WEBVTT - Moerus’ Wadhwaney on Asset-Based Value Investing 0:00:15.760 --> 0:00:18.919 Welcome to Inside Active, a podcast about active managers that 0:00:18.960 --> 0:00:21.680 goes beyond sound bites and headlines and looks deeper into 0:00:21.720 --> 0:00:26.360 their processes, challenges, and philosophies and security selection. I'm David Cone, 0:00:26.440 --> 0:00:29.120 a lead mutual fund and active research at Bloomberg Intelligence. 0:00:29.720 --> 0:00:34.440 Investing is ultimately about making decisions under uncertainty. The future 0:00:34.479 --> 0:00:38.000 is unknowable, yet investors are constantly asked to forecast earnings, 0:00:38.320 --> 0:00:43.720 interest rates, economic growth, competitive dynamics, even geopolitical events. Some 0:00:43.800 --> 0:00:47.279 embrace that challenge, building their investment process around predicting what 0:00:47.360 --> 0:00:51.000 comes next. Others take a very different approach. Rather than 0:00:51.080 --> 0:00:54.000 trying to forecast the future with precision, they focus on 0:00:54.080 --> 0:00:57.400 understanding what a business is worth today, how resilient it 0:00:57.520 --> 0:01:00.360 is to unexpected outcomes, and whether the market is become 0:01:00.440 --> 0:01:04.240 too pessimistic about its long term prospects. That shifts the 0:01:04.319 --> 0:01:07.399 emphasis away from predicting the next quarter and toward assessing 0:01:07.440 --> 0:01:12.120 downside risk, balance sheet strength, and intrinsic value. So today 0:01:12.160 --> 0:01:15.000 I wanted to explore what that process looks like in practice, 0:01:15.280 --> 0:01:20.240 how investors can distinguish between temporary uncertainty and permanent impairment, 0:01:20.560 --> 0:01:24.040 and how those principles shape security selection and portfolio construction 0:01:24.280 --> 0:01:27.959 over the long term. Joining me to discuss that is 0:01:27.959 --> 0:01:32.720 a meet Wadwani, co founding partner of Moirist Capital Management 0:01:32.760 --> 0:01:37.000 and portfolio manager of the Moirist Worldwide Value fund ticker 0:01:37.360 --> 0:01:40.280 mo WIX. I mean thank you for joining me. 0:01:40.840 --> 0:01:44.640 Thank you, David for having very much so. 0:01:45.120 --> 0:01:49.440 Moirist describes its approach to asset based rather than earnings based. 0:01:49.800 --> 0:01:51.880 What does that mean in practice? And you know, why 0:01:51.880 --> 0:01:55.000 do you believe investors place too much emphasis on current earnings? 0:01:55.800 --> 0:01:58.280 So on things you'd realized pretty early on our career. 0:01:58.680 --> 0:02:01.960 This is this goes by at the previous FRIMP that 0:02:02.200 --> 0:02:05.960 where I was a mentor of it, we one of 0:02:06.000 --> 0:02:09.400 the things is very hard to forecast, discarding any degree 0:02:09.400 --> 0:02:14.400 of procession accuracy, and again in a repeated basis that 0:02:14.680 --> 0:02:19.040 earnings themselves are dependent on many things, things like it's 0:02:19.160 --> 0:02:22.280 mac thing's macro things that that the outlier events that 0:02:22.480 --> 0:02:25.560 are shaken. You could have an invasion of you. You 0:02:25.560 --> 0:02:28.640 can have, for example, the strain of horror moves. You 0:02:28.680 --> 0:02:31.400 could have all sorts of things that happen along the way. 0:02:31.880 --> 0:02:35.280 And so forecasting earnings is kind of mugs game, which 0:02:35.320 --> 0:02:38.280 is it's a hard way to as it was hanging 0:02:38.320 --> 0:02:41.760 your hat on uh something where you are an activity 0:02:41.880 --> 0:02:46.480 where you are putting your capital alongside your investor's capital 0:02:46.600 --> 0:02:48.880 to work. So what we decide to do sort of 0:02:49.040 --> 0:02:51.440 focus on the knower. What do you know about a 0:02:51.480 --> 0:02:54.200 business at a given point in time. You know the assets, 0:02:54.400 --> 0:02:56.800 the liabilities, you know the nature of the business, the 0:02:56.880 --> 0:03:04.160 business that exists. Again, acid businesses comprise multiple assets, multiple bists, 0:03:04.400 --> 0:03:07.160 which is where the asset experture is really quite interesting. 