WEBVTT - Fidelity’s Kalra on How to Value Growth Stocks: Inside Active 0:00:11.640 --> 0:00:15.200 Welcome to the inaugural episode of Inside Active, a podcast 0:00:15.240 --> 0:00:18.599 about active managers that goes beyond sound bites and headlines 0:00:18.880 --> 0:00:23.000 and looks deeper into the processes, challenges, and philosophies and 0:00:23.040 --> 0:00:26.560 security selection. I'm David khne, I, lead mutual fund and 0:00:26.600 --> 0:00:30.640 active Research at Bloomberg Intelligence. I'm joined by Gina Martin Adams, 0:00:30.800 --> 0:00:33.760 chief equity strategist at Bloomberg Intelligence. Who'll be my co 0:00:33.840 --> 0:00:35.920 host today. Gina, thanks for joining me. 0:00:36.640 --> 0:00:37.440 Thank you for having me. 0:00:37.520 --> 0:00:37.800 David. 0:00:38.640 --> 0:00:42.080 Well, you wrote a really interesting note about global equity valuations. 0:00:42.159 --> 0:00:44.839 I think it really ties into our discussion today. Do 0:00:44.920 --> 0:00:47.320 you maybe give us a quick overview of where global 0:00:47.360 --> 0:00:48.920 equity valuations are today? 0:00:49.400 --> 0:00:49.720 Yeah? 0:00:49.760 --> 0:00:53.080 Absolutely, and thank you. It's been a really interesting ride 0:00:53.080 --> 0:00:55.880 in twenty twenty four. I think that the popular conception 0:00:56.080 --> 0:01:00.400 is that stocks are quote unquote expensive, and that is 0:01:00.440 --> 0:01:04.640 really derived through the observation that index level valuations have 0:01:04.720 --> 0:01:07.360 expanded so far this year, and at least in the 0:01:07.440 --> 0:01:10.160 US have expanded to levels we last saw back in 0:01:10.319 --> 0:01:13.440 twenty twenty one. But when you dissect the indices and 0:01:13.480 --> 0:01:15.880 you look at the individual moving parts, the components of 0:01:15.880 --> 0:01:18.480 the indusices, you actually find that the median stock globally 0:01:19.080 --> 0:01:22.360 has not seen any valuation expansion. As a matter of fact, 0:01:22.440 --> 0:01:24.800 most of the valuation expansion, in particular in the US 0:01:24.800 --> 0:01:27.560 has really just come from the top ten stocks, and 0:01:27.600 --> 0:01:30.800 globally it's come from AI theme stocks. So I'm really 0:01:30.840 --> 0:01:34.720 excited to dig in today with our guests on valuations, 0:01:34.840 --> 0:01:38.480 on growth prospects, what's really driving markets, and where are 0:01:38.480 --> 0:01:40.600 we going to see, you know, trend shift going into 0:01:40.640 --> 0:01:41.080 the future. 0:01:41.760 --> 0:01:44.000 Great, So I think it's a great time now to 0:01:44.000 --> 0:01:47.200 bring in our guest, Sonu Kara, who manages the Fidelity 0:01:47.240 --> 0:01:51.280 Blue Chip Growth Fund or fbjyr X. So, now, thank 0:01:51.280 --> 0:01:52.360 you so much for joining us. 0:01:52.400 --> 0:01:55.200 Thanks David, Thanks Gena, thanks for having me this morning. 0:01:55.560 --> 0:01:57.960 So before we get into you know, nitty gritty of 0:01:58.040 --> 0:02:00.480 stock analysis, maybe you could tell us how you got 0:02:00.480 --> 0:02:01.520 your start in investing. 0:02:01.680 --> 0:02:04.760 Yeah, I grew up in a household which was very 0:02:04.880 --> 0:02:10.240 i would say, math and numbers oriented growing up. I 0:02:10.320 --> 0:02:12.840 moved to the United States at the age of six 0:02:12.919 --> 0:02:17.760 from India, and you know, my dad, at an early 0:02:18.360 --> 0:02:21.080 stage when we moved to this country, I used to 0:02:21.080 --> 0:02:24.000 come through the Wall Street Journal and just look at 0:02:24.200 --> 0:02:27.600 stock prices of different names. That's kind of where I 0:02:27.639 --> 0:02:32.160 really learned about the stock market and developed an interest 0:02:32.560 --> 0:02:33.520 in the stock market. 0:02:33.680 --> 0:02:35.359 Funny thing is is, you know. 0:02:35.360 --> 0:02:38.000 He would focus on the fifty two week low list 0:02:38.240 --> 0:02:42.120 as potential ideas. Over time, I've learned that's usually not 0:02:42.240 --> 0:02:46.119 a good place to be searching for new ideas. 