WEBVTT - Baillie Gifford’s Coutts, Burns Look Beyond US 0:00:15.960 --> 0:00:18.799 Welcome to Inside Active, a podcast about active managers that 0:00:18.840 --> 0:00:21.319 goes beyond sound bites and headlines and looks deeper into 0:00:21.360 --> 0:00:25.919 their processes, challenges and philosophies and security selection. I'm David Comb, 0:00:25.960 --> 0:00:28.720 I lead mutual fund and active research at Bloomberg Intelligence. 0:00:29.000 --> 0:00:32.680 Today my coast is Lauren Duier, a senior equity strategist 0:00:32.680 --> 0:00:35.440 at Bloomberg Intelligence. Laurent, thanks for joining me today. 0:00:36.159 --> 0:00:37.120 Thanks for having me. 0:00:38.080 --> 0:00:41.239 So, Lauren. Following the first quarter earning season, you know, 0:00:41.280 --> 0:00:44.519 what does the earnings outlook look like in regions like 0:00:44.560 --> 0:00:48.000 Europe and Japan using signs that fundamentals are improving. 0:00:49.159 --> 0:00:52.400 Yeah, results in Europe and Japan in the short quarter 0:00:52.520 --> 0:00:55.280 were better than expected, and if you look at the 0:00:55.320 --> 0:00:58.440 outlook for the remaining of the year, it's up compared 0:00:58.480 --> 0:01:01.160 to what we thought it would be about a few 0:01:01.200 --> 0:01:05.280 months ago. Consensus for both region is now looking for 0:01:05.400 --> 0:01:08.680 double digit turning growth. However, we have to be a 0:01:08.720 --> 0:01:11.720 little bit more cautious because most of the upgrades we 0:01:11.760 --> 0:01:14.560 have seen over the past few weeks are mainly concentrated 0:01:14.920 --> 0:01:18.280 in technology as well as in energy because of higher 0:01:18.280 --> 0:01:21.920 hold price. So, and also when you listen to the 0:01:22.000 --> 0:01:25.440 management comments, so far they are seeing a limited impact 0:01:25.480 --> 0:01:30.959 from higher energy price or supplied disruption, so I would 0:01:31.040 --> 0:01:34.000 say at this point it is quite encouraging in terms 0:01:34.080 --> 0:01:37.959 of earning the outlook. However, one of the caveat is 0:01:38.000 --> 0:01:40.960 that if we look at the PMI data which were 0:01:41.040 --> 0:01:44.279 released today both in Japan and in Europe, it seems 0:01:44.280 --> 0:01:47.279 that companies have been able to pass through higher price, 0:01:47.600 --> 0:01:50.960 which is good potentially for their profitability, but it could 0:01:51.000 --> 0:01:55.720 create some tension in terms of inflation, and potentially central 0:01:55.760 --> 0:02:02.520 banks may have to increase rate in regent quite aggressively 0:02:02.080 --> 0:02:05.360 if inflation is stick here as we saw in twenty 0:02:05.400 --> 0:02:08.120 two twenty three, so it could have a negative impact 0:02:08.120 --> 0:02:09.200 on equick evaluation. 0:02:10.240 --> 0:02:13.480 That's great framing for our discussion today. Socially giving attention 0:02:13.600 --> 0:02:17.120 has remain focused on the US and joining us today 0:02:17.160 --> 0:02:20.280 to help unpack this international opportunity set are Tom Coots 0:02:20.320 --> 0:02:23.560 and Lawrence Burns, portfolio managers at Bailey Gifford, and some 0:02:23.680 --> 0:02:27.440 advisors on the Vanguard International Growth Fund. Tom, Lawrence, Great 0:02:27.480 --> 0:02:28.600 to have you both with us. 0:02:29.000 --> 0:02:30.960 Great to be with you, Thanks, David, Thank you. 0:02:31.800 --> 0:02:34.320 So Laurent, why don't you get us started for this one? 0:02:34.720 --> 0:02:39.360 Yeah? Okay? So I have a more general question because 0:02:39.480 --> 0:02:44.920 we get many questions as equity strategist about the US exceptionalism. 0:02:45.320 --> 0:02:48.640 So I would like to have your opinion of why 0:02:48.800 --> 0:02:53.840 investors should care about international equities when US equities about 0:02:53.960 --> 0:02:57.000 perform for so long, and the fact also that the 0:02:57.200 --> 0:03:00.400 US is where everything is happening in the AI space. 0:03:01.800 --> 0:03:03.800 Yeah, of course, it's at a great place to start. 