0:03:07.840 --> 0:03:10.120 So what we do. What we did, for example, was 0:03:11.360 --> 0:03:15.440 to estimate the value of a given asset at a 0:03:15.480 --> 0:03:20.720 given point in time conservatively using conservative assumptions. Okay, they 0:03:20.760 --> 0:03:23.880 tend to be slightly more it was used for DRACONI, 0:03:24.080 --> 0:03:26.840 but they tend to be fairly conservative assumptions. They tend 0:03:26.880 --> 0:03:30.799 to be mobile estimates, and you use that as a basis, 0:03:31.080 --> 0:03:33.080 and then of course from that you get a gross 0:03:33.080 --> 0:03:35.880 asset value. You did up all the liabilities on bouncing 0:03:35.960 --> 0:03:39.600 off bounties and contingent libraries, things that may exist in 0:03:39.600 --> 0:03:43.360 the future. Give me what you know, companies. Now, once 0:03:43.360 --> 0:03:45.440 you got back, you have a net asset value, which 0:03:45.560 --> 0:03:48.600 usually in our case tuns that be very very conservative. 0:03:48.960 --> 0:03:52.000 It did be again a mobile estimate. It's hard to 0:03:52.280 --> 0:03:56.920 get companies below that nav so to speak, unless something 0:03:56.960 --> 0:03:59.840 has happened, something not so good as happened. You've had 0:03:59.840 --> 0:04:03.600 some the companies the banana peels of the chantlist company. 0:04:04.200 --> 0:04:08.720 There's sort of industry wide downturn or geographic downturn, there's 0:04:08.720 --> 0:04:12.800 a capital markets crisis. Stuff happens, and that usually presents 0:04:12.840 --> 0:04:16.839 us with these kind of optributies. What's important in this approach, 0:04:17.040 --> 0:04:20.160 There's two things I want to highlight about this. What's 0:04:20.279 --> 0:04:22.760 unique in that when most people are busy looking for 0:04:22.800 --> 0:04:26.560 earnings and earning based valuations, the kinds of rocks that 0:04:26.600 --> 0:04:28.560 they turn are very different than rocks we wind up 0:04:28.560 --> 0:04:30.839 looking up. So the portolio comes out of this whole 0:04:30.839 --> 0:04:34.320 process is quite different from one that is an earth 0:04:34.720 --> 0:04:38.320 that steps from an earning centric approach. The second thing 0:04:38.440 --> 0:04:42.920 is what an acid based approach to us. It highlights 0:04:42.960 --> 0:04:47.240 the different assets and their respect of valuations. It gives 0:04:47.279 --> 0:04:51.840 your window into a number of things. One, companies, as mentioned, 0:04:51.880 --> 0:04:56.960 can have mock lessons assets individually produced earnings or losses 0:04:57.040 --> 0:05:00.280 or whatever they do, but individually they have had These 0:05:00.360 --> 0:05:03.719 values can be realized over time, which is an interesting thing. 0:05:04.240 --> 0:05:08.400 And so as companies that are asset rich sometimes take 0:05:08.400 --> 0:05:11.159 it upon themselves to realize the value of one or 0:05:11.240 --> 0:05:15.880 more assets over time. And that's enough source of returns 0:05:15.920 --> 0:05:19.080 for us, which most people will take in terms of 0:05:19.240 --> 0:05:23.400 this is a business, it produces ex ridges state that 0:05:23.480 --> 0:05:27.120 the producing we're just ad nausea. At United we are 0:05:27.200 --> 0:05:30.400 much more interested in what different assets could be reploided. 0:05:30.800 --> 0:05:34.719 Some assets underperformance, they could be got rid of, Shay 0:05:34.839 --> 0:05:37.760 is bought back. There's many things, many lepers a company. 0:05:38.720 --> 0:05:41.480 So that is our approach to asset based investments. 0:05:42.600 --> 0:05:44.240 So if we dig a little deeper, you know, what 0:05:44.279 --> 0:05:46.919 are the characteristics that you know really give you confidence 0:05:46.960 --> 0:05:50.160 that a company is just temporarily out of favor rather 0:05:50.240 --> 0:05:53.279 than you know, facing a permanent decline. You know, is 0:05:53.279 --> 0:05:55.040 it kind of looking into these assets? 