0:02:46.400 --> 0:02:48.840 But it was really a lesson in. 0:02:48.639 --> 0:02:51.920 Investing, and we'd sit down on Saturday mornings and just 0:02:51.960 --> 0:02:57.040 go through what happened. And developed an interest early on. 0:02:57.400 --> 0:03:01.959 And you know, in college, I was a finance major. 0:03:02.400 --> 0:03:04.120 You know, I was kind of the nerd in our 0:03:04.680 --> 0:03:08.440 in our apartment where I would watch CNBC and watch 0:03:08.520 --> 0:03:11.640 financial news. And I remember there was a brokerage house 0:03:11.919 --> 0:03:14.800 down on Main Street and they had a ticker that 0:03:14.840 --> 0:03:17.800 would go by, because at that point in time, you'd 0:03:17.800 --> 0:03:20.200 have to in order to get real live tickers, you 0:03:20.240 --> 0:03:23.080 either have to be watching TV or you'd have to 0:03:23.200 --> 0:03:26.720 dial the numbers on your phone and the letters, et 0:03:26.800 --> 0:03:30.519 cetera and take forever. So I'd sit by the brokerage 0:03:30.560 --> 0:03:34.280 house it was a TV waterhouse brokerage, I remember, and 0:03:34.720 --> 0:03:38.000 just watched watch the tickers. So just developed a love 0:03:38.040 --> 0:03:38.800 of the markets. 0:03:39.120 --> 0:03:39.360 Uh. 0:03:39.600 --> 0:03:42.600 You know, my first job out of college was a 0:03:42.680 --> 0:03:47.360 g capital I was in a rotational program there, and uh, 0:03:47.640 --> 0:03:49.440 you know, at that point in time, I never knew 0:03:49.520 --> 0:03:52.920 that you could actually, you know, have a career in investing. 0:03:53.080 --> 0:03:54.600 For me, it was more of a hobby. 0:03:55.360 --> 0:03:58.040 But at G Capital they managed a portion of their 0:03:58.040 --> 0:04:02.160 pension fund assets. Internally, I had a six month rotation there, 0:04:02.560 --> 0:04:05.720 did some equity research analysis and just really fell in 0:04:05.760 --> 0:04:08.360 love with it and went back and got my MBA 0:04:08.600 --> 0:04:12.560 and did my summer internship and Fidelity in the Hong 0:04:12.640 --> 0:04:17.520 Kong office. Spent three months in Hong Kong covering Chinese 0:04:17.560 --> 0:04:20.680 toll roads and utilities. Counted cars, you know, on the 0:04:20.720 --> 0:04:22.880 side of a highway at that time. That's how a 0:04:22.920 --> 0:04:24.840 few cars there were in China in. 0:04:24.800 --> 0:04:25.640 The late nineties. 0:04:25.680 --> 0:04:28.920 This was the summer of nineteen ninety seven. And then, 0:04:29.360 --> 0:04:32.840 as I say, the rest is history. Joined Fidelity in 0:04:32.960 --> 0:04:36.359 ninety eight as an analyst here in Boston and have 0:04:36.480 --> 0:04:39.599 been looking at growth stocks for most of my career. 0:04:39.800 --> 0:04:42.400 That's a great start. It's really interesting to hear people 0:04:42.480 --> 0:04:45.240 giving their overview of how they got their you know, 0:04:45.240 --> 0:04:47.320 their start in the business, and you know, it kind 0:04:47.360 --> 0:04:49.280 of brings us to where you are now. I think 0:04:49.279 --> 0:04:51.560 we'd really love to hear about your investment process. Could 0:04:51.600 --> 0:04:53.200 you kind of give us an overview of it. 0:04:53.440 --> 0:04:57.080 Yeah, So I managed the blue Chip Growth strategy here 0:04:57.600 --> 0:05:01.800 the core mutual fund you mentioned FPGR, but also in 0:05:01.839 --> 0:05:05.599 addition to that, I also manage FBCG, which is the 0:05:05.720 --> 0:05:09.120 ETF version of the strategy, and I've been running this 0:05:09.200 --> 0:05:13.520 strategy since two thousand and nine. What I primarily look 0:05:13.600 --> 0:05:18.839 for are companies that are participating in large addressable markets 0:05:19.160 --> 0:05:23.919 that are underpenetrated, where markets are not only mispricing the 0:05:24.080 --> 0:05:27.919 absolute