WEBVTT - Capital Group’s Buchbinder on the Capital System

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<v Speaker 1>Welcome to Inside Active, a podcast about active managers that

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<v Speaker 1>goes beyond sound bites and headlines and looks deeper into

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<v Speaker 1>the processes, challenges, and philosophies and security selection. I'm David Cohne,

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<v Speaker 1>I lead mutual fund and active research at Bloomberg Intelligence.

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<v Speaker 1>Today my co host is Michael Casper, us small cap

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<v Speaker 1>and sector strategist at Bloomberg Intelligence. Mike, thanks for joining

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<v Speaker 1>me today.

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<v Speaker 2>Thank you, David.

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<v Speaker 1>So, I know we're going to be talking about dividends today,

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<v Speaker 1>but I did want to ask you about another type

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<v Speaker 1>of shareholder benefit buybacks, specifically in the financial sector. Have

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<v Speaker 1>there been a lot of repurchases in the sector and

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<v Speaker 1>you know what could we expect going forward.

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<v Speaker 2>Yeah, there's been quite a bit, especially within the larger

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<v Speaker 2>banks in the US or we're talking about the six

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<v Speaker 2>biggest banks. There was quite a large buyback from a

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<v Speaker 2>few of them in the past quarter, in the past year.

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<v Speaker 2>They're really returning capital back to shareholders and it's part

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<v Speaker 2>of the reason that or at least it's exuding confidence

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<v Speaker 2>in the industry that is now leading our financials industry scorecard.

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<v Speaker 2>By the way, so we do these industry rankings intrasector

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<v Speaker 2>for nine of the eleven GICK sectors. We kind of

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<v Speaker 2>ignore real estate and utilities they're a little bit too

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<v Speaker 2>small to do this kind of work on, but banks

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<v Speaker 2>nonetheless rising to the top of our financials model. On

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<v Speaker 2>the flip side, capital markets and insurance towards the bottom.

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<v Speaker 2>Insurance obviously has some of those headwinds from the California

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<v Speaker 2>fires and all the insurance payouts that they might have

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<v Speaker 2>to make, especially amongst the P and C companies there.

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<v Speaker 2>But valuations, all note are the one thing that kind

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<v Speaker 2>of everybody points out to me as being a little

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<v Speaker 2>bit stretched within the financial sector. It is one of

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<v Speaker 2>the more expensive sectors relative to its most recent five

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<v Speaker 2>year average, along with tech. It's actually one of two

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<v Speaker 2>trading one standard deviation above the norm on its preferred

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<v Speaker 2>valuation metric, which, by the way, we use we use

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<v Speaker 2>price to book valuations for financials. But nonetheless, there's several

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<v Speaker 2>significant fundamental tailwinds, and I think that the buybacks that

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<v Speaker 2>we've seen in the sector are kind of exuding confidence

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<v Speaker 2>in the sector. But pretty much everything clicking on, clicking

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<v Speaker 2>on all cylinders outside of insurance fees looking great and

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<v Speaker 2>interest income was looking pretty strong in the fourth quarter

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<v Speaker 2>for banks, You've got M and A and IPO activity

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<v Speaker 2>looking like it's going to pick up a little bit

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<v Speaker 2>in twenty twenty five. So kind of a broad based

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<v Speaker 2>rally within financials and everything looking good there and buybacks

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<v Speaker 2>kind of exuding that confidence as well from management.

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<v Speaker 1>Great. Well, I guess we'll segue into a different type

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<v Speaker 1>of shareholder yield. So I'd like to welcome Christopher Bookbinder

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<v Speaker 1>to Inside Active. Chris is a portfolio manager at Capital Group,

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<v Speaker 1>including the Capital Group Dividend Value ETF tickers CGDV, a

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<v Speaker 1>fun we'll actually be talking about today. So Chris, thank

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<v Speaker 1>you so much for joining us today.

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<v Speaker 3>Thanks for having me.

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<v Speaker 1>So let's start with your career. How did you get

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<v Speaker 1>into the investment business.

