1 00:00:05,670 --> 00:00:08,550 Sean Aylmer: Welcome to the Fear & Greed Business Interview. I'm Sean Aylmer. 2 00:00:08,730 --> 00:00:11,429 Sean Aylmer: We often hear that investing is about time in the 3 00:00:11,429 --> 00:00:15,389 Sean Aylmer: market rather than timing the market. But still, how do 4 00:00:15,389 --> 00:00:18,930 Sean Aylmer: you decide the right time to sell stock? When does 5 00:00:18,930 --> 00:00:21,900 Sean Aylmer: the quality stock go from a hold to a sell? 6 00:00:22,410 --> 00:00:25,950 Sean Aylmer: Gaurav Sodhi is the Deputy Head of Research at Intelligent 7 00:00:26,009 --> 00:00:29,579 Sean Aylmer: Investor, and has been exploring this exact question, well, for 8 00:00:29,580 --> 00:00:31,830 Sean Aylmer: a bunch of stocks, but today we're going to talk 9 00:00:31,830 --> 00:00:35,250 Sean Aylmer: about Wesfarmers. Now, we don't normally talk about one specific 10 00:00:35,340 --> 00:00:38,310 Sean Aylmer: stock, but we are going to today. It's a fascinating 11 00:00:38,310 --> 00:00:43,050 Sean Aylmer: company, headlined by two juggernaut businesses, Bunnings and Kmart. It also 12 00:00:43,050 --> 00:00:45,839 Sean Aylmer: has a chemicals division. Now, remember, this is general information 13 00:00:45,840 --> 00:00:48,450 Sean Aylmer: only and you should always seek professional advice before making 14 00:00:48,450 --> 00:00:51,870 Sean Aylmer: investment decisions. Gaurav, welcome back to Fear & Greed. 15 00:00:52,170 --> 00:00:53,428 Gaurav Sodhi: Thanks, Sean. Nice to be back with you. 16 00:00:53,940 --> 00:00:57,690 Sean Aylmer: So let's talk about Wesfarmers and deep dive into it. 17 00:01:00,060 --> 00:01:02,850 Sean Aylmer: Australia doesn't have many conglomerates anymore, do they? 18 00:01:03,210 --> 00:01:06,420 Gaurav Sodhi: No, conglomerates fell out of favor decades ago. I remember 19 00:01:06,420 --> 00:01:09,660 Gaurav Sodhi: when conglomerates used to dominate the top businesses around the 20 00:01:09,660 --> 00:01:12,958 Gaurav Sodhi: world and they were out favor for a long time, 21 00:01:12,959 --> 00:01:17,310 Gaurav Sodhi: and there's a couple that have stubbornly remained. One GE 22 00:01:17,310 --> 00:01:20,940 Gaurav Sodhi: has fallen over completely and collapsed. There's a couple in 23 00:01:20,940 --> 00:01:25,259 Gaurav Sodhi: Asia that remain pretty strong and dominant, and Wesfarmers is 24 00:01:25,259 --> 00:01:30,180 Gaurav Sodhi: really the only one in Australia that remains. So it's 25 00:01:30,180 --> 00:01:31,199 Gaurav Sodhi: certainly an outlier. 26 00:01:31,650 --> 00:01:34,260 Sean Aylmer: So we'll get into the specific bits and pieces in 27 00:01:34,260 --> 00:01:36,630 Sean Aylmer: a moment, but what's Wesfarmers made up of? 28 00:01:37,260 --> 00:01:40,619 Gaurav Sodhi: Yeah, I think of Wesfarmers not really as the sum 29 00:01:40,620 --> 00:01:44,940 Gaurav Sodhi: of its parts, but as almost a private equity firm 30 00:01:44,940 --> 00:01:48,209 Gaurav Sodhi: that's listed on the stock exchange, and it buys and 31 00:01:48,209 --> 00:01:52,560 Gaurav Sodhi: sells businesses and it holds them for sometimes a long time. 32 00:01:52,710 --> 00:01:55,740 Gaurav Sodhi: It's held Bunnings for decades. Sometimes a short time. It 33 00:01:55,740 --> 00:01:59,369 Gaurav Sodhi: held Coles for less than 10 years. So the aim 34 00:01:59,370 --> 00:02:02,460 Gaurav Sodhi: of Wesfarmers is to allocate money to get the highest 35 00:02:02,460 --> 00:02:05,610 Gaurav Sodhi: return possible for its shareholders, and that can be across 36 00:02:05,639 --> 00:02:11,130 Gaurav Sodhi: any industry, across any geography, and across any time period. 