WEBVTT - Views of a Top Growth Manager 0:00:05.840 --> 0:00:09.280 Strap on your parachute. It's time for What Goes Up. 0:00:09.640 --> 0:00:14.040 It's Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:14.160 --> 0:00:17.640 What Goes Up, a Bloomberg weekly market podcast. I'm Sarah 0:00:17.680 --> 0:00:20.439 pons Or, reporter on the Cross Asset team and on 0:00:20.560 --> 0:00:24.360 Mike Reagan and editor on the Markets team. He didn't 0:00:24.360 --> 0:00:27.680 even try this time. I've run out of wacky intros. 0:00:27.720 --> 0:00:30.080 I I gotta get I gotta work on that. We're 0:00:30.120 --> 0:00:33.040 done with it all right? Well this week on the show, 0:00:33.240 --> 0:00:37.080 it's easy to get confused or spooked watching markets day 0:00:37.080 --> 0:00:40.240 to day. Rising worries of a second COVID wave triggered 0:00:40.280 --> 0:00:43.360 a nasty stock sell off yet again, but with the 0:00:43.479 --> 0:00:47.040 rally still largely intact, what's an investor to do? We're 0:00:47.120 --> 0:00:50.360 joined by a fund manager who has been in of 0:00:50.440 --> 0:00:53.559 his peers over the last five years. He'll explain his 0:00:53.640 --> 0:00:56.480 process for picking stocks and how he's looking at long 0:00:56.600 --> 0:00:59.840 term secular trends that are being catalyzed by the pandemic, 0:01:00.280 --> 0:01:02.959 and as always, will close out the show with our 0:01:03.000 --> 0:01:06.360 tradition the craziest thing I saw in markets this week, 0:01:06.800 --> 0:01:09.600 and by all means, if you see something crazy in markets, 0:01:09.640 --> 0:01:12.960 give us a call on the Bloomberg Podcast Hotline at 0:01:13.319 --> 0:01:17.960 six four six three to four three four nine. Oh, 0:01:18.000 --> 0:01:21.280 and maybe we'll play your voicemail on the show. Or 0:01:21.319 --> 0:01:23.920 if you just have some suggestions for us or a 0:01:24.000 --> 0:01:27.120 guest you'd like to see on the show, or I 0:01:27.120 --> 0:01:30.600 don't know, some criticisms of Sarah, maybe some praise of me, 0:01:30.680 --> 0:01:33.560 whatever it may be. What do you think, Sarah. I've 0:01:33.600 --> 0:01:36.440 got to say, Mike, it seems like people have more 0:01:36.480 --> 0:01:38.840 time on their hands. There have been plenty of crazy 0:01:38.880 --> 0:01:42.400 things in the market to talk about. Yet our listeners, 0:01:42.440 --> 0:01:45.280 maybe I shouldn't be calling them out. After weeks in 0:01:45.319 --> 0:01:47.960 which you were really giving it to us, now you've 0:01:48.000 --> 0:01:50.880 just pulled back. You're leaving us hanging. Yeah, get on 0:01:50.920 --> 0:01:52.920 the hotline, give us a call. We get lonely here 0:01:53.000 --> 0:01:57.680 and on on our podcast, our socially isolated podcast. But Sarah, 0:01:57.720 --> 0:02:00.560 as you pointed out, a very interesting guy on the 0:02:00.600 --> 0:02:04.040 show this week, Um comes from a firm that I'm 0:02:04.080 --> 0:02:09.200 I'm really fascinated with. Uh. They're called Poland Capital Management Management. 0:02:09.560 --> 0:02:12.040 They're based in Florida, down near you, Sarah. So maybe 0:02:12.040 --> 0:02:14.440 you can go and stop by and say hi when uh, 0:02:14.720 --> 0:02:18.720 when the world's back growth's back to normal. Uh. But 0:02:18.840 --> 0:02:23.120 his name is Dan Dividowitz and he manages the Poland 0:02:23.360 --> 0:02:27.560 Growth Fund. Uh. He's also the firm's chief investment officer. 0:02:27.960 --> 0:02:30.000 And so I've been I'm looking at the performance of 0:02:30.040 --> 0:02:32.360 this fund over the last year, two years, three years. 