rate of growth, but more importantly the durability or 0:05:27.960 --> 0:05:31.279 sustainability of that growth. And that's really the core essence 0:05:32.040 --> 0:05:35.920 of our investment philosophy. You know, if you look back 0:05:36.200 --> 0:05:40.080 at the great growth companies of our lifetimes, companies like 0:05:40.080 --> 0:05:44.719 in Amazon and Apple, you know they've been able to 0:05:44.800 --> 0:05:47.919 compound growth rates and healthy growth rates for long periods 0:05:47.920 --> 0:05:51.640 of time. And that's really what I strive to look for. 0:05:52.080 --> 0:05:54.520 And one of the things that I look for is 0:05:54.600 --> 0:05:58.560 these large underpenetrated markets, because if the size of the 0:05:58.600 --> 0:06:01.560 pie is big, you have room to grow for long 0:06:01.600 --> 0:06:04.000 periods of time. And the other thing I look for 0:06:05.000 --> 0:06:10.840 is adjacent markets. Do companies have adjacent market opportunities that 0:06:10.880 --> 0:06:14.320 they can go after over time, and Amazon's a great 0:06:14.360 --> 0:06:17.440 example of that. I was fortunate enough to be the 0:06:17.520 --> 0:06:21.680 analyst covering Amazon in the late nineties early two thousands. 0:06:22.080 --> 0:06:24.920 I covered Apple during the early two thousands, so these 0:06:24.920 --> 0:06:29.039 are really my formative years as a growth investor, and 0:06:29.520 --> 0:06:31.880 you know, one of the things I learned was just 0:06:32.200 --> 0:06:35.600 when you have these companies, it's really important for them 0:06:35.640 --> 0:06:39.320 to continue to expand and have opportunity to expand. And 0:06:39.360 --> 0:06:44.200 when you think about Amazon, they started out and you know, books, music, video, 0:06:44.400 --> 0:06:48.599 e commerce categories, continued to expand, and then in the 0:06:48.640 --> 0:06:51.839 mid two thousands launched their web services business, which is 0:06:51.880 --> 0:06:55.320 now one of their largest businesses and most profitable business. 0:06:55.360 --> 0:06:59.120 More recently, they've added advertising and prime video, et cetera. 0:06:59.800 --> 0:07:03.040 You know, Apple got it start as a PC maker, 0:07:03.880 --> 0:07:07.520 and I still remember when they introduced the iPod in 0:07:07.560 --> 0:07:10.720 the early two thousands. That was really their first venture 0:07:10.800 --> 0:07:14.040 outside the PC market, and there's a lot of skepticism. 0:07:13.480 --> 0:07:15.640 At the time. And then they introduced the. 0:07:15.640 --> 0:07:19.920 iPhone, the iPad, the ecosystem, apps, et cetera. So it's 0:07:19.960 --> 0:07:23.160 really important for these companies to have these adjacent markets 0:07:23.160 --> 0:07:27.960 that they can capture over time, and ideally, if. 0:07:27.800 --> 0:07:30.800 We're doing our work well. 0:07:30.920 --> 0:07:33.440 We can hold on to these companies for long periods 0:07:33.440 --> 0:07:36.720 of time. I tend to look for companies that can 0:07:37.040 --> 0:07:40.480 grow their earnings double digits. And the reason I focus 0:07:40.560 --> 0:07:43.920 on that double digit hurdle is, when you think about it, 0:07:43.960 --> 0:07:47.400 take a step back. The S and P historically has 0:07:47.440 --> 0:07:51.080 returned seven to eight percent over time, and stocks typically 0:07:51.640 --> 0:07:55.600 follow earning. So in order to helpperform the market, you 0:07:55.680 --> 0:07:58.320 need to find companies and own companies that can outgrow 0:07:58.360 --> 0:08:01.320 the market. So for me, that ten percent hurdle rate 0:08:01.400 --> 0:08:04.360 becomes a nice bogie that I look for. And and 0:08:04.480 --> 0:08:07.120 we've done some internal research here that shows if you 0:08:07.560 --> 0:08:11.200 own a portfolio of companies that continues to you know, 0:08:11.320 --> 0:08:15.200 compound at ten percent, there's about twelve hundred basis points 0:08:15.200 --> 0:08:19.480 of outperformance to be found on in any given year. 0:08:20.360 --> 0:08:22.440 And so it's really trying to you know, fish in 0:08:22.480 --> 0:08:25.360 a pond where there's a lot of fish. You know, 0:08:25.400 --> 0:08:28.680 I spend a lot of time with our analyst team, uh, 0:08:28.800 --> 0:08:32.679 you know, focused on organic revenue growth. You know, to me, 0:08:32.800 --> 0:08:36.320 that's like puts every company on a level playing field. 