WEBVTT - Dennis Lynch on Global Portfolio Management (Podcast) 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Verry Ridholts on Bloomberg Radio. 0:00:07.600 --> 0:00:11.560 This week on the podcast, I have an extra special guest. 0:00:12.119 --> 0:00:15.200 You may not know his name, but you probably should 0:00:15.800 --> 0:00:19.320 given the stellar track record he's managed to put together 0:00:19.800 --> 0:00:23.160 over the past twenty or so years. Dennis Lynch is 0:00:23.239 --> 0:00:26.560 head of Counterpoint Global. That is sort of a group, 0:00:26.720 --> 0:00:30.520 a firm within a firm at Morgan Stanley Investment Management. Uh. 0:00:30.560 --> 0:00:32.600 They run a ton of money, about a hundred thirty 0:00:32.600 --> 0:00:36.960 billion dollars and their track record, especially this year, has 0:00:37.000 --> 0:00:41.159 been pretty The Noodles the Growth Fund is up eight 0:00:42.120 --> 0:00:45.760 Discovery is up about a hundred percent. Their worst performers 0:00:45.800 --> 0:00:52.360 advantage it's only up fift. They run very interesting concentrated portfolios. 0:00:52.840 --> 0:00:57.520 Their entire approach is somewhat unique. They're not um like 0:00:57.720 --> 0:01:01.120 very many people. Uh. Maybe Will dan Hof for Bill 0:01:01.160 --> 0:01:05.319 Miller run a similar style of investment management. To give 0:01:05.360 --> 0:01:09.280 you an idea of how outside the box this group thinks. Uh. 0:01:09.319 --> 0:01:12.279 They recently, by recently a year ago, they hired Michael 0:01:12.280 --> 0:01:14.920 Mobison to be the head of their research just for 0:01:14.959 --> 0:01:17.480 the group. Mike has been on the show a couple 0:01:17.480 --> 0:01:20.199 of times, and I just love the way he thinks, 0:01:20.240 --> 0:01:24.360 and any group that brings someone like him in obviously 0:01:24.560 --> 0:01:29.240 is not your traditional Wall Street stock picking um fund managers. 0:01:29.880 --> 0:01:33.240 I found this conversation to be absolutely fascinating if you're 0:01:33.280 --> 0:01:36.440 all interested in how to build a portfolio, how to 0:01:36.520 --> 0:01:41.200 select stocks bottom up, why the buckets we use and 0:01:41.280 --> 0:01:45.120 phrases like small cap or value or growth can be 0:01:45.480 --> 0:01:50.640 so constraining and really harmful to performance. I believe you're 0:01:50.640 --> 0:01:54.120 gonna find this conversation to be absolutely fascinating. So, with 0:01:54.160 --> 0:01:58.400 no further ado, my conversation with Counterpoint Global at Morgan 0:01:58.520 --> 0:02:05.320 Stanley's Dennis Inch. This is Master's in Business with Barry 0:02:05.400 --> 0:02:10.160 Ridholts on Bloomberg Radio. My special guest this week is 0:02:10.200 --> 0:02:14.480 Dennis Lynch. He is the head of Counterpoint Global at 0:02:14.520 --> 0:02:19.600 Morgan Stanley Investing Management. Running about forty four billion dollars, 0:02:20.000 --> 0:02:26.600 he has five separate funds. His group is responsible for advantage, growth, insight, discovery, 0:02:26.720 --> 0:02:31.120 and inception, the largest of which is about fifteen billion 0:02:31.160 --> 0:02:36.640 dollars and year to date is up about Dennis Lynch, 0:02:37.120 --> 0:02:41.880 Welcome to Bloomberg, Barry, thanks for having me. So let's 0:02:41.960 --> 0:02:45.520 talk a little bit about Counterpoint Global. Everybody knows the 0:02:45.600 --> 0:02:50.359 name Morgan Stanley, but not everybody knows the name Counterpoint Global. 0:02:51.120 --> 0:02:54.680 What is the thinking behind a company within a company. 0:02:54.800 --> 0:02:56.799 I mean, I've been at Morgan Stanley, I think over 0:02:56.840 --> 0:02:59.160 twenty years and ever since the habit it would an 0:02:59.200 --> 0:03:03.240 investment manage meant they've followed the philosophy of trying to 0:03:03.320 --> 0:03:05.840 make sure they have a diverse group of thinkers and 0:03:05.919 --> 0:03:09.040 small decision making teams. And I think that's a really 0:03:09.080 --> 0:03:12.200 healthy environment for trying to to do the hardest, one 0:03:12.240 --> 0:03:14.639 of the harder things out there, which is pete the market. 