0:02:32.360 --> 0:02:35.680 I mean, it's really pretty impressive. It's beaten, you know, 0:02:35.840 --> 0:02:37.480 not just the SMP, but if you look at the 0:02:37.520 --> 0:02:40.959 sort of Russell growth indexes and the SMP growth indexes, 0:02:41.040 --> 0:02:45.760 it's beaten all of them on basically last year, last 0:02:45.760 --> 0:02:48.880 two years, three years, uh, four years, five years. So um, 0:02:49.480 --> 0:02:52.760 it's it's good to have, uh a a successful manager 0:02:52.800 --> 0:02:55.400 like this on the show. So, without further ado, his 0:02:55.520 --> 0:02:58.280 name is Dan uh Divitowitz. Wait I already said that, 0:02:58.400 --> 0:03:03.200 but regardless, welcome to the show. Dan, Thank you, Mike, 0:03:03.280 --> 0:03:05.799 thank you Sarah. It's a pleasure to be with you today. Dad. 0:03:05.960 --> 0:03:07.920 You know, I know a little bit about the firm. 0:03:07.960 --> 0:03:10.200 I know you tend to run funds that are are 0:03:10.320 --> 0:03:14.079 sort of concentrated portfolios. And correct me if I'm wrong 0:03:14.120 --> 0:03:17.200 about any of this, but you know, usually about stocks 0:03:17.680 --> 0:03:20.880 in a fund, um you tend to buy and hold. 0:03:20.919 --> 0:03:23.120 You know, there's not a lot of of turnover in 0:03:23.160 --> 0:03:26.880 the fund um. You know, both of those elements I 0:03:26.919 --> 0:03:28.800 find fascinating. So we'll get into it into that a 0:03:28.800 --> 0:03:32.160 little bit, but kind of walk us through basically, you're 0:03:32.280 --> 0:03:34.560 you're sort of approach for picking a stock, you know, 0:03:34.639 --> 0:03:37.640 just the simple you know, where do you start as 0:03:37.680 --> 0:03:40.560 a growth manager when it comes to trying to find 0:03:40.560 --> 0:03:43.880 stocks to buy? Sure? Sure, Mike, And yeah, almost all 0:03:43.880 --> 0:03:45.880 of that was accurate that you said about us. The 0:03:45.880 --> 0:03:48.480 only inaccurate part of I'm not the ce IO of 0:03:48.520 --> 0:03:51.480 the firm. We don't have that title. I'm cohead of 0:03:51.480 --> 0:03:54.400 our large company team. But that's okay. I like I 0:03:54.480 --> 0:03:56.840 like a title inflation too, So thank you for promoting me, 0:03:57.480 --> 0:04:01.800 all right, I appreciate that. Yeah. The simple thing is, 0:04:01.800 --> 0:04:05.640 you're absolutely right. We we invest in what we we 0:04:05.680 --> 0:04:09.360 think of as high quality, concentrated growth. And so my 0:04:09.520 --> 0:04:12.160 team is the large company team. We have three different 0:04:12.240 --> 0:04:14.440 strategies of my team. The one that I run you right, 0:04:14.520 --> 0:04:16.920 is our our flagship, the Polling Growth Fund. It's also 0:04:16.960 --> 0:04:19.960 called our Focus Growth Strategy. Uh. And that's a thirty 0:04:20.000 --> 0:04:22.520 one plus year old product. And I've been a Polling 0:04:22.560 --> 0:04:25.240 capital for fifteen years. I'm only I'm only I've only 0:04:25.240 --> 0:04:28.040 had my hand in about half the track record of 0:04:28.080 --> 0:04:31.240 this product. But we run two other portfolios that are 0:04:31.440 --> 0:04:36.760 essentially very very similar, different geographic exposures, but high quality 0:04:36.760 --> 0:04:39.320 concentrated growth. And then we also have two other investment 0:04:39.320 --> 0:04:41.719 teams at Poland Capital, one that does small cap investing 0:04:41.760 --> 0:04:44.520 small companies and one that does emerging markets and and 0:04:44.560 --> 0:04:47.640 again high quality concentrated growth. So that's what polland Capital 0:04:48.120 --> 0:04:50.839 is about. We think it's really really important first and 0:04:50.920 --> 0:04:54.280 foremost to protect our client's capital, and that's really what 0:04:54.320 --> 0:04:57.520 we're we talk about. It's the what the way we live. 0:04:57.880 --> 0:05:01.240 It's a bit unique for a growth manager to think 0:05:01.279 --> 0:05:04.040 that way, to think about preserving capital first and then 0:05:04.080 --> 0:05:08.000 growing capital second. And so it's important for us to 0:05:08.120 --> 0:05:11.320 only invest in what we think are the most competitively 0:05:11.360 --> 0:05:15.120 advantaged and financially superior companies and nothing less than that. 0:05:15.640 --> 0:05:19.240 And so concentration, a lot of people used to think 0:05:19.800 --> 0:05:22.720 meant higher risk because you're investing in fewer companies. That's 0:05:22.760 --> 0:05:26.720 against the concept of diversification. But what we found, and 0:05:27.040 --> 0:05:29.280 actually academic studies have you even found, is that you 0:05:29.320 --> 0:05:31.960 really don't need that many companies in a portfolio to 0:05:32.000 --> 0:05:35.279 