WEBVTT - Why Contrarians Can't Get Enough of Real Assets 0:00:02.720 --> 0:00:19.160 Bloomberg Audio Studios, Podcasts, radio News. Welcome to Merin Talks Money, 0:00:19.200 --> 0:00:21.439 the podcast in which people who know the markets explain 0:00:21.520 --> 0:00:23.639 the markets. I'm Maren zum Zett Web and this week 0:00:23.680 --> 0:00:26.720 I am speaking with Merrin Talks Money regular Alec Cutler, 0:00:26.880 --> 0:00:30.640 manager of the August Global Balanced and Cautious Funds Always Investments, 0:00:30.720 --> 0:00:33.319 is a global contrarian as a manager, focusing on long 0:00:33.400 --> 0:00:36.559 term capital by investing in under valued stocks. Now this 0:00:36.800 --> 0:00:39.920 is paying off big time. If you have a look 0:00:39.920 --> 0:00:43.040 at the performance of Alex funds recently, they are really 0:00:43.360 --> 0:00:48.240 very impressive, beating pretty much every competitor in every index 0:00:48.320 --> 0:00:52.600 over the short and the long term. So Alec, welcome 0:00:52.600 --> 0:00:53.880 back to Marion Talks Money. 0:00:54.120 --> 0:00:56.480 Thank you, nice to be back. And I hope you 0:00:56.520 --> 0:00:57.200 didn't jinx me. 0:00:57.880 --> 0:01:00.520 I didn't jinx you. That's not a jinxing because that's 0:01:00.520 --> 0:01:03.720 not what we do. We leave the witchcraft to other podcasts. Okay, good, 0:01:03.760 --> 0:01:08.639 It's a big market out there. Everyone can have their specialism, Alec. 0:01:09.840 --> 0:01:13.640 Quite a lot has changed since we lost spoke, but 0:01:14.040 --> 0:01:18.760 nothing that I think your portfolio isn't already organized around. 0:01:18.880 --> 0:01:19.559 Last time we. 0:01:19.480 --> 0:01:23.440 Spoke about energy, we spoke about infrastructure, we spoke about 0:01:23.480 --> 0:01:27.440 the return of value investing, and in general, we framed 0:01:27.480 --> 0:01:31.319 the conversation inside the pyramid of need. I'll tell you what, 0:01:31.480 --> 0:01:35.000 Rather than me explain your own idea to you, you 0:01:35.080 --> 0:01:38.319 explained to us about your pyramid of need idea and 0:01:38.400 --> 0:01:41.760 how it is central to your current investing process. 0:01:42.280 --> 0:01:45.319 Sure Maslow came up with this thing called the pyramidive 0:01:45.400 --> 0:01:51.160 need for a human and the concept was that you 0:01:51.200 --> 0:01:54.320 needed to take care of your physiological needs, your shelter 0:01:54.520 --> 0:01:58.840 and housing and warmth and food, and then you needed 0:01:58.880 --> 0:02:01.480 to deal with your safety. Once you had your food 0:02:01.520 --> 0:02:04.680 and your shelter set, you needed to keep people from 0:02:04.680 --> 0:02:07.320 taking that from you, whether it be a saber tooth 0:02:07.360 --> 0:02:11.960 tiger or your neighbor. Then you could afford to need 0:02:12.080 --> 0:02:15.760 things like social belonging. And once you got that, once 0:02:15.760 --> 0:02:18.160 you got your crowd, your tribe, or whatever, you then 0:02:18.400 --> 0:02:22.720 could think about things like self esteem and self actualization 0:02:22.960 --> 0:02:26.360 the top of the pyramid. And our thinking was and 0:02:26.600 --> 0:02:29.919 has been and is that this also applies to countries 0:02:30.960 --> 0:02:34.400 and nations, and that if you think about it, some 0:02:34.480 --> 0:02:36.960 investment ideas pop out. But if you think about that 0:02:37.040 --> 0:02:40.239 base layer, the foundational layer of a nation's pyramid of needs. 