0:03:15.440 --> 0:03:17.960 So it's been a great environment for that. And in 0:03:18.000 --> 0:03:21.080 that context we've been able to build Counterpoint Global our 0:03:21.160 --> 0:03:24.840 group over the course really in a strong manner over 0:03:24.840 --> 0:03:28.360 the last sixteen years, with with the great resources we 0:03:28.400 --> 0:03:31.280 also get from Morgan Stanley generally. So I think it's 0:03:31.280 --> 0:03:33.880 been a good combination of a good, big, big term 0:03:33.919 --> 0:03:37.920 philosophy from Morgan Stanley and and then allowing Counterpoint Global 0:03:37.920 --> 0:03:40.600 and the key members of the team to be very 0:03:40.720 --> 0:03:45.240 entrepreneurial in that context. So not to read too much 0:03:45.240 --> 0:03:48.200 into what you're saying, but you're giving me the impression 0:03:48.840 --> 0:03:51.560 that this is a model within Morgan Stanley, and there 0:03:51.600 --> 0:03:56.760 are a number of small entrepreneurial teams within investment management. 0:03:56.840 --> 0:04:00.040 Is that right? Yes, that's been the model, and I 0:04:00.040 --> 0:04:02.400 think it's really healthy. I think there's been some good 0:04:02.400 --> 0:04:05.480 research that shows that, you know, strong decision making, particularly 0:04:05.480 --> 0:04:10.000 on the investment committee side of things, tends to occur 0:04:10.080 --> 0:04:13.720 when you're dealing with small groups of teams as opposed 0:04:13.720 --> 0:04:17.919 to kind of large bureaucracies. So I count five different 0:04:17.960 --> 0:04:23.600 funds that Counterpoint Global is running, Advantage, Growth, Insight, Discovery, 0:04:23.760 --> 0:04:27.839 and Inception. Are these all run as a group or 0:04:27.880 --> 0:04:30.839 are there different managers for each? How do you guys 0:04:30.839 --> 0:04:34.360 structure this amongst yourselves? So believe it or not. Actually, 0:04:34.560 --> 0:04:40.000 UM Counterpoint Global in its totality is about nineteen products globally, 0:04:40.880 --> 0:04:43.919 which includes the portfolio management team in New York that 0:04:44.000 --> 0:04:47.800 I had, as well as the portfolio management team in 0:04:47.880 --> 0:04:51.000 Asia which my partner and co c i O Christian 0:04:51.080 --> 0:04:54.479 Hugh runs UM. And so in total we have nineteen 0:04:54.480 --> 0:04:59.720 products currently the hundred thirty billion in assets and UM 0:05:00.120 --> 0:05:03.040 we probably own about two companies those globally. So despite 0:05:03.080 --> 0:05:05.200 the fact that sounds like a large number of products, 0:05:05.520 --> 0:05:09.159 we're very concentrated in each product and we're very picky 0:05:09.160 --> 0:05:11.760 about what we invest in. So it is a pretty 0:05:11.800 --> 0:05:16.480 small group of companies when you think globally. We basically, uh, 0:05:16.520 --> 0:05:19.600 you know, we run We have two lead managers in 0:05:19.880 --> 0:05:23.800 two different locations, and the portfolios are kind of informed 0:05:23.800 --> 0:05:27.800 by the insights of the entire team, and we go 0:05:27.880 --> 0:05:29.479 through the process kind of at the end of the 0:05:29.520 --> 0:05:32.080 process to figure out what to go. We're based on 0:05:32.400 --> 0:05:35.760 how big a company is, where it's domiciled, etcetera. In 0:05:35.800 --> 0:05:39.279 other words, you identify a company you want to own 0:05:39.560 --> 0:05:43.320 and then figure out afterwards which funds, which product is 0:05:43.360 --> 0:05:48.000 the right fit for it. Yes, huh. That's very different 0:05:48.040 --> 0:05:51.160 than the typical mutual funds. Yeah, and I think it's 0:05:51.200 --> 0:05:53.359 a big different when I think about Counterpoint Global and 0:05:53.360 --> 0:05:56.760 how we're different. It is one of our big differences. 