0:05:56.240 --> 0:05:57.880 So for the first is from your staying, I mean, 0:05:58.240 --> 0:06:02.240 there's cheap stuff that we'd be rather roughly consent full 0:06:02.480 --> 0:06:05.680 in the scheme of things of authorities before issus is 0:06:05.760 --> 0:06:08.279 someone you know you can have, you can hire a 0:06:08.279 --> 0:06:11.279 statistically chief portfolio there you're probably going to have one 0:06:11.320 --> 0:06:15.440 hundreds to two hundred investments in your portfolio. People, I mean, 0:06:15.560 --> 0:06:17.919 we'll get to that. We talk about brisk also because 0:06:18.000 --> 0:06:21.719 that's a very key thing. So you have relative human investments. 0:06:21.760 --> 0:06:25.320 So you have to know the business thread. When you 0:06:25.400 --> 0:06:28.600 learn about the business in that right, there there are 0:06:28.640 --> 0:06:32.200 many clues that do what can go wrong? What can 0:06:32.240 --> 0:06:34.120 go wrong in terms of the nature of the business. 0:06:34.600 --> 0:06:41.320 Is the current experience business operating experience represented with something 0:06:41.360 --> 0:06:44.680 that's going to persist for a very long time? Is 0:06:44.720 --> 0:06:47.760 this a very deep digital companies fall into that can 0:06:47.920 --> 0:06:51.120 extricate itself from because a number of I don't call 0:06:51.160 --> 0:06:54.679 them tests, but you know, it's kind of thing you 0:06:54.720 --> 0:06:57.039 tend to think about when you think about a business. 0:06:57.360 --> 0:06:59.800 There are a number of things that could have cause 0:07:00.080 --> 0:07:01.840 the business to be very depressed. Le give me a 0:07:01.880 --> 0:07:06.520 quick example. And then so for the longest period past 0:07:06.760 --> 0:07:09.880 five eight, ten years almost you know, there's with this 0:07:10.000 --> 0:07:13.080 believe in the extinction of the internal combustion engine for automotives, 0:07:13.960 --> 0:07:16.600 and you know, you know when you need ice vehicles 0:07:16.720 --> 0:07:20.320 are going to be completely something like that, but electric vehicles, 0:07:21.200 --> 0:07:24.640 that's that's a reasonable thing to assume. The question is 0:07:24.760 --> 0:07:28.720 a timeline. The timeline is a very important thing for 0:07:28.760 --> 0:07:31.240 a number of things. So you know, if you're, you know, 0:07:31.440 --> 0:07:35.559 an internal combustion engine automative producer. You're obviously concerned about 0:07:35.600 --> 0:07:39.040 the rabidity at which your vehicles be supplted. But importantly, 0:07:40.040 --> 0:07:45.800 one the ingredients that goes to ice vehicles is platinum 0:07:45.800 --> 0:07:48.880 and palladium that going to Catholic converters. So for a 0:07:48.920 --> 0:07:50.920 number of us, people say, it's just starting to be 0:07:51.400 --> 0:07:54.880 much new for cat conbriders because these kind of cars 0:07:54.880 --> 0:07:58.720 are good you for extinction by twenty thirty. So that 0:07:58.800 --> 0:08:01.520 was the timeline, and if well, so people on business 0:08:02.040 --> 0:08:07.680 laden black rodium, which wasn't this this decided that there 0:08:07.680 --> 0:08:09.880 was no reason to look for it. We basically deplete 0:08:09.920 --> 0:08:12.760 the mind, so you wrong them down and live out 0:08:12.760 --> 0:08:15.960 of pant about through inventory. The little novel produced out 0:08:15.960 --> 0:08:19.760 of declining finding out. So what we noticed was there 0:08:19.840 --> 0:08:22.200 was some sort of a symmetry this thing, what we 0:08:22.240 --> 0:08:26.080 saw in the world of ice vehicles versus what was 0:08:26.120 --> 0:08:31.040 that believed to be the case the completed stinction and 0:08:31.240 --> 0:08:36.559 every reason that look, lading and rodium are probably going 0:08:36.600 --> 0:08:40.520 to be needed for a lot longer than people anticipate, 0:08:41.080 --> 0:08:43.840 and we are probably good one quite sure these things. 0:08:43.840 --> 0:08:46.560 So the world thought that we were going we don't 0:08:46.559 --> 0:08:49.360 need this. We thought that we would need it and 0:08:49.480 --> 0:08:51.880 we would have a show for and lo and we 0:08:51.920 --> 0:08:56.880 have a black producer in South Africa. Uh so, and 0:08:57.000 --> 0:08:59.960 so we have a situation where blackminous sound very very 0:09:00.080 --> 0:09:02.839 well and one stuff that we that areas i'd very well. 0:09:02.880 --> 0:09:07.280 So you worry about the extinction for business, You worry 0:09:07.320 --> 0:09:11.800 about the business deteriorating the point it becomes we get relevant. 