Speaker 1: Hello, and welcome to a special holiday edition of What
Speaker 1: goes Up, a Bloomberg weekly market podcast. I'm Sarah Pontac,
Speaker 1: a reporter on the Crossset team, and I'm Mike Reagan,
Speaker 1: a senior editor on the Markets team. And Sarah, it
Speaker 1: is the day after Thanksgiving this podcast comes out, so
Speaker 1: we should probably speak quietly. We don't want to wake
Speaker 1: anyone up from a food coma if they're in. If
Speaker 1: you ate too much turkey, UM, I can't say I
Speaker 1: feel bad for you. Probably did Thanksgiving right, But happy
Speaker 1: Thanksgiving to everyone. That's right, That's right. And yeah, Thanksgiving
Speaker 1: is a time to sort of take stock of your life.
Speaker 1: And we're not gonna focus on the week in of
Speaker 1: markets like we normally do, because let's be honest, I
Speaker 1: think most of us were probably more focus on that
Speaker 1: turkey than we were on the markets. Instead, we're gonna
Speaker 1: focus on, as the name of the show implies, what
Speaker 1: goes up, something that unfortunately has been going up in
Speaker 1: recent years, in in recent decades is the temperature of
Speaker 1: the Earth. I hate to I hate to be a downer,
Speaker 1: but we're going to talk about climate change, very touchy
Speaker 1: subject for a lot of people. Um, Obviously, uh President
Speaker 1: of United States is not a big believer in it.
Speaker 1: Some people are not big believers in it. Others are
Speaker 1: very enthusiastic believers in it and believe now is the
Speaker 1: time to act. We're gonna save that sort of controversy
Speaker 1: for another podcast because you know, ideally what this podcast
Speaker 1: is about is how to invest um and climate change,
Speaker 1: like so many other things in the world, is creating
Speaker 1: opportunities for investments. So don't send us angry emails about it.
Speaker 1: It's it's our job to talk about angry emails. No
Speaker 1: angry tweets. If you have something rough to say, don't
Speaker 1: even call our podcasts. Maybe maybe you can. You can
Speaker 1: leave us a message and as a reminder, that number
Speaker 1: is six or six three two four three for nine zero.
Speaker 1: All right, So let me read something for you here
Speaker 1: a bit of it again a downer, but here's the
Speaker 1: take on climate change from a recent white paper by
Speaker 1: our guest who all introduced after this. Hurricanes, typhoons, droughts, wildfires,
Speaker 1: and other extreme weather events are causing record damage Increasingly.
Speaker 1: Climate change is impacting the economy and our daily lives
Speaker 1: and has come into focus as an existential threat to
Speaker 1: the world as we know it. The author of that
Speaker 1: very Looking on the bright Side report is with us here,
Speaker 1: Lucas White. He's a portfolio manager with GMO. Welcome to
Speaker 1: the show, Lucas, Thank you, thanks for having me. And
Speaker 1: you're basically you manage a strategy at GMO that is
Speaker 1: investing in climate change and sort of the potential winners
Speaker 1: of climate change. Could you just walk us through, UM,
Speaker 1: when did the strategy start? Kind Of obviously at GMO,
Speaker 1: everything has to go through Jeremy Grantham, I assume. So
Speaker 1: was this uh something he championed, um, and just just
Speaker 1: tell us how it all came about. Yes, So, actually,
Speaker 1: maybe ironically it evolved out of our natural resources strategy
Speaker 1: that we launched back in two thousand eleven. Jeremy Grantham
Speaker 1: has been focused on resource scarcity for a number of
Speaker 1: years and the dynamics that that poses for the commodity markets. UH.
Speaker 1: In other words, there's growing demand for natural resources, and
Speaker 1: yet there's a finite supply, in particular finite supply of cheap,
Speaker 1: easy to access UH natural resources that that is low
Speaker 1: cost and affordable. When we went to launch that strategy,
Speaker 1: I was involved in thinking about and researching the risks
Speaker 1: for investing in the resources sector over a long period
Speaker 1: of time, and I could find a lot of risks
Speaker 1: that you could diversify away. I could find a lot
Speaker 1: of risks that were short to medium term in nature,
Speaker 1: and as a long term investor, you could wait out.