0:05:56.800 --> 0:05:58.520 You know. The people on our team aren't what we 0:05:58.560 --> 0:06:01.320 call investors. They show up or wake up each day 0:06:01.760 --> 0:06:04.680 looking for the best ideas in their areas of expertise, 0:06:04.760 --> 0:06:07.280 but they're not trying to find the best large cap 0:06:07.279 --> 0:06:10.320 growth healthcare companies. So if you're Jason Young is a 0:06:10.360 --> 0:06:13.760 world class health investor on the team, that's not how 0:06:13.760 --> 0:06:16.360 you're approaching your time spent in your day to day 0:06:16.720 --> 0:06:19.400 you're looking for great ideas within healthcare, and it just 0:06:19.440 --> 0:06:24.120 so happens given that we have US products, international global products, 0:06:24.200 --> 0:06:27.480 and ones that focus on different market caps and different 0:06:27.520 --> 0:06:30.159 parts of the overall products set, we have a we 0:06:30.200 --> 0:06:32.200 have a home for your idea and so I think 0:06:32.200 --> 0:06:35.119 it is is one of the things that differentiates the team. 0:06:35.360 --> 0:06:37.720 So you went from being an analyst to being a 0:06:37.800 --> 0:06:43.400 portfolio manager. How challenging is it to go from analyzing 0:06:43.400 --> 0:06:47.479 a business to building an investment portfolio? What what was 0:06:47.520 --> 0:06:49.440 that transition? Like? Well, I think, you know, there are 0:06:49.440 --> 0:06:51.560 a lot of different personalities out there, and I think 0:06:51.560 --> 0:06:54.560 it really depends on the person. You know. Actually, one 0:06:54.600 --> 0:06:56.400 thing we try to do from time to time every 0:06:56.440 --> 0:06:59.760 few years is the personality assistance for people on the team, 0:06:59.839 --> 0:07:02.280 just to promote a little bit of self awareness. It's 0:07:02.279 --> 0:07:05.160 always good to get get another view of kind of 0:07:05.200 --> 0:07:07.760 how you're hardwired, especially in times like this where we're 0:07:07.800 --> 0:07:11.440 having extreme volatility. It's kind of nice and to remember 0:07:11.520 --> 0:07:14.680 that sometimes you're hardwired to react a certain way under 0:07:14.760 --> 0:07:17.520 durest and maybe that self awareness helps you make you 0:07:17.640 --> 0:07:20.560 more high quality decisions. But I guess in our case 0:07:20.680 --> 0:07:23.400 or in my case, um I've always you know, while 0:07:23.440 --> 0:07:26.520 I love details, and I certainly can be very detail 0:07:26.560 --> 0:07:29.520 oriented at times, I also love learning about a lot 0:07:29.520 --> 0:07:31.560 of things. You know. I went to a liberal arts college, 0:07:31.600 --> 0:07:34.800 and so I have I really do enjoy the extra 0:07:34.840 --> 0:07:37.840 perspective of learning about a lot of different industries and sectors. 0:07:37.840 --> 0:07:41.240 So going from an expert or an analyst in one 0:07:41.280 --> 0:07:45.040 area to being an investor more broadly, I think kind 0:07:45.040 --> 0:07:47.920 of fit my personality specifically. But what we try to 0:07:47.960 --> 0:07:50.840 do on the team is is, you know, attract really 0:07:51.360 --> 0:07:54.520 unique people and then based on their personalities or end 0:07:54.560 --> 0:07:57.240 their passions, sort of let's enable them to do what 0:07:57.280 --> 0:07:59.040 they do well. And so we've got all sorts of 0:07:59.080 --> 0:08:02.840 different types of doing playing different roles. In my case, 0:08:02.920 --> 0:08:06.600 I think given my uh a love for learning about 0:08:06.600 --> 0:08:09.760 a lot of things, the transition probably made more sense 0:08:09.760 --> 0:08:12.560 and was easier than for someone else. So I have 0:08:12.840 --> 0:08:17.000 read a lot about personality testing, and there seems to 0:08:17.040 --> 0:08:21.400 be two groups of thoughts on it. One is there's 0:08:21.440 --> 0:08:26.160 a lot of down and dirty, kind of oversimplified tests 0:08:26.200 --> 0:08:29.760 and they're of no value whatsoever. And there's another group 0:08:29.800 --> 0:08:32.880 of thinking that says, hey, if you ask the right 0:08:33.000 --> 0:08:36.920 questions and you really dive deep enough, you can find 0:08:36.960 --> 0:08:40.640 things out about how people think, how they behave, and 0:08:40.720 --> 0:08:45.080 what type they fall into. So I'm gonna assume you 0:08:45.120 --> 0:08:49.400 guys aren't doing anything um down and dirty. You're really 0:08:49.480 --> 0:08:54.320 doing a serious dive into that sort of profiling of 0:08:54.840 --> 0:08:59.880 various researchers and managers in the group we are. But 