Speaker 1: Strap on your parachute. It's time for What Goes Up.
Speaker 1: It's Sarah Ponzick and Mike Reagan. Hello and welcome to
Speaker 1: What Goes Up, a Bloomberg weekly market podcast. I'm Sarah
Speaker 1: pons Or, reporter on the Cross Asset team and on
Speaker 1: Mike Reagan and editor on the Markets team. He didn't
Speaker 1: even try this time. I've run out of wacky intros.
Speaker 1: I I gotta get I gotta work on that. We're
Speaker 1: done with it all right? Well this week on the show,
Speaker 1: it's easy to get confused or spooked watching markets day
Speaker 1: to day. Rising worries of a second COVID wave triggered
Speaker 1: a nasty stock sell off yet again, but with the
Speaker 1: rally still largely intact, what's an investor to do? We're
Speaker 1: joined by a fund manager who has been in of
Speaker 1: his peers over the last five years. He'll explain his
Speaker 1: process for picking stocks and how he's looking at long
Speaker 1: term secular trends that are being catalyzed by the pandemic,
Speaker 1: and as always, will close out the show with our
Speaker 1: tradition the craziest thing I saw in markets this week,
Speaker 1: and by all means, if you see something crazy in markets,
Speaker 1: give us a call on the Bloomberg Podcast Hotline at
Speaker 1: six four six three to four three four nine. Oh,
Speaker 1: and maybe we'll play your voicemail on the show. Or
Speaker 1: if you just have some suggestions for us or a
Speaker 1: guest you'd like to see on the show, or I
Speaker 1: don't know, some criticisms of Sarah, maybe some praise of me,
Speaker 1: whatever it may be. What do you think, Sarah. I've
Speaker 1: got to say, Mike, it seems like people have more
Speaker 1: time on their hands. There have been plenty of crazy
Speaker 1: things in the market to talk about. Yet our listeners,
Speaker 1: maybe I shouldn't be calling them out. After weeks in
Speaker 1: which you were really giving it to us, now you've
Speaker 1: just pulled back. You're leaving us hanging. Yeah, get on
Speaker 1: the hotline, give us a call. We get lonely here
Speaker 1: and on on our podcast, our socially isolated podcast. But Sarah,
Speaker 1: as you pointed out, a very interesting guy on the
Speaker 1: show this week, Um comes from a firm that I'm
Speaker 1: I'm really fascinated with. Uh. They're called Poland Capital Management Management.
Speaker 1: They're based in Florida, down near you, Sarah. So maybe
Speaker 1: you can go and stop by and say hi when uh,
Speaker 1: when the world's back growth's back to normal. Uh. But
Speaker 1: his name is Dan Dividowitz and he manages the Poland
Speaker 1: Growth Fund. Uh. He's also the firm's chief investment officer.
Speaker 1: And so I've been I'm looking at the performance of
Speaker 1: this fund over the last year, two years, three years.
Speaker 1: I mean, it's really pretty impressive. It's beaten, you know,
Speaker 1: not just the SMP, but if you look at the
Speaker 1: sort of Russell growth indexes and the SMP growth indexes,
Speaker 1: it's beaten all of them on basically last year, last
Speaker 1: two years, three years, uh, four years, five years. So um,
Speaker 1: it's it's good to have, uh a a successful manager
Speaker 1: like this on the show. So, without further ado, his
Speaker 1: name is Dan uh Divitowitz. Wait I already said that,
Speaker 1: but regardless, welcome to the show. Dan, Thank you, Mike,
Speaker 1: thank you Sarah. It's a pleasure to be with you today. Dad.
Speaker 1: You know, I know a little bit about the firm.
Speaker 1: I know you tend to run funds that are are
Speaker 1: sort of concentrated portfolios. And correct me if I'm wrong
Speaker 1: about any of this, but you know, usually about stocks
Speaker 1: in a fund, um you tend to buy and hold.