0:03:04.040 --> 0:03:06.400 I mean, the US has obviously been a fantastic stock 0:03:06.440 --> 0:03:10.680 market and a great economy for many many years. The entrepreneurship, 0:03:10.919 --> 0:03:14.840 the sheer size the domestic economy, the availability of growth capital, 0:03:14.880 --> 0:03:18.120 and I think above all the willingness to risk failure. 0:03:19.160 --> 0:03:21.679 These are all critical factors. But to me, the main 0:03:21.720 --> 0:03:25.240 reason to invest internationally is the range of opportunities. And 0:03:25.320 --> 0:03:28.520 bear in mind that the Amsterdam Stock Exchange was founded 0:03:28.520 --> 0:03:31.160 in sixteen oh two, so there have been international investment 0:03:31.200 --> 0:03:34.920 opportunities going back a very very long way. Three quarters 0:03:34.920 --> 0:03:37.480 of global GDP is outside the US. There are some 0:03:37.600 --> 0:03:41.160 very rapidly growing markets, but critical for US as bottom 0:03:41.240 --> 0:03:44.440 up stock because there are simply some great companies which 0:03:44.480 --> 0:03:48.000 stand comparison to the best businesses in the US, and 0:03:48.080 --> 0:03:51.280 which in certain industries have by far the dominant players. 0:03:51.680 --> 0:03:55.520 So think luxury goods, think some cosmetics, for example, Loreal 0:03:55.760 --> 0:03:58.880 of great French business. You'll know well, Laura, clearly evs 0:03:58.920 --> 0:04:02.000 and batteries in emerging technologies today, as well as a 0:04:02.040 --> 0:04:07.440 host of hidden champions operating in seemingly niche markets which 0:04:07.440 --> 0:04:11.840 have large growth opportunities. And then we can't talk about 0:04:11.840 --> 0:04:15.200 international without talking about China. So for all the geopolitical 0:04:15.240 --> 0:04:19.560 competition since reform and opening up in the late nineteen seventies, 0:04:20.120 --> 0:04:22.479 China is the one country on Earth I think with 0:04:22.560 --> 0:04:26.359 a similarly vibrant entrepreneurial attitude to the US, at a 0:04:26.360 --> 0:04:29.120 similar scale and at a speed that may, over the 0:04:29.120 --> 0:04:32.160 coming years even exceed that of the US. So there's 0:04:32.200 --> 0:04:35.679 lots of reasons we think to be interested in international markets. 0:04:36.400 --> 0:04:40.080 Great, well, why don't we dig into your investment process 0:04:40.360 --> 0:04:43.240 just to get us started. How would you describe the 0:04:43.240 --> 0:04:46.240 Bailey Gifford investment philosophy? What sits at the heart of it? 0:04:47.360 --> 0:04:49.840 I think at the heart is the fact that Bailey 0:04:49.839 --> 0:04:52.800 Gifford is a private partnership. We go back. We're based 0:04:52.839 --> 0:04:55.880 in Edinburgh in Scotland. We were founded in nineteen oh eight. 0:04:56.800 --> 0:04:58.680 We've got about one hundred and fifty investors. We are 0:04:58.720 --> 0:05:02.719 wholly focused on long investing. Lawrence and I are both partners. 0:05:02.800 --> 0:05:04.800 Our interest is in handing over the firm to the 0:05:04.839 --> 0:05:07.960 next generation in better shape than we received it, and 0:05:08.000 --> 0:05:10.440 that leads us to focus very strongly on client alignment. 0:05:10.440 --> 0:05:12.599 We stand or fall by how good a job we 0:05:12.600 --> 0:05:16.000 do for our clients ultimately, and then the investment philosophy, David, 0:05:16.040 --> 0:05:17.960 to your point, stems from that. So it's about long 0:05:18.040 --> 0:05:22.960 term structure. It's about patience and boldness and curiosity as 0:05:22.960 --> 0:05:26.360 we look for the outlier companies, which academic research shows 0:05:26.400 --> 0:05:29.760 are the ones that really drive long term returns. So 0:05:29.760 --> 0:05:32.560 then if you go down to our portfolios, we're long 0:05:32.640 --> 0:05:36.160 term owners, typically five to ten year holding period. We 0:05:36.200 --> 0:05:39.160 have highly active portfolios, very different from the benchmark, and 0:05:39.200 --> 0:05:42.479 we're willing to be different. To me, investment is as 0:05:42.560 --> 0:05:46.760 much behavioral as it is Analytical imagination matters as much 0:05:46.760 --> 0:05:49.440 as the ability to craft a nice neat DCF. 0:05:51.400 --> 0:05:53.720 Well, can you walk us through your process actually looks 0:05:53.720 --> 0:05:55.160 like on a day to day basis, you know, when 0:05:55.200 --> 0:05:56.440 you're researching a new company. 