[00:02:53] Tobias Carlisle: So fiscal stimulus, and we had some monetary stimulus too, in the sense we had very low rates. And we increased the money supply, materially about 40 percent plus through that period of time. It doesn’t always flow directly into consumer prices. It can flow into asset prices and I did both. Which is why I think we had NFT’s running up and the tech stocks going silly and all of these things that happen through that period of time.

[00:03:20] Tobias Carlisle: And so Powell, I think is trying to somewhat put the inflation genie back in the bottle a little bit by raising rates here. We’re at about, I think the 10 year is approaching 10%. I think the effective funds rate is somewhere between, it’s sort of 5 and 6 percent somewhere around that, which is sort of what the interest rates are in the economy, the effective funds rate for most borrowers.

[00:03:43] Tobias Carlisle: Those aren’t particularly high on a long run. That’s about the long run average but we’ve gone through more than a decade of very low rates and a lot of interest rates and in the pic that I’m going to talk about, this is a real effect. The higher rates are affecting the business of this company.

[00:03:59] Tobias Carlisle: So the higher rates just you know, a lot of people have borrowed at the lower rates. They’ve borrowed, they’ve set their businesses to run at the lower rates. When rates go up, it makes it harder for them to finance their business and they’ve got to roll over a lot of this debt. A lot of it’s not paid out.

[00:04:13] Tobias Carlisle: Its most debt is just rolled over and so we’re going to go through a period now where these lower rates are going to start impacting the economy. The yield curve really just shows that influence. So it shows that at the short end, which is the shorter term end, the three month end, that’s the end that shows up when the Fed is doing something, because that’s the end that they control and the longer term end is less under their control.

[00:04:36] Tobias Carlisle: So, they’ve raised rates have gone up. Historically, and those rates going up has caused an inversion, which means that the front end rates are yielding more than the longer term rates. So, historically, where we’ve had these inversions. There’s been a recession that’s followed on from it.

[00:04:54] Tobias Carlisle: I don’t think that the recession has followed on, sort of, I don’t think it’s a correlation. I think it’s, in fact, what the Fed is attempting to do. I think they’re trying to cool the economy down by raising those rates and it’s difficult. You look at it from Jay Powell’s perspective. He is looking at an economy where a year ago rates were basically zero, rates are now at 5%.

[00:05:14] Tobias Carlisle: Stock market’s close to an all-time high, well, it’s off, coming up, maybe 10%, 5 percent and 10 percent since 2021 when it peaked. So we’re about 22 months into that sort of drawdown. but it has been lower. It was lower in August, October last year. It’s quite a bit higher than it was in October last year.

[00:05:32] Tobias Carlisle: And house prices, you can look at any search and you’ll see house prices are more expensive than they have been at any other point in history. Mortgage applications are at like 30 year lows. All of these numbers are, they’re stretching to find, to go back in the data to find the last time that like this.

[00:05:50] Tobias Carlisle: And so it’s just hard to the extent that you can find comps that look like they come from the 70s. Which was not a great decade. There was a lot of inflation in the seventies, lots of unemployment, stock market didn’t do very well, had two big crashes. So, the inversion, typically it takes about 12 months for the inversion to show up in the economy.

[00:06:08] Tobias Carlisle: So it’s 12 months from the beginning of the inversion to the impact on the economy, to the declaration of a recession. That’s the average. We’ve only got eight instances, sort of, in modern history going back to sort of, I think it’s like the sixties or something like that of these inversions and the recession that followed.

[00:06:25] Tobias Carlisle: So there’s not enough that it’s statistically significant. It’s just that I think the logic of it is pretty straightforward. Fed sees a hot, overheated economy, raises rates. The impact of that is eventually a slowing economy, lower asset prices. And we’re sort of 12 months into it. It was October 25 was the inversion last year, so October 25 would be 12 months, which is the average.

[00:06:51] Tobias Carlisle: This is the longest inversion that we have in the data. We’ve never stayed inverted for an entire year, so the Fed has kept the rates very high, and there’s a lag between when the rates go up and the impact in the economy. Who knows how long it is? It could be 18 months to two years. So I think a lot of folks have, they either don’t realize that it takes a year for the inversion to really, on average, for the inversion to have any impact on the economy or those higher rates to have any impact.

[00:07:18] Tobias Carlisle: And so they seem to think like, this story is, that happened a year ago, nothing’s happened, therefore nothing’s going to happen. Eight ends, eight instances is not enough. But that’s the average and it has been as long as 15 months and this is the longest inversion record. So it’s entirely possible. It’s quite a bit longer if I look around the economy.

[00:07:34] Tobias Carlisle: I think that I can see a lot of weakness in individual names. When I look at their results, I think there are layoffs coming. The employment number is a lagging indicator. It’s always the last data series to go. And in fact, when the employment actually starts ticking up, that’s likely the point that it’s time to buy the market because it’s so lagging that when unemployment ticks up, that’s sort of the, actually the point that you want to be getting a little bit likely asset prices have come down and it’s time to buy.

[00:08:04] Tobias Carlisle: So that’s my kind of thumbnail sketch of what I think is going on. That’s all of those influences have sort of impacted the stock that I am going to talk about in a little bit. and some other geopolitical things that are going on. But I do think that is real. I think the recession is likely coming.

[00:08:20] Tobias Carlisle: I think you need to be in names that are robust enough to survive whatever is going to come. And they typically last like 18 months, two years. The stock market could bottom a lot earlier than that, though. I think, what tends to happen as a stock market, we could be, we could have three to six months of a lot of volatility and much, much lower prices in three to six months.

[00:08:43] Tobias Carlisle: But at the time that it looks darkest, that’s often the time to buy. So I think the likely that after you get through that period, the forward returns, particularly for value, it’d be very good. So I sort of, I welcome these periods, even though they are a little bit stressful for everybody as we go through them.

[00:08:57] Tobias Carlisle: But I think it’s a necessary part of clearing the deadwood. out of the economy to allow the next phase of growth to occur and the sooner we get it done, the better, in my opinion.

[00:09:09] Stig Brodersen: Thank you for sharing, Tobi. Let me throw it over to you, Hari. What are you seeing right now?

[00:09:13] Hari Ramachandra: Yeah, I was very curious to know Tobi’s thoughts.

[00:09:16] Hari Ramachandra: So thank you, Stig, for asking that question. So I think I can kind of, add to what Tobi said, because some of the things that will be touched upon. I’m seeing the symptoms on the ground like the layoffs in Silicon Valley. It hasn’t stopped. It’s a trickle now. It’s not a flood like it started off, but there is every other week I hear there are layoffs that are publicly announced.

[00:09:40] Hari Ramachandra: But they’re also getting smarter in the sense there are stealth layoffs. There is this small numbers like 200, 300, I’m not going to name the companies, you know them, they’re all big, but I see that happening even now. LinkedIn recently announced a layoff, 700 or 800 people were let go. So I think it’s almost like all these companies have got the memo from the Fed.

[00:10:03] Hari Ramachandra: So that is happening and also, I see that there is a lot of pressure from the Wall Street for many of these companies to increase their profit margin now that growth doesn’t seem that imminent in the near future. So that’s also probably a contributing factor. The other thing I also kind of, worry about or in the horizon is what Peter Zahan talks about is like, US is the only OECD country that can afford to raise rates.

[00:10:31] Hari Ramachandra: The rest, even if they wish to, with inflation, they can’t because of the demographic situations they are in. And also with all the geopolitical issues right now, it looks like energy cost is not going to come down anytime soon. So I don’t think we will have the tailwind of lower energy prices going forward.

[00:10:53] Hari Ramachandra: Now that like a major supplier like Russia is pretty much shut off many of the markets. So yeah, like when you look at all these data points, it’s hard to imagine a good economy when I look around in the neighborhood, the homes still selling fast, home prices are still all time high. We are living in two different worlds. So that’s very interesting.

[00:11:13] Stig Brodersen: I think it’s a very interesting time we’re in and one of the things that I remember thinking about when we started the podcast I thought to myself so many times that this time there’s so much uncertainty and something is going to break and I can more or less say that I’ve said that every single quarter.

[00:11:34] Stig Brodersen: Since we started in 2014 and now I kind of feel like we are in a place where there is a lot of uncertainty and in hindsight, it’s always 2020 and now whenever we look back, we can be, oh, of course, we had the big drawdown with COVID. Yeah, we didn’t expect the pandemic, but of course it was sort of like what we saw with the money printing, all of that.

[00:11:50] Stig Brodersen: I had no idea what would happen if we had a pandemic. I’d never experienced a pandemic before. I didn’t know what happened before. And so. I think it’s important to, to stay humble. And, I think Tobi has very interesting thoughts on what you’re seeing, for example, with the interest rate.

[00:12:03] Stig Brodersen: And I might see some things slightly different. Perhaps I just been looking at different data. I don’t know. I think it’s natural to compare it to the 1970s. I’d also think it’s quite different because the debt level are just so much different today. Like they’re a lot higher today.

[00:12:18] Stig Brodersen: And so I don’t really know where we’re going. Like we have this dynamic where with interest rates going up and we do see inflation retract to, to, to some extent, but how much can the economy take? That’s another thing. Like you’re looking at the numbers of how much all the debt that we have, how much of that simply the state, the government revenues are just going to be paid back with paying back the government, the interest of government debt.

[00:12:42] Stig Brodersen: Like it’s kind of ridiculous. And to your point before Hari, where the U S is in a privileged position, but it’s not like it’s in a good position, but it’s in a better position than many other countries. Like what you see in Europe right now with the spread with the Italian interest rate, compared to say the German, like and they can’t like, it would just break.

[00:13:01] Stig Brodersen: It would just break Italy if you had with the kind of debt burden, they have with the interest rate. And then you have ECB coming out more or less repeating what Raj said about whatever it takes in terms of buying back bonds. And it’s just like, I can’t really see how this ends. Cause you can’t really continue to hike the interest rate, but then, you have to do it because inflation is going to run, but also a big component of hiking interest rates also that, well, we have to finance it with the deficit that we have because we have interest rate in the first place.

[00:13:29] Stig Brodersen: And going off. So there is sort of like you have this cycle where it’s just really difficult to stop it. Like if you really wanted to stop it, it would be something like a sturdy or something like that, which is just not going to fly. That’s what your first world countries impose on third world countries.

[00:13:42] Stig Brodersen: And then they do the exact opposite whenever they have a crisis, whenever they go to Pakistan and whatever, Argentina, they say something like, you should stop spending money because now you’re in a crisis, don’t invest in R& D. Don’t invest in your education system. And then, we have all the politicians in the first world countries, like whenever there’s crisis, like, but now is the time to invest.

[00:13:59] Stig Brodersen: And it’s okay to run 10 percent deficits on government finance. So I just, I can’t really see how this plays out. I do want to say, I have noticed that an ounce of gold just crossed 2, 000 and we’re closing in an all-time high. And so I kind of feel like I sounded like a fear monger just before, but I do want to say that as much as I’m into equities, having a bit of your portfolio in some hard money might not be the worst time right now.

[00:14:23] Stig Brodersen: I don’t know if we can use that as a segue going into Tobi’s pick. Originally, I prepared saying something about, I now understand why Tobi’s skin is so fantastic, but perhaps I don’t know if we could use that as a segue into your, into the first topic here with all the conflicts that we see across the globe.

[00:14:40] Tobias Carlisle: Yeah, so my pick is InMode, INMD is the ticker and the reason that Stig makes the gag about my skin is that it’s a minimally invasive, non-invasive surgical procedure for aesthetics, mostly. So they have a variety of these different brands, but they’re all basically the same ideas, but skin tightening and those kind of where it’s somewhere in between full on cosmetic surgery and the less invasive stuff that a cosmetician might do.

[00:15:11] Tobias Carlisle: It’s in that. In between, for people who, they say that their target demographics, mostly women, 35 to 50, who don’t want the full surgical procedure, but want something that does a little bit more than, like a cosmetic sort of update. All of their revenues, or most of their revenues are from the US, even though it’s an Israeli company.

[00:15:29] Tobias Carlisle: It’s an Israeli based company. And that’s one of the reasons why. So what has happened, if you look at the stock price is down about 50 percent from its peak, which was July, and then it had sold off. It was down sort of 30 percent something like that until earlier this month in October when they released their full year guidance and they got, they had guided for 530 to 540 million dollars for the year.

[00:15:52] Tobias Carlisle: They’ve guided down now to 500 to 510 million dollars of revenue for the year. So you get the idea. This is a pretty small company. And when that happened on that day, they sold off 20%. And I do own this thing. So I’ve owned it. I’m not entirely sure exactly, but a quarter or so and so we’ve taken a lot of that drawdown so far.

[00:16:11] Tobias Carlisle: This is a small company. It’s a $1.6 billion market cap. Enterprise value is about a billion dollars because they’ve got about 600 million in cash, net cash. which is the kind of business I like, not stressed financially, going into what could be a difficult period financially. Stock price is at 19. 73, so it’s 46, so it’s off more than half since July.

[00:16:33] Tobias Carlisle: It’s a financially, a very impressive company. It’s small, and it’s only been listed since 2018 19, something like that, so financial, the financial statements don’t go back publicly for a long way, but EPS when it was listed was 80 cents, EPS last time it reported was a little bit over 2, so it’s grown very rapidly over those 4 or 5 years, they’re still projecting revenue growth rates for the next few years will be. This is the estimates.

[00:16:58] Tobias Carlisle: So it’s 520, well, it’ll be 500 to 510 million this year through to 666 million in two years’ time. Now, I don’t know how likely that is to eventuate. And I think that probably they’re going to struggle going into what we’re about to go into it. I mean, I think there are lots of reasons why this stock is down, but I still think that the business itself is impressive.