0:02:40.240 --> 0:02:45.280 It's things like national security, food security, energy security, and 0:02:45.360 --> 0:02:47.440 right above that, if you take care of those things, 0:02:47.560 --> 0:02:51.519 then you can think about industrial security, and then above 0:02:51.560 --> 0:02:55.519 that financial security. And at the top of the pyramid 0:02:55.600 --> 0:03:00.960 the wants, the entertainment, popularity, and again self esteem. And 0:03:01.000 --> 0:03:03.760 we came up with this towards the tail end of 0:03:03.800 --> 0:03:07.400 the ESG movements like geist whatever you wanted to call it, 0:03:07.480 --> 0:03:10.600 because it struck us that things have been so good 0:03:10.720 --> 0:03:13.080 for so long we were living in a land of 0:03:13.120 --> 0:03:18.240 plenty with no danger. That nations became super focused on 0:03:18.280 --> 0:03:22.200 the top of the pyramid the wants and completely forgot 0:03:22.240 --> 0:03:25.120 about the foundational layers and took them for granted, like 0:03:26.520 --> 0:03:28.959 where does electricity come from? It comes from the switch 0:03:29.000 --> 0:03:31.920 on the wall. No understanding of how that foundation was 0:03:31.960 --> 0:03:35.200 built over decades and decades to allow you to have 0:03:35.280 --> 0:03:39.200 this high standard of living in abundance, and that it 0:03:39.240 --> 0:03:42.800 shouldn't be taken for granted. And if we've learned anything 0:03:42.840 --> 0:03:45.080 in the last five six years, it's that from the 0:03:45.120 --> 0:03:49.160 pandemic one that this stuff isn't guaranteed and needs to 0:03:49.200 --> 0:03:52.360 be focused on and lo and behold a lot of 0:03:52.360 --> 0:03:55.520 the performance that we've achieved some from the world start 0:03:55.560 --> 0:03:56.360 to understand that. 0:03:57.080 --> 0:04:00.440 Yeah, it's interesting, isn't it, And that even now when 0:04:00.440 --> 0:04:03.040 we're in an environment where we really need to be 0:04:03.080 --> 0:04:06.400 thinking about national security, about food security, about energy security, 0:04:06.440 --> 0:04:08.320 all the things at the bottom of your pyramid, and 0:04:08.400 --> 0:04:11.720 industrial security obviously is actually part of national security, isn't it, 0:04:11.720 --> 0:04:14.440 Because that's how you win wars, by having a strong 0:04:14.520 --> 0:04:17.239 industrial base that you can keep churning out the stuff 0:04:17.279 --> 0:04:21.120 you need during a war. So stea, Yeah, all these 0:04:21.120 --> 0:04:25.960 things are connected. But yet across Europe and certainly in 0:04:26.040 --> 0:04:29.000 the UK, we continue to talk about it, expanding the 0:04:29.040 --> 0:04:31.440 things at the top without really focusing on the bottom. 0:04:31.480 --> 0:04:34.520 You know, it takes a long time for people to 0:04:34.640 --> 0:04:39.960 realize that they've neglected the base of a successful society. 0:04:41.120 --> 0:04:43.119 Yeap, it can take a long time. It can happen 0:04:43.120 --> 0:04:44.080 all at once, too. 0:04:45.120 --> 0:04:47.719 Yes, And is it slightly about to happen all at once? 0:04:48.800 --> 0:04:51.120 Maybe we'll see maybe. 0:04:51.320 --> 0:04:54.880 Okay, So let's look at the environment where we're in now, 0:04:55.080 --> 0:04:57.560 the war with Iran has I keep getting bits of 0:04:57.600 --> 0:04:59.640 research from people alec and they all say there are 0:04:59.680 --> 0:05:02.400 three part possible scenarios here, and every single one of 0:05:02.480 --> 0:05:05.479 those three scenarios is different in every note I get, 0:05:05.520 --> 0:05:07.560 so there will probably be at this point about fifty 0:05:07.640 --> 0:05:11.839 possible scenarios, but they come down to war over quickly 0:05:12.440 --> 0:05:14.000 war dragging out for a long time. 0:05:14.480 --> 0:05:18.039 Both have slightly different results. 0:05:17.600 --> 0:05:21.320 In terms of microeconomics, but possibly they have the same 0:05:21.400 --> 0:05:26.200 result in terms of the way people think about their 0:05:26.240 --> 0:05:29.800 investments in that however long the war goes on, everyone 0:05:29.920 --> 0:05:32.680 in the investment world is still going to be looking 0:05:32.760 --> 0:05:35.799 at the bottom of this pyramid and saying, what's been neglected, 0:05:36.000 --> 0:05:37.920 what is less expensive than it should be? And I 0:05:38.000 --> 0:05:40.200 think last time you came on, we talked about the 0:05:40.240 --> 0:05:42.400 price people are willing to pay for a company involved 0:05:42.400 --> 0:05:44.520 in in AI, and that price people are willing to 0:05:44.560 --> 0:05:47.000 pay for a company that digs out of the ground 0:05:47.120 --> 0:05:50.479 all of the things that are absolutely necessary for that 0:05:50.600 --> 0:05:51.880 technology to even. 0:05:51.680 --> 0:05:52.640 Begin to exist. 