0:05:56.880 --> 0:05:58.920 Yeah, maybe Lawrence wants to take that one. 0:05:59.040 --> 0:06:02.440 Sure, I mean, I think the most important part of 0:06:02.440 --> 0:06:05.560 a day to day process trying to understand companies understand 0:06:05.600 --> 0:06:08.719 the world actually isn't what happens in our office in Edinburgh. 0:06:08.800 --> 0:06:11.640 It's about those one hundred and fifty investors going out 0:06:11.680 --> 0:06:16.120 into the world, immersing themselves in different ecosystems, whether that's Brazil, 0:06:16.160 --> 0:06:19.760 whether that's China, whether that's Southeast Asia, and talking frankly, 0:06:19.800 --> 0:06:23.000 to as many people as possible, talking to the leaders 0:06:23.000 --> 0:06:25.400 of businesses that we're interested in, talking to their competitors, 0:06:25.480 --> 0:06:28.960 talking to their suppliers, talking to government officials and regulators, 0:06:30.040 --> 0:06:33.320 and trying to build up a picture that is rich 0:06:33.360 --> 0:06:36.520 and diversified of inputs. And when you take a step back, 0:06:36.560 --> 0:06:38.320 what that getting out on the world is really trying 0:06:38.360 --> 0:06:41.920 to do is, firstly, it's trying to leverage more insight 0:06:42.160 --> 0:06:44.200 than we as a firm and our own can produce, 0:06:44.720 --> 0:06:48.400 leveraging the inside of others. And then it's also trying 0:06:48.400 --> 0:06:51.240 to get inputs into the process that are genuinely differentiated 0:06:51.240 --> 0:06:54.200 in proprietary that can't be found for a search on 0:06:54.279 --> 0:06:58.479 AI or on Google. You know, those conversations, the access 0:06:58.480 --> 0:07:01.200 that you can get from management to tas, from companies 0:07:01.240 --> 0:07:03.760 both public and private, and then bring all of that 0:07:03.800 --> 0:07:05.880 back to wedding bro those one hundred and fifty investors, 0:07:06.240 --> 0:07:09.479 where you share that information, you discuss what you found, 0:07:09.560 --> 0:07:11.920 and you try and triangulate across it. And then that's 0:07:11.920 --> 0:07:15.080 the process that eventually leads to sitting down and riding 0:07:15.160 --> 0:07:17.920 up an investment report in the company and thinking, at 0:07:17.920 --> 0:07:20.360 a very basic level, what does this industry, what does 0:07:20.360 --> 0:07:22.480 this company look like in five to ten years time, 0:07:23.000 --> 0:07:25.440 and how does that differ from the current market valuation. 0:07:26.680 --> 0:07:29.080 So what are you looking for to distinguish companies with 0:07:29.400 --> 0:07:32.280 you say, truly durable growth versus those kind of just 0:07:32.280 --> 0:07:35.680 benefiting from shorter term cycles. You know, what are you prioritizing. 0:07:37.320 --> 0:07:40.200 I think you're looking for if you take a real 0:07:40.240 --> 0:07:43.520 step back, it's looking for companies that are a solution 0:07:43.600 --> 0:07:48.120 to a big problem. Looking for companies that create value 0:07:48.680 --> 0:07:53.680 for their customers, for businesses, and for society. That's the 0:07:53.720 --> 0:07:55.480 first part of it. Then I think you move on 0:07:55.560 --> 0:07:59.200 to the second part, which is as they grow, does 0:07:59.200 --> 0:08:02.760 this business get better? Does it benefit from increasing scale, 0:08:02.800 --> 0:08:05.679 does it benefit from network effects from high switching costs? 0:08:06.640 --> 0:08:09.400 Because again, the entire process has to be not a 0:08:09.400 --> 0:08:12.280 static analysis of what a company's like now, but what 0:08:12.320 --> 0:08:15.160 it might look like in five years time, And it's 0:08:15.200 --> 0:08:19.040 trying to think through what the unit economics look like 0:08:19.160 --> 0:08:21.800 and whether that growth is sustainable. And I think it's 0:08:21.800 --> 0:08:24.680 then trying to triangulate it against some of the industry experts, 0:08:24.720 --> 0:08:27.120 some of these academics, trying to probe where we might 0:08:27.160 --> 0:08:29.440 be wrong or might be right about that at growth theory. 