0:00

You're listening to TIP. In

0:03

today's mastermind episode, I'm pitching Burberry.

0:06

You might not like the clothes and you

0:08

might not like the lack of insider ownership,

0:11

but I do think you're going to love the valuation. A

0:14

luxury brand with more than 150 years of

0:16

history, trading your own at 10 times earnings

0:18

almost seems too good to be true. But

0:21

also, I have to say almost, there is some

0:23

hair on it and you would need a solid

0:25

margin of safety to invest in this discounted pie

0:27

type of investment. Burberry's pick

0:30

ICICI Bank is a solid bet

0:32

on India's rise. We

0:34

are discussing how to position yourself best if

0:36

you agree with the bold thesis on India, including

0:39

what might look like an overstretched valuation.

0:42

Tobias Pitts' Playtega, this is a stock with

0:44

70% gross margins and 20% operating margins and

0:49

is trading at a surprisingly appealing valuation.

0:52

Yes, there are some headwinds. So

0:54

therefore, we are considering are these secular

0:56

or they short term issues. Now,

0:58

without further delay, here's our Q2 2024 mastermind discussion.

1:35

Welcome to the Investors Podcast. I'm your

1:37

host, Stig Brodersen, and I'm here today

1:39

with Tobias Carlisle and Hari Ramachandra. Jens,

1:42

you're looking good today. How's life?

1:45

Thanks, Stig. I've got the Blade Runner background.

1:47

I've got like a slice through. The sun's

1:49

coming in at a crazy angle, but it's

1:51

fun. How are you, Harry? Hey,

1:53

doing good, Toby and Stig. Good to see you

1:56

very self-walleders. Good seeing

1:58

you. So, Hari, you ask... Maybe before

2:00

we hit record whether or not we could

2:02

talk about the economy in general. And I

2:04

made the disclaimer, I don't know about anything

2:06

that's going on. We are supposed to be

2:09

micro investors, not macro investors. And because

2:11

of that, perhaps we should... I don't

2:13

know if you have a question you want to ask Toby about

2:15

macro then. My question

2:18

essentially was that some of the

2:20

stuff that what maintainment

2:22

or any of the textbooks would

2:25

have suggested is not happening. For example,

2:27

interest rates was raised at the fastest

2:29

rate in history as they were saying.

2:32

But inclusion is kind of coming down

2:34

but not that much. We don't see

2:36

a dent on the housing prices. In

2:38

fact, that is steadily raising. The

2:41

stock market is also ripping.

2:43

It's doing well. There

2:46

is geopolitical tensions. There are wars going

2:48

on. But nothing seems to

2:50

be impacting the key

2:52

indicators of wealth, which is

2:55

stock prices or home prices

2:57

in United States at least. And

3:00

I wanted to know what's going on. What are you

3:02

guys thinking? Like is it puzzling

3:05

you or these are the

3:07

next nation? So Toby Stig, I

3:09

would like to know what is your opinion. So

3:11

I've got some observations. I don't

3:14

know how much of this is causative or what's

3:16

really going on. But the first thing I would

3:18

say is like you guys, I am not a

3:20

macro investor. I largely ignore the macro, not because

3:22

I don't think it's important, but because I don't

3:24

think I can figure out what's happening. I've

3:27

looked back through, you guys know I love a

3:29

little bit of market history. If you

3:31

look back over the last few hundred years,

3:33

there have been wars and crashes and depressions

3:35

and none of them were predictable. Even

3:38

in hindsight, they're not predictable. So

3:41

the best setting is just to invest according to

3:43

where you are in life. You

3:45

have your exposure set and you plan

3:47

for anything that could happen. You can

3:49

have a bust. You can have a crack

3:51

up boom. And you're just in a

3:53

position where whichever one happens, you don't really care. I

3:56

call it regret minimisation. That's really

3:58

my objective. Whatever happens. I just want

4:00

to be least upset. If

4:03

it goes up a lot, I'll be fine. If it

4:05

goes down a lot, I'll be fine. I don't really

4:07

care. So that's the... Everybody should get to that point

4:09

so you don't have to be predicting what's going to

4:11

happen to position yourself because that's very hard

4:13

and the one time you get it wrong, you can

4:15

blow yourself up. What I think has been

4:17

happening though, there's a stock

4:19

market inversion continues

4:22

on. But it's the

4:24

10-3 inversion which is basically

4:26

short dated interest rates, treasuries

4:29

are high and longer dated interest

4:32

rates are lower. And it's

4:34

unusual because ordinarily when you're putting money

4:36

out at risk, the longer you put

4:38

it out, the more you get because

4:40

you've got content with inflation, there are

4:42

risks that you won't get your money back. You

4:45

don't have the use of your money. So for

4:47

all of those reasons, they typically attract longer rates

4:49

so the more time you go to put it

4:51

out and you get lower rates for shorter periods

4:53

of time. That's not happening at the moment because

4:55

the Fed has lifted up the

4:57

front end rates, that's the three month and

4:59

they do that in an effort to slow

5:01

the economy because it was too hot, we

5:03

had inflation. The Fed has a

5:06

dual mandate, it's full employment and stable prices.

5:09

Employment at all time lows, prices

5:11

have been not stable because we've had a

5:13

lot of inflation so put up the interest

5:15

rates to try and cool the economy and

5:18

the result will be some unemployment and that's

5:20

typically what has happened and that manifests an

5:23

inversion in the 10-3 yield. And so when

5:25

that happens, after a period

5:27

of time, it's unpredictable, there's usually a

5:29

slowdown in the economy. When

5:31

you have that, you typically have a

5:33

stock market crash, real estate market crash,

5:35

everything gets set lower and I think

5:37

that's probably explicitly what Powell's been trying

5:39

to do, get housing prices down, maybe

5:42

stock market prices down. None

5:44

of that has sort of happened yet and

5:47

it's the longest inversion we've ever had

5:49

or going back in the data, there

5:51

may be longer inversions that aren't captured in the

5:53

data. It was also the steepest

5:56

or the deepest inversion at one point. There's

5:58

no real correlation between... in any of

6:00

those things and the resulting recession or

6:02

depression or whatever follows other than the fact

6:05

that they tend to be for about the

6:07

same length of time because the lag is

6:09

so long between raising rates and it actually

6:11

impact the economy. It's like 18 months or

6:13

2 years or longer. So Fed

6:15

raises rates, waits, nothing happens. 18

6:18

months later, there's a stock market crash and

6:21

they panic and they lower

6:24

rates as rapidly as they possibly can but it has

6:26

no... You can see in

6:28

all these crashes the Fed's lowering rates

6:30

rapidly and it has no impact because the lag

6:32

is so great and they've sort of overplayed their hand

6:34

a little bit. I don't know what's going

6:36

to happen here but I probably guessed that something similar to

6:38

that. I think the reason that

6:40

it hasn't happened yet and

6:43

the reason that stock markets at

6:45

all-time highs, real estate markets flying

6:47

along, unemployment remains low, we're running

6:49

massive deficits on the

6:51

fiscal side. So the federal government

6:54

has these Inflation Reduction Act which is actually

6:56

doing the opposite of what it says. There's

6:59

a lot of spending and

7:01

that spending goes out

7:03

into the economy before the money

7:05

is collected to pay for

7:07

it in taxes because it's done on debt. It's done

7:10

with debt and Milton Friedman, it's funny that you raised

7:12

his name. Milton Friedman used to say, the thing

7:14

about inflation and spending is it

7:17

feels best at the start. It's like drinking,

7:19

it's like alcoholism. You feel

7:21

great while you're drinking and the hangover then follows

7:23

after the fact. And so

7:25

nobody thinks they're making a mistake while they're doing it

7:28

and the more you do it, the better it feels and

7:30

then you wake up the next morning and that's when you get the

7:32

hangover. So I think probably that's where we

7:34

are at the moment. It hasn't shown up yet because there's

7:36

so much spending. Obviously

7:39

because we've got an election coming up, there's always... That's

7:42

one of the levers that the incumbent administration can pull,

7:44

they can spend a lot of money. That

7:46

makes the economy look better than it otherwise

7:48

is and then you get the other side. I don't

7:51

think it really matters. I'm not particularly political

7:53

when it comes to the economy. I think whichever

7:55

team comes in, they'll be both spending. So I

7:58

don't really know. We're in a grand exchange. I don't

8:01

think any of this has been tried before. We've

8:03

got the brakes on and the accelerator on at

8:05

the same time. So they're interested to see which

8:07

one person's got their foot on the accelerator, the

8:09

other person's got their foot on the brake. No

8:11

one's got their hands on the steering wheel. Should

8:14

be fun. Yeah, that was

8:16

interesting, Toby. Thank you. And we are in for a

8:18

fun ride, I guess, in the next couple of months.