achieve adequate diversification. We think you get that. You know, 0:05:35.480 --> 0:05:39.200 maybe at fifteen stocks in your portfolio. We typically, like 0:05:39.240 --> 0:05:42.599 you said, around twenty five companies in our portfolio, but 0:05:42.680 --> 0:05:46.120 we hold them to these extremely high standards. You know, 0:05:46.279 --> 0:05:49.760 everybody says they invest in quality, right, nobody says they don't, 0:05:50.120 --> 0:05:52.719 but we actually put metrics on that. You're talking about 0:05:52.720 --> 0:05:56.800 concentration and how you can actually run a very well diversified, 0:05:56.800 --> 0:06:00.239 wall performing portfolio that is so concentrated. I find really interesting, 0:06:00.360 --> 0:06:03.640 especially in the current moment, when we are constantly hearing 0:06:04.000 --> 0:06:07.440 people look at indexes passive indexes and pointing at how 0:06:07.480 --> 0:06:11.000 concentrated they are, and they usually say that that is 0:06:11.120 --> 0:06:15.680 a negative aspect of the indexes. But obviously, your growth manager, 0:06:15.800 --> 0:06:18.800 your job is to find high quality growth companies. But 0:06:18.880 --> 0:06:20.800 I do want to ask you, is it at all 0:06:21.040 --> 0:06:25.440 surprising to you that growth has had such a long 0:06:25.720 --> 0:06:29.560 and such a great run over other styles in the market. 0:06:29.560 --> 0:06:32.440 I mean, I look at your Polling Growth fund hitting 0:06:32.440 --> 0:06:35.839 a record high this past week, alongside the SMP Growth 0:06:35.839 --> 0:06:40.080 Index and some very popular growth companies as well. Is 0:06:40.080 --> 0:06:42.279 it's surprising to you that they have held up so 0:06:42.320 --> 0:06:45.200 well through the ball market, but also in the downturn 0:06:45.240 --> 0:06:47.720 as well. It's it's a question, Sarah. We get asked 0:06:47.760 --> 0:06:50.719 like every day, is you know when this growth? When 0:06:50.800 --> 0:06:53.919 is the growth run over after? Yeah? More than a 0:06:53.960 --> 0:06:57.960 decade of growth outperforming value by the way, you know, 0:06:58.040 --> 0:07:00.760 I consider myself a growth investor. A Poland Capital, we 0:07:00.760 --> 0:07:04.679 are growth investors. Most of my investment team, including myself, 0:07:04.720 --> 0:07:07.760 came from the value school of investing. So I I 0:07:08.040 --> 0:07:10.560 worked in New Jersey before coming to Poland Capital fifteen 0:07:10.600 --> 0:07:14.160 years ago at what was considered a deep value shop. UM. 0:07:14.160 --> 0:07:17.960 Many of my colleagues come from the Columbia Value School 0:07:18.000 --> 0:07:20.560 of investing or have worked uh in what they would 0:07:20.560 --> 0:07:23.600 be considered value shops over the years. And so we 0:07:23.600 --> 0:07:26.040 were very, very steeped. And our founder David Poland who 0:07:26.080 --> 0:07:31.360 passed away UM eight years ago, also Graham and Dodd Disciple, 0:07:31.560 --> 0:07:34.400 Warren Buffett disciple, So we come from that camp. We 0:07:34.440 --> 0:07:38.000 believe in the margin of safety, right. But I think 0:07:38.040 --> 0:07:40.560 it's important to kind of take apart the growth versus 0:07:40.640 --> 0:07:43.560 value argument because we think it's kind of a false construct. 0:07:43.880 --> 0:07:47.280 Growth and value are not um two different things, right, 0:07:47.640 --> 0:07:50.120 And when you look at indexes, especially when you know 0:07:50.320 --> 0:07:52.120 some of the ones you mentioned like the SMP Growth Index, 0:07:52.120 --> 0:07:54.200 where the Russell one thousand growth Index, Russell one thousand 0:07:54.240 --> 0:07:58.320 value index, whatever the way those indexes are constructed, are 0:07:58.440 --> 0:08:02.800 using oftentimes valuation metrics, right, So, especially the Russell indices, 0:08:02.920 --> 0:08:04.880 what gets in the in the value side is usually 0:08:04.880 --> 0:08:08.000 low price to book, low price to long term earnings 0:08:08.000 --> 0:08:10.360 growth and what gets thrown into the growth that's the 0:08:10.400 --> 0:08:12.880 value side. On the growth side, it's the high ones, right, 0:08:12.960 --> 0:08:16.480 high price to book high. So that to us, growth 0:08:16.600 --> 0:08:19.080 is not defined by high pe That doesn't make sense. 