0:08:29.480 --> 0:08:31.640 But I think the other thing you framed it is 0:08:31.960 --> 0:08:34.640 long term, sort of durable growth and hype. I think 0:08:34.679 --> 0:08:38.160 as a growth investor, you have to sometimes embrace the 0:08:38.200 --> 0:08:41.719 fact that some opportunities may turn out not the way 0:08:41.760 --> 0:08:42.840 that you thought they were going to be, that there 0:08:42.840 --> 0:08:44.640 may have been a bit of hype, but that it's 0:08:44.760 --> 0:08:46.400 worth it if you can get a good hit rate, 0:08:46.600 --> 0:08:48.480 and for the ones that work out, those small number 0:08:48.520 --> 0:08:50.559 of big winners that Tom talked about earlier, I will 0:08:50.600 --> 0:08:53.800 read what makes up the real returns for clients in 0:08:53.800 --> 0:08:54.280 the long run. 0:08:55.000 --> 0:08:56.600 I just add on that if I made David that 0:08:56.760 --> 0:08:59.920 I think the best growth businesses often have some hype. 0:09:00.120 --> 0:09:02.679 They burst through it, they more than justify it. And 0:09:02.720 --> 0:09:04.600 it's you've got to be bold, you've got to be creative, 0:09:04.600 --> 0:09:06.400 you've got to be willing to risk looking foolish and 0:09:06.440 --> 0:09:09.560 being wrong to hold on something even though in people 0:09:09.559 --> 0:09:12.120 are telling you yet but this is obviously over hype. 0:09:12.120 --> 0:09:14.600 This has obviously gone too far. We see that time 0:09:14.600 --> 0:09:16.800 and time again. Companies really able to burst through that 0:09:16.880 --> 0:09:18.280 hype if they are truly exceptional. 0:09:19.160 --> 0:09:21.120 So when you're kind of looking at a company's you know, 0:09:21.120 --> 0:09:23.959 sustainable competitive advantage, and you know, I know you talk 0:09:23.960 --> 0:09:25.880 about network effects, and you know, if we think of 0:09:26.000 --> 0:09:29.120 other things like technology, brand, culture, how do you avoid 0:09:29.240 --> 0:09:30.800 overestimating any of those things? 0:09:32.679 --> 0:09:32.880 You? 0:09:33.120 --> 0:09:34.560 I think, what you have to do? You can look 0:09:34.559 --> 0:09:37.319 at the financial outputs, of course, the returns, the margins, 0:09:37.320 --> 0:09:39.720 but whereas a the inputs, the sort of things you touched, 0:09:39.760 --> 0:09:44.440 you touched on for me. The best companies don't fear competition. 0:09:44.520 --> 0:09:47.599 The best companies don't exploit their company, their customers in 0:09:47.640 --> 0:09:50.880 any way. They think about coke, nobody forces you to 0:09:50.880 --> 0:09:53.959 buy a coke. People choose it every day out of 0:09:54.000 --> 0:09:56.480 their own free will, and the same for a business 0:09:56.480 --> 0:09:59.640 in our universe ferrari. Nobody forces the twelve thousand people 0:09:59.640 --> 0:10:01.520 a year who buy a Ferrari to do it. So 0:10:01.720 --> 0:10:05.240 companies that have that ability to really command their customers 0:10:05.280 --> 0:10:07.920 attention to solve a problem for them, whether the problem 0:10:07.960 --> 0:10:10.559 may be a lack of ferrari in some cases, So 0:10:10.840 --> 0:10:13.800 how do you avoid overestimating that? To your point, we 0:10:13.880 --> 0:10:17.800 look on a first principle basis, using in analytical frameworks 0:10:17.840 --> 0:10:20.240 like portified forces and that sort of thing. But we 0:10:20.440 --> 0:10:25.480 just observe the behaviors of management teams over years and 0:10:25.520 --> 0:10:27.760 try to judge whether they are doing exactly what they 0:10:27.760 --> 0:10:31.199 said they would do, and judge the outcomes in that way. 0:10:31.400 --> 0:10:33.160 And then if you get that right, then over time 0:10:33.200 --> 0:10:36.160 that clearly comes through in the financial outputs. But we 0:10:36.480 --> 0:10:39.880 are inclined always to trust management that we think are 0:10:39.920 --> 