8:21

It's like the Chinese curse, may you live in interesting

8:24

times. Yeah. Yeah,

8:27

I think you asked a great

8:29

question, Hari, about the current

8:31

conditions. I should probably also do

8:33

my disclaimers and then do a long run afterwards

8:35

and then end by saying, I don't really know.

8:37

But I think I want to

8:40

take one step back and then say that to

8:42

Toby's point, whenever we talked about wars

8:45

and everything else, the bigger macro events.

8:47

And I remember whenever I started investing

8:49

a long time ago and I had

8:51

my rise of passage going through old

8:53

Buffett's letters and whatnot, and he has

8:55

this famous paragraph about how well

8:58

the Dow has been doing. And keep

9:00

in mind, we are talking about olden days now

9:02

because we're talking about the Dow when not like

9:04

the S&P 500, like the modern people who talked

9:06

about the S&P for 40 years now, but talking

9:08

about the Dow and he talks about how well

9:10

it did in the 20th century. And then he

9:12

lists all the problems we had in the 20th

9:14

century and just the stock market

9:16

marching on. And I

9:18

think we can come up with a lot of

9:21

reasons why this time is bad, time has always

9:24

been bad. And so I think the

9:26

way that I do this and I don't do

9:28

anything that's very sophisticated. I

9:31

don't have a con, AI

9:34

fancy algorithm or whatnot. I'm

9:37

very much in stocks because I do

9:39

believe in general that the

9:41

economy is expanding and we all become

9:43

more productive. So

9:45

I don't think I bring anything new to the party

9:47

about on that and I do think most people do

9:50

the sell the service if they look too much at

9:52

the macro and deem that now is not a good

9:54

time to invest. And then at the same time,

9:56

I also want to have a

9:58

better insurance like I do see I completely degree with

10:00

Toby, like whenever you look at the fiscal deficit,

10:03

there are some funky things out there,

10:05

there's huge debasements of currencies and you're

10:07

like, there are a lot of people

10:09

out there who are going to tell you that they know

10:12

what's going to happen. They're probably smarter than me. I have

10:14

no idea what's going to happen. I

10:16

do see a lot of weakness and so the

10:18

way that I'm trying to hedge my bets by

10:20

being long in the stock market and have always

10:23

been long in the stock market is that I

10:25

hold fiscal gold and that

10:27

has looked like a foolish trade for a very

10:30

long time. I don't remember the last time I

10:32

pitched gold here in the masterminds for like three

10:34

or four years ago, something like that and gold

10:36

has just more or less done nothing and then

10:38

here recently it's been an entire and I

10:41

don't make any kind of naive assumptions

10:43

that gold are going to perform the

10:45

stock market or we're going to go back

10:48

to a gold standard or anything like that. That's

10:50

not why. That's partly I do it because

10:52

I get taxed way better in my after-tax

10:54

returns or what I'm optimizing for not my

10:56

pre-tax returns but also because it is my

10:59

insurance to perhaps this stock market doesn't keep

11:01

on going up whenever you were rolling back

11:03

all the past 20 years or whatnot and

11:05

so far so good. That

11:07

is my boring answer to that question, Hari,

11:10

and how I position myself. No,

11:13

they were both really helpful actually. Thank you

11:15

and I really the key point both of

11:17

you are making is regress minimization and position

11:19

yourself start. It's kind of

11:21

an all-weather portfolio so that you

11:23

don't have to keep guessing what happens to the

11:25

economy and gold is a very

11:27

interesting point you brought up because I remember

11:30

Jim Grant saying he would like to have

11:32

an investment that he kind of doesn't really

11:34

agree and if nothing is hurting

11:36

in your portfolio, something is wrong. So

11:39

in that sense, I think these are

11:41

really good answers and thank

11:43

you. What do you think

11:45

about Silicon Valley from your perspective because that's been a big

11:47

engine for the US probably versus

11:50

the rest of the world? Yeah,

11:53

I think as you might have seen in most

11:56

of the quarterly announcement, what

11:58

I'm seeing at least in many... of the companies

12:01

is the focus has been moving from

12:04

growth, just revenue growth or growth at

12:06

all costs to responsible

12:08

growth. I'm seeing

12:10

a lot of companies highlighting their

12:12

margin growth more than their revenue growth and in

12:14

some cases, their revenue growth is slowing down too.

12:17

But in some cases, even if the revenue growth

12:19

is empty, they are

12:21

basically projecting their margin growth

12:23

which also reflects the

12:25

sentiments the Wall Street is

12:28

reflecting on them. It's

12:32

also the life cycle. Many of the

12:34

high-tech companies are in their 20s now.

12:37

They're probably realizing that

12:40

they're entering midlife. But

12:42

what is interesting is, for a while,

12:44

we haven't seen another Uber or another

12:47

Cougar come out of Silicon Valley. That

12:49

means what I'm saying is there haven't

12:51

many IPOs, but there

12:54

haven't been companies of consequence for

12:56

the last 10 years.

13:00

In the 2010s, there were

13:02

a bunch of companies like

13:04

Facebook and others

13:06

that went public which became companies

13:08

of consequence. But lately after

13:10

that, at least there

13:13

are companies that speak of a

13:15

consequence yet. Maybe OpenAI,

13:17

but that's where I see that

13:20

things are changing in the Valley

13:22

in terms of focusing

13:24

on margins. Acquisitions also

13:27

have dried up even though we

13:29

still see acquisitions here and there,

13:31

but less acquisitive companies.

13:34

So that's what I see in the Silicon

13:36

Valley. We and I

13:39

should probably not take everyone else who

13:41

was investing down with me on

13:44

my low level when I say this, but I think I

13:47

hear a lot of people talking about where

13:49

there's so much disruption right now. I heard

13:51

myself say that many times like, oh, disruption

13:53

is faster and faster, better

13:55

and better. It's so difficult in

13:57

today's market. And then I read this. book

14:00

the other day, I want to say the name of the book was

14:02

The New Goliath and it's not a

14:04

great book I should say. So please don't go out

14:06

and bite by it. It had the premise of we

14:09

don't get disrupted that much. Most

14:11

of us know the innovator's dilemma, right? And

14:13

he said that was around the time that

14:16

disruptions were peaking. And then the author

14:18

makes the argument that because

14:21

of Big Tag and mainly, and

14:23

there are a few other reasons, but he assumed

14:25

in on Big Tag to your point, Hari, and

14:28

you don't really see a lot of disruption right

14:30

now because they're so big and they have so

14:32

much market power. And so I kind

14:34

of felt that was an interesting take. Do

14:36

you think he's right about that it's just too

14:38

difficult to compete with the big tech companies now

14:41

or I mean, not saying

14:43

that we won't see any disruption, I just

14:45

don't think that's how capitalism works but are

14:47

you seeing a downward trend in the valley right now in

14:49

terms of disruption? Yeah,

14:51

I think that's a very good point. In

14:54

fact, Balaji Srinivasan, who was one of the

14:57

VCC, was former CPU of Coinbase

14:59

in an interview said like AI

15:03

is a technology that makes

15:06

centralized power more powerful.

