WEBVTT - Capital Group’s Wilson on Finding Coiled Springs

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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 soundbites and headlines and looks deeper into their processes, challenges,

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<v Speaker 1>and philosophies in security selection. I'm David Cohn. I lead

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<v Speaker 1>mutual fund and active research at Bloomberg Intelligence. Growth investing

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<v Speaker 1>can sound relatively straightforward. Find companies that grow faster than

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<v Speaker 1>the market and hold them as that growth compounds over time.

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<v Speaker 1>But identifying durable growth is much harder in practice. Investors

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<v Speaker 1>have to determine how long a company can sustain its

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<v Speaker 1>growth how much of that opportunity is already reflected in

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<v Speaker 1>its valuation, and what could cause the investment thesis to change.

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<v Speaker 1>And that opportunity set doesn't necessarily have to be limited

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<v Speaker 1>to the companies or sectors traditionally associated with growth. A

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<v Speaker 1>flexible approach can look across industries and different types of

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<v Speaker 1>businesses for companies with the potential to create value over

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<v Speaker 1>the long term. So today, I wanted to explore how

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<v Speaker 1>that works in practice, how growth opportunities are identified in research,

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<v Speaker 1>how valuation and risk factor into security selection, how a

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<v Speaker 1>portfolio is constructed around those ideas, and how Capital Group's

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<v Speaker 1>multi-manager approach influences the process. Joining me to discuss that

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<v Speaker 1>is Alan Wilson, a portfolio manager at Capital Group and

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<v Speaker 1>principal investment officer of the Capital Group Growth ETF, ticker CGGR. Alan,

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<v Speaker 1>thanks for joining me.

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<v Speaker 2>Thanks for having me, Dave.

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<v Speaker 1>So, Alan, when we think about, or when you think

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<v Speaker 1>about growth investing, what does growth actually mean to you?

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<v Speaker 1>You know, what characteristics tell you a company has the

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<v Speaker 1>potential to compound value over a long period of time?

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<v Speaker 2>So, first of all, you know, at Capital, one of

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<v Speaker 2>the ways that I was always trained to think about

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<v Speaker 2>this is that we're looking at growth of capital, growth

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<v Speaker 2>of the investment, which many people often associate with. just

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<v Speaker 2>great top line. But in fact, if you have a

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<v Speaker 2>cyclical that's rebounding from washed out completely to being really

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<v Speaker 2>enthusiastically looked at at the top of the cycle, you

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<v Speaker 2>can get a lot of growth in capital. And I

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<v Speaker 2>think if you look at our portfolio, one of the

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<v Speaker 2>things you will see is a mixture of companies that

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<v Speaker 2>have traditional growth characteristics from a top line perspective, but

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<v Speaker 2>also there are these coiled springs waiting for a cycle

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<v Speaker 2>to turn. And that's one of the things that's typically

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<v Speaker 2>not in a typical growth index. But If to your

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<v Speaker 2>question about one of the things, what are the things

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<v Speaker 2>that you look for? Look, what you want is the

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<v Speaker 2>company's current engine to have a long enough runway that

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<v Speaker 2>it will pay for the price of getting in to

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<v Speaker 2>own the company, right? And that depends on the industry.

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<v Speaker 2>It depends on the opportunity. Sometimes you see long runways.

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<v Speaker 2>Sometimes they're relatively short. But constructing a portfolio that's a

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<v Speaker 2>balance of all those is what our system has really

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<v Speaker 2>decided to do.

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<v Speaker 1>Okay. And so, you know, CGGR is, you know, it

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<v Speaker 1>pursues growth as an objective rather than, you know, adhering

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<v Speaker 1>to a particular growth style, kind of as you mentioned.

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<v Speaker 1>How does that distinction change the universe of companies you're

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<v Speaker 1>willing to look at?

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<v Speaker 2>So we look at everything. In fact, if you think

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<v Speaker 2>about our investment process, we have a large general meeting

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<v Speaker 2>or several large ones where we discuss all types of ideas.

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<v Speaker 2>And you come away from that and put things in

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<v Speaker 2>a different portfolio. So it almost is, imagine a bunch

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<v Speaker 2>of restaurants that are going to a central restaurant. farmer's

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<v Speaker 2>market to get ingredients. So it's not like we have, oh,

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<v Speaker 2>we're going to have a growth meeting and just talk

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<v Speaker 2>about those ideas. And so one of the things that

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<v Speaker 2>happens is that you may hear an idea that traditionally

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<v Speaker 2>one might not associate. It might be a cyclical, as

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<v Speaker 2>I said, that's super depressed. You go, oh my God,

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<v Speaker 2>I can see a double in this stock whenever the

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<v Speaker 2>cycle turns. We tend to have a long horizon. In fact,

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<v Speaker 2>I've compensated on a blend of my one year to

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<v Speaker 2>eight year results. And so you can say, look, over

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<v Speaker 2>an extended period of time, this cycle will turn when

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<v Speaker 2>this happens. In fact, one of the places you can

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<v Speaker 2>look at this now is housing, for example. Obviously, the

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<v Speaker 2>housing market isn't robust, but I would be really surprised

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<v Speaker 2>if over the course of my four-year visibility lens that

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<v Speaker 2>you don't have a return. And then so my question is,

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<v Speaker 2>do I have a company that can double that? And

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<v Speaker 2>so that's where the idea of sourcing tends to come

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<v Speaker 2>from and how they tend to come.

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<v Speaker 1>Into the portfolio.

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<v Speaker 2>The other thing, and then I'll be quiet for a second,

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<v Speaker 2>The other thing that's interesting about the way we manage

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<v Speaker 2>our portfolio is that there are several managers on this fund.

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<v Speaker 2>It's the capital system, I think, as most of your

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<v Speaker 2>listeners are probably familiar with. But if you have a

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<v Speaker 2>bunch of complementary portfolio managers in terms of approach and

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<v Speaker 2>a style of what appeals, and they all outperform over

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<v Speaker 2>a cycle, the question is some might be hot or

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<v Speaker 2>cold at different times. What you will tend to find

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<v Speaker 2>is a spread of ideas that wind up in the

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<v Speaker 2>portfolio as listing through the areas makes it feel attractive.

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<v Speaker 1>Okay. And so you mentioned you're looking at, what, eight

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<v Speaker 1>to 10 years? I think that's what you said.

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<v Speaker 2>Well, I said my compensation window is one, three, five,

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<v Speaker 2>and eight. There's probably more data than people want to have.

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<v Speaker 2>But basically, it's the organization's inclination to try to have

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<v Speaker 2>me to look out beyond just what's in the market today.

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<v Speaker 1>Okay. So then what would give you the confidence that

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<v Speaker 1>a growth you're seeing at a company is durable rather

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<v Speaker 1>than just temporary? Or is it kind of with the

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<v Speaker 1>different managers that kind of get spread out, you know,

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<v Speaker 1>that risk?

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<v Speaker 2>You know, it depends on the industry, right? There are

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<v Speaker 2>some things. So for example, if you think about one

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<v Speaker 2>of the things that can be so attractive about the

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<v Speaker 2>medical and pharmaceutical area in particular, is that if you

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<v Speaker 2>wind up solving a real problem and you have the

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<v Speaker 2>patent protection, you can actually see quite a long runway

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<v Speaker 2>for those types of solutions. Now, as people start to

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<v Speaker 2>come to a cliff, right, as that starts to run out,

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<v Speaker 2>that's when this, when this, uh, when the stocks tend

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<v Speaker 2>to often weaken unless there's something as a follow-on behind it.

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<v Speaker 1>But for example, about.

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<v Speaker 2>Almost a quarter of my portfolio right now is in healthcare,

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<v Speaker 2>drug-related types of stocks. We can come back later if

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<v Speaker 2>you want as to why those might be particularly appealing.

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<v Speaker 2>But that has a very different one way than something

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<v Speaker 2>that may be more fashion-oriented, right? If you think about

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<v Speaker 2>a company right now like Nike, that's largely a fashion business.

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<v Speaker 2>And But that's also one that's extremely depressed right now.

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<v Speaker 2>So that might be one of those coiled springs, but

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<v Speaker 2>you just want that spring to pop up. That is

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<v Speaker 2>not necessarily a buy it, hold it, set it, and

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<v Speaker 2>forget it. So it really is very much business dependent.

