WEBVTT - Matthew Benkendorf on Managing Equities 0:00:02.240 --> 0:00:06.439 This is Masters in Business with very Ridholts on Bloomberg 0:00:06.519 --> 0:00:10.480 Radio this weekend. On the podcast, I have a special guest. 0:00:10.760 --> 0:00:14.800 His name is Matt Benkendorff, ce IO of Von Toble 0:00:14.960 --> 0:00:19.120 Quality Growth, which runs about thirty five billion dollars UH 0:00:19.160 --> 0:00:24.439 in equities. This is really a fascinating conversation about a 0:00:24.640 --> 0:00:30.760 very specific way to manage equities UH that seems to 0:00:30.800 --> 0:00:35.760 differ from how a lot of different people approach UH investing. 0:00:36.520 --> 0:00:41.040 VON the group that Matt works with is specifically an 0:00:41.040 --> 0:00:48.880 active manager. He oversees six different areas including Asia, Global, 0:00:49.240 --> 0:00:52.760 European US, and Global means go anywhere, as well as 0:00:53.159 --> 0:00:57.480 emerging markets. They have a very unique approach. A single 0:00:57.520 --> 0:01:00.800 team puts money to work in all those areas. A 0:01:00.840 --> 0:01:04.920 lot of UH firms do not operate that way. They 0:01:04.959 --> 0:01:11.160 have amassed quite an outstanding track record beating comparable firms 0:01:11.240 --> 0:01:14.640 and their benchmark for quite a long number of years. 0:01:15.200 --> 0:01:19.920 And if you're at all interested in how to manage assets, 0:01:20.000 --> 0:01:23.959 how to run a high conviction UH portfolio, how to 0:01:24.120 --> 0:01:29.399 think about a process for stock selection and risk management UH, 0:01:29.440 --> 0:01:32.280 then you're going to find this to be an absolutely 0:01:32.319 --> 0:01:36.720 fascinating conversation. So with no further ado. My interview of 0:01:36.959 --> 0:01:43.880 Matt Benkendorf of n Toble Quality Growth. This is Masters 0:01:43.920 --> 0:01:48.680 in Business with Barry Ridholts on Bloomberg Radio. My special 0:01:48.680 --> 0:01:52.160 guest this week is Matt Benkendorf. He is the CEO 0:01:52.400 --> 0:01:56.640 of Untoble Quality Growth, a thirty five billion dollar global 0:01:56.760 --> 0:02:02.440 growth equity boutique division of investment giant Von Toble out 0:02:02.480 --> 0:02:07.160 of Switzerland's. Matt joined the firm in He became deputy 0:02:07.160 --> 0:02:11.840 portfolio manager in two thousand and six, lead portfolio manager 0:02:11.960 --> 0:02:14.920 of the European Equity Strategy and OH eight and since 0:02:14.960 --> 0:02:17.920 two thousand and twelve he has been lead portfolio manager 0:02:18.280 --> 0:02:23.560 for US Equity Strategy. Matt Benkendorff, Welcome to Bloombark. Thanks Barry, 0:02:23.560 --> 0:02:25.000 thanks for having me. Did I did I get your 0:02:25.040 --> 0:02:27.480 name right? I feel like I'm mispronouncing It's a tough one, 0:02:27.520 --> 0:02:29.560 but you got it right. There's been many variations over 0:02:29.600 --> 0:02:31.079 the years, but you got the best one there, I 0:02:31.160 --> 0:02:34.359 think so so. Von Tobol has been around since nine 0:02:34.639 --> 0:02:38.679 eight four. You joined the firm in How was your 0:02:38.720 --> 0:02:43.040 investment philosophy shaped by those years? That was quite a 0:02:43.760 --> 0:02:48.080 era of equity investing. Yeah, he could, UH say, I 0:02:48.160 --> 0:02:51.160 was very much brought up and steeped within Von Tobel. 0:02:51.320 --> 0:02:53.519 You know. I came to Von Toba lad of undergraduate, 0:02:53.520 --> 0:02:55.800 which is a little bit rare in this business, you know. 0:02:55.840 --> 0:02:57.680 And I think if you even take a further step 0:02:57.680 --> 0:03:00.280 back and look at the longer arc of my life, 0:03:00.400 --> 0:03:02.600 you know, I'm sitting here today doing what I always 0:03:02.600 --> 0:03:04.400 wanted to do as a kid. Now, So the journey 0:03:04.520 --> 0:03:06.920 started a long time ago. I grew up in a 0:03:06.960 --> 0:03:09.639 family business. I was always interested in business. I always 0:03:09.639 --> 0:03:13.280 thought in terms of what works in business, what doesn't profitability? 