15:09

So whereas crypto

15:12

or chain is

15:14

a decentralized technology,

15:16

so it makes the centralized power

15:18

less powerful. So that's why the

15:21

Chinese Communist Party would go after the

15:24

crypto and the blockchain,

15:27

but they would embrace AI because

15:29

that makes them more powerful. Similarly,

15:31

in the context of Big

15:33

Tech, because of the resources

15:36

involved, there is a hole now

15:38

to get Nvidia chips and

15:40

not everybody is getting it. It's either

15:42

Amazon, Google, Microsoft

15:44

or Meta. So even

15:47

open AI cannot afford it. That's why they

15:49

partnered and went

15:51

with Microsoft because they could use

15:54

Azure. So it

15:57

makes it harder and harder for small

16:00

companies to come up. The only encouraging

16:02

sign I see now is LAMA which

16:05

is a open source LLM

16:07

by Meta and Meta

16:10

completely batting it and they have their

16:12

own on mortgage to open

16:14

source it. But that

16:16

might help smaller companies

16:19

get a leg up but still it is very

16:21

hard and that's I

16:23

think whatever that book is

16:25

quoting might be actually true. In fact, Peter

16:28

Thiel also says and

16:30

his tagline for his

16:32

book or his fund also

16:34

is we were promised flying

16:36

cards all we got was

16:38

140 characters. So

16:41

and Peter Thiel's for a long time his

16:43

gripe was that we aren't

16:45

innovating fundamentally the way we did

16:47

in the 1900s. We

16:50

are just going after photo apps or social

16:52

network apps and stuff like that and

16:55

thinking it is innovation but it

16:57

is just application of a fundamental innovation

17:00

which was internet that was made. So

17:03

I think in that sense yes innovation has

17:05

definitely served on and I think we are

17:08

especially in Silicon Valley and

17:10

maybe in other places to

17:12

re-equate digital innovation to innovation.

17:15

I think digital innovation is just an

17:17

application on top of innovation. It's the

17:19

fruits of the innovation that was internet.

17:22

But what I think Elon Musk

17:24

is doing with SpaceX or Tesla

17:26

those kind of companies are far and few.

17:29

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20:07

right, back to the show. So

20:09

my pick for today, and I should

20:11

probably preface this by saying that whenever

20:14

I look at the stocks I pitched at

20:16

the early mastermind episodes, it was

20:18

usually the cigar bots. And

20:20

you're optically either cheap, there's some hair

20:23

on it. And then I

20:25

got this horrible habit of pitching

20:27

high quality stocks with high multiples.

20:30

And I kind of felt I wanted to mix it up

20:32

and go back to the roots here. So I wanted to

20:34

pitch a cheap stock with hair on it. And

20:37

I think I was going through my

20:39

Rolodex of different picks, and I was like, I

20:42

want to see if I can impress Toby and

20:44

see if I can find a lower PE than

20:46

Toby this time. I think we're neck to neck

20:48

on this one here, though. I just looked it

20:51

up here before we started recording. The

20:54

stock I'm going to pitch today

20:56

is Burberry. And the

20:58

stock is trading on the London Stock Exchange

21:00

under the ticker BRBY. And

21:02

you can also find OTC in the States

21:04

under the ticker BURBY. And

21:08

full disclaimer, this is not a stock that I own. And

21:11

there's a little hair on this, not too

21:14

much hair on it. I'm not going to pitch

21:16

like a three PE stock, unfortunately. It's

21:18

trading around a 10 PE, which

21:20

is quite unusual for a luxury

21:23

stock. And I would

21:25

also say that it's not

21:28

a high quality stock. It's not going to

21:30

compound for decades, even though it has shown

21:32

decent growth. So we're not looking

21:34

at a growing pie. I think the thesis I

21:36

want to present for you today is, let's

21:39

call it discounted pie. And

21:42

a lot of value investors have said

21:44

something like discounted pie over the years

21:47

and find themselves with a value trap

21:49

with something that looks cheap. And

21:52

then time just passed by and opportunity

21:54

cost and the seller regretted that.

21:56

So I'd be very curious to hear how

21:59

much you're going to pay. beat up this pick.

22:01

But let's get into it. So for those

22:03

of you who are not familiar with Burberry,

22:06

it's a company providing clothing, accessories for

22:08

men and women. Perhaps it's best

22:10

known for its iconic trend code.

22:12

But you can think about it as a

22:15

fashion retailer. I do want to bring the

22:17

argument that perhaps we're talking about luxury and

22:19

not fashion later here in the discussion. But

22:22

you can think shirts, pants, bags,

22:24

shoes and whatnot. It's a very

22:26

opposite of AI if I

22:28

can be as liberal as that. So

22:31

you can find Burberry in 225 stores worldwide. They

22:33

also have 133 retail concessions and a small number

22:35

of outlets. The

22:40

biggest markets are Asia Pacific, then you

22:42

have Europe in the Middle East and

22:44

then Americas. And I

22:46

think it's important to say that

22:48

whenever you're looking at Burberry, it's

22:50

not a company that is growing

22:53

its footprint right now. It's

22:55

currently going through a refurbishment

22:57

of stores worldwide. It's

22:59

halfway through and it expects to complete

23:02

it by fiscal year 2026. The

23:05

bigger stores and after

23:07

they've been refurbished, they're going to have

23:09

a VIP shopping area, most prominently the

23:11

flagship store on Bond Street in London.

23:14

And so this is a brand from 1856 founded

23:17

by Thomas Burberry. And

23:19

it's built around the idea of

23:21

modern British luxury. And

23:24

a brand of course, it means a lot of different

23:26

things to a lot of different people. But

23:28

I think that there is a consensus

23:30

right now in the industry that the

23:32

changing creative directors have created some confusion

23:35

around the brand and is also

23:37

trading near a 52-week low. And

23:39

so the current chief creative officer, so not

23:42

to be confused with the CEO, he started

23:44

in 2022, his name is Daniel Lee. And

23:46

then a new CEO came

23:48

in, Jonathan Aykroyd, and he came

23:50

from a position from Versace and

23:52

also the CELTO Michael Kors, whereas

23:55

Daniel Lee, he came from a successful time

23:57

at Bottega Veneta before then. And so

24:00

So as I'm going through this breakdown

24:02

of Burberry, I just

24:04

want to say I'm going to give you British pounds

24:07

unless I stated otherwise. So

24:10

one of the traps of analyzing

24:12

a stock is listening too much to

24:14

what the management is saying because

24:17

whenever you do that, all of a sudden, the

24:19

valuation starts to look very appealing. So let's see

24:21

if we can discount for that. But right now,

24:23

they have around 3 billion in top

24:25

line. And then if you go through

24:28

the filings, they talk a lot about 4 billion

24:30

in medium term, 5 billion in long

24:32

term, of course, without defining whatever medium

24:34

and long term is. But

24:36

it is the stuff that has shown decent growth

24:38

in the past. So where's that top

24:41

line growth is going to come from? Some

24:43

of that is going to come from having these stores

24:45

like I mentioned before, Refurbers. We've already

24:47

seen or investors, the company have seen, proven

24:49

a 15% ish in sales per square meter

24:53

in those stores that gone through the process.

24:56

Another thing I also want to add is

24:58

as a luxury brand, you also have decent

25:00

pricing power. So some of the top

25:03

line is also going to come from that more

25:05

than volume necessarily. It's one of those

25:07

things where you don't want to focus

25:09

too much on volume because then you also end up

25:11

diluting the brand. And so they

25:14

have a stronger focus now with a new

25:16

creative director of 50% should come from

25:19

accessories and that's currently at 37%. And

25:23

so I think they sort of like

25:25

to place Burberry on the map. It's

25:28

very easy to compare them to high end

25:30

luxury brands like the MS of the world

25:32

and then say, well, Burberry kind of

25:34

sucks and this is a terrible

25:36

company. And you might

25:38

also say, well, Burberry is not true luxury. It's

25:41

not MS, it's not Chanel. I have like, why

25:43

would you invest in that company? And

25:46

the first thing I would say is that, well,

25:49

MS is trading at 50 times earnings, Burberry is

25:51

trading at 10 times earnings. That

25:53

is probably the first thing I would say. But

25:56

I would also just say that within the luxury category,

25:58

you also have a lot of different different

26:00

tiers. And whenever you are

26:02

looking to buy a $2,000, $3,000 Burberry back, you're

26:09

not looking at buying a Birkin back that could be more than $100,000

26:11

for a Birkin back even though

26:14

they started at $12,000 now. The

26:17

customers are very different. And

26:19

then you bring it up and well,

26:21

you know, Burberry doesn't fully control their

26:23

supply chain the same way as the

26:25

high-end luxury producers. They're not all produced

26:28

in high-income countries and you'll be very

26:30

much right about that. But the thing

26:32

I would want to say to challenge

26:35

whether Burberry is fashion and not, and I do

26:37

think it's important to challenge because as soon as

26:39

you put them into a group of fashion, it

26:42

also means that you have to look at the

26:44

future discounts a little bit different. And

26:46

so what do I mean by that? Well,

26:48

Burberry was established in 1856 and 50% of the revenue comes

26:54

from these core products. It doesn't come from

26:56

the newest collection. In the

26:58

world of abundance and AI, you want to

27:00

look at which companies are anti-fragile.