0:05:52.720 --> 0:05:54.839 And as some price, we were to find that people 0:05:54.880 --> 0:05:57.680 will pay five, six, seven times the price for the 0:05:57.839 --> 0:06:01.800 uncertain technology, then they will pay for the underpinning of 0:06:01.800 --> 0:06:04.840 that technology. Now that I think is the shift that 0:06:05.320 --> 0:06:09.000 is now underway. People are beginning to care less about 0:06:09.000 --> 0:06:10.960 the top of the pyramid and are a lot more 0:06:11.000 --> 0:06:13.400 about the bottom, and they're going to start paying off 0:06:13.400 --> 0:06:15.560 for the bottom. And when we framed this John and 0:06:15.560 --> 0:06:17.280 I and we were talking about it the other day, 0:06:17.560 --> 0:06:20.160 as people are now going to pay an awful lot 0:06:20.240 --> 0:06:23.320 less for hope and an awful lot more for the 0:06:23.360 --> 0:06:24.400 avoidance of despair. 0:06:24.720 --> 0:06:27.360 Yeah, we're seeing that and it does fill us with 0:06:27.520 --> 0:06:31.000 joy to see the world starting to figure out that 0:06:31.160 --> 0:06:34.080 who's actually making money on AI. It isn't clear that 0:06:34.120 --> 0:06:38.640 it's going to be Meta or Amazon or Microsoft. It's 0:06:38.760 --> 0:06:41.880 very clear that it's going to be and is Taiwan 0:06:41.960 --> 0:06:47.839 Semiconductor and Demon's Energy and the Marcellus oil producers, gas producers, 0:06:48.440 --> 0:06:52.640 and you're starting to see investment capital shift from the 0:06:52.680 --> 0:06:54.960 former to the latter, going for the sure thing. 0:06:55.279 --> 0:06:57.680 Given that you've just mentioned Taiwan, let's just stop there 0:06:57.680 --> 0:07:00.880 for a minute and talk about the energy construction that 0:07:00.920 --> 0:07:03.000 people are now working under. And this is quite a 0:07:03.000 --> 0:07:05.159 big deal, right. So a lot of these Asian economies 0:07:05.200 --> 0:07:07.440 and Japan, which we've talked about a lot over the years, 0:07:07.640 --> 0:07:09.720 and many of the other economies in that region, are 0:07:09.760 --> 0:07:13.520 dependent fifty percent plus on their energy coming in from 0:07:13.880 --> 0:07:17.320 the Middle East. So it may be that we're getting 0:07:17.560 --> 0:07:20.160 to a point where maybe those aren't the places where 0:07:20.200 --> 0:07:21.080 you want to be investing. 0:07:21.440 --> 0:07:23.280 We've seen a lot of volatility. For example, in the 0:07:23.320 --> 0:07:24.320 Korean market. 0:07:24.720 --> 0:07:27.640 There is gas around. There's an incredible amount of gas around. 0:07:27.680 --> 0:07:29.280 It just you may have to get it from Canada 0:07:29.400 --> 0:07:33.200 or the US, but you do need to. Every country 0:07:33.200 --> 0:07:40.640 needs to focus on its own controllable energy resource. Korea 0:07:40.760 --> 0:07:44.920 and Japan are not well endout with energy resources, so 0:07:45.000 --> 0:07:47.680 something like nuclear is obvious for them, and they do 0:07:47.720 --> 0:07:49.760 push pretty hard on that. Japan took a bit of 0:07:49.760 --> 0:07:53.160 a hiatus for a good reason, but they're coming flying 0:07:53.200 --> 0:07:57.840 back with an emphasis on nuclear. Hopefully we can leverage 0:07:57.840 --> 0:07:58.880 that in our investments. 