0:10:42.719 exceptional to run their business in the right way as 0:10:42.720 --> 0:10:44.600 long as we as long as we're comfortable in the 0:10:44.600 --> 0:10:47.240 competitive advantage and in the growth opportunity they see before them. 0:10:47.360 --> 0:10:50.440 I think it's also about triangulating the hypothesis that you 0:10:50.480 --> 0:10:53.240 have around competitive edge. And again I think that goes 0:10:53.240 --> 0:10:55.160 back to the getting out in the real world of 0:10:56.200 --> 0:10:58.760 you have to road test your hypothesis. You have to 0:10:58.840 --> 0:11:01.520 road test it thinking about yourself in different environments, in 0:11:01.520 --> 0:11:04.720 different technological developments. Does this still hold? And then you 0:11:04.760 --> 0:11:07.920 have to go around and basically hear every single counter 0:11:08.040 --> 0:11:09.599 to the idea that this company has an edge or 0:11:09.640 --> 0:11:12.000 the idea that this growth opportunity is real. And I 0:11:12.000 --> 0:11:13.679 think it's only when you've done that that you can 0:11:13.720 --> 0:11:17.120 start to have conviction. And that again goes to you 0:11:17.200 --> 0:11:20.560 want to hear from the people that they're disrupting or 0:11:20.559 --> 0:11:23.320 that they're competing with why they won't be able. You 0:11:23.360 --> 0:11:25.120 need to hear the counter each time. And that's been 0:11:25.120 --> 0:11:28.400 an incredibly important part of our process of we can 0:11:28.400 --> 0:11:30.200 have a hypothesis, but we've got to test it with 0:11:30.240 --> 0:11:32.320 the outside world as much as possible before we test 0:11:32.360 --> 0:11:33.280 it with client's capital. 0:11:34.080 --> 0:11:36.800 Okay, JOm, you mentioned management team, so I kind of 0:11:36.800 --> 0:11:38.839 want to just talk for that for a little bit. 0:11:39.360 --> 0:11:39.520 You know. 0:11:39.559 --> 0:11:41.600 So obviously it's a big part of your process, you know, 0:11:41.760 --> 0:11:45.000 judging their ability to execute. How do you build conviction 0:11:45.120 --> 0:11:48.920 and management teams, especially in international markets where you know 0:11:48.960 --> 0:11:52.040 the access and transparency can vary, it's a little different 0:11:52.080 --> 0:11:52.640 than the US. 0:11:53.480 --> 0:11:56.520 Yeah, I think to take the access one first of all. 0:11:57.040 --> 0:12:00.480 That's what where our long term focus helps. Our size 0:12:00.520 --> 0:12:02.400 helps to some extent too. People know that if we're 0:12:02.400 --> 0:12:05.440 going to invest, were typically a sizeable shareholder and we're 0:12:05.679 --> 0:12:08.280 often on the register for many many years. One of 0:12:08.280 --> 0:12:11.400 the companies in the portfolio, Atlas Copco, we held for 0:12:11.440 --> 0:12:13.800 over thirty years. For example Loreal for a similar period 0:12:13.840 --> 0:12:17.320 of time. Our ability to own private companies and invest 0:12:17.360 --> 0:12:20.960 through the capital cycle, if you like, helps as well. 0:12:22.200 --> 0:12:24.720 So on the access side, I think we do have 0:12:24.800 --> 0:12:28.880 pretty good access across international markets. And then in terms 0:12:28.880 --> 0:12:31.120 of the conviction, it's about mental models. It's again the 0:12:31.160 --> 0:12:33.160 point I'm made earlier. Do do management act in the 0:12:33.160 --> 0:12:35.640 way they say they do. I'm a big fan of 0:12:35.640 --> 0:12:38.200 Phil Fisher, who wrote Common Stocks and Noncommon Profits. He 0:12:38.240 --> 0:12:41.720 talks about do the management talk freely when things are 0:12:41.760 --> 0:12:44.720 going well, but clam up when troubles and disappointments occur. 