0:08:19.200 --> 0:08:21.600 For us, growth is defined by growth and earnings per 0:08:21.640 --> 0:08:24.640 share growth and free cash flow over time. And so 0:08:24.880 --> 0:08:27.520 we take a little bit of issue with the construct 0:08:27.560 --> 0:08:32.319 of indexes that are compiled using valuation only as what 0:08:32.360 --> 0:08:35.079 puts them in that in that bucket. So that being said, 0:08:35.640 --> 0:08:39.319 what this growth outperformance what's been driven by It's not 0:08:39.400 --> 0:08:44.240 really been driven by as historically has been by multiple expansion. 0:08:44.640 --> 0:08:46.760 Right when you think back to the tech bubble especially, 0:08:47.200 --> 0:08:50.199 and that's usually where people think about where growth outperformed 0:08:50.240 --> 0:08:53.720 value for a long time and then finally underperformed because 0:08:53.800 --> 0:08:56.800 valuation has got to extreme levels. That's not what we're seeing, right, 0:08:57.000 --> 0:08:58.920 And for most of the great growth companies that we 0:08:58.960 --> 0:09:03.079 study anyway, we're seeing their returns being driven by earnings 0:09:03.080 --> 0:09:06.040 per share growth, free cash flow growth that's been well 0:09:06.080 --> 0:09:10.440 supported the evaluations than well supported by the fundamentals. I 0:09:10.480 --> 0:09:13.480 also think you have to, you know, look at what 0:09:13.720 --> 0:09:17.079 is going on in the world today. So uh, a 0:09:17.240 --> 0:09:19.880 huge amount of disruption in many, many industries. Right. A 0:09:19.920 --> 0:09:22.880 lot of those industries, let's say, retail, energy, financial services, 0:09:22.920 --> 0:09:26.920 tend to find more waiting in value indexes than they 0:09:26.960 --> 0:09:30.120 are in growth. The disrupt doors, you know, which are 0:09:30.160 --> 0:09:33.720 the large tech companies today. Internet enabled businesses tend to 0:09:33.720 --> 0:09:37.360 be more in those growth indexes. And so you're seeing 0:09:37.400 --> 0:09:41.440 real disruption and the disruptors being in different camps. And 0:09:41.480 --> 0:09:43.280 we don't see a lot of that going back in 0:09:43.280 --> 0:09:45.800 the genie bottle, so to speak. We don't see the 0:09:45.800 --> 0:10:04.720 disruption stopping. So the key takeaway there is you may 0:10:04.800 --> 0:10:07.560 claim Dan as a Florida man, but as you heard, 0:10:07.600 --> 0:10:11.160 he's really a Jersey guy. I'm claiming him for Jersey, Rutgers, 0:10:11.400 --> 0:10:14.840 Rutgers for the win. Mike. You're going to take any example. 0:10:14.920 --> 0:10:16.920 You can take that and run with it. But the 0:10:16.960 --> 0:10:19.520 truth is the two of us are currently both in Florida. 0:10:19.600 --> 0:10:22.400 So where as of right now we're both Florida, Florida 0:10:22.440 --> 0:10:25.199 mount or Florida woman. But you both have had alligators 0:10:25.200 --> 0:10:29.000 in your yards. From what I understand too, it's not uncommon. Yes, 0:10:31.440 --> 0:10:35.000 it's it's as Florida. Can you say to pick up 0:10:35.040 --> 0:10:39.200 on that notion of valuation and growth? And I'm looking 0:10:39.320 --> 0:10:43.000 at the growth funds holdings at least as I guess 0:10:43.040 --> 0:10:46.600 it says the end of the first quarter, uh, and 0:10:47.120 --> 0:10:51.199 top holding Microsoft. Boy, what spectacular run that stock has 0:10:51.240 --> 0:10:54.679 had and like you said, one of those quality stocks. Uh. 0:10:54.800 --> 0:10:56.960 You know, you don't have to worry about many hiccups 0:10:56.960 --> 0:10:59.360 with a company like that. But looking at just sort 0:10:59.400 --> 0:11:01.920 of the know, a pe on a trailing basis, I mean, 0:11:01.920 --> 0:11:05.240 it's getting up close to thirty four thirty five times earning. 0:11:05.840 --> 0:11:09.320 How do you sort of you know, look at that 0:11:09.360 --> 0:11:11.200 as a growth manager. Do you look more like a 0:11:11.240 --> 0:11:15.439 pet ratio type of thing, or you know, is there evaluation? 