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<v Speaker 3>Well, I was lucky enough to join Capital in nineteen

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<v Speaker 3>ninety five into something called the Associates Program or TAP,

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<v Speaker 3>which is an absolutely amazing two year rotational program where

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<v Speaker 3>we also take a series of business school classes that

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<v Speaker 3>are arranged by Capital. When I came out of TAP,

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<v Speaker 3>I started out as an analyst covering the telecom industry

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<v Speaker 3>in the late nineteen nineties. For those of you who

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<v Speaker 3>may remember that period, that was the era of the

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<v Speaker 3>TMT bubble, and so I got a front row seat

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<v Speaker 3>to both the inflating and then the deflating of that bubble.

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<v Speaker 3>And I will say I think there's some interesting parallels

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<v Speaker 3>between the wave of investments we saw then and the

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<v Speaker 3>wave of AI investments taking place now. My next industry,

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<v Speaker 3>in addition to telecom, was the auto industry, and during

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<v Speaker 3>the time I covered that industry, two of the three

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<v Speaker 3>largest companies went bankrupt. And then for my sins, I

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<v Speaker 3>started out as a portfolio manager in two thousand and seven,

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<v Speaker 3>and I actually started in the predecessor fund to CGDV

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<v Speaker 3>in October two thousand and seven, which happened to be

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<v Speaker 3>the exact month the market peak before the fifty percent

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<v Speaker 3>plus decline into the GFC. So I guess I've become

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<v Speaker 3>a little bit of an expert in investing in challenging

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<v Speaker 3>environments during my tenure at Capital Great.

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<v Speaker 1>So if we focus in on CGDV, you know, we

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<v Speaker 1>know it's a dividend fund, but what's the process for

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<v Speaker 1>selecting stocks for the portfolio.

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<v Speaker 3>Yeah, it's a great question, David. So the core of

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<v Speaker 3>the CGDV investment process is the capital system, and the

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<v Speaker 3>capital system is a multiple portfolio Manager system and CGDV.

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<v Speaker 3>We have five portfolio managers, each of whom manages their

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<v Speaker 3>sleeve of the fund as if it were their own fund.

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<v Speaker 3>This PM team draws on the work of our global

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<v Speaker 3>analyst team that's out beating the bushes to find insights

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<v Speaker 3>and investment opportunities. We've got, you know, just under two

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<v Speaker 3>hundred analysts around the world who are meeting with companies

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<v Speaker 3>twenty one thousand meetings. I think last year alone, our

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<v Speaker 3>pms in the fund averaged thirty two years of investment experience.

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<v Speaker 3>And we've carefully selected the team to have complementary but

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<v Speaker 3>different investment approaches. And what that means is that when

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<v Speaker 3>one PM is zigging, the others will be zagging. That

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<v Speaker 3>provides a level of inherent diversification. And then, as lead

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<v Speaker 3>PM for the fund, I oversee the team make sure

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<v Speaker 3>that the funds in line with our broad guidelines, which

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<v Speaker 3>are essentially ninety percent of the companies have to be

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<v Speaker 3>investment grade, ninety percent of the companies have to pay dividends.

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<v Speaker 3>The aggregate portfolio needs to generate a yield that's thirty

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<v Speaker 3>percent above the S and P five hundred that's before

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<v Speaker 3>expenses and I'm also responsible for monitoring sort of overall

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<v Speaker 3>risk and correlation within the fund.

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<v Speaker 1>Great, so you mentioned yield and dividends. Are there specific

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<v Speaker 1>dividend metrics you know a company will need to have

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<v Speaker 1>to be or at least be an option for the

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<v Speaker 1>portfolio A lot specifically, and I'd say, coming back to

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<v Speaker 1>the couple system, each PM brings a slightly different lens

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<v Speaker 1>to the fund. At the PM level, each PM has

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<v Speaker 1>to generate a yield that's thirty percent above the market,

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<v Speaker 1>but they can get there in different ways. Some of

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<v Speaker 1>the pms tend to have every company in their portfolio

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<v Speaker 1>is a dividend pair. Others might have up to ten

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<v Speaker 1>percent of their portfolio and non dividend payers, but companies

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<v Speaker 1>that we think might be dividend pairs in the future.