0:12:44.800 --> 0:12:46.440 So you want people who are honest with you, as 0:12:46.480 --> 0:12:48.200 we try to be honest with our clients when things 0:12:48.240 --> 0:12:51.000 are going well and when things are going badly. And 0:12:51.040 --> 0:12:53.480 then I'm a bit of an annual report nerd. I 0:12:53.480 --> 0:12:55.559 think you can learn a huge amount just how management 0:12:55.600 --> 0:12:58.520 presents its business year after year. Do they do it 0:12:58.559 --> 0:13:04.000 in a consistent, concise, this honest, frank way, and then 0:13:04.040 --> 0:13:05.640 do they back that up when you talk to them? 0:13:05.679 --> 0:13:08.680 And do they back that up when you through their actions, 0:13:08.840 --> 0:13:11.240 and then to Lawrence's point, you can always triangonate that 0:13:11.280 --> 0:13:14.160 with other companies in an industry. Who do you most 0:13:14.160 --> 0:13:17.679 admire in the industry, those sort of questions. So it's triangulation, 0:13:17.840 --> 0:13:21.040 it's trust, it's the cumulative mental models of doing this 0:13:21.080 --> 0:13:23.160 over many, many years. And that's the fact that we 0:13:23.160 --> 0:13:25.560 do have pretty good access, i think, to the companies 0:13:25.760 --> 0:13:26.480 we want to talk to. 0:13:27.880 --> 0:13:29.719 So do you want to touch upon valuation just a 0:13:29.760 --> 0:13:32.880 little bit, because you know historically Bailey Gifford willing to 0:13:32.920 --> 0:13:35.839 pay a bit of a premium for exceptional growth companies. 0:13:36.120 --> 0:13:38.560 How do you decide when the premium is justified versus 0:13:38.559 --> 0:13:42.680 when evaluation risk becomes too high. 0:13:43.520 --> 0:13:45.920 The starting point is if you look at all of 0:13:45.960 --> 0:13:48.280 the great growth investments or a lot of the great 0:13:48.280 --> 0:13:51.320 growth investments over the last twenty years, at one time 0:13:51.400 --> 0:13:53.680 or another, particularly early in the history, they would have 0:13:53.679 --> 0:13:56.840 traded it very, very high near to multiples of earnings. 0:13:58.000 --> 0:14:00.480 And I think we firstly we accept that a high 0:14:00.480 --> 0:14:03.040 near term multiple does not make for a bad investment case. 0:14:03.520 --> 0:14:05.760 But the question that you come back to is, as 0:14:05.800 --> 0:14:09.760 we're building out our scenario analysis, looking at the growth 0:14:09.840 --> 0:14:12.200 rate thinking of the margins that they can earn when 0:14:12.200 --> 0:14:14.560 you look out five to ten years, can you see 0:14:14.559 --> 0:14:17.960 that possibility from a multiple of upside from the starting point. 0:14:18.640 --> 0:14:22.120 And that really comes back to our scenario analysis focusing 0:14:22.160 --> 0:14:23.640 on what the value will be in five or ten 0:14:23.720 --> 0:14:27.520 years time rather than the immediate spot multiple. And then 0:14:27.560 --> 0:14:29.880 I think the other element is what we've tended to 0:14:29.920 --> 0:14:33.680 find is you need not just analysis, but also Tom 0:14:33.720 --> 0:14:36.880 mentioned the word imagination earlier. You need to be imaginative 0:14:36.920 --> 0:14:39.960 in thinking about where this business can go in the 0:14:40.040 --> 0:14:43.160 very long run. And I don't think financial markets do 0:14:43.200 --> 0:14:45.880 a good job of imagination. And what we see is 0:14:45.880 --> 0:14:48.880 that our very best investments are actually those that have 0:14:48.960 --> 0:14:51.920 multiple opportunity sets. They succeed at one thing and they 0:14:51.960 --> 0:14:54.720 leverage that and they go into succeeding another. And so 0:14:54.840 --> 0:14:56.760 often what you need is to go for an analyze 0:14:56.760 --> 0:14:59.960 it and say what are the other potential market oportun 0:15:00.040 --> 0:15:02.080 it is this company could have. So an example what 0:15:02.040 --> 0:15:04.440 we'll be familiar with was Amazon started as a bookseller, 0:15:04.560 --> 0:15:07.040 became a broad dra online retailer, but then a lot 0:15:07.080 --> 0:15:09.920 of the values actually accrued from aws. We had a 0:15:09.920 --> 0:15:12.920 similar one with Maccada Libra Latin American e commerce company 0:15:13.640 --> 0:15:16.200 and looking at it going into finance. So it's a 0:15:16.200 --> 0:15:19.960 combination of thinking fighting years what these companies can be 0:15:20.200 --> 0:15:23.680 and making sure we don't underestimate just how attractive and 0:15:23.760 --> 0:15:25.320 valuable they can be in the very long run. 