0:03:13.360 --> 0:03:15.040 And then when I was a kid, I found the 0:03:15.040 --> 0:03:17.919 stock market to be an interesting outlet for that because 0:03:18.120 --> 0:03:20.639 so as a kid, you you if I'm guessing your 0:03:20.680 --> 0:03:22.799 age is right. So you're talking about late seven of 0:03:22.840 --> 0:03:27.360 these early eighties, So that was the beginning of what 0:03:27.520 --> 0:03:30.639 ended up being an eighteen year bull market. How did 0:03:30.680 --> 0:03:35.040 that thousand percent down increase affect uh the way you 0:03:35.040 --> 0:03:37.400 look at equities. Yeah, it's interesting if you look at 0:03:37.400 --> 0:03:39.840 my upbringing to uh. You know, my father was a 0:03:39.840 --> 0:03:42.200 farmer from New Jersey at a landscaping business. We had 0:03:42.200 --> 0:03:45.600 a garden center, uh in northwestern New Jersey. So I 0:03:45.640 --> 0:03:47.920 wasn't around the markets at all, you know, it wasn't 0:03:47.960 --> 0:03:50.440 something we talked about at all at home. I don't 0:03:50.440 --> 0:03:52.440 know how I found it. I just sort of stumbled 0:03:52.480 --> 0:03:56.160 upon it once I got into high school. Really and uh, 0:03:56.680 --> 0:03:59.000 that backdrop you know, of what was going on then, 0:03:59.040 --> 0:04:02.160 as you described, that wasn't you know, as close to me, 0:04:02.280 --> 0:04:04.640 which is actually interesting, and that it was more about 0:04:05.120 --> 0:04:07.840 the process itself. It wasn't the results, you know, it 0:04:07.960 --> 0:04:10.680 was the It was the item of being able to 0:04:10.760 --> 0:04:14.520 invest in a business via stock. So I was actually disconnected, 0:04:14.560 --> 0:04:16.640 which is kind of back to I think what ends 0:04:16.720 --> 0:04:20.960 up successful today not focusing on that aspect of it, 0:04:21.000 --> 0:04:24.359 the forward thinking, what the numbers, it's the fundamentals. So 0:04:24.360 --> 0:04:27.839 it's a very fundamental basis too, so less of a 0:04:28.120 --> 0:04:31.960 stock market investor, more of a specific company that happens 0:04:32.000 --> 0:04:34.960 to be public investors. That a fair That's exactly it. 0:04:35.160 --> 0:04:37.400 You know I I you know I as a kid 0:04:37.600 --> 0:04:39.680 and even now today, you know, and on my way 0:04:39.760 --> 0:04:42.080 up here to the studio, I just am wired that 0:04:42.120 --> 0:04:44.640 way that I'm always looking around at things wondering how 0:04:44.680 --> 0:04:48.080 they work, and then generally looking at businesses and wondering 0:04:48.400 --> 0:04:51.200 how they work. And it kind of gets to you 0:04:51.279 --> 0:04:54.479 asked about the philosophy what we describe as quality quality growth. 0:04:54.480 --> 0:04:59.120 Today it's always breaking down businesses quantitatively and qualitatively into 0:04:59.160 --> 0:05:02.520 what makes certain it's great and what makes most businesses 0:05:02.560 --> 0:05:04.840 quite frankly average. And why would you want to get 0:05:04.839 --> 0:05:06.240 out of bed in the morning, you know, to sort 0:05:06.240 --> 0:05:08.240 of engage in something. What's in it for you as 0:05:08.240 --> 0:05:12.040 an owner of the business. So coming into midtown Manhattan today, 0:05:12.080 --> 0:05:16.039 it's a lovely September morning. What did you notice what 0:05:16.160 --> 0:05:19.159 caught your eye that you started thinking of in terms 0:05:19.200 --> 0:05:23.280 of is this particular business doing well? What what businesses 0:05:23.320 --> 0:05:26.039 aren't doing well? I've noticed a lot of the retail 0:05:26.080 --> 0:05:30.200 shops around Manhattan seemed to be closing their doors. Yeah. Yeah, 0:05:30.440 --> 0:05:32.360 that's the interesting thing when you get into this city 0:05:32.360 --> 0:05:34.840 and you realize sort of the commoditized nature of most 0:05:34.839 --> 0:05:37.480 of the businesses here, particularly restaurants. Right, You just wonder 0:05:37.520 --> 0:05:39.880 you drive up any of the avenues, you wonder how 0:05:39.920 --> 0:05:42.200 how all these places stay in business? You know, what 0:05:42.240 --> 0:05:44.680 are the margins on certain areas of their business? What 0:05:44.839 --> 0:05:47.280 is it about certain locations that make them thrive? So 0:05:47.800 --> 0:05:49.919 I see a lot of average, you know, businesses that 0:05:49.960 --> 0:05:51.839 