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<v Speaker 1>Okay. Yeah, one of the things with growth investing, I

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<v Speaker 1>think a lot of folks are wondering just, you know,

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<v Speaker 1>after what's been happening the last couple of years is just,

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<v Speaker 1>you know, do valuations still count right now? And so

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<v Speaker 1>I'm just curious. How does, you know, how important is

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<v Speaker 1>valuation in your process? You know, what gives you kind

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<v Speaker 1>of confidence you're not paying too much for a great business?

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<v Speaker 2>Dave, valuation always counts, right?

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<v Speaker 1>It always does, right?

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<v Speaker 2>Look, there's some things that are so extraordinary that it's

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<v Speaker 2>worth paying up for, but valuation always matters, right? You

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<v Speaker 2>can pay too much for something extraordinary and you can,

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<v Speaker 2>and there's also kind of a price at which everything

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<v Speaker 2>is attractive. And so part of the judgment of portfolio

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<v Speaker 2>construction and why it's great to have several different ears

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<v Speaker 2>listening is that people can hear that equation and find

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<v Speaker 2>value in very different places. I see the other thing

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<v Speaker 2>that's really kind of interesting is to watch. I actually

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<v Speaker 2>don't watch the index that much, but it's interesting to

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<v Speaker 2>me periodically where I will watch stocks that go into

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<v Speaker 2>and out of the various indices, right? So right now,

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<v Speaker 2>caterpillars are quote-unquote growth stock, right? And the energy stocks

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<v Speaker 2>are becoming quote-unquote growth stocks. Those were coil springs previously, right?

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<v Speaker 2>They weren't considered growth that then did well as the

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<v Speaker 2>cycle turned. And then, you know, they came into the indices.

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<v Speaker 1>There's a debate.

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<v Speaker 2>I think sometimes, in fact, the indices tend to bring

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<v Speaker 2>those types of stocks in exactly when it's maturing. But,

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<v Speaker 2>you know, that's an opportunity for an active manager if you're.

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<v Speaker 1>Right on it. Yeah, definitely. So could you walk us

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<v Speaker 1>through your... You know, your investment process, you know, walk

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<v Speaker 1>me through how an idea typically enters your portfolio, where

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<v Speaker 1>the research begins and, you know, what needs to happen

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<v Speaker 1>before an interesting company becomes an actual investment in the portfolio. Sure. Okay.

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<v Speaker 2>And then just to set the context for your listeners

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<v Speaker 2>out there, you know, I've been at Capital for over

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<v Speaker 2>30 years. Our average analyst, I think the tenure is

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<v Speaker 2>something like 12 or 13. The typical PM tenure is,

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<v Speaker 2>you know, in the high teams numbers. And so I

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<v Speaker 2>say that because what you're having at these investment calls

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<v Speaker 2>is a group of people who have worked together for

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<v Speaker 2>at least a decade, over a decade, and we're getting

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<v Speaker 2>together and just talking about what people have seen in

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<v Speaker 2>the world. So that's that farmer's market I described of

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<v Speaker 2>ideas that one is approaching. My own personal approach is

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<v Speaker 2>that I think that if you can figure out what

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<v Speaker 2>the world's going to look like, even in a hazy way,

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<v Speaker 2>about three years out, investing becomes easy. A parable I

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<v Speaker 2>tell all the time, there are only two stocks, one

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<v Speaker 2>sold umbrellas and one sold sunglasses. And I told you

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<v Speaker 2>it was going to rain for the next three years.

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<v Speaker 2>I don't think you'd have any question as to which

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<v Speaker 2>stock you wanted to hold. Conversely, if I told you

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<v Speaker 2>that we're going to go into the world's worst drought,

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<v Speaker 2>it's very clear to People don't typically know what the

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<v Speaker 2>weather is, so they diversify and buy a little bit

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<v Speaker 2>of each. I think with talented analysts, with a lot

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<v Speaker 2>of context and conviction, and some other perspective, that you

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<v Speaker 2>can kind of get some hazy views of what the

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<v Speaker 2>world looks like. So I tend to walk in with

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<v Speaker 2>sort of this, what do I think the world looks like?

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<v Speaker 2>And then I'm listening for ideas that fit into that

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<v Speaker 2>type of world. And that's the pathway for those to

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<v Speaker 2>come into the portfolio.

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<v Speaker 1>I'll hear them.

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<v Speaker 2>I'll talk with the analyst. I'll talk with my other

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<v Speaker 2>portfolio managers. I may well have visited them right at

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<v Speaker 2>this point. Often it's sort of stocks that I've known

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<v Speaker 2>for a while that have sort of come back into orbit,

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<v Speaker 2>like comets coming by periodically as opposed to a brand

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<v Speaker 2>new idea. But that's at least my own particular pathway.

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<v Speaker 2>It is not especially. valuation sensitive. It's more, does the

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<v Speaker 2>idea fit what I think the near future is going

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<v Speaker 2>to look like?

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<v Speaker 1>Is there anything that you spend a lot of time on,

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<v Speaker 1>you know, trying to understand a company you think the

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<v Speaker 1>market either misunderstands or isn't really looking far enough to appreciate?

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<v Speaker 2>You know.

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<v Speaker 1>Sure.

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<v Speaker 2>But the thing is, it's different for each company, right?

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<v Speaker 2>Like everyone wants some master key. So if you just

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<v Speaker 2>look at this thing over here, it will always tell

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<v Speaker 2>you the thing to look at. But for each company,

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<v Speaker 2>which is, by the way, it's what makes the job interesting.

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<v Speaker 2>It's what makes it compelling for me still after 35

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<v Speaker 2>years is because each question for each company is a

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<v Speaker 2>different one. And then whether people can execute on it

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<v Speaker 2>is a different one. And on top of all that,

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<v Speaker 2>when you combine those difficulties, You know, God, if I'm

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<v Speaker 2>great at this, I'm right three times out of five,

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<v Speaker 2>you know? So it's just interesting enough to get someone

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<v Speaker 2>to be, to kind of be that perpetual puzzle that

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<v Speaker 2>is always interesting and never perfectly solved.

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<v Speaker 1>Okay. What about management teams? You know, how important is

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<v Speaker 1>that assessment? You know, is there something that tells you,

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<v Speaker 1>you know, this could be agnostic to different companies or sectors,

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<v Speaker 1>you know, or industries. Is there anything that tells you

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<v Speaker 1>a management team can successfully reinvest capital and extend the

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<v Speaker 1>company's growth opportunity?

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<v Speaker 2>Look, it's very business dependent, right? If you've got a

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<v Speaker 2>business that involves taking $ 10 bills and sticking them in

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<v Speaker 2>a shredder, I don't know what the, I don't even

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<v Speaker 2>know if I can find a management team that's going

0:11:30.900 --> 0:11:33.600
<v Speaker 2>to be, you know, that can market the resulting paper

0:11:34.260 --> 0:11:37.180
<v Speaker 2>good enough. Conversely, you know, there's some businesses that are

0:11:37.230 --> 0:11:38.069
<v Speaker 2>so extraordinary.

0:11:38.250 --> 0:11:38.579
<v Speaker 1>What is it?

0:11:38.630 --> 0:11:41.870
<v Speaker 2>I think, I think Buffett was famous for, you want

0:11:41.890 --> 0:11:43.620
<v Speaker 2>a business so good even an idiot could run it,

0:11:43.650 --> 0:11:46.860
<v Speaker 2>but sooner or later one will, right? I mean, in fact,

0:11:47.720 --> 0:11:51.080
<v Speaker 2>often some of my more interesting ideas are businesses that

0:11:51.120 --> 0:11:53.140
<v Speaker 2>are doing well kind of in spite of themselves. That

0:11:53.200 --> 0:11:55.520
<v Speaker 2>shows me the strength of the business, right? But the

0:11:55.580 --> 0:12:00.420
<v Speaker 2>key really is, though, that you have the right manager's ethos,

0:12:00.500 --> 0:12:01.480
<v Speaker 2>et cetera, with.

0:12:01.340 --> 0:12:04.590
<v Speaker 1>The right industry. Sure, just in terms of, You know,

0:12:04.610 --> 0:12:07.410
<v Speaker 1>when we think of growth, you know, some companies benefit

0:12:07.470 --> 0:12:11.079
<v Speaker 1>from certain cycles, you know, versus other companies that see,

0:12:11.880 --> 0:12:14.679
<v Speaker 1>you know, likely see growth over a longer term, you know,

0:12:14.740 --> 0:12:17.980
<v Speaker 1>strong growth. Is there anything that, you know, separates those

0:12:18.059 --> 0:12:21.060
<v Speaker 1>companies that see the longer term growth versus, you know,

0:12:21.200 --> 0:12:25.280
<v Speaker 1>maybe a company that's just benefiting during different specific cycles?