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<v Speaker 1>If I think about my specific sleeve of the fund

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<v Speaker 1>and my approach, I tend to be contrarian. I tend

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<v Speaker 1>to focus on out of favor companies or industries with strong,

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<v Speaker 1>strong underlying fundamentals but that are maybe obfuscated by the

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<v Speaker 1>current environment. Again with a dividend paying lens around that

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<v Speaker 1>set of companies. So you know, examples of my investment

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<v Speaker 1>approach are we've got large holdings in the fund. I've

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<v Speaker 1>had had large holdings in aircraft engine manufacturers, for instance,

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<v Speaker 1>or cruise lines, both of which are dividend paying companies

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<v Speaker 1>now are dividend paying industries now, but maybe weren't when

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<v Speaker 1>we invested in them originally, and that the original investments

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<v Speaker 1>are typically made in those companies during the depth of

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<v Speaker 1>the pandemic.

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<v Speaker 2>How do you identify stocks that might raise, cut or

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<v Speaker 2>eliminate dividends? It does a cut automatically force you out

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<v Speaker 2>of a position or do you reassess if you believe

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<v Speaker 2>in the company's fundamentals.

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<v Speaker 3>Yeah, well, it all starts with the fundamental research process

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<v Speaker 3>for us. So you know, our analysts have long tenures

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<v Speaker 3>and their job is really to become sort of the

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<v Speaker 3>world's greatest expert in their industries. And so the starting

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<v Speaker 3>screen for us is what wreck companies are analysts recommending

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<v Speaker 3>and why? And then within that universe, as we focus

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<v Speaker 3>on the sort of dividend payers or companies that we

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<v Speaker 3>think have the opportunity to pay dividends in the future.

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<v Speaker 3>Really what we're looking for are is sort of financial

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<v Speaker 3>stability and intrinsic value. And intrinsic value might mean a

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<v Speaker 3>low PE today, or it might mean a high PE,

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<v Speaker 3>but you know, kind of tremendous return on invested capital,

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<v Speaker 3>so that if you look three or forty years down

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<v Speaker 3>the road, it actually does look quite an expensive within

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<v Speaker 3>that set of companies. When when a company cuts their dividend.

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<v Speaker 3>First of all, we're trying not to in this fund

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<v Speaker 3>generally invest in companies that we expect to cut their dividends,

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<v Speaker 3>but it does happen occasionally. As long as we're meeting

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<v Speaker 3>the overall target of thirty percent above the S and

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<v Speaker 3>P five hundred from an overall yield perspective, we have

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<v Speaker 3>flexibility to hold those securities for a longer period of time,

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<v Speaker 3>and in some cases, if we think that the dividend

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<v Speaker 3>cuts are temporary, we will hold those companies. And you know,

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<v Speaker 3>it's really about a view on the intrinsic value at

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<v Speaker 3>that point.

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<v Speaker 1>So I wanted to go back to what you mentioned.

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<v Speaker 1>How you're looking at you know, possibly out of favorite companies,

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<v Speaker 1>and you know you just mentioned you know, intrinsic value

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<v Speaker 1>and PE are there if you're looking at valuations, Are

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<v Speaker 1>there any things specific that you're looking for?

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<v Speaker 3>Yeah, well, our approach to valuation is not one size

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<v Speaker 3>fits all, So we acknowledge that in different industries and

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<v Speaker 3>in different periods of time, there may be different approaches.

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<v Speaker 3>You know, the topic of book value came up Earlierals

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<v Speaker 3>tangible book values are really important metric that we pay

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<v Speaker 3>attention to, but that's not so important in a number

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<v Speaker 3>of other industries where intangible assets may be a much

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<v Speaker 3>more important part of the value. I'd also say with

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<v Speaker 3>a capital system, each of those five portfolio managers may

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<v Speaker 3>take a slightly different approach to value. I tend to

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<v Speaker 3>be a little bit more oriented towards kind of tangible

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<v Speaker 3>valuation metrics like price to free cash flow, price to

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<v Speaker 3>gap earnings over a reasonable timeframe three or four years.

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<v Speaker 3>But again, when you get into certain periods of time

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<v Speaker 3>where perhaps the company is making very large investments that

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<v Speaker 3>are money losing and that causes the pe to be

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<v Speaker 3>a rev very high. But those money losing investments, you

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<v Speaker 3>can think of some of the large tech companies, for instance,

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<v Speaker 3>that have big money losing divisions, those money losing investments

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<v Speaker 3>might actually be creating a lot of value, and you

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<v Speaker 3>don't want to kind of write that off completely. And

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<v Speaker 3>so we take a flexible approach to thinking about valuation,

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<v Speaker 3>and it is focused, as I said earlier, sort of

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<v Speaker 3>on intrinsic value rather than just sort of what has

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<v Speaker 3>the lowest pe or price to book today.