I wonder, you know, what, what why would you be 0:05:51.880 --> 0:05:54.360 in that business? Not the denigrade the business by any means, 0:05:54.360 --> 0:05:57.280 but I'm always sort of ranking and contrasting, and I 0:05:57.320 --> 0:05:59.680 think of it in a lot of ways in terms of, 0:05:59.720 --> 0:06:02.200 you know, even though my upbringing wasn't a different business, 0:06:02.640 --> 0:06:04.800 would you want to own this business? I think that's 0:06:04.839 --> 0:06:07.800 the foundation that people miss a lot in stocks and 0:06:07.800 --> 0:06:11.040 in stock market investing when they think about purchasing something, 0:06:11.480 --> 0:06:13.719 you should really think about it in terms of, you know, 0:06:13.760 --> 0:06:15.560 if I was born or had the good fortune to 0:06:15.560 --> 0:06:18.039 be in a wealthy family that came from generations of 0:06:18.040 --> 0:06:21.159 owning a business, is this the one business I would 0:06:21.160 --> 0:06:24.320 want to own? You know? That would critically achieve the 0:06:24.320 --> 0:06:27.599 two goals. You're looking for capital preservation over the long 0:06:27.720 --> 0:06:30.760 term and then an attractive rate of capital compounding. And 0:06:30.800 --> 0:06:33.760 I think when you scrutinize businesses at that higher level 0:06:34.000 --> 0:06:37.240 and think about it generationally, that really helps you when 0:06:37.240 --> 0:06:39.000 you get down to even a short term vehicle like 0:06:39.040 --> 0:06:42.599 the stock market, because you then really dig down into 0:06:43.120 --> 0:06:45.200 what it is that, as I said, makes you want 0:06:45.200 --> 0:06:47.000 to get out of bed in the morning and operate 0:06:47.080 --> 0:06:49.240 that business. And that gets into basic things that play 0:06:49.240 --> 0:06:52.880 out in financial analysis, cash flow returns on invested capital, 0:06:53.000 --> 0:06:56.800 incremental returns invested capital, why you want a strong balance sheet, 0:06:57.520 --> 0:07:01.040 aspects like that. So how do those actors play And 0:07:01.080 --> 0:07:03.280 I should really be careful about the word factors, But 0:07:03.600 --> 0:07:08.440 how do they play into the philosophy of quote quality growth? Yeah, 0:07:08.440 --> 0:07:11.320 and and and it's interesting, you know, we've been exercising 0:07:11.320 --> 0:07:16.240 this investment philosophy for twenty years now very consistently, and 0:07:16.800 --> 0:07:18.360 as I talked about it today, I always have to 0:07:18.360 --> 0:07:21.240 sort of smile and chuckle because twenty years ago, what 0:07:21.280 --> 0:07:25.320 we're saying now, quality and growth, they really weren't a 0:07:26.080 --> 0:07:28.720 style by any means. They weren't a box that now 0:07:28.840 --> 0:07:30.920 investors are sort of put in a little bit in mimicking, 0:07:31.280 --> 0:07:33.280 And I think that's important to recognize because you know, 0:07:33.280 --> 0:07:35.480 one of the important lessons you learn in this business 0:07:35.480 --> 0:07:38.360 too is financial products are sold and not bought. So 0:07:38.440 --> 0:07:41.000 a lot of people use that nomenclature now because that's 0:07:41.040 --> 0:07:44.520 what's worked and it sells well. But I think when 0:07:44.520 --> 0:07:46.720 you peel back a layer of the onion, you find 0:07:46.800 --> 0:07:49.400 when talking to a number of managers who describe themselves 0:07:49.400 --> 0:07:51.560 either as growth or as in now a lot more 0:07:51.600 --> 0:07:55.160 describing them as quality growth. There's a big differentiation in 0:07:55.240 --> 0:07:58.640 terms of how people see businesses. What are they attracted to, 0:07:59.200 --> 0:08:01.160 you know, and an alogy I use a lot as 0:08:01.360 --> 0:08:04.880 you know, business attraction or investment attraction is a lot 0:08:04.920 --> 0:08:08.880 like personal attraction, right, individuals, We are attracted to certain 0:08:08.920 --> 0:08:11.640 other individuals with certain characteristics, and it's very similar I 0:08:11.640 --> 0:08:15.640 think in the investment world those characteristics you're asking about, right, 0:08:15.720 --> 0:08:19.600 we tend to have an affinity and and magnetize towards 0:08:19.640 --> 0:08:24.080 