0:09:00.080 --> 0:09:03.719 you know, here's the thing about anything like this personality tests, UM, 0:09:04.320 --> 0:09:06.959 this sort of topic UM. You know, and we have 0:09:07.080 --> 0:09:08.959 got a great diversity of thinking on a team here. 0:09:09.040 --> 0:09:11.600 Some people think it isn't very useful, and some people 0:09:11.640 --> 0:09:15.520 find it extraordinarily extraordinarily useful. I look at it as 0:09:15.559 --> 0:09:18.080 a as a low cost way of getting the team 0:09:18.080 --> 0:09:21.640 together in one place and spending time as a larger 0:09:21.720 --> 0:09:24.959 unit where we can you know, hopefully you know, bond 0:09:25.080 --> 0:09:28.080 and and share share a day where we're sometimes you've 0:09:28.080 --> 0:09:30.520 been making fun of each other for our differences. UM. 0:09:30.840 --> 0:09:32.880 But I think that it's the worst case for my 0:09:33.000 --> 0:09:37.480 vantage point. It helps the team uh culture. But you know, 0:09:37.480 --> 0:09:39.400 we have some people think this is very useful and 0:09:39.440 --> 0:09:41.839 some people think it's useless. And I get both sides 0:09:41.880 --> 0:09:44.520 of that. You know, I actually used to think it 0:09:44.559 --> 0:09:47.760 was useless earlier in my life, and as I started 0:09:47.760 --> 0:09:49.640 to explore it, I found there there there to be 0:09:49.679 --> 0:09:53.040 some utility. So it really depends on the person. It's 0:09:53.080 --> 0:09:55.200 it's it's why we do it every few years. It's 0:09:55.200 --> 0:09:57.440 the worst case, it's a it's a cultural bonding thing, 0:09:57.480 --> 0:10:01.559 and best case, maybe people gain a little extrac off awareness. Huh. 0:10:01.720 --> 0:10:05.160 Quite quite interesting. I find myself about halfway in the 0:10:05.200 --> 0:10:08.800 process that you already went through, going from poo pooing 0:10:08.840 --> 0:10:12.400 it too. All right, maybe it's worth exploring and who 0:10:12.440 --> 0:10:14.720 knows what what will come out of it. I was 0:10:14.800 --> 0:10:17.520 very disappointed when I initially took the Myers Briggs a 0:10:17.520 --> 0:10:20.120 long time ago, to find that I wasn't so unique 0:10:20.120 --> 0:10:23.080 after all. It was a lot more accurate than I 0:10:23.120 --> 0:10:25.800 expected to be. So that's what got me kind of 0:10:26.000 --> 0:10:29.959 moving in that direction. But reminds me of my favorite 0:10:29.960 --> 0:10:34.280 scene in Money Python's Life of Brian. We're all individuals, 0:10:34.320 --> 0:10:40.160 everybody chance together, We're all different. It's pretty hilarious. It's awesome. 0:10:41.160 --> 0:10:46.960 So let's talk a little bit about growth investing in Obviously, 0:10:47.400 --> 0:10:52.880 the stay at home trade has been enormously profitable. Um, 0:10:52.920 --> 0:10:55.600 you're one of your biggest funds has is up almost 0:10:55.640 --> 0:10:59.720 a year to date. Uh, some of these stay at 0:10:59.720 --> 0:11:04.640 home aims like Shopify and Zoom and Tulio. Were these 0:11:04.720 --> 0:11:10.200 in your portfolio pre covid or did you guys recognize, Hey, 0:11:10.240 --> 0:11:14.400 this is gonna be a long working remote scenario and 0:11:14.440 --> 0:11:17.320 we want to load up on the names that would 0:11:17.400 --> 0:11:20.520 benefit from that. Uh. These for the for the very 0:11:20.520 --> 0:11:24.120 most part, these are all holdings going into and they 0:11:24.120 --> 0:11:27.280 were usually our performance at any given period time. It's 0:11:27.280 --> 0:11:30.920 more function of decisions we made a year or several 0:11:31.000 --> 0:11:34.560 years prior than it is kind of the moment sort 0:11:34.559 --> 0:11:37.520 of in the moment reaction to what's happening and obviously 0:11:38.240 --> 0:11:42.679 being an exceptional time. UM. So we did all these 0:11:42.679 --> 0:11:46.720 stocks that you're mentioning prior to UM. That was actually 0:11:46.760 --> 0:11:49.439 a transition we made maybe a few years back. If 0:11:49.440 --> 0:11:51.360 you look maybe eight or ten years ago, you might 0:11:51.400 --> 0:11:55.480 have seen in our portfolio is a large, large stakes 0:11:55.520 --> 0:11:59.840 and companies like Amazon and Apple and Google and Facebook, 0:11:59.840 --> 0:12:02.640 and a few years back we were looking at the 0:12:02.640 --> 0:12:05.160 opportunity set and I think, you know, all good invest 0:12:05.200 --> 0:12:08.280 things opportunities have driven. We thought there were some really 0:12:08.320 --> 0:12:11.320 interesting young companies in some of the areas that have 0:12:11.400 --> 0:12:15.040 benefited more recently, not just from COVID, but from secular growth. 