0:08:37.280 --> 0:08:40.040 And I try to find companies you know that are 0:08:40.040 --> 0:08:42.400 gaining market share. To me, market share is a very 0:08:42.440 --> 0:08:45.480 important metric that I focus on. It gives me a 0:08:45.559 --> 0:08:50.000 quick snap shot of the industry dynamics as well as 0:08:50.120 --> 0:08:52.920 you know, our companies gaining share, losing share. It can 0:08:52.960 --> 0:08:57.800 be warning signs associated with that. So those are those 0:08:57.800 --> 0:09:00.160 are the things I look for On the growth side, 0:09:00.280 --> 0:09:04.319 you know, I break it out into three buckets, secular growers, 0:09:05.040 --> 0:09:10.000 cyclical growers, and then opportunistic growers. The majority of the 0:09:10.000 --> 0:09:13.600 fund is what I would consider in the secular bucket. 0:09:14.720 --> 0:09:17.600 I've worked very closely with our you know, global research 0:09:17.640 --> 0:09:22.240 team identifying themes that we think can provide secular tailwinds. 0:09:22.840 --> 0:09:22.960 Uh. 0:09:23.920 --> 0:09:26.319 You know, some themes that we've incorporated over the last 0:09:26.559 --> 0:09:31.240 decade include, you know, e commerce penetration AI is a 0:09:31.280 --> 0:09:36.160 buzzword today, but we've identified it over a decade ago. 0:09:36.880 --> 0:09:40.720 Health and wellness. We're all trying to eat better, exercise more. 0:09:41.200 --> 0:09:44.480 It's led to the casualization of the workplace as well 0:09:45.320 --> 0:09:48.360 the rise of the middle middle class. So those are 0:09:48.360 --> 0:09:51.040 all things you know, you know that kind of have 0:09:51.120 --> 0:09:54.280 a secular tailwind to it. And then on the cyclical side, 0:09:54.360 --> 0:09:58.079 depending where we are on the business cycle, consensus usually 0:09:58.120 --> 0:10:01.600 tends to overestimate or UNDERESTI to mat where things can 0:10:01.640 --> 0:10:02.640 go COVID. 0:10:02.880 --> 0:10:06.200 You know, oil prices when negative for a day. 0:10:06.480 --> 0:10:09.400 Best cure for oil prices is low oil prices as 0:10:09.559 --> 0:10:12.520 cap back sticks required. So we'll put a small portion 0:10:13.280 --> 0:10:16.200 of the fund in some of the more signal industries. 0:10:16.520 --> 0:10:18.520 And then the last bucket is what I call self 0:10:18.559 --> 0:10:23.160 help stories. It can be industry consolidation, a new management team, 0:10:23.800 --> 0:10:27.680 you know, something, some catalysts that can propel a company. 0:10:28.080 --> 0:10:30.719 So hopefully that gives you a flavor for kind of 0:10:30.920 --> 0:10:35.239 how I approach the growth aspect of the strategy. 0:10:35.760 --> 0:10:38.400 That was great, Thank you, Sony. I'm curious, you know, 0:10:38.480 --> 0:10:41.200 kind of going back to your initial remarks and back 0:10:41.240 --> 0:10:44.320 to our work on valuations. You talked about your father's 0:10:44.559 --> 0:10:47.560 investment strategy really being more of a value screen, so 0:10:47.640 --> 0:10:49.960 to speak, looking for those fifty two week lows, and 0:10:49.960 --> 0:10:54.040 then here you end up in a growth style. But nonetheless, 0:10:54.200 --> 0:10:56.040 you know, I do think that growth managers do pay 0:10:56.040 --> 0:11:00.319 attention to valuations, despite popular contention. I'm curious what you 0:11:00.440 --> 0:11:04.079 use from a valuation perspective. Are there specific metrics that 0:11:04.120 --> 0:11:07.400 are really relevant for you as a growth manager, and 0:11:07.840 --> 0:11:12.040 how you're handling valuations in this current context when you 0:11:12.160 --> 0:11:15.680 have the top ten stocks really commanding so much attention 0:11:15.960 --> 0:11:18.840 and so much expansion in their valuation levels relative to 0:11:18.840 --> 0:11:22.320 the rest of stocks. Talk us through your process on 0:11:22.800 --> 0:11:26.199 you know, kind of handling multiples and handling valuations at large. 