generally less cyclical businesses. Those businesses are just more attractive 0:08:24.080 --> 0:08:27.760 to us on the margin. Less capital intensity in general 0:08:27.840 --> 0:08:30.240 is something that sort of we magnate towards, you know, 0:08:30.320 --> 0:08:33.600 the pre cash flow conversion, the stronger balance sheets, very 0:08:33.640 --> 0:08:37.319 basic principles, but at high standards. I think that's a 0:08:37.400 --> 0:08:41.080 differentiation as well. You know, we life is you know, 0:08:41.200 --> 0:08:44.040 full of as they are, average people and average businesses. Right, 0:08:44.040 --> 0:08:45.400 that's just the nature. There's a lot of us, and 0:08:45.440 --> 0:08:47.920 it's a law of numbers. But when you crank up 0:08:48.000 --> 0:08:51.880 scrutiny to a much smaller subsegment of either highly successful 0:08:51.880 --> 0:08:56.280 people or highly successful businesses, there's a great divergence and 0:08:56.280 --> 0:08:59.079 that divergence, quite frankly, in today's world has gotten even wider. 0:08:59.440 --> 0:09:04.680 Let's talk little bit about your process for selecting stocks. 0:09:05.480 --> 0:09:08.720 Are you purely bottoms up? Do you think about any 0:09:08.760 --> 0:09:10.680 other top down sort of stuff? Tell us a little 0:09:10.679 --> 0:09:14.199 bit about how you approach stock selection. Yeah, I think 0:09:14.240 --> 0:09:17.400 this is also you know what's a common misnomer, uh 0:09:17.400 --> 0:09:21.520 in investing, Uh? That you know you have to get 0:09:21.559 --> 0:09:24.400 the top down right, you know, you have to predict things. 0:09:24.520 --> 0:09:26.440 I think it's just general human nature, you know. I 0:09:26.440 --> 0:09:28.720 think one of the greatest advantages in investing is typically 0:09:28.840 --> 0:09:32.000 behavior management of that's the key of it all. Really. 0:09:32.240 --> 0:09:35.080 You know, the financial analysis, the investment philosophy we're talking 0:09:35.080 --> 0:09:37.960 about today and that i'll describe is one piece. But 0:09:38.120 --> 0:09:41.040 you know, also another powerful analogy I use and explaining 0:09:41.040 --> 0:09:44.720 it is investing is a lot like dieting. Uh. You 0:09:44.760 --> 0:09:47.199 know a lot of people know the keys to living 0:09:47.600 --> 0:09:50.520 typically a longer, healthier, happier life, right, what you should eat, 0:09:50.520 --> 0:09:53.600 what you shouldn't eat, how you should exercise, and those elements. 0:09:53.600 --> 0:09:56.000 The key is discipline, right, and investing I think is 0:09:56.120 --> 0:09:58.120 very similar to that. It comes down to discipline. The 0:09:58.200 --> 0:10:00.400 roadmap is fairly clear and it's been well haide out 0:10:00.400 --> 0:10:04.000 by Warren Buffett years ago. Uh In the roadmap really 0:10:04.160 --> 0:10:07.680 needs to be centered on the business. It's all about 0:10:07.760 --> 0:10:10.080 the business. How good is the business, How will that 0:10:10.120 --> 0:10:13.560 business grow? And how is that sustainable? How that business 0:10:13.600 --> 0:10:17.160 will grow, how will that business endure through economic cycles 0:10:17.160 --> 0:10:19.640 which you inherently will not be able to predict. So 0:10:19.960 --> 0:10:23.200 I think ignoring the top down, while is easier said 0:10:23.200 --> 0:10:26.560 than done, is a key. So we do that. I 0:10:26.600 --> 0:10:28.880 think we really do when we think about businesses and 0:10:28.920 --> 0:10:31.320 as I as I mentioned earlier businesses you'd want to own, 0:10:31.760 --> 0:10:33.440 it sort of forces you we we sort of have 0:10:33.640 --> 0:10:38.040 a private business owner I would say somewhat private equity mentality, 0:10:38.120 --> 0:10:41.680 but we happen to be operating in the listed equity sphere, 0:10:41.720 --> 0:10:44.280 which gives us a liquidity advantage, you know. So it 0:10:44.320 --> 0:10:46.680 also allows us to own great businesses which we choose 0:10:46.679 --> 0:10:48.959 bottom up. But we can wake up every day and 0:10:49.000 --> 0:10:50.960 look at the screens and see what values the market 0:10:51.000 --> 0:10:54.280 is striking on those businesses and improve the quality of 0:10:54.320 --> 0:10:56.679 what