0:12:25.900 --> 0:12:28.020
<v Speaker 2>Look, a lot of it is just the environment. I

0:12:28.040 --> 0:12:30.800
<v Speaker 2>think if, you know, what's interesting for listeners, just take NVIDIA, right?

0:12:30.820 --> 0:12:33.359
<v Speaker 2>Everybody talks about, go back and look at NVIDIA's chart

0:12:33.380 --> 0:12:36.540
<v Speaker 2>over time. Literally, what they've done is they've had these

0:12:37.179 --> 0:12:40.209
<v Speaker 2>processors that are really good at doing multiple things at once.

0:12:40.520 --> 0:12:43.130
<v Speaker 2>They did them for graphics. But there have been these

0:12:43.230 --> 0:12:47.650
<v Speaker 2>different waves where the desire for those products, whether it's,

0:12:47.750 --> 0:12:49.730
<v Speaker 2>oh my God, we're going to run really nice graphics

0:12:49.809 --> 0:12:51.550
<v Speaker 2>on a computer, or oh my God, we're going to

0:12:51.910 --> 0:12:55.790
<v Speaker 2>use this stuff to really solve cryptographic problems. So, oh

0:12:55.820 --> 0:12:58.160
<v Speaker 2>my God, we're going to use this stuff to large language.

0:12:58.620 --> 0:13:01.440
<v Speaker 2>But each time you saw this gigantic wave of people

0:13:01.700 --> 0:13:04.590
<v Speaker 2>enthusiastically adopting that would crest and roll over.

0:13:04.610 --> 0:13:06.310
<v Speaker 1>And so you would have these giant spikes.

0:13:06.710 --> 0:13:09.329
<v Speaker 2>And people would debate when it was on the other

0:13:09.350 --> 0:13:11.670
<v Speaker 2>side of those spikes whether NVIDIA was no longer a

0:13:11.720 --> 0:13:15.120
<v Speaker 2>growth company. So really, in any business, it's just kind

0:13:15.150 --> 0:13:18.800
<v Speaker 2>of the duration of what it is that you're providing.

0:13:21.140 --> 0:13:23.120
<v Speaker 2>And by the way, no one has permanent duration, I

0:13:23.140 --> 0:13:25.719
<v Speaker 2>guess is what I'm saying. So it's one of the

0:13:25.780 --> 0:13:29.140
<v Speaker 2>reasons that I really think that it is important to

0:13:29.179 --> 0:13:32.270
<v Speaker 2>think about this as growth of capital. as opposed to

0:13:32.309 --> 0:13:36.490
<v Speaker 2>the growth in the revenues. Because almost every terrific investment

0:13:36.510 --> 0:13:40.010
<v Speaker 2>has had some period when the revenues might have gone

0:13:40.050 --> 0:13:43.250
<v Speaker 2>the other direction. People might have questioned whether it was growthy. Actually,

0:13:43.290 --> 0:13:45.510
<v Speaker 2>it would be an interesting question. Has NVIDIA ever fallen

0:13:45.530 --> 0:13:47.270
<v Speaker 2>out of the growth index? I would bet you it has,

0:13:47.350 --> 0:13:49.590
<v Speaker 2>but I need to go back and validate that. But

0:13:49.610 --> 0:13:51.890
<v Speaker 2>the point is, it's in the eye of the beholder

0:13:51.910 --> 0:13:53.980
<v Speaker 2>at any given time. And our approach is sort of

0:13:54.020 --> 0:13:56.059
<v Speaker 2>look through that and say, look, from where the stock

0:13:56.140 --> 0:13:58.360
<v Speaker 2>is right now, from what's in front of them, do

0:13:58.420 --> 0:14:01.260
<v Speaker 2>you think that the stock can grow from here. I

0:14:01.300 --> 0:14:02.870
<v Speaker 2>will give you one example and be quiet for a

0:14:02.870 --> 0:14:06.730
<v Speaker 2>second because we're on chips. So it was, I don't know,

0:14:06.750 --> 0:14:09.489
<v Speaker 2>a couple of years ago, again, I got interested in Intel, right?

0:14:09.570 --> 0:14:13.189
<v Speaker 2>Intel at the time was very clearly, you know, they

0:14:13.230 --> 0:14:15.150
<v Speaker 2>were lagging, there were all these challenges. But at the

0:14:15.210 --> 0:14:16.670
<v Speaker 2>end of the day, one of the things you observed

0:14:16.750 --> 0:14:20.770
<v Speaker 2>is that if silicon is going to be the oil

0:14:20.830 --> 0:14:24.570
<v Speaker 2>of the 21st century, a nation having its own supply

0:14:24.690 --> 0:14:27.910
<v Speaker 2>is crucial. And there is no way that Nvidia, I'm sorry,

0:14:27.970 --> 0:14:30.540
<v Speaker 2>excuse me, that Intel, is not going to be so

0:14:30.600 --> 0:14:33.680
<v Speaker 2>important to the U.S. future that we're not going to

0:14:33.700 --> 0:14:35.160
<v Speaker 2>find a way to make it work, right? And this

0:14:35.200 --> 0:14:37.360
<v Speaker 2>was before there were signs. But at the time and

0:14:37.380 --> 0:14:39.420
<v Speaker 2>at the price, there was nothing valued in. It was

0:14:39.500 --> 0:14:41.720
<v Speaker 2>priced for death. And so the point is you didn't

0:14:41.760 --> 0:14:44.980
<v Speaker 2>have to sort of see the roadmap in particular. You

0:14:45.020 --> 0:14:48.380
<v Speaker 2>said the price is so inexpensive and these boundary assets

0:14:48.420 --> 0:14:50.869
<v Speaker 2>are so important that there will be an intersection of

0:14:50.910 --> 0:14:54.430
<v Speaker 2>that desirability that will make the stock change in terms

0:14:54.470 --> 0:14:57.210
<v Speaker 2>of being more coveted and the valuation going up. And

0:14:57.250 --> 0:15:00.730
<v Speaker 2>that's what I mean by you know, growth of capital.

0:15:01.450 --> 0:15:04.110
<v Speaker 1>Okay. Now it's an interesting point. I think a lot

0:15:04.130 --> 0:15:07.230
<v Speaker 1>of folks, especially in the media, just focus on revenue

0:15:07.530 --> 0:15:10.690
<v Speaker 1>and earnings growth and that's kind of their definition. So

0:15:10.710 --> 0:15:14.060
<v Speaker 1>it's definitely another way to look at it. How do

0:15:14.080 --> 0:15:16.840
<v Speaker 1>you think about, you know, the competitiveness or a competitive

0:15:16.880 --> 0:15:19.500
<v Speaker 1>advantage of a business? Is that something that you look

0:15:19.620 --> 0:15:22.380
<v Speaker 1>at and, you know, how a company could protect or

0:15:22.400 --> 0:15:25.840
<v Speaker 1>strengthen its, you know, ability to generate growth?

0:15:27.470 --> 0:15:32.380
<v Speaker 2>You're always interested and focused on moats. I would say

0:15:32.410 --> 0:15:37.180
<v Speaker 2>what is interesting is that over the course of my career,

0:15:37.780 --> 0:15:43.140
<v Speaker 2>moats have typically gotten smaller. And the market's willingness to

0:15:44.450 --> 0:15:47.630
<v Speaker 2>recognize a company has a moat, give it credit in

0:15:47.670 --> 0:15:50.690
<v Speaker 2>its stock price for what that might create, and then

0:15:50.750 --> 0:15:54.890
<v Speaker 2>anticipate the moat going away, That has gotten shorter and

0:15:54.950 --> 0:15:57.670
<v Speaker 2>shorter over time. Look, the reason for those, I told

0:15:57.710 --> 0:15:59.470
<v Speaker 2>you that capital has these one, three, five, eight. The

0:15:59.510 --> 0:16:01.030
<v Speaker 2>reason for all those is those were supposed to be

0:16:01.070 --> 0:16:03.870
<v Speaker 2>across full investment cycles, right? Sort of this whole arc.

