WEBVTT - IVA's de Vaulx Likes Astellas Pharma: A Great Bargain (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot com, the Radio plus mobile last, and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. The SMP five hundred index is trading higher,

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<v Speaker 1>poised for a fifth record in six sessions. Stocks are advancing,

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<v Speaker 1>with the SMP up six now to one sixty eight,

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<v Speaker 1>a gain of three tenths of one percent. Cow Industrial

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<v Speaker 1>is up twenty three points to eighteen thousand, five hundred forty,

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<v Speaker 1>a gain of one tenth of one percent, as stack

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<v Speaker 1>up thirty one points to five thousand sixty one, a

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<v Speaker 1>gain of six tenths of one percent. Ten Yere down

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<v Speaker 1>eleven thirty seconds, zeal there one point five eight percent,

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<v Speaker 1>Gold up to fifty ounce to thirteen thirty a gain

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<v Speaker 1>of two tenths of one percent. And crude oil towns

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<v Speaker 1>seventy cents of arrol forty five twenty six right now

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<v Speaker 1>on West Texas ITEMDIA crude at as a drop of

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<v Speaker 1>one and a half percent. I'm Charlie Pellett. That's a

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<v Speaker 1>Bloomberg Business Flash. Thank you very much, Charlie Pellett. It's

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<v Speaker 1>time now, for the e t F report. It is

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<v Speaker 1>brought to you by National Realty Providers of Satisfaction Guaranteed

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<v Speaker 1>New York City Realty Investments. See them at n r

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<v Speaker 1>I A dot net. Let's go to Katherine Cowdery and

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<v Speaker 1>get the e t F report. Investors flocked to riskier

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<v Speaker 1>assets last week, reflected in the e t F industry.

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<v Speaker 1>We saw tons of money fly into the most popular

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<v Speaker 1>e t F s used by the trading crowd UM

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<v Speaker 1>s p Y, the queues IWM, and emerging markets. Bloomberg

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<v Speaker 1>Intelligence analist Eric Baltuna says emerging market equity e t

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<v Speaker 1>s We're on fire. They took in four billion dollars.

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<v Speaker 1>He has that institutional investors are diving into e M,

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<v Speaker 1>the I Shares MSCI Emerging Market e t F, which

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<v Speaker 1>attracted two billion dollars in new assets during the week.

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<v Speaker 1>The reason we know it's institutions is because e M

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<v Speaker 1>Traditionally it trades a ton like three billion dollars a day,

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<v Speaker 1>but it's very expensive. Most advisers in retail have switched

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<v Speaker 1>to using I e MG, which is the I Shares

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<v Speaker 1>newer model, which is sixteen basis points in terms of fee,

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<v Speaker 1>whereas e M sixty nine. But it trades so liquid

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<v Speaker 1>that institutions just, you know, that's what they need. This

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<v Speaker 1>what they want. I E MG as e I Shares, Core,

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<v Speaker 1>MSCI Emerging Market CTF IT two gained assets last week

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<v Speaker 1>one billion dollars worth. That's your Bloomberg ETF report. I'm

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<v Speaker 1>Catherine Cowdery. You're listening to Taking Stock with Kathleen Hays

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<v Speaker 1>and Pim Box on Bloomberg Radio. Gold behold gold and

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<v Speaker 1>it's year to date increase? What will push gold prices higher? Well,

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<v Speaker 1>for that and other questions, we have Charles Davout. He

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<v Speaker 1>is the chief investment officer for International Value Advisers, helping

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<v Speaker 1>to manage more than eighteen billion dollars in customer assets.

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<v Speaker 1>Charles joins us in the studio today. Charles, thanks for

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<v Speaker 1>coming and appreciate it. Let's begin by just understanding exactly

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<v Speaker 1>why it is that you own what about six and

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<v Speaker 1>a half percent of the portfolio and gold right now. Well, Pain,

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<v Speaker 1>that's because we run long only mutual funds. Yet our

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<v Speaker 1>goals are to try to deliver, if possible, every calendar

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<v Speaker 1>year positive absolutely returns. Yet we do not short, we

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<v Speaker 1>do not use leverage and so to have as a

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<v Speaker 1>tool gold, which more often than not, not always, but

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<v Speaker 1>more often than not, can go up when stocks or

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<v Speaker 1>bonds go down, and vice versa, is a wonderful is

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<v Speaker 1>a wonderful tool. It often acts as a hedge, all right,

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<v Speaker 1>It acts as a hedge, a hedge against the clients

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<v Speaker 1>in equities and the clients in bonds you describe. Yes,

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<v Speaker 1>you know, short term, but in the longer term. It

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<v Speaker 1>also has been a great hedge against the debasement of currencies.