0:08:00.080 --> 0:08:02.840 Resent in your investments, I know that you've been heavily 0:08:02.840 --> 0:08:05.800 invested across the energy area for a while now, and 0:08:05.840 --> 0:08:09.239 you're also heavily invested in the UK now. Interestingly, last 0:08:09.240 --> 0:08:12.640 week's guest talked about the UK and he said he'd 0:08:12.680 --> 0:08:16.640 be loath to invest in the UK because of the 0:08:16.840 --> 0:08:20.800 self destructive energy policies in place here, and if you 0:08:20.800 --> 0:08:22.840 were looking for somewhere to invest in, you were doing 0:08:22.880 --> 0:08:26.200 it by region. In an ideal world, you'd start by saying, 0:08:26.360 --> 0:08:30.880 if all economic activity is energy transformed, does this region 0:08:31.080 --> 0:08:35.040 or this country provide its industry with the route to 0:08:35.160 --> 0:08:38.400 inexpensive energy, and the answer to that question in the 0:08:38.480 --> 0:08:40.240 UK is absolutely not. 0:08:40.679 --> 0:08:42.240 But your take is different, right. 0:08:42.280 --> 0:08:45.160 I think our takes very different in that that's a problem, 0:08:45.440 --> 0:08:48.360 but we can invest in the solutions and when need 0:08:48.440 --> 0:08:51.840 to take into account valuation, as we've been very overweight 0:08:51.920 --> 0:08:54.960 the UK for a very long time, and even though 0:08:54.960 --> 0:08:58.400 the names have done very well, we're still thirteen percent 0:08:58.440 --> 0:09:01.720 weighted in the Balance Fund and eight percent weighted in 0:09:01.800 --> 0:09:07.200 the Global Costious Fund in UK equities which is three, 0:09:07.320 --> 0:09:09.360 four or five, I don't know, six seven times at 0:09:09.360 --> 0:09:12.680 the global waiting and we're invested in those providing the 0:09:12.679 --> 0:09:14.040 solutions to that problem. 0:09:14.720 --> 0:09:19.360 Had some of those extraordinary performers Rolls Royce, Hunting, Balfa 0:09:19.360 --> 0:09:19.839 Bet etc. 0:09:20.679 --> 0:09:23.319 They've been wonderful stocks that because we've been able to 0:09:23.320 --> 0:09:24.880 hold them for a very long time because we bought 0:09:24.920 --> 0:09:28.000 them at four or five and six times earnings and 0:09:29.440 --> 0:09:32.520 they've produced a lot of earnings despite the people being 0:09:32.559 --> 0:09:35.760 down in the UK. Balfour BET's earnings are up I 0:09:35.760 --> 0:09:39.520 think four or five fold, and we were buying Balfour 0:09:39.559 --> 0:09:41.560 Bet when it was selling at a fraction of the 0:09:41.679 --> 0:09:46.920 value of their infrastructure investments plus cash. It's still Balfour's 0:09:47.000 --> 0:09:51.479 up four x and it's still just at a premium 0:09:51.559 --> 0:09:57.080 to net cash plus their infrastructure investments. This is the 0:09:57.160 --> 0:10:01.120 largest invest managed, insurance, construction engineering company in the world 0:10:02.000 --> 0:10:05.440 that's making and solving the problems that we've just stated 0:10:05.520 --> 0:10:08.040 about energy security and energy supply. 0:10:08.360 --> 0:10:11.320 Yeah, and infrastructure in general across the western world. We're 0:10:11.320 --> 0:10:14.200 moving right into an infrastructure replacement cycle, right, and we 0:10:14.280 --> 0:10:16.040 have to. We talk about the grid a lot, but 0:10:16.040 --> 0:10:17.960 it's not just a grid. It's pretty much every other 0:10:18.000 --> 0:10:20.480 part of infrastructure. Definitely, if you drive around the US, 0:10:20.520 --> 0:10:22.320 you drive around the UK, you can look at that 0:10:22.440 --> 0:10:25.200 and go time once in a generational refit. 0:10:25.720 --> 0:10:28.640 The thing that's driving the pyramidive needs is also a 0:10:28.640 --> 0:10:33.439 realization that countries are on their own, that they have 0:10:33.520 --> 0:10:36.040 to operate in their own self interest because the other 0:10:36.080 --> 0:10:40.080 countries are operating their own self interest. So the UK 0:10:40.240 --> 0:10:43.760 can't rely on the United States to provide its natural 0:10:43.800 --> 0:10:47.240 gas and oil, which it largely is dependent on. You 0:10:47.280 --> 0:10:49.800 have for the rumor yesterday or the day before, was 0:10:49.800 --> 0:10:53.319 that Trump was going to stop all oil and gas exports. 0:10:54.760 --> 0:10:57.640 That's where Europe and UK gets the cask, which. 