0:09:11.800 --> 0:09:15.000 But certainly you know, but profitability just as a disaster, 0:09:15.240 --> 0:09:17.959 So you do worry about that. You think about this 0:09:18.040 --> 0:09:21.880 so robustness of me, I tend to I mean, just 0:09:21.920 --> 0:09:24.480 this is a person court to preference and never hold 0:09:24.480 --> 0:09:27.000 me to this, but it's a quirk. I tend to 0:09:27.040 --> 0:09:30.800 prefer necessities, supports and luxuries. But look, people have done 0:09:30.880 --> 0:09:33.360 very well investing in luxuries as well. But it's just 0:09:34.080 --> 0:09:38.840 I'm not luxury those cators, you know. 0:09:40.840 --> 0:09:44.280 Okay, So you know you mentioned also you know earnings 0:09:44.280 --> 0:09:46.840 are hard to predict, but also you know what about 0:09:46.920 --> 0:09:49.600 the economy, and you know, you know your process is 0:09:49.640 --> 0:09:53.319 you know, obviously you know, unapologetically bottom up, why do 0:09:53.360 --> 0:09:56.400 you believe forecasting the economy adds you know, little value 0:09:56.440 --> 0:09:58.240 to generating long term returns? 0:09:58.600 --> 0:10:01.640 So you know, you we buy stuff around the world. 0:10:02.600 --> 0:10:05.240 We buy stuff in all sorts of countries around the world, 0:10:05.920 --> 0:10:08.160 and you know they all of them have different, very 0:10:08.200 --> 0:10:13.000 different macroc economic backdrops in the markets where we invest 0:10:13.520 --> 0:10:16.680 and how to cope with that. And as there's no 0:10:16.760 --> 0:10:20.600 question things macro economic absolutely do and will have an 0:10:20.640 --> 0:10:24.240 impact in the business. Worse yet, we are lawn to investment. 0:10:24.640 --> 0:10:26.880 But if I was a trader over the course of 0:10:26.960 --> 0:10:31.320 six months interest space blank lob twenty thirty forty fifty paces. 0:10:31.760 --> 0:10:33.840 If I'm going to own something for three four five years, 0:10:34.160 --> 0:10:37.840 which is the desired time, arise it preferably more. Actually, 0:10:38.760 --> 0:10:41.000 I mean interesting, you can go a lot a lot, 0:10:41.200 --> 0:10:44.280 you're totally five ten percent if you're in Brazil. I 0:10:44.360 --> 0:10:46.600 mean interest space went for the millions, like two percent 0:10:46.600 --> 0:10:48.679 to twelve percent or with course of a year and 0:10:48.720 --> 0:10:51.480 a half. So I mean you have to worry about 0:10:51.600 --> 0:10:54.679 things back. So how do we incorporate macro into our 0:10:54.760 --> 0:10:58.959 thinking and have implementation of investment as well. It's actually 0:10:59.720 --> 0:11:03.520 simp for than itselves the following sense, when you study 0:11:03.520 --> 0:11:06.480 a business, you know what affects it, the kind of 0:11:06.480 --> 0:11:09.240 factors that macro factors that affected I mean in other 0:11:09.320 --> 0:11:11.880 things be you know, like the political man the organizations 0:11:12.080 --> 0:11:14.400 had companies to react. There's a whole bunch of other things 0:11:14.520 --> 0:11:17.400 that affect a business. On the macro side, I think 0:11:17.400 --> 0:11:20.800 that the generic things that's interest rates, rates, exchange rates. 0:11:21.040 --> 0:11:22.719 I mean there's a number of things I learned to 0:11:23.000 --> 0:11:26.520 years avoid companies that interest rate this mattress. You know, 0:11:26.559 --> 0:11:30.640 companies that warming one currency revenues in another current pace. 0:11:31.040 --> 0:11:32.839 The number of banks that seen blow up over the 0:11:32.920 --> 0:11:36.880 years is to be being in Mexico and Argentina and 0:11:37.120 --> 0:11:41.720 the Asian crisis. That is a source of trouble. But anyway, 0:11:41.840 --> 0:11:45.240 so what we do we take when we study business, 0:11:45.280 --> 0:11:48.520 we think in terms of the currency exposures, the interest 0:11:48.559 --> 0:11:51.880 rate exposures, the UH I mean, all the sorts of 0:11:52.000 --> 0:11:55.640 macro things