we own for our investors, which is something as 0:10:56.679 --> 0:10:59.160 a dynamic a private investor can't do, or a private 0:10:59.160 --> 0:11:01.920 equity investor can't do. As quickly. So, so let's talk 0:11:01.920 --> 0:11:06.280 about that bottoms up approach. When you're thinking about stock selection, 0:11:06.480 --> 0:11:09.800 how does that process begin? Are you screening things based 0:11:09.840 --> 0:11:13.880 on value? What tell us what what the process is 0:11:13.920 --> 0:11:18.160 like of ultimately saying we're gonna buy this but not that. Yeah, 0:11:18.200 --> 0:11:19.920 I think the key as you start quant and you 0:11:20.000 --> 0:11:23.080 go than heavy qualitative after that, and I think, so 0:11:23.120 --> 0:11:25.880 what's the plant screen to begin with? The quant piece 0:11:26.000 --> 0:11:28.520 is key, and that I think first where you should 0:11:28.520 --> 0:11:32.520 approach quant is first from an elimination standpoint, negative screening. 0:11:32.600 --> 0:11:35.920 When most people think of quant and screening use the 0:11:35.960 --> 0:11:39.199 word screening typically it sort of has a connoctation that 0:11:39.240 --> 0:11:41.760 you're looking for something when actually what you should be 0:11:41.760 --> 0:11:45.080 doing is eliminating things. First and foremost, you want to 0:11:45.120 --> 0:11:48.560 really narrow the world down because one, there's only so 0:11:48.559 --> 0:11:50.240 many hours in a day, there's a much, so much 0:11:50.440 --> 0:11:52.360 so much firepower you have it or bring to bear 0:11:52.360 --> 0:11:54.800 in the research process. But also you want to just 0:11:54.840 --> 0:11:58.120 fishing a riper pond of opportunity because that greatly reduces 0:11:58.240 --> 0:12:00.920 risk as well over the long run by eliminating as 0:12:00.920 --> 0:12:04.520 I've described, average or lower quality businesses. So we squat 0:12:04.559 --> 0:12:07.840 screen to begin with it's not highly complicated. I'd say 0:12:07.880 --> 0:12:10.600 in terms of variables, you're looking for returns on invested capital, 0:12:10.640 --> 0:12:14.480 returns on equity, stability and operating margins, strength of balance sheet. 0:12:14.720 --> 0:12:18.720 I think the basic variables are easy. You then, though, 0:12:19.520 --> 0:12:22.200 improve it by looking for levels of those variables, so 0:12:22.840 --> 0:12:25.960 cranking up the scrutiny of the levels of variables you're 0:12:26.000 --> 0:12:29.520 willing to accept. But also then critically, what's key is 0:12:29.559 --> 0:12:33.360 the track record, So you want clean track records as well, 0:12:33.360 --> 0:12:36.080 and I think that's glossed over once again going back 0:12:36.120 --> 0:12:38.720 to this human element, right, and when you say track record, 0:12:38.760 --> 0:12:42.280 you're not referring to the stock performance. You're referring specifically 0:12:42.280 --> 0:12:45.400 to the performance of the underlying business exactly. You want 0:12:45.400 --> 0:12:47.760 to start with businesses that have been great, that have 0:12:47.840 --> 0:12:50.920 proven to be great, and are demonstrating that in numbers, 0:12:50.960 --> 0:12:54.040 and that's what you're looking for. You're eliminating the poor numbers, 0:12:54.080 --> 0:12:56.760 and you're critically looking for the clean track record of 0:12:56.760 --> 0:13:00.400 good numbers because that's not a perfect predictor of future SESS, 0:13:00.679 --> 0:13:02.600 it does get you over a one ft hurdle and 0:13:02.640 --> 0:13:05.680 points you in the right direction and makes your future 0:13:05.720 --> 0:13:09.920 looking decision much higher. Probability that Sh'll be right about that. 0:13:10.280 --> 0:13:13.240 So I think that's that's a big key track record, 0:13:13.280 --> 0:13:15.439 and that's where I'd say go back to this human 0:13:15.440 --> 0:13:18.600 element or behavioral aspect. A lot of people don't want 0:13:18.600 --> 0:13:20.240 to do that because we have a human tendency to 0:13:20.280 --> 0:13:22.000 try to want to be smart or smarter. Right. We 0:13:22.040 --> 0:13:24.560 want to try to predict what's going to be great 0:13:24.600 --> 0:13:28.160 tomorrow that wasn't great yesterday, Right, But