0:10:57.440 --> 0:10:58.240 He easily could. 0:10:58.360 --> 0:11:00.360 And in a period of shortage, why should did each 0:11:00.400 --> 0:11:03.160 country not limit their own exports. There's a long history 0:11:03.320 --> 0:11:05.840 of this happening in times of conflict, right countries just 0:11:05.840 --> 0:11:07.000 saying do you know what this is on? And we're 0:11:07.000 --> 0:11:08.080 going to hang on to it for now, and you 0:11:08.080 --> 0:11:10.760 guys can take care of yourself. And the UK, having 0:11:10.760 --> 0:11:13.120 shown itself as the US says, to be a relatively 0:11:13.200 --> 0:11:16.640 unreliable partner to the US, isn't necessarily always going to 0:11:16.679 --> 0:11:20.000 be in receipt of American lodgess. 0:11:20.320 --> 0:11:25.880 Global cooperation is an incredibly recent phenomenon that's very short lived. 0:11:26.679 --> 0:11:30.280 And for people our age growing up in a period 0:11:30.280 --> 0:11:36.680 of global cooperation and globalization, that's what we knew, that's 0:11:36.679 --> 0:11:38.680 what we've known, and that's what we think is always 0:11:38.720 --> 0:11:41.080 going to be the case. But we've lived in just 0:11:41.120 --> 0:11:43.840 a fraction of the history of the world, in history 0:11:43.880 --> 0:11:47.520 of humanity, and that will wind up being a very 0:11:47.640 --> 0:12:07.880 unusual time in the world's history. 0:12:14.040 --> 0:12:15.440 Okay, So let's stick with the UK. 0:12:15.520 --> 0:12:17.120 So just bigle, you're going to hang on to all 0:12:17.120 --> 0:12:19.640 those big names, hang on to Belford, Beattie, hang on 0:12:19.679 --> 0:12:20.240 to drags. 0:12:20.480 --> 0:12:22.280 Not always a popular holding shell. 0:12:22.400 --> 0:12:24.959 You've got rolls Royceness it said earlier hunting, you'll be 0:12:25.040 --> 0:12:25.520 hanging on too. 0:12:25.520 --> 0:12:26.480 All those we. 0:12:26.679 --> 0:12:27.920 Shuffle them around a little bit. 0:12:28.240 --> 0:12:30.560 We do focus on risk and control, so we can't 0:12:30.600 --> 0:12:32.520 just let things go to go to the sky. 0:12:33.200 --> 0:12:34.520 And we keep finding new names. 0:12:34.520 --> 0:12:37.559 So the UK is just a is a wonderful hunting 0:12:37.600 --> 0:12:42.400 ground for contrarian, super cheap names that no one wants, 0:12:42.400 --> 0:12:44.040 and we get laughed at when we buy and then 0:12:44.080 --> 0:12:47.080 five six, seven years later people begin to understand why 0:12:47.120 --> 0:12:48.079 we were happy to own them. 0:12:48.640 --> 0:12:50.320 No, well, we might come back to some more of those, 0:12:50.360 --> 0:12:52.640 but you have you tell me being building a bit 0:12:52.640 --> 0:12:54.920 of a position in companies operating in the North Sea 0:12:55.040 --> 0:12:58.960 Explanation and production Serica Ethaka Harbor Energy. 0:12:59.520 --> 0:13:03.679 Tell us about that, Serica and Ithaca. It's just what 0:13:03.679 --> 0:13:07.400 we've been talking about. You need energy security. Every nation 0:13:07.640 --> 0:13:10.880 that wants to be a nation and be a prosperous 0:13:10.960 --> 0:13:15.240 nation needs energy security, and energy security does not come 0:13:15.240 --> 0:13:20.400 from someone else. Definitionally, the UK is lucky. It's not 0:13:20.559 --> 0:13:26.680 like Korea or Japan. The UK has indigenous secure energy supply. 0:13:27.280 --> 0:13:30.920 It just has to want to have it, knowing that 0:13:31.080 --> 0:13:34.400 eventually the pendulum swings back and forth, and politicians are 0:13:34.440 --> 0:13:40.679 incredible at without flinching, going from being incredibly anti something 0:13:40.720 --> 0:13:42.480 to incredibly pro that same thing. 