27:04

And I'm not saying that Burberry is anti-fragile, but

27:06

it is a brand that's been there for more

27:08

than 160 years and it's not depending on whether

27:11

or not the latest collection

27:13

for the summer or whatnot is

27:15

perceived cool or not. Like the strategy is

27:17

quite different for a company like

27:19

Burberry. And it sort of like also takes

27:21

me to the point of, and

27:24

also keep in mind, of course, I'm providing the bull

27:26

case here for Burberry. If I

27:28

didn't spend all my time talking about why

27:30

it's an inferior company to MS for

27:33

example, but instead said, hey

27:35

guys, I found this company, it has

27:37

stable 70% or gross

27:39

margins, stable 20% operating margins,

27:42

decent growth, it's trading at 10 times

27:44

earnings, it's been there for more than 150

27:46

years, you would probably be like, tell

27:49

me about it. That sounds promising. But

27:51

let's talk about some of the bad stuff. So

27:54

one of the things I really

27:56

like about a company is if there's

27:58

a high insider ownership, especially if... management

28:00

in charge and that's, it couldn't be

28:02

more the opposite whenever it comes to Burberry. So

28:05

I do think that is a concern that I would

28:07

have. Management own very low stock and

28:09

a significant part of the conversation is tied

28:12

to how well the company is

28:15

doing, which by

28:17

definition can work against you

28:19

as an investor because

28:21

they could have the wrong incentives. Let's say

28:23

they would start issuing shares that you don't

28:25

want to at the wrong valuation or whatnot.

28:28

And the management do have some ROIC in

28:30

there. So return on investor capital, which is

28:32

sort of like counter to that. But if

28:34

you look at how the compensation is structured,

28:36

it doesn't carry the same weight. And

28:39

actually, I would say that what is a

28:41

little ironic when you look at

28:43

what happened since the new CEO came in 2022

28:45

is that I think he's done

28:47

a better job than what his KPIs

28:50

are telling him that he should.

28:54

And in a way, it's kind of like nice. That

28:57

looks like he has so much integrity to

28:59

do the right things for the shareholders despite

29:01

what I kind of feel are a bit

29:03

inferior KPIs. In a way, you can also

29:05

say it's pretty bad that the incentives are not fully

29:08

aligned in the first place. All

29:10

of that being said, there are some

29:12

guardrails though where, for example, whenever I'm

29:14

looking at a stock where it's

29:17

not at the highest quality, it's decent,

29:19

you're worried that you're going to catch

29:21

a falling knife. I do like

29:23

to be paid while I'm waiting and there's a very decent 50%

29:26

payout ratio on ingested

29:28

earnings. We can go into some of the

29:30

adjusted numbers afterwards, but they're so much straightforward. And

29:33

so that is roughly 5% yield that

29:35

you will be getting right now while

29:37

you're waiting. And so they

29:40

bought back 400 million pounds

29:42

here in 2023 and they did that

29:44

really fast. And

29:47

the timing was equivalent to 5.6% of

29:49

the shares outstanding. Now would be equivalent to

29:51

10% if they did at today's prices. And

29:53

I would love to see more share repurchase

29:55

soon. And those decisions

29:57

are usually made by the board. and

30:00

not by the management. So there are some guardrails

30:02

in terms of like what they can do and

30:04

how they're incentivized that comes from the board. That

30:06

is everything else more aligned with

30:08

US shareholder than if you just read

30:11

the proxy statement. So there's

30:13

a bit more to be said about Burberry, about

30:15

the valuation and whatnot but I wanted to throw

30:18

it over to UGNs first before I proceed with

30:20

that. I've got

30:22

a question for you Stig. Burberry

30:24

is famously a brand and it

30:26

was famously associated with the early

30:28

2000s, sort of mid 2000s.

30:31

That's like a just domestic

30:34

term for folks in the

30:36

UK. I don't know

30:38

how bad that word is to call

30:40

somebody. I think it's a pretty mild

30:42

insult but they famously covered themselves in

30:44

Burberry. It was like they're sort of

30:46

main ones and there was this period

30:48

where it got picked up on. All the

30:51

newspapers knew about it. All the

30:53

television shows knew about it. You know, they're

30:55

shameless and other things like this sort of

30:57

dug into that subculture a little bit where

30:59

these people were wearing the famous Burberry kind

31:01

of grey check, which is

31:04

what Burberry is known for and

31:06

that damaged the brand. So

31:08

they had to find this way to pave it away from this

31:11

subculture and sort

31:13

of make themselves back into this aspirational luxury

31:15

brand which evidently they've done that over the

31:18

last sort of 15 years to

31:20

kind of get away from that because it's

31:22

not an issue now. But

31:24

it is kind of interesting to me that there must

31:27

be a lot of people around who are sort of

31:29

my vintage who remember that pretty clearly and people who

31:31

are like our vintage are the ones who have the excess

31:34

cash to spend on stuff like this.

31:37

So what's going to lure people

31:39

like us back to that

31:42

brand and is it sort

31:44

of irretrievably damaged or do you think they can

31:46

turn it around or they have turned

31:48

it around? Toby,

31:50

I think that's just a great question

31:52

and I was discussing Burberry in a

31:54

Master Man community and

31:56

one of the members brought that point up

31:59

exactly. A brand

32:01

means so many different things to different

32:03

people. And

32:05

originally, I thought, and now

32:08

I might have to think differently about it on

32:10

my very small sample size, but I thought, if

32:12

you're a certain

32:14

generation and perhaps

32:17

if you're based in the UK and perhaps it wasn't

32:19

just a UK thing, they have the 8% of

32:21

their business in the UK. And

32:24

I was about to come up with a

32:26

cheeky comment about you call football and not

32:28

soccer like half our listeners do, perhaps

32:31

that's an issue. But then also

32:34

you look at the main market

32:36

and that is in countries that are

32:38

really into football and they probably don't remember

32:40

and they don't know what a millwall hooligan is

32:43

or you're just like perhaps it's not

32:45

a thing. And so

32:47

I don't really know how to best respond

32:50

to that. And they have some, they

32:52

break down like the generations, not very detailed

32:54

on age, but a generation like didn't

32:56

seize millions or whatnot in your annual reports.

32:59

And I was going through that after having spoke

33:01

to our community member who talked about like, what

33:04

do people think whenever they think the famous check and

33:06

I especially think that

33:08

a brand like Burberry and I would

33:10

completely forgive you if you

33:13

went into the website and it's like, this

33:15

is pretty ugly. And this

33:17

is not my way of saying, Burberry is

33:19

cool. I do think

33:21

that what's important about whenever

33:23

you're a stock investor is not just

33:26

to think about how you see the world but

33:28

look at the numbers and like what is the world thing.

33:31

And if you would wear a brand

33:33

like Burberry, like it's very like

33:35

in your face and

33:37

there are some people

33:40

in some cultures that would like to

33:42

display that more than others. I'm

33:44

really trying to be pretty correct as I'm

33:47

saying all of this. And I think

33:49

that's just, I think it's very important in

33:51

terms of I'm not saying one thing is right or

33:53

one thing is wrong. Let me give you

33:55

an example of that. I was

33:58

listening at Burberry. store in

34:01

Manila Philippines some time ago

34:04

and I was looking for a belt and There's

34:07

a long story. Why does it probably sound super odd? What

34:09

were you doing Manila? Why were you looking for a belt?

34:11

Let's not go there this time But

34:14

I remember going in there and thinking

34:16

that the store looked had

34:18

a very different field and say the flagship store

34:20

in Bond Street in London

34:22

and the

34:25

belts were very explicit and

34:27

the brand was very Explicit

34:30

let me put it like that And so I

34:32

so and of course, you know, it's it's high

34:34

brand so you're surrounded by sales people who want

34:36

to give you a wonderful service and So

34:39

I asked her like oh that do you

34:41

have a belt like when you can't like see the brand

34:43

and she looked at me It's like I was asking her

34:45

well, and I could walk on the moon. She's like, why

34:48

would you want that? Why would you have

34:50

something that's Burberry if people can't see it's

34:52

very and that's because like in the Danish

34:54

culture if you wear like a big brand,

34:56

it means that it's a There's

34:59

just some extended means like either it's an all-goof

35:01

or you're like it's a very quiet

35:03

luxury type of culture So you're not supposed to

35:05

wear brands. It's frowned upon to

35:08

a large extent And so I

35:10

think there's something to be said about the

35:12

perception of brand and understanding Well, who is

35:14

the core customer? And are you the core

35:16

customer if you're looking at some of the

35:18

products and you're like this is odd Why

35:21

do they have three billion three billion pounds

35:23

in top line? Well, that's because people

35:26

Don't agree with you on what looks nice apparently

35:29

so The other

35:31

question I had there's a huge debt that

35:34

it took on a whole lot of debt a few years

35:36

ago What was the reason for that? Did I make an

35:38

acquisition or they buying back stock or was that come from?