37 00:02:11,460 --> 00:02:14,309 Gaurav Sodhi: So there's a lot of flexibility in that mandate and that 38 00:02:14,309 --> 00:02:17,639 Gaurav Sodhi: flexibility is one of the key reasons for its success. 39 00:02:17,639 --> 00:02:20,460 Gaurav Sodhi: We recently saw them go into lithium and they're going 40 00:02:20,460 --> 00:02:23,579 Gaurav Sodhi: to be starting a lithium mine fairly shortly, but the 41 00:02:23,579 --> 00:02:28,470 Gaurav Sodhi: largest parts of Wesfarmers today, about 80% of profits come 42 00:02:28,470 --> 00:02:32,070 Gaurav Sodhi: from just Bunnings and Kmart, two juggernauts that people would 43 00:02:32,070 --> 00:02:33,000 Gaurav Sodhi: be very familiar with. 44 00:02:33,540 --> 00:02:36,419 Sean Aylmer: Okay. So just before we leave this, so what you 45 00:02:36,419 --> 00:02:38,730 Sean Aylmer: are saying, and remember a guy called Michael Chaney, he 46 00:02:38,730 --> 00:02:40,769 Sean Aylmer: used to run Wesfarmers a long time ago. 47 00:02:41,129 --> 00:02:41,219 Gaurav Sodhi: Yes. 48 00:02:41,340 --> 00:02:43,410 Sean Aylmer: So it's not like they're trying to get a return 49 00:02:43,410 --> 00:02:47,970 Sean Aylmer: on equity across... A mixed return on equity. They actually 50 00:02:47,970 --> 00:02:52,559 Sean Aylmer: want a return on whatever measure based on the specific 51 00:02:52,679 --> 00:02:55,740 Sean Aylmer: assets they have, as opposed to a mixed return on 52 00:02:55,740 --> 00:02:56,490 Sean Aylmer: equity. Is that right? 53 00:02:56,820 --> 00:02:59,488 Gaurav Sodhi: Yeah. The way they run is that every division within 54 00:02:59,490 --> 00:03:02,700 Gaurav Sodhi: Wesfarmers has to compete for capital. So that means the 55 00:03:02,700 --> 00:03:05,970 Gaurav Sodhi: most successful businesses get more money. So all the cashflow 56 00:03:05,970 --> 00:03:09,719 Gaurav Sodhi: from all the businesses gets pulled into Wesfarmers Corp, and 57 00:03:09,719 --> 00:03:13,110 Gaurav Sodhi: then the management of Wesfarmers decides how to allocate that 58 00:03:13,110 --> 00:03:16,020 Gaurav Sodhi: money. And the businesses that perform the best get the 59 00:03:16,020 --> 00:03:19,110 Gaurav Sodhi: most resources, and the ones that don't, tend to be 60 00:03:19,110 --> 00:03:22,169 Gaurav Sodhi: sold or to be starved of capital. And that's a 61 00:03:22,169 --> 00:03:25,168 Gaurav Sodhi: way of ensuring that the business generates the highest possible 62 00:03:25,169 --> 00:03:29,399 Gaurav Sodhi: returns. And return on capital, return on equity is actually 63 00:03:29,400 --> 00:03:34,799 Gaurav Sodhi: the characteristic of Wesfarmers. It's maintained a 20% return on 64 00:03:34,799 --> 00:03:38,490 Gaurav Sodhi: capital for decades, excluding a 10- year period where they 65 00:03:38,520 --> 00:03:41,820 Gaurav Sodhi: owned Coles. And that was really an accounting story, which 66 00:03:41,820 --> 00:03:43,110 Gaurav Sodhi: we don't need to go into today. 67 00:03:43,470 --> 00:03:46,350 Sean Aylmer: No, incredible. Okay. Bunnings, are you a Bunnings man, Gaurav, or not? 68 00:03:46,650 --> 00:03:50,160 Gaurav Sodhi: I'm actually not. I dread going into Bunnings just because 69 00:03:50,580 --> 00:03:52,139 Gaurav Sodhi: it means I have to do something around the house, 70 00:03:52,139 --> 00:03:52,590 Gaurav Sodhi: which I'd rather not do. 71 00:03:52,920 --> 00:03:53,759 Sean Aylmer: Yeah, No, I'm with you. 72 00:03:53,820 --> 00:03:54,780 Gaurav Sodhi: But I'm in the minority. 