0:12:15.640 --> 0:12:17.840 And so what I would say is we added things 0:12:17.880 --> 0:12:21.720 like some softwares of service and e commerce companies you know, 0:12:21.760 --> 0:12:25.640 two or three years ago, all of which fortunately benefited 0:12:25.679 --> 0:12:27.840 this year. And what I'd say there is, I think 0:12:28.000 --> 0:12:31.400 many of these companies offer you know, time and cost 0:12:31.440 --> 0:12:35.120 efficiencies to their customers or their clients. And you know, 0:12:35.200 --> 0:12:37.680 at the time of general generally, in the time of crisis, 0:12:37.720 --> 0:12:41.240 you're going to see a more likelihood of faster adoption 0:12:41.400 --> 0:12:43.719 or people sort of looking more at the world from 0:12:43.720 --> 0:12:46.679 a blank sheet of paper standpoint, and more likely to 0:12:46.720 --> 0:12:50.280 do things that are different and change their behavior. In addition, 0:12:50.800 --> 0:12:52.679 so I think that's generally true, but you know, from 0:12:52.679 --> 0:12:56.320 a luck standpoint. In addition, I think we were for 0:12:56.679 --> 0:13:00.120 relatively fortunate a tough time for everybody that some the 0:13:00.200 --> 0:13:05.320 specific needs that a pandemic required, like delivery and staying 0:13:05.320 --> 0:13:08.880 at home and UH and working and streaming from home, 0:13:09.360 --> 0:13:11.719 you know, certainly did were extra benefits that you know, 0:13:12.600 --> 0:13:16.240 much more luc driven than it was I think us 0:13:16.280 --> 0:13:19.319 reacting quickly to the environment or anything like that. So 0:13:19.360 --> 0:13:23.880 that raises an interesting question how much of these spectacular 0:13:23.960 --> 0:13:29.760 gains for this group of companies. Is future growth being 0:13:29.800 --> 0:13:33.880 pulled forward to and how much is a permanent shift 0:13:34.640 --> 0:13:38.160 in the dynamic? Well, I think there's definitely some evidence 0:13:38.200 --> 0:13:41.560 of a few things. There's some evidence you've seen some 0:13:41.679 --> 0:13:44.280 of the fundamentals pulled forward for some of those companies, 0:13:44.320 --> 0:13:49.080 i e. Growth, faster growth than expected coming into this period. 0:13:49.559 --> 0:13:52.280 But as you're alluding to, you've also seen pretty dramatic 0:13:53.120 --> 0:13:56.240 outperformance of the companies in relation to the rest of 0:13:56.240 --> 0:13:58.360 the market. So I think it's a combination of both 0:13:58.800 --> 0:14:02.480 forward UH fundamentals being pulled forward as well as potentially 0:14:02.760 --> 0:14:07.080 UH to a degree, future returns also being pulled forward UM. 0:14:07.280 --> 0:14:10.720 And so yeah, it's it's not we we still really 0:14:10.760 --> 0:14:14.480 like the portfolios today from a fundamental standpoint, but when 0:14:14.520 --> 0:14:18.080 you think about perspective returns from here, uh, you know, 0:14:18.160 --> 0:14:21.120 we're not as we're not expecting the high returns we've 0:14:21.160 --> 0:14:24.600 seen over the last ten to twenty years. That counterpoint global. 0:14:25.080 --> 0:14:27.280 But I think that's really true of all asset classes 0:14:27.400 --> 0:14:30.240 with interest rates where they are, and especially real interest 0:14:30.320 --> 0:14:34.080 rates were possibly negative. It doesn't there aren't That doesn't 0:14:34.080 --> 0:14:36.480 seem to be a whole lot of great places to 0:14:37.080 --> 0:14:40.840 find new incremental investments so we're mostly happy staying the course, 0:14:41.400 --> 0:14:44.880 but we recognize by pulling some of those fundamentals end 0:14:45.240 --> 0:14:50.240 valuation expanding in the near term, you're not likely to see, 0:14:50.480 --> 0:14:54.280 you know, the return profiles we've been able to achieve historically. 