[00:17:21] Tobias Carlisle: The way that I invest is I’m quantitative. I look at the financial statements. I put together a portfolio. This is in my mid and large cap fund zig. I do hold this. It’s still in my model. Still buy it now. So this is one of 30 names in that portfolio. Just so you know how I’m weighting this thing in mind, will be 3%. When it went down, I bought a little bit more. If it goes down again, likely buy a little bit more at the next rebalance date provided it’s still in the model, but that’s my belief is that it will be at this point. Return on equity, it’s like 30% gross margins in the order of 40 percent plus, sorry, gross margins are in the order of 80 percent plus, operating margins in the order of 40 percent plus, and for all of that, you’re paying a P under 10 price to it.

[00:18:09] Tobias Carlisle: Under 10 price to free cashflow under 10. Most of the money just flows through to the bottom line. So, and it’s a little bit tax advantaged in Israel as well because they’re in some tax zone in Israel. Forward growth is still like in the 10 to 13% annual compound kind of range. At the top level, it seems to fall through a little bit, maybe a little bit higher than that at the bottom.

[00:18:29] Tobias Carlisle: So I think it’s, I think it’s a reasonable risk adjusted bet this is a better company than where it’s trading at. at the moment. So it’s a reasonable question to ask. Why is this so cheap? Why me? Why now? It’s Israeli, so there’s clearly some geopolitical risk there in the Gaza Strip, although they have, they’ve got a press release saying everybody’s safe and they’re fine, and there’s not a lot of consumption of the products that, so they sell to the, they sell to the people who perform these procedures, not to the people who receive these procedures, so they’re sending it.

[00:18:59] Tobias Carlisle: They’re selling a machine that then somebody uses to perform these procedures. So, and they’re selling these mostly into the US so that it’s unlikely, I think, that the business itself is impacted by the geopolitics of that region. Possibly a bigger issue for the business, but this is going to be true for many businesses is some economic weakness here.

[00:19:19] Tobias Carlisle: I suspect, and I don’t know, but I suspect that if you go into a period of economic weakness then. If people have got constrained budgets, I don’t know that cosmetic procedures are high on the list of the things that they’ll do, but people are strange creatures. They prioritize different things. It’s not immediately true that these guys will see that reduction, but maybe at the margin, maybe they won’t see as much growth as they’re predicting.

[00:19:45] Tobias Carlisle: I still think this thing is so cheap that it’s such good value at. If the business continues on the way it has been, even if it’s just a little bit weaker than it has been, it’s still too cheap at under 10 times P. E. The other sort of risks for this thing, it’s become a little bit of a gag on [Inaudible] to say that all the [Inaudible] and all the weight loss drugs.

[00:20:05] Tobias Carlisle: impacting every single business, planes are going to be, people are going to be lighter. So planes are going to fly faster, which means that jet fuels going to be consumed less. So that’s going to be a weakness in the jet. It gets silly how far you can go out. There’s a possibility that this is in some way impacted by.

[00:20:21] Tobias Carlisle: People leaning down and therefore not needing skin tightening procedures, but I could easily make an argument that someone who leans down decides that they need a skin tightening procedure and so maybe it’ll be a boon to them. I don’t know. Maybe it’ll be helpful. I have no idea, but it’s worth noting that does seem to be a, that’s a recurring risk.

[00:20:38] Tobias Carlisle: It’ll probably be in my disclosures for my ETFs when it comes out. It’s funny, the stuff they identify every year is the risk. The main question for me is they’ve got 600 million in cash on their balance sheet. They don’t seem to be spending a lot on R& D. It seems to be largely unnecessary for them at this point.

[00:20:55] Tobias Carlisle: There does seem to be increasing competition. They have a slightly different model. There’s a razor, razor blade type model. It’s how much do you sell the initial? machine four versus how much did [Inaudible] recurring elements of the machine for they’ve taken one direction. Some of their competitors have gone another direction.

[00:21:12] Tobias Carlisle: I don’t know which is the correct direction to go. But at this price, I think it’s sort of a little bit risk adjusted. It’s worth taking a look at something like this, but the real question is with all of this money on board, they’re making a lot of money. They’ve still got pretty good margins. A lot of this money is falling through the bottom line.

[00:21:27] Tobias Carlisle: Why not institute a stock buyback, like a material stock buyback at this level and really show that you have the financial wherewithal and the belief in the future of the business. To spend that money buying back that stock and in the absence of that buyback, that’s the only thing that gives me a little bit of pause because I’d have one on if I believed in the stock and it was as cheap as this and I had the cash, but that aside, I could say, well, we’re an early stage company.

[00:21:52] Tobias Carlisle: We’re still growing. We are still spending money on R and D. We need that money there. And, we might be at the beginning of the economic weakness, not the end of the economic weakness. So we might need the resources to get through to the other side. So I can, I think those are reasonable items where you wouldn’t institute one.

[00:22:05] Tobias Carlisle: Having said that, I’d still be doing it here because I think these are pretty good prices. But that’s sort of my pick in a nutshell. The businesses At least quantitatively, the business is much, much better than the price where it’s trading at the moment. There are some amorphous geopolitical risks and other sort of economic weakness and other sort of trends and things going on, but I don’t know really realistically what the impact of those things is going to be. So I think as a risk adjusted bet, as a small portion of the portfolio, this is a good position to have on.

[00:22:37] Hari Ramachandra: Now this is a very interesting pick and the reason it is interesting is one, like, any bad news that can hit them, it’s like coming at them all at once. There is concerns about recession, there is inflation, there is geopolitical risks and they’re at the heart of it right now.

[00:22:55] Hari Ramachandra: So I think that’s why, like Tobi, I found this very interesting and also thank you for going over this because I had never thought about this. general area and I was after you shared the pic, I was looking at some of the data and they said that the skin tightening market itself is growing at around 11 to 12 or 13 percent CAGR year over year and expected to continue that growth.

[00:23:17] Hari Ramachandra: And the second thing, in a way, correct me if I’m wrong, this can be inflation proof because this is something that usually the affluent, the upper middle class, or the rich would go for. So their target customers, unlike the one that I will pitch later, are affluent high net worth individuals are people with high income.

[00:23:38] Hari Ramachandra: So they might be, and probably developed countries and they’re probably dominantly in US or maybe in Europe. I don’t think the world will have a shortage of people over 50 or 40.

[00:23:50] Tobias Carlisle: No, no time soon.

[00:23:51] Hari Ramachandra: No time soon. So since all the bad news is out, the only risk I see, as you mentioned, Tobi, is alternative procedures coming along.

[00:24:01] Hari Ramachandra: whether it is non-invasive or better devices if they’re not investing in R& D, and they might be distracted for a while, and there might be somebody else who might overtake them, and I don’t know how much of a switching cost they have. I’m assuming minimal. So that might be one of the risks that we have to keep in mind.

[00:24:22] Tobias Carlisle: Yeah, I don’t know how much competitive advantage are in these stuff. I suspect there’s not much, really. If somebody can come up with a better procedure or a cheaper procedure, then that’s where people will go, but it’s a long process to get the approvals when you’re going to do some sort of procedure on a person, so that’s one thing that slows it down a little bit, and they’re already selling into it, and they’ve got a process for getting the approvals, getting the their reasonably well resourced, having said that, a much bigger entrant could come in and change the dynamics of that.

[00:24:57] Tobias Carlisle: So I think, I do agree that there is some risk in this and I, the other thing that I should have mentioned, the economic weakness is not just theoretical. I forgot to mention this as I was going through, but one of the reasons that they said that they missed guidance was that the higher rates are making it more difficult to finance the acquisition of their machines, which is, because it’s a business decision to buy these things.

[00:25:16] Tobias Carlisle: They buy them to then service a third party customer. At the margin, again, it makes, 0 percent interest rates make everything financeable. 5 percent interest rates make things slightly harder to finance at the margin.

[00:25:29] Stig Brodersen: I would say that they’re just a huge list of things that are, they’re really nice about this company.

[00:25:34] Stig Brodersen: The income statement is just it just makes you happy to look at the income statement. I don’t know. I come across too much of an accounting nerd whenever I say that, but it is like, it’s a very neat income statement. The margins are really good. You don’t have a lot of debt. We actually don’t have debt to, to, to service.

[00:25:49] Stig Brodersen: I have positive financial income, which you don’t see too much these days. You have a lot of marketing expenses, which is always interesting because generally with marketing expenses, you can also capitalize it, but generally it’s expensed. And so that means that it’s written off right away, but you’re still building an asset, even though it might be expensed through your income statement.

[00:26:11] Stig Brodersen: And so in itself, I think that’s very interesting. And I don’t really know because I don’t understand the product well enough how important that is. I will imagine it is important, but I couldn’t be able to tell like how much of that we can actually put into let’s call it maintenance CapEx compared to growth CapEx.

[00:26:28] Stig Brodersen: But I’m basically, what I’m saying is that, if marketing, if that makes you think differently about the brand, it also has value. It’s not just a pure expense. for you as a company. So I definitely like that. I like that industry wide. It’s not common in this sector. This is that the founders are still involved both in like in in management, but also in ownership.

[00:26:49] Stig Brodersen: It’s not because it’s this specific industry. You can say that about all industries, which you really like. And like Hari was also getting at, this is just the perfect storm. Like everything could go wrong. It’s just going wrong. And whenever that happens, I like to think it’s a good thing because we all have this recency bias.

[00:27:05] Stig Brodersen: They also lowered guidance. There’s so many things you can say that you don’t like about this company. And so, I remember one thing that, that stuck with me was there’s this research that had been done that if you invest in companies where they’ve just announced that a lawsuit was filed against them, typically like if it’s the day after and the market has reacted because of recency bias, you would actually outperform the market.

[00:27:24] Stig Brodersen: It’s just kind of feel that was interesting. So of course, whenever you see lower guidance, like if as an existing shareholder, that’s probably not what you want to see, but if you’re new, if you want to double down, sometimes it can be an opportunity. Of course, it could also be a secular thing that, that’s just how capitalism is.

[00:27:38] Stig Brodersen: And it of course, starts with lowering guidance. But I just think that there’s so many wonderful things. So what do I not like about this pick? Definitely not the valuation. I like the valuation. I like how much cash they have. I should also mention that, but I think one thing I don’t like is that I don’t really understand the buyer.

[00:27:55] Stig Brodersen: And here I’m not talking about the customer who wants to have wonderful skin like Tobi, but you know, the clinic buying. The equipment, I don’t know why that they’re buying it. I don’t know why it would have potential not buy it anymore. I don’t know how sticky this product is. And based on to Tobi’s point, if, yeah, I would also expect, because I know nothing about the industry, that if someone came up with a better procedure or it was cheaper, why wouldn’t they go with that?

[00:28:19] Stig Brodersen: So it’s not as, as sticky as we would like for it to be. And then there’s the component of regulations. I don’t really know how, what impact that has. And I would imagine since it’s more cosmetic, I will not imagine that there’s a lot of insurance that is a factor here, but that’s just with the very little knowledge that I have.

[00:28:38] Stig Brodersen: And because if you look at the financial statements, they have to Tobi’s point before 66% of the sales in United States, 11% Europe and then international, it’s the remaining 23%. And they talk about that in the financial statement. As our international market, there are 27 languages and more than 27 regulatory bodies that we need to deal with.

[00:28:57] Stig Brodersen: And I don’t understand that component, and I’m sure they do. So I’m not saying that you should not invest in the company because of that, but I think that I’ve learned from. better experience that as much as regulation can be a motor around what you do, it could also be the very opposite.

[00:29:11] Stig Brodersen: And I don’t, I think I would need to understand that component a bit more. I mentioned, you have some of the big tech companies and they’ll, you could also tell that, say the argument about that, but I. I’d like to think at least I understand the regulatory framework around that and the potential limitations for those companies.

[00:29:28] Stig Brodersen: I don’t really understand it for a company like this and how it could potentially be crazy, a bad scenario around this. So those were just my two cents. Let me throw it back over to you, Tobi.

[00:29:39] Tobias Carlisle: Yeah. In terms of the competition or the purchaser of the product, it’s always, it’s, I mean, it’s largely a financial decisionF66 for them.

[00:29:49] Tobias Carlisle: It’s the, and the payback period. And that’s one of the, there are different approaches among the competitors that whether, how they implement the razor, razor blade model, how much the, I think in mode is a little bit more expensive upfront and then it’s cheaper to iron over time. The payback period is about, I think I saw about 12 months, something like that to get paid back for the purchase of the machine, which I think is probably pretty good.

[00:30:11] Tobias Carlisle: In terms of the regulatory environment, or let me just say, in terms of that, in terms of the competition, I think that the business itself looks, financially, the business itself is, it’s much, it’s worth a lot more if the financial statements continue to, into the future, if the future looks like the past has looked, the business is too, way too cheap on the basis of its historical financial performance.

[00:30:38] Tobias Carlisle: And you’re kind of paying, under 10 times PE, under five times, acquires multiple EVE, but under 10 times price to free cash flow. Those are very cheap numbers. That’s a no growth, static business, pretty ordinary business. You would still do sufficiently well, I think, at those kind of numbers.

[00:30:58] Tobias Carlisle: And this is clearly a much, much better business than that. Very high return on equity, reasonable growth, huge gross margins, huge operating margins, those sort of numbers. So it’s, if the future looks like the past, it’s way too cheap. The question is, does the future look like the past? And that’s the difficult question to answer because it’s a new-ish business with, it’s trying to adopt a business model that’s slightly different to the other competitors out there.