Speaker 1: You know, there's not a lot of of turnover in
Speaker 1: the fund um. You know, both of those elements I
Speaker 1: find fascinating. So we'll get into it into that a
Speaker 1: little bit, but kind of walk us through basically, you're
Speaker 1: you're sort of approach for picking a stock, you know,
Speaker 1: just the simple you know, where do you start as
Speaker 1: a growth manager when it comes to trying to find
Speaker 1: stocks to buy? Sure? Sure, Mike, And yeah, almost all
Speaker 1: of that was accurate that you said about us. The
Speaker 1: only inaccurate part of I'm not the ce IO of
Speaker 1: the firm. We don't have that title. I'm cohead of
Speaker 1: our large company team. But that's okay. I like I
Speaker 1: like a title inflation too, So thank you for promoting me,
Speaker 1: all right, I appreciate that. Yeah. The simple thing is,
Speaker 1: you're absolutely right. We we invest in what we we
Speaker 1: think of as high quality, concentrated growth. And so my
Speaker 1: team is the large company team. We have three different
Speaker 1: strategies of my team. The one that I run you right,
Speaker 1: is our our flagship, the Polling Growth Fund. It's also
Speaker 1: called our Focus Growth Strategy. Uh. And that's a thirty
Speaker 1: one plus year old product. And I've been a Polling
Speaker 1: capital for fifteen years. I'm only I'm only I've only
Speaker 1: had my hand in about half the track record of
Speaker 1: this product. But we run two other portfolios that are
Speaker 1: essentially very very similar, different geographic exposures, but high quality
Speaker 1: concentrated growth. And then we also have two other investment
Speaker 1: teams at Poland Capital, one that does small cap investing
Speaker 1: small companies and one that does emerging markets and and
Speaker 1: again high quality concentrated growth. So that's what polland Capital
Speaker 1: is about. We think it's really really important first and
Speaker 1: foremost to protect our client's capital, and that's really what
Speaker 1: we're we talk about. It's the what the way we live.
Speaker 1: It's a bit unique for a growth manager to think
Speaker 1: that way, to think about preserving capital first and then
Speaker 1: growing capital second. And so it's important for us to
Speaker 1: only invest in what we think are the most competitively
Speaker 1: advantaged and financially superior companies and nothing less than that.
Speaker 1: And so concentration, a lot of people used to think
Speaker 1: meant higher risk because you're investing in fewer companies. That's
Speaker 1: against the concept of diversification. But what we found, and
Speaker 1: actually academic studies have you even found, is that you
Speaker 1: really don't need that many companies in a portfolio to
Speaker 1: achieve adequate diversification. We think you get that. You know,
Speaker 1: maybe at fifteen stocks in your portfolio. We typically, like
Speaker 1: you said, around twenty five companies in our portfolio, but
Speaker 1: we hold them to these extremely high standards. You know,
Speaker 1: everybody says they invest in quality, right, nobody says they don't,
Speaker 1: but we actually put metrics on that. You're talking about
Speaker 1: concentration and how you can actually run a very well diversified,
Speaker 1: wall performing portfolio that is so concentrated. I find really interesting,
Speaker 1: especially in the current moment, when we are constantly hearing
Speaker 1: people look at indexes passive indexes and pointing at how
Speaker 1: concentrated they are, and they usually say that that is
Speaker 1: a negative aspect of the indexes. But obviously, your growth manager,
Speaker 1: your job is to find high quality growth companies. But
Speaker 1: I do want to ask you, is it at all
Speaker 1: surprising to you that growth has had such a long
Speaker 1: and such a great run over other styles in the market.
Speaker 1: I mean, I look at your Polling Growth fund hitting
Speaker 1: a record high this past week, alongside the SMP Growth
Speaker 1: Index and some very popular growth companies as well. Is
Speaker 1: it's surprising to you that they have held up so
Speaker 1: well through the ball market, but also in the downturn
Speaker 1: as well. It's it's a question, Sarah. We get asked
Speaker 1: like every day, is you know when this growth? When
Speaker 1: is the growth run over after? Yeah? More than a
Speaker 1: decade of growth outperforming value by the way, you know,
Speaker 1: I consider myself a growth investor. A Poland Capital, we
Speaker 1: are growth investors. Most of my investment team, including myself,
Speaker 1: came from the value school of investing. So I I
Speaker 1: worked in New Jersey before coming to Poland Capital fifteen
Speaker 1: years ago at what was considered a deep value shop. UM.
Speaker 1: Many of my colleagues come from the Columbia Value School
Speaker 1: of investing or have worked uh in what they would
Speaker 1: be considered value shops over the years. And so we
Speaker 1: were very, very steeped. And our founder David Poland who
Speaker 1: passed away UM eight years ago, also Graham and Dodd Disciple,
Speaker 1: Warren Buffett disciple, So we come from that camp. We
Speaker 1: believe in the margin of safety, right. But I think
Speaker 1: it's important to kind of take apart the growth versus
Speaker 1: value argument because we think it's kind of a false construct.
Speaker 1: Growth and value are not um two different things, right,
Speaker 1: And when you look at indexes, especially when you know
Speaker 1: some of the ones you mentioned like the SMP Growth Index,
Speaker 1: where the Russell one thousand growth Index, Russell one thousand
Speaker 1: value index, whatever the way those indexes are constructed, are
Speaker 1: using oftentimes valuation metrics, right, So, especially the Russell indices,
Speaker 1: what gets in the in the value side is usually
Speaker 1: low price to book, low price to long term earnings
Speaker 1: growth and what gets thrown into the growth that's the
Speaker 1: value side. On the growth side, it's the high ones, right,
Speaker 1: high price to book high. So that to us, growth
Speaker 1: is not defined by high pe That doesn't make sense.