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<v Speaker 2>And do you find any specific sectors really interesting within

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<v Speaker 2>your style right now?

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<v Speaker 3>I do so. The biggest sector, the second biggest sector

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<v Speaker 3>in the fund overall, is healthcare right now, and that

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<v Speaker 3>in my sleeve of the fund is actually the largest sector.

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<v Speaker 3>And that's one that I think is particularly interesting for

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<v Speaker 3>a couple of reasons. One, it's been quite out of

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<v Speaker 3>favor now for a couple of years, you know, post

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<v Speaker 3>pandemic has been one of the worst sectors of the market.

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<v Speaker 3>And then after the election, I think, for a variety

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<v Speaker 3>of reasons that I think are understandable in the moment

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<v Speaker 3>but are probably likely to be poorly placed long term,

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<v Speaker 3>the sectors sold off, you know, quite dramatically, even further.

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<v Speaker 3>And some of that's been due to concern over the

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<v Speaker 3>Trump administration's policies or potential policies. Some of it's been

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<v Speaker 3>due to concerns after the assassination of the executive from

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<v Speaker 3>United Healthcare, a great tragedy, but as a result, you've

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<v Speaker 3>got companies that are and businesses that are really resilient,

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<v Speaker 3>some of which, like in the case of you know,

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<v Speaker 3>the leading companies in the GLP one sector have great

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<v Speaker 3>growth prospects that fit very well for this fund, their

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<v Speaker 3>dividend paying they've got strong balance sheets that are on

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<v Speaker 3>sale and when on sale, and I'd say that's also

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<v Speaker 3>attractive to me. What we tend to take a very

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<v Speaker 3>long term perspective with our holdings. We do look at

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<v Speaker 3>the environment and think about how well we are positioned,

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<v Speaker 3>and it seems to me that we're going into a

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<v Speaker 3>period of greater uncertainty, and healthcare traditionally is a very

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<v Speaker 3>resilient sector during periods of uncertainty.

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<v Speaker 1>You know, I wanted to ask you about geographics in

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<v Speaker 1>terms of international holdings. Are you seeing less dividend opportunities

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<v Speaker 1>outside of Canada and Europe?

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<v Speaker 3>Well, so, CGDV is primarily a US fund. We're not

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<v Speaker 3>allowed to have more than you know, kind of mandate,

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<v Speaker 3>not more than ten percent of our holdings outside the US.

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<v Speaker 3>So our international holdings tend to be global companies with

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<v Speaker 3>substantial US businesses that just happen to be domiciled in

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<v Speaker 3>another country. And so, you know, what are examples in

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<v Speaker 3>the portfolio We've got an aerospace company, for instance, that

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<v Speaker 3>happens to be domiciled in Europe, but it's a global business.

0:12:17.600 --> 0:12:20.160
<v Speaker 3>We've got a tobacco company that happens to be domiciled

0:12:20.160 --> 0:12:22.640
<v Speaker 3>in England, but it's got a very large US business,

0:12:22.640 --> 0:12:25.800
<v Speaker 3>And so those are examples of our non US holdings.

0:12:25.840 --> 0:12:29.959
<v Speaker 3>So it's really focusing on kind of global leaders, dividend payers,

0:12:30.160 --> 0:12:33.680
<v Speaker 3>strong balance sheets that just happened to be domicil elsewhere.

0:12:35.880 --> 0:12:39.440
<v Speaker 2>So we've seen some cash flush companies initiated dividend recently.

0:12:40.200 --> 0:12:42.600
<v Speaker 2>What conditions do you think are necessary to spur some

0:12:42.640 --> 0:12:45.440
<v Speaker 2>of these megacap companies, especially to returning from more capital

0:12:45.440 --> 0:12:48.800
<v Speaker 2>to shareholders. Is it really a lack of investing opportunities

0:12:49.400 --> 0:12:51.199
<v Speaker 2>down the road or something else.