0:16:03.910 --> 0:16:07.790
<v Speaker 2>And now what you're seeing is a collapsing of at

0:16:07.830 --> 0:16:11.030
<v Speaker 2>least in this current market environment, that's the market environment

0:16:11.070 --> 0:16:17.990
<v Speaker 2>today in the fall of 2026, the journey from out

0:16:18.010 --> 0:16:19.890
<v Speaker 2>of favor, oh, I think it's going to work, to

0:16:19.950 --> 0:16:21.640
<v Speaker 2>this is how great it could be, it will work, oh,

0:16:21.650 --> 0:16:23.350
<v Speaker 2>I'm going to run away from it now, that has

0:16:23.390 --> 0:16:26.550
<v Speaker 2>gotten so much shorter, right? That is something that's almost dizzying.

0:16:26.970 --> 0:16:30.530
<v Speaker 2>But the cycle is always the same, right? Is that

0:16:31.570 --> 0:16:35.670
<v Speaker 2>moat gets competed away, it's the beauty of capitalism, and

0:16:35.700 --> 0:16:38.220
<v Speaker 2>the question is, is there some enduring way to find

0:16:38.260 --> 0:16:38.980
<v Speaker 2>additional moats?

0:16:39.400 --> 0:16:41.520
<v Speaker 1>And those are the companies that are really extraordinary, by

0:16:41.540 --> 0:16:45.380
<v Speaker 1>the way. Makes sense. Once you do have conviction in

0:16:45.420 --> 0:16:46.790
<v Speaker 1>a company, and so I think this might be a

0:16:46.780 --> 0:16:49.710
<v Speaker 1>little different compared to other managers, you know, with the

0:16:49.750 --> 0:16:52.350
<v Speaker 1>capital group system, you know, and the different, the PMs,

0:16:52.910 --> 0:16:55.729
<v Speaker 1>how do you determine position sizing? You know, once you

0:16:55.790 --> 0:16:58.330
<v Speaker 1>have conviction, it's got, you know, the company is going

0:16:58.350 --> 0:17:01.780
<v Speaker 1>to enter the fund. How do you figure that out

0:17:01.820 --> 0:17:03.430
<v Speaker 1>in terms of how are you going to size it?

0:17:03.540 --> 0:17:06.520
<v Speaker 1>You know, do you talk with the other PMs? No,

0:17:06.900 --> 0:17:07.140
<v Speaker 1>I don't.

0:17:07.240 --> 0:17:08.740
<v Speaker 2>I mean, well, I always talk to the other PMs,

0:17:08.800 --> 0:17:12.080
<v Speaker 2>but I don't use it for it to influence my convictions. So,

0:17:12.380 --> 0:17:15.210
<v Speaker 2>so the, the, This is what can often take a

0:17:15.210 --> 0:17:18.170
<v Speaker 2>while for people to really get used to with our system.

0:17:19.109 --> 0:17:24.210
<v Speaker 2>The size that a stock winds up being in the

0:17:24.270 --> 0:17:28.100
<v Speaker 2>portfolio is really a residual of the number of portfolio

0:17:28.150 --> 0:17:33.000
<v Speaker 2>managers who are enthusiastic about this. There's not some top-down thing.

0:17:33.020 --> 0:17:35.740
<v Speaker 2>So I'm going to go back to this metaphor of

0:17:35.820 --> 0:17:39.140
<v Speaker 2>the farmer's market, what I'm torturing. Imagine We have seven

0:17:39.180 --> 0:17:41.480
<v Speaker 2>restaurants are going and they're cooking different stuff, right? They

0:17:41.820 --> 0:17:43.900
<v Speaker 2>have different things, but look, they all love fresh ingredients.

0:17:43.920 --> 0:17:45.560
<v Speaker 2>They come to this farmer's markets. It's the best stuff

0:17:45.580 --> 0:17:47.119
<v Speaker 2>in the world, but they're going to go back and

0:17:47.140 --> 0:17:49.340
<v Speaker 2>they'll have slightly different menus, right? And a couple of

0:17:49.380 --> 0:17:51.659
<v Speaker 2>may have egg dishes, but they won't all have omelets, right?

0:17:51.680 --> 0:17:54.850
<v Speaker 2>And so, but there isn't someone that goes, okay, we're

0:17:54.869 --> 0:17:56.510
<v Speaker 2>going to all coordinate. We're all going to go in

0:17:56.550 --> 0:17:58.730
<v Speaker 2>and buy potatoes, right? Or we're all going to coordinate.

0:17:58.750 --> 0:18:01.050
<v Speaker 2>We're all going in and buy peaches. What happens is

0:18:01.090 --> 0:18:02.889
<v Speaker 2>someone says, you know what? I think people are really

0:18:02.910 --> 0:18:06.460
<v Speaker 2>in the mood for healthy stuff. And so, There's the

0:18:06.510 --> 0:18:09.030
<v Speaker 2>healthy restaurant and it's getting those types of ingredients. You've

0:18:09.050 --> 0:18:11.270
<v Speaker 2>got the other that says, you know, I'm really into

0:18:11.350 --> 0:18:16.189
<v Speaker 2>breakfast food. And so what winds up populating the aggregate

0:18:16.230 --> 0:18:18.130
<v Speaker 2>portfolio when you put that all together, right? If you

0:18:18.150 --> 0:18:20.640
<v Speaker 2>sum all these seven restaurants up and say, oh, how

0:18:20.680 --> 0:18:24.340
<v Speaker 2>many eggs are in that collection of restaurants or how

0:18:24.359 --> 0:18:27.420
<v Speaker 2>many fruits? It was a result of those individual decisions,

0:18:27.560 --> 0:18:32.810
<v Speaker 2>not necessarily some overarching coordination. So with that as sort

0:18:32.850 --> 0:18:36.060
<v Speaker 2>of the laying out of how things work, then My

0:18:36.300 --> 0:18:38.420
<v Speaker 2>own personal sizing is based on.

0:18:39.859 --> 0:18:40.440
<v Speaker 1>Several things.

0:18:40.720 --> 0:18:46.250
<v Speaker 2>One, how well I think this idea fits with what

0:18:46.290 --> 0:18:48.949
<v Speaker 2>my view of what the future is going to look like.

0:18:50.210 --> 0:18:52.970
<v Speaker 2>Am I getting a great price for it? Do I

0:18:53.050 --> 0:18:57.760
<v Speaker 2>think there's some durability? Do I think what needs to

0:18:57.820 --> 0:19:01.360
<v Speaker 2>happen if I'm wrong? For example, some stocks are hard

0:19:01.400 --> 0:19:05.120
<v Speaker 2>to buy, trade very thin. Look, you're never certain you're 100% right.

0:19:05.140 --> 0:19:06.920
<v Speaker 2>So I need to make sure that if I'm wrong,

0:19:06.960 --> 0:19:09.440
<v Speaker 2>can I actually get out and move on and make

0:19:09.480 --> 0:19:14.120
<v Speaker 2>sure that I correct accordingly? And so those things all

0:19:14.160 --> 0:19:16.230
<v Speaker 2>go in to create what the size is.

0:19:16.290 --> 0:19:17.190
<v Speaker 1>What doesn't go.

0:19:17.170 --> 0:19:22.270
<v Speaker 2>In is me saying, oh, the restaurant association, i.e. the index,

0:19:22.510 --> 0:19:26.050
<v Speaker 2>has this percentage of eggs in there. And so that's

0:19:26.090 --> 0:19:29.190
<v Speaker 2>what I do. Sometimes it's much bigger. Sometimes it's smaller.

0:19:29.470 --> 0:19:30.950
<v Speaker 2>To me, it's just about the opportunity.

0:19:31.910 --> 0:19:37.120
<v Speaker 1>Okay. Do you think the multi-manager structure allows individual managers

0:19:37.660 --> 0:19:40.330
<v Speaker 1>to take more conviction in their best ideas than if

0:19:40.369 --> 0:19:43.590
<v Speaker 1>they were responsible for the whole portfolio? A thousand percent.

0:19:43.670 --> 0:19:43.850
<v Speaker 2>Right.

0:19:43.970 --> 0:19:44.990
<v Speaker 1>There are things that I do.

0:19:45.070 --> 0:19:50.070
<v Speaker 2>So, if you look right now, I've got three or

0:19:50.109 --> 0:19:54.869
<v Speaker 2>four positions that are sort of between eight to 12%.