73 00:03:55,020 --> 00:03:56,790 Sean Aylmer: Yeah. Well, it's the second or third visit on the 74 00:03:56,790 --> 00:03:58,830 Sean Aylmer: same day that really gets me. I don't mind going 75 00:03:58,830 --> 00:04:00,300 Sean Aylmer: the first time. It's just when I have to return 76 00:04:00,300 --> 00:04:01,710 Sean Aylmer: things because I got the wrong thing, that's where it 77 00:04:01,800 --> 00:04:05,129 Sean Aylmer: irritates me. Phenomenal, phenomenal retailing story though. 78 00:04:05,670 --> 00:04:09,539 Gaurav Sodhi: It is maybe the best retailer in the country, and 79 00:04:09,570 --> 00:04:13,260 Gaurav Sodhi: I think sometimes the financial success of Bunnings gets hidden 80 00:04:13,260 --> 00:04:17,430 Gaurav Sodhi: because it's lost inside this larger conglomerate. But if we 81 00:04:17,430 --> 00:04:20,758 Gaurav Sodhi: break that apart a little bit, Wesfarmers has held Bunnings 82 00:04:20,760 --> 00:04:23,339 Gaurav Sodhi: for decades. It started off as a rather small WA 83 00:04:23,880 --> 00:04:29,010 Gaurav Sodhi: business, Bunnings, and under Wesfarmers' stewardship, they've grown that from 84 00:04:29,010 --> 00:04:33,238 Gaurav Sodhi: about a 4% market share, $ 400 million business when they 85 00:04:33,510 --> 00:04:36,120 Gaurav Sodhi: first got to it. It is now a $ 20 billion 86 00:04:36,390 --> 00:04:41,969 Gaurav Sodhi: revenue business and it contributes about 40% of industry revenue. 87 00:04:42,300 --> 00:04:46,619 Gaurav Sodhi: So it has 40% of the local hardware industry stitched 88 00:04:46,619 --> 00:04:51,120 Gaurav Sodhi: up and they still have ambitious growth targets to grow 89 00:04:51,120 --> 00:04:51,990 Gaurav Sodhi: that even further. 90 00:04:52,500 --> 00:04:56,100 Sean Aylmer: And it's seen off competitors, Masters, was it called? It 91 00:04:56,100 --> 00:04:59,550 Sean Aylmer: was the competitor. It just seems to be going from 92 00:04:59,550 --> 00:05:01,409 Sean Aylmer: strength to strength, Bunnings. 93 00:05:01,529 --> 00:05:03,839 Gaurav Sodhi: Yeah, when it was first rolling out, it was actually not 94 00:05:03,839 --> 00:05:06,869 Gaurav Sodhi: the largest hardware store. It's actually beaten the market leader 95 00:05:07,050 --> 00:05:09,990 Gaurav Sodhi: and it's fended off lots of competitors. The most famous, 96 00:05:09,990 --> 00:05:13,080 Gaurav Sodhi: you're right, has been Masters, which was a Woolworth's- funded 97 00:05:13,770 --> 00:05:17,880 Gaurav Sodhi: copycat, which aimed to take on Bunnings. There's a massive 98 00:05:18,059 --> 00:05:22,559 Gaurav Sodhi: profit pool in hardware and lots of companies have tried 99 00:05:22,559 --> 00:05:25,800 Gaurav Sodhi: to break into that and challenge Bunnings for that profit 100 00:05:25,800 --> 00:05:29,430 Gaurav Sodhi: pool, but it's so dominant. And in terms of locations, 101 00:05:29,670 --> 00:05:33,750 Gaurav Sodhi: these are large format stores that require specific large- scale 102 00:05:33,779 --> 00:05:38,580 Gaurav Sodhi: properties. And so Bunnings has really tied up particularly capital 103 00:05:38,580 --> 00:05:42,270 Gaurav Sodhi: cities with those properties. And because of the scale benefits 104 00:05:42,270 --> 00:05:45,180 Gaurav Sodhi: they have, it's very difficult to compete with. So just 105 00:05:45,180 --> 00:05:48,270 Gaurav Sodhi: an example of that, so about 90% of all the 106 00:05:48,270 --> 00:05:53,100 Gaurav Sodhi: products that are sold inside Bunnings are actually distributed by 107 00:05:53,130 --> 00:05:57,179 Gaurav Sodhi: the suppliers themselves. Now, a typical retail operation will hold 108 00:05:57,389 --> 00:06:01,680 Gaurav Sodhi: warehouses dotted all around the country and the retailer will 109 00:06:01,680 --> 00:06:05,580 Gaurav Sodhi: buy from a wholesaler and they'll store and inventory their 110 00:06:05,580 --> 00:06:08,550 Gaurav Sodhi: goods inside a warehouse and they'll distribute from the warehouse 111 00:06:08,820 --> 00:06:12,479 Gaurav Sodhi: to the retail stores. Now, because Bunnings is so large 112 00:06:12,480 --> 00:06:19,199 Gaurav Sodhi: and so dominant, they can buy the quantities and the range 113 00:06:19,200 --> 00:06:22,020 Gaurav Sodhi: of goods to make sure that the suppliers are happy 114 00:06:22,020 --> 00:06:25,409 Gaurav Sodhi: to warehouse and distribute for them. That means they can 115 00:06:25,410 --> 00:06:28,950 Gaurav Sodhi: experiment with new products very cheaply and they can try 116 00:06:28,950 --> 00:06:31,170 Gaurav Sodhi: new things without having to invest a whole lot in 117 00:06:31,170 --> 00:06:35,070 Gaurav Sodhi: logistics and distribution. And that's a key reason why they're 118 00:06:35,070 --> 00:06:36,539 Gaurav Sodhi: so difficult to compete with. 119 00:06:37,139 --> 00:06:39,029 Sean Aylmer: Stay with me, Gaurav. We'll be back in a minute. 120 00:06:45,900 --> 00:06:49,049 Sean Aylmer: I'm speaking to Gaurav Sodhi, Deputy Head of Research at 121 00:06:49,049 --> 00:06:54,089 Sean Aylmer: Intelligent Investor. Okay, so that's Bunnings. Let's go into Kmart. The second prong 122 00:06:54,270 --> 00:06:59,850 Sean Aylmer: of the Wesfarmers' retailing side. When Wesfarmers got involved with 123 00:06:59,850 --> 00:07:02,909 Sean Aylmer: Kmart, it really was struggling, but it's turned around since 124 00:07:02,910 --> 00:07:03,330 Sean Aylmer: then though. 125 00:07:03,660 --> 00:07:07,710 Gaurav Sodhi: Struggling? You're being very polite there, Sean. Struggling? Kmart was 126 00:07:07,710 --> 00:07:10,169 Gaurav Sodhi: considered the basket case. It was the sick child of 127 00:07:10,170 --> 00:07:14,820 Gaurav Sodhi: Australian retail. This happened more than 10 years ago, and 128 00:07:14,820 --> 00:07:18,000 Gaurav Sodhi: at that stage, Target was the golden child. Target used 129 00:07:18,120 --> 00:07:21,480 Gaurav Sodhi: to (inaudible) Kmart by multiples. Kmart was mixed in 130 00:07:21,480 --> 00:07:25,439 Gaurav Sodhi: with a whole bag of competition, including Big W, Reject 131 00:07:25,440 --> 00:07:28,680 Gaurav Sodhi: Shop, Best & Less. There was a whole lot of discount 132 00:07:28,949 --> 00:07:32,790 Gaurav Sodhi: category retail formats that were demolishing Kmart. It was actually 133 00:07:32,790 --> 00:07:36,210 Gaurav Sodhi: loss making and Bunnings picked up the whole business for 134 00:07:36,210 --> 00:07:40,170 Gaurav Sodhi: about $ 700 million. And the business was loss making when 135 00:07:40,170 --> 00:07:42,989 Gaurav Sodhi: they first bought it, mind you. Last year, it made 136 00:07:42,990 --> 00:07:46,320 Gaurav Sodhi: about $ 1. 2 billion. So in one year, they have 137 00:07:46,320 --> 00:07:49,080 Gaurav Sodhi: doubled what they paid for it, and it's been a 138 00:07:49,109 --> 00:07:52,500 Gaurav Sodhi: success for a long time. Now, the change in Kmart 139 00:07:52,500 --> 00:07:56,459 Gaurav Sodhi: really came from Wesfarmers' management. Kmart used to do what 140 00:07:56,460 --> 00:08:01,350 Gaurav Sodhi: they called massive discounting. They'd sell relatively higher cost goods 141 00:08:01,740 --> 00:08:06,029 Gaurav Sodhi: and a really large variety of product range, and they 142 00:08:06,029 --> 00:08:08,460 Gaurav Sodhi: used to discount occasionally. And what would happen