35:41

Yeah, so I'm really happy you brought that up So

35:43

if you look at that, so if you look at

35:45

just at the total debt It's

35:47

important to because actually I have very little

35:50

debt. They sort of have operating leases So

35:52

it's the way it works. And so if you look at IFRS

35:55

They're supposed to like it's counted as

35:58

debt, but it's counted as

36:00

right of use assets in the

36:02

assets column on your balance sheet.

36:05

So they do have net cash is the first

36:07

thing I'd say. If the thought

36:09

of T accounts just make you fall asleep

36:11

and you have no

36:13

idea what you're talking about, that's perfectly fine. What

36:15

I'll do is that I'm going to

36:17

link to this specific example of RFIS. So in

36:19

the US, you use GAAP, it probably would be

36:22

so you could cover them basically the rest of

36:24

the world they're using RFIS. So

36:26

I'm just going to link to an example of

36:28

how that's been counted and why the debt they

36:31

have on the balance sheet isn't real

36:33

debt. So I kind of feel like I've cut out on

36:35

that one. That's

36:37

good. Otherwise, I think it's a really strong pick. It's

36:39

got all the things that I really like. It's

36:42

a very cheap valuation and as you point out,

36:44

it's got huge margins. So it's one of those

36:47

things where I can see this working

36:49

out really well over a long

36:51

period of time because it's been around for so

36:53

long. It's a great brand. It's

36:55

got good margins. So they are able to

36:57

convert that brand into people will pay up

36:59

for it. It's got good top line. It's

37:02

so cheap. This is the sort of thing that I would buy.

37:04

I don't know, but it is the sort of thing that I

37:06

would buy. Definitely

37:08

the brand and especially many of these

37:11

countries that are growing

37:13

their GDPs with a lot of middle

37:15

class coming up, this can be a

37:17

very good aspirational brand in those countries.

37:21

And also I think one interesting thing you

37:23

brought up was it's not about volume here.

37:25

It's about margins because it's

37:27

a luxury brand and I'm assuming the

37:29

margin compares to other luxury brands. The

37:32

only thing that I

37:34

was curious was about lack

37:36

of insider ownership because

37:39

many of these luxury brands are family

37:41

owned and they're able to

37:43

make long term bets. And

37:45

that might be the only risk

37:47

here if the management is not able to

37:49

make those long term bets. But I think

37:51

the prices are attractive. You

37:54

kind of bake into it already. Yeah,

37:58

so I'm really happy that you say that. not

38:00

a hurry because you are right, many

38:03

of the luxury brands are owned by

38:05

families and they do

38:07

not focus on ironically, they

38:10

focus on shareholder value but they don't really

38:12

focus on shareholder value which is

38:14

one of those wonderful things about capitalism

38:16

that sometimes shareholder value can be an

38:18

indirect effect of thinking long-term but I

38:21

might be too bullish here as I'm saying this. If

38:24

you might say that there is a bull case and then

38:26

there's like a base case and then a

38:29

bear case, then you might say that there's

38:31

a put option to some extent on the

38:33

bear case because it's not

38:35

family owned and because it could be

38:37

snapped up by a luxury conglomerate like

38:39

LVMH would probably be the most

38:42

obvious choice not caring considering everything they're

38:44

going through right now. And

38:46

I have thought about that and I'm not saying

38:48

that it's a big part of my thesis that

38:50

you would have that put option whatever you want

38:52

to call it that someone would come in and

38:55

buy them up because again, I

38:57

was discussing this with our mastermind community

38:59

and then someone said to

39:01

me, well, if that is the case

39:03

and it's so cheap, why hasn't

39:05

it been acquired and that's

39:07

a great argument? What is

39:09

that that we're not seeing? But I think it's important to

39:11

say that the lack of inside ownership

39:14

can in its own way and I'm trying to

39:16

be very positive I'm saying this but it might

39:18

even be a catalyst potentially if

39:20

they were to be acquired. So let me

39:22

give you one example. LVMH really wanted to

39:24

buy MS some years back and I think

39:26

they're quite up to 20% and the families

39:29

all, many families, they're six generation now with

39:31

MS, they all joined together and they said,

39:33

we don't want to be acquired regardless of

39:35

the price. That is

39:37

not the strategy that Burberry has

39:39

and so actually with the previous,

39:41

under the previous management, there were

39:44

rumors close to management and

39:46

board, whatever that means, they came out and

39:48

said, we really want to be acquired. And

39:50

I was just thinking like that type of

39:52

rooms that probably started themselves, they wanted to

39:55

get a tender offer called a 20% or

39:57

30% above market price would not be something

39:59

you're here for. a lot of brands and I kind of

40:01

feel that is an interesting element

40:03

to this. But if we

40:05

can go back and talk about, hey, if this

40:07

is not a great company, then at least a

40:09

decent company, why is it

40:11

so cheap? And like I mentioned, there's

40:14

some hell on it. And so one

40:16

of the things is that the industry is

40:18

facing some short term problems. And

40:21

now I'm not an expert whenever

40:23

it comes to what looks good in terms

40:25

of clothing and whatnot. So

40:28

I don't think I'm the right person to say

40:31

the creative output isn't the way it should

40:33

be. I think I probably take the long

40:35

term view of saying, this is a high end brand

40:37

that's been with us for more than 160 years. It's

40:41

not really about the last few collections that's come out

40:43

whether or not it looks good or bad. I

40:45

think it's up for you to decide. But it is

40:47

an industry-wide issue right now that the luxury sector

40:50

is in a slump. I've previously

40:52

pitched LVM8 here on the show.

40:55

So I've been reading their earnings reports and

40:57

whatnot. And they're a

40:59

good indicator of because I wouldn't

41:01

say they are the industry, but they have so

41:03

many brands in the industry. You

41:05

can also see Tering just coming out. They

41:07

tanked 7% like Gucci. I think it went

41:09

down. I want to say revenue fell 21%.

41:12

You see a lot of pain right now in the luxury industry. And

41:15

so you might be saying, that doesn't make any

41:18

sense. Like MS sent out their last quarterly report

41:20

and they were off 70% on revenue. And

41:24

you're like, what's going on? So again, we

41:26

have different tiers within the luxury segment where

41:28

for a company like Burberry that is at

41:30

the lower end, they have a

41:32

lot of what's referred to as aspirational

41:35

luxury shoppers. So they're

41:37

way more hit by the economy.

41:39

Good chance. Right, exactly. And by

41:41

inflation to an extent that call

41:44

it old money, the quite luxury type people

41:46

who would buy the MSs of the world

41:48

are just not. And so

41:51

a part of the thesis, and

41:53

I'm always ashamed of saying this because it

41:55

is a bit about to what

41:57

they say timing the market. It sounds terrible.

42:00

So, I read this memo a long time

42:02

ago from Howard Marks and he talked about

42:05

whenever you have market cycles, what kind of

42:07

company that would be hit the hardest and

42:09

which kind of company that would benefit the

42:11

most. And he talked about

42:14

how whenever industry is

42:16

in a slump, how you should make sure

42:18

to buy low-quality companies. And it sounds so

42:20

counterintuitive, but his take was that those are

42:22

the companies that get punished the most and

42:24

if they have clean balance sheets, they're also

42:26

going to rebound the most compared to their

42:28

methods of the world that's trading at 50

42:30

times earnings because people know they're

42:32

doing well. And so, I

42:35

took that and then I squared it with

42:38

Peter Lynch's wonderful book, Beat the Street and

42:40

he talks about investing in cyclicals. And

42:42

I kind of felt he had this wonderful quote where he talks about

42:45

investing in cyclicals is like playing blackjack

42:47

because if you stay in too long,

42:49

the house is eventually going to win.