Speaker 1: But there was one big risk that that kind of
Speaker 1: stood out, and that was stranded assets for the fossil
Speaker 1: fuel companies. Uh. And those assets could be stranded in
Speaker 1: a number of ways. We don't know exactly how it
Speaker 1: might happen, but it could be through carbon regulation, it
Speaker 1: could be carbon pricing, or it could just be pure
Speaker 1: technological disruption when and solar becomes so much cheaper than
Speaker 1: coal and natural gas that you just don't need all
Speaker 1: the coal and natural gas assets on your books. Um.
Speaker 1: So when I was thinking about, now, I'm going to
Speaker 1: launch a strategy and I'm I'm kind of the portfolio
Speaker 1: manager for that strategy. Uh, how do I manage that
Speaker 1: risk when the sector is seventy percent fossil fuels are
Speaker 1: competitors are eight to nine fossil fuels running global natural
Speaker 1: resources strategies? Um, what do you do? And we did
Speaker 1: a few things to manage that risk. One is we
Speaker 1: have a dramatically lower exposure to energy than our competitors
Speaker 1: or the cap weighted sector. We're about thirty energy, so
Speaker 1: half that of the broad market. UH. Within energy, we've
Speaker 1: always excluded the coal companies, the tar sand companies, the
Speaker 1: heavy oil companies, so the company these producing resources that
Speaker 1: have the highest UH risk of having stranded assets because
Speaker 1: they have the worst emissions profiles. UH. And the third
Speaker 1: thing we did, which is most relevant for climate change investing, frankly,
Speaker 1: is we've always targeted some of that energy exposure to
Speaker 1: be too clean energy. So of that thirty energy exposure,
Speaker 1: we have ten per cent of it is clean energy.
Speaker 1: And so we've been investing in wind, solar, clean power
Speaker 1: generation and the like UH since two thousand eleven. What
Speaker 1: happened is the costs for all of these clean energy
Speaker 1: technologies dropped in a way that really nobody could have
Speaker 1: foreseen in a very short period of time, so that
Speaker 1: around two thousand fifteen I started to make the case
Speaker 1: that the opportunity set is mature enough. There are enough
Speaker 1: companies that are making money, have been cash flow positive
Speaker 1: and and UH generating strong earnings and have strong balance
Speaker 1: sheets and aren't totally reliant on public policy support that
Speaker 1: we should launch a strategy that's less focused on kind
Speaker 1: of traditional natural resources and more focused the clean energy
Speaker 1: transition and where we need to go with the world.
Speaker 1: So it was really about approaching these inflection points where
Speaker 1: at some point in the not too distant future when
Speaker 1: solar electric vehicles other clean energy solutions are going to
Speaker 1: be cheaper uh than their fossil fuel based uh kind
Speaker 1: of more traditional forms. So that was something that jumped
Speaker 1: out to me. In one of the white papers that
Speaker 1: you did co author with Jeremy Grantham, there was a
Speaker 1: chart that you guys included showing the price structure of
Speaker 1: many of these types of energies and these companies, and
Speaker 1: you see the price coming down. However, there are many
Speaker 1: people out there who will still push back, and a
Speaker 1: common rebuke or refrain is that it's still pretty expensive.
Speaker 1: What is a time frame on something like this if
Speaker 1: you really wanted to take advantage of this change going
Speaker 1: forwards and the companies that are driving the change against
Speaker 1: climate change? How long is the timeframe actually in a
Speaker 1: realistic sense. Well, in some ways, wind and solar are
Speaker 1: already the cheapest for of electricity generation. Um. The problem
Speaker 1: is the intermittency. So our grids weren't designed to handle
Speaker 1: intermittent generation. They were designed around the idea that we
Speaker 1: would have centralized persistent generation, whether that be nuclear, coal,
Speaker 1: natural gas, doesn't really matter. Uh. Then long distance transmission
Speaker 1: to a distribution local distribution network. Well, now we have
Speaker 1: when turbines all over the place. We have solar panels
Speaker 1: on our rooftop. Sometimes they generate, sometimes they don't, and
Speaker 1: the grid wasn't really designed to handle that. So when
Speaker 1: and solar, the generation side of things is already in
Speaker 1: many ways and in many areas, significantly cheaper than color
Speaker 1: natural gas. The problem is you either have to store
Speaker 1: that energy or you have to enhance your grid and
Speaker 1: modernize your grid and make it more sophisticated and interconnected. UH.