that in petcosts, you know, what would affect 0:11:55.640 --> 0:11:59.120 things work. You think kind of stress is to your 0:11:59.160 --> 0:12:03.520 business against adversity. And if a business, for example, can't 0:12:03.520 --> 0:12:06.040 make it fast a two hundred and three hundred basis 0:12:06.080 --> 0:12:11.840 for move in UH in strains, we're probably not or 0:12:11.880 --> 0:12:16.560 you know addressment in exchange rates. Yeah, for example, they 0:12:16.640 --> 0:12:21.400 could be producing in one currency something another currency and 0:12:21.440 --> 0:12:23.880 the currency in this match results said, a shrinking of 0:12:23.880 --> 0:12:25.920 the profit margins which you can't serve us a debt. 0:12:26.280 --> 0:12:32.360 That's a mess. So you stress test your businesses against 0:12:32.480 --> 0:12:36.080 adverse movement mac variant. This is not to say we 0:12:36.120 --> 0:12:40.360 don't opinions. We have botts opinions. I said, someone ill founded. 0:12:40.520 --> 0:12:42.920 Some of the world found it. Sometimes you're right, sometimes 0:12:43.000 --> 0:12:46.480 we're not. But what we are very concerned about and 0:12:46.520 --> 0:12:50.559 were trying to mitigate any of these opinions is to 0:12:50.720 --> 0:12:53.079 our stress tests. I mean we are, I mean we're 0:12:53.280 --> 0:12:58.200 very macro aware. We're very macromyoplicans of where I characterize ourselves. 0:12:59.480 --> 0:13:02.880 So you know, obviously you know, as you're saying, macro aware, 0:13:03.080 --> 0:13:05.520 if you just think about your you know, the opportunities 0:13:05.520 --> 0:13:07.800 that that you're looking at. You can invest virtually anywhere 0:13:07.840 --> 0:13:09.920 in the world. You know, tens of thousands of publicly 0:13:09.960 --> 0:13:13.040 traded companies to choose from. How do you decide where 0:13:13.080 --> 0:13:15.480 to spend your time researching? And you know where do 0:13:15.559 --> 0:13:17.880 your best ideas definitely come from? 0:13:17.920 --> 0:13:22.600 So the kind of stuff you're looking for as seriously 0:13:22.679 --> 0:13:28.160 mock John merchandise, I mean I I I obviously what 0:13:28.200 --> 0:13:31.000 I do. I'm not seeing the comfort like you loving 0:13:31.000 --> 0:13:33.000 it I need a thing to be point. I mean, 0:13:33.040 --> 0:13:38.240 it's usually troubled hits. Troubled hits in different ways. For example, 0:13:38.360 --> 0:13:40.520 a good company has a really bad day, stuffs as 0:13:40.520 --> 0:13:44.840 a banana peel and trips its walls and hurts itself. Yeah, 0:13:45.480 --> 0:13:47.960 or the company operates in an industry which just go 0:13:48.040 --> 0:13:52.240 to some absolutely dreadful stuff. Or in geography, we're just 0:13:52.280 --> 0:13:56.240 going through a travel downtare I mean sometimes the job 0:13:56.360 --> 0:13:58.920 you don't have to go through downtre for example. And 0:13:59.000 --> 0:14:02.720 the reasons past countries that seem to have very small 0:14:02.960 --> 0:14:08.520 exposure to AI type investments, countries stock exchanges having experiencing 0:14:08.679 --> 0:14:12.720 wild outflows because just because it's the sin of not 0:14:12.920 --> 0:14:17.360 having any AI stocks listed there. For example, countries UH 0:14:18.040 --> 0:14:22.280 like India India which is a very difficult market invested 0:14:22.600 --> 0:14:25.880 for our kind of investing. It's a great place, great companies, 0:14:25.960 --> 0:14:31.760 but always explensive. It's only crises that this stuff gets cheap, 0:14:32.320 --> 0:14:37.080 cheap enough for us to buy. So Okay India. Some 0:14:37.120 --> 0:14:39.840 of the big companies there were the IT UH in 0:14:40.440 --> 0:14:45.480 the IT companies there and once a wide UH software 0:14:45.520 --> 0:14:48.760 services to the rest of the world. That those companies 0:14:48.800 --> 0:14:52.080 got hit very very badly because of the impact of 0:14:52.120 --> 0:14:56.640 AI AI to rapidly supplant the clothing services that these 0:14:56.680 --> 0:15:00.520 people provide. So, of course, then of course India same time, 0:15:00.600 --> 0:15:03.440 not only was the AI problem, there are also very 0:15:03.600 --> 0:15:10.520 large importers of few feel will be it natural gas, 0:15:10.720 --> 0:15:16.200 liquif gas not, but certainly crude oil, I mean all 0:15:16.320 --> 0:15:18.520 sort of is a very very dependent and so of 0:15:18.640 --> 0:15:21.640 course the shop fall from the Middle East from the 0:15:21.640 --> 0:15:25.840 gold was a huge bice. India and China did not 0:15:26.120 --> 0:15:30.800 store up stuff. They stood they had nothing to speak 0:15:30.840 --> 0:15:34.040 of those strategic reserve. 