42:52

And so, there is this thing

42:54

whenever you buy cyclicals, especially not

42:56

the high-end luxury, but

42:59

discretionary still, you want to...

43:01

It is a bit of a game of what

43:03

do other people think and when do they think

43:05

that is so. And

43:08

so, whenever I'm looking at that, I think that

43:10

there is a very interesting case here for Burberry.

43:12

I am acknowledging now that they've been out with

43:15

profit warnings, some of the trading earnings are not

43:17

going to look as nice whenever it comes out

43:19

here. They already addressed that at length in the

43:21

press releases. But I can't help

43:23

but think if we buy it at

43:25

the current price. So the market cap right now is

43:27

4 billion. Keep in

43:29

mind, if you look at the enterprise value,

43:32

we have the IFRS 16 thing about operating

43:34

leases. So let's just call it 4 billion right now.

43:37

So what I buy the entire company at 4

43:39

billion and right now, they're starting at 1150 pence.

43:43

So 1,150 pence. I

43:46

would probably like a bigger margin of

43:48

safety, especially because as much

43:51

as we like to talk about astrometric

43:53

bets, I do think that there is

43:55

case to be made that things can go worse even for

43:57

a brand like Burberry. But let's say that we

43:59

have... have $4 billion in top

44:02

line, which I think is absolutely achievable. Right

44:05

now, it's 3 billion. We have a

44:07

P of 20 and we have

44:09

operate margins of 20%. And

44:11

so if we do all the math and knowing

44:13

that the corporate tax rate in the UK

44:16

is 25%, so we're probably looking,

44:18

let's say that this is going to come

44:20

to fruition, we're looking at a company that

44:22

should have a market cap of

44:24

10 to 12 billion, based pounds, again,

44:27

trading at 4 billion right now. Of course, this

44:29

is a bull case. The base case

44:31

for me is closer to 5.5 to 6 billion. And

44:35

then we have the bear case where I want to

44:37

argue that there might be a production

44:39

somewhere. So with all of that

44:41

being said, that's my pick

44:43

here for today. Burberry, please

44:46

continue your bashing. Jens. I

44:48

like that. Yeah, I don't find much to

44:50

bash here. I think you have

44:53

to give both the cases, the bull

44:55

and the bear already. It's an interesting

44:57

pick. It's just a question of like,

44:59

you know, what's the upside? Because

45:01

it looks like a lot of the bagnards have

45:03

been baked into the price. So

45:06

I think would I invest in this

45:08

compared to say just investing in an

45:10

index one? Maybe yes, because indexes are

45:12

now overvalued in US. Let's

45:14

take a quick break and hear from today's sponsors. Kyle,

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49:12

right, back to the show. There's

49:14

a beautiful line that I often quote, it

49:17

sounds pretentious, I often quoted it to my

49:19

kids, Henry and Madeline. I got a short

49:21

and sweet one. So the stock is PlayTick. The ticket

49:24

is PLTK. They

49:26

make mobile games. I

49:29

can read off a list of these names, but

49:31

Board Kings have some fun. If you guys play

49:33

any of those on your phones, then you're

49:35

playing a PlayTick game. The stock IPO'd

49:38

in 2021, north of $30. It's

49:41

currently trading at $7.24. They've

49:44

torn up 80% of their valuation. I

49:46

think they listed in the tech

49:49

mania and a lot of the

49:52

heat has come out of it combined with

49:54

the fact that they had some pretty good

49:56

growth when they listed, pretty good historical growth

49:58

when they listed. and

50:01

the growth has slowed very materially

50:03

there. They're growing about 1% year-on-year

50:05

which is probably worse than

50:07

inflation. So in real terms, they're probably

50:09

shrinking which is why the stock is

50:11

down so much, I would say. I

50:14

think they sort of blame it on... They

50:16

say there have been these privacy updates which have

50:19

made... I'm guessing this is

50:21

like an iPhone through the App Store

50:23

mostly but evidently that's made it

50:26

much harder to market these games

50:29

and it's made it much harder to monetize

50:31

these games for these guys. So

50:33

that's been their big problem. They

50:35

tend to have these like celebrity endorsements of their

50:37

games. That's how they do it. They have some

50:40

celebrity play the game. So each game is associated

50:42

with the celebrity. I'm not going

50:44

to mention them because I don't think you'll recognize the

50:46

games. It's not a very big company. It's

50:49

a $2.7 billion market capitalization now. It's

50:52

got a little bit of debt. So EVs 4.2. For

50:55

that, they're expecting for this year

50:57

revenues of $2.6 billion. So

51:01

it's about one times revenue which

51:03

is pretty good considering that because it's a

51:06

tech company because it's a gaming company. The

51:08

gross margins are north of 70% which is... That's

51:11

very fat. So they're making lots of money. EBIT

51:14

like $472 million. So EV

51:16

EBIT is $745 million for the year to come.

51:21

So it's like six times on the EV

51:23

EBIT basis for a cash flow like $436 million.

51:27

So 9.5 times for a cash flow. PE

51:29

is about 11 and

51:31

it's still run by the founder CEO

51:34

who established it in 2010. One

51:37

of the things that they're doing in a

51:39

sort of effort to resuscitate the stock price,

51:41

resuscitate the business a little bit is

51:44

they're doing what all the rest of Silicon Valley

51:46

is doing. So they're doing efficiency, push

51:49

which means layoffs. And

51:51

so I think when you look at this company, it

51:53

looks like stocks down 80%, growth has slowed

51:57

to a standstill. They're

51:59

doing layoffs. And they're saying that there are

52:01

problems with marketing and monetization

52:03

of their games, which doesn't sound particularly good.

52:05

And then on top of that, they're

52:07

Israeli and they've got some employees

52:10

in the Ukraine. So they're involved in both

52:12

sort of geopolitical conflicts that are on

52:15

the news at the moment. So all of that is

52:17

very bad news for this business. But

52:19

I like it for the reason that they

52:22

definitely do have very substantial free cash

52:24

for this business that they don't need

52:26

to grow this business and they don't

52:28

need it in the business. So

52:31

they've said that they're going to start

52:33

paying a dividend. They've started at $150 million

52:35

a year, which at the current market

52:38

price is a dividend yield of 5.5%, which

52:40

is a pretty fat dividend yield. They also

52:42

said they plan to do some acquisitions and

52:44

so the founder, he wants to do these

52:46

acquisitions evidently there's some stuff out there that

52:49

they can buy. They may be a target

52:51

sales. There are other big gaming

52:53

companies at Gloven and various

52:55

other sort of the institute recognize in

52:57

this industry. So I think, optically,

52:59

it's something that looks like it's got a lot of problems. Under

53:02

the hood, the balance sheet, financial

53:04

statements, balance sheet is probably less than ideal

53:06

because of the debt, but they seem to

53:08

be able to set that debt pretty well.

53:10

But I should mention that the Altman Z

53:12

score is trending is

53:14

towards the stress here. So

53:17

my system explodes things that

53:19

fail on various statistical measures of

53:22

earnings manipulation and fraud and financial distress and

53:24

that's one of the measures that I look

53:26

at, but it wasn't triggered in my system

53:28

because I try to look at the things

53:30

that collectively have all of these

53:32

problems. And this is a neat problem when I

53:34

look at the rest of the financial statements, I

53:36

figured it's okay. So it's generating, the

53:39

pipeline is still huge, margins

53:41

are huge, there's lots of cash flowing into

53:43

this business. It's manifesting as

53:45

free cash flow and dividends and they'll be able

53:47

to do acquisitions. So I think it's very healthy.

53:50

I buy these companies for my

53:52

funds. I own this company in the fund. It's

53:54

one of the companies that I own in Zig,

53:57

which is my Midcap watch. It's one of 30

53:59

positions in there. company I buy them or

54:02

equal weight I rebalance them at equal weight.