0:12:51.880 --> 0:12:56.199
<v Speaker 3>Well, if you look at some of the megatap mega

0:12:56.400 --> 0:13:00.559
<v Speaker 3>megacap tech companies, excuse me, they have really begun to

0:13:00.640 --> 0:13:05.760
<v Speaker 3>ramp their investments quite significantly recently in AI specifically, and

0:13:06.880 --> 0:13:09.000
<v Speaker 3>you know, the beauty of the business model for many

0:13:09.000 --> 0:13:11.240
<v Speaker 3>of these companies is that they can both ramp their

0:13:11.240 --> 0:13:14.439
<v Speaker 3>investments dramatically, which they're doing, and at the same time

0:13:14.480 --> 0:13:16.560
<v Speaker 3>they can continue to pay dividends and in many cases

0:13:16.600 --> 0:13:20.360
<v Speaker 3>they're also buying backstock. So I think these are companies

0:13:20.360 --> 0:13:23.280
<v Speaker 3>that do have the financial strength to do all three.

0:13:25.080 --> 0:13:26.720
<v Speaker 3>I guess, you know. I think the big question in

0:13:26.760 --> 0:13:29.600
<v Speaker 3>my mind is I think of that cohort is what

0:13:29.640 --> 0:13:33.560
<v Speaker 3>will the returns on these investments in AI be over time?

0:13:33.600 --> 0:13:35.720
<v Speaker 3>And I think that's you know, the jury's still out,

0:13:36.520 --> 0:13:38.400
<v Speaker 3>but it is an area where I have some questions.

0:13:39.800 --> 0:13:43.040
<v Speaker 2>And you're obviously a dividend manager first and foremost, but

0:13:43.480 --> 0:13:46.000
<v Speaker 2>do you look at other capital allocations like buybacks or

0:13:46.000 --> 0:13:48.920
<v Speaker 2>reinvesting in R and D as kind of a precursor

0:13:48.960 --> 0:13:50.840
<v Speaker 2>to more dividends coming down the pike.

0:13:51.840 --> 0:13:56.080
<v Speaker 3>Yeah, that's a good question, Michael. We think first about

0:13:56.080 --> 0:13:58.839
<v Speaker 3>the fundamentals of the company, and so you know, we

0:13:59.200 --> 0:14:01.040
<v Speaker 3>like to think about company is as if we were

0:14:01.280 --> 0:14:03.920
<v Speaker 3>the owner of the entire company, although we obviously are not.

0:14:04.600 --> 0:14:09.160
<v Speaker 3>And so if a company's got really attractive reinvestment opportunities

0:14:09.280 --> 0:14:12.880
<v Speaker 3>or opportunities to earn high returns from R and D investment,

0:14:12.920 --> 0:14:17.440
<v Speaker 3>we want them to make those investments. And once they

0:14:17.480 --> 0:14:20.400
<v Speaker 3>make those investments, we're going to make a judgment about, Okay,

0:14:20.520 --> 0:14:22.280
<v Speaker 3>can they continue to pay dividend? Do they have the

0:14:22.280 --> 0:14:24.960
<v Speaker 3>financial strength to pay dividends and make those investments, and

0:14:25.000 --> 0:14:27.640
<v Speaker 3>generally we're kind of looking at looking for companies in

0:14:27.680 --> 0:14:31.200
<v Speaker 3>this fund that can do both, but we would never

0:14:31.280 --> 0:14:34.240
<v Speaker 3>ask companies to increase the dividend, for instance, at the

0:14:34.280 --> 0:14:36.560
<v Speaker 3>expense of a really high return internal investment.

0:14:39.200 --> 0:14:41.560
<v Speaker 2>What do you see as the biggest macro risk right

0:14:41.600 --> 0:14:43.160
<v Speaker 2>now to dividend investing?

0:14:44.760 --> 0:14:47.440
<v Speaker 3>Yeah, well, dividend paying companies tend to come from all

0:14:47.600 --> 0:14:51.480
<v Speaker 3>industries and sectors, and they tend to be financially stable,

0:14:51.520 --> 0:14:53.600
<v Speaker 3>particularly if you layer on the sort of investment grade

0:14:53.640 --> 0:14:57.240
<v Speaker 3>requirement we have in CGDV. So I think the biggest

0:14:57.280 --> 0:14:59.760
<v Speaker 3>macro risk to dividend investing is probably more of a

0:14:59.760 --> 0:15:02.840
<v Speaker 3>real relative performance risk. You know, if we get into