0:11:15.480 --> 0:11:18.160 I mean I think that might be Microsoft's highest trailing 0:11:18.200 --> 0:11:21.400 p at least since like the the scary days of 0:11:21.440 --> 0:11:23.840 the turn of the century, around the bubble days, I mean, 0:11:23.880 --> 0:11:27.000 not anywhere near the same situation it was then. But 0:11:27.520 --> 0:11:31.680 when do the valuations really start to raise your eyebrows? Yeah, 0:11:31.720 --> 0:11:34.679 I mean you have to think about evaluation when you're 0:11:34.720 --> 0:11:37.240 investing in any company, but certainly in growth companies. You 0:11:37.280 --> 0:11:39.800 have to. You have to have a reasonable basis for evaluation. 0:11:39.880 --> 0:11:41.720 You can't just ignore it, at least not in our opinion. 0:11:41.760 --> 0:11:44.520 You can't ignore it for our From our perspective, I 0:11:44.520 --> 0:11:47.040 should mention that valuation is often the last thing we 0:11:47.080 --> 0:11:51.360 talk about. So it's important for us to start with 0:11:51.559 --> 0:11:53.880 and prove out that a business is so great that 0:11:53.960 --> 0:11:56.400 we want to own it, right, that it's so superior 0:11:56.400 --> 0:11:59.400 and so competitively advantage and so much growth available to us, 0:11:59.440 --> 0:12:02.040 we want to own it. Then we decide is there 0:12:02.040 --> 0:12:04.920 an attractive enough price. And the way we think about 0:12:05.320 --> 0:12:08.680 valuation is in it is about the expected return over 0:12:08.720 --> 0:12:11.400 the next five years. So we think about everything in 0:12:11.480 --> 0:12:13.600 five and ten year increments. We don't think about anything 0:12:13.600 --> 0:12:16.200 in quarters or even the next year or two. So, 0:12:16.440 --> 0:12:19.720 you know, with great companies that have massive competitive advantages 0:12:19.720 --> 0:12:22.679 and secular growth trends behind them, it's often not that 0:12:22.800 --> 0:12:25.280 difficult to project what earnings are going to look like, 0:12:25.360 --> 0:12:26.920 or what free cash fill is gonna look like five 0:12:27.000 --> 0:12:30.079 years from now. Within a reasonable range. It's not like 0:12:30.400 --> 0:12:33.840 the average company where the potential outcomes are so wide, 0:12:34.040 --> 0:12:36.600 you know, for a company like Microsoft, it's actually fairly 0:12:36.679 --> 0:12:40.880 narrow um set of of of circumstances that are gonna 0:12:40.880 --> 0:12:43.200 happen over the next five years. And so we know 0:12:43.240 --> 0:12:45.000 what the earnings and cash will look like today, we 0:12:45.040 --> 0:12:47.160 have a conservative estimate of what it's gonna look like 0:12:47.440 --> 0:12:50.360 five years from now. We know what the pe is today, 0:12:50.840 --> 0:12:53.480 and then we make a conservative estimate five years from now, 0:12:53.520 --> 0:12:57.400 so we never assume multiple expansion. We assumedly to be 0:12:57.440 --> 0:12:59.760 the same or lower because certainly within the next five 0:12:59.840 --> 0:13:02.480 year as most businesses will likely be growing slower than 0:13:02.520 --> 0:13:05.680 they are today. And so we use a conservative vestment 0:13:05.720 --> 0:13:08.600 again on both earnings and multiple five years from now. 0:13:08.600 --> 0:13:11.400 And if we can see a path to double digit 0:13:11.440 --> 0:13:15.400 annualized returns from here to there, we're very comfortable. And 0:13:15.440 --> 0:13:17.720 with Microsoft, we certainly see that today. By the way, 0:13:17.920 --> 0:13:20.400 we've owned Microsoft um this time around for the last 0:13:20.400 --> 0:13:23.480 three or four years. We've owned Microsoft in our portfolio 0:13:23.640 --> 0:13:26.480 now three times in thirty one years, and it's been 0:13:26.840 --> 0:13:29.600 holding about half the time, so almost fifteen sixteen years 0:13:30.080 --> 0:13:32.000 UM we've held it the last time we sold it, 0:13:32.040 --> 0:13:35.360 back in two thousand ten, Microsoft was a much smaller company, 0:13:35.400 --> 0:13:39.520 even though it's very very large, growing at about two paranum. 