Speaker 1: Our belief is that there will be secular growth for
Speaker 1: decades and both of those areas, as trillions of dollars
Speaker 1: need to flow into energy storage and and into modernizing
Speaker 1: our grids. UM. Just to give you a sense, energy
Speaker 1: storage sounds good, but it effectively doesn't really exist UH
Speaker 1: in today's world, at least at a utility scale. About
Speaker 1: one or two percent of energy is stored globally today
Speaker 1: and ninety five to tent of it is pumped hydra
Speaker 1: where you pump water up a mountain into a reservoir
Speaker 1: and then let it flow back down and generate hydro power,
Speaker 1: which is brilliant if you're next to a mountain with
Speaker 1: a reservoir. But for for most people, uh, that isn't
Speaker 1: a great solution, and it's not scalable for many locations.
Speaker 1: Someone from Florida I can say that there are no
Speaker 1: mountains around clearly, so be difficult exactly because how much
Speaker 1: of a headwind or as hail wind is the government
Speaker 1: when it comes to this strategy. I mean, obviously President
Speaker 1: Obama was a big advocate of solar energy. President Trump,
Speaker 1: on the other hand, is I think safe to say
Speaker 1: basically a climate change DENI or does that cause you know,
Speaker 1: a head wind of the strategy? Where is it? The economics,
Speaker 1: as you say, are getting so clear on the side
Speaker 1: of clear energy that it doesn't really matter who is
Speaker 1: controlling Congress or who's in the White House. I think
Speaker 1: with every passing year it matters less and less because
Speaker 1: the economics are just becoming more and more compelling. Uh.
Speaker 1: That said, there's no doubt about it. You want public
Speaker 1: policy support behind you. There's nothing but upside from having that.
Speaker 1: The federal government of the United States is one government entity, though,
Speaker 1: and people make too much of an issue of it,
Speaker 1: in my opinion. With with Donald Trump announcing that we're
Speaker 1: going to pull out of the Paris Agreement, there's been
Speaker 1: some wavering and it's not entirely clear where that's going
Speaker 1: to go. But even if the US government does, city states, businesses,
Speaker 1: universities around the country banded together and said that they're
Speaker 1: going to abide by the terms of the Paris Agreement
Speaker 1: and make sure that the United States does regardless of
Speaker 1: what the federal government does. In California is, you know,
Speaker 1: the world leader in my opinion when it comes to
Speaker 1: clean energy. If California were its own country, it would
Speaker 1: be something like the sixth or seventh biggest economy in
Speaker 1: the world. So it's not kind of small potatoes. So
Speaker 1: I think it's great to have US federal government support.
Speaker 1: But every other government on Earth, for the most part,
Speaker 1: has signed onto the Paris Agreement and is committed to it,
Speaker 1: and has really recommitted in the wake of the unit
Speaker 1: United States announcing that we may pull out. So in
Speaker 1: the long term, I really think Uh, it's it's not
Speaker 1: going to be a moving factor. Over the last few weeks,
Speaker 1: the US has formally begun to withdraw itself out of
Speaker 1: the Paris Climate Agreement. I'm looking at the top holdings
Speaker 1: in your strategy though, and the top four I see
Speaker 1: right here are still US companies, So maybe it matters
Speaker 1: more what corporations themselves are doing. From your perspective, though,
Speaker 1: when you guys are looking at companies across the globe
Speaker 1: doing your research, where do you really find companies at
Speaker 1: the forefront of this change? Where does it look like
Speaker 1: there is the most opportunity. Well, most of the companies
Speaker 1: that we have in our universe are global companies and
Speaker 1: they're serving a global marketplace. The only times you really
Speaker 1: see regional things for the most part is is China
Speaker 1: does have kind of its own wind market. There's the
Speaker 1: Chinese is wind market, and then the global wind market
Speaker 1: excluding China. So you do see a few um kind
Speaker 1: of domestically oriented opportunities here and there, But ninety nine
Speaker 1: percent of the companies that we look at are really
Speaker 1: in the global marketplace. So whether they're domiciled in the
Speaker 1: US or in Europe or Asia, or or South America,
Speaker 1: doesn't matter all that much. Uh. Most of the opportunities
Speaker 1: that we see are outside the US, so our strategy
Speaker 1: since inception has been about a quarter to a third
Speaker 1: in the United States, UH and and the rest outside
Speaker 1: the United States, including UH you typically about twenty and
Speaker 1: emerging markets. So we're seeing opportunities all around the world,
Speaker 1: both in terms of where the companies are domiciled, but
Speaker 1: also in terms of the markets that you're selling into.