54:04

Come the next rebalance date, it's entirely possible. I

54:06

sell out of it. I don't know where we're

54:08

going to be at that point. It's

54:10

entirely possible that I continue to hold it. I just don't

54:13

know before I come to the rebalance date what's going to

54:15

happen. So if you hear this after the

54:17

fact and then you go and look at the portfolio, it's not

54:19

in there. That's the reason

54:21

why. I can see the stock price up two times

54:23

from here and I still don't think it would be

54:25

a particular expensive company. So that's my

54:27

pitch. It has obvious problems but I think

54:29

that in the context that I buy these

54:31

things as part of a portfolio, it's a

54:33

nice risk adjustment. So I've put

54:35

it on jets. It's

54:38

a very interesting pick Toby, especially

54:40

gaming. I have a teenager at home. So

54:43

I'm looking at all the different gaming companies

54:45

too. Myself, I think there are, it's

54:48

a very interesting company because as you

54:50

said, the margins are really high. It's

54:52

a profitable model. Calibration

54:55

is also not that difficult for them

54:57

because they're on the platforms. However,

54:59

I think that couple of

55:01

concerns is one, if I

55:04

look at it as a long-term holding, I don't think

55:06

you are looking at it that way. It's kind of

55:09

probably medium term for you. So if I

55:11

look at it as a long-term holding, then

55:13

I have few concerns in the sense that

55:15

number one, why are they

55:18

declaring dividend so fast? That's

55:20

just out of the IPO, few

55:22

years back. Number

55:24

two is their organic growth

55:26

has been not that

55:29

great. It's always through acquisition in

55:31

terms of their revenue and now that they can't

55:34

acquire more, their revenue is

55:36

kind of declining or

55:39

stagnant. And then

55:41

the daily active user is also declining by

55:43

6 or 7% year over year. This

55:47

tells me that the mode is like

55:50

narrow or low. It's like a

55:52

switching cost is not there. Gameers

55:54

can be flickery and then they also

55:57

have this casino stream of

55:59

business. games that

56:01

can have regulation risk at some point or

56:03

the other in some geography or the other.

56:06

So those are all of the risks to the stock. Having

56:08

said that, I think of course the geopolitical

56:11

risk, but what I found

56:13

in my experience here is engineers

56:15

in Israel are the most resilient

56:18

ones. There might

56:20

be like missile sirens going

56:22

off, but they'll be still working. So

56:26

I wouldn't worry about the

56:28

geopolitical risk that much. Why

56:31

are they not able to

56:33

grow revenues organically and whether

56:35

they're able to hold the attention

56:37

of the gamers who are

56:40

very easy to kind of lose. Pickle.

56:43

Pickle, yeah. Yeah, you don't

56:45

want to use that word, but yes, that's accurate. Yeah

56:48

I think that's exactly the problem with this

56:50

thing that nobody, I think maybe

56:53

that's not right. I think there's a lot of

56:55

wealth as well, but people play these games, they

56:57

run out of interest pretty quickly and then they just

56:59

move on to the next one. It's a little bit

57:01

hit or miss. Having said

57:03

that, I've sort of got this machine for

57:05

developing these games or buying these games, monetizing

57:08

these games. That's sort of what you're buying

57:10

rather than any particular... That's why I didn't

57:12

spend too much games because it's going to

57:15

be irrelevant. They

57:17

have a way of marketing, getting attention, getting people

57:19

to play the games. Those

57:21

wealth run dry very quickly, so then they have to move on

57:23

to the next thing. I agree with all of that and

57:25

that's a problem for these guys that they will

57:28

have to find something that works. But

57:30

I kind of feel that's what they do. They'll

57:33

be able to find something. I don't think it's going to be

57:36

a blockbuster. I don't think that this is a sort of stock.

57:38

I don't think this is as good as Burberry where I

57:40

don't think in 150 years time, Play Ticket

57:43

will still be there. Maybe I'll be

57:45

wrong, but there's a good chance Burberry will still be

57:47

there. So I agree with you in the longevity of

57:49

this thing. There's a limit to it. It's

57:52

very cheap. It's throwing off a lot of cash. Founder

57:55

CEO is still there. So I

57:57

like operator owner type CEOs. I

58:00

think that they often know

58:02

the industry pretty well and they know their way around. I

58:06

like this a bit but I agree. As I

58:08

said before, I can roll out of these things pretty

58:10

quickly. I always

58:12

plan to hold them for a long term but if

58:15

there are better opportunities or it goes in the wrong

58:17

direction, I'll be out. I

58:19

just want to say here from the latest

58:21

earnings call, the celebrities

58:23

here, Sarajeska Kipaga for Solitude

58:26

Grant Harvest. Jason Alexander

58:28

for World Series of Poker and

58:30

they continue the partnership with Drew

58:32

Barrymore for Bingo Glitch. So

58:36

whenever I was looking for the celebrities for

58:38

like a Burberry's website, I didn't know any

58:40

of them which to me meant they were

58:42

probably cool. I know all the

58:44

celebrities here for this company and if

58:46

you haven't watched TV in the 90s, you

58:49

might not know them and I kind of

58:51

like that. There was one more guy

58:53

that I didn't even recognize him, the fourth guy, Ty

58:55

Pennington. Yeah, who's that? Couldn't

58:58

tell you. Didn't even look it up.

59:00

He's a celebrity for someone. You

59:03

know, I was reading this study here the other day.

59:05

I think it was from Bain and I'm always a

59:07

bit worried about if

59:10

it's created by consultants, I don't know if I'm going

59:12

to insult any consultants by saying

59:14

this but if the advice you get from

59:17

the consultants are you need more consulting, I

59:19

just always get a bit worried. And

59:22

so Bain made this conclusion

59:24

that the more companies you acquire, the

59:27

better it is. What's obviously

59:29

for a company that relies on the M&A fees,

59:31

it makes sense to make that conclusion but if

59:33

you do think about it, there

59:35

are some companies that do a very

59:38

good job acquiring companies and make it

59:40

their skill to acquire companies. Of course,

59:42

it requires... A constellation of

59:44

Berkshire or something like that. Constellation

59:46

of Berkshire, yes. Most

59:48

cereal acquires are cut from a

59:50

very different cloth and they can't pull it off.

59:53

It's very difficult to grow through

59:55

M&A's. And so

59:57

it very much depends on how

59:59

well... is the MNA

1:00:01

gene like a part of the company

1:00:04

DNA. And what a lot of companies

1:00:06

do after they've matured is that all of a sudden

1:00:08

they say we can't really grow again at least let's

1:00:10

start to acquire stuff and grow that way. And

1:00:13

that is usually always a bad

1:00:15

decision. So it's very important

1:00:17

whenever you look at a company like this

1:00:19

to ask yourself is this how they've grown

1:00:21

so far? Are they good at it or

1:00:23

is it a new shift in strategy? Then

1:00:26

whenever you read about their capital location and

1:00:28

I'll be the first one to say that

1:00:30

it's not because I like being taxed on

1:00:32

dividends by any means but I

1:00:34

do think that there's something to be said about a certain

1:00:37

type of quality company and

1:00:40

here I refer to it not of

1:00:42

the highest quality company it's probably okay to get

1:00:44

a dividend and especially if you're a bit worried

1:00:46

about whether or not it's a value trap while

1:00:50

you're waiting for that multiple expansion which is

1:00:52

part of the thesis here. It's okay to

1:00:54

be paid and so I completely

1:00:56

understand where you're coming from Harvey whenever you're talking

1:00:58

about wow that dividend came in fast. Whenever I'm

1:01:00

looking at the financials, I'm looking at sales and

1:01:03

marketing went up 24% year-over-year and it's not because

1:01:05

it's crazy that it's the case because they do

1:01:07

have 70% gross margins and they have very very

1:01:09

decent like it used to be low 20s now

1:01:11

it's like high teens in terms of over in

1:01:14

marketing. It's very common for those type of companies

1:01:16

that they do spend a lot of sales and

1:01:18

marketing but also in the industry where

1:01:20

you need distribution to your point before

1:01:22

you need to bring people in you know it

1:01:25

is the cost of doing business and

1:01:27

so for a company like this that

1:01:30

might have matured to some extent that's

1:01:32

trading at low multiple like they talked about

1:01:34

it on the earnings call that they would

1:01:36

look into share repurchases I do think that

1:01:38

is probably not the right

1:01:40

strategy for a company like this. Whenever

1:01:43

you're looking at share repurchase, you would say

1:01:46

what is the intrinsic value and do I

1:01:48

buy below the intrinsic value and I think

1:01:50

that is how you should looking at it.

1:01:53

Another framework I want to share is asking

1:01:55

is the business getting better Which

1:01:58

again of course goes into. Intrinsic

1:02:00

value. That's a part of that calculation. But.