Speaker 1: For us, growth is defined by growth and earnings per
Speaker 1: share growth and free cash flow over time. And so
Speaker 1: we take a little bit of issue with the construct
Speaker 1: of indexes that are compiled using valuation only as what
Speaker 1: puts them in that in that bucket. So that being said,
Speaker 1: what this growth outperformance what's been driven by It's not
Speaker 1: really been driven by as historically has been by multiple expansion.
Speaker 1: Right when you think back to the tech bubble especially,
Speaker 1: and that's usually where people think about where growth outperformed
Speaker 1: value for a long time and then finally underperformed because
Speaker 1: valuation has got to extreme levels. That's not what we're seeing, right,
Speaker 1: And for most of the great growth companies that we
Speaker 1: study anyway, we're seeing their returns being driven by earnings
Speaker 1: per share growth, free cash flow growth that's been well
Speaker 1: supported the evaluations than well supported by the fundamentals. I
Speaker 1: also think you have to, you know, look at what
Speaker 1: is going on in the world today. So uh, a
Speaker 1: huge amount of disruption in many, many industries. Right. A
Speaker 1: lot of those industries, let's say, retail, energy, financial services,
Speaker 1: tend to find more waiting in value indexes than they
Speaker 1: are in growth. The disrupt doors, you know, which are
Speaker 1: the large tech companies today. Internet enabled businesses tend to
Speaker 1: be more in those growth indexes. And so you're seeing
Speaker 1: real disruption and the disruptors being in different camps. And
Speaker 1: we don't see a lot of that going back in
Speaker 1: the genie bottle, so to speak. We don't see the
Speaker 1: disruption stopping. So the key takeaway there is you may
Speaker 1: claim Dan as a Florida man, but as you heard,
Speaker 1: he's really a Jersey guy. I'm claiming him for Jersey, Rutgers,
Speaker 1: Rutgers for the win. Mike. You're going to take any example.
Speaker 1: You can take that and run with it. But the
Speaker 1: truth is the two of us are currently both in Florida.
Speaker 1: So where as of right now we're both Florida, Florida
Speaker 1: mount or Florida woman. But you both have had alligators
Speaker 1: in your yards. From what I understand too, it's not uncommon. Yes,
Speaker 1: it's it's as Florida. Can you say to pick up
Speaker 1: on that notion of valuation and growth? And I'm looking
Speaker 1: at the growth funds holdings at least as I guess
Speaker 1: it says the end of the first quarter, uh, and
Speaker 1: top holding Microsoft. Boy, what spectacular run that stock has
Speaker 1: had and like you said, one of those quality stocks. Uh.
Speaker 1: You know, you don't have to worry about many hiccups
Speaker 1: with a company like that. But looking at just sort
Speaker 1: of the know, a pe on a trailing basis, I mean,
Speaker 1: it's getting up close to thirty four thirty five times earning.
Speaker 1: How do you sort of you know, look at that
Speaker 1: as a growth manager. Do you look more like a
Speaker 1: pet ratio type of thing, or you know, is there evaluation?
Speaker 1: I mean I think that might be Microsoft's highest trailing
Speaker 1: p at least since like the the scary days of
Speaker 1: the turn of the century, around the bubble days, I mean,
Speaker 1: not anywhere near the same situation it was then. But
Speaker 1: when do the valuations really start to raise your eyebrows? Yeah,
Speaker 1: I mean you have to think about evaluation when you're
Speaker 1: investing in any company, but certainly in growth companies. You
Speaker 1: have to. You have to have a reasonable basis for evaluation.
Speaker 1: You can't just ignore it, at least not in our opinion.
Speaker 1: You can't ignore it for our From our perspective, I
Speaker 1: should mention that valuation is often the last thing we
Speaker 1: talk about. So it's important for us to start with
Speaker 1: and prove out that a business is so great that
Speaker 1: we want to own it, right, that it's so superior
Speaker 1: and so competitively advantage and so much growth available to us,
Speaker 1: we want to own it. Then we decide is there
Speaker 1: an attractive enough price. And the way we think about
Speaker 1: valuation is in it is about the expected return over
Speaker 1: the next five years. So we think about everything in
Speaker 1: five and ten year increments. We don't think about anything
Speaker 1: in quarters or even the next year or two. So,
Speaker 1: you know, with great companies that have massive competitive advantages
Speaker 1: and secular growth trends behind them, it's often not that
Speaker 1: difficult to project what earnings are going to look like,
Speaker 1: or what free cash fill is gonna look like five
Speaker 1: years from now. Within a reasonable range. It's not like
Speaker 1: the average company where the potential outcomes are so wide,
Speaker 1: you know, for a company like Microsoft, it's actually fairly
Speaker 1: narrow um set of of of circumstances that are gonna
Speaker 1: happen over the next five years. And so we know
Speaker 1: what the earnings and cash will look like today, we
Speaker 1: have a conservative estimate of what it's gonna look like
Speaker 1: five years from now. We know what the pe is today,
Speaker 1: and then we make a conservative estimate five years from now,
Speaker 1: so we never assume multiple expansion. We assumedly to be
Speaker 1: the same or lower because certainly within the next five
Speaker 1: year as most businesses will likely be growing slower than
Speaker 1: they are today. And so we use a conservative vestment
Speaker 1: again on both earnings and multiple five years from now.