0:15:33.800 --> 0:15:37.720 As the United States that certainly China has so idiot 0:15:37.840 --> 0:15:42.120 was very bad in fact, So there's it's an or 0:15:42.200 --> 0:15:44.640 for example, closer to home. 0:15:45.400 --> 0:15:49.680 Uh, well, I suppose close focus for the UK, at 0:15:49.720 --> 0:15:51.760 least in terms of number of ours takes to get there. 0:15:52.400 --> 0:15:52.640 Uh. 0:15:52.840 --> 0:15:55.440 The UK has been a country which has been joining 0:15:55.520 --> 0:15:58.920 up with governments better than more more rapid Italy did 0:15:59.160 --> 0:16:01.840 in the batter all days bitterly. I mean they had 0:16:01.840 --> 0:16:05.000 this revolving through a ten down the street, which has 0:16:05.080 --> 0:16:09.120 changed governments again and again and again again. Uh, And 0:16:10.240 --> 0:16:15.800 that results I mean and now rely policy instability. Policy 0:16:15.880 --> 0:16:19.680 instability will in time results. So but in the short 0:16:19.800 --> 0:16:23.880 term that depressed all kinds of sycaates. For example, home 0:16:23.960 --> 0:16:28.080 builders in the UK are an absurdly inexpensive thing, have 0:16:28.200 --> 0:16:31.320 been until recently, until people began to writ I mean 0:16:31.360 --> 0:16:34.760 there's also so recent. I mean, UK is very exposed 0:16:35.040 --> 0:16:37.600 to the They're very they're very vulnerable because they of 0:16:37.640 --> 0:16:40.240 course decided that they were close down the notes the 0:16:40.320 --> 0:16:44.080 oil fields, and everything they did was to increase it. 0:16:44.440 --> 0:16:49.040 It's an important oil. Wow. Two. Energy prices are extremely 0:16:49.240 --> 0:16:53.040 elevating there and very sensitive to energy crisis, both in 0:16:53.120 --> 0:16:56.600 terms of for outsolue domestic consumption for often be as. 0:16:58.680 --> 0:17:01.400 And then again, of course the they are not about EU, 0:17:01.520 --> 0:17:04.359 so they don't have the sort of shabby say the 0:17:04.480 --> 0:17:08.040 grip of the eve Central Bank, which is basically I 0:17:08.040 --> 0:17:10.199 mean the interest rates in the UK are higher than 0:17:10.200 --> 0:17:15.120 those for good reasons, all stability, energy sensitive, all all 0:17:15.200 --> 0:17:18.200 that sort of stuff. So the stuff got very very cheap, 0:17:18.240 --> 0:17:21.080 but very very cheap. And the interesting thing about the 0:17:21.160 --> 0:17:26.919 UK is that they are massively short of housing stock. 0:17:27.960 --> 0:17:31.639 It's expensive back you know, with the correct sort of 0:17:32.000 --> 0:17:36.320 and expensive in part because of shabby say, if you 0:17:36.320 --> 0:17:42.199 can see government policies, sorry usually hurl that that direction, 0:17:42.280 --> 0:17:47.080 but it is there is all sorts of local government 0:17:47.200 --> 0:17:51.639 medaling which restricts the availability man on which to build, 0:17:52.240 --> 0:17:58.680 and so that can and probably fail change. Meanwhile, every 0:17:58.720 --> 0:18:02.560 government that comes in promise we told a million new homes. 0:18:02.720 --> 0:18:05.399 Look if you get to two half thousand poems within 0:18:05.440 --> 0:18:08.680 the term, it's a it's a home run for us. 0:18:09.320 --> 0:18:13.399 So homebuilders are home builders suppliers. That's sort of stuff 0:18:13.560 --> 0:18:15.280 that's been a great thing for us. 0:18:15.840 --> 0:18:17.960 So you know what a company does get on your 0:18:18.000 --> 0:18:20.640 research list? Can you walk us through your process from 0:18:21.040 --> 0:18:24.040 you know, initial idea to ultimately decide whether it belongs 0:18:24.040 --> 0:18:24.760 in the portfolio. 