1:02:03

A lot of companies have tried to

1:02:05

boost their. Their. Surprise but by

1:02:07

back stocks and simplistically you

1:02:09

don't want a company to

1:02:11

spend their cash on buying

1:02:14

back sister centers. Yes outstanding

1:02:16

If you as a shareholder

1:02:18

then own. Ill your he had

1:02:20

twice the ownership of a company. this worth half

1:02:22

of what used to be. You. Would

1:02:24

probably rather. To. Pay that endeavor that

1:02:26

the stat. So yeah so that

1:02:29

that would be my be back here

1:02:31

for your pick Toby. Bread.

1:02:33

Feedback Thanks to go take all of that

1:02:35

on board! with us as

1:02:38

much to into harris. Thank.

1:02:40

You. And my big is not

1:02:43

at all in the value karma this

1:02:45

time. So to be and state please

1:02:47

forgive me. But. I wondered of

1:02:49

during the some because I've been shouting.

1:02:51

a lot of folks are specially made

1:02:53

in west of friends in India. And

1:02:56

my own experience looking at the market

1:02:58

Than I'm hearing a lot about who.

1:03:01

Are you get into the. Been. The

1:03:03

are investing be more. How do you

1:03:05

get a slice of big drug in

1:03:07

India? And. One

1:03:09

of the ways I was thinking

1:03:12

is. All. About. If

1:03:14

you look into the banks in

1:03:17

India because. One. Of the things

1:03:19

I see with the be a bit as

1:03:21

a really positive demographics and that's gonna stay

1:03:23

for the next thirty years. Be.

1:03:25

Gdp is growing seven to eight percent

1:03:27

even with the all be and bits

1:03:30

that we're seeing. In. Fact: Like

1:03:32

if. A condition gets bread or

1:03:34

even crossed and percent. So.

1:03:36

India is like with China. log in

1:03:38

the nineteen. Eighties bit as a

1:03:40

lot of up a date. And.

1:03:42

Lot of need Action need to

1:03:45

build infrastructure. To. But.

1:03:47

Both. Public. And. Private.

1:03:50

And be a Garment is

1:03:53

also making policies. That

1:03:55

are conducive. For.

1:03:58

Business. In a way I. They see

1:04:00

India is turning capitalist

1:04:02

with huge enthusiasm. But

1:04:05

when all this happens, you need a

1:04:07

lot of credit for the economy to

1:04:10

grow. So it's at 4 trillion today, it

1:04:12

will be 10 trillion in few years.

1:04:15

So when it is growing at 7 to 10%, like

1:04:18

6 to 7 years or 8 years, it might be 10 trillion. How

1:04:23

do you capture some piece of it? And

1:04:26

one of the ways I was thinking was

1:04:28

through banks. And the reason,

1:04:30

there is another bunch of capitalists

1:04:32

for banks in India. So

1:04:35

one I already talked about is sustained credit

1:04:37

growth and the need for credit growth. It

1:04:39

has been growing at 10% over the past

1:04:41

decade and I believe it will only accelerate.

1:04:44

The second more important thing is

1:04:47

the adoption of digital technologies.

1:04:50

It has made lending

1:04:54

more efficient and distribution

1:04:56

also more efficient. Whether it is

1:04:58

banking or lending, credit approval and

1:05:00

everything. In fact, the

1:05:02

last few years, the

1:05:05

digital lending market has witnessed a

1:05:07

see a comfort of growth of

1:05:09

40% almost. It

1:05:12

is projected to surpass 720 US billion dollars by

1:05:14

2013 and a total 1.3 trillion digital lending

1:05:21

market opportunity. On top

1:05:24

of that, the government is also very

1:05:26

supportive in terms of its policy. One

1:05:28

I think is a very

1:05:30

famous policy by Prime Minister Modi which

1:05:32

is called as the Jandhan wherein

1:05:35

he brought hundreds of millions of people

1:05:37

to the fold of banking. For the

1:05:39

first time, they were getting banking

1:05:42

accounts. In fact, the rate at

1:05:44

which number of people having bank

1:05:46

accounts have grown in the past

1:05:48

10 years is astounding.

1:05:51

In 2013, there were 450 or 460 million people or accounts,

1:05:53

at least bank accounts. in

1:06:00

India. Today in 2023, by 2023, it might be more

1:06:02

today, by March 2023, it was around 3

1:06:08

billion accounts. So a lot of, especially

1:06:11

all classes of people have been brought into

1:06:14

banking. And now they're going digital on

1:06:17

top of that because of demonetization and

1:06:20

the India stack as the college, which is

1:06:22

the Pintex stack. In India now,

1:06:24

when I grow, my personal experience, even

1:06:27

the beggars are the, we call

1:06:29

it beggars are the homeless, they

1:06:31

have a QR code. So a

1:06:33

street vendor has a QR code,

1:06:36

nobody uses cash. So a

1:06:38

lot of digitization has happened. So a

1:06:40

lot of money is flowing

1:06:42

into the banking system as well.

1:06:46

And on top of that, there

1:06:48

is a recognition by

1:06:50

the government that having

1:06:52

India used to, especially

1:06:54

when we were, India was socialist 30 years

1:06:57

back. They used to despise

1:06:59

big banks because they feel like they will have

1:07:02

more power. So they

1:07:04

started breaking down and nationalizing a lot

1:07:06

of banks 40 years back.

1:07:09

Now it is the reverse. And

1:07:11

the government has been pushing

1:07:13

for privatization and also consolidation

1:07:15

because they feel having

1:07:17

a lot of small banks is not helping

1:07:20

build the infrastructure they need to build because

1:07:22

the kind of credit that needs

1:07:24

to be made available for bigger banks is

1:07:27

important. So there's a lot of consolidation

1:07:29

happening in the banking sector and the

1:07:31

banks are going to go bigger and

1:07:33

that's the intention of the policy. They

1:07:36

are also supporting them by introducing

1:07:38

policies like bankruptcy code.

1:07:42

Imagine till 2016, there was no bankruptcy code in

1:07:44

India. So if you go bankrupt,

1:07:47

there was no clean resolution.

1:07:50

And because of that, it

1:07:52

was very hard to hold the

1:07:54

businesses accountable. There are

1:07:57

a lot of businesses who would kind of take money but never

1:07:59

give it back. There are a lot of

1:08:01

feedbacks happening. There's less transparency

1:08:03

and there was less risk for

1:08:05

the banks because a

1:08:07

lot of it was driven by the

1:08:10

government or corruption and stuff like that.

1:08:12

So all that has been cleaned out

1:08:14

and that is visible in all the

1:08:16

NPAs, non-performing assets or

1:08:18

credits across all the banks, not just

1:08:20

ICSEI that I'll be pitching today, but

1:08:24

everybody has cleaned up in the last five

1:08:26

to six years. And they're

1:08:28

now in a state where now they can again

1:08:30

focus on aggressive credit

1:08:32

expression. And

1:08:35

that's why the asset quality is improving and

1:08:38

then they have very good

1:08:40

capital adequacy ratios right now. So

1:08:42

the entire banking sector is at

1:08:44

around 15% now,

1:08:47

which has a very good question. And

1:08:50

as we are talking about consolidation now, there

1:08:52

are the top five banks

1:08:54

now today hold 50% of

1:08:57

the entire deposits of the country and

1:09:00

ICSEI is one of them. It's the

1:09:02

number five and

1:09:05

HDFC that I had brought

1:09:08

up like some time back is

1:09:10

number two. So ICSEI has around 128 billion

1:09:12

dollars in deposits. For

1:09:16

comparison, HDFC has 189 billion in deposits. The

1:09:22

top bank which is a state-owned bank, it's

1:09:24

called State Bank of India, has the highest.

1:09:28

It has around

1:09:30

491 million dollars just as

1:09:32

a comparison and 23% of

1:09:34

the entire bank deposits. HDFC

1:09:37

has around 9% and ICSEI has around

1:09:39

6%. However,

1:09:41

the reason I'm pitching ICSEI and

1:09:43

I would be comfortable holding both

1:09:45

HDFC and ICSEI because those are

1:09:47

the only two areas available. If

1:09:50

there is anybody from India listening in, I would

1:09:53

suggest you can expand your basket to

1:09:55

another bank called Kotak Mahindra.

1:09:59

There is access by bank and

1:10:01

then there