0:19:54.869 --> 0:19:59.179
<v Speaker 2>Those are, I have occasionally, once or twice in my career,

0:19:59.200 --> 0:20:01.219
<v Speaker 2>I've gotten something as high as 20% when I had

0:20:01.240 --> 0:20:03.760
<v Speaker 2>a very high conviction that the runway was strong. There

0:20:03.780 --> 0:20:06.490
<v Speaker 2>wasn't much, you know, there wasn't much sign that things

0:20:06.530 --> 0:20:09.470
<v Speaker 2>were abating. But if I were doing the whole thing,

0:20:09.490 --> 0:20:11.280
<v Speaker 2>I would not do that.

0:20:11.930 --> 0:20:12.629
<v Speaker 1>I wouldn't do that.

0:20:12.720 --> 0:20:16.440
<v Speaker 2>The other thing, this system, because there are some other

0:20:16.480 --> 0:20:19.100
<v Speaker 2>industries I should probably have exposure to, right? I typically

0:20:19.140 --> 0:20:22.619
<v Speaker 2>only hold between 25 and 35 holdings. A healthy portfolio

0:20:22.740 --> 0:20:25.199
<v Speaker 2>often will have exposure to some other industries. There's some

0:20:25.220 --> 0:20:27.240
<v Speaker 2>things that I don't really get, quote unquote, right? I

0:20:27.280 --> 0:20:30.580
<v Speaker 2>don't get financials, right? So I typically don't invest in

0:20:30.619 --> 0:20:33.139
<v Speaker 2>those areas. It's not because they're all good ideas. It's

0:20:33.160 --> 0:20:36.560
<v Speaker 2>just I don't have any edge in terms of when

0:20:36.960 --> 0:20:39.159
<v Speaker 2>I cast my lens on the world three years out,

0:20:39.300 --> 0:20:40.220
<v Speaker 2>I don't see any difference.

0:20:40.240 --> 0:20:41.000
<v Speaker 1>It's all fog to me.

0:20:41.400 --> 0:20:44.100
<v Speaker 2>So one of the things this allows, this system, is

0:20:44.200 --> 0:20:46.200
<v Speaker 2>I can really focus on just the stuff that I

0:20:46.260 --> 0:20:49.100
<v Speaker 2>know well or that I think I know well and

0:20:49.619 --> 0:20:52.960
<v Speaker 2>hold it in the size that I think makes overall sense.

0:20:52.800 --> 0:20:53.500
<v Speaker 1>For the portfolio.

0:20:54.560 --> 0:20:54.720
<v Speaker 2>Okay.

0:20:55.500 --> 0:20:58.020
<v Speaker 1>Um, actually while we're, we're on the topic, I, you know,

0:20:58.060 --> 0:20:59.560
<v Speaker 1>I think a lot of people are familiar with the

0:20:59.600 --> 0:21:02.659
<v Speaker 1>multi-manager system, but can you kind of just go a

0:21:02.680 --> 0:21:04.840
<v Speaker 1>little bit in depth of how it works in practice?

0:21:04.900 --> 0:21:07.060
<v Speaker 1>You know, other teams, they might kind of share ideas

0:21:07.100 --> 0:21:09.619
<v Speaker 1>and things, you know, you mentioned having meetings and talking

0:21:09.680 --> 0:21:12.980
<v Speaker 1>about things. Is there a specific process that goes into

0:21:13.030 --> 0:21:14.290
<v Speaker 1>how it's all structured? Yep.

0:21:14.590 --> 0:21:17.030
<v Speaker 2>I think, I think what I often find is when

0:21:17.050 --> 0:21:19.430
<v Speaker 2>we describe this people, I know how this works and

0:21:19.490 --> 0:21:24.350
<v Speaker 2>you overlay your existing, um, uh, view. And, but Sierra, let,

0:21:24.390 --> 0:21:28.220
<v Speaker 2>let me, let me just, hit it straight on. Each

0:21:28.300 --> 0:21:33.940
<v Speaker 2>manager has, so here, there are seven managers in CDGR, okay?

0:21:34.440 --> 0:21:38.460
<v Speaker 2>Each one has, and the key to the multiple manager system, right?

0:21:38.500 --> 0:21:42.040
<v Speaker 2>This system only works if you have seven people who

0:21:42.119 --> 0:21:46.330
<v Speaker 2>over a long term can outperform And most importantly, they

0:21:46.369 --> 0:21:48.429
<v Speaker 2>have different ways of going about things. If we were

0:21:48.450 --> 0:21:51.129
<v Speaker 2>all seven intellectual clones, what's the difference, right? You're all

0:21:51.170 --> 0:21:52.950
<v Speaker 2>going to sort of go with the same thing. So

0:21:52.990 --> 0:21:54.820
<v Speaker 2>the hardest thing about this, look, it's hard to find

0:21:54.990 --> 0:21:57.340
<v Speaker 2>one person that can outperform over a cycle. Having a

0:21:57.400 --> 0:21:59.340
<v Speaker 2>team of seven really is sort of the gift of

0:21:59.359 --> 0:22:01.840
<v Speaker 2>a place like Capital. And having people that have worked

0:22:01.859 --> 0:22:03.659
<v Speaker 2>here for such a long period of time, you've had

0:22:03.680 --> 0:22:05.699
<v Speaker 2>a chance to test that. So the first thing that

0:22:05.780 --> 0:22:09.110
<v Speaker 2>sounds easy, but it's actually quite hard, is finding seven outperformers.

0:22:09.510 --> 0:22:11.369
<v Speaker 2>And then we put them together in a way of

0:22:11.720 --> 0:22:13.629
<v Speaker 2>You know, how are they different and complementary? That's one

0:22:13.650 --> 0:22:15.990
<v Speaker 2>of the roles of the PIO to think about, you know,

0:22:16.010 --> 0:22:19.030
<v Speaker 2>that you have these different complementary skills. And then the

0:22:19.109 --> 0:22:22.310
<v Speaker 2>other thing that's super important is that we agree on

0:22:22.330 --> 0:22:25.470
<v Speaker 2>the objective of the fund. We agree on certain rules,

0:22:25.530 --> 0:22:28.310
<v Speaker 2>like for this one, for example, my market cap's below

0:22:28.310 --> 0:22:32.520
<v Speaker 2>$ 8 billion. You have to have some level of U.S.

0:22:32.600 --> 0:22:35.180
<v Speaker 2>sales or exposure, even if it's not necessarily U.S.

0:22:35.240 --> 0:22:35.820
<v Speaker 1>Domicile.

0:22:36.119 --> 0:22:38.379
<v Speaker 2>A name like Nintendo or ASML.

0:22:37.880 --> 0:22:38.720
<v Speaker 1>Might be an example.

0:22:38.920 --> 0:22:40.980
<v Speaker 2>But we agree on the base rules. And then with

0:22:41.040 --> 0:22:44.580
<v Speaker 2>that agreement, you can go out and construct your portfolio

0:22:44.619 --> 0:22:47.369
<v Speaker 2>however you'd like. There isn't sort of some, Dave, I

0:22:47.410 --> 0:22:49.310
<v Speaker 2>think one thing, you think the other. Now we have

0:22:49.330 --> 0:22:52.430
<v Speaker 2>to debate it. My portfolio slice is what I want

0:22:52.470 --> 0:22:54.310
<v Speaker 2>it to be. Yours is what yours wants to be.

0:22:54.810 --> 0:22:57.770
<v Speaker 2>And that last part is super important because one of

0:22:57.810 --> 0:23:00.810
<v Speaker 2>the challenges is that, at least for me and I

0:23:00.850 --> 0:23:06.660
<v Speaker 2>find for many of my peers, often our analytical sides

0:23:06.740 --> 0:23:08.660
<v Speaker 2>have figured out what we want to do or what

0:23:08.720 --> 0:23:12.369
<v Speaker 2>makes sense. before our verbal sides catch up, right? And

0:23:12.410 --> 0:23:15.180
<v Speaker 2>so often, you know, there's famous, I have colleagues who say, look,

0:23:15.220 --> 0:23:17.580
<v Speaker 2>I can't tell you how I know, I just know, right?

0:23:17.960 --> 0:23:20.260
<v Speaker 2>And what's happened is over decades, you realize, oh yeah,

0:23:20.300 --> 0:23:23.520
<v Speaker 2>this person, their ability to explain it and persuade just

0:23:23.540 --> 0:23:26.200
<v Speaker 2>hasn't gotten there yet. So that lets those stocks get

0:23:26.260 --> 0:23:29.109
<v Speaker 2>into the portfolio, and that's one of the real strengths

0:23:29.170 --> 0:23:31.450
<v Speaker 2>of it. So at any given time, when you look

0:23:31.490 --> 0:23:34.350
<v Speaker 2>at these seven slices or the seven restaurants I described,

0:23:34.680 --> 0:23:37.590
<v Speaker 2>What's on that menu is exactly what that manager wants

0:23:37.790 --> 0:23:41.750
<v Speaker 2>at that particular time. It's not based on somebody else vetoing, right?