Speaker 1: And if we can see a path to double digit
Speaker 1: annualized returns from here to there, we're very comfortable. And
Speaker 1: with Microsoft, we certainly see that today. By the way,
Speaker 1: we've owned Microsoft um this time around for the last
Speaker 1: three or four years. We've owned Microsoft in our portfolio
Speaker 1: now three times in thirty one years, and it's been
Speaker 1: holding about half the time, so almost fifteen sixteen years
Speaker 1: UM we've held it the last time we sold it,
Speaker 1: back in two thousand ten, Microsoft was a much smaller company,
Speaker 1: even though it's very very large, growing at about two paranum.
Speaker 1: This was before they made a pivot to the cloud,
Speaker 1: right before they moved to a subscription revenue model across
Speaker 1: all of their franchises, before Azure, which is obviously tremendously
Speaker 1: large now, and so it was about a two percent
Speaker 1: grower ten years ago. Fast forward today, it's a larger
Speaker 1: business growing in the load to mid teens organically, which
Speaker 1: is incredibly difficult for a company this size. Why Well,
Speaker 1: because the subscription revenue model gives them a lot more
Speaker 1: pricing power. It allows them to fight piracy, which they
Speaker 1: haven't been able to do for a long time. But
Speaker 1: now when you can only get the most recent version
Speaker 1: of Windows or Office by subscription from Microsoft's own data centers,
Speaker 1: you've got to pay for it, you can't hirate it.
Speaker 1: And Azure being a platform, uh that is, you know,
Speaker 1: the second choice now behind Amazon Web Services, but certainly
Speaker 1: a very very powerful engine in its own right, with massive,
Speaker 1: massive opportunity for growth, and so it's a it's a
Speaker 1: much better company today and it's a much faster growing
Speaker 1: company today with much more sustainability. Even though it already
Speaker 1: was basically a monopoly before this, it's now a fast
Speaker 1: growing monopoly. And so that valuation, like you said, on
Speaker 1: a trailing basis, you know, it is maybe a little
Speaker 1: bit high when you look at it historically, but given
Speaker 1: what we know about Microsoft today and where it's going,
Speaker 1: it's very very reasonable. Looking at the waiting in the fund,
Speaker 1: you know, it's creeping up to ten eleven percent at
Speaker 1: least at the end of the first quarter. Is there
Speaker 1: do you set a limit on on waiting? You know,
Speaker 1: as you mentioned in the beginning, that running a concentrated
Speaker 1: portfolio does have that risk that if a stock's really cruising,
Speaker 1: you know, it's it's going to start really dominating the portfolio.
Speaker 1: Do you have any sort of cap on on what
Speaker 1: you would give a single stock as a waiting Yeah,
Speaker 1: Microsoft is about as high as we typically let companies go.
Speaker 1: It's around that ten eleven percent, and you know, is
Speaker 1: about it as far as we're willing to go. We
Speaker 1: will sometimes let them appreciate a little bit past that
Speaker 1: level if we don't see any really compelling reason to
Speaker 1: take it down. If we still think you have this combination,
Speaker 1: which we think in Microsoft's case, you have where it's
Speaker 1: a unique combination of moat, you know, competitive advantage that
Speaker 1: is growth and valuation on your side. Then we're usually
Speaker 1: willing to allow it to drift a little bit higher
Speaker 1: than that, but not much. You know, we typically don't
Speaker 1: go much higher than where Microsoft is right now? Do
Speaker 1: you ever worry about regulatory issues or do you find
Speaker 1: yourself discussing it? I mean, I can't tell you how
Speaker 1: many times it's been brought up to me over the
Speaker 1: past US here, especially leading up to the election. Everyone's saying, look,
Speaker 1: antitrust regulation is a bipartisan issue, blah blah blah. But
Speaker 1: considering the fact that Microsoft is a large holding Facebook
Speaker 1: also Google parent Alphabet, is that something that you guys
Speaker 1: do take into consideration at the moment. Yeah, absolutely, Sara.