we try to 0:13:28.200 --> 0:13:30.040 start in a good place, things that have been great, 0:13:30.080 --> 0:13:32.319 and then make an easier, albeit still difficult decision. I 0:13:32.400 --> 0:13:34.840 can they keep doing it. Let's talk a little bit 0:13:34.840 --> 0:13:38.600 about high conviction. How does that come into play. You've 0:13:38.600 --> 0:13:41.400 gone through the negative screen, remove the names you're not 0:13:41.480 --> 0:13:44.320 interested in. Now you've done the positive work, and you've 0:13:44.320 --> 0:13:48.120 identified fundamentally what you like. How do you take that 0:13:48.360 --> 0:13:52.000 somewhat lengthy list I would imagine, and reduce it down 0:13:52.040 --> 0:13:56.800 to a smaller concentrated high conviction list. Yeah. I think 0:13:56.840 --> 0:13:59.079 the sort of genesis of that is two things. You know, 0:13:59.120 --> 0:14:01.120 if I look back at you know, college, I sort 0:14:01.120 --> 0:14:03.240 of learned two things, one related to your question and 0:14:03.280 --> 0:14:06.600 one that comes before it. I think one the power 0:14:06.679 --> 0:14:10.079 of protecting capital and down markets and then being long 0:14:10.160 --> 0:14:13.720 though consistently through markets to participateate and and really be 0:14:13.760 --> 0:14:15.760 able to compound capital over the long term. You know, 0:14:15.800 --> 0:14:18.000 the classic numbers of you don't want to miss out 0:14:18.000 --> 0:14:20.400 the biggest updates and markets by trying to time the 0:14:20.400 --> 0:14:22.640 market once again, trying to get away from this top 0:14:22.680 --> 0:14:25.640 down you know, pitfall that most people fall into. So 0:14:25.680 --> 0:14:28.760 I learned that very valuable lesson about preservation, but staying 0:14:28.800 --> 0:14:30.400 long through the market, and you do that. I think 0:14:30.400 --> 0:14:33.040 through quality you can do that, uh. And I think 0:14:33.040 --> 0:14:36.880 the second aspect then of it, UH is risk management. 0:14:36.960 --> 0:14:39.080 You know, you learn to throw out a lot of 0:14:39.160 --> 0:14:42.280 unfortunately what you learn in college about classic risk management 0:14:42.280 --> 0:14:45.000 because at the heart of your question about concentration, that's 0:14:45.040 --> 0:14:48.080 really about risk management, and that flies in the face 0:14:48.120 --> 0:14:50.880 of classic risk management theory right of owning smaller pieces 0:14:50.880 --> 0:14:55.040 of more things to be diversifated, diversified to be lower risk. Actually, 0:14:55.080 --> 0:14:56.800 I think that's completely wrong. What you want to do 0:14:56.880 --> 0:15:00.400 is more own more of less things, but better things 0:15:00.680 --> 0:15:03.400 to reduce risk. And that's something we really capitalize on 0:15:03.720 --> 0:15:07.040 and our portfolios just make sure we are concentrated with 0:15:07.120 --> 0:15:12.440 capital with much larger positions behind just inherently much better businesses, 0:15:12.560 --> 0:15:17.000 much more stable, predictable, higher economic return businesses, better cash 0:15:17.000 --> 0:15:20.280 flow profiles. If you put more money behind them, it 0:15:20.400 --> 0:15:23.960 is much lower risk than buying smaller slivers of relatively 0:15:24.000 --> 0:15:26.800 lower quality companies. And then what goes hand in hand 0:15:26.840 --> 0:15:30.000 with that, as you build that portfolio bottom up, you 0:15:30.080 --> 0:15:32.640 end up looking what's now called a new term that's 0:15:32.640 --> 0:15:35.880 been coined more recently benchmark agnostic or benchmarking different. You 0:15:35.960 --> 0:15:38.920 end up looking a whole lot different than the market 0:15:39.040 --> 0:15:41.840 by as a byproduct of your concentration and bottom up 0:15:41.880 --> 0:15:44.360 stock picking, which people are also finding adds a whole 0:15:44.400 --> 0:15:46.640 lot of value to in terms of delivering outphit and 0:15:46.640 --> 0:15:50.080 avoiding mistakes. So you have a lot of institutional investors. 