0:14:54.760 --> 0:14:59.760 We're recording this the day after the big fiser vaccine 0:15:00.040 --> 0:15:05.680 news came out effectiveness in a large study, and the 0:15:05.760 --> 0:15:10.040 market action was value stocks I think had their best 0:15:10.120 --> 0:15:14.040 day in uh at least five years. Tech didn't do 0:15:14.160 --> 0:15:17.560 nearly as well. Do we think this trade is going 0:15:17.600 --> 0:15:21.640 to be changing on a permanent basis or is this 0:15:21.800 --> 0:15:25.440 just a little bit of digestion as to what everybody 0:15:25.640 --> 0:15:30.640 thought was eventually going to come, namely some sort of vaccine, 0:15:30.760 --> 0:15:33.920 some sort of return to normalcy. Yeah. I think you know, 0:15:33.960 --> 0:15:36.840 if you're a trader and you're really focused on, you know, 0:15:36.920 --> 0:15:38.960 the next few months or the next few weeks, or 0:15:39.000 --> 0:15:43.120 of shorter time arisings, then I think you're very, very 0:15:43.160 --> 0:15:45.600 interested in this kind of question, and you might be 0:15:45.640 --> 0:15:48.920 looking at market activity as a barometer for whether or 0:15:48.960 --> 0:15:51.640 not there's been a really dramatic there's certainly been a 0:15:51.720 --> 0:15:55.000 very dramatic short term impact to that news, whether or 0:15:55.040 --> 0:15:58.280 not that sustained itself. You know, it's very hard to predict, 0:15:58.320 --> 0:16:01.320 and certainly we don't We don't have a strong view 0:16:01.360 --> 0:16:04.440 as to whether that will continue or not in the 0:16:04.560 --> 0:16:07.520 very short term. I think it's great news in general. 0:16:07.920 --> 0:16:10.360 I think the economy is going to be a lot 0:16:10.480 --> 0:16:12.680 bigger five to seven years from now, the sooner we 0:16:12.720 --> 0:16:15.520 get out of this uh. And you know, it's hard 0:16:15.560 --> 0:16:18.560 to sustain an economy through his fiscal stimulus and other 0:16:18.640 --> 0:16:22.240 means UM. And that's not good for anybody, including the 0:16:22.320 --> 0:16:24.880 companies that have done you know, the small group of 0:16:24.920 --> 0:16:27.480 companies that have done really well this year. So I 0:16:27.520 --> 0:16:30.240 look at as a positive development. Having said that, it's 0:16:30.280 --> 0:16:34.640 also there's also a lot of unknowns and uncertainty. I think, um, 0:16:34.680 --> 0:16:37.680 you know, how fast we can get any any sort 0:16:37.680 --> 0:16:43.320 of functional vaccine um distributed and implemented. Uh, there are 0:16:43.440 --> 0:16:45.720 you know, other things that can also still still go 0:16:45.840 --> 0:16:49.200 wrong in terms of mutations of the virus, etcetera. So 0:16:49.280 --> 0:16:52.360 this is still a time of uncertainty. Usually when you 0:16:52.400 --> 0:16:55.440 see the sort of dramatic change and things, it's just 0:16:55.720 --> 0:16:57.840 what it does tell you is that how people might 0:16:57.880 --> 0:17:00.680 have been positioned in the short term are trying to 0:17:00.720 --> 0:17:04.760 make short term profits and so obviously this suggests that 0:17:04.880 --> 0:17:08.800 some people were you know, there's there's these stocks have 0:17:08.920 --> 0:17:12.199 become popular in the short term, and that um, you know, 0:17:12.400 --> 0:17:15.439 the people that need to protect their short term gains 0:17:15.720 --> 0:17:18.760 were think in terms of those smaller increments of time 0:17:19.320 --> 0:17:21.520 are going to you know, have have a problem. You know, 0:17:21.560 --> 0:17:23.520 I think even at the end of last year, for example, 0:17:24.000 --> 0:17:25.760 you know, our stocks weren't doing to some of the 0:17:25.800 --> 0:17:27.919 stocks have done so well this year, We're doing terribly 0:17:27.960 --> 0:17:31.119 in relation to the market in the fourth quarter, and 0:17:31.160 --> 0:17:33.600 when we didn't do as badly in the initial draw 0:17:33.680 --> 0:17:39.680 down um posts the COVID occurring, let's say in March April. 