is they were 143 00:08:08,460 --> 00:08:11,460 Gaurav Sodhi: very catalog driven and customers would come in and buy 144 00:08:11,460 --> 00:08:14,550 Gaurav Sodhi: the stuff on sale with a catalog in hand. And 145 00:08:14,550 --> 00:08:18,090 Gaurav Sodhi: that was a formula that required a lot of capital 146 00:08:18,090 --> 00:08:21,420 Gaurav Sodhi: because there was a huge amount of logistics and warehousing involved 147 00:08:22,049 --> 00:08:25,050 Gaurav Sodhi: because they carried such a large range, and also minimized 148 00:08:25,050 --> 00:08:27,270 Gaurav Sodhi: margin because people were only buying stuff that was on 149 00:08:27,270 --> 00:08:30,660 Gaurav Sodhi: sale. So when new management came in, they threw the 150 00:08:30,660 --> 00:08:33,929 Gaurav Sodhi: entire product range away and they went over to China 151 00:08:33,929 --> 00:08:37,679 Gaurav Sodhi: and they tried to source the cheapest stuff they could find. And 152 00:08:37,679 --> 00:08:40,379 Gaurav Sodhi: the story goes that they couldn't actually decide where to 153 00:08:40,379 --> 00:08:43,560 Gaurav Sodhi: get the cheapest stuff. So the Kmart executives in China 154 00:08:43,860 --> 00:08:47,730 Gaurav Sodhi: just followed where Walmart was going, and they figured out 155 00:08:47,730 --> 00:08:51,389 Gaurav Sodhi: where Walmart was sourcing their stuff and they figured, " Well, 156 00:08:51,389 --> 00:08:53,610 Gaurav Sodhi: Walmart must be getting their stuff from the cheapest supplier." 157 00:08:53,849 --> 00:08:57,629 Gaurav Sodhi: So they just piggybacked on the Walmart suppliers and they 158 00:08:57,630 --> 00:09:02,249 Gaurav Sodhi: bought them straight into Australia without any wholesalers, direct importation, 159 00:09:02,490 --> 00:09:06,630 Gaurav Sodhi: and they dramatically lowered the product range by reducing their 160 00:09:06,809 --> 00:09:10,709 Gaurav Sodhi: distribution costs and warehousing costs and they lowered the prices, 161 00:09:11,160 --> 00:09:13,139 Gaurav Sodhi: and they didn't have any big sales. They weren't catalog 162 00:09:13,139 --> 00:09:16,530 Gaurav Sodhi: driven anymore. They had everyday low prices, and that formula 163 00:09:16,559 --> 00:09:19,530 Gaurav Sodhi: has been the bedrock of their success over the last 10 years 164 00:09:19,530 --> 00:09:22,770 Gaurav Sodhi: or so. It's not only won them a huge amount 165 00:09:22,770 --> 00:09:25,199 Gaurav Sodhi: of market share, but it's won them a huge amount 166 00:09:25,200 --> 00:09:28,078 Gaurav Sodhi: of mind share. If you have children, you know that 167 00:09:28,080 --> 00:09:31,319 Gaurav Sodhi: Kmart is almost the default place to go to buy 168 00:09:31,320 --> 00:09:34,200 Gaurav Sodhi: almost anything, for a party or for anything kid related. 169 00:09:34,619 --> 00:09:37,679 Sean Aylmer: And it also has Anko brand, which is surely the most 170 00:09:37,890 --> 00:09:39,990 Sean Aylmer: successful brand launch for the last decade. 171 00:09:40,320 --> 00:09:43,470 Gaurav Sodhi: Yeah, you're quite right, and it's not recognized as such, 172 00:09:43,470 --> 00:09:46,650 Gaurav Sodhi: but you're absolutely correct. Anko is probably the most successful 173 00:09:46,650 --> 00:09:51,299 Gaurav Sodhi: brand that doesn't get any fanfare. It is Kmart's own internal 174 00:09:51,299 --> 00:09:54,720 Gaurav Sodhi: brand, and Anko alone is the number one toy brand 175 00:09:54,720 --> 00:09:57,689 Gaurav Sodhi: in Australia, the number one pet brand in Australia, number 176 00:09:57,690 --> 00:10:00,900 Gaurav Sodhi: one home care brand in Australia, and 20% of all 177 00:10:00,900 --> 00:10:05,070 Gaurav Sodhi: clothing sold over the entire country carries an Anko label. 