0:23:41.850 --> 0:23:44.190
<v Speaker 2>The good news is that the quality of the ingredients

0:23:44.290 --> 0:23:46.710
<v Speaker 2>was sourced by that farmer's market they all shop from,

0:23:46.750 --> 0:23:49.530
<v Speaker 2>which is our analyst's wisdom and their ideas. So that

0:23:49.630 --> 0:23:54.490
<v Speaker 2>is what's in aggregate creates this overall menu for people

0:23:54.510 --> 0:23:57.189
<v Speaker 2>to eat from. In the great food court that is CDGR.

0:23:57.210 --> 0:23:58.389
<v Speaker 2>Maybe that's what we should do. We should open a

0:23:58.430 --> 0:24:03.760
<v Speaker 2>food court. Anyway, but that's the... That's the process. That's

0:24:03.780 --> 0:24:06.180
<v Speaker 2>the capital system. That's how the multiple managers all work

0:24:06.200 --> 0:24:10.369
<v Speaker 2>together or work together to build a portfolio.

0:24:11.170 --> 0:24:14.490
<v Speaker 1>Okay. No, that's a great explanation. Definitely. You know, I

0:24:14.510 --> 0:24:16.310
<v Speaker 1>had an idea, but I think that definitely will help

0:24:16.369 --> 0:24:18.669
<v Speaker 1>our listeners as well kind of understand how it works.

0:24:19.450 --> 0:24:22.560
<v Speaker 1>If we go back to your, you know, your portfolio specifically,

0:24:23.260 --> 0:24:25.780
<v Speaker 1>how do you approach risk? Is there kind of a process,

0:24:26.220 --> 0:24:27.919
<v Speaker 1>you know, you look at in terms of, you know,

0:24:27.940 --> 0:24:30.730
<v Speaker 1>I mean, with growth, you know, it's, you know, You're

0:24:30.750 --> 0:24:34.070
<v Speaker 1>making assumptions on the futures. So what do you kind

0:24:34.130 --> 0:24:36.970
<v Speaker 1>of look at as a risk system?

0:24:37.710 --> 0:24:41.800
<v Speaker 2>Yeah, so there's several things. Let's talk about, first of all,

0:24:41.810 --> 0:24:44.310
<v Speaker 2>there's some embedded guardrails, right? So there are limits we

0:24:44.350 --> 0:24:46.580
<v Speaker 2>have just as a firm in terms of how much

0:24:46.600 --> 0:24:48.480
<v Speaker 2>a fund can have in an industry, how big a

0:24:48.520 --> 0:24:51.260
<v Speaker 2>particular holding can be. There are all those types of

0:24:51.580 --> 0:24:56.800
<v Speaker 2>limitations that are there as aggregate guardrails, aggregate fencing. As

0:24:56.900 --> 0:25:00.470
<v Speaker 2>I personally work within that fencing, Look, I am always

0:25:00.830 --> 0:25:02.790
<v Speaker 2>aware that there are.

0:25:02.750 --> 0:25:03.969
<v Speaker 1>No facts about the future.

0:25:04.090 --> 0:25:07.070
<v Speaker 2>And as much as my conviction is high on something,

0:25:07.590 --> 0:25:12.410
<v Speaker 2>I am anticipating a future outcome and this future journey.

0:25:12.560 --> 0:25:14.990
<v Speaker 2>And so I always have to, I always have, okay,

0:25:15.359 --> 0:25:17.600
<v Speaker 2>there's a chance that I'm not right on this. So

0:25:17.619 --> 0:25:20.220
<v Speaker 2>make sure that things are either sized appropriately or I

0:25:20.280 --> 0:25:23.440
<v Speaker 2>realize what I'm looking for if I want to unwind.

0:25:24.020 --> 0:25:27.120
<v Speaker 2>And that's, to me, an important part of making sure

0:25:27.180 --> 0:25:29.560
<v Speaker 2>I get, quote unquote, those risks taken care of. There's

0:25:29.600 --> 0:25:33.409
<v Speaker 2>the risk that you don't really understand the business and

0:25:33.430 --> 0:25:38.590
<v Speaker 2>the industry. That one, I don't feel very concerned about,

0:25:38.609 --> 0:25:42.369
<v Speaker 2>knock on wood, because our analysts are so extraordinary and

0:25:42.410 --> 0:25:45.580
<v Speaker 2>have such long-term context, right? When we tend to miss things,

0:25:45.640 --> 0:25:48.080
<v Speaker 2>it tends not to be a fundamental thing. It may be,

0:25:48.160 --> 0:25:50.780
<v Speaker 2>by the way, like the big debate right now. I

0:25:50.820 --> 0:25:54.240
<v Speaker 2>think the understanding what happens with sort of AI stocks

0:25:54.260 --> 0:25:56.850
<v Speaker 2>and the fundamentals and what the trajectory is, if things

0:25:56.900 --> 0:26:00.240
<v Speaker 2>keep doubling, that's all very easy to to sort of

0:26:00.520 --> 0:26:04.429
<v Speaker 2>parse through. I think the unknowns about how society is

0:26:04.450 --> 0:26:07.990
<v Speaker 2>going to respond with pushing back on data center construction,

0:26:08.290 --> 0:26:12.669
<v Speaker 2>possible regulations, what happens if these accidents cause things, those things,

0:26:12.990 --> 0:26:17.020
<v Speaker 2>those are sort of these great unknowns. But you have

0:26:17.060 --> 0:26:22.679
<v Speaker 2>to size based on the combination of your knowns, your unknowns,

0:26:23.040 --> 0:26:26.460
<v Speaker 2>and it I know I'm not being very precise here,

0:26:27.080 --> 0:26:29.439
<v Speaker 2>but it is a bit of an art form, but

0:26:29.480 --> 0:26:33.109
<v Speaker 2>it's an art form that I practice within an aggregate

0:26:33.350 --> 0:26:36.950
<v Speaker 2>structure that says, Alan, you can't have any industry be

0:26:36.990 --> 0:26:39.690
<v Speaker 2>bigger than 30% of your portfolio, or Alan, you can't

0:26:39.750 --> 0:26:43.590
<v Speaker 2>have any holding any larger than 40% of your portfolio. Again,

0:26:43.609 --> 0:26:46.169
<v Speaker 2>that's my own particular slice. The aggregate fund has its

0:26:46.390 --> 0:26:48.040
<v Speaker 2>own aggregate rules that it won't go over.

0:26:48.859 --> 0:26:51.919
<v Speaker 1>Okay. What about your sell discipline? Is it more of,

0:26:52.350 --> 0:26:55.790
<v Speaker 1>finding better opportunities or are there times when your original

0:26:55.850 --> 0:26:58.170
<v Speaker 1>thesis breaks down at some point?

0:26:58.810 --> 0:27:01.560
<v Speaker 2>Story changes lead, right? And the story could change for

0:27:01.580 --> 0:27:03.960
<v Speaker 2>a couple of reasons. Story could be, look, people didn't

0:27:04.000 --> 0:27:08.520
<v Speaker 2>appreciate the coil spring. The cycle has happened. People appreciate it.

0:27:08.920 --> 0:27:12.160
<v Speaker 2>The coil has sprung. Okay, time to sell. It could be,

0:27:12.180 --> 0:27:16.070
<v Speaker 2>I thought you were going to do X. X didn't happen.

0:27:16.770 --> 0:27:19.469
<v Speaker 2>It doesn't look like in the foreseeable distance that it's

0:27:19.510 --> 0:27:20.149
<v Speaker 2>going to happen.

0:27:20.430 --> 0:27:21.109
<v Speaker 1>Time to sell.