Speaker 1: I mean you have to. You have to think about
Speaker 1: policy regulatory risk in in any business, and it's kind
Speaker 1: of part of our investment philosophy and process because the
Speaker 1: vast majority of the companies that we own have a monopoly, duopoly,
Speaker 1: or oligopoly like structure to them. They became, they create
Speaker 1: oftentimes they created industries and then dominated industry. So you
Speaker 1: mentioned for sure, Microsoft, Google, Facebook, throw throw MasterCard and
Speaker 1: Visa in on that conversation. If you if you even
Speaker 1: more narrowly defined sub industries, you could say Adobe certainly
Speaker 1: dominates the market for creative software. UM. We see this
Speaker 1: all the time, and so what we're really interested in
Speaker 1: is is there anything that can disrupt the business model
Speaker 1: or the earnings compounding that we expect from these companies.
Speaker 1: And so there's often a lot of saber rattling that
Speaker 1: goes on, but it's rare that we find that that
Speaker 1: governments will really destroy a competitive advantage or um the
Speaker 1: earnings power of a company. So even if you're talking
Speaker 1: about the potential breakup let's say of um, Facebook or
Speaker 1: or Google, which we think would be really stretching for
Speaker 1: a government, right because you have to prove, at least
Speaker 1: in the United States, you have to prove that consumers
Speaker 1: are harmed. And I don't know exactly how you prove
Speaker 1: that when these services are free to consumers, but let's
Speaker 1: just assume they do. We don't even think we think
Speaker 1: that some of the parts could be at least equal to,
Speaker 1: if not greater than, the whole that you see today.
Speaker 1: And so you know, nothing really worries us at the moment,
Speaker 1: But for sure, we're always looking at regulatory risks. You know,
Speaker 1: it's kind of interesting because today a lot of people
Speaker 1: want to talk about E S G and E S
Speaker 1: g risks. You know, do we see anything How do
Speaker 1: we think about E S G risks? Well, we think
Speaker 1: about in the same way we think about all risks.
Speaker 1: We want anything that gets in the way of the
Speaker 1: compounding of any of our companies is something we want
Speaker 1: to be concerned with. It reminds me of that there's
Speaker 1: a Trump tweet a week or two ago about the
Speaker 1: Microsoft government contracts that must have That must have turned
Speaker 1: a few hairs on your head, Gray when you saw that. Then, well,
Speaker 1: you know, it's funny because uh, I guess the narrative
Speaker 1: before was that Trump was really so against Jeff Bezos
Speaker 1: and Amazon Web Services that he was kind of handing
Speaker 1: this over to Microsoft. I mean, it's it's a nice story. Um,
Speaker 1: at the end of the day, both of those companies
Speaker 1: have extremely capable services, and UM, if you're doing any
Speaker 1: business with the federal government where you're supplying your data
Speaker 1: centers to secure government information, highest level scrutiny has to
Speaker 1: go into that and and honestly, both Amazon and Microsoft
Speaker 1: and I throw Google in the mix on this to
Speaker 1: have platforms to host, to be the platform for cloud
Speaker 1: services for the highest levels of government and and that
Speaker 1: is not easy to achieve. And one of the reasons
Speaker 1: why we love those businesses is it's it's hard for
Speaker 1: anybody else to come compete in this business. You know,
Speaker 1: at that level. Facebook, for instance, certainly could have a
Speaker 1: cloud platform if they want to do, they have the
Speaker 1: infrastructure and to be able to do it. They have
Speaker 1: no interest in being in this market because they don't
Speaker 1: see a reason to be the fourth best cloud platform
Speaker 1: in the Western world. You know, you mentioned Amazon. I
Speaker 1: don't see it in the top ten. Do you do
Speaker 1: you hold it in the fun somewhere? We don't. We
Speaker 1: haven't owned Amazon in ten years. Um. And this is ah,
Speaker 1: this is kind of an interesting thing. So you know,
Speaker 1: in our concentrated portfolio, we don't feel compelled to own anything. Um.
Speaker 1: So you know, obviously we're gonna look very different than
Speaker 1: a benchmark. If we only own about twenty companies today
Speaker 1: we own one, we're not gonna look anything like a benchmark.
Speaker 1: And we don't have to get our returns the same
Speaker 1: way the benchmark gets its returns either. So if you
Speaker 1: look at our portfolio today, we don't own Amazon, we
Speaker 1: don't own Apple, we don't own Netflix in the portfolio.
Speaker 1: We've owned Amazon in the past. We've owned Apple in
Speaker 1: the past, UM never owned Netflix. The reason um that
Speaker 1: we we did own Amazon for a while and then
Speaker 1: have not in a long while, it's because I mentioned
Speaker 1: we we stick really closely to our guard rails, those
Speaker 1: five guard rails that I mentioned before. Amazon. Uh, it's
Speaker 1: an amazing business and probably the most competitively advantaged business.
Speaker 1: We don't own in the United States for sure. Uh
Speaker 1: is because they're building of Amazon Web Services and their
Speaker 1: own logistics infrastructure, and all of the things that they've
Speaker 1: been building internally over the years have brought the metrics
Speaker 1: that we care about, the return metrics, the free cash
Speaker 1: flow metrics below our thresholds right now. Those thresholds are
Speaker 1: there to keep us out of trouble, because most companies,
Speaker 1: when you see a deterioration in those metrics, it's usually
Speaker 1: trouble coming right. Amazon is the exception to that rule.