178 00:10:05,520 --> 00:10:08,578 Gaurav Sodhi: Anko has been so successful that they're now trialing a 179 00:10:08,580 --> 00:10:12,750 Gaurav Sodhi: rollout of independent Anko stores overseas, and they're white labeling 180 00:10:13,050 --> 00:10:16,020 Gaurav Sodhi: for larger brands as well. So it's been a huge 181 00:10:16,050 --> 00:10:19,770 Gaurav Sodhi: part of the Kmart success story and they have further 182 00:10:19,770 --> 00:10:21,480 Gaurav Sodhi: potential upside for that brand still. 183 00:10:22,469 --> 00:10:23,639 Sean Aylmer: We are out of time, but I just want to 184 00:10:23,639 --> 00:10:26,429 Sean Aylmer: quickly mention Target because not everything's golden at Bunnings. 185 00:10:26,880 --> 00:10:30,780 Gaurav Sodhi: Yes, Target has been a problem, and it's mostly because 186 00:10:30,780 --> 00:10:33,000 Gaurav Sodhi: Kmart has been such a success. There's probably not enough 187 00:10:33,000 --> 00:10:35,520 Gaurav Sodhi: room in the market for too many of these discount 188 00:10:35,520 --> 00:10:38,970 Gaurav Sodhi: style retailers. A lot of Target stores have actually switched 189 00:10:38,970 --> 00:10:41,699 Gaurav Sodhi: over and they've turned into Kmart stores and they've reduced 190 00:10:41,700 --> 00:10:46,949 Gaurav Sodhi: that store footprint enormously. The strategy for Target now largely 191 00:10:46,949 --> 00:10:50,760 Gaurav Sodhi: mimics the strategy of Kmart with slightly higher market quality 192 00:10:51,059 --> 00:10:55,110 Gaurav Sodhi: and slightly higher prices. I don't think Target will be 193 00:10:55,200 --> 00:10:58,799 Gaurav Sodhi: a huge part of the success. I think the two 194 00:10:58,800 --> 00:11:02,549 Gaurav Sodhi: dominant brands, Bunnings and Kmart, as well as their chemicals 195 00:11:02,549 --> 00:11:06,780 Gaurav Sodhi: lithium business, that's going to be the driver of Wesfarmers' 196 00:11:06,780 --> 00:11:09,630 Gaurav Sodhi: success over the next few years. But it is interesting 197 00:11:09,630 --> 00:11:12,540 Gaurav Sodhi: to think about the fact that that balance sheet is 198 00:11:12,660 --> 00:11:15,179 Gaurav Sodhi: pretty lazy. They've probably got an extra billion dollars of 199 00:11:15,179 --> 00:11:18,090 Gaurav Sodhi: capital that they can deploy in new ventures, and I 200 00:11:18,090 --> 00:11:22,410 Gaurav Sodhi: wouldn't be surprised to see something... A large acquisition on 201 00:11:22,410 --> 00:11:27,000 Gaurav Sodhi: the table and maybe a divestment of potentially Target or 202 00:11:27,000 --> 00:11:29,880 Gaurav Sodhi: another part of that business. It's a real strength of 203 00:11:29,880 --> 00:11:33,840 Gaurav Sodhi: the company that its portfolio can change as the economy changes. 204 00:11:34,440 --> 00:11:37,920 Sean Aylmer: Okay, so let's go back to the beginning about when it's 205 00:11:37,920 --> 00:11:39,958 Sean Aylmer: time to buy and sell a stock. And we often 206 00:11:39,960 --> 00:11:40,110 Sean Aylmer: talk about buying. 