0:11:26.320 --> 0:11:29.880 Yeah, it's a great question and something you know, it's 0:11:30.000 --> 0:11:32.880 it's more of an art than a science as kind 0:11:32.920 --> 0:11:34.880 of how I would characterize it. 0:11:35.440 --> 0:11:39.240 And what I've learned over my career has been. 0:11:40.880 --> 0:11:45.600 That I need to be flexible on valuation, that the market. 0:11:45.880 --> 0:11:48.560 I always believe the market is a lot smarter than me, 0:11:49.480 --> 0:11:56.040 and and so I'm sensitive to valuation. But what I 0:11:56.120 --> 0:11:59.679 try to do is, you know, work with our analysts 0:11:59.720 --> 0:12:03.719 and can up three to five year outlooks on our 0:12:03.800 --> 0:12:07.079 companies and just we're trying to predict the future. And 0:12:07.160 --> 0:12:10.720 sometimes it's easy to predict the future, and sometimes it's hard. 0:12:11.040 --> 0:12:13.040 We don't know what it's looked like, what it's going 0:12:13.080 --> 0:12:17.160 to look like, and so we'll try to use. 0:12:17.080 --> 0:12:19.079 A variety of valuation metrics. 0:12:19.520 --> 0:12:22.400 You know, PE is probably the most common, but I 0:12:22.440 --> 0:12:25.800 think of PE ratios as being shorthand for you know, 0:12:25.960 --> 0:12:29.440 discounted cash flows and we'll look at discounted cash flows 0:12:29.480 --> 0:12:33.600 and long term earnings power, but it really depends on 0:12:33.640 --> 0:12:34.439 the opportunity. 0:12:34.480 --> 0:12:37.320 A great example, you know, in the twenty tens. 0:12:38.040 --> 0:12:42.520 You know, we were big owners of Tesla during that timeframe, 0:12:43.320 --> 0:12:48.760 and it looked very expensive on traditional valuation metrics for 0:12:48.760 --> 0:12:52.960 for most of the decade. But you know, I think 0:12:53.000 --> 0:12:56.000 the power of the research platform here gave us conviction 0:12:56.160 --> 0:13:00.320 that they had developed a competitive advantage. And the great 0:13:00.320 --> 0:13:03.719 thing about the automobile market is it's very large, and 0:13:03.920 --> 0:13:06.920 it was a market that had undergone very little. 0:13:08.600 --> 0:13:09.920 Innovation over the. 0:13:09.960 --> 0:13:14.080 Last forty years outside of the automatic transmission. And here 0:13:14.160 --> 0:13:18.480 was Tesla trying to disrupt the market. And once they 0:13:18.640 --> 0:13:22.280 launched the model les, they were capturing about twenty percent 0:13:22.400 --> 0:13:25.319 market share in the California market of the high end 0:13:25.760 --> 0:13:30.040 luxury vehicles. And we could then do analysis on if 0:13:30.040 --> 0:13:33.160 they're successful getting into the mass market, what type of 0:13:33.200 --> 0:13:35.120 market share could they capture. 0:13:35.160 --> 0:13:37.280 And they were going with a direct model. 0:13:37.520 --> 0:13:40.600 And we had seen an analogy to that before in 0:13:40.640 --> 0:13:44.359 the PC industry when Dell went direct in the nineties 0:13:44.520 --> 0:13:45.319 and what sort of. 0:13:45.240 --> 0:13:46.200 Benefit that had. 0:13:46.800 --> 0:13:49.440 And you know, Tesla was able to take out the 0:13:49.480 --> 0:13:53.719 dealer take some margins. There no advertising, so they had 0:13:53.760 --> 0:13:57.520 about a thousand basis points of margin advantage versus a 0:13:57.559 --> 0:14:01.960 traditional automaker. And so you know, we were able to 0:14:02.000 --> 0:14:04.760 project out what sort of market share they would need 0:14:04.800 --> 0:14:08.480 to capture to justify evaluation. And you know, those are 0:14:08.520 --> 0:14:11.760 the type of things that we look at and you know, 0:14:11.880 --> 0:14:16.480 depending on the opportunity, the size of the pie. You know, 0:14:16.760 --> 0:14:18.960 like I said, I'm a big believer that the market, 0:14:19.720 --> 0:14:22.200 you know, is a forward looking discounting mechanism. 