0:15:02.920 --> 0:15:06.000
<v Speaker 3>environments where high multiple growth stocks that don't pay dividends

0:15:06.040 --> 0:15:08.600
<v Speaker 3>dominate the market indices and have the best returns, it's

0:15:08.680 --> 0:15:12.280
<v Speaker 3>it's really difficult for a fund like CGDV to you know,

0:15:12.400 --> 0:15:15.600
<v Speaker 3>keep up in that environment. But other than that, we

0:15:15.680 --> 0:15:18.080
<v Speaker 3>don't have a lot of macro concentration. You know, our

0:15:18.160 --> 0:15:21.640
<v Speaker 3>largest sector is industrials, which is a quite diverse industry.

0:15:22.920 --> 0:15:25.160
<v Speaker 3>Second is healthcare. We've already talked about that, and we

0:15:25.160 --> 0:15:28.760
<v Speaker 3>do have technology companies and communications services companies. But they're

0:15:28.960 --> 0:15:32.440
<v Speaker 3>you know, they're they have a lower representation in our

0:15:32.480 --> 0:15:35.080
<v Speaker 3>fund than they do typically in the broad indices.

0:15:35.760 --> 0:15:39.040
<v Speaker 2>And do higher for longer rates concern you.

0:15:39.000 --> 0:15:43.960
<v Speaker 3>At all, Well, they do concern me for the economy

0:15:44.040 --> 0:15:46.480
<v Speaker 3>and the market overall. And I guess i'd layer in

0:15:46.520 --> 0:15:49.080
<v Speaker 3>that there's an element of policy uncertainty that seems to

0:15:49.120 --> 0:15:53.640
<v Speaker 3>be happening right now, and I think that does create risk. Now, Frankly,

0:15:53.680 --> 0:15:55.560
<v Speaker 3>this is a this is a fund that's set up

0:15:55.640 --> 0:16:01.000
<v Speaker 3>structurally to do well in those kind of scoff environments,

0:16:01.160 --> 0:16:03.920
<v Speaker 3>at least from a relative perspective. But you know, from

0:16:03.920 --> 0:16:05.600
<v Speaker 3>an absolute perspective, there is some risk.

0:16:08.160 --> 0:16:11.800
<v Speaker 2>But you're not concerned about the relative attractiveness of bonds

0:16:11.880 --> 0:16:14.880
<v Speaker 2>versus the dividend asset cluss or anything like that, right.

0:16:15.000 --> 0:16:18.320
<v Speaker 3>I'm not. And for this fund in particular, we're not

0:16:18.520 --> 0:16:21.400
<v Speaker 3>investing solely in the highest dividend payers. So we're really

0:16:21.400 --> 0:16:24.800
<v Speaker 3>trying to invest in companies that we think offer attractive

0:16:24.800 --> 0:16:28.400
<v Speaker 3>intrinsic value that are dividend payers. And so even as

0:16:28.480 --> 0:16:30.880
<v Speaker 3>rates rise, we think that if we're making the right

0:16:30.920 --> 0:16:34.760
<v Speaker 3>fundamental decisions investments in the companies, we can continue to

0:16:34.760 --> 0:16:36.880
<v Speaker 3>do well even in higher rate environments.

0:16:37.960 --> 0:16:40.320
<v Speaker 2>And we kind of touched on some of the megacaps

0:16:40.320 --> 0:16:44.880
<v Speaker 2>initiating dividend payouts with them kind of creeping into your universe.

0:16:44.880 --> 0:16:47.800
<v Speaker 2>Are you worried about any kind of concentration risk building

0:16:48.400 --> 0:16:49.040
<v Speaker 2>that's in there.