0:13:40.160 --> 0:13:42.320 This was before they made a pivot to the cloud, 0:13:42.720 --> 0:13:45.680 right before they moved to a subscription revenue model across 0:13:45.840 --> 0:13:49.199 all of their franchises, before Azure, which is obviously tremendously 0:13:49.240 --> 0:13:51.720 large now, and so it was about a two percent 0:13:51.840 --> 0:13:55.160 grower ten years ago. Fast forward today, it's a larger 0:13:55.160 --> 0:13:58.640 business growing in the load to mid teens organically, which 0:13:58.679 --> 0:14:02.760 is incredibly difficult for a company this size. Why Well, 0:14:02.920 --> 0:14:05.080 because the subscription revenue model gives them a lot more 0:14:05.120 --> 0:14:07.720 pricing power. It allows them to fight piracy, which they 0:14:07.880 --> 0:14:10.000 haven't been able to do for a long time. But 0:14:10.080 --> 0:14:12.679 now when you can only get the most recent version 0:14:12.679 --> 0:14:16.040 of Windows or Office by subscription from Microsoft's own data centers, 0:14:16.080 --> 0:14:18.000 you've got to pay for it, you can't hirate it. 0:14:18.360 --> 0:14:21.920 And Azure being a platform, uh that is, you know, 0:14:21.920 --> 0:14:24.760 the second choice now behind Amazon Web Services, but certainly 0:14:25.560 --> 0:14:28.520 a very very powerful engine in its own right, with massive, 0:14:28.600 --> 0:14:31.280 massive opportunity for growth, and so it's a it's a 0:14:31.360 --> 0:14:33.280 much better company today and it's a much faster growing 0:14:33.440 --> 0:14:36.600 company today with much more sustainability. Even though it already 0:14:36.720 --> 0:14:39.800 was basically a monopoly before this, it's now a fast 0:14:39.840 --> 0:14:42.320 growing monopoly. And so that valuation, like you said, on 0:14:42.360 --> 0:14:45.680 a trailing basis, you know, it is maybe a little 0:14:45.680 --> 0:14:48.080 bit high when you look at it historically, but given 0:14:48.120 --> 0:14:50.360 what we know about Microsoft today and where it's going, 0:14:50.440 --> 0:14:54.080 it's very very reasonable. Looking at the waiting in the fund, 0:14:54.080 --> 0:14:56.760 you know, it's creeping up to ten eleven percent at 0:14:56.840 --> 0:14:58.560 least at the end of the first quarter. Is there 0:14:58.800 --> 0:15:00.680 do you set a limit on on waiting? You know, 0:15:00.920 --> 0:15:04.120 as you mentioned in the beginning, that running a concentrated 0:15:04.560 --> 0:15:10.200 portfolio does have that risk that if a stock's really cruising, 0:15:10.280 --> 0:15:13.280 you know, it's it's going to start really dominating the portfolio. 0:15:13.320 --> 0:15:14.840 Do you have any sort of cap on on what 0:15:14.880 --> 0:15:17.680 you would give a single stock as a waiting Yeah, 0:15:18.000 --> 0:15:20.840 Microsoft is about as high as we typically let companies go. 0:15:21.000 --> 0:15:23.400 It's around that ten eleven percent, and you know, is 0:15:23.880 --> 0:15:26.440 about it as far as we're willing to go. We 0:15:26.480 --> 0:15:29.520 will sometimes let them appreciate a little bit past that 0:15:29.600 --> 0:15:32.400 level if we don't see any really compelling reason to 0:15:32.480 --> 0:15:35.360 take it down. If we still think you have this combination, 0:15:35.400 --> 0:15:37.600 which we think in Microsoft's case, you have where it's 0:15:37.600 --> 0:15:40.880 a unique combination of moat, you know, competitive advantage that 0:15:41.000 --> 0:15:44.840 is growth and valuation on your side. Then we're usually 0:15:44.880 --> 0:15:47.200 willing to allow it to drift a little bit higher 0:15:47.200 --> 0:15:49.440 than that, but not much. You know, we typically don't 0:15:49.480 --> 0:15:52.840 go much higher than where Microsoft is right now? Do 0:15:52.880 --> 0:15:55.720 you ever worry about regulatory issues or do you find 0:15:55.720 --> 0:15:57.440 yourself discussing it? I mean, I can't tell you how 0:15:57.480 --> 0:15:59.760 many times it's been brought up to me over the 0:15:59.760 --> 0:16:03.040 past US here, especially leading up to the election. Everyone's saying, look, 0:16:03.080 --> 0:16:07.600 antitrust regulation is a bipartisan issue, blah blah blah. But 0:16:07.720 --> 0:16:11.320 considering the fact that Microsoft is a large holding Facebook 0:16:11.360 --> 0:16:14.240 