[00:31:22] Tobias Carlisle: What that looks like through a recession, what that looks like if they really become successful and they invite some competition, I don’t know. And I also don’t know the regulatory environment well enough to sort of comment sensibly there. As I say, I’m a quantitative investor. I look at the financial statements mostly over a period of years sequentially to try and get to the economic truth of the business without looking at so much of the other stuff, because I just think it’s hard to, I can build a narrative one way or the other pretty comprehensively showing why it should be a good short or it should be a good long.

[00:31:53] Tobias Carlisle: And it doesn’t help me make a decision ultimately. So I decided to make a decision on financial statements online. And then the way that I protect myself as I make these positions, 3.3 percent positions in the fund. And I take the position up if it goes down a little bit in a quarter and I take it down, if it goes up a little bit in a quarter and I sell out of it, if it works and I sell out, if it falls apart.

[00:32:14] Tobias Carlisle: So that’s how I’m thinking about this as portfolio. So I’m trying to create a portfolio of. Good businesses that aren’t too expensive, that are doing reasonably well, good businesses that are very cheap and that’s a distinction between me and many other investors who will know a lot of this stuff down to a great deal of detail because it’s just, it’s not possible to know this level of detail across as many names as I cover in the fund, but I protect myself by sort of constructing portfolios.

[00:32:39] Tobias Carlisle: So I always say that I try to say that every time I do one of these podcasts, just so that there’s nobody at home who’s like, I said that this is a really good pick. And so therefore go and put 100 percent of the portfolio and definitely don’t do that. All of these things have risk. They have material risk. I’m looking at portfolio performance rather than individual names.

[00:32:57] Hari Ramachandra: Yeah, and one more thing I wanted to add is if somebody is thinking of looking into this company’s mode, one of the things might be to look into their IP, if they have patents. That might be a form of protection they might have.

[00:33:12] Tobias Carlisle: They do, and they’re trying to protect them.

[00:33:14] Tobias Carlisle: I always say that patents are just a ticket to the fight rather than, the winning lottery ticket. They just, they let you get in the ring and swing a few punches, but they don’t determine the outcome. So I do think that they have a patent. They’re protecting it. They’re suing to, they’re suing a company right now. That’s their [Inaudible].

[00:33:29] Tobias Carlisle: So they have some IP there. To what extent, that is useful or not. I don’t know. But yes, thanks for reminding me about that, Hari.

[00:33:37] Hari Ramachandra: No, I think that was an interesting topic, Tobi. Thank you. I’m going to look into it for sure. It’s very timely. I can go next because some of the themes will continue here.

[00:33:48] Hari Ramachandra: So I think keeping up with stocks that have declined more than 50%, I’m going to pitch mine in the last one year and that will be Dollar General. So Dollar General, as many of you might know, is a retailer. They focus on moderate income households, that is, anybody with 40,000 or less. Mostly, they are completely in the United States.

[00:34:12] Hari Ramachandra: They have more than 19,000 stores in 47 states. Their strategy is very much the opposite of the big retailers like Walmart or Target, in the sense that their stores are very small, on an average 7, 500 square feet. compared to the super stores, which are 187, 000 square feet. That’s Walmart. The second pillar of the strategy is they focus on communities who are not sold by big retailers or don’t have access to many alternatives.

[00:34:46] Hari Ramachandra: So they’re usually located in rural areas, which are away from any other alternatives. By at least a factor of 15 or 20 miles radius. And as of now, 75 percent of dollar general locations are in towns of 20,000 or fewer population, and 75 percent of Americans live within five miles of a dollar general.

[00:35:12] Hari Ramachandra: So that’s kind of how they have positioned themselves. This strategy is, as I said, and the strength also is that kind of a network of locations. Low priced items and then really good scalable supply and distribution capabilities. Most of their sales comes from consumables, whether it’s healthcare products, sanitary products, tobacco, all the stuff that people need on a day to day basis.

[00:35:41] Hari Ramachandra: 11 percent from seasonal. 6 percent from home products, 3 percent from apparel. I kind of think of them as like 7 Eleven on steroids. Like they’re conveniently located but have more options. They also have ventured into like, grocery or food with refrigerators in some of their locations. They also are trying to get into urban areas, especially what is known as food deserts, where there are not many options.

[00:36:10] Hari Ramachandra: And one of their key strengths is also that they basically sell in small packet sizes, unlike the Costco’s or the Walmart’s of the world, because their customers don’t have the flexibility to buy products in bulk and get the discount. So in, so their tickets, ticket prices are usually less than 5.

[00:36:33] Hari Ramachandra: Their customers usually, when they buy like an average ticket item, like whatever they buy in a single visit will be. 12 or less many times. This has two advantages. Number one, it protects them from online retailers like Amazon, because when the ticket items are smaller in value, it becomes less profitable to ship them, especially in a single day.

[00:37:00] Hari Ramachandra: And the second thing is, since they’re focusing on moderate income households, they don’t have the flexibility or the affordability to pay for the annual membership so that they can get prime or single day shipments. So, and with only 5 mile radius or within 5 miles of accessible distance for 75 percent of Americans, most of them would rather just go buy what they want.

[00:37:26] Hari Ramachandra: So that’s one thing. The second advantage they have is. Smaller ticket items has higher margins, so they have been historically known to have higher margins, so it works in two ways, to their advantage. One defensive one, the other one’s from a profitability perspective. So that’s kind of, how they are situated.

[00:37:46] Hari Ramachandra: But, however, the reason they are down today is, again, a combination of multiple things, a perfect storm. For example, they kind of, went through a… Time when there was a lot of stimulus checks going around, they were growing really well, but suddenly the customer habits have changed. This also goes back to our discussion about the current economy, like especially the households that Dollar Generals serves.

[00:38:16] Hari Ramachandra: Got a lot of stimulus check. They had a lot of money to spend Dollar General expanded into multiple different product categories to serve them. And then the stimulus checks started wearing out, interest rates started going up, and this shows us that in fact, they said that the same source sales have gone down, even though their overall revenue grew by 3.

[00:38:40] Hari Ramachandra: 9%. Historically, their revenue has grown much higher in the 5 to 10%, but like, They, the same sources did go down. They brought it up back this year though, back to 10%, but they had an inventory growth problem because of that. So they’re recalibrating, readjusting to that, but it does tell us that, not everything is rosy in the economy.

[00:39:07] Hari Ramachandra: The second thing is that they’re trying to also attract more customers by lowering their prices. So even though their revenue has gone up, it doesn’t mean that their profit has gone up. In fact, they’re Profit, profit margin has gone down this year because of their lowering the margin and they’re also hiring more labor.

[00:39:28] Hari Ramachandra: So investing more resources there to improve the customer experience. So it looks like they’re having to woo the customer so far. They didn’t have to because of increased competition, deteriorating economic condition of their customers. So. All these factors are kind of, putting a lot of pressure on them.

[00:39:48] Hari Ramachandra: If you live in California, especially in San Francisco or LA, you’re so familiar with this. Because there are stores which are closing down in San Francisco because they just can’t handle the shrinkage. One of the things in California at least is like up to 900, correct me Tobi here, dollars. If you are shoplifting and caught, up to 900 you cannot be persecuted. So by law is, correct me if I’m quoting it incorrectly.

[00:40:13] Tobias Carlisle: I don’t know, but that does sound like, I think I have heard that. I don’t know what the number was, but there was [Crosstalk].

[00:40:17] Hari Ramachandra: Yeah, something like that. And they also had an incident where one of their employees was shot. in Florida. So it’s like a lot of bad news, one after the other, and in the communities, they serve, they’re all hurting.

[00:40:32] Hari Ramachandra: And there’s a lot of shrinkage because of that. And there is also the less affordability by their customer base. So that’s what is causing the current conditions for them to go down. However, they are implementing few new strategies that they believe will help them. One is They are basically implementing this digital strategy where they have an app that you can get coupons.

[00:41:02] Hari Ramachandra: And they’re implementing a treasure hunt kind of a model that TJ Maxx and Ross have applied successfully in the past through these apps. There is also increased loyalty, and then there is also a self-checkout or no contact convenient checkout, which will reduce shrinkage as well as. improve the efficiency with which they can operate with lesser labor and improve the customer experiences, therefore, and 70, 70 percent of their target customers do have a smartphone.

[00:41:34] Hari Ramachandra: So they believe this is a viable strategy and they’re also, they’re almost. They’re done going through their excess inventory. And they’ve brought the inventory group down now, and they hope that they will come back to their original mode where they were. So in terms of just general mode to summarize number 1 they’re a high margin business because of the small ticket items.

[00:42:00] Hari Ramachandra: They have lower costs because of a smaller footprint, which means lower rent, lower labor, lower maintenance. They’re insulated from online retailers because of the small transaction size of roughly 12 per visit by their customers. And they’re insulated from big box retailers because unlike, say, Dollar Tree or other stores, they deliberately choose a place where there is no Walmarts a Targets of the world and they’re far away.

[00:42:27] Hari Ramachandra: Whereas if you see, when in California, when I was kind of doing the research for this dollar trees are always located very close in the vicinity and sometimes it’s the same parking lot as Walmart. So they have taken a completely different strategy than Walmart. They did grow through acquisition in the past.

[00:42:44] Hari Ramachandra: So, and they are quite acquisitive when it comes, but it comes to growth, but. They have been quite prudent so far. However, I think going forward, we’ll have to see whether their growth strategy will work as it has worked in the past. In terms of their performance, they’re not as impressive as Tobi’s pick.

[00:43:01] Hari Ramachandra: It’s only 15 percent average return on invested capital over the past five years. Their margin is in the low 30s, that is, gross margin, compared to, say, 20 percent higher, 20 percent of target, basically 9 percent 9 percent is their average operating margin. And overall, like, in terms of costs, one, one example I would like to give for operating leverage, they incurred around 60 in selling and general administration cost per square feet compared to say 80 per target. Their operating margin is now around 7.9%, but it used to be more than 10 percent usually, so it has come down and obviously because of that, their operating margin also has declined quite a bit in the past. So from at a peak, it was around 10%, 10.67%. Now it’s around 7.99%. So their PE also has accordingly adjusted. From a high of 24. 67 to now around 11.81, so their stock price has obviously reduced by 55 percent. So they also posted a decline, they guided down their EPS decline in EPS, guided down there, guided their EPS growth down. So everything that could go bad has gone bad, pretty much for them.

[00:44:26] Hari Ramachandra: So that’s my pick and I would like to know, is it a value trap or is it something you guys would consider?

[00:44:33] Tobias Carlisle: This has been a popular name among sort of fin twit circles. I’ve seen this, a lot of people follow Dollar General, Dollar Tree, follow those names. And I think it’s because they think that there’s something special there.

[00:44:47] Tobias Carlisle: Retail is tough, particularly the sort of discount retail is really tough. There’s some real competition there, as you pointed out, Walmart and Dollar Tree and various other. Costco, maybe not directly competitive because they sell bigger ticket items with a, you have to pay the subscription fee, the membership fee or whatever it is, but still like competing with, we’re just dividing up the pools of customers who are going to go to each one that when I look at it, I think it is.

[00:45:10] Tobias Carlisle: It’s amazing how much has come off from 250 to where it is now, which sends it back to where it was in like 2019. It’s even cheaper than it was through COVID, through the COVID crash, all that sort of stuff. It’s crazy that it’s all the way back to here, which I think really speaks more.

[00:45:27] Tobias Carlisle: I get a little bit of criticism as a value guy who talks a little bit about macro, but for a lot of these names, like, I just don’t think, see how you can look at dollar general and not have a, some sort of macro opinion. It’s clearly the reason why they’re weak. is because their end consumer is weak or weaker than they were when they had all the stimulus through COVID.

[00:45:44] Tobias Carlisle: The questions, I think the real issues for this, they took on a lot of debt to buy back stock when the stock was much, much higher than it is now. And so the stock is down a lot. The debt is still there. There’s some weakness in the, in their end customer. And there’s a lot of weakness in their end customer, and I can’t tell, and this is one of the really tough things about having that big COVID comp through there, you don’t know to what extent this is.

[00:46:10] Tobias Carlisle: Just coming off that sugar rush of all the stimulus that came through, whether this is, and probably both are true, or whether it’s sort of extreme weakness in the end customer that everybody’s starting to feel a pinch. I think this is it’s an interesting pick. I think it’s, I do think it’s undervalued.

[00:46:26] Tobias Carlisle: I think that the management’s taking all that debt to buy back stock at much higher prices is a concern. And the debt being there is a concern, particularly if we still have to go into the period of. of economic, the real economic weakness. I don’t know, a few retailers have sort of quietly slipped out the back door through this process.

[00:46:47] Tobias Carlisle: It’s been a, it’s been rough to be in retail. Some surprising ones. Rite Aid declared bankruptcy. I don’t know about you guys. I don’t know if it’s a Rite Aid or whatever the other. Every time I go in there, I’m astonished at how much money I spend in all these places. I don’t know how they do it. What’s the competitor to Rite Aid, Hari? What’s the local competitor?

[00:47:05] Hari Ramachandra: Is it Walgreens? I see them together most of the time.

[00:47:09] Tobias Carlisle: Maybe it’s Rite Aid that I go to. Yeah. I don’t know. But whenever I go into this place, I’m always like blown away at the amount of money that I spend. So they must be doing okay. But the Rite Aid is like, somehow Rite Aid has gone into bankruptcy, too much debt.

[00:47:21] Tobias Carlisle: And we’ve seen that with quite a few. Bed, Bath and Beyond, GameStop, I guess it’s got a, GameStop has got a lot of weakness there, but they were able to raise some money because of the funny stuff that happened with the stock. Retail is tough. Dollar General has a lot of debt, has an impaired end customer at the moment.