0:15:26.000 --> 0:15:29.560 Just if I can add quickly, David on the curiosity point, 0:15:28.760 --> 0:15:31.840 we were unusual as a firm, So we recruit people 0:15:31.920 --> 0:15:35.040 typically out of college, out of university, and train them 0:15:35.120 --> 0:15:38.600 up ourselves, and we overwhelmingly don't hire people with finance 0:15:38.720 --> 0:15:43.000 or economics backgrounds. I studied modern languages. I won't impose 0:15:43.080 --> 0:15:47.760 my French on Laurel. Lawrence studied geography. So we believe 0:15:47.760 --> 0:15:51.160 there's a certain amount of financial analystical capability you need. 0:15:51.200 --> 0:15:53.080 We get able to do the CFA, that kind of stuff, 0:15:53.280 --> 0:15:56.640 but that doesn't give you an advantage. What you need 0:15:56.680 --> 0:15:59.840 to do is retain the curiosity, the imagination, the openness 0:16:00.160 --> 0:16:02.240 that you had when we recruited you, and then kind 0:16:02.240 --> 0:16:05.480 of bolt on the analytical framework the analytical processes on 0:16:05.560 --> 0:16:07.160 top of that. And if you if you get that 0:16:07.280 --> 0:16:10.320 balance right, then it gives you much better chance. We 0:16:10.360 --> 0:16:13.360 think of being able really to hold the outliers in 0:16:13.400 --> 0:16:16.520 the way that Lawrence explained being able to think what 0:16:16.600 --> 0:16:18.440 if this really works over five or any of you, 0:16:18.640 --> 0:16:20.560 and in a sense not be too bounded by the 0:16:20.600 --> 0:16:24.280 constraints of a DCF with its inevitable false precision. 0:16:26.440 --> 0:16:29.080 I would like to do a little on how your 0:16:29.160 --> 0:16:35.520 investment process gener rate views differentiated inside, especially relative to cosensus, 0:16:35.640 --> 0:16:40.920 because many of the subside and least visit companies interview 0:16:40.960 --> 0:16:45.200 managements and the lies a competitive advantage of some companies. 0:16:45.240 --> 0:16:49.000 So where do you think your edge is really coming from? 0:16:49.400 --> 0:16:50.280 As investors? 0:16:51.240 --> 0:16:52.640 I think I think we have a couple of different 0:16:52.680 --> 0:16:57.360 layers of edge. The first is behavioral and that comes 0:16:57.400 --> 0:17:00.160 from the partnership structure, the ability to be long term, 0:17:00.600 --> 0:17:03.560 and I think thinking about an investment becomes easier when 0:17:03.920 --> 0:17:06.160 you're thinking about where does it end up in five 0:17:06.240 --> 0:17:08.360 years time? And yes, you want to consider the journey, 0:17:08.560 --> 0:17:10.800 but that is helpful to have that luxury, to have 0:17:12.000 --> 0:17:14.040 that structure from the firm and the patience from our 0:17:14.040 --> 0:17:17.720 clients to do that, and that puts us in a 0:17:17.720 --> 0:17:19.480 different mindset where if you look at a lot of 0:17:19.480 --> 0:17:23.560 the academic research, it would tell you that humans have 0:17:23.640 --> 0:17:26.639 a far grea dislike for losing a unit of loss 0:17:26.840 --> 0:17:28.240 than they would from a unit of gain and the 0:17:28.240 --> 0:17:30.880 same emotional action as not even And I think it's 0:17:30.920 --> 0:17:33.919 trying to find ways where you reduce career risk so 0:17:33.960 --> 0:17:38.199 that people can weigh upside and downside appropriately. Because a 0:17:38.200 --> 0:17:41.000 lot of the companies at the starting point great growth 0:17:41.040 --> 0:17:44.320 companies are often controversial. People will tell you that it's overvalued. 