207 00:11:40,110 --> 00:11:40,320 Gaurav Sodhi: Yes. 208 00:11:40,500 --> 00:11:45,300 Sean Aylmer: We don't often tell about selling. Wesfarmers itself is up 209 00:11:45,360 --> 00:11:49,050 Sean Aylmer: about 43% in the last year. It's up about 22% 210 00:11:49,080 --> 00:11:52,529 Sean Aylmer: this year alone. It's been on a run over the 211 00:11:52,530 --> 00:11:55,590 Sean Aylmer: last month or so as well... Or sorry, certainly during 212 00:11:55,590 --> 00:11:57,689 Sean Aylmer: July. When is it time to sell a stock like 213 00:11:57,690 --> 00:11:58,949 Sean Aylmer: Wesfarmers? How do we know? 214 00:11:59,490 --> 00:12:01,770 Gaurav Sodhi: Yeah, you're right. It's a hard question. I actually think 215 00:12:01,770 --> 00:12:04,590 Gaurav Sodhi: that buying is one skillset and selling is a completely 216 00:12:04,590 --> 00:12:07,650 Gaurav Sodhi: different skillset, and we focus so much on getting better 217 00:12:07,650 --> 00:12:11,639 Gaurav Sodhi: as buyers, and we don't focus on getting better as 218 00:12:11,639 --> 00:12:14,670 Gaurav Sodhi: sellers, and it takes a different mindset. Now, the way 219 00:12:14,730 --> 00:12:16,410 Gaurav Sodhi: I think about this... Look, I should mention, by the 220 00:12:16,410 --> 00:12:19,380 Gaurav Sodhi: way, Intelligent Investor Funds owns Wesfarmers and we've held it 221 00:12:19,380 --> 00:12:21,780 Gaurav Sodhi: for quite some time. The way I think about this 222 00:12:21,780 --> 00:12:24,478 Gaurav Sodhi: is when you have a very high- quality business, and 223 00:12:24,480 --> 00:12:27,839 Gaurav Sodhi: Wesfarmers is a very high- quality business, the task is 224 00:12:27,840 --> 00:12:31,979 Gaurav Sodhi: not so much to buy well. The task is really 225 00:12:32,070 --> 00:12:38,910 Gaurav Sodhi: to hold on, to overlook temporary dearness and try to 226 00:12:38,910 --> 00:12:42,300 Gaurav Sodhi: hold on for as long as you can. Unless something 227 00:12:42,300 --> 00:12:44,939 Gaurav Sodhi: dramatically bad is going on inside that business, or unless 228 00:12:44,940 --> 00:12:48,570 Gaurav Sodhi: the valuation is so crazy that it's hard to ignore, 229 00:12:49,170 --> 00:12:51,630 Gaurav Sodhi: you really need to look through periods like this where 230 00:12:51,630 --> 00:12:55,559 Gaurav Sodhi: the stock is undeniably expensive, it's 30 times earnings. I 231 00:12:55,559 --> 00:12:59,338 Gaurav Sodhi: think it is overpriced, but because there are still so 232 00:12:59,340 --> 00:13:03,480 Gaurav Sodhi: many options for growth and because this business is irreplaceable 233 00:13:03,480 --> 00:13:06,358 Gaurav Sodhi: in one's portfolio, if you were to sell this, you'd 234 00:13:06,360 --> 00:13:08,520 Gaurav Sodhi: be paying tax on top of it and you'd have 235 00:13:08,520 --> 00:13:11,340 Gaurav Sodhi: to find an idea that's just as good as Wesfarmers, 236 00:13:11,340 --> 00:13:14,700 Gaurav Sodhi: and there's not very many of them. So in our portfolio, 237 00:13:14,700 --> 00:13:17,160 Gaurav Sodhi: we've decided to hang on even though we know it's 238 00:13:17,160 --> 00:13:20,730 Gaurav Sodhi: expensive, and we do that for the highest quality businesses. 239 00:13:21,210 --> 00:13:23,010 Sean Aylmer: Gaurav, thank you for talking to Fear & Greed. 240 00:13:23,280 --> 00:13:24,390 Gaurav Sodhi: It's a pleasure, Sean. Thank you. 241 00:13:24,690 --> 00:13:27,689 Sean Aylmer: That was Gaurav Sodhi, Deputy Head of Research at Intelligent 242 00:13:27,690 --> 00:13:30,960 Sean Aylmer: Investor. This is the Fear & Greed Business Interview. Remember, we 243 00:13:30,960 --> 00:13:34,020 Sean Aylmer: are not an investing podcast. This was general information only, 244 00:13:34,260 --> 00:13:36,870 Sean Aylmer: and you should always seek professional advice before making investment 245 00:13:36,870 --> 00:13:39,450 Sean Aylmer: decisions. Join us every morning for the full episode of 246 00:13:39,450 --> 00:13:41,968 Sean Aylmer: Fear & Greed, business news for people who make their own 247 00:13:41,969 --> 00:13:44,249 Sean Aylmer: decisions. I'm Sean Aylmer. Enjoy your day.