also Google parent Alphabet, is that something that you guys 0:16:14.320 --> 0:16:17.880 do take into consideration at the moment. Yeah, absolutely, Sara. 0:16:17.920 --> 0:16:20.040 I mean you have to. You have to think about 0:16:20.080 --> 0:16:23.080 policy regulatory risk in in any business, and it's kind 0:16:23.120 --> 0:16:27.400 of part of our investment philosophy and process because the 0:16:27.480 --> 0:16:31.360 vast majority of the companies that we own have a monopoly, duopoly, 0:16:31.480 --> 0:16:35.120 or oligopoly like structure to them. They became, they create 0:16:35.200 --> 0:16:38.880 oftentimes they created industries and then dominated industry. So you 0:16:38.960 --> 0:16:43.480 mentioned for sure, Microsoft, Google, Facebook, throw throw MasterCard and 0:16:43.600 --> 0:16:46.760 Visa in on that conversation. If you if you even 0:16:46.760 --> 0:16:49.960 more narrowly defined sub industries, you could say Adobe certainly 0:16:49.960 --> 0:16:54.120 dominates the market for creative software. UM. We see this 0:16:54.200 --> 0:16:57.680 all the time, and so what we're really interested in 0:16:57.840 --> 0:17:00.960 is is there anything that can disrupt the business model 0:17:01.320 --> 0:17:05.520 or the earnings compounding that we expect from these companies. 0:17:05.560 --> 0:17:07.840 And so there's often a lot of saber rattling that 0:17:07.880 --> 0:17:11.359 goes on, but it's rare that we find that that 0:17:11.480 --> 0:17:15.960 governments will really destroy a competitive advantage or um the 0:17:16.000 --> 0:17:17.720 earnings power of a company. So even if you're talking 0:17:17.720 --> 0:17:21.680 about the potential breakup let's say of um, Facebook or 0:17:22.119 --> 0:17:24.800 or Google, which we think would be really stretching for 0:17:24.840 --> 0:17:26.760 a government, right because you have to prove, at least 0:17:26.760 --> 0:17:28.400 in the United States, you have to prove that consumers 0:17:28.400 --> 0:17:30.280 are harmed. And I don't know exactly how you prove 0:17:30.320 --> 0:17:32.880 that when these services are free to consumers, but let's 0:17:32.880 --> 0:17:35.200 just assume they do. We don't even think we think 0:17:35.200 --> 0:17:36.960 that some of the parts could be at least equal to, 0:17:37.000 --> 0:17:39.040 if not greater than, the whole that you see today. 0:17:39.440 --> 0:17:42.600 And so you know, nothing really worries us at the moment, 0:17:42.680 --> 0:17:46.080 But for sure, we're always looking at regulatory risks. You know, 0:17:46.359 --> 0:17:48.960 it's kind of interesting because today a lot of people 0:17:49.000 --> 0:17:50.399 want to talk about E S G and E S 0:17:50.440 --> 0:17:52.119 g risks. You know, do we see anything How do 0:17:52.160 --> 0:17:53.840 we think about E S G risks? Well, we think 0:17:53.840 --> 0:17:55.639 about in the same way we think about all risks. 0:17:55.680 --> 0:17:58.040 We want anything that gets in the way of the 0:17:58.040 --> 0:18:00.600 compounding of any of our companies is something we want 0:18:01.040 --> 0:18:03.639 to be concerned with. It reminds me of that there's 0:18:03.680 --> 0:18:06.600 a Trump tweet a week or two ago about the 0:18:06.640 --> 0:18:10.120 Microsoft government contracts that must have That must have turned 0:18:10.119 --> 0:18:13.359 a few hairs on your head, Gray when you saw that. Then, well, 0:18:13.400 --> 0:18:16.840 you know, it's funny because uh, I guess the narrative 0:18:16.880 --> 0:18:22.040 before was that Trump was really so against Jeff Bezos 0:18:22.040 --> 0:18:24.399 and Amazon Web Services that he was kind of handing 0:18:24.400 --> 0:18:28.200 this over to Microsoft. I mean, it's it's a nice story. Um, 0:18:28.240 --> 0:18:30.000 at the end of the day, both of those companies 0:18:30.000 --> 0:18:34.480 have extremely capable services, and UM, if you're doing any 0:18:34.600 --> 0:18:37.800 business with the federal government where you're supplying your data 0:18:37.800 --> 0:18:41.760 centers to secure government information, highest level scrutiny has to 0:18:42.200 --> 0:18:46.520 go into that and and honestly, both Amazon and Microsoft 