[00:47:37] Tobias Carlisle: There is a little bit of a, they do have a finite amount of runway here. They have to kind of resolve all of these issues. There’s some risk. It’s undervalued, but there’s some risk in it is kind of where I get to.

[00:47:48] Hari Ramachandra: Thank you, Stig?

[00:47:50] Stig Brodersen: So I use Dataroma a lot just because I’m curious, that’s my intellectual snacking and it’s always fun to see what some of the best investors in the world are buying. And it’s also interesting to see who are doing insider buying. And sometimes those two, the stars just seem to align. And so you had some of the investors that I follow, including Chris Bloomstran, Seth Klarman, Tom Gayner.

[00:48:10] Stig Brodersen: And they all use different approaches to investing, but for different reasons and I would say at the very core, of course, they agree in terms of how to value a business, but the three of them all either added or built a position in Dollar General. And then on top of that, you also see a decent amount of insider buying.

[00:48:27] Stig Brodersen: So that, that has to make you excited. And there are a lot of things I like about this pick. And also, I like the valuation, but to Hara’s point before, that’s typically the case with value traps. You’ll like the valuation until you don’t anymore. And I think we can talk specifically about Doll General, but also think there is a component of just not liking retail in general, which is also something Tobi talked about and why you typically don’t see that multiple expansion that you might hope for in retail, just because that’s not how retail trades. And that’s the case for good reason. And I remember whenever I was brand new into the space of investing and, I went through, I had my right of passage, whatever you want to call it. You go to Omaha and you read all the Warren Buffett letters and you read all the books about Buffett’s, and he and Munger just talks about how you should just never go into retailing because it’s such a terrible industry.

[00:49:19] Stig Brodersen: And of course, after reading that, I started to invest in retail because I wasn’t smart enough not to, not with particularly great results. I do think that retailing is appealing because it’s very easy for us to understand. And so it’s easy for us as investors to understand, which is probably also why it’s appealing, but it’s also appealing for people who want to start up a new business because they can understand that.

[00:49:44] Stig Brodersen: And there’s this famous story of Sam Walden that was found. I don’t remember which story it was but he was like finding like laying down on the floor of a retailer. And then someone came up to him and be like, what are you doing? And he was measuring the distance between the different aisles in the supermarket.

[00:49:58] Stig Brodersen: And the point of that story is, I don’t know if it’s true or not though, but the story of that is nothing is hidden in the world of retailing and everything can be copied. You don’t have. I completely buy into what you said before about the competitive advantage, but at the same time, you just don’t have that competitive advantage in retail in that mode as you do in many other businesses.

[00:50:17] Stig Brodersen: I think that’s the irony. We were supposed to invest in something we understand, but whenever we understand it very often, a lot of other people also understand it. And I was quite excited whenever I heard you pitch Doll General compared to the last time when you pitched Palantir because I started it, I read the reports, I still don’t know what Palantir are doing.

[00:50:33] Stig Brodersen: And so, I sometimes have to rely on like my smarter friends like you, Hari, like, this is actually what Palantir is doing. And even after listening to what you said, I’m still like, I’m not completely sure what they do, but I can easily see how you can build. I know I’m probably over exaggerating a bit here, but there’s something to be said about what can be understood and what you could be invested in.

[00:50:50] Stig Brodersen: But then I’m also, I also feel like I wanted to say Buffett and his bet on Apple that he started in what, 2016 and whatnot, it was just there hiding in plain sight for all of us to see. And we all used Apple products and it was so easy to understand. And the balance sheet was just pristine and the income statement was easy to understand.

[00:51:05] Stig Brodersen: And I definitely did not invest. I just spent all my savings on Apple products, but I did not invest even whenever I was seeing what Buffett was doing. So I know there’s only so much you can say about it’s easy to understand and everyone does it. Apparently, that was definitely not the case with [Inaudible] and me, but at the same time, I also feel that there’s something to be said about whenever you do that extra work, let’s talk about the debt situation.

[00:51:26] Stig Brodersen: For example, I don’t like how much debt that they’re taking on. I don’t like some of the asset allocations decisions. Like they’re still increasing the dividend. I’m like, why was that not caught a long time ago? And there’s something about, yeah, you don’t want to cut your dividend. You have to signal the right thing to the market, yada yada.

[00:51:42] Stig Brodersen: But like, I know the payout ratio is like 20 percent or whatnot. So it’s not like you can’t quote unquote afford it, but they’re still taking on a lot of debt that they’re not supposed to take, or I would argue that perhaps they’re not supposed to take on. And I looked into the debt and the maturity and I’ll make sure to link to that.

[00:51:55] Stig Brodersen: This isn’t, I’ll make sure to link to it and show notes, but you can look at it at pace. 35. And so all companies in the financial statements, whenever they’re regulated by the SEC, they’re supposed to tell about the debt situation, like the obligations. And you can go in and find that, and then you can compare it to the income statement about what the coverage ratio is.

[00:52:12] Stig Brodersen: So how many times can you pay that debt back? And so that’s breaking down. And I just, so roughly I would say it’s something like, and so this is breaking down and it’s like total less than one year, once one to three years, three to five years and five plus years. And I just. I can see that they can still service the debt obligation, but you still have to do a bit of work there.

[00:52:30] Stig Brodersen: And some of that also has to be refinanced at a higher interest rate. I don’t know about the credit rating right now, but I would not imagine that the credit rating is improving right now. So there might be even more expensive debt to take on. And so we can, of course, look at like brilliant investors like Chris Bloomstran and the like and be like, yeah, he probably figured it out.

[00:52:48] Stig Brodersen: But I still, and I should also mention, he actually went on William’s podcast and talked about Dollar General and outlined both of these not too long ago. I’ll also make sure to link to that but I still like to be able to look at the data obligations and then see that there’s at least a coverage ratio of 5, preferably 10, which is not the case.

[00:53:04] Stig Brodersen: You’re probably looking more at 2 or 3 here. And so if you can read the debt situation better, like, I don’t know, I’m coming up with the famous, was it Greenblatt whenever he did that with Marriott Hotels and he figured out the whole debt situation and all of that. And he got rewarded handsomely for that.

[00:53:18] Stig Brodersen: It’s just because of that. And that probably also some of the upside that that I’ll be missing for not investing in Dollar General, some of that is just too difficult for me to do. And I guess I would still like to have a very nice margin of safety in understanding the debt situation. And I don’t really feel I have that now.

[00:53:34] Stig Brodersen: Then of course, you can make the argument that there’s a margin of safety in the price that you’re paying in the first place. And it is indeed very attractive. And I was speaking with one of the members of our mastermind community the other day, and I was saying, I think it was trading 110 or something.

[00:53:48] Stig Brodersen: And what is it trading 115 or whatnot today? I was telling him like, I kind of felt like a lot of that risk was, we had a bit more margin of safety. And I would say the intrinsic value is probably higher than what you’re seeing right now. And then he looked at me and I don’t know how long he’s been invested, but he looked at me and said, Stig, there were people who bought in 180 who said the same thing. And I was like, okay, yes. I’ve tried those value threads before. It’s painful.

[00:54:12] Hari Ramachandra: Both of you pointed out that, the retail business being very hard and as Buffett says, it’s a widow maker. So, yeah, I think that’s one of the things why I, it’s almost like one of those investments for me where I had to really hold my notes and then do it if I had to buy because retail, retail is a tough business. And as just Tobi was pointing out to write a closing shop or playing for bankruptcy. There was Aldi, a European retailer, I guess they came in, they tried to do this kind of, smaller footprint, smaller square feet shops, that didn’t work.

[00:54:49] Hari Ramachandra: Walmart had this, I forget the name, they had this initiative where they had the smaller footprint stores like Dollar General or Dollar Tree. They wanted to do that. It didn’t work out for them. So it’s a tough business. I am not sure whether I should see that as a strength of Dollar General that all these big guys did try to compete in that space or should I see it as maybe they’re not seeing value in that area that they don’t want to put their effort because if Walmart really wanted to kind of, put their foot down and go for it for a couple of decades. They could probably conquer the market. They didn’t. So either it’s not viable for them or it might be that it was already saturated with Dollar Tree, Dollar General, a couple of other similar retailers. So that is one. The second thing is. Are we approaching a railroad moment here or are there still airlines in terms of, speaking of Buffett, right?

[00:55:45] Hari Ramachandra: Like, is it getting consolidated? Fewer players that people have realized enough for now that they’re not, new people are not venturing or the existing ones are becoming more rational? I don’t know the answer. That is one thing that we need to think about. The last one is that they recently had a CEO change, so they brought back the old CEO on October 12th.

[00:56:07] Hari Ramachandra: It’s almost like the Disney moment where the new guy was short term on his job, but then the old, the earlier CEO has come back. I don’t know, should I see it as a positive or are they panicking? So yes, there are more questions. My assumption, one of my assumption for pitching this is that it’s like Tobi’s pick likely.

[00:56:28] Hari Ramachandra: All the bad news is probably priced in because everybody knows about it. So, and then the second thing is when I look at its competitors or peers, they’re all selling in the P multiple of 15 to 30. Whether it’s Walmart at 30, Ross at around 24, Target around 15. So, I don’t think they are much rosier than Dollar General in terms of their position.

[00:56:52] Hari Ramachandra: So, not sure why they are, probably the negative sentiment on Dollar General right now is higher is my assumption. But having said that, this is no Microsoft. This is not like a multi-year compounder, I guess. At best, it will be like a good pop and probably then you collect the dividend if you continue to hold it. So, yeah, I think that’s my pick.

[00:57:16] Stig Brodersen: Wonderful. Thank you, Hari. It was a very interesting pick. Tobi, do you have anything here for Hari before we do my pick?

[00:57:24] Tobias Carlisle: No, let’s do yours, Stig. Great job, Hari.

[00:57:27] Stig Brodersen: Like you mentioned there before, I’m probably pitching the very opposite of Dollar General. I’m pitching LVMH.

[00:57:35] Stig Brodersen: And most known for Louis Vuitton and Christine Dior and a few other brands. So definitely the very opposite, you can buy it as an ADR. If you’re US based, you can also buy it on all the major European exchanges and yes, the ticker is LVMH, just like the brand. And LVMH is behind 75 brands.

[00:57:53] Stig Brodersen: I mentioned Louis Vuitton before, Christian Dior, Tiffany’s, you name it. And until very recently it was the most valuable company based on market cap in Europe, but it has just been eclipsed by the Danish pharmaceutical company, Novo Nordisk but that’s the case. And now it’s the second most valuable company in Europe.

[00:58:10] Stig Brodersen: Now I do not have a position in LVMH, not because it’s not a great stock. It is most certainly yes, but also what you very often see with high quality companies is that they’re trading at generous multiples and this is not too different than perhaps it is anyways, but if you just look at the stock at a glance, it’s currently trading at a P of 20 and the price of free cash flow of 18.

[00:58:34] Stig Brodersen: And I would also say that with the interest rate of call it 5%, it doesn’t look that appealing, but I would argue later in my pitch here that you need to normalize some of those earnings. And whenever you do that, it’s a lot more attractive than it appears. So please don’t just look at it at a glance but dive a little deeper.

[00:58:52] Stig Brodersen: Another thing I wanted to mention is that I think that the company is such of a high quality that even if you don’t like the price right now, put it on your watch list, perhaps just buy a few shares just to make sure that you have a bit of skin in the game and start following what’s happening with the stock.

[00:59:05] Stig Brodersen: It’s very interesting. This is a company that’s been on my radar for quite some time, and it’s not because I’m big on, on fashion. Not at all. I’ve been married like last week, my wife and I had our 13 year anniversary, which means that to the best of my knowledge, I have not picked my own clothes for the past 14 to 15 years.

[00:59:24] Stig Brodersen: Like, so you might be wondering why am I pitching a fashion brand or a fashion house? but I would say that it’s not. The case I would say that if you make a bet on LVMH is a bet on brilliant capital allocation and not so much on fashion. And I’ll also get to that later. The founder of LVMH, he’s also the CEO today and is currently the second richest man in the world after a long period of being the richest.

[00:59:47] Stig Brodersen: But LVMH has traded down, Tesla has traded up. So now Elon Musk is back at the top, but still with a net worth of 180 billion. But I know they’re probably just fine. So LVMH, the company that we’re going to talk about here, it’s founded in 1987, but the brands that are representing there are much older and they have a fascinating story in terms of that, but I’ll just make it short here.

[01:00:10] Stig Brodersen: And I should probably also say that I should apologize literally for my French because I’m going to say a lot of French words. I’m terrible with French. So, the name is. Moët Hennessy Louis Vuitton. Still, it’s known as LVMH. So Louis Vuitton is sort of like first, I don’t know. It’s a bit confusing and it’s the merger of Louis Vuitton that was originally founded in 1854.

[01:00:33] Stig Brodersen: And the founder’s name was Louis Vuitton. Yes, you guessed it. He was the trunk maker of Napoleon the third’s wife and intern to the Noble Families of France. And so in 1987, the company merged with Moët Hennessy, which is the top authority in champagne and cognac. Then itself was also formed by a merger.

[01:00:52] Stig Brodersen: And I probably should also apologize to a Dutch audience because I think Moët actually supposed to be pronounced Moët or something like that. It’s a Dutch name, but the company was actually still founded in France. And so regardless, the business today is a luxury conglomerate and so while Louis Vuitton is core to LVMH, the company is just so much more.