0:27:21.540 --> 0:27:24.640
<v Speaker 2>It could be any number of things, but the short

0:27:24.700 --> 0:27:27.980
<v Speaker 2>answer is story, change, leave. What is typically not the case,

0:27:28.480 --> 0:27:33.010
<v Speaker 2>at least for me, I don't tend to use valuation

0:27:33.090 --> 0:27:36.510
<v Speaker 2>signals as the key to sell because often some of

0:27:36.850 --> 0:27:40.310
<v Speaker 2>my best ideas, some of the best performing investments have

0:27:40.350 --> 0:27:43.389
<v Speaker 2>gone much farther than I might have expected. One, because

0:27:43.490 --> 0:27:45.930
<v Speaker 2>the engine ran longer than I thought or the market's

0:27:45.970 --> 0:27:48.440
<v Speaker 2>willingness to pay was higher than I thought, but two,

0:27:48.869 --> 0:27:51.190
<v Speaker 2>But the point is, it tends to not be a

0:27:51.230 --> 0:27:53.929
<v Speaker 2>valuation signal for me. It's a, the reason that I

0:27:53.970 --> 0:27:57.220
<v Speaker 2>bought it has changed. Maybe for good reasons, maybe for bad.

0:27:57.380 --> 0:27:59.100
<v Speaker 2>But reason changes leave.

0:28:00.180 --> 0:28:03.540
<v Speaker 1>Okay. You know, the fund has a lot of flexibility

0:28:03.560 --> 0:28:06.940
<v Speaker 1>to invest outside the traditional universe of companies might, you know,

0:28:06.960 --> 0:28:09.480
<v Speaker 1>people might associate with growth investing. And, you know, you

0:28:09.520 --> 0:28:11.800
<v Speaker 1>mentioned healthcare a little bit earlier, but are there areas

0:28:11.840 --> 0:28:15.050
<v Speaker 1>where you're finding opportunities today that might surprise someone only

0:28:15.090 --> 0:28:16.790
<v Speaker 1>looking at a conventional growth index?

0:28:17.820 --> 0:28:20.050
<v Speaker 2>Well, you know, so what's interesting to me now is

0:28:20.090 --> 0:28:22.129
<v Speaker 2>the things, if you go back and look at the

0:28:22.170 --> 0:28:23.490
<v Speaker 2>things that were in the fund two or three years

0:28:23.550 --> 0:28:26.510
<v Speaker 2>ago that weren't in the growth index that are now in, right?

0:28:26.530 --> 0:28:28.850
<v Speaker 2>So a lot of these, so, and that's, by the way,

0:28:28.869 --> 0:28:33.240
<v Speaker 2>that's one of the things that's very rewarding. But, you know,

0:28:33.400 --> 0:28:37.720
<v Speaker 2>one of our managers, I told you we have these

0:28:37.760 --> 0:28:42.220
<v Speaker 2>seven restaurants, but one of the restaurateurs is just a

0:28:42.400 --> 0:28:46.660
<v Speaker 2>very cautious person when it comes to thinking about the

0:28:46.720 --> 0:28:51.510
<v Speaker 2>monetary system, what's going to happen with the dollar. And

0:28:51.550 --> 0:28:53.450
<v Speaker 2>he's in, and so, and so he's always got a

0:28:53.510 --> 0:28:58.130
<v Speaker 2>growth portfolio that has a lot of tangible things associated

0:28:58.170 --> 0:29:00.370
<v Speaker 2>with it, right? They can be commodity related. They could

0:29:00.430 --> 0:29:02.370
<v Speaker 2>be gold streamers, right?

0:29:02.390 --> 0:29:02.770
<v Speaker 1>They, right.

0:29:02.870 --> 0:29:05.910
<v Speaker 2>You don't typically think of those, but, but those are

0:29:06.080 --> 0:29:10.140
<v Speaker 2>really terrific capital appreciation, cap appreciation ideas. At least they

0:29:10.180 --> 0:29:15.100
<v Speaker 2>have been, uh, when, when, when this person bought them, um, uh,

0:29:15.300 --> 0:29:18.740
<v Speaker 2>you know, he was buying gold long before the thing

0:29:18.760 --> 0:29:20.440
<v Speaker 2>got hot, right? So, so that was one of those

0:29:20.480 --> 0:29:23.560
<v Speaker 2>things that, where the capital appreciation was there and present.

0:29:23.640 --> 0:29:25.840
<v Speaker 2>One of the things he has been looking at and

0:29:25.880 --> 0:29:28.680
<v Speaker 2>holds a lot of is performance food group, which is, okay,

0:29:28.740 --> 0:29:31.550
<v Speaker 2>I mean, it's a sort of a steady Eddie, you know,

0:29:31.610 --> 0:29:34.150
<v Speaker 2>it's like, but, but he would argue, look, you know,

0:29:34.250 --> 0:29:36.710
<v Speaker 2>food outside the home is growing at 5%. These guys

0:29:36.730 --> 0:29:39.030
<v Speaker 2>have compounded areas at 16%. This is a business that

0:29:40.160 --> 0:29:42.360
<v Speaker 2>that is consolidating. So it's, I guess what I would

0:29:42.400 --> 0:29:45.100
<v Speaker 2>say is it might be considered quote unquote growth, but

0:29:45.120 --> 0:29:48.520
<v Speaker 2>it is far from sexy, right? People think people right

0:29:48.560 --> 0:29:52.710
<v Speaker 2>now equate growth with sexy, right? And often there's a

0:29:52.770 --> 0:29:57.280
<v Speaker 2>lot of real hidden value in the unsexy, plodding along,

0:29:57.380 --> 0:30:01.080
<v Speaker 2>steady Eddie, it's going to do well. And so that

0:30:01.120 --> 0:30:03.020
<v Speaker 2>would be one that, at least when I have one.

0:30:03.480 --> 0:30:05.080
<v Speaker 2>So the other thing we do, I said, you know,

0:30:05.300 --> 0:30:07.350
<v Speaker 2>is that we walk around other people's restaurants, right? And

0:30:07.410 --> 0:30:09.450
<v Speaker 2>I look at, what's that doing in there, right? Because

0:30:09.470 --> 0:30:12.250
<v Speaker 2>that's the, and so, okay, I see what you're doing.

0:30:12.290 --> 0:30:14.970
<v Speaker 2>I see where you're doing. It makes sense to me. Okay.

0:30:15.510 --> 0:30:17.910
<v Speaker 1>No, it makes a lot of sense. You know, one

0:30:17.970 --> 0:30:19.880
<v Speaker 1>other question I wanted to just ask about growth index

0:30:19.920 --> 0:30:22.080
<v Speaker 1>is we all know how, you know, heavily influenced they

0:30:22.140 --> 0:30:25.220
<v Speaker 1>are now by a relatively small group of very large companies.

0:30:25.600 --> 0:30:28.380
<v Speaker 1>Do you think that concentration makes the environment more challenging

0:30:28.420 --> 0:30:30.850
<v Speaker 1>for active growth managers, or do you think it just

0:30:31.270 --> 0:30:32.970
<v Speaker 1>creates more opportunities elsewhere?

0:30:33.610 --> 0:30:35.930
<v Speaker 2>I think it creates more opportunity. I think the question

0:30:36.110 --> 0:30:40.330
<v Speaker 2>is whether you have a client base who will give

0:30:40.370 --> 0:30:46.250
<v Speaker 2>you the time to appreciate the opportunity, right? So I

0:30:46.310 --> 0:30:50.170
<v Speaker 2>can't tell you what and when, but I can soften

0:30:50.230 --> 0:30:52.950
<v Speaker 2>tell you what, right? And so typically if you look

0:30:52.990 --> 0:30:55.910
<v Speaker 2>at a portfolio, if you just take the Russell and

0:30:55.930 --> 0:30:58.920
<v Speaker 2>you look at sort of two or three holdings, making

0:30:58.940 --> 0:31:00.900
<v Speaker 2>up these gigantic parts of the, by the way, these

0:31:00.980 --> 0:31:02.060
<v Speaker 2>aren't bad companies, right?

0:31:02.100 --> 0:31:02.940
<v Speaker 1>They're fantastic.

0:31:02.980 --> 0:31:06.060
<v Speaker 2>But, but should, but should really like, you know, half

0:31:06.120 --> 0:31:08.360
<v Speaker 2>your money be in four or five, right? And so

0:31:09.520 --> 0:31:12.080
<v Speaker 2>if I guess, I guess I would say this, if

0:31:12.100 --> 0:31:14.550
<v Speaker 2>you didn't have time to do your own work, right?