0:13:42.840 --> 0:13:45.000 It'll just interrupt you that to say that you sent 0:13:45.080 --> 0:13:47.440 me a tweet earlier by us live on the lend 0:13:47.520 --> 0:13:51.120 saying Europe needs homegrown low carbon energy sources. Nuclear renewables 0:13:51.160 --> 0:13:53.439 together have a key role to pay. Nuclear energy is 0:13:53.440 --> 0:13:54.319 available around the club. 0:13:54.360 --> 0:13:56.600 We're writing electricty all year. Europe has been. 0:13:56.440 --> 0:13:59.920 A pioneer in nuclear technology and can lead again to 0:14:00.080 --> 0:14:02.760 which pretty much everyone pointed out that she was instrumental 0:14:02.800 --> 0:14:05.720 in the shutting down of all of Germany's nuclear plants. 0:14:06.000 --> 0:14:08.160 And I look at that, and you think one can 0:14:08.480 --> 0:14:11.320 right now not even begin to imagine the likes of 0:14:11.520 --> 0:14:14.319 Ed Miliband suddenly saying the UK has always had its 0:14:14.360 --> 0:14:16.840 own oil and gas supplies and it's very important that 0:14:16.920 --> 0:14:19.240 we hang on to them for purposes of national security. 0:14:19.520 --> 0:14:23.720 Drill, baby, drill. But actually, as you say, it's perfectly plausible. 0:14:23.840 --> 0:14:27.800 Politicians being unabashedly willing to flip on a dime without 0:14:27.840 --> 0:14:30.600 any memory of what they said the day before is 0:14:30.640 --> 0:14:33.400 a big strength, right, because if they really want to 0:14:33.440 --> 0:14:35.440 dig their heels in, it just takes longer to get 0:14:35.440 --> 0:14:39.080 to the right answer. Germany will be a nuclear power 0:14:39.240 --> 0:14:42.720 again from zero at some point in the future. And 0:14:43.240 --> 0:14:46.960 one of the big challenges for us in contrarian investing, 0:14:47.120 --> 0:14:50.840 where you are constantly looking at what the market thinks 0:14:50.880 --> 0:14:54.720 is important that you know is not and you have 0:14:54.800 --> 0:14:57.640 to wait for the physics and chemistry and economics to 0:14:58.200 --> 0:15:00.760 drive the right solution is how long it will take. 0:15:01.720 --> 0:15:04.600 And you look at the situation in the UK. Miliban 0:15:04.640 --> 0:15:09.160 has said, over my dead body, and that means it'll 0:15:09.200 --> 0:15:12.680 take longer. But economics will eventually win out, and the 0:15:12.720 --> 0:15:17.600 need for the foundation of your nation's pyramidive needs to 0:15:17.680 --> 0:15:20.600 be solid, will win out. So we know what the 0:15:20.640 --> 0:15:23.560 answer is and we just don't know how long it 0:15:23.600 --> 0:15:27.680 will take. And the longer it takes, the more saraca 0:15:27.760 --> 0:15:30.160 ithaca we can accumulate, as. 0:15:30.000 --> 0:15:34.160 Long as they can hang on through this period. Where 0:15:34.240 --> 0:15:34.960 else is it interesting? 0:15:35.000 --> 0:15:38.680 At the moment, Japan looks really interesting, and I know 0:15:38.760 --> 0:15:40.400 you've just been there and you wrote about it and 0:15:40.440 --> 0:15:42.080 you hit on some of the same things that we've 0:15:42.080 --> 0:15:45.360 been thinking about. But the investor's perception of Japan is 0:15:45.360 --> 0:15:50.000 that it's a dead economy, and we think it couldn't 0:15:50.000 --> 0:15:51.960 be further from the truth in there might be some 0:15:52.880 --> 0:15:56.120 reinvigoration going on there, and if you look at stars aligning, 0:15:56.280 --> 0:15:57.560 the stars could really be lying. 0:15:57.600 --> 0:16:01.880 For Japan, let's talk about AIS as an investment theme, 0:16:02.880 --> 0:16:05.400 TSMC and Samsung for a while. 0:16:05.480 --> 0:16:08.200 There's no AI without those still holding those. 0:16:08.640 --> 0:16:08.880 Yeah. 0:16:09.000 --> 0:16:11.240 We in fact, we've owned I as an investor, have 0:16:11.320 --> 0:16:15.720 owned TSMC since it's USADR launch in the mid nineties. 