0:17:40.040 --> 0:17:41.600 I think part of that had to do with, you know, 0:17:41.680 --> 0:17:43.320 some of the people that are short term orions that 0:17:43.400 --> 0:17:46.160 didn't own our stocks at that point because their relative 0:17:46.200 --> 0:17:48.280 momentum was pretty terrible at the end of last year. 0:17:48.359 --> 0:17:50.720 So this is not the fun part of being a 0:17:50.720 --> 0:17:53.680 long term investor, because you know, we're we're all human 0:17:53.880 --> 0:17:57.960 and you're gonna experience these kinds of times. But how 0:17:58.040 --> 0:18:01.399 we think about the decision making, how we're you know, 0:18:01.480 --> 0:18:03.600 kind of making our choices, it's more of a three 0:18:03.600 --> 0:18:07.240 to five year thing, and it requires being being able 0:18:07.240 --> 0:18:09.720 to zoom out from time to time and recognize that 0:18:09.760 --> 0:18:11.720 the rest of the market's going to focus on short 0:18:11.840 --> 0:18:16.760 term reactions, sometimes more than you'd like. So so let's 0:18:16.760 --> 0:18:20.760 briefly discuss that short term reaction. Back in February and March, 0:18:21.359 --> 0:18:23.680 in a very short period of time, I want to say, 0:18:23.720 --> 0:18:27.240 five or six weeks, the SMP five hundred was down thirty. 0:18:28.720 --> 0:18:33.480 You're running some pretty high, high beta names and a 0:18:33.520 --> 0:18:37.480 lot of volatility. How do you manage around a draw 0:18:37.560 --> 0:18:41.480 down like that? Is it merely you know, the cost 0:18:41.520 --> 0:18:43.719 of admission if you're going to own some of these 0:18:44.240 --> 0:18:47.960 um high flying names. That's pretty interesting, right because you 0:18:48.400 --> 0:18:50.760 as you as you use the word beta, which is 0:18:50.760 --> 0:18:54.840 obviously the modern portfolio you know, proxy for risk. And 0:18:55.400 --> 0:18:57.600 one would have guessed that if, if, if you're you 0:18:57.720 --> 0:19:01.520 had a higher than average beta profile in your portfolio, 0:19:01.640 --> 0:19:03.560 that if the market was going to have the drawdown 0:19:03.640 --> 0:19:06.159 it did earlier in the year, that these stocks or 0:19:06.200 --> 0:19:08.840 those stocks would do worse, and it actually wanted up 0:19:08.880 --> 0:19:10.960 being the opposite, which is pretty amazing. But I think 0:19:11.080 --> 0:19:14.560 what shows you is the limitations of quantifying risk in 0:19:14.640 --> 0:19:17.320 that way or really, you know something we love quantifying 0:19:17.359 --> 0:19:20.040 things right, but sometimes it really only tells us so 0:19:20.160 --> 0:19:23.400 much and we can kind of overly that oversimplification can 0:19:23.480 --> 0:19:26.800 lead to overconfidence. So uh, meanwhile, now you have the 0:19:26.840 --> 0:19:29.800 opposite happening, where um, you know, you have good news 0:19:29.800 --> 0:19:34.200 and these companies going going near the direction at least temporarily. 0:19:34.280 --> 0:19:37.720 So um, you know, I guess how we think about 0:19:37.840 --> 0:19:41.520 drawhounds are? You know? They are part of investing in general. 0:19:42.000 --> 0:19:44.040 No matter what you do, you're going to have. Any 0:19:44.080 --> 0:19:48.240 successful investment over time that's publicly traded usually has some 0:19:48.320 --> 0:19:50.639 draw down period, and we've lived through so many of 0:19:50.680 --> 0:19:53.640 them over the last few decades. I mean, I can 0:19:53.760 --> 0:19:57.960 remember vividly having a large position in Facebook after they 0:19:57.960 --> 0:20:01.920 had come public and having this dot go down at 0:20:01.920 --> 0:20:04.720 a time when I believe the market was up pretty significantly, 0:20:05.400 --> 0:20:08.440 and that was a very challenging time. And the way 0:20:08.480 --> 0:20:11.760 we think about risk generally is not really beta. It's 0:20:11.800 --> 0:20:15.680 more about company specific fundamentals and exposures, and we're trying 0:20:15.720 --> 0:20:18.520 to make sure we build a portfolio that has you know, um, 0:20:18.680 --> 0:20:21.000 exposure to all parts of the economy. So it's not 0:20:21.119 --> 0:20:24.760 one big bet, but from time to time on a 0:20:24.800 --> 0:20:29.479 company specific basis