably going to make errors, and 158 00:08:40,040 --> 00:08:42,439 Speaker 2: that's in selling it when it looks a little bit 159 00:08:42,440 --> 00:08:45,040 Speaker 2: too expensive in the short term or not buying it 160 00:08:45,160 --> 00:08:48,080 Speaker 2: when it looks too expensive in the short term. So look, 161 00:08:48,360 --> 00:08:50,199 Speaker 2: I actually think this is one of the safest stocks 162 00:08:50,280 --> 00:08:54,000 Speaker 2: on the ASX, one that most investors can sleep safely 163 00:08:54,040 --> 00:08:57,440 Speaker 2: at night and treat like a managed fund. But I 164 00:08:57,440 --> 00:09:00,080 Speaker 2: would say that the price you pay will have a 165 00:09:00,080 --> 00:09:04,319 Speaker 2: big determinant on the likely capital gains, more so than 166 00:09:04,360 --> 00:09:07,280 Speaker 2: other businesses, because this is not a swiftly growing business. 167 00:09:07,280 --> 00:09:10,080 Speaker 2: This is a company that demands you. You need to pay 168 00:09:10,240 --> 00:09:12,400 Speaker 2: a sensible price if you're going to generate that sort 169 00:09:12,440 --> 00:09:14,959 Speaker 2: of fifteen percent plus return that most of us are 170 00:09:14,960 --> 00:09:17,600 Speaker 2: looking for, So price matters. Here. 171 00:09:18,120 --> 00:09:21,520 Speaker 1: Are there many other companies that you can compare to 172 00:09:21,640 --> 00:09:24,360 Speaker 1: sol Paths? I mean West Farmers has a chemical business 173 00:09:24,360 --> 00:09:26,200 Speaker 1: and retail business, so you sort of think of that 174 00:09:26,240 --> 00:09:29,320 Speaker 1: as a great conglomerate, but in actual fact it's only 175 00:09:29,559 --> 00:09:32,240 Speaker 1: in two or three areas. And I suppose some of 176 00:09:32,320 --> 00:09:34,240 Speaker 1: Kerry Stokes I said they are in a bunch of areas, 177 00:09:34,240 --> 00:09:37,120 Speaker 1: but partly listed, partly unlisted. Is there anything to compare 178 00:09:37,800 --> 00:09:38,360 Speaker 1: sol pads. 179 00:09:38,800 --> 00:09:41,920 Speaker 2: You've highlighted the two that come to mind. I agree completely. 180 00:09:42,200 --> 00:09:45,920 Speaker 2: West Farmers and seven Group two businesses that are run 181 00:09:46,080 --> 00:09:51,199 Speaker 2: I would say, with equal patients and conservatism very intelligently, 182 00:09:51,280 --> 00:09:54,800 Speaker 2: run a good selection of businesses that are high quality. 183 00:09:55,120 --> 00:09:57,280 Speaker 2: To that list, I will also throw in a third 184 00:09:57,280 --> 00:09:59,800 Speaker 2: which may not be as well known and that's Infratil. 185 00:10:00,280 --> 00:10:04,120 Speaker 2: Infertil is a New Zealand based and conglomerate. It's really 186 00:10:04,240 --> 00:10:06,960 Speaker 2: a publicly listed private equity firm in that it's a 187 00:10:06,960 --> 00:10:09,920 Speaker 2: bit like West Farmers and Soul Paths that it have 188 00:10:10,120 --> 00:10:12,920 Speaker 2: its money from shareholders and then try and allocate that 189 00:10:12,960 --> 00:10:16,199 Speaker 2: to different sources, and it will shop and change businesses. 190 00:10:16,240 --> 00:10:19,800 Speaker 2: It will look for different opportunities and buy and sell 191 00:10:19,880 --> 00:10:22,280 Speaker 2: when the prices are right. So again what you're buying 192 00:10:22,280 --> 00:10:25,520 Speaker 2: there is an approach and a collective experience rather than 193 00:10:25,840 --> 00:10:31,280 Speaker 2: any individual business. And those three, so West Farmers, seven 194 00:10:31,320 --> 00:10:34,439 Speaker 2: and Infertol, we've held all of them at various times 195 00:10:34,960 --> 00:10:36,840 Speaker 2: during the life of our funds, and all three I 196 00:10:36,840 --> 00:10:40,160 Speaker 2: would put way up there with Soul Paths as outstanding opportunities. 197 00:10:41,200 --> 00:10:44,920 Speaker 1: They're not very trendy, are they. Conglomers They were thirty 198 00:10:45,000 --> 00:10:47,600 Speaker 1: years ago, but they really have fallen out of fashion. 199 00:10:48,040 --> 00:10:52,079 Speaker 2: Yeah, And I think the key is that these aren't 200 00:10:52,120 --> 00:10:55,400 Speaker 2: really run as conglomerates. They're run as private equity firms. 201 00:10:55,480 --> 00:11:00,240 Speaker 2: So inside these companies, individual businesses compete for capital and 202 00:11:00,360 --> 00:11:04,720 Speaker 2: the management of the master business is very happy to 203 00:11:04,880 --> 00:11:09,160 Speaker 2: sell and to buy to replace, to add to shrink 204 00:11:09,200 --> 00:11:12,959 Speaker 2: and to grow the constituent parts as the returns dictate, 205 00:11:13,120 --> 00:11:15,600 Speaker 2: and that sort of flexibility is the secret to their 206 00:11:15,679 --> 00:11:18,120 Speaker 2: high returns. And over that, on top of that, we 207 00:11:18,200 --> 00:11:22,040 Speaker 2: overlay conservatism and patients from the master business. I think 208 00:11:22,040 --> 00:11:24,360 Speaker 2: that's really important if you look at the if you 209 00:11:24,360 --> 00:11:28,480 Speaker 2: think about the old style conglomerates of the past, the ges, 210 00:11:28,800 --> 00:11:32,840 Speaker 2: or some of the consumer FMCG businesses of the past, 211 00:11:33,280 --> 00:11:36,360 Speaker 2: those were businesses that really just were a mishmash of 212 00:11:36,360 --> 00:11:40,600 Speaker 2: different companies and they didn't really fight for capital, or 213 00:11:40,600 --> 00:11:43,600 Speaker 2: they didn't weren't as flexible in their approach. It's not 214 00:11:43,640 --> 00:11:44,320 Speaker 2: what we see here. 215 00:11:45,000 --> 00:11:46,520 Speaker 1: Grav thank you for talking to Fear and. 216 00:11:46,480 --> 00:11:49,079 Speaker 2: Greed Pleasure as always, no one thank you as. 217 00:11:48,960 --> 00:11:52,400 Speaker 1: Grev Sody, Deputy head of Research at Intelligent Investor. This 218 00:11:52,480 --> 00:11:54,840 Speaker 1: is the Fear and Greed Business Interview. Remember this is 219 00:11:54,880 --> 00:11:57,720 Speaker 1: general information only, and you should always seek professional advice 220 00:11:57,760 --> 00:12:00,760 Speaker 1: before making investment decisions. Join us every morning for the 221 00:12:00,760 --> 00:12:03,319 Speaker 1: full episode of Fear and Greed Business News for people 222 00:12:03,320 --> 00:12:08,040 Speaker 1: who make their own decisions. I'm Seane Elmer. Enjoy your day.