0:16:16.480 --> 0:16:20.520 And Orbis has had a position in Samsung probably since 0:16:20.560 --> 0:16:25.840 the mid nineties, and they're just fantastic companies. Taiwan Semiconductor 0:16:25.920 --> 0:16:27.640 is the most important company in the world. Have been 0:16:27.680 --> 0:16:30.040 saying this for a long time, and I think people 0:16:30.040 --> 0:16:32.880 are starting to agree with that. And yet it sells 0:16:32.880 --> 0:16:37.440 at seventeen eighteen times forward because it's in Taiwan. Samsung 0:16:37.680 --> 0:16:40.160 right now is selling it a mid single digit PE 0:16:40.960 --> 0:16:43.840 because one it sells it doesn't have an ADR, so 0:16:43.880 --> 0:16:47.200 the Americans lemmings can't easily buy it, and it's not 0:16:47.320 --> 0:16:52.200 sitting in Internet ETFs and AI ETFs. And it's still 0:16:52.240 --> 0:16:59.880 perceived to be a hyper cyclical memory manufacturer. But memory 0:17:00.120 --> 0:17:04.000 maybe following in foundry footsteps where it's no longer going 0:17:04.040 --> 0:17:07.240 to be a hyper cyclical thing that twenty or thirty 0:17:07.280 --> 0:17:09.840 companies can do. There's only three companies in the world 0:17:09.840 --> 0:17:15.639 that can do it now. It's incredibly difficult, incredibly capital intensive, 0:17:16.119 --> 0:17:20.600 incredibly R and D and know how intensive, just as 0:17:20.680 --> 0:17:25.879 foundry is the making of semiconductors for others, and that 0:17:26.080 --> 0:17:29.239 six multiple could be a sixteen or twenty multiple at 0:17:29.280 --> 0:17:30.119 some point in the future. 0:17:30.560 --> 0:17:33.119 And the other thing that you're invested in is the 0:17:33.280 --> 0:17:36.399 US natural gas sector, which I imagine was pretty ignored 0:17:36.440 --> 0:17:37.520 but probably isn't anymore. 0:17:38.000 --> 0:17:41.119 We've shifted our AI investments a bit over the last 0:17:41.440 --> 0:17:45.680 year from those making and providing the infrastructure, so the 0:17:45.760 --> 0:17:48.479 Zeman's energies and the Prismians of the world. We've been 0:17:48.520 --> 0:17:51.800 top slicing those positions as they've become popular, and we 0:17:52.680 --> 0:17:57.120 haven't dropped the overall AI related waiting. It's shifted more 0:17:57.119 --> 0:18:02.240 into the consumables, and you can't have AI without natural gas. 0:18:02.280 --> 0:18:05.120 People are starting to figure out that natural gas, especially 0:18:05.119 --> 0:18:07.280 in the US, is where you're going to get your 0:18:07.320 --> 0:18:12.520 electricity to run your AI data centers, to create your agentics, 0:18:12.600 --> 0:18:17.160 and your ability to create a cartoon yourself. We've been 0:18:17.160 --> 0:18:23.640 focused on finding cheap inexpensive, low p high free cash 0:18:23.680 --> 0:18:29.159 flow yielding natural gas producers to add to our natural 0:18:29.200 --> 0:18:34.520 gas distributors and transportation companies pipeline companies because that is 0:18:34.600 --> 0:18:39.919 the easiest to see. Consumable required for AI and semiconductors 0:18:40.240 --> 0:18:43.240 are consumables as well, because these chipsets only last three 0:18:43.280 --> 0:18:45.720 to five years, so you're going to this is not 0:18:45.840 --> 0:18:48.840 like the Internet where you put fiber optics into the ground. 0:18:48.920 --> 0:18:52.800 Those fiber optics are still there today. The big infrastructure 0:18:52.960 --> 0:18:57.560 for AI is chipsets that are obsolete after three to 0:18:57.600 --> 0:19:01.560 five years. So that's these chips are consumables for the 0:19:01.560 --> 0:19:05.960 first time in technology. Super excited about the consumable aspect. 0:19:06.200 --> 0:19:09.000 The prime mover of AI, if you will, being something 0:19:09.040 --> 0:19:14.240 as simple as natural gas or semiconductors, how. 0:19:14.119 --> 0:19:17.000 Do you invest in natural gas? What do you buy? 0:19:17.480 --> 0:19:21.800 Can buy the EMPs, the explorers and producers, and we're 0:19:21.840 --> 0:19:23.520 trying to find the best ones that are in the 0:19:23.520 --> 0:19:24.119 best place. 0:19:24.960 --> 0:19:28.160 Okay, interthing, let me move you on to the other 0:19:28.200 --> 0:19:30.359 thing that our listeners are always fascinated by. 0:19:30.440 --> 0:19:32.080 I look at this wall, for example, they'll think. 0:19:32.000 --> 0:19:33.760 To themselves as two things I'm going to use to hedge. 