0:15:50.520 --> 0:15:53.960 They're measured by a benchmark, and I would imagine they 0:15:54.000 --> 0:15:57.640 have pressure to measure you by a benchmark. What are 0:15:57.640 --> 0:16:01.920 those conversations like when one says, hey, you're either beating 0:16:02.000 --> 0:16:05.520 or under performing a benchmark, how do you explain, well, 0:16:05.600 --> 0:16:08.880 we're kind of indifferent to the benchmark. What are those 0:16:08.880 --> 0:16:11.720 conversations like, Yeah, this is UH. I think there's two 0:16:11.800 --> 0:16:14.400 keys to this. UH number one. And then since we're 0:16:14.400 --> 0:16:16.360 in you know, new York City. I'll use the great 0:16:16.360 --> 0:16:18.640 Billy Joel quote. You know, when we spend a lot 0:16:18.640 --> 0:16:21.400 of time bringing our investors on board, I say, you know, 0:16:21.480 --> 0:16:23.480 you might think we're crazy, but we might. We just 0:16:23.560 --> 0:16:26.360 might be the lunatic you're looking for, as a classic 0:16:26.440 --> 0:16:29.160 quote goes, because you've got to really see risk as 0:16:29.200 --> 0:16:31.200 we see it, and it's a binary thing. Some people 0:16:31.240 --> 0:16:34.120 don't buy into that, you know, they can't wrap their 0:16:34.120 --> 0:16:36.000 head around it, or they just fundamentally don't believe it. 0:16:36.040 --> 0:16:38.920 They believe more in the classic risk theory we've talked about. 0:16:39.120 --> 0:16:41.160 But if you can get people to buy into that 0:16:41.200 --> 0:16:43.280 and understand it, and it really helps to show them 0:16:43.320 --> 0:16:47.000 the past success of utilizing a strategy like that, I 0:16:47.000 --> 0:16:50.600 think that's step one. Step two is your question is 0:16:50.680 --> 0:16:53.680 right on point. You know, you're managing people who all 0:16:53.680 --> 0:16:56.240 have constituents, and your constituents have constituents, and that's what's 0:16:56.240 --> 0:16:59.240 made this business generally more complicated over time, more people watching, 0:16:59.320 --> 0:17:02.440 with more visibility and more numbers. How do you how 0:17:02.480 --> 0:17:05.639 do you explain things over the short term where benchmark 0:17:05.640 --> 0:17:09.560 in different can cause meaningful relative underperformance. Right, But that's 0:17:09.600 --> 0:17:11.840 the price of admission, you know, that's the price to 0:17:11.840 --> 0:17:14.800 be paid. For great long term out performance, you have 0:17:14.960 --> 0:17:19.439 to absolutely underperform in certain certain shorter periods. And the 0:17:19.520 --> 0:17:22.560 key to that is education and communication, you know. So 0:17:22.600 --> 0:17:25.680 it's the buying and the client institutional or retail on 0:17:25.720 --> 0:17:28.760 the onset. So we are that we are the person 0:17:28.800 --> 0:17:31.679 they're looking for. We are the match because our strategy 0:17:31.680 --> 0:17:33.639 in terms of what we want to own, what we 0:17:33.680 --> 0:17:36.320 won't own, and how we view risk resonates with them. 0:17:36.400 --> 0:17:38.600 And then once they are on board, you know, I 0:17:38.640 --> 0:17:41.000 also say there's two pieces of the job from an 0:17:41.000 --> 0:17:43.679 investing standpoint. One is to deliver the returns on paper, 0:17:44.040 --> 0:17:47.240 which is important, but the second aspect, which is equally 0:17:47.240 --> 0:17:50.680 as important, is getting the client to realize those returns 0:17:50.720 --> 0:17:53.600 by staying on board with you for that journey. And 0:17:53.600 --> 0:17:56.439 that's why the client journey is very important to us. 0:17:56.480 --> 0:17:59.359 And you manage that through a lot of transparency, a 0:17:59.400 --> 0:18:03.240 lot of open communication, a lot of hand holding. That's 0:18:03.359 --> 0:18:05.960 that's half of your job as an investment manager, you know, 0:18:06.040 --> 0:18:08.040 not just to put the returns on the paper, but 0:18:08.160 --> 0:18:11.679 to keep the person on the bus over that journey. 