Speaker 1: Amazon has been investing from a position of strength, It's
Speaker 1: been making itself better. It was hard for us to
Speaker 1: know exactly what some of those investments were as they
Speaker 1: were going because they weren't a hundred percent open about that,
Speaker 1: especially as they were building a w US in your
Speaker 1: early years. And it's also hard to know what the
Speaker 1: returns on those investments are going to be over time
Speaker 1: as well. In a company like Amazon. Remember Amazon's core business,
Speaker 1: it's it's an original core business, which is online retail.
Speaker 1: There is an extremely low margin business. So when you're
Speaker 1: evaluating these type of investments in an already low margin business,
Speaker 1: it's very very difficult to know what the sustainable margins are,
Speaker 1: what the real valuation is at any moment in time,
Speaker 1: very very difficult. Today, the vast majority of profits actually
Speaker 1: come from aws, not from UM the retail business, and
Speaker 1: so it's a different business, still a great business today.
Speaker 1: It actually does meet our guardrails Amazon does today. The
Speaker 1: reason we don't own it today is because the valuation
Speaker 1: is not at a place where we feel like we
Speaker 1: can get the kind of return that we hope for,
Speaker 1: so we don't own it. Maybe one day we will again.
Speaker 1: We love the business for sure. It's the only company
Speaker 1: that we cover that we actually have two analysts that
Speaker 1: cover not one not just because the company itself is
Speaker 1: so great, but because it competes with or potentially competes with,
Speaker 1: almost every company it wants to compete with. So we
Speaker 1: have to be well versed on Amazon, but we don't
Speaker 1: own it today. And and the same thing for Netflix
Speaker 1: is also because of the guardrails. It does not meet
Speaker 1: our guardrails today. We do study it, we do know
Speaker 1: it quite well and apples a little bit of different story.
Speaker 1: We did own it for a long time, but we
Speaker 1: feel like kind of the best days of growth for
Speaker 1: Apple or behind it. That's why we don't own it anymore.
Speaker 1: M just considering the time that we're living in right
Speaker 1: now with the coronavirus, many of us quarantining. Looking at
Speaker 1: your portfolio or even stocks that might be on your
Speaker 1: watch list, or have you found any company or any
Speaker 1: industry that this has really completely changed the growth prospects
Speaker 1: for going into the future, or even something you don't
Speaker 1: own that now you might see value in considering what
Speaker 1: this might encourage out into the future. Yeah, yeah, I
Speaker 1: mean potentially, yes, I mean it's in the middle of it.
Speaker 1: You want to be a little bit careful about how
Speaker 1: much you extrapolate um because it's hard to know exactly
Speaker 1: how how much human behavior is permanently versus temporarily changed,
Speaker 1: but we do think there are some obvious beneficiaries and
Speaker 1: and a lot of them are kind of the trends
Speaker 1: that were already in motion. Right. So, if you think
Speaker 1: about some of the biggest secular trends that we see
Speaker 1: out there, and the ones that you see as you
Speaker 1: look down our portfolio holdings are things like the move
Speaker 1: from offline commerce, you know, to e commerce, and from
Speaker 1: offline advertising to online advertising, from cash and check to
Speaker 1: digital forms of payment. Those are those are obviously well
Speaker 1: in motion for a long time, but because of coronavirus
Speaker 1: and because of people sheltering in place and kind of
Speaker 1: being forced to do things a little bit differently, those
Speaker 1: have accelerated. Those trends have accelerated, and we don't see
Speaker 1: those um turning back. If anything, they're just catalyzing, um
Speaker 1: faster adoption of some of these technologies. Some of the
Speaker 1: other things are a little bit harder to say, like,
Speaker 1: you know, will office space not be as attractive, you know,
Speaker 1: as people now become more comfortable with remote work. Um,
Speaker 1: I'm not a hundred percent sure that's going to happen.
Speaker 1: You know, there there may be a need for a
Speaker 1: little less office space or not because maybe you need
Speaker 1: to built in a distance or so maybe even if
Speaker 1: you're gonna have fewer people in your workplace, you may
Speaker 1: need more space for those people. So some of those
Speaker 1: things are not yet I'm not really sure about, you know,
Speaker 1: other things like UM the long term move away from
Speaker 1: linear media consumption to non linear media consumption again very
Speaker 1: very catalyzed by this. UM we own a company in
Speaker 1: our portfolio today called service Now. UM. Service now as
Speaker 1: a software platform that essentially allows people to automate workflows.