Speaker 1: So Sarah beat me to that. List of the top
Speaker 1: holding is always one of the my favorite things to
Speaker 1: look at when looking at a funder strategy like this,
Speaker 1: and UH several of them, um are pretty obvious. Solar
Speaker 1: Edge was a top holding as of the end of September,
Speaker 1: I believe, obviously makes equipment for the solar industry. Vestas
Speaker 1: the Danish wind energy company, Renewable Energy Group another clean
Speaker 1: energy group in the US. A couple of surprises to
Speaker 1: me at least, so, so I'm curious if you could
Speaker 1: help us explain how these are climate change plays. Freeport
Speaker 1: mcmaran the minor I'm assuming it's the metals used in
Speaker 1: solar equipment, is that is that the main reason that's there. Yes,
Speaker 1: a copper is at the heart of clean energy. When
Speaker 1: you look at wind and solar because of the distributed nature,
Speaker 1: you now have wind, a series of wind turbines, you
Speaker 1: have hundreds of or thousands of solar panels. That's a
Speaker 1: lot of wiring and a lot of connectivity that you
Speaker 1: need to operate. So wind and solar projects, UH we
Speaker 1: use about four to twelve times as much copper, depending
Speaker 1: on the specifics of the project relative to a color
Speaker 1: natural gas power plant. Electric vehicles use three to four
Speaker 1: times as much copper as an internal combustion engine vehicle.
Speaker 1: Electric buses, for example, UH uses something like eight hundred
Speaker 1: pounds of copper. UH. We also need to overhaul our
Speaker 1: electric grids, as we've been talking about. That's incredibly comper intensive,
Speaker 1: energy efficient electrical components, appliances, etcetera, etcetera. We needed an
Speaker 1: electric vehicle charging infrastructure, and just copper is at the
Speaker 1: heart of clean energy. It's brilliant. They want to get
Speaker 1: off of fossil fuels. I'm on board, even though I
Speaker 1: run a natural resources strategy. I'm I'm with it, you know,
Speaker 1: I'm with the program. We need to get rid of
Speaker 1: fossil fuels over some period of time. But you're just
Speaker 1: moving the burden from one set of materials to another
Speaker 1: set of materials. There is no magical kind of clean
Speaker 1: free energy out there that doesn't rely on materials. You're
Speaker 1: just moving the burden to copp or, lithium, nickel, cobalt, vanadium,
Speaker 1: and other clean energy materials. So for listeners out there
Speaker 1: that are sort of environmentally minded, uh, you look at
Speaker 1: a company like a heavy mining company like that, and
Speaker 1: you don't really think of a great environmentally friendly company.
Speaker 1: But it's so crucial in the future of of solar
Speaker 1: and wind and climate change that I guess the pros
Speaker 1: of it outweigh the negatives. Yeah, I mean, Jeremy always
Speaker 1: says that if you get climate wrong, nothing else matters. Uh.
Speaker 1: And so the local environmental impact of mining operations is
Speaker 1: an ideal. The labor issues aren't ideal. These aren't things
Speaker 1: that you love as an investor or a human being.