0:18:11.720 --> 0:18:14.800 And the key to that is less volatility. Typically, you know, 0:18:14.840 --> 0:18:17.960 it's good it's by products of equality growth style, whereby 0:18:18.000 --> 0:18:22.000 your downside capture protection is high, right, you preserve capital 0:18:22.160 --> 0:18:26.479 much better when things fall apart recession comes about. And 0:18:26.520 --> 0:18:30.679 then also your overall volatility is dampened over time because 0:18:30.920 --> 0:18:33.280 your businesses are just better and they're not subject to 0:18:33.320 --> 0:18:36.280 wild swings of volatility. So if you can keep the 0:18:36.400 --> 0:18:40.080 ride less bumpy, you definitely have a much better chance 0:18:40.119 --> 0:18:42.520 of keeping your investor in their seat over the ride, 0:18:42.520 --> 0:18:44.800 and then you can accomplish the two key features the 0:18:44.920 --> 0:18:47.280 returns and having the client there at the end point. 0:18:47.400 --> 0:18:51.280 So so let's address that concept of client journey, because 0:18:51.480 --> 0:18:54.600 I find that very fascinating. There have been a number 0:18:54.720 --> 0:18:58.800 of del Bar studies and other studies that look at 0:18:59.080 --> 0:19:03.240 investor behavior here, and the most common takeaway seems to 0:19:03.320 --> 0:19:10.199 be investors underperform their own investments, meaning they'll join the 0:19:10.240 --> 0:19:13.040 bus at the top of the hill and they'll jump 0:19:13.080 --> 0:19:15.639 out at the first move down, but it might just 0:19:15.720 --> 0:19:18.240 be a little dip and then we're back heading up 0:19:18.240 --> 0:19:21.679 the hill. Meaning they buy high, they sell low. They 0:19:21.720 --> 0:19:24.000 don't write it out for a full cycle. They don't 0:19:24.000 --> 0:19:26.800 give a manager an opportunity to demonstrate, hey, if you 0:19:26.840 --> 0:19:30.240 bind the philosophy, here's where you should end up over 0:19:30.359 --> 0:19:33.480 five or ten years. How do you deal with that 0:19:33.800 --> 0:19:38.000 client journey aspect. Is it just education and communication from 0:19:38.040 --> 0:19:42.159 the beginning or is that an ongoing issue that requires 0:19:42.200 --> 0:19:45.520 regular reinforcement. I think it's two things. It's one the 0:19:45.560 --> 0:19:48.640 piece you just mentioned, the ladder, the communication. But one 0:19:48.760 --> 0:19:52.040 it's via this investment philosophy and style that's critical. And 0:19:52.080 --> 0:19:55.000 I'll explain that because at the heart of it is 0:19:55.320 --> 0:19:57.080 what you mentioned. You know this these old studies, and 0:19:57.080 --> 0:19:58.560 I actually haven't seen the study in a while, but 0:19:58.600 --> 0:20:01.400 I'm sure that the numbers are quite similar those classic 0:20:01.440 --> 0:20:03.880 studies of US mutual fund investors. As you pointed out, 0:20:04.160 --> 0:20:06.040 the returns of look great over the long term on paper, 0:20:06.040 --> 0:20:08.399 but most investors have never achieved those returns because of 0:20:08.640 --> 0:20:12.360 the dynamic you're talking about. And quite frankly, for average 0:20:12.400 --> 0:20:15.760 or lower quality businesses, and often a benchmark, you might 0:20:15.920 --> 0:20:19.439 need to have a higher timing element because those businesses 0:20:19.520 --> 0:20:21.760 can be mean reverting. If you have a portfolio of 0:20:21.760 --> 0:20:25.359 lower quality businesses, whether benchmark or an active manager with 0:20:25.440 --> 0:20:29.479 just lower quality businesses, your timing is very important. Right 0:20:29.720 --> 0:20:32.480 The businesses themselves are going to be mean reverting in 0:20:32.480 --> 0:20:34.520 their economics. If you're in the energy space or bastion 0:20:34.640 --> 0:20:38.359 materials ships, those are commodity industries and those commodity prices 0:20:38.400 --> 0:20:41.080 are going to fluctuate, so you better buy low and 0:20:41.160 --> 0:20:44.199 sell high to make your money. What we want to 0:20:44.200 --> 0:20:48.560 do alongside the communication is with higher quality businesses that 0:20:48.600 --> 0:20:51.760 have these elements we've talked about, lesstality, more durability, a 0:20:51.880 --> 0:20:54.840 real long tail or runway of growth not just one year, 0:20:54.880 --> 0:20:59.200 but five, seven, ten, fifty. When you have those types 0:20:59.200 --> 0:21:03.639 of businesses, you really can hold through downturns. It's a 0:21:03.880 --> 0:21:06.280 it's a it's a slight nuanced to understand. Right, it's 0:21:06.280 --> 0:21:09.040 a fallacy to hold a really great business when when 0:21:09.080 --> 0:21:11.720