and even sometimes on a short term 0:20:29.560 --> 0:20:32.440 correlated basis. With a group of companies, you can have 0:20:32.720 --> 0:20:34.760 these drawn outs and there, and they're painful. And I 0:20:34.760 --> 0:20:37.399 think it's why Warren Buffetto says, you know, it's not 0:20:37.440 --> 0:20:40.080 really about how smart you are investing, it's more about 0:20:40.119 --> 0:20:43.200 your temperament. This is these are the time frames where 0:20:43.240 --> 0:20:46.720 you kind of learn a lot about a team and um, 0:20:47.000 --> 0:20:48.919 you know, whether they can handle that, and also your 0:20:48.960 --> 0:20:51.800 clients and there has to be a nice, uh you know, 0:20:51.840 --> 0:20:55.040 hopefully symbiotic relationship where your clients understand that that's a 0:20:55.080 --> 0:20:57.520 part of the equation that you're going to experience them 0:20:57.560 --> 0:20:59.720 from time to time. So while we would love to 0:20:59.800 --> 0:21:03.080 have with them, um, at the same time, I think 0:21:03.080 --> 0:21:05.800 it is a part of any any successful investment in 0:21:05.800 --> 0:21:08.199 the public market that you're going to have these kind 0:21:08.240 --> 0:21:11.320 of really dramatic swings. And the way we think about 0:21:11.480 --> 0:21:14.639 is not really trying to figure out things like beta 0:21:15.119 --> 0:21:19.240 or whether some companies are currently correlating that because that 0:21:19.359 --> 0:21:22.840 maybe don't have real fundamental correlation long term. We think 0:21:22.880 --> 0:21:25.879 about it more on a company specific level and making 0:21:25.920 --> 0:21:29.800 sure we believe in those companies, the people running them, 0:21:29.920 --> 0:21:31.880 the skin in the game of the people running them 0:21:32.000 --> 0:21:35.159 hopefully there's a lot often mostly in our case, a 0:21:35.200 --> 0:21:38.800 lot of equity ownership of the management teams. And then 0:21:38.840 --> 0:21:42.239 just thinking first principles are we are we betting on 0:21:42.240 --> 0:21:44.440 one big thing or not? And sometimes everyone else thinks 0:21:44.440 --> 0:21:47.720 you're betting on one thing. But my guess is when 0:21:47.720 --> 0:21:49.800 we look back in five years, many of the companies 0:21:49.800 --> 0:21:52.639 that are being grouped and some of these artificial classifications 0:21:52.720 --> 0:21:56.280 like work from home or or you know, fang or 0:21:56.359 --> 0:21:58.560 you know the four horsemen, these types of things that 0:21:58.640 --> 0:22:01.280 you know are used from time a time to discuss markets. 0:22:01.760 --> 0:22:04.240 If you look later on, you know, five, three or 0:22:04.240 --> 0:22:06.800 five ten years later, often the outcomes are very different 0:22:06.800 --> 0:22:09.880 on the company's specific level. And part of our job 0:22:10.000 --> 0:22:12.120 is to be able to communicate that with our clients 0:22:12.240 --> 0:22:15.160 when we live through periods like this. So last question 0:22:15.400 --> 0:22:20.520 in this area you mentioned not everything can be quantified. 0:22:21.080 --> 0:22:23.760 How much of the success of these portfolios of the 0:22:23.800 --> 0:22:28.320 past few years is driven by quantitative analytics and how 0:22:28.400 --> 0:22:33.680 much of it is more qualitative insights into the potential 0:22:33.840 --> 0:22:39.120 of the underlying business. You know, definitely I put most 0:22:39.119 --> 0:22:42.960 of it in that second category, which is, you know, certainly, 0:22:43.240 --> 0:22:45.199 so much of our time is spent on numbers in 0:22:45.200 --> 0:22:48.000 the industry when we do our research, um. But at 0:22:48.000 --> 0:22:49.879 the end of the day, I think that this is 0:22:49.920 --> 0:22:53.159 more of an insight business and creative business and and 0:22:53.280 --> 0:22:56.320 looking at the world differently or looking at an idea 0:22:56.400 --> 0:22:58.399 differently than the rest of the world and try and 0:22:58.520 --> 0:23:01.320 understand what that is as part of the process. So 0:23:01.359 --> 0:23:04.560 I think we're much more qualitatively driven. That doesn't mean 0:23:04.560 --> 0:23:07.280