Speaker 1: But the reality is we need these materials. Mining is
Speaker 1: a dirty game. Uh. We we obviously evaluate the environmental
Speaker 1: impact and the E s G profiles of the companies
Speaker 1: that we invest in and make sure that we're comfortable,
Speaker 1: and if we're not comfortable, we won't invest in in
Speaker 1: those mining companies. But generally speaking, you're, in my opinion,
Speaker 1: putting your head in the sand. If you say, oh,
Speaker 1: I want clean energy, but I don't want to be
Speaker 1: involved in the mining industry. Well, if you don't believe
Speaker 1: in copper mining or you think it's bad, Uh, first
Speaker 1: of all, you're condemning one point two billion people or
Speaker 1: so who don't have access to electricity to very low
Speaker 1: uh standard of living, very low quality of life because you,
Speaker 1: uh don't think that copper miners should be out there.
Speaker 1: And I don't see anybody going and ripping the copper
Speaker 1: out of their walls in their house and throwing it
Speaker 1: back into the global market because they don't believe in it.
Speaker 1: The other I think it's the fourth top holding a
Speaker 1: little less than four percent mosaic, basically a fertilizer company. Right,
Speaker 1: walk us through how that fits into the strategy. Yes, So,
Speaker 1: in terms of our strategy, we look at companies that
Speaker 1: are helping to mitigate climate change, but we also look
Speaker 1: at companies that are going to help the world adapt
Speaker 1: to climate change. The two big things on the adaptation
Speaker 1: side of things are our food and water. Agricultural productivity
Speaker 1: is incredibly impacted by a world or in a world
Speaker 1: of climate change, you have droughts, floods, extreme temperature events
Speaker 1: which are death for crops because it's not just that
Speaker 1: the average global temperature has risen, it's that there used
Speaker 1: to be a normal distribution around a lower average temperature,
Speaker 1: and now there's a skewed distribution around a higher average temperature.
Speaker 1: In that skew is towards the extremely hot days. Uh,
Speaker 1: you have extreme downpours which wash away your soil nutrients.
Speaker 1: You're basically taking farming which go talk to farmers. You're
Speaker 1: not going to find a farmer who says, oh, it
Speaker 1: used to be so easy to farm, but now it's
Speaker 1: starting to get difficult. It's always been a difficult game.
Speaker 1: Now you're making it much much more difficult. So companies
Speaker 1: focused on keeping agricultural productivity as high as possible, whether
Speaker 1: that be irrigation, drought resistance, seeds, precision agriculture, machinery and equipment,
Speaker 1: or fertilizers which is where mosaic comes into play, are
Speaker 1: all within scope for our strategy. So you mentioned in
Speaker 1: an acronym earlier E s G. And essentially what you're
Speaker 1: talking about is people who are investing in environmental, social
Speaker 1: and governance issues well against ones that would be a problem,
Speaker 1: And lately the exchange traded fund environment that industry has
Speaker 1: really latched onto it, on pace for a record year
Speaker 1: of inflows into so called E s G funds. UM.
Speaker 1: But I think you've made it very clear in the past,
Speaker 1: and you also alluded to it in your answer that
Speaker 1: what you guys are doing is different than E s G.
Speaker 1: So can you explain to us the difference in what
Speaker 1: E s G investors do versus what you guys do
Speaker 1: and investing for climate change? Yeah, that's an interesting question.
Speaker 1: I would argue that our strategy is in the s
Speaker 1: G strategy, but not because of its focus on climate
Speaker 1: change as as kind of the area that we're investing in,
Speaker 1: but because we are considering E s G issues E
Speaker 1: s G risks uh in, and we're integrating those issues
Speaker 1: in those risks holistically in our investment process. And to me,
Speaker 1: that's the spirit of E s G in our industry.
Speaker 1: I think E s G has gotten mistaken for sounding
Speaker 1: good moral and ethical investing avoiding controversy, But to me,
Speaker 1: that's not the spirit of E s G, or at
Speaker 1: least it shouldn't be uh and so I think we
Speaker 1: are running an E s G strategy from the perspective
Speaker 1: of we are incorporating E s G risks and concerns
Speaker 1: in positioning the strategy. Uh, it's not E s G
Speaker 1: if your definition of E s G is sounding good
Speaker 1: to everybody and avoiding controversy at all costs. So I
Speaker 1: noticed that the benchmark for the strategy is actually the
Speaker 1: m s c I All Country World Index. Um, that's
Speaker 1: a pretty broad group. I assume there was no sort
Speaker 1: of benchmark. Uh, that's just dedicated to climate change. To
Speaker 1: the benchmark. The fund to HSBC did have a climate
Speaker 1: change index. They discontinued it in two thousand sixteen as
Speaker 1: part of a broader dismantling of their index line, so
Speaker 1: it wasn't specific to their climate change strategy. But other
Speaker 1: than that, there are a few other environmental type indexes
Speaker 1: out there, But there's so much, um, so much of
Speaker 1: a gap between what their reppersenting and what we're doing
Speaker 1: that they wouldn't be a good benchmark for what we're doing.