0:16:49.560 --> 0:16:53.040
<v Speaker 3>Well, it's a little bit hard for us to have

0:16:53.120 --> 0:16:56.960
<v Speaker 3>too much concentration in that area, largely because we're we're

0:16:57.000 --> 0:17:00.560
<v Speaker 3>targeting a yield that's thirty percent of the market. Typically,

0:17:00.600 --> 0:17:03.520
<v Speaker 3>those sort of megacap tech companies that have introduced dividends

0:17:03.800 --> 0:17:10.119
<v Speaker 3>have relatively small yields, relatively modest payouts, and so you know,

0:17:10.160 --> 0:17:12.840
<v Speaker 3>structurally it's just challenging. It would be challenging for this

0:17:12.960 --> 0:17:17.199
<v Speaker 3>fund to be overrepresented in that set of companies. So

0:17:17.240 --> 0:17:19.240
<v Speaker 3>I wanted to go back to the process a little

0:17:19.240 --> 0:17:23.880
<v Speaker 3>bit because I wanted to talk about selling positions. How

0:17:23.920 --> 0:17:27.040
<v Speaker 3>does that work with an approach, a team approach such

0:17:27.080 --> 0:17:30.560
<v Speaker 3>as yours when you know different managers are managing different sleeves.

0:17:30.640 --> 0:17:33.200
<v Speaker 3>Is it you know, your job as the lead manager

0:17:33.359 --> 0:17:37.119
<v Speaker 3>to kind of make the final decisions or you know,

0:17:37.240 --> 0:17:39.520
<v Speaker 3>or is kind of every manager have their own, you know,

0:17:39.560 --> 0:17:44.080
<v Speaker 3>set of stocks and they make those decisions. So the

0:17:44.160 --> 0:17:47.200
<v Speaker 3>answer is primarily the latter, in a little bit the former.

0:17:47.280 --> 0:17:50.680
<v Speaker 3>So each manager manages their sleeve as if it is

0:17:51.119 --> 0:17:54.520
<v Speaker 3>its own portfolio, kind of its own fund. And I

0:17:54.560 --> 0:17:58.840
<v Speaker 3>do provide oversight along with a couple of different oversighted bodies.

0:17:59.320 --> 0:18:03.439
<v Speaker 3>But unless we hit sort of limits in terms of

0:18:04.119 --> 0:18:08.720
<v Speaker 3>individual stock position size in the fund, or we're out

0:18:08.720 --> 0:18:10.960
<v Speaker 3>of line with our you know, kind of investment grade

0:18:10.960 --> 0:18:16.919
<v Speaker 3>targets or income objectives, the pms have great discretion to

0:18:17.000 --> 0:18:18.800
<v Speaker 3>manage their portfolio as they see fit.

0:18:19.480 --> 0:18:19.639
<v Speaker 2>You know.

0:18:19.680 --> 0:18:22.399
<v Speaker 3>I do also keep track of, you know, things like

0:18:22.440 --> 0:18:25.360
<v Speaker 3>the correlation between pms, and we want to make sure

0:18:25.400 --> 0:18:27.760
<v Speaker 3>that we're not all invest we're kind of rowing in

0:18:27.800 --> 0:18:29.840
<v Speaker 3>the same direction at the same time. But as I

0:18:29.880 --> 0:18:32.359
<v Speaker 3>mentioned earlier, we sort of carefully selected the team so

0:18:32.359 --> 0:18:34.560
<v Speaker 3>that that we don't expect that to happen, and generally

0:18:34.600 --> 0:18:38.480
<v Speaker 3>that has not happened. But the cell decision is really

0:18:38.560 --> 0:18:40.359
<v Speaker 3>largely up to each individual PM.

0:18:41.480 --> 0:18:43.639
<v Speaker 1>Okay, and so I actually have a follow up on

0:18:43.720 --> 0:18:48.520
<v Speaker 1>that in terms of buying. If different managers are coming

0:18:48.560 --> 0:18:53.720
<v Speaker 1>to I guess the same companies through different ways, how

0:18:53.760 --> 0:18:55.760
<v Speaker 1>did how is that handled? Do you have a you know,

0:18:55.800 --> 0:18:58.080
<v Speaker 1>you mentioned you know, a cap on certain positions.