0:18:46.680 --> 0:18:48.359 and I throw Google in the mix on this to 0:18:49.119 --> 0:18:53.879 have platforms to host, to be the platform for cloud 0:18:53.960 --> 0:18:57.280 services for the highest levels of government and and that 0:18:57.680 --> 0:18:59.720 is not easy to achieve. And one of the reasons 0:18:59.720 --> 0:19:01.639 why we love those businesses is it's it's hard for 0:19:01.640 --> 0:19:05.399 anybody else to come compete in this business. You know, 0:19:05.480 --> 0:19:08.879 at that level. Facebook, for instance, certainly could have a 0:19:08.920 --> 0:19:10.639 cloud platform if they want to do, they have the 0:19:10.640 --> 0:19:12.719 infrastructure and to be able to do it. They have 0:19:12.800 --> 0:19:15.640 no interest in being in this market because they don't 0:19:15.920 --> 0:19:19.680 see a reason to be the fourth best cloud platform 0:19:19.880 --> 0:19:22.639 in the Western world. You know, you mentioned Amazon. I 0:19:23.359 --> 0:19:25.119 don't see it in the top ten. Do you do 0:19:25.160 --> 0:19:27.520 you hold it in the fun somewhere? We don't. We 0:19:27.600 --> 0:19:31.040 haven't owned Amazon in ten years. Um. And this is ah, 0:19:31.440 --> 0:19:33.359 this is kind of an interesting thing. So you know, 0:19:33.400 --> 0:19:37.760 in our concentrated portfolio, we don't feel compelled to own anything. Um. 0:19:37.800 --> 0:19:40.560 So you know, obviously we're gonna look very different than 0:19:40.560 --> 0:19:42.600 a benchmark. If we only own about twenty companies today 0:19:42.600 --> 0:19:45.360 we own one, we're not gonna look anything like a benchmark. 0:19:45.680 --> 0:19:47.280 And we don't have to get our returns the same 0:19:47.280 --> 0:19:49.560 way the benchmark gets its returns either. So if you 0:19:49.600 --> 0:19:52.040 look at our portfolio today, we don't own Amazon, we 0:19:52.080 --> 0:19:54.920 don't own Apple, we don't own Netflix in the portfolio. 0:19:54.960 --> 0:19:57.000 We've owned Amazon in the past. We've owned Apple in 0:19:57.040 --> 0:20:01.199 the past, UM never owned Netflix. The reason um that 0:20:01.320 --> 0:20:03.840 we we did own Amazon for a while and then 0:20:03.920 --> 0:20:06.479 have not in a long while, it's because I mentioned 0:20:06.480 --> 0:20:09.520 we we stick really closely to our guard rails, those 0:20:09.560 --> 0:20:13.800 five guard rails that I mentioned before. Amazon. Uh, it's 0:20:13.800 --> 0:20:16.919 an amazing business and probably the most competitively advantaged business. 0:20:16.920 --> 0:20:19.600 We don't own in the United States for sure. Uh 0:20:19.760 --> 0:20:23.719 is because they're building of Amazon Web Services and their 0:20:23.760 --> 0:20:25.840 own logistics infrastructure, and all of the things that they've 0:20:25.880 --> 0:20:29.240 been building internally over the years have brought the metrics 0:20:29.280 --> 0:20:31.400 that we care about, the return metrics, the free cash 0:20:31.400 --> 0:20:35.840 flow metrics below our thresholds right now. Those thresholds are 0:20:35.840 --> 0:20:37.960 there to keep us out of trouble, because most companies, 0:20:38.280 --> 0:20:41.520 when you see a deterioration in those metrics, it's usually 0:20:41.560 --> 0:20:44.960 trouble coming right. Amazon is the exception to that rule. 0:20:45.320 --> 0:20:49.200 Amazon has been investing from a position of strength, It's 0:20:49.240 --> 0:20:52.320 been making itself better. It was hard for us to 0:20:52.440 --> 0:20:55.080 know exactly what some of those investments were as they 0:20:55.119 --> 0:20:58.040 were going because they weren't a hundred percent open about that, 0:20:58.200 --> 0:21:00.440 especially as they were building a w US in your 0:21:00.440 --> 0:21:02.679 early years. And it's also hard to know what the 0:21:02.680 --> 0:21:04.680 returns on those investments are going to be over time 0:21:05.040 --> 0:21:09.560 as well. In a company like Amazon. Remember Amazon's core business, 0:21:09.560 --> 0:21:12.720 it's it's an original core business, which is online retail. 0:21:12.800 --> 0:21:16.240 There is an extremely low margin business. So when you're 0:21:16.240 --> 0:21:19.560