Speaker 1: Benchmarking to the All Country World Index is kind of
Speaker 1: throwing our hands in the air a little bit and
Speaker 1: saying this isn't a good benchmark for what we're doing
Speaker 1: in the short to medium term. But our goal is
Speaker 1: to perform better than than the broad equity market over
Speaker 1: a long period of time. UH and and AQUA. The
Speaker 1: All Country World Index is the most commonly accepted global
Speaker 1: equity benchmark when it comes to climate change. I also
Speaker 1: found interesting in your primer when you think about other
Speaker 1: reasons to think about climate change as a way to
Speaker 1: find opportunity to invest. One was actually inflation protection. And yes, now,
Speaker 1: many people when you think about the economy and you
Speaker 1: think about what we're going through, people talk about the
Speaker 1: lack of inflation. Um, so can you break down how
Speaker 1: actually a strategy like this can provide protection against inflation
Speaker 1: even if we are in a low inflation environment. Yes. So,
Speaker 1: one thing I'll say is that energy historically has been
Speaker 1: a very difficult thing to give up. Investment gets talked
Speaker 1: a lot about in our industry these days, divesting from
Speaker 1: oil and gas and coal and fossil fuels and whatnot. Uh.
Speaker 1: The problem with divesting for many investors is that historically
Speaker 1: energy companies have outperformed the broad equity market. They've given
Speaker 1: you diversification. There have been whole decades UH, in the
Speaker 1: nineteen seventies and then two thousand and two thousand and ten,
Speaker 1: where the broad equity market was down in real terms,
Speaker 1: and yet energy companies were up over a hundred percent
Speaker 1: in real terms. That's the kind of diversification that you
Speaker 1: want in your portfolio. UH and and certainly in the seventies,
Speaker 1: that's a huge inflationary period. UH and energy companies didn't
Speaker 1: just protect you in that period, but you actually grew
Speaker 1: your purchasing power investing in those energy companies because once
Speaker 1: again they were up well over REEL. So it's a
Speaker 1: tough thing to give up. But when you invest in
Speaker 1: clean energy solutions that compete with fossil fuel solutions, you
Speaker 1: get indirect exposure to fossil fuel prices. So if coal
Speaker 1: and natural gas go through the roof, wind and solar
Speaker 1: become much more competitive, much more economic, in the world,
Speaker 1: mobilizes much more quickly to to rotate to them. UH. Similarly,
Speaker 1: with electric vehicles, there's a connection between oil prices and
Speaker 1: electric vehicle sales that we've seen in the US over
Speaker 1: the last few years. So because of that indirect exposure
Speaker 1: that you get to fossil fuel prices, investing UH in
Speaker 1: clean energy solutions, then more direct investments that we're making
Speaker 1: into clean energy materials, agriculture, water infrastructure, other real asset
Speaker 1: type businesses. We think our strategy would do well in
Speaker 1: a world where inflation was driven by commodity price rise. Now,
Speaker 1: if if inflation is driven by global trade wars or
Speaker 1: something like that, or or massive money printing, uh, you know,
Speaker 1: it's not as clear that our strategy would would give
Speaker 1: you a lot of inflation protection. But in the developed markets,
Speaker 1: at least historically, most inflationary periods have been driven by
Speaker 1: commodity prices rising. Just to get back to those top
Speaker 1: holdings for a little bit. Uh. And I'm fascinated by
Speaker 1: this because one thing you cannot accuse the strategy of
Speaker 1: being is a closet index or you know, it's it's
Speaker 1: definitely you know, taking a stance on the stocks it picks. Um.