0:14:22.240 --> 0:14:24.400 So I have a lot of respect for what the 0:14:24.440 --> 0:14:25.360 market says. 0:14:25.400 --> 0:14:29.240 And sometimes stocks look very expensive on the surface but 0:14:29.640 --> 0:14:33.480 end up looking very inexpensive. Another great example is when 0:14:33.640 --> 0:14:38.040 Google went public in the mid two thousands. They ran 0:14:38.840 --> 0:14:43.720 a very unique reverse auction method in terms of how 0:14:44.120 --> 0:14:47.560 they went public and the stock at the time it 0:14:47.600 --> 0:14:51.120 looked like was trading over thirty times earnings, but when 0:14:51.120 --> 0:14:54.120 they finished their first year of being a public company, 0:14:55.200 --> 0:14:59.080 the stock actually was trading at fifteen times you. 0:14:59.000 --> 0:14:59.720 Know, earnings. 0:14:59.720 --> 0:15:03.760 And our job is analysts and portfolio managers. You know, 0:15:03.800 --> 0:15:06.080 what I think of is we need to get the 0:15:06.120 --> 0:15:09.240 earnings right, and if we can project the earnings well, 0:15:10.000 --> 0:15:12.560 the multiple kind of takes care of itself. 0:15:13.120 --> 0:15:14.680 Can you talk to us a little bit then on 0:15:15.080 --> 0:15:18.360 you know, do you ever use valuations as a trigger 0:15:18.400 --> 0:15:20.960 point for an exit strategy or do you to use 0:15:21.000 --> 0:15:26.040 valuations in combination with some sort of fundamental outlook change. 0:15:26.520 --> 0:15:29.280 I know, you know, at certain points in times, certainly 0:15:29.320 --> 0:15:32.560 we see valuations expand to such extreme levels and then 0:15:32.640 --> 0:15:35.480 usually you need some kind of catalyst. It seems to 0:15:35.640 --> 0:15:39.600 actually see those valuations become an impediment in particular and growth. 0:15:39.760 --> 0:15:42.080 So I'd love to hear kind of your risk management 0:15:42.080 --> 0:15:46.200 strategy and if you actually use valuations to mitigate risk, 0:15:46.280 --> 0:15:48.480 or if there's some other metrics that you really follow 0:15:48.520 --> 0:15:49.080 more closely. 0:15:49.280 --> 0:15:55.200 Yeah, no, we'll use I'll trim winners on excessive valuation 0:15:55.440 --> 0:15:59.640 just as a risk mitigation strategy. We're very mindful that, 0:16:00.240 --> 0:16:04.840 especially in the growth bucket, there is more risk associated 0:16:04.880 --> 0:16:09.320 with some of these names, and having lived through several 0:16:09.320 --> 0:16:14.760 of these cycles, sometimes valuations do become excessive. The question 0:16:14.920 --> 0:16:19.240 is is you know what's the trigger point. Usually it's 0:16:19.360 --> 0:16:22.920 a change in fundamentals, or sometimes it's a change in macro. 0:16:23.760 --> 0:16:26.000 You know, in twenty one and twenty two we saw 0:16:26.000 --> 0:16:28.800 the interest rate environment flip, and that was a big 0:16:29.680 --> 0:16:32.000 change for valuations. 0:16:32.920 --> 0:16:34.760 But generally, you. 0:16:34.680 --> 0:16:41.000 Know, I won't exit a position solely on valuation. I'll 0:16:41.040 --> 0:16:45.760 look at valuation and conjunction with something fundamental as a 0:16:45.800 --> 0:16:51.000 trigger point. But I'll certainly trim positions based on valuation 0:16:51.240 --> 0:16:56.320 just given. You know, if a stock is appreciated X amount, 0:16:56.720 --> 0:16:59.960 we'll monitor it and look at the opportunity risk reward. 0:17:00.480 --> 0:17:02.280 I keep a spreadsheet. 