[01:01:12] Stig Brodersen: And you can think of it as a conglomerate with five major business units. So you have wines and spirits, fashion leather goods, Perfume and cosmetics, watches and jewelry, and then selective retailing. But the one really to look out for here is fashion and leather goods. That’s 50 percent of the revenue, but 75 percent of operating profits.

[01:01:30] Stig Brodersen: And here, especially Vuitton and Dior stands out as the two most important brands. Whenever you read the financial statements, they don’t break it out into different brands, how much that. selling, but it is still in that order of the most important and fashion and leather goods just have an outstanding operating margin of more than 40%.

[01:01:49] Stig Brodersen: And whenever you’re buying a stock, you’re of course buying the future cash flows and not the not the past, but it’s also important to understand the past before you can understand the present. And it used to be Western Europe and the United States where LVMH made its money. But today, Asia is the most important market with 41 percent of the conglomerate revenue overall.

[01:02:09] Stig Brodersen: And I should also say, whenever you read the financial statements, they have a segment called Japan, and then they have Asia, excluding Japan. And still they don’t break that up, but still China by far is the most important market for them. And that is really the case for LVMH. You really need to understand that which we’re going to get to a bit later.

[01:02:27] Stig Brodersen: Partly it’s because we expect growth to come from the Asian region, but also because the Asian consumers buy higher margin products. So for example, you can see that they’re buying the, if simplistically they’re buying the fashion leather goods with a 40 plus percent operating margins.

[01:02:43] Stig Brodersen: Whereas for example, something like Sephora, which is. Like it’s screwed on the selective retailing. They’re growing fast in the U S right now, but they have operating margins of 5 to 8%. So it’s not just a question of looking at whenever you read the financial statements, yes, you look at revenue, but you very much look at the operating margins too.

[01:03:02] Stig Brodersen: I think I might be confusing here because I introduced LVMH as a luxury conglomerate, but I’m also talking about more conventional retailing such as Sephora, even though it’s still a very small part and very small part of the operating margin. So perhaps we should talk more about the luxury component.

[01:03:16] Stig Brodersen: That’s also where they make their money. And I’ve borrowed a quote from the famous Coco Chanel because she has a great definition of luxury and that is, luxury is a necessity that begins where necessity ends. What better way of talking about defining what luxury is. And so we have this irony where we talk about luxury at a scale like LVMH, it’s a company with more than like 400 billion of market cap.

[01:03:42] Stig Brodersen: This is a massive company. The market cap of LVMH is more than 300 billion euros. So how can we talk about luxury? At that scale, because by definition, luxury is something that’s scarce. And so I think there are different ways of looking at this. So perhaps we should talk about what’s a premium product.

[01:03:58] Stig Brodersen: So I recently bought a new iPhone 15, and I did not buy the cheapest model. I bought the second cheapest model. So I needed a bit more of hard drive space. And the thing I paid an additional 200, something like that. So an iPhone 15 is a premium product, but it’s not luxury because you get more for those say 200 more, you get, you’ve got a bit more of hard drive space.

[01:04:21] Stig Brodersen: Now it might be ridiculously overpriced. It probably is, but you still get more features. Someone who is, who knows a lot more about fashion than me would probably disagree whenever I say that’s not the case with the Louis Vuitton bag. For example, if you look at the materials. of a 10, 000 back and look at it of a 500 back, I would make the claim that they’re not too different.

[01:04:42] Stig Brodersen: But the branding is very different, which is why you’re willing to pay significantly more. And the next thing here about cost of goods sold, the multiple of that is, is of course, different between the different types of backs that they have. I’m just using backs in example, you can basically choose any kind of item that they’re selling.

[01:04:58] Stig Brodersen: But for backs, it’s around 15, some lower and some higher that they mug up on the cost of goods sold. So like, this is like, the margins are crazy for a product like this. And if we talk a bit about pattern recognition here, one thing I really thought of, even though LVMH is much, much better, like I cannot help but think of a product like Coca Cola, you have carbonated water and sugar and a few other inexpensive ingredients and then you slap a brand around it and then you control the entire value chain, which LVMH also does. And then, that’s basically what you’re looking at here right now. Of course, it’s not as cheap as water and sugar whenever you’re creating a bag, but it’s not that expensive. It’s really the branding. And it’s also interesting whenever you look at the balance sheet for LVMH.

[01:05:42] Stig Brodersen: So I’m just going to throw some numbers at you. So we are looking at around 80 billion euros in revenue, but they have 30 billion. Euros in marketing, like it’s such a huge component of the business. And then we are back to the point about is marketing a real expense? Should it all be expensed or you really building an asset?

[01:05:59] Stig Brodersen: And I’ll argue that you’ll have to add some of those marketing expenses whenever you do the evaluation back into your brain earnings. And they’re already across the entire company making 25% operating margin. So it’s quite significant. If we talk about competitive advantage and competitors, I should probably say that the first type of competitive advantage I want to talk about here, it’s not so much just LVMH compared to, say, AME or Kering, but just more the business of luxury in general.

[01:06:26] Stig Brodersen: I just mentioned Kering there, which is also a French brand, but like, they’re probably most known for Gucci and a few other brands. And so all brands, all luxury brands have this mode around them. that are just harder to disrupt. And it’s kind of, I wanted to talk a bit about that here because if we come up with a more recent example, something like OpenAI.

[01:06:46] Stig Brodersen: AI is changing so many things, disrupting so many things and if you look at OpenAI and Hari can probably talk way more about this than I can, most people would say that they have a mode around them and they have a first move advantage. Then we read about something like Entropic. And there was some of the defectors of open AI and they got funded by 4 billion of Amazon.

[01:07:05] Stig Brodersen: And now they’re competing fiercely with open AI. I don’t know who wins, but even the best art director in the world, if we gave him 4 billion and said, okay, don’t work at Louis Vuitton here anymore. Start up your own brand. He’s not going to disrupt Louis Vuitton the same way as Entropic are going to potentially disrupt open AI.

[01:07:26] Stig Brodersen: There’s this story where he asked Steve Jobs about whether or not he thought people would still be using iPhones in 30 years. And Jobs said he wasn’t sure, but he was quite sure people would still buy Dongping Yong and drink that in 30 years, which is also owned by LVMH. So., I got a few other points about competitive advantage, a few other points about some of the risk and evaluation, but I want to throw it back over to you guys and continue the conversation from there.

[01:07:52] Tobias Carlisle: I love LVMH as a business. That’s Bernard, I know, started whatever they had. He had some low margin manufacturing business, the family did. And I think he went to New York is the story that I have read, something like this. And he saw the margins, or what they were selling the premium luxury, the luxury goods rather, what they were selling luxury goods for, and he realized that there was much more margin if you could sell a little bit more of the magic, and I guess the way that you sell the magic is you spend 30 billion a year in marketing to make them an object of desire, and so they do that very well, and they’ve got a good sense for which of those luxury brands are enduring and will be desirable in decades to come.

[01:08:34] Tobias Carlisle: I think they’ve got a really good stable of brands there and they’ve been very good at picking them and they seem to also thrive under LVMH’s ownership. So it’s a great business run by a very smart businessman and his kids who he’s bringing into the business as well. I think it’s something like, it’s like a, It’s not a Berkshire Hathaway, but it’s something like that in the sense that it’s an, it’s a conglomerate, it’s an acquisition based conglomerate that buys businesses that have these high margins and, but it’s more luxury focused, whereas Berkshires sort of go anywhere, do anything.

[01:09:08] Tobias Carlisle: I think that they’re, if you look back at, I’ve run back through five years of just looking at the valuation rather than the share price, just looking at the growth and the valuation, the value has grown very materially over the last. five years from, whatever it was probably worth 20 or 30 bucks.

[01:09:23] Tobias Carlisle: And now it’s probably worth like 150, that kind of range. So the value itself has gone up five times. The stock price has been, much, much wilder than that through the run. The stock price is currently, I think it’s about fair value right now. So there’s not a big discount, but business has shown, that’s where you’ve had to buy this business at fair value or a little premium to it because it’s the value is going to be, it’s going to be worth more next year, probably or not necessarily next year, but you know what I mean, in five years’ time, it’s probably worth more. They’ll find some more stuff to buy. They’re reasonably disciplined in their, in what they pay. The brands thrive underneath them. I think this is a, I think this is not the usual thing that I would buy because it’s just a little bit expensive for me.

[01:10:05] Tobias Carlisle: But if I was running discretionarily, if I had a PA that was outside of my funds, then this is the sort of thing that I would potentially hold as a distinctly different strategy to what I do. where I also think that would be quite a solid pick, in five or 10 years’ time, you would assume that the business would still be bigger because they’ve got diverse income streams across lots of different product lines.

[01:10:29] Tobias Carlisle: They understand the nature of supporting the luxury brand. You have to invest in it. You’ve got to invest in it through marketing. There have to be premium products on top of that, have to make them desirable. They’re very good at doing that. So I really respect and admire the image. It’s one that I would love to own the right price.

[01:10:46] Tobias Carlisle: I don’t own any, don’t plan to buy any because I only invest in my funds, but it’s a good pick, Stig, I like it.

[01:10:52] Hari Ramachandra: Yeah, I think I would second that in, I was just thinking about Dollar General versus LVMH. If I was to hold one of these for 10 years, I would any day hold LVMH. Because I think it’s one of the businesses that is most protected by, from any effects of generative AI.

[01:11:09] Hari Ramachandra: In general, AI, basically, because as I think, that was a good quote Stig, you brought up. about what Steve Jobs said about iPhone versus some of the brands of LVMH. I think there is an intrinsic value to the brand, the scarcity, the recognition, and then margin is built into that business model because they can’t sell it for cheap.

[01:11:30] Hari Ramachandra: So I think and also, I looked at their dividend. They have been consistently paying dividends. They have been consistently increasing their dividends. So that’s a good point that Tobi brought up as well. In terms of their revenue growth, I think they’re, they have been growing their revenue at around quite a healthy pace.

[01:11:51] Hari Ramachandra: Like, correct me if I’m wrong, Stig, except for 2020, when their revenue declined, they have increased their revenue higher [ Inaudible] right? Most of the times and sometimes even crossing 20%. So that’s very interesting. I think I, in case of their marketing spend, I don’t know whether I should see it as an investment or as a tool that they have to pay.

[01:12:12] Hari Ramachandra: Unlike, say, Tobi’s pick on the skin, INBB, where you’re developing the relationships with these medical professionals or institutions, and there’s a lot of greasing happening there, so there’s an investment part of it here, it’s like every few years, a new star is born, somebody else becomes more popular, so it’s almost like a tax they have to pay, they have to keep going after these new celebrities, and new events that they have to be part of.

[01:12:44] Hari Ramachandra: So that’s one thing that might concern me, but I’m not too concerned because anybody else entering this business has to do that. So, there will be a cap on their margins at some point is how I see. So I don’t know, like, yeah, it is probably like, we can only get it at fair value. So it’s probably trading at a lower P than the last five years for sure. So it, it might be a good buy, but it’s more like a stable dividend earning stock that will double in the next few years.

[01:13:19] Tobias Carlisle: The issue for something like this is always overpaying because everybody knows it’s a good business, everybody knows the brands, it is run very well, it’s well financed, all those things. The risk is that they perform so well for so long, they get well ahead of themselves and people buy them and then it’s just dead money for 5 or 10 years.

[01:13:37] Tobias Carlisle: I don’t think you’ve got that problem here, I do think it’s at about fair. I think that fair value probably chops around a little bit for the next, I don’t know what, if we have a little bit of weakness, does that impact the people who buy luxury stuff? That’s a really tough question to answer. It’s because wealthy people do seem to be largely insulated from a lot of the economic pain that comes through.

[01:14:00] Tobias Carlisle: I bought Coach in 2008, 9 when everything was blowing up. I bought Coach and I was a much more discretionary kind of investor at that point. I was sort of wandering around looking at all the stores and Watching people actually buying and I asked people who bought and everybody seemed to, people were still buying handbags through that period of time.

[01:14:19] Tobias Carlisle: People tend to buy small luxury items. So lipstick does very well through periods of economic recession because you still, it’s not such a huge expense, but it’s something that you can feel good about. So very hard to pick what happens, I think, but it’s a good business, even if we have a period of economic recession, you probably, beyond that, people are still going to want to buy all of those products.

[01:14:39] Tobias Carlisle: It’s probably pretty well insulated, ultimately. So I like it. I think it’s a good pick. And at this price, you don’t have that 5 or 10 years of dead money.

[01:14:47] Stig Brodersen: Yeah, I don’t think you have that either, Tobi. I agree with that. I’m not saying that it’s a very cheap stock either. Here’s the time of recording, it’s trading at 670.

[01:14:59] Stig Brodersen: The founder bought it back. So the ownership structure is a bit special. So he has a holding company that owns LVMH and it’s a dual share class kind of thing where he owns less of the shares, but he still has control. And so, he bought it back at 800, 810 euros, just to give you an idea there is, if we can, if we continue a bit with the comparison to Berkshire and it’s, I would say.

[01:15:25] Stig Brodersen: Oh, I’m probably going to be crucified for this if I say it’s higher quality than the Berkshire, so I’m not going to, I’m not going to say that, but definitely the return on capital employed is much higher than with Berkshire. We’re still talking close to 20%, and this is a company with north of 300 billion.

[01:15:38] Stig Brodersen: And so, it’s a huge company and they’re still compounding really well. And there are quite a few things I wanted to add to that. Part of it is that they have like a, almost a status of like the first buyer, if one of the fashion houses in Europe are being sold, they’re very connected, the fashion houses in Europe.

[01:15:58] Stig Brodersen: And you typically don’t want to sell to Americans. And for me, being American in this space is just because I compliment. So I definitely don’t want to offend our American listeners. But for example, if you mentioned coach before all my tapestry, I’m reading this or just read this book here called future locks.