Speaker 1: So if you were to sort of blindfold me and
Speaker 1: say what would you think would be one of the
Speaker 1: top weights in a climate change strategy, I would say, well,
Speaker 1: maybe Tesla would be there. I'm just curious, I don't
Speaker 1: see Tesla in the top holdings. Is it anywhere in
Speaker 1: the fund um? And if not, kind of what is
Speaker 1: what you see as far as the transportation space. Um,
Speaker 1: you know, a lot of the holdings seemed to be
Speaker 1: very much energy infrastructure rather than transportation. Um. Is there
Speaker 1: is there something in the fund to reflect sort of
Speaker 1: the future of automobiles. Yes, so there's a lot there.
Speaker 1: Let's say, let's start with Tesla. So Tesla, if you
Speaker 1: invest in Tesla, you're paying outrageous valuations for the automobile
Speaker 1: manufacturing industry. Uh and and increasingly, a play on Tesla
Speaker 1: won't be a play on electric vehicles. That will be
Speaker 1: a play on vehicle manufacturing because over the next five years, Mercedes,
Speaker 1: BMW even four and GM, which are pretty dopey auto manufacturers,
Speaker 1: are going to be coming out with their electric vehicle lines.
Speaker 1: Every single auto manufacturer on Earth is going to be
Speaker 1: rolling out electric vehicle line. So Tesla is not going
Speaker 1: to be the only game in town. So you're paying
Speaker 1: a huge multiple in an industry that's an extremely low
Speaker 1: multiple industry. The big auto manufacturers are five six seven
Speaker 1: times earnings generally speaking. Then you have Tesla, which, if
Speaker 1: they made money for long enough to measure their pe
Speaker 1: would be you know, extremely expensive, like a hundred or
Speaker 1: two hundred or whatever it would be. Um, this is
Speaker 1: kind of what I suspected the answer would be. So yeah, yeah,
Speaker 1: So it's very expensive and you're playing a very uncertain
Speaker 1: market share game. Uh, you have all these other manufacturers
Speaker 1: coming along, and Tesla, in the grand scheme of the
Speaker 1: global automobile market, barely sells any vehicles. Well, how many
Speaker 1: are they going to sell when they have a lot
Speaker 1: of competition. It's a it's a huge question mark. So
Speaker 1: it's highly speculative. I wouldn't even consider investing in Tesla
Speaker 1: and investment. It's really speculation at this point and in
Speaker 1: the maturity of their business and the market. And the
Speaker 1: third thing I'll say is that you guys haven't given
Speaker 1: me any pot, which is unfortunate. But Elon Musk is
Speaker 1: like smoking pot on podcasts and talk about s g
Speaker 1: risks and concerns. There's a huge governance risk there. He's
Speaker 1: not the most stable, uh figure to have running your
Speaker 1: company and being the leader for your company. So we
Speaker 1: we have pot available for the guests, and I think
Speaker 1: we'll have to producer. Yeah, I don't think we can
Speaker 1: give an answer on that unfortunately. Um, this would also
Speaker 1: probably be a stretch and a bit speculative. But lately
Speaker 1: when people think about the alternative meat space, somehow people
Speaker 1: bring that back into the climate conversation and sustainability. Does
Speaker 1: that ever come up in conversations when you were thinking
Speaker 1: about investing in changes going forwards as it relates to
Speaker 1: climate change or trying to combat that. Yes, certainly. We
Speaker 1: we consider the alternative protein sources so impossible, Uh, foods
Speaker 1: and and um, there are a couple others. Uh, they're
Speaker 1: so expensive right now they trade at fifty times sales,
Speaker 1: not fifty times earnings, fifty times sales. It's very difficult
Speaker 1: for a value investor. And and at my company and
Speaker 1: in my group, we're we're pretty focused on value and valuation. Uh,
Speaker 1: it's very difficult to get comfortable with those kinds of
Speaker 1: of lofty valuation levels. Well, it's an interesting point you
Speaker 1: bring up, though, that these sort of uh combating climate
Speaker 1: change plays, the real obvious ones tend tend to really
Speaker 1: do draw in a lot of investor interest to the
Speaker 1: point where you know you're not interested in fighting climate
Speaker 1: change at any price. It sounds like reasonable reasonably valued equities. Um. Uh,
Speaker 1: is that is that's a fair summary of your strategy. Yeah,
Speaker 1: we're looking for company that are treading at a discount
Speaker 1: to the market, that look cheaper than the average company
Speaker 1: out there, but are still exposed to decades of secular growth.