0:17:01.840 --> 0:17:04.920 Of all our stocks and what we think the upside 0:17:04.960 --> 0:17:08.040 downside is, and when that equation starts to get out 0:17:08.080 --> 0:17:11.359 of balance, well we'll start trimming. But like I said, 0:17:11.359 --> 0:17:13.720 it's more of an art than a science. I don't 0:17:13.760 --> 0:17:17.560 have a specific you know, hey, if the stock's trading 0:17:17.640 --> 0:17:21.320 over XPE ratio or XPE to growth, I'm going to 0:17:21.720 --> 0:17:25.639 sell it. You know, it really depends on what the 0:17:25.720 --> 0:17:29.120 market opportunity we think is for that particular company. 0:17:31.280 --> 0:17:34.240 Okay, I do want to kind of go back to valuation, 0:17:35.240 --> 0:17:37.200 you know, one more time. You know, do you think 0:17:37.480 --> 0:17:42.440 there are any overrated or underrated metrics when looking at valuations? 0:17:43.840 --> 0:17:49.159 You know, I think I wouldn't say they're overrated or underrated. 0:17:49.160 --> 0:17:53.920 I think depending on the industry you're talking about. 0:17:53.640 --> 0:17:57.680 Depending on, uh, you know, the type of company. 0:17:57.359 --> 0:18:00.720 It is, you know, Like I said that, I think 0:18:00.760 --> 0:18:05.399 of PE ratios as being a shorthand for you know, 0:18:06.000 --> 0:18:09.600 basically discounted cash flows. I spend a lot of time 0:18:10.359 --> 0:18:17.480 looking at margin, you know, and the margin trends the 0:18:17.560 --> 0:18:20.679 one metric, you know, It's maybe not a pure evaluation metric, 0:18:20.800 --> 0:18:24.280 but return on equity is something that I think is 0:18:24.320 --> 0:18:28.640 a little overrated, you know, And being a blue chip 0:18:28.680 --> 0:18:30.960 growth I spend a lot of time looking at return 0:18:31.000 --> 0:18:36.000 on equity and to me, the absolute level gives me 0:18:36.040 --> 0:18:40.520 a very quick snapshot of how the quality of the business, 0:18:40.640 --> 0:18:43.399 how good of a business. This is what ro O 0:18:43.440 --> 0:18:47.520 we doesn't tell you is whether the business or the 0:18:47.560 --> 0:18:51.119 stock will perform well moving forward. And for me, the 0:18:51.320 --> 0:18:55.399 direction of that ro OI is actually more important is 0:18:55.480 --> 0:18:56.640 are we going up. 0:18:56.640 --> 0:18:57.840 Or are we going down? 0:18:58.320 --> 0:19:01.960 And as our job as folio managers and analysts is 0:19:02.000 --> 0:19:05.800 to predict that. So I don't mind buying companies that 0:19:05.880 --> 0:19:09.160 have low ROS. And I own some companies that don't 0:19:09.160 --> 0:19:11.919 make any money, so they have a negative ROI by definition, 0:19:12.480 --> 0:19:15.160 but if we think they can be. 0:19:14.440 --> 0:19:17.040 Better companies down the road, we'll own them. 0:19:17.480 --> 0:19:20.679 And so that's a metric that I think gets overused 0:19:20.760 --> 0:19:23.720 quite a bit that you know, investors like their own 0:19:23.800 --> 0:19:27.280 high Roe companies, but what you really want to do 0:19:27.400 --> 0:19:31.040 is you want to own improving Roe companies rather. 0:19:30.840 --> 0:19:32.680 Than just hire companies. 0:19:33.240 --> 0:19:37.000 I'm curious, so new how do you integrate these big 0:19:37.119 --> 0:19:40.600 macro events into your analysis or your strategy. So you 0:19:40.640 --> 0:19:43.960 talked a little bit about twenty twenty two, right, and 0:19:44.320 --> 0:19:47.600 I hate to bring up painful years, but nonetheless, twenty 0:19:47.640 --> 0:19:50.919 twenty two or maybe the second half of twenty eighteen 0:19:51.240 --> 0:19:56.800 sort of these small but painful bouts of growth stock underperformance, 0:19:57.080 --> 0:19:59.520 and twenty twenty two you mentioned the FED as a 0:19:59.520 --> 0:20:03.440 big part of that story. Do you react during these periods? 