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<v Speaker 1>Over time, things there's been inflation, and over time gold

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<v Speaker 1>has held its purchasing power, so it's been a wonderful

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<v Speaker 1>hedge against inflation. Also, let's not forget that gold has

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<v Speaker 1>can be a wonderful hedge is deflation During the thirtiest

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<v Speaker 1>banks when bankrupt and so you your money at the

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<v Speaker 1>bank was not safe with gold, there is no counterparty risk.

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<v Speaker 1>Gold is not an IOU. So it's also a wonderful

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<v Speaker 1>tool to have when there's too much debt in the

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<v Speaker 1>world and and there's a risk of deflation. So can

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<v Speaker 1>we link this to a wider strategy or a wider

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<v Speaker 1>perspective that you have on global investment landscape. Yes, basically,

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<v Speaker 1>today you know, thanks to quantitative easing, ultralow interest rates,

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<v Speaker 1>manipulated rates, interest rates which either in nominal terms or

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<v Speaker 1>adjusted for inflation, are negative. It's wonderful to have gold

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<v Speaker 1>in your portfolio, which uh doesn't cost you anything. If

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<v Speaker 1>you a third of all government bonds outstanding have negative

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<v Speaker 1>yields to maturities gold with gold, you don't have a

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<v Speaker 1>negative yield to maturity. There's something to be said for that. Now.

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<v Speaker 1>You also, in addition to your gold position, you have

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<v Speaker 1>of your assets in cash well and a little less

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<v Speaker 1>than that. You know, thanks to Brexit, we've been able

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<v Speaker 1>to put some of the cash to work. So I

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<v Speaker 1>believe now it's closer to thirty six six or which

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<v Speaker 1>is still sizeable to say the least. And the reason

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<v Speaker 1>is that we'd rather hold cash than force ourselves to

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<v Speaker 1>buy or hold overvalued securities. And yet around the world

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<v Speaker 1>we feel that most stocks and bonds are price for perfection,

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<v Speaker 1>to say elegantly. To say it less elegantly, I would

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<v Speaker 1>say that they often are at nose bleed valuation level.

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<v Speaker 1>And so to hold cash which cannot go down when

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<v Speaker 1>the stocks and bonds can go down is is a

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<v Speaker 1>great thing. Also, more importantly, Let's not forget that cash

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<v Speaker 1>has huge optionality value. Now, when people say you're supposed

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<v Speaker 1>to pounce when this blood in the street, supposed to

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<v Speaker 1>buy low so that you can then sell high, you

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<v Speaker 1>actually need cash to buy law. So the cash on

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<v Speaker 1>which we are making no money today, in fact we're

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<v Speaker 1>losing money after inflation, hopefully will help us by great

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<v Speaker 1>bargains in the future. Now, in addition to having the

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<v Speaker 1>cash that may be available, you also have to have

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<v Speaker 1>the discipline to hold cash, particularly when you may have

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<v Speaker 1>investors who say, well, I can hold cash, I don't

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<v Speaker 1>need to pay you, or I don't need to have

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<v Speaker 1>a fund that holds cash. Comment on that absolutely, which

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<v Speaker 1>is why it's very important to have the right client base.

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<v Speaker 1>The overwhelmed majority of our clients, many of which come

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<v Speaker 1>to us through financial advisors, and we do have a

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<v Speaker 1>few institutional investors, what they expect from us is protection

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<v Speaker 1>of of of the wealth. Ultimately, capal preservation is more

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<v Speaker 1>important for them two become very rich. This is saying

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<v Speaker 1>you only need to be rich ones. So in many

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<v Speaker 1>ways things are asymmetrical. Likewise, some of our clients are

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<v Speaker 1>are not so rich, and you if you're not so rich,

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<v Speaker 1>you cannot ord to lose the little you have, so

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<v Speaker 1>which doesn't mean that you should not, um you know,

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<v Speaker 1>own risky assets in your portfolio. It means that the

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<v Speaker 1>risk reward has to be stacked in your favor for

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<v Speaker 1>you to own risk assets. Which is why we value investors.