Speaker 1: It may sound counterintuitive, but you can find companies, wind companies,
Speaker 1: solar companies, companies in the automobile manufacturing industry who may
Speaker 1: not be the manufacturers, but they're producing the lithium ion
Speaker 1: batteries that go into the electric vehicles, or they're um
Speaker 1: working on energy efficient or gas efficient UH internal combustion
Speaker 1: engines and rotating their business towards the electric vehicle market
Speaker 1: and electric vehicle power trains. Could you give us a
Speaker 1: few names in that space, so companies like Borg Warner, Delphi,
Speaker 1: et cetera. There are one or two others that we
Speaker 1: look at. UH. These are companies that we think are
Speaker 1: are kind of exposed to electric vehicle growth, but you're
Speaker 1: not playing the same market share game that you are
Speaker 1: when you invest in a Tesla or a b y D.
Speaker 1: Going back to your question earlier about the transportation market,
Speaker 1: how else we invest in it? You can also invest
Speaker 1: in in kind of railroads UH and and railroad companies
Speaker 1: h and there are other ways of investing in transportation
Speaker 1: beyond just the the obviously obvious Tesla's and b I
Speaker 1: d s of the world, by D being the Chinese
Speaker 1: electric vehicle manufacturer. Uh. To be honest, though, we don't
Speaker 1: see much hype and hysteria beyond the areas that you
Speaker 1: guys are mentioning. So the news that's where we tend
Speaker 1: to latch onto. Exactly. The the kind of plant based
Speaker 1: meat replacements are are kind of uh really really, you
Speaker 1: see a lot of hype and hysteria there. You certainly
Speaker 1: see it in the electric vehicle manufacturers themselves. But you
Speaker 1: move beyond that, uh, and you can find companies. Let's
Speaker 1: put it this way, investors are not very comfortable and
Speaker 1: optimistic about solar and wind. A lot of early investors
Speaker 1: in the solar and wind markets have been burned. There
Speaker 1: was a real bubble there about a decade ago and exactly,
Speaker 1: and investors have a long memory for losses, right, for
Speaker 1: getting burned. Uh. So you find companies. In the last
Speaker 1: year we were able to buy invest Us Wind Systems,
Speaker 1: in our opinion, the biggest best wind turbine manufacturer in
Speaker 1: the world for thirteen times. Learnings trailing or forward, whichever
Speaker 1: way you looked at it, at thirteen times earnings, you
Speaker 1: don't have to bake in growth expectations at all. Dest
Speaker 1: This could never grow, uh for the rest of its life,
Speaker 1: and you're gonna generate a strong earnings or cash flow
Speaker 1: yield from owning that company if it grows. And we
Speaker 1: know that it's exposed to decades of secular growth. So
Speaker 1: it's hard for me to imagine, not impossible, but very
Speaker 1: hard for me to imagine a world where ten years
Speaker 1: from now Investus isn't making more money than it is today.
Speaker 1: So if you believe there's going to be growth, then
Speaker 1: at thirteen times earnings, it's a no brainer. Well, sir,
Speaker 1: you're mentioning beyond meat has gotten me hungry. I think
Speaker 1: it's time for a leftover turkey sandwich. Uh. And that's
Speaker 1: about all the time we have for this week. Lucas White.
Speaker 1: Great to have you, really fascinating stuff. Thanks for coming
Speaker 1: on the show, Thanks for having me, Thank you what
Speaker 1: goes out We'll be back next week. Until then, you
Speaker 1: can find us on the Bloomberg Terminal website and app
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Speaker 1: can find us on Twitter, follow me at at Sara
Speaker 1: pont sec and Mike is at Reaganonymous. You can also
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Speaker 1: Thanks for listening, See you next time.