Speaker 1: It's already been a strong growth company, but we see
Speaker 1: tremendous adoption. We expect tremendous adoption for automated workflow because
Speaker 1: as people have to distance more, you need to build
Speaker 1: in more automation, and so UM we're seeing that pretty clearly.
Speaker 1: We're seeing things like Microsoft Teams and Zoom being adopted
Speaker 1: in a in a very serious way. We don't think
Speaker 1: all of that, we don't think the adoption necessarily goes backwards. UM.
Speaker 1: There are a couple of other companies that we're looking
Speaker 1: at today where UM there is like a collaborative software
Speaker 1: nature to them that we think it will be unlikely
Speaker 1: people turned back from as they go back to work
Speaker 1: from normal. But you know, again you want to be
Speaker 1: a little bit careful. Yeah, Dad, I'm just curious what
Speaker 1: it's like to be a fund manager during all this.
Speaker 1: I mean, are you getting more sort of in calls
Speaker 1: from investors in the fund or any any panicked voices
Speaker 1: on the other line. I mean, I'm guessing it must
Speaker 1: be a somewhat stressful time with all this going on,
Speaker 1: you know, not so much. I mean in the in
Speaker 1: the early you know, I would say in the March period,
Speaker 1: in mid March, when we were really starting to see
Speaker 1: cases start to come and and getting ready for quarantining UM,
Speaker 1: there was a lot more concerned about what would happen
Speaker 1: to some of our companies in the portfolio of people calling.
Speaker 1: But you know, you gotta remember too that we're we're
Speaker 1: mostly invested in these very financially heavy, you know, cash
Speaker 1: rich companies with big competitive avantages. So we're probably not
Speaker 1: the number one problem for people, you know, when they're
Speaker 1: looking at the types of companies that they own. We
Speaker 1: tend to have, you know, a lot of the strongest
Speaker 1: one so there wasn't a lot of panic or anything
Speaker 1: like that. There's a lot of questions, you know, there
Speaker 1: are a lot of questions about what UM stock performance
Speaker 1: would look like, and which companies were more vulnerable than others,
Speaker 1: which ones would have UM significant UM cash flow impact,
Speaker 1: and which ones would not. And we didn't really touch
Speaker 1: on this at all. But at Poland Capital we don't
Speaker 1: make market predictions or economic predictions. UM. We try to
Speaker 1: stay fully invested in the best companies that we think
Speaker 1: can power through any crisis. And and you know, like
Speaker 1: we've been doing this at Polland Capital for thirty one years,
Speaker 1: we've seen a few criss along the way. This one
Speaker 1: is very very different, obviously, but it allows us to
Speaker 1: know that we don't have to predict these things. We
Speaker 1: just have to build a portfolio that's that's resilient and
Speaker 1: companies that can UM survive and thrive and continue to
Speaker 1: invest through periods like this and so UM that's exactly
Speaker 1: what we have. The companies. You know, we have a
Speaker 1: few companies that have been really really impacted negatively, UM, Nike, Starbucks,
Speaker 1: Aligned technologies where businesses, you know, these are business where
Speaker 1: you actually physically have to go somewhere to buy something
Speaker 1: or to order clearer liners. Right, they've been severely impacted,
Speaker 1: but they're continuing to invest in this period of time
Speaker 1: because they have the balance sheets to be able to
Speaker 1: do it. They're gonna come out stronger on the other side.
Speaker 1: And so you know, I think that helps to be
Speaker 1: able to articulate that to our clients, and I think,
Speaker 1: you know, having that very proactive outreach on our part
Speaker 1: has helped a lot. Well, it's a certainly a unique
Speaker 1: time and I'm sure we could talk about this, uh
Speaker 1: forever all day long. I wish that we could. But Mike,
Speaker 1: I think it's time for the crazy things. It's that time,
Speaker 1: I believe, so all right, stand clearer of the craziest
Speaker 1: things we saw in markets this week, Well thanks to
Speaker 1: Charlie Pellet. That's Bloomberg Radio's famous Charlie Pellett with a
Speaker 1: little help for the show. Here we're ratcheting up the gimmicks. Sarah,
Speaker 1: I love it. I love it. We have And if
Speaker 1: you've been to New York you might recognize that voice.
Speaker 1: And that's because yes, that is the man of the subway,
Speaker 1: that's right, and one of the nicest guys in the world.