0:18:26.280 --> 0:18:29.360 That can be a protracted thing. I'll give me an example. 0:18:29.640 --> 0:18:32.399 It can be very protracted. So listen, the bulk of 0:18:32.400 --> 0:18:35.920 our days is spent looking at inducial businesses inivatial business 0:18:35.960 --> 0:18:38.280 that sort of crop ups have come within a line 0:18:38.320 --> 0:18:41.199 of sight. Because as I said, these adversity amount of 0:18:41.200 --> 0:18:45.440 adversity that take place. So we will look at something 0:18:47.040 --> 0:18:51.399 more often than not, probably pass it. It's either not 0:18:51.720 --> 0:18:55.399 cheap enough, it's got some sort of deal breakers, the 0:18:55.480 --> 0:18:57.920 vauchi is not good enough. They might have some news 0:18:57.920 --> 0:19:03.080 from sort of contractual obligation. There's always something that worries us. 0:19:03.720 --> 0:19:08.840 Sometimes it actually gets cheap and then while we're looking 0:19:08.840 --> 0:19:12.159 at it really ONTs up wildly. And that has happened 0:19:12.160 --> 0:19:16.399 Indian give a terrific example of that. Uh, maybe not 0:19:17.280 --> 0:19:21.280 to do that, but what happens is there's a process 0:19:21.840 --> 0:19:27.879 we we need. It's there's four of us and you know, 0:19:28.200 --> 0:19:30.960 I think the bare bones of an idea that sort 0:19:31.000 --> 0:19:35.640 of discussed does a ship where would fit? There are 0:19:35.680 --> 0:19:38.800 times when something gets so cheap you could do lots 0:19:38.840 --> 0:19:41.240 of it, but you don't really should do lots of 0:19:41.240 --> 0:19:44.720 it in the interesting common sense that versification, you probably 0:19:44.720 --> 0:19:48.320 shouldn't do that. So it whether it fits into the pool, 0:19:48.400 --> 0:19:53.480 you know, so we discuss it amongst ourselves and there's 0:19:53.520 --> 0:19:57.080 a gold noble decision let's go get deeper into it. 0:19:57.720 --> 0:20:01.080 And that's when the work really gets started and it 0:20:01.160 --> 0:20:04.200 takes you know, there's a you know, it's an educative process. 0:20:04.560 --> 0:20:07.840 Each of us has, all of us know each of 0:20:07.880 --> 0:20:11.760 the ideas, our research these for people. It's a firm 0:20:11.800 --> 0:20:15.040 of nine people. It's a very narrowly focused firm. I 0:20:15.040 --> 0:20:17.720 mean we decided to do monthly months below this glow 0:20:17.840 --> 0:20:21.879 deep value investing and you know the sort of the principle. 0:20:22.200 --> 0:20:24.840 I have a use it with bottom. But the principles 0:20:24.880 --> 0:20:29.560 are idea generation, think is us and the rest is implementation. 0:20:30.359 --> 0:20:36.280 And so we do that and it may happen rapidly, 0:20:36.480 --> 0:20:40.439 it may not as many ideas that get through this 0:20:40.560 --> 0:20:44.679 process are implemented, and as it may even will do 0:20:44.720 --> 0:20:47.600 with later when it gets cheaper. That's memorialize it's a 0:20:47.600 --> 0:20:50.680 great idea. That's where it gets cheaper. Or maybe they 0:20:50.720 --> 0:20:54.040 do something that gets a downscheat better. Maybe the competitors 0:20:54.040 --> 0:20:57.240 out this whole number of fact flat factor is a 0:20:57.280 --> 0:21:00.720 feature featuring the factor into a decision to do it 0:21:00.760 --> 0:21:03.600 at this point in time or not an example an 0:21:03.640 --> 0:21:07.040 exact something we did of course. Ye, well here's something 0:21:07.119 --> 0:21:14.600 we looked at right after the pandemic. Uh And I 0:21:14.600 --> 0:21:16.399 mean there were lots there was a lot of stuff 0:21:16.440 --> 0:21:19.200 to do during which is it was a great time. 0:21:19.480 --> 0:21:21.840 I mean was a miserable type. On one hand, it 0:21:21.960 --> 0:21:25.560 was a great time for investing. India became very cheap. 