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<v Speaker 1>We like to buy securities whenever they trade at what

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<v Speaker 1>we believe is a is a big discount, a big

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<v Speaker 1>margin of safety. To use Benjamin Graham's words Benjamin Graham,

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<v Speaker 1>the father of investing, we like to buy things at

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<v Speaker 1>a discount so as to make sure that the risk

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<v Speaker 1>reward is stacked in our and our clients favor. Is

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<v Speaker 1>that consistent with the idea that you know you make it?

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<v Speaker 1>For example, when you buy a home, you make your

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<v Speaker 1>money really when you purchase the house, not when you

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<v Speaker 1>sell the house, but when you purchase it. Yeah, of course,

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<v Speaker 1>and the irony play is that you you don't know

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<v Speaker 1>it at the time, but absolutely the the altar, the

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<v Speaker 1>most important variable determinant of the investment outcome is the

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<v Speaker 1>price and and and the v I v A stands

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<v Speaker 1>will value. And it's not because interest rates are low

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<v Speaker 1>that we will uh, we will change at our weare

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<v Speaker 1>of investing. We're speaking with Charles Davohe is the chief

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<v Speaker 1>investment officer for International Value Advisors. Just to note that

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<v Speaker 1>the i v A Worldwide Fund is up about three

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<v Speaker 1>and a half percent so far this year. The i

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<v Speaker 1>v A International Fund, I believe is up more than

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<v Speaker 1>two and that is with this gold holding and with

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<v Speaker 1>your cash position. Speak if you can about those bargains

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<v Speaker 1>or potential bargains that you may have seen in the

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<v Speaker 1>United Kingdom because of the Brexit vote on June. Well,

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<v Speaker 1>we've added to a stock which trades in the UK

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<v Speaker 1>called Millennium and Copthorn. Now they are a subsidiary of

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<v Speaker 1>a Singapore Group City Development. They do own a few

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<v Speaker 1>hotels in the UK, but overwhelmingly they're hotels are in

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<v Speaker 1>Asia and a few in the US and on. If

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<v Speaker 1>you look at the value of all the hotels they own,

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<v Speaker 1>compare it to the share price, you'll notice that the

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<v Speaker 1>stock is significantly undervalued. Tell me about Bank of America.

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<v Speaker 1>They just released their results and it seemed as though

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<v Speaker 1>the market is responding favorably. The shares are up about

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<v Speaker 1>three and three quarters of our percent today. Yes, we

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<v Speaker 1>like the fact that Bank of America is very US centric,

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<v Speaker 1>very little exposure to the UK or Europe or Asia

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<v Speaker 1>for that matter, and we believe that they were trading

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<v Speaker 1>way too cheaply relative to JP Morgan and Wells Fogo,

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<v Speaker 1>which are perceived to be much better managed banks. And

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<v Speaker 1>we believe that there's been tremendous cost cutting going on

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<v Speaker 1>the Bank of America. There's a lot more to go.

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<v Speaker 1>The balance sheet is strong enough, and in the fullness

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<v Speaker 1>of time, whenever that is, when interest rates finally go

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<v Speaker 1>back up in the US, Bank of America will be

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<v Speaker 1>a beneficiary of that. A Stella's Pharmaceuticals. Now, this is

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<v Speaker 1>a Japanese based company, but it is really a global business. Absolutely.

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<v Speaker 1>They it's a thirty five billion market cap company. It's

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<v Speaker 1>a big company, although the name is not well known.

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<v Speaker 1>And one of their leading products is Prograph, which is

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<v Speaker 1>an immuno supresident used to prevent organ rejects. And the

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<v Speaker 1>company is has one very strong balance sheet, has net

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<v Speaker 1>cash great, has a great pipeline of of products to

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<v Speaker 1>come existing products, and they have a remarkably un Japanese

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<v Speaker 1>capital education policy, meaning in a good sense, in the

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<v Speaker 1>sense that they are willing to pay dividends and when

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<v Speaker 1>the stock price is low enough, they're willing to massively

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<v Speaker 1>buy back their own shares, so we and the stock.

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<v Speaker 1>Even though the stock is has tripled over the past

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<v Speaker 1>six seven years, it's still a great bargain. Thanks very

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<v Speaker 1>much for giving us some great ideas. Charles Devo is

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<v Speaker 1>the Chief Investment Officer for International Value Advisors, helping to

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<v Speaker 1>manage more than eighteen billion dollars of customer assets. This

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<v Speaker 1>is Bloomberg. Yeah,