0:20:03.520 --> 0:20:06.320 How do you manage through these periods of major kind 0:20:06.320 --> 0:20:07.000 of risk off. 0:20:07.400 --> 0:20:13.000 Yeah, it's a great question, and truthfully, it's an area 0:20:13.040 --> 0:20:16.560 where I can improve. You know, I tend to have 0:20:17.280 --> 0:20:19.960 a long time horizon, so I give most of my 0:20:20.080 --> 0:20:22.439 companies a pretty long leash. And if I think of, 0:20:23.240 --> 0:20:26.080 you know, some of my top holdings. You know, if 0:20:26.119 --> 0:20:28.440 you were to look at my top holdings, I've owned 0:20:28.480 --> 0:20:29.880 them for a long period of time. 0:20:29.920 --> 0:20:32.000 And but I mean long period of time, I mean 0:20:32.280 --> 0:20:33.560 like pretty. 0:20:33.280 --> 0:20:36.520 Much you know, either since I've been managing the funder 0:20:36.880 --> 0:20:42.040 since they've gone public, and so you know, I tend 0:20:42.040 --> 0:20:45.000 to you know, own businesses that I think will do 0:20:45.119 --> 0:20:48.240 well over long periods of time, and so I tend 0:20:48.240 --> 0:20:50.480 to have a longer leash with some of these companies, 0:20:50.480 --> 0:20:53.840 and that's hurt me in downdrafts that we've seen, like 0:20:53.880 --> 0:20:56.160 in the second half of twenty eighteen and twenty two. 0:20:57.240 --> 0:21:00.400 So that's an area that I'm trying to improve upon, 0:21:00.840 --> 0:21:04.879 is trying to you know, manage the risk at the 0:21:04.920 --> 0:21:08.920 top of my fund and cut back on positions. When 0:21:09.000 --> 0:21:12.520 you have a change in the macro, sometimes that can 0:21:13.119 --> 0:21:18.520 overwhelm company fundamentals and sometimes the macro can actually shape 0:21:18.680 --> 0:21:20.200 company fundamentals as well. 0:21:20.920 --> 0:21:23.280 You know, a higher interest rate environment. 0:21:23.000 --> 0:21:27.719 Clearly made you know, some of the returns we were 0:21:27.720 --> 0:21:31.480 seeing on the investments that these companies were making, you know, 0:21:31.680 --> 0:21:35.360 change the equation, and we saw revenue growth slow down, uh, 0:21:35.520 --> 0:21:37.439 you know, coming out of COVID as well. So the 0:21:37.480 --> 0:21:41.080 fundamentals changed as the interest rate environment changed. 0:21:41.800 --> 0:21:42.760 So that that that's. 0:21:42.600 --> 0:21:47.040 An area for me that I can definitely improve upon 0:21:47.480 --> 0:21:51.159 as a portfolio manager. But I tend to, you know, 0:21:51.720 --> 0:21:56.320 think of myself as being macro aware, but i'm. 0:21:56.440 --> 0:21:56.760 I'm. 0:21:56.840 --> 0:21:59.840 I've learned over time that I'm not very good at 0:22:00.400 --> 0:22:04.720 predicting the macro, and so what I try to focus 0:22:04.800 --> 0:22:08.600 on is company fundamentals and finding companies that we think 0:22:08.840 --> 0:22:13.320 will be able to show adorable growth regardless of the macro. 0:22:14.160 --> 0:22:18.280 Actually, it's a good point you mentioned fundamentals, and also 0:22:18.359 --> 0:22:22.160 earlier you mentioned you know, management changes. There are specific 0:22:22.200 --> 0:22:25.040 types of qualitative factors you look at, you know, such 0:22:25.040 --> 0:22:28.720 as management teams or maybe even corporate culture, you know, 0:22:28.800 --> 0:22:30.360 in addition to kind of the numbers. 0:22:30.880 --> 0:22:36.280 Yeah, absolutely, for me, it's very important to learn to 0:22:36.800 --> 0:22:39.440 you know, get to know the management team. I pay 0:22:39.600 --> 0:22:43.280 very close attention to when people leave, whether it's a 0:22:43.359 --> 0:22:47.119 CEO or CFO, where they're leaving to, or you know, 0:22:47.240 --> 0:22:49.160 trying to get understand why. 0:22:49.080 --> 0:22:49.960 Why they may leave. 0:22:50.880 --> 0:22:55.879 I'll follow managers that I've had success with because you 0:22:55.960 --> 0:22:59.400 trust them, and if they've been successful at one company, 0:22:59.640 --> 0:23:03.680 there's probably greater likelihood that they'll be successful somewhere else 0:23:03.720 --> 0:23:07.040 as well. And part of our research process here is 0:23:07.240 --> 0:23:10.720 not to not to just get to know the C 0:23:10.960 --> 0:23:14.480