0:18:59.359 --> 0:19:01.960
<v Speaker 3>Well, so it's it's a good question, and I come

0:19:02.000 --> 0:19:04.399
<v Speaker 3>back to sort of one of the structural setups is

0:19:04.480 --> 0:19:07.000
<v Speaker 3>we don't want everybody, all the pms to sort of

0:19:07.000 --> 0:19:09.040
<v Speaker 3>think about the world the same So often we won't

0:19:09.040 --> 0:19:10.640
<v Speaker 3>be coming to the same conclusion at the same time,

0:19:10.640 --> 0:19:13.080
<v Speaker 3>but in some cases we do, and we then will

0:19:13.119 --> 0:19:18.200
<v Speaker 3>have larger positions in the fund. Now, you know, until

0:19:18.240 --> 0:19:22.520
<v Speaker 3>those positions get to sort of outsize in our kind

0:19:22.560 --> 0:19:25.119
<v Speaker 3>of risk framework, it really is not a problem and

0:19:25.359 --> 0:19:28.320
<v Speaker 3>outsizees you know, we don't really let positions get above

0:19:28.400 --> 0:19:31.359
<v Speaker 3>high single digits in this fund. That's kind of not

0:19:31.400 --> 0:19:35.360
<v Speaker 3>consistent with the risk approach that we're taking. And if

0:19:35.920 --> 0:19:38.680
<v Speaker 3>pms all reach the same conclusion, it probably means it's

0:19:38.720 --> 0:19:40.480
<v Speaker 3>a really great investment opportunity.

0:19:41.160 --> 0:19:45.080
<v Speaker 1>No makes sense. So we have one last question before

0:19:45.119 --> 0:19:47.400
<v Speaker 1>we wrap up. Is there any advice you would give

0:19:47.400 --> 0:19:49.520
<v Speaker 1>your younger self when it comes to investing.

0:19:50.359 --> 0:19:51.960
<v Speaker 3>It's such a good question. I wish I could go

0:19:52.000 --> 0:19:55.480
<v Speaker 3>back in a time machine and give give me this advice. Yes,

0:19:55.600 --> 0:19:59.960
<v Speaker 3>absolutely so. One of my strengths as an investor is inventive,

0:20:00.520 --> 0:20:04.200
<v Speaker 3>is investing in companies with good bones during periods of

0:20:04.320 --> 0:20:07.760
<v Speaker 3>uncertainty when everyone else is quite concerned. One of my

0:20:07.920 --> 0:20:12.480
<v Speaker 3>weaknesses as an investor has been that sometimes when that

0:20:12.560 --> 0:20:16.679
<v Speaker 3>period of weakness passes and the market revalues the company

0:20:16.720 --> 0:20:19.520
<v Speaker 3>back to sort of a fair value, I have often

0:20:19.640 --> 0:20:22.760
<v Speaker 3>in the past sold some of my winners at that time.

0:20:23.280 --> 0:20:26.359
<v Speaker 3>And what I've learned is that if we do a

0:20:26.400 --> 0:20:29.200
<v Speaker 3>good job identifying companies with good bones during periods of

0:20:29.240 --> 0:20:31.919
<v Speaker 3>uncertainty and on average I actually have working with our

0:20:31.960 --> 0:20:35.200
<v Speaker 3>analyst team, those companies often then go on to become

0:20:35.480 --> 0:20:39.360
<v Speaker 3>long term compounders. And by selling after the period of uncertainty,

0:20:39.560 --> 0:20:43.080
<v Speaker 3>You're leaving a lot of opportunity on the table, as

0:20:43.119 --> 0:20:44.960
<v Speaker 3>it were, for our investors. And so I've tried to

0:20:45.040 --> 0:20:49.320
<v Speaker 3>be more disciplined about re underwriting companies after the periods

0:20:49.320 --> 0:20:52.320
<v Speaker 3>of uncertainty of passed and really making sure I'm thinking

0:20:52.359 --> 0:20:55.439
<v Speaker 3>expansively about what the opportunity set is for the on

0:20:55.480 --> 0:20:56.679
<v Speaker 3>a longer term basis.

0:20:57.480 --> 0:21:00.399
<v Speaker 1>That's great, Chris, Thank you again. This is this is

0:21:00.440 --> 0:21:01.200
<v Speaker 1>a great discussion.

0:21:02.000 --> 0:21:04.280
<v Speaker 3>I really appreciate you taking the time with me today, David,

0:21:04.280 --> 0:21:05.040
<v Speaker 3>and thank you Michael.

0:21:06.359 --> 0:21:09.680
<v Speaker 1>Michael, thanks for joining me today as well.

0:21:09.680 --> 0:21:10.520
<v Speaker 2>Thanks again, David.

0:21:11.200 --> 0:21:13.960
<v Speaker 1>Until our next episode. This is David Cone with Inside

0:21:13.960 --> 0:21:14.160
<v Speaker 1>Act