0:17:44.320 --> 0:17:46.480 Are there many reasons why it's fail? So you have 0:17:46.560 --> 0:17:49.320 to be prepared to look foolish. So that's one layer 0:17:49.320 --> 0:17:52.880 on the behavioral The second layer then comes from where 0:17:52.880 --> 0:17:54.800 we get our insights from, and we've kind of touched 0:17:54.800 --> 0:17:57.520 a little bit on that. I don't think access is 0:17:57.560 --> 0:18:00.640 even to companies. I think if you want to go 0:18:00.680 --> 0:18:03.360 and spend time with use American examples with Jeff Bezos 0:18:03.440 --> 0:18:05.480 or Jenans and Juan and try and understand their vision, 0:18:05.880 --> 0:18:10.600 that opportunity isn't equally available to everyone. Similarly, for our companies, 0:18:10.640 --> 0:18:13.439 it's the ability to go and have one of our 0:18:13.520 --> 0:18:16.000 larger holdings mentioned early McCaul Libray can go and have 0:18:16.040 --> 0:18:18.400 six hours and meetings of the management team and get 0:18:18.440 --> 0:18:21.359 to know various different executives. They'll tell you nothing about 0:18:21.359 --> 0:18:23.040 what the next quarter is like, but they'll tell you 0:18:23.080 --> 0:18:24.960 an awful lot about their long term vision for the 0:18:24.960 --> 0:18:28.480 company and their views on culture. So I think you 0:18:28.600 --> 0:18:32.359 do get different inputs into making that long term element 0:18:33.119 --> 0:18:35.920 of an investment case. And I would just focus again 0:18:35.960 --> 0:18:39.639 on culture here because I think that's something that doesn't 0:18:39.640 --> 0:18:42.480 fit into the DCS that Tom was talking about. You 0:18:42.520 --> 0:18:45.159 can't ascribe a number to it, and you have to 0:18:45.200 --> 0:18:46.720 spend a lot of time with a company and with 0:18:46.760 --> 0:18:49.919 an ecosystem to truly understand the company's culture. But I 0:18:49.920 --> 0:18:51.480 think if we took a step back from a common 0:18:51.480 --> 0:18:54.080 sense approach, we'd say culture has a huge amount to 0:18:54.119 --> 0:18:57.240 deal to do with whether a company will be successful 0:18:57.320 --> 0:18:59.199 or not in the long term. So I'd see our 0:18:59.320 --> 0:19:02.600 edges being behavioral combined of the insights that we can 0:19:02.640 --> 0:19:06.199 get from our network of company access across public and 0:19:06.240 --> 0:19:07.840 private and for academia. 0:19:10.000 --> 0:19:11.720 I do want to you know, we've talked about what 0:19:11.760 --> 0:19:13.880 you look for when you're going to purchase a company. 0:19:14.760 --> 0:19:16.520 You know, if we think about the fund what would 0:19:16.680 --> 0:19:18.960 trigger a cell decision for you? You know what has 0:19:19.000 --> 0:19:19.720 to change? 0:19:20.200 --> 0:19:23.240 Yeah, it's in essence, it's the it's the reverse of 0:19:23.359 --> 0:19:26.320 the buy decision. So it's fundamentals first and foremost, and 0:19:26.359 --> 0:19:30.080 then valuation. Secondly, particularly if Lawrence has talked about we 0:19:30.080 --> 0:19:32.520 see the possibility of a second act of still there 0:19:32.560 --> 0:19:35.000 being a right tail. We're willing then to hold on. 0:19:35.480 --> 0:19:38.200 We like to run our winners, and we obviously reevaluate 0:19:38.280 --> 0:19:42.399 the investment case constantly. So more usually for us on 0:19:42.480 --> 0:19:45.119 the on the cell side, it's a gradual erosion of 0:19:45.160 --> 0:19:49.160 the investment thesis, either because the moat, the competitor moat 0:19:49.200 --> 0:19:52.480 becomes less deep, or the growth just fades. So we 0:19:52.600 --> 0:19:57.280 sold a business for years ago called Novozymes Novhenesis, which 0:19:57.320 --> 0:19:59.440 is a Danish enzyme business. We've held it for many years. 0:19:59.480 --> 0:20:01.920 It's a very good company. They made a big acquisition 0:20:01.960 --> 0:20:04.119 and often when a management team does that, it tells 0:20:04.160 --> 0:20:07.679 you their own confidence in their organic growth prospects are 0:20:07.720 --> 0:20:09.800 less high than you would have liked. And that's still 0:20:09.800 --> 0:20:11.400 an interesting business. We may come back to it at 0:20:11.400 --> 0:20:15.240 some point, but it's fundamentally if those core aspects of 0:20:15.240 --> 0:20:19.560 the investment fade in some way that we're likely to sell. 0:20:19.760 --> 0:20:22.119 And I would say, honestly, you know, a lot of 0:20:22.119 --> 0:20:24.520 investment is about trade offs. We aim to be good 0:20:24.600 --> 0:20:27.600 buyers and good owners. We are less good sellers. Doesn't 0:20:27.600 --> 0:20:29.240 mean we're bad at it, but it's not what we're 0:20:29.440 --> 0:20:32.000