Speaker 1: I will I will also point out, and I can't
Speaker 1: believe he don't know if anyone would disagree, was playing
Speaker 1: along with our gimmick. But that's that shows you how
Speaker 1: nice of a guy he is. So Sarah, you kick
Speaker 1: it off. What's the craziest thing you saw in markets
Speaker 1: this week? All right, I'll go I had to, but
Speaker 1: I'll go with the fun one. I don't know if
Speaker 1: either of you saw. I just thought it was really
Speaker 1: interesting and a little bit kind of gimmicky. I guess
Speaker 1: you could say to UM, I guess the company shouldn't
Speaker 1: come at me after saying that. But Goldman Sacks has
Speaker 1: a new font, UH made headlines this week. It's called
Speaker 1: Goldman Sands UM and the idea they say is to
Speaker 1: create a clear, contemporary and credible font. And this was
Speaker 1: huge on their website. So I feel like Goldman Sacks
Speaker 1: when you think of that font, the old font, it's
Speaker 1: really memorable, and I almost I think it's going to
Speaker 1: be difficult to recognize the name for a bit, UH
Speaker 1: with a new font that sounds like comic sands. I
Speaker 1: had not seen that. It's a historic day on the show.
Speaker 1: Because that's my craziest thing too. I can't believe it.
Speaker 1: And you know what, one of the first I thought
Speaker 1: it was crazy, but then they kind of sold me
Speaker 1: on it, you know. They you know, they designed this
Speaker 1: font so that the S doesn't look like the five.
Speaker 1: They said, the letters need to be approachable without being whimsical.
Speaker 1: And okay, but I wonder there's a lot of thought,
Speaker 1: a lot of thought that goes I know. I check
Speaker 1: it out on their website. They explain all the decisions
Speaker 1: they made on creating this font. It's it's really kind
Speaker 1: of fascinating. I'd hate to be the Morgan Stanley Zion
Speaker 1: team right now. You know, they're burning the midnight oil
Speaker 1: having to come up with their own their own fund now.
Speaker 1: But all right, Dad, did they I'm sure they They
Speaker 1: warned you about our gimmick. Have you seen anything crazy
Speaker 1: in markets this week? You know, Mike, I I have
Speaker 1: been struggling with this because, first of all, I don't
Speaker 1: I don't. I yes, I was worried about it, and
Speaker 1: and I don't spend a whole lot of time believe
Speaker 1: it or not, looking at markets, So I have a
Speaker 1: hard time coming up with crazy things. I'm gonna tell
Speaker 1: you what surprises me, and and maybe Sarah can relate
Speaker 1: to this, is that Floridians are actually surprised, uh, that
Speaker 1: there's an increase in cases in Florida, And that to
Speaker 1: me is crazy because if you're down here and you're
Speaker 1: looking around, there's no surprises about that what people are
Speaker 1: doing and what they're not doing and the effect that
Speaker 1: it has. I mean, because I feel like, you know,
Speaker 1: this isn't really markets right, but it is because anything
Speaker 1: that we talk about these days starts and ends with COVID, unfortunately,
Speaker 1: and so your people's opinions seemed to be influenced by that,
Speaker 1: and the concern about what's going to happen with the
Speaker 1: economy going forward certainly seems to be. But I am
Speaker 1: in my conversations with my my friends down here and
Speaker 1: my colleagues, and less of of my colleagues. They're relatively
Speaker 1: intelligent people that have good thoughts on these things. But
Speaker 1: but uh, down here in South Florida, people are genuinely
Speaker 1: surprised that there's a massive uptick in cases, and not,
Speaker 1: to me is absolutely crazy. So Dan I can fully
Speaker 1: attest to that. I mean, I remember going to pick
Speaker 1: up food just a couple of weeks ago. Um I
Speaker 1: would stay in the car and family. Would we run
Speaker 1: out with our masks. I'll just grab the food, get
Speaker 1: back in the car. But the amount of people I
Speaker 1: would see on the street not wearing masks, walking around,
Speaker 1: people very close to one another. I actually had a
Speaker 1: neighbor because I had a family member who came in
Speaker 1: from another state and they were quarantining for a bit
Speaker 1: to make sure they were okay before coming to the house.
Speaker 1: A neighbor said, oh, you're doing that this. I didn't
Speaker 1: think this was happening anymore. This isn't a thing um
Speaker 1: and and people are now shocked. All right. Well, Dan
Speaker 1: david Witz, thanks so much for joining the show today.
Speaker 1: It was a pleasure to have you. Thank you, Sarah,
Speaker 1: Thank you Mica. It's a pleasure. What goes up. We'll
Speaker 1: be back next week. Until then, you can find us
Speaker 1: on the Bloomberg Terminal, website and app or wherever you'll
Speaker 1: get your podcasts. We love it if you took the
Speaker 1: time to rate interview the show on Apple Podcast so
Speaker 1: more listeners can find us. And you can find us
Speaker 1: on Twitter, follow me at at Sarah pant Sack, Mike
Speaker 1: is at Reaganonymous, and you can also follow Bloomberg Podcast
Speaker 1: at podcast. We also want to say a very big
Speaker 1: thank you to Charlie Pellett of Bloomberg Radio and also
Speaker 1: the voice of the New York Subway. What Goes Up
Speaker 1: is produced by Jordan Gospore. The head of Bloomberg Podcast
Speaker 1: is Francesscalvie. Thanks for listening, See you next time.