[01:16:14] Stig Brodersen: I’ll make sure to link to in the show notes. And it talks about how the fashion houses in Europe has. a right of first refusal because they don’t want to sell to Americans. And so if none of the European fashion houses want it, they bid it to the Americans afterwards, which just gives you a selection bias.

[01:16:31] Stig Brodersen: And another thing is that which seemed like it might play against this, but actually also meant as a compliment. LVMH’s founder, Bernard Arnault, has sort of like a reputation for being American, which to me is very positive because you’ll have a strong focus on shareholder value, but in many fashion houses, actually not seen as a good thing.

[01:16:46] Stig Brodersen: In a way he’s like, the first and last buyer, because a lot of those houses also can’t stand each other. But the reason why I wanted to mention this is that he really got his education in the States, and he saw like activism and that way of conducting the kind of business with LBOs and the predatory behavior.

[01:17:02] Stig Brodersen: And he’s just shown that over and over again, most recently with whenever they bought Tiffany and company. The way that he wanted, like started to sue them, because they paid some in dividends, while the deal was about to get signed. And like there was just ton of stories about him. He understands valuations really well.

[01:17:18] Stig Brodersen: Also, I’m sort of like trying to figure out what is it that this company does so well. Cause you, it’s sort of like difficult to compare them to, to some of the competitors. Like the most obvious one would probably be a company like Kering that owns Gucci, and a few others, like I mentioned before, and not something like Amir, which is like a family owned by many generations still controlled by the family and they have one brand. And it’s, I read through the financial statements and I couldn’t really figure out why is it that they’re not growing? And why is it that LVMH’s are consistently growing? And the thing, it goes back to capital allocation. And I was speaking with industry expert from a mastermind community, [Inaudible] about what is it that they do so well?

[01:17:58] Stig Brodersen: And the way he explains to me, cause again, I know nothing about fashion. That he said that they were like, they have their 75 brands and its sort of like up to LVMH to figure out what should not be fashionable. Like where should we put our focus right now? And that gives me, and yes, I prepared this, that gives me a chance to come up with another Coco Chanel quote.

[01:18:16] Stig Brodersen: It’s just fantastic. When she says, I don’t do fashion. I am fashion. I love that code. And it just made me think of the way that they do capital allocation and the way they take a brand like Remova and just all of a sudden make it so much more popular. And then the high prices and like, they really create fashion, which is just absolutely amazing.

[01:18:37] Stig Brodersen: And so I’ve talked a lot about all the good things. I wanted to talk about some of the bad things before we talk about valuation. I think perhaps the biggest risk factor for me is that I don’t understand the Asian market. And which is really the key to understanding LVMH. I would like to highlight my own shortcomings before I get to that, because I speak Danish and English, there’s nothing written in Danish about this.

[01:18:59] Stig Brodersen: So I would go to my English sources, which is mainly US sources. And they would talk a lot about LVMH and how they bought Tiffany and Company, and they’re going to paint a really good business case about what, like, it’s just amazing what LVMH has done and how it’s been rebranded and talk about Beyonce and Jay Z and we all love them and it all seems like fantastic.

[01:19:20] Stig Brodersen: This is the company you should understand and buy. But then whenever you read the financial statements, you will see that what is jewelry isn’t that important to LVMH. It’s 10 percent of the operating profit. And if only of that 23 percent of that is in the U. S. And oh, by the way, Tiffany company is not just that segment.

[01:19:36] Stig Brodersen: They have Bulgari, [Inaudible] and so many others. It’s a great case study. It doesn’t move the needle and you’d buy into the future cash flows and not the past cash flows. And so you really need to understand the Asian market. And I read up on that. And I think I’m still confused about on this real truly understanding the Asian market.

[01:19:55] Stig Brodersen: I mean, it’s so vast and it’s so different. If you look at just China, there’s this saying that China is not a country, it’s a continent in itself, and you can’t really compare it to Japan. They, if you look at the landscape of Japan, you have the Tokyo, Osaka, Kobe region and I read a book about like how the landscape really determines, like, for example, why is it that Brick and Mortar are so powerful in Japan but were not to the same extent in China, just because of the way, just the country, but also the preferences. Another thing I learned about Japan was that whenever you had like that huge slump in the nineties, where it just like, the economy was terrible. That was really whenever LVMH took off. That was really whenever people started spending so much on handbags because there was a generational shift going on in Japan at the time.

[01:20:38] Stig Brodersen: Whereas you can’t really compare that to China because that’s really just characterized by the speed of change and you have so many different cultures. You have so many different languages and it’s different. You have a different types of loyalty to a brand in China. And you can’t even use China as just one market because it’s so diverse in the different regions of China.

[01:20:57] Stig Brodersen: And I had an experience a few years ago that really made me humble. I have an American friend who was staying in a Chinese city for a long period of time. And he asked me if I wanted to visit him. I was like, sure. Give me an excuse to visit you. And he asked me to visit him in Chengdu. And I was like, I don’t understand that word.

[01:21:16] Stig Brodersen: Like I, what? And he was like yeah. It’s a city twice the size of New York. I was like, I’ve never heard of this. Like this was a few years ago. I never heard about it. And it’s twice as big as New York. And I was like, Oh, okay. I wasn’t sure how to, could you tell me more about it?

[01:21:30] Stig Brodersen: Oh yeah. Okay. If you don’t know that it’s just right next to Chongqing. I have no idea what Chongqing is, but it’s four times the size of New York. And so whenever I don’t understand, I don’t even, I haven’t even heard about this city. That was four times the size of New York. And here I am wanting to talk about understanding.

[01:21:47] Stig Brodersen: Just China, not just all the other Asian countries that are very different too, but just China, it’s just, it really makes me humble how little I understand this and I, if I can make a comparison, it’s a bit like if I said the Americas, and I said, yeah, tell me about the common denominator between Columbia and the U S because it’s all in the Americas.

[01:22:04] Stig Brodersen: And you’ll be like, call them Americas, but there’s America and the Columbia and Ecuador. It’s not really the same and a Chinese person would be like, yeah. Yes, exactly. And so I think that makes me humble whenever I look at the company, cause you would really need to figure that out if you really want to bet big on LVMH.

[01:22:24] Stig Brodersen: And so if you are as ignorant as me, I would probably say you need to put a lot of emphasis on that margin of safety in the price that you’re paying. At the same time, I just wanted to say, don’t look at this as a PE of 20. Like one of the key things are how much of that margin expense.

[01:22:40] Stig Brodersen: Should you add back into normalize your earnings and size doesn’t matter. I know this is a massive company, but there’s still a lot of runway for growth, not just in what you would call personal luxury, where there’s still a lot of growth opportunities, but they. recently went into hospitality, which is a much, much bigger segment.

[01:22:57] Stig Brodersen: And there’s a lot of things here where you can buy one, get a lot for free. Just one example could be something like advertising. Size really matters. And they have so many brands, so they have a lot of purchasing power when it comes to that. It could also be something like real estate.

[01:23:11] Stig Brodersen: So you would think that they would pay the highest rents because they always have the most prominent places. They actually don’t. They pay the lowest. because they provide the customers. So not only do they get the best locations, but they also pay the lowest rent because they can make or break massive malls because they just decide not to go there.

[01:23:30] Stig Brodersen: And so size really matters in this and there was a bit like, the Netflix effect where you talk about you can spread the content creation on more users. It’s the same thing whenever it comes to advertising, when it comes to real estate and so on and so forth. What I would encourage you to do is continue to study how much of the marketing expenses should be added back to normalized earnings.

[01:23:48] Stig Brodersen: And I kind of feel that’s a bit more art than science. I want to say it’s relatively reasonably priced right now. But if you’re really into high quality companies and something that can compound for a long time, despite being a north of 300 billion company, probably take another look at LVMH.

[01:24:05] Hari Ramachandra: Yeah. Thank you, Stig. I think one, one interesting point you brought up was understanding Asia and The exposure to Asia, which is around 41 percent of the revenue, and China might be a big factor in that, is the growing tensions between the West and Asia, especially China, and whether that is going to impact with kind of a non-nationalism and anti-west sentiments in China.

[01:24:27] Hari Ramachandra: Well, India is also a good market for them, probably in the future, because India’s India is not just one India, like similar to what you’re saying in China, like I see like three India’s. There is India, which per capita income is as good as a country like Poland. And the size of that population is also like a country like Poland, let’s say 30, 40 million people.

[01:24:49] Hari Ramachandra: And then there is other in the other parts of India will not be able to even afford LVMH or work into a LVMH product. So, will grow, but we don’t know and so there is a lot of, it’s very easy to look at 1.2,1. 3 billion people and say, Oh, that’s a market, but no, that’s not the market. It’s probably 20 or 30 million people for them, or even less than that, actually.

[01:25:11] Hari Ramachandra: So, yeah, I think that is one risk that is worth highlighting when we are looking at it, but it’s more a risk for growth, I believe, rather than a risk for existing revenues. For the company, but I’m still not convinced that the marketing is an investment in their case and how much of it will, of course, that’ll be like mindshare and all those things.

[01:25:34] Hari Ramachandra: But I’ll be surprised if their marketing expense would not keep up with percentage of revenue similar to what it is today. They might have to forever. It’s not like they will invest a lot in warehouses and after that they don’t have to invest. It’s like. You have to keep investing. It’s my assumption on the subject.

[01:25:55] Stig Brodersen: Yeah, I agree with you on that. I think they still have to do that. Well, I might have a slightly different opinion. I would love to hear Tobi’s thoughts also, or that. So if they have 80 billion top line and then 30 billion in marketing, and then 20 billion they also have all expenses, of course, but then 20 billion in operating income.

[01:26:15] Stig Brodersen: I would argue that some of that 30 billion had to be added back to normalize earnings. I would not say all of it is a, is pure, let’s call it maintenance capex for lack of better words. But I’ll be curious to hear Tobi I should say that not only do you have wonderful skin you seem to be a person who knows slightly more about fashion than I do.

[01:26:34] Tobias Carlisle: I don’t, honestly, but I admire the brands. Lots of different people, value companies in different ways. I don’t really like adding back, amounts that are spent and saying that’s not a real expense, even though I do agree that there’s a big discretionary component to marketing and you could easily add some of that back.

[01:26:49] Tobias Carlisle: And it could be, but you know, guessing where that is, who knows really you really, you want them out there spending the money, protecting the brands, it makes them hard. Like if they’re spending 30 billion a year on marketing, it makes them very hard to compete with. I don’t think you need to worry about too much the precision there.

[01:27:03] Tobias Carlisle: I think you could look at something like this and say, it’s not deep value. It’s close to fair value for where it is now, but what you’re banking on is the fact that they can buy more of these businesses, grow the businesses that they do have over time. They’ll always have pretty solid pricing power.

[01:27:20] Tobias Carlisle: It sounds like they’re very good operationally if they’re getting, that’s real unoperated type stuff where you go in and negotiate the lowest rents. How often do you see people buy flagship stores or flagship buildings and overpay for those sorts of things? So that’s, that, that’s that makes me feel good about the way that it’s managed.

[01:27:37] Tobias Carlisle: I look through the valuation is, I think it’s close to fair value. It’s at 50, it’s come off a lot. It’s come off from closer to hundred, it’s under 50 now. At that level, it’s 20 times. As you mentioned before, free cashflow yield is, it’s not quite right, but it’s saying free cashflow yield is it’s under 3% at the moment, or it’s around 3%.

[01:28:00] Tobias Carlisle: So the question is. In a world of 5 percent interest rates, how much growth do you expect? How solid is the growth? How much growth are you expecting? Does it justify that price there? That’s the part where I look at it and I say, FCF at 35 times, say, so say 3 percent free cash flow yield, it’s clearly growing and can grow into the future.

[01:28:23] Tobias Carlisle: In a world where you got 5 percent interest rates, that’s the only thing where I sort of look at that and I think, would I buy this right here right now? Would I want to just sit in some cash and maybe consider it where the differential is just a little bit, but that’s the only little part that I struggle with.

[01:28:37] Tobias Carlisle: But then equally, how often do you get to buy? I mean, this is still cheap for LVMH. It hasn’t come back this much for a long time. How greedy do you really want to be? I don’t know. And I honestly, I don’t know the answer that I don’t have to make the decision. So I’m, I can’t, I don’t actually have to go and buy it.

[01:28:50] Tobias Carlisle: So I don’t have to force myself to do it, but that’s the sticking point for me. 35 times free cashflow that is growing versus a 5 percent risk free cash at bank on deposit. Yeah. How do you fall out there? That’s the question.

[01:29:03] Stig Brodersen: Yeah, all good questions and I think I probably see slightly different multiples for a number of reasons, but I actually wanted to go back to this whole thing about potentially adding some of the marketing expenses back.

[01:29:14] Stig Brodersen: And I know that probably sounds way too aggressive and it probably is for a lot of investors. What I would like to compare it to is let’s say that they’re not building a brand and improving a brand. Let’s just say that they’re buying a brand instead. And then, so. What happens then, accounting wise, so they have something happening on the balance sheet where they assume they’re financing with cash.

[01:29:37] Stig Brodersen: And then they put a new asset on the balance sheet and the obvious reasons pay a lot more than, since this is luxury, they’ll pay more than the book value. So they’re going to have a lot of goodwill on the balance sheet now, and all of that will be impaired at some point in time. And I’m making all kinds of, I’m trying, like trying to draw a balance sheet and then draw another income statement with my hands, which doesn’t work well for podcasting at all.