0:21:25.640 --> 0:21:28.280 It was the first time Indian securities editor told you 0:21:28.480 --> 0:21:31.479 there's things we want to go promote. So this this 0:21:31.520 --> 0:21:35.119 company question, it's called Tata Chemicals. There was a company 0:21:35.119 --> 0:21:37.760 we looked at. We looked at it during the pandemic 0:21:37.840 --> 0:21:39.440 and there are a lot of other things to do. 0:21:39.720 --> 0:21:42.320 And then of course, very rapidly during the course of 0:21:42.359 --> 0:21:45.440 twenty twenty one two it ran up five six folt. 0:21:45.640 --> 0:21:48.840 It was like, this is praise, you know, let's just 0:21:49.400 --> 0:21:53.199 put it aside. We'll we will return to when Uh 0:21:54.080 --> 0:21:56.080 so we knew the bare boat the bare boats of 0:21:56.119 --> 0:22:00.119 the idea Earth followed Tata Chemicals as it leaves. This 0:22:00.520 --> 0:22:04.960 is a company that is business making uh. Soda ash. 0:22:05.680 --> 0:22:10.320 Soda ash is an important input into production glass. It 0:22:10.359 --> 0:22:15.160 is used in making soaps, detergents. Uh, there's a whole 0:22:15.200 --> 0:22:20.240 bunch of things. I mean that goes into various other chemicals. 0:22:20.840 --> 0:22:26.280 Now it good, hits gotten hit because it isn't energy 0:22:26.280 --> 0:22:30.960 consuming uh business and increased energy prices applicated as well 0:22:30.960 --> 0:22:35.080 as his customers, I mean productional glasses very energy, so 0:22:35.800 --> 0:22:40.159 all down the value chair. But it has been hit. Business. 0:22:40.880 --> 0:22:44.200 It's a cyclical business. It's not a bad business. It's 0:22:44.280 --> 0:22:47.080 kind of a hope, I'm a drunk kind of thing. 0:22:47.119 --> 0:22:50.639 It's nothing great brand. Well, it's not kind of like 0:22:50.760 --> 0:22:55.360 people just getting excited about it just is not what 0:22:55.520 --> 0:22:59.719 most of them, you know, quality investors would be excited 0:22:59.720 --> 0:23:05.560 about sort of value the quality, but people do as 0:23:05.359 --> 0:23:07.560 a robbers, this is the kind of garbage heaps that 0:23:07.600 --> 0:23:10.600 we do could get very excited about. The reason why 0:23:11.080 --> 0:23:15.199 is not because, of course, is so currently your paint 0:23:15.440 --> 0:23:20.480 for really your paint for sypically depressed business simpically depressed earnings. 0:23:20.600 --> 0:23:23.640 And that's what your body is inviting. Book the earnings. 0:23:23.640 --> 0:23:28.560 Look our lobes, femails high, it's in the boundary is okay, 0:23:28.600 --> 0:23:34.199 and voucher it's it's for paid. There's nothing really Compelican 0:23:34.600 --> 0:23:38.840 analysts view this as a soda ash business period and 0:23:38.880 --> 0:23:41.920 that's what project earnings and do whatever they do were less. 0:23:43.119 --> 0:23:45.719 They project the future and they say two years out 0:23:45.720 --> 0:23:48.480 of the earnings will go up and on another that's 0:23:48.520 --> 0:23:51.879 what they do. What is it that we see in 0:23:51.880 --> 0:23:58.520 it as interesting to us? Well, So Tatar Chemicals is 0:23:58.560 --> 0:24:01.280 a part of the Tatar taper is a very large 0:24:01.600 --> 0:24:09.560 family controlled business. So Tata Chemicals has a size portfolio. 0:24:09.680 --> 0:24:16.360 But there is one enormos school. Uh that's enormous, well unrecognized. 0:24:17.600 --> 0:24:21.320 It's not him per se An not gonna called hid nascid. 0:24:21.480 --> 0:24:26.520 It's just somehow just doesn't people's Madia screens and line 0:24:26.560 --> 0:24:31.800 of consciousness. So they own two five three percent of 0:24:31.920 --> 0:24:39.600 Tata Suns. Tata Suns is the famili's holding company which 0:24:39.640 --> 0:24:43.040 controls the whole slew of the others. The Tata Sons 0:24:43.160 --> 0:24:46.760 controls a very large chunk of thedial channels, a whole 0:24:46.800 --> 0:24:51.000 bunch of these things being motors. I mean the single 0:24:51.119 --> 0:24:55.960 largest investment they have, they listed investments and unlisted investments 0:24:55.960 --> 0:25:01.400 sitting side Tapa Suns. And it's the the value at 0:25:01.560 --> 0:25:07.959 current depressed valuations of Indian stocks sitting inside Tata Suns 0:25:08.400 --> 0:25:15.160 dwarfs the market capitalization of Tatla Chemicals. So what's going 0:25:15.200 --> 0:25:18.520 to shine a light on this depressed, hidden or not 0:25:18.600 --> 0:25:22.320 so hidden asset. Well, so the Reserve Bank of India 0:25:22.960 --> 0:25:27.480