0:19:33.800 --> 0:19:35.600 This one is going to be energy one way or another. 0:19:35.600 --> 0:19:38.160 We've talked about that, and the other may well be gold. 0:19:38.520 --> 0:19:41.400 And I know that your funds have always held a 0:19:41.480 --> 0:19:44.560 reasonable amount of gold. What are you doing with that 0:19:44.680 --> 0:19:45.280 at the moment. 0:19:45.880 --> 0:19:48.920 We've top sliced the gold many times. We didn't hold 0:19:48.960 --> 0:19:52.080 gold until twenty eighteen, when it was clear to us 0:19:52.200 --> 0:19:56.439 that negative interest rates weren't going to last forever and 0:19:56.600 --> 0:20:00.440 governments were going to continue to spend like crazy. Became 0:20:00.440 --> 0:20:05.359 an obvious place to hide that. That's appreciated wildly since 0:20:05.400 --> 0:20:08.480 that time, and we've cut that position back in the 0:20:08.520 --> 0:20:12.080 portfolios from ten to twelve percent holding it there to 0:20:12.200 --> 0:20:14.160 now we're in the eight to nine percent. Because it's 0:20:14.200 --> 0:20:17.880 not a it's not a completely contrarian thing anymore. It's 0:20:17.960 --> 0:20:21.639 really now become a pure hedge. And we like to 0:20:21.640 --> 0:20:25.800 buy insurance when it's cheap, and gold as an insurance 0:20:25.840 --> 0:20:27.800 policy isn't as cheap as it used to be, so 0:20:27.840 --> 0:20:29.000 we're not going to hold as much. 0:20:29.240 --> 0:20:32.239 When I've written about gold recently, I've said, well, you know, 0:20:32.640 --> 0:20:34.879 maybe a little expensive on sometimes it's exc but you 0:20:34.880 --> 0:20:39.640 have the backstop of central bank buying. But it maybe 0:20:39.760 --> 0:20:42.680 as we move into the next part of this new era. 0:20:42.800 --> 0:20:45.600 Perhaps in particular at least in central banks may not 0:20:45.680 --> 0:20:49.760 have the available cash to be buying more gold than 0:20:49.800 --> 0:20:52.640 maybe things they feel it's more appropriate to buying the circumstances, 0:20:52.680 --> 0:20:56.159 So perhaps that backstop buyer might not be quite as 0:20:56.200 --> 0:20:57.840 firm as it was as they were. 0:20:58.480 --> 0:21:01.520 That's true. In that would be that would be a negative, 0:21:01.560 --> 0:21:04.720 that would be something that cann't get any better. We 0:21:04.760 --> 0:21:07.560 don't think central buying, central bank buying can get much better, 0:21:07.600 --> 0:21:12.320 although there is unlimited firepower there. But the last shoe 0:21:12.359 --> 0:21:15.199 that we're waiting to drop on the gold cycle, if 0:21:15.240 --> 0:21:19.320 you will, is if you remember back in then you're 0:21:19.359 --> 0:21:22.840 too young to remember, But in the seventies, coming out 0:21:22.840 --> 0:21:27.000 of the seventies, the standard investment portfolio there weren't mutual 0:21:27.000 --> 0:21:29.960 funds back then, but a standard investment portfolio was advised 0:21:29.960 --> 0:21:34.520 to hold ten to fifteen percent in gold, and even 0:21:34.560 --> 0:21:37.359 into the late eighties when I was graduated from college 0:21:37.359 --> 0:21:40.400 and into the nineties, that sort of has wandered down 0:21:40.440 --> 0:21:43.879 from fifteen percent as standard to when I started in 0:21:43.880 --> 0:21:47.320 this business, it was still ten percent. Everyone held ten 0:21:47.359 --> 0:21:50.679 percent in gold in the mid nineties and then as 0:21:50.880 --> 0:21:53.600 as the internet kind of took off, and low roik 0:21:53.720 --> 0:21:56.720 wasn't a great thing, and gold became boring and wasn't 0:21:56.760 --> 0:22:00.640 going anywhere. That went to zero, maybe back three four, 0:22:00.720 --> 0:22:02.760 five years zero. 0:22:02.720 --> 0:22:04.920 For most people, nobody had gold as an investment. 0:22:05.520 --> 0:22:09.120 Yeah, standard equity portfolio would have zero. And if you said, 0:22:09.160 --> 0:22:10.639 why aren't you only gold, it would say, this is 0:22:10.640 --> 0:22:12.800