0:31:15.060 --> 0:31:17.480
<v Speaker 2>And therefore, you just said, look, I need to keep

0:31:17.540 --> 0:31:20.360
<v Speaker 2>it simple because my day job is doing X. So yeah,

0:31:20.600 --> 0:31:24.540
<v Speaker 2>if most of my money is in NVIDIA and Apple

0:31:24.620 --> 0:31:27.220
<v Speaker 2>and whatever the top ones are, okay, got it. You're

0:31:27.260 --> 0:31:29.900
<v Speaker 2>not going to have great harm. But if you said

0:31:29.940 --> 0:31:32.320
<v Speaker 2>by the same token, I've got a place that has,

0:31:32.740 --> 0:31:37.570
<v Speaker 2>in this fund, seven portfolio managers, probably 40 analysts across

0:31:37.610 --> 0:31:39.710
<v Speaker 2>the spectrum of things. And all they do every day

0:31:40.030 --> 0:31:43.090
<v Speaker 2>is to go and look for mispriced opportunities where there's

0:31:43.130 --> 0:31:46.790
<v Speaker 2>a lot of capital appreciation. Yeah, give me some of those, right? Well,

0:31:47.450 --> 0:31:49.770
<v Speaker 2>there's not room to have those giant positions if you

0:31:49.810 --> 0:31:52.450
<v Speaker 2>have all this other neat and interesting stuff. So I

0:31:52.590 --> 0:31:55.310
<v Speaker 2>understand the way we've gotten to this level of concentration,

0:31:55.350 --> 0:31:57.610
<v Speaker 2>but I think that is exactly the opportunity for us

0:31:57.990 --> 0:32:00.690
<v Speaker 2>because while all the money sloshed into those, it has

0:32:00.750 --> 0:32:02.910
<v Speaker 2>left some other things that are quite attractive mispriced.

0:32:04.020 --> 0:32:06.700
<v Speaker 1>Okay. No, I definitely agree with that. We're seeing kind

0:32:06.740 --> 0:32:11.260
<v Speaker 1>of this huge resurgence in investors loving active at the

0:32:11.320 --> 0:32:14.150
<v Speaker 1>same time this concentration is happening. And so I think

0:32:14.170 --> 0:32:16.570
<v Speaker 1>it's kind of a cool storm to watch. And so

0:32:16.630 --> 0:32:18.590
<v Speaker 1>I have just one more question I wanted to ask

0:32:18.670 --> 0:32:20.510
<v Speaker 1>before I let you go. You know, when you kind

0:32:20.530 --> 0:32:22.830
<v Speaker 1>of look at the market today, do you see any

0:32:23.190 --> 0:32:26.290
<v Speaker 1>disconnect between what investors are focused on in the near

0:32:26.330 --> 0:32:29.010
<v Speaker 1>term and, you know, growth opportunities that could matter much

0:32:29.070 --> 0:32:32.190
<v Speaker 1>more over the next, you know, several years? So, okay,

0:32:32.210 --> 0:32:33.610
<v Speaker 1>I'm going to answer your question. I'm going to tell

0:32:33.630 --> 0:32:34.630
<v Speaker 1>you why it's hard for me to answer.

0:32:35.950 --> 0:32:38.710
<v Speaker 2>I need to, you know, one of the ways, it's

0:32:38.750 --> 0:32:41.560
<v Speaker 2>hard for me to keep my perfect pitch in if

0:32:41.820 --> 0:32:43.460
<v Speaker 2>I'm in a place where there's a bunch of people

0:32:43.500 --> 0:32:46.200
<v Speaker 2>singing a bunch of other tunes, right?

0:32:46.240 --> 0:32:47.200
<v Speaker 1>I'm trying to stay on pitch.

0:32:47.580 --> 0:32:50.360
<v Speaker 2>And so I don't spend a lot of time listening

0:32:50.400 --> 0:32:52.600
<v Speaker 2>to the other singers outside the world, right? I know

0:32:52.840 --> 0:32:53.860
<v Speaker 2>my singers internally.

0:32:53.940 --> 0:32:54.940
<v Speaker 1>I know them. I've calibrated.

0:32:54.960 --> 0:32:57.450
<v Speaker 2>We've sung together for decades. I know what that means. But,

0:32:57.550 --> 0:32:59.390
<v Speaker 2>you know, I don't sit and watch, oh my God,

0:32:59.410 --> 0:33:01.330
<v Speaker 2>this has gone on TV screaming about this or this

0:33:01.390 --> 0:33:04.390
<v Speaker 2>lady screaming about that. So one, I'm always a little

0:33:04.430 --> 0:33:07.510
<v Speaker 2>wary that I don't necessarily understand what other words, what

0:33:07.550 --> 0:33:10.550
<v Speaker 2>folks are looking for. I guess I would say the following.

0:33:12.490 --> 0:33:17.700
<v Speaker 2>you know, as we sit here in September, there's a

0:33:17.800 --> 0:33:21.520
<v Speaker 2>lot of damage being done to physical infrastructure, right? In

0:33:21.580 --> 0:33:25.340
<v Speaker 2>terms of oil infrastructure, the demands we have on creating

0:33:25.420 --> 0:33:29.060
<v Speaker 2>power for this magical system, like the physical world moves

0:33:29.120 --> 0:33:33.380
<v Speaker 2>a lot more slowly than the technological world, right? And

0:33:33.420 --> 0:33:35.140
<v Speaker 2>so when people say, oh my God, you know, if

0:33:35.180 --> 0:33:36.850
<v Speaker 2>you think this model is smart, wait till the one,

0:33:36.880 --> 0:33:39.330
<v Speaker 2>two generations is better. And all you need is sort of,

0:33:39.370 --> 0:33:44.460
<v Speaker 2>you know, 10 times the power. That little, the physical world,

0:33:44.540 --> 0:33:47.580
<v Speaker 2>I think people are just now starting to pay attention

0:33:47.620 --> 0:33:50.900
<v Speaker 2>to the idea that it may not be as easy to,

0:33:53.120 --> 0:33:54.800
<v Speaker 2>Mike Tyson, everyone has a plan to get punched in

0:33:54.820 --> 0:33:57.980
<v Speaker 2>the mouth. Here, the punch in the mouth is the

0:33:58.020 --> 0:34:00.620
<v Speaker 2>constraint of the physical world, right? I think if you're

0:34:00.640 --> 0:34:02.820
<v Speaker 2>looking at what's happening with the energy infrastructure right now,

0:34:03.360 --> 0:34:06.620
<v Speaker 2>this thing in Iran will end. The question is once

0:34:06.660 --> 0:34:10.170
<v Speaker 2>it ends, do you have almost a decade worth of

0:34:10.290 --> 0:34:13.900
<v Speaker 2>reconfiguration that has to happen? The types of companies that

0:34:13.920 --> 0:34:16.720
<v Speaker 2>are in front of that are going to be really

0:34:16.760 --> 0:34:19.859
<v Speaker 2>terrific investments. The types of companies that are going to

0:34:19.960 --> 0:34:25.020
<v Speaker 2>have a almost decade-long headwind because their input chain has

0:34:25.060 --> 0:34:26.740
<v Speaker 2>a lot more kinks in it than they used to have,

0:34:27.120 --> 0:34:30.950
<v Speaker 2>that's another opportunity. So I would say If you say,

0:34:31.030 --> 0:34:33.489
<v Speaker 2>what am I sniffing around a lot right now? It's

0:34:33.590 --> 0:34:36.009
<v Speaker 2>those types of things because I think those might well

0:34:36.050 --> 0:34:40.440
<v Speaker 2>be the next coil springs because physical infrastructure also typically

0:34:40.480 --> 0:34:43.080
<v Speaker 2>isn't a sexy thing that growth funds hold.

0:34:44.239 --> 0:34:46.859
<v Speaker 1>Makes a lot of sense. Unfortunately, we need to end here,

0:34:46.980 --> 0:34:48.660
<v Speaker 1>but this was great, Alan. Thank you so much for

0:34:48.680 --> 0:34:51.009
<v Speaker 1>joining me today. Dave, thank you so much for having me.

0:34:51.350 --> 0:34:53.130
<v Speaker 1>I also want to thank our listeners. If you liked

0:34:53.150 --> 0:34:55.430
<v Speaker 1>the episode, please share it, subscribe, and leave a review.

0:34:55.550 --> 0:34:56.970
<v Speaker 1>And if you'd like to see more of our research

0:34:57.110 --> 0:35:00.110
<v Speaker 1>on the terminal, go to BIFundGo.com. for U.S. Fund and

0:35:00.190 --> 0:35:03.510
<v Speaker 1>Active Research. Until our next episode, this is David Cohn

0:35:03.610 --> 0:35:04.450
<v Speaker 1>with Inside Active.