[01:30:00] Stig Brodersen: But whenever you do that, you don’t see the same type of expense on your income statement. It looks like you have a much lower expense, even though you’re still getting the same brand value. So that’s sort of like to, to the point I had before about why is it that I come with this outrageous idea of saying, you’re actually building a brand.

[01:30:19] Stig Brodersen: And a lot of that is, really investment capital, even though it’s already written off. Well, if you compare it to the other thing where they actually, let’s say they would buy Gucci, it would just not flow through the income statement in the same way, but Gucci is still a very powerful brand to own.

[01:30:31] Stig Brodersen: And I think that, I think it’s important to understand that difference. And so I don’t know if it did a good job sort of like explaining impairments and goodwill and the interactions between the balance sheet and income statement. But I think it’s important to understand when you look at the income statement, like you really have to, I call it normalized earnings.

[01:30:45] Stig Brodersen: You can call it whatever you want, but like, please, I think it’s important, not just to potentially look at a multiple and say, Oh it’s trading at this, but sort of like paint that color around it. Tobi and Hari, please. I kind of feel I’m way too bullish on this and I, I haven’t even made a position yet. So please tell me why I shouldn’t invest in this stock.

[01:31:04] Hari Ramachandra: For me, it’s like, should I just keep it in the buy power for better opportunities later? Not just this, but. Is this a cinch? I’m sorry. It is definitely a good business. It’s very interesting. It’s a good long term hold, but in the current interest rate environment and economic situation, am I locking in my funds that I could have waited for better opportunities? These are all businesses that are much better. Of course, LVMH is still really good, but it’s kind of, it’s about opportunity cost is how I see it.

[01:31:42] Stig Brodersen: Yeah, and I think you bring up a great point there, Hari, because the opportunity costs have changed in so many ways now with the interest rates going up. And if you used to get around 0%, whenever we were just sitting there waiting cash and, you’re right, like now we could be getting 5 percent while we were waiting for something that’s really cheap. So, good point.

[01:32:00] Stig Brodersen: Gents, before we end the episode any comments to LVMH, anything in general before I give you the opportunity to talk a bit more about what people can learn more about you?

[01:32:10] Tobias Carlisle: No, good, solid pick from my perspective.

[01:32:13] Stig Brodersen: Wonderful. Tobi, where can people learn more about you here before we end this segment?

[01:32:18] Tobias Carlisle: I run Acquirer’s Funds. We have two funds, Deep, which is small and micro domestic U.S. value, and Zig, which is mid and large cap domestic U.S. value. I’ve written some books that are all in Amazon under my name, and I have a website, acquirersmultiple.com, which has got some free screens and all of our blog posts and podcasts and various other things there. Thanks for having me, Stig.

[01:32:40] Stig Brodersen: Pleasure as always, Tobi. Hari, where can people learn more about you?

[01:32:44] Hari Ramachandra: Yeah, I think X or Twitter, @HariRama is my handle. Happy to continue the conversation there. I also have a blog, bitsbusiness.com. So, I look forward to comments, feedback, and conversations.

[01:32:58] Stig Brodersen: Fantastic. All right. Let’s just end this segment here. Thank you so much for making time for it, for the mastermind meeting as always, Gents.

[01:33:06] Hari Ramachandra: Yeah.

[01:33:07] Tobias Carlisle: Thanks Stig.

[01:33:08] Stig Brodersen: So as we’re letting go of Tobi and Hari in this episode segment, I want to welcome my co-host, Clay Finck.

[01:33:14] Stig Brodersen: Clay, you just came back from New York. You just met our mastermind community and perhaps for some of the listeners out there who don’t even know what we’re talking about, could you perhaps talk to us about what is the mastermind community and how is that related to the discussion I just had here with Tobi and Hari?

[01:33:31] Clay Finck: Hi Stig. Yes, I just got back from New York City to meet with our mastermind community and, First, I’ll just say that it is just so nice, getting to meet people in person who listened to our show, especially those who are our most passionate listeners here at TIP. And, most people don’t know this, but I know you certainly know that with podcasting, it can sometimes just feel like you’re in a bit of a silo.

[01:33:59] Clay Finck: In the back of your mind that a lot of people are listening, but so much of your time is just spent alone. You’re in Denmark. I’m in Nebraska. I visited Denmark and it’s, I see it as very similar places. And most of our listeners aren’t, aren’t where we’re at, unfortunately. And, getting to meet our audience members, especially those that are really passionate about what we do.

[01:34:19] Clay Finck: It’s just a really nice spark. And it’s just awesome just to keep us grounded and, thinking about why we do what we do here and who we’re doing it for. So that’s just something I wanted to mention. It’s just always cool meeting with our audience. Anyways, the TIP Mastermind community, it’s a paid group we started, Stig back in April 2023, and it’s so interesting to think back on because we started it, almost just to see how much people would like it and just gauge how much interest there would be in something like this. And we were pretty sure that our audience wanted to join a community like what we could create.

[01:34:56] Clay Finck: And I personally think that the 80 or so members that we have really enjoyed being a part of it. So to give a brief overview of some of the benefits that members receive, I’d say first off, we have these weekly live Zoom calls that many members have absolutely loved, and we’ve been doing so many different things with that.

[01:35:14] Clay Finck: Just to allow members to collaborate with each other and allow members opportunities to get new ideas, share new ideas and learn. And then another aspect of the live Zoom calls that’s been really popular is our Q& As with our special guests. Sometimes we’ll bring in, guests that have been on We Study Billionaires, for example.

[01:35:35] Clay Finck: Here shortly, we’ll be having Tobias Carlisle join us and that will actually happen before this recording goes live. But we have 15 plus members RSVP to sit in on a Q and A with Tobi, which is really fun. And in the past, we’ve also had Chris Mayer and Gautam Baid and then members also get access to an online community forum so they could connect, share posts, kind of share what’s happening.

[01:36:01] Clay Finck: And then you get access to TIP hosts. So you and I, Stig, and then Kyle Grieve, our Millennial Investing host is also quite active on our online forum. And then members also get invited to our in person events that we host, which as of today, we plan on having twice a year. We just had our first successful live event in New York City, and we had around 17 of our members able to attend that.

[01:36:26] Clay Finck: We’re going to be linking photos to the event of us grabbing dinner, hanging out in Times Square in the show notes for those that are interested in seeing what our events look like. And then most importantly with the community, it’s really just an opportunity to connect with many like-minded investors.

[01:36:42] Clay Finck: And that’s what I found to be the number one reason that people are joining and the reason people are staying around. And they really just like connecting with those like-minded members. And then another part that I found interesting that people, something that people are really looking for is the ability to share new ideas and then get new ideas from others.

[01:37:02] Clay Finck: So they kind of have that idea flow from people that they can trust and people that they know. So if the Mastermind community sounds exciting to you, then… Maybe one of these things, sounds exciting. Maybe all of them. It’s interesting how each member, they kind of have their own taste of what they’re looking for and what excites them.

[01:37:19] Clay Finck: For example, when I got to New York City, I grabbed dinner with two members of our community who I now consider pretty good friends. One of them manages his own small fund and then the other works for a very large fund. as an equity analyst. And I asked them, what were they looking for when they joined this?

[01:37:37] Clay Finck: And why have they stuck around since April or May? And they made it very clear that they wanted new ideas. And that’s just really great for us to know, Stig, because then we can prioritize that and, do the best we can to offer them that. That type of value. Then I know other people in the group who, I hop on a call with them and they’re just like, yeah, I just want the opportunity to meet people in person.

[01:38:01] Clay Finck: And that’s great too. So it’s just really cool to see us bringing together the incredible people that, have the opportunity to collaborate and have this group that really lifts everyone up together.

[01:38:13] Stig Brodersen: Yeah, and I think that’s very well said, Clay and if I can go back to what you said about, we just did the first live event in New York, I think it’s important also to know that we’re sort of like building a plane as we’re flying it.

[01:38:28] Stig Brodersen: We would like to say that we have like a fantastic roadmap of what’s going to happen in the next 10 years. We certainly don’t because to your point before speaking with two of the members of the community, like we really want to meet you in person and get to know how we can best deliver value for you.

[01:38:43] Stig Brodersen: And the best way for us to know is by asking and for you to tell us, so I think we should probably start there. And so I, I don’t know how this is going to look like. Perhaps we’re going to have way more live events. Perhaps we’re going to have fewer live events. Perhaps we’re going to do more online. We don’t really know.

[01:38:58] Stig Brodersen: So that’s one of the things that’s very excited about starting something that’s very new. We just we just don’t know. And I should also mention now that we’re talking here that I’m going to host a lunch in London, England, November 23rd for the mastermind community. This episode should go out on, I want to say November 4.

[01:39:15] Stig Brodersen: So if you listen to this, make sure to reach out to Clay and hopefully sign up for the mastermind community and attend. If you’re we’re saying wait, Stig, that makes no sense. Clay just said that. We’re going to have two live events a year. What’s going on?

[01:39:28] Stig Brodersen: There were Omaha and New York and then the thing in London. So Clay’s way more organized than I am. Let’s start there. Clay is much more organized and so he will plan these fantastic weekend events. For example, in New York, for me, for many different reasons, I don’t want to bore you with right now. I travel a lot and it’s very often with relatively short notice.

[01:39:48] Stig Brodersen: I do that. And so, but whenever I go different places, I’m always thinking, hey, meet new people, that’s wonderful and so sometimes I would just type up in the Mastermind Community online and send out an email to our members. Hey, I’m in, in this case, London, come and meet up with me for lunch, if you want to.

[01:40:06] Stig Brodersen: So it really comes from there. And I would say that some of the closest friendship I have today is through TIP directly, indirectly. Just as one example, we had a, an event in 2019 in Vienna, this was before the Mastermind community and, but anyways, one of the listeners, him and I really just hit it off.

[01:40:28] Stig Brodersen: The following year, my wife and I visited him and his wife in Brussels. And then of course you had COVID so like nothing really happened but then as reason as last weekend, he came to visit and we assumed going to go into clusters for Guy Spier’s events together and this is not sort of like my way of saying sign up for the mastermind community, get new friends.

[01:40:46] Stig Brodersen: I kind of feel that would probably come off the wrong way. But what I think I’ve found, and one of the very, very valuable thing I found from the mastermind community. Has been that we were just all so busy with family and careers and whatever. And I have, I’ll be the first to say, I have wonderful friends here in my hometown.

[01:41:06] Stig Brodersen: And we hang out and we have a beer and we talk about the game last week or whatever we do, but like, they’re not interested in investing. And if they’re interested in investing, it’s a bit more of the Robin Hood, let’s buy a call option that expires tomorrow kind of thing. It’s not like, do you read financial statements?

[01:41:21] Stig Brodersen: That’s not the type of investment, discussions that we’re going to have. And so, one of the things I really appreciate about this mastering community is that you meet just like minded people from all over the world and you have a chance to hang out with them, have a ton of fun, and also talk about investing and I’ve been doing these mastermind discussions since 2015 with Tobi and Hari, and I learned something new every time.

[01:41:46] Stig Brodersen: And we also, become friends because of all these discussions that we have. And another thing I also want to say is that I am well aware that you can talk much more about. Any stock that we do here. So we talk, I don’t know, 30 minutes about each stock pick. And I just know because I get all the emails afterwards that there’s so many in our audience, they have comments or questions and everything is very valuable.

[01:42:10] Stig Brodersen: And it would be wonderful if most, more people heard that, I can respond back to an email, but then it’s between that person and me. And so I like the idea of how the mastermind community enable us to communicate with more people, but still keep a relatively small group and find that balance because, okay, let me come up with an example.

[01:42:29] Stig Brodersen: I mentioned to you, Clay, some time back that I was considering pitching LVMH. And you said that Lance from our community, he could help with some of the qualitative analysis of the stock. So I jumped on a call with him the other day and had a very thoughtful discussion with him. And then he mentioned another community member who knew someone who had ties to the management of the company.

[01:42:50] Stig Brodersen: And I was like, oh, this is great. So they can give me another perspective of the company. And so that’s, it’s kind of like the ethos of how we’re trying to help each other in that. And this is just one example, but I think the example just captures. What the mastermind community is all about, helping each other and also being on the same journey in the, this journey into value investing and soon we’re going to have a discussion together with the mastermind community who have been then listening to this episode we’re going to have here today and my discussion with Tobi and Hari, and then we can all sit together as a group and talk way more about the stock that we had the opportunity to do in this episode.

[01:43:23] Stig Brodersen: So anyways, but I have very selfish reasons, as you can probably tell for me to know more about LVMH and hear from the community members but Clay, I know that there are a ton of other stocks that we are currently discussing. So perhaps you can shed some light on some of that.

[01:43:37] Clay Finck: Yeah, it’s funny you say you have selfish reasons, to talk about LVMH, because some of the companies that come to mind for me that I’ve been talking about with the community are companies that I own.

[01:43:48] Clay Finck: So, I guess I’ll be the first to say that, if you’re looking to join this group just to get stock ideas that you should go buy, then it’s probably not for you because you shouldn’t just look for, an opportunity to purchase a stock that somebody hands you on a silver platter, because inevitably that company is going to be going through hardship and go through drawdowns.

[01:44:09] Clay Finck: And that research and that conviction to hold through the growing pains with the company. But you know, some of the stocks that come to mind for me, Stig, I think a lesser known one is Technion. Which you discovered through one of my episodes with Chris Mayer, and then you pitched it in the Mastermind episode, and then the community is quite interested in it because we’re, you and me and Kyle are talking all about it with the group when we actually had a call talking all about it as well.

[01:44:35] Clay Finck: Another one that comes to mind is Constellation Software, which, I own both of these names, full disclosure, and it’s another one you’ve pitched, in the Mastermind episode where we can talk about it more with the community. And then you also mentioned Lance and he’s outlined some of his top holdings in his small fund and a couple of picks in the eCommerce industry.

[01:44:54] Clay Finck: So it’s just really cool to have that opportunity to share your best ideas with others in the group. And then I also think it’s really interesting to discuss and find out and talk about names where You know, Mr. Market is just going crazy. An obvious example from 2022, I think is just meta. We didn’t have the community then, but I’m pretty sure if we did have the community in 2022, a lot of people would have been talking about meta and how it just kept falling and falling.

[01:45:23] Clay Finck: And it seemed that Everyone in the market was just giving up on it and obviously it’s rebounded quite dramatically. And I think another more recent example is Dollar General. I didn’t sit in on the call, but I know that a few members were definitely interested in that stock given that it’s pulled back around 60 percent from the ties and then, you think about how sometimes these pullbacks, they can be just really short lived. So I think there’s a lot of value in having that opportunity to chat about a company with others and get their opinion on it. And see if, when a name draws back by that much in a short amount of time, whether the, that might be short lived or may, consider whether their moat is still intact.

[01:46:04] Clay Finck: So I really think that is just a really cool thing to see, Mr. Market is just kind of going crazy. Maybe it’s justified. Maybe it’s not. This is definitely not my way of saying that Dollar General is a buy. It’s not one I’ve dug into further but, and a lot of members have been reaching out to me since I did an episode on them last year.

[01:46:24] Clay Finck: And then one more example that I wanted to mention that sort of ties into, sharing individual stocks is the day we’re actually recording this dig, we’re having two of our top members come in for what we call a round table discussion. And essentially, it’s what you’re doing with Tobi and Hari where members share a pick.

[01:46:42] Clay Finck: They do sort of a presentation. We actually, have them do a bit of a PowerPoint. So it’s easy to follow along and kind of hit on all the high points on why they like an individual name. And then, we have over, we’re going to have 15 members attending that roundtable. So it’s going to, I think it’s going to make for a pretty manageable group where there’s going to be a lot of people interested, sharing comments, sharing questions.

[01:47:04] Clay Finck: And, it’s just really cool to see, like, some of our top members come in, share their very best idea, and, it gives them a chance to prepare, and have that presentation ready, and then we share that presentation with the whole group, so then the group can look into it, and be prepared with questions, or what they like or don’t like about it.

[01:47:22] Clay Finck: So yeah, those two members, I also wanted to mention that are doing the round table. One of them practically manages his portfolio full time. It seems like some of these members I meet, they seem to be more passionate about investing even than myself. I can’t speak for you Stig, but man, these guys just love stocks.

[01:47:40] Clay Finck: It’s pretty crazy. So yeah, one of them manages his portfolio full time. I believe he’s partially retired. Some of these really successful people they retire, but they get their hands in, in different things once they retire from their regular career. And then the other person doing the round table pitch, he started a really successful accounting firm out of Atlanta.

[01:48:00] Clay Finck: And he just absolutely loves this stuff as well. And It’s just really cool for me to have that opportunity to meet people who, just have a lot more experience than I do in the markets. And there’s so much, for me and you to learn Stig, but also the group overall. So I think it’s going to make for a really fun discussion.

[01:48:20] Stig Brodersen: Yeah, you definitely don’t want to be the smartest guy in the room and in any room. And I certainly am not the smartest guy, not even kind of close in the mastermind community. So like Clay and I has been hinting at, it’s a very selfless deed to meet up with really smart people and talk to them about stock investing.

[01:48:34] Stig Brodersen: And I think that’s just a very healthy way of approaching, like you, you want to continue to learn, like that’s the trick, continue learning. It’s the same reason I go to, I’m going to go to guys event there in a cluster Switzerland and January, February. Like, I’m certainly not the smartest guy in that room either, but it’s like doing some of those live events are just such a wonderful way of continuing to learn and network with fellow investors.

[01:48:58] Clay Finck: And I also wanted to jump in here and talk about Omaha a little bit. We just wrapped up our New York City meetup and I’ll be the first to say that so many people that attended absolutely loved it. We’re going to be having our second Mastermind Community Meetup in Omaha during Berkshire Weekend and some of you may be wondering why I’m mentioning it now.

[01:49:18] Clay Finck: Well, you said this episode is going live November 4th and the Berkshire meeting, I guess I’ll say, is Saturday, May 4th. And we’ll probably plan some things from Friday through Sunday. So those are probably the best days to be in Omaha. And the reason I mentioned this is because the earlier you book this stuff, the better because hotels fill up, flights get booked, and it’s just, Omaha, it’s a big city for Nebraska, at least, but it’s by no means you’re in New York city where you have the multiple airports, you have an international airport. So the earlier you get this stuff booked, the better, because it just becomes more of a headache to do it later after, everyone’s already jumped the gun.

[01:49:59] Clay Finck: We talked all about this last year, Stig, covering everyone’s questions, everything you need to know about the Berkshire weekend. That was episode 500. So that was about something we recorded about a year ago. If anyone wants to learn more about Berkshire weekend right now, but definitely get your stuff booked.

[01:50:17] Clay Finck: If you plan on going to Omaha, for those who aren’t aware in the audience, I was actually born and raised in Nebraska and I’m still based here. So I’m quite familiar with Omaha and it really helps us stick with the headaches of planning something like a live event because planning something is already hard enough.

[01:50:33] Clay Finck: So it’s much, much easier when you’re already familiar with the area, what sort of businesses are around, what areas you should be in and this past year in 2023, I’ll say we only did free events because we didn’t have our mastermind community yet. And it was quite overwhelming. So I’m definitely looking forward to having a smaller group and, really building out those deeper relationships.

[01:50:55] Clay Finck: Because when you’re with a group where you don’t really know anyone, it’s just like a ton of surface level conversations with people. You generally, don’t follow up with and stay in touch with. So that was one thing I really liked about New York city is I knew who I was going to be meeting with.

[01:51:11] Clay Finck: They weren’t asking me, just surface level questions that really don’t dig deeper. And like I mentioned, we have currently 80 members of the community, and my best guess would be that we’ll have 25 to 30 or so of the community joining us in person in Omaha. And I certainly know that handful of people that were in New York City, they already plan on meeting us in Omaha again, too.

[01:51:35] Stig Brodersen: Yeah, and I should also say that if you haven’t been to Omaha, and this might just be all my own biases, it’s just very nice to have a group you can meet up with. You can go to these free events. Like, I don’t know, we probably had 400 people or something like that go through our events and if you spend two minutes with each of those 400 800 minutes times 60, like someone better than me with math would probably say, it’s like, what, 13 hours of like, it’s a lot and you don’t even get to speak with people. I kind of feel like it’s probably one of the lessons we learned also, again, perhaps a bit for selfish reasons that we would really like to connect a bit more with our audience. And it’s kind of like being a difficult decision because a part of me also, I don’t, probably because I’m a teacher at heart, like I want to, I kind of feel that there’s something nice about meeting as many as possible from all walks of life.

[01:52:25] Stig Brodersen: And I should also say that the mastermind community is certainly also from all walks of life. It’s not like that. It’s more a question of, especially for me, I get very timid whenever I go to places where there are a ton of people and you’re supposed to mingle. Like for me, that’s like. It’s just really difficult.

[01:52:40] Stig Brodersen: And it’s a little easier whenever you have, like, let’s say you have 25 people to hang out with or what, whatever. And then you, of course, whenever there’s 25 people, there are some that you have more in common with them than others, but you can have conversations. With those people for consecutive days and really, get to know them.

[01:52:57] Stig Brodersen: I kind of feel that’s really nice. You have a place to go, you have an itinerary. It’s just like, it’s a little easier. And especially, if you come there and I know like Clay would have home field advantage because he used to live there and today lives very close, but like, it’s for me, like say flying in, I’ve never owned a car, but that’s sort of like a different discussion, but like.

[01:53:17] Stig Brodersen: To me, it’s like really nice that everything is walkable, but the walkable area in Omaha is just very small. So if you don’t want to be dependent on a car, you can of course, rent a car if you want to. And you might say, well, there’s also Uber. Yes. But this is like, you have 40, 000 people come into a relatively, I don’t know, like 300, 000 people, whatever, but like in that area, it’s just so congested.

[01:53:38] Stig Brodersen: So you can’t like, if you kind of feel like I’ll be one of those 40, 000 people. just showing right up to the event together with Warren, Charlie, and all the others. Like, no, you’re not going to get an Uber. And so I’ve both tried like staying like really near all the events, which has been really nice, but it’s obviously also more expensive.

[01:53:55] Stig Brodersen: And I also been, in Council of Lofts, which is like, I don’t know, 30 minutes away or something like that. And like to know someone who can show you the ropes, because I was certainly a newbie when I was there the first time in 2014. To me, that was just gave me a lot of less angst of going there in the first place.

[01:54:11] Stig Brodersen: And you can really focus on the reasons why you’re there. And I should also say, we really like for the community to feel like it’s small and feel more like it’s a mastermind group. For example, Clay, you mentioned before that, this specific individual in the group Lance, and you knew him well enough to know that he could perhaps help me with a stock.

[01:54:28] Stig Brodersen: And we can’t do that if we have 500 members, and we don’t want to be 500 members, so like we want to keep it small, and I should also say that we do see this as a two way street, we want to make sure That everyone is vetted before they join the community, but it’s, again, it goes both ways because we also want to make sure that we can add value for you coming into the community but anyways, Clay, I wanted for you to be a bit more practical about all of this.

[01:54:56] Clay Finck: Yeah, I can’t help but jump in with a couple other comments there because you mentioned just something so important, turning back to the surface level conversations. A couple of the things I learned from our New York City event is, people A lot of people don’t just want to learn to be a better investor or learn about a specific name.

[01:55:19] Clay Finck: Since so many in our group are just like, just very successful in many walks of life, whether it be entrepreneurship, running a business, excelling in their career and one of the things we did was we created these member cards where each member would essentially say, here’s my background.

[01:55:36] Clay Finck: Here’s, my line of work and my back and the lines of work I’ve been in the past. Here’s what I’m looking to get from joining this live meetup. Maybe it is something with investing. Maybe there’s something with my business where, like, this is one of my growing pains within my business.

[01:55:51] Clay Finck: And then there’s, we also do things like have them fill out some sort of vulnerability. So like, what can they offer to the group for members who are looking for, maybe tips to grow their business or whatever else. So I think those member cards, they really kind of jump over the surface level conversations and really dive in.

[01:56:09] Clay Finck: And you read someone’s card and you’ve realized that, hey, they really need help with this. And I know that I can help them with that. So it’s really a fantastic way, I think, for people to, dive in deeper and really build those relationships and another thing I selfishly do is I create the itinerary of what we’re going to be doing, but I also don’t want to make it too structured where, yeah, every few minutes you have to be going to a new place, at exactly at this time we need to head to the restaurant or whatever.

[01:56:38] Clay Finck: I really want to, open up the schedule a bit to, to allow that serendipity to take place. So, maybe right off the bat we have it for New York city, for example, we just had a happy hour right off the bat. So everyone met each other. Everyone had a chance to kind of. Get their feet wet, get to know who was going to be there.

[01:56:54] Clay Finck: And then, the days that followed, there was a lot of open time for people to. Maybe go grab coffee with a specific person or whatnot. So I really just think I’m just really excited for Omaha, even though we just got back from New York city here. But anyways, if this sounds exciting to you to apply to join, listeners can go to theinvestorspodcast.com/mastermind-application. Again, that’s theinvestorspodcast.com/mastermind-application. And for those who don’t want to type all of that in, we’re also going to provide the link to this in the show notes. It’s probably easiest to fill out the application on your computer rather than your phone.

[01:57:34] Clay Finck: And by the time this episode goes out, we’re going to have the registration list out for those who want to go to Omaha and spots are going to be limited. So if you’re interested in joining the group, meeting many incredible people, including myself, Kyle Grieve, who’s our recent host of Millennial Investing.

[01:57:50] Clay Finck: Then you can apply to join by going to that link and just as a disclaimer here, I’ll also mention that our community is priced at north of $150 per month, and we’ve been gradually hiking that price over time, and that’s shown on the application, and it sort of relates to the point you add Stig of wanting to keep the group small and to keep the group tight knit, So if joining the community you think is right up your alley and especially if you want to get registered to meet us in Omaha, we’d absolutely love to have you join us if you feel you’re a good fit.

[01:58:22] Clay Finck: And also as always, if you have any questions, comments, concerns, feel free to reach out to me at clay@theinvestorspodcast.com. Always happy to hear from the audience if there’s any way, I can help them.

[01:58:36] Stig Brodersen: So lastly, just before we let you go, we are also offering a VIP package for the Berkshire Weekend here in 2024 and this is the first time we’re doing this. Just to clarify, this is not a part of the mastermind community we talked about before, but something completely brand new and with Clay, Kyle, and only a few other VIP guests, you’ll visit the places in and around Omaha that’s important to Warren Buffett in a limousine, included in the offer also two exclusive dinners one hosted by our very own William Green and for both dinners, you get to meet prominent value investors.

[01:59:10] Stig Brodersen: We have François Rochon and Gautam Baid that already confirmed their attendance and will soon announce another prominent value investor. So I should also say there are more in this offer than only the dinners and the limo ride. If you want to learn more, you can apply for one of the few remaining VIP packages and learn more about what they include by emailing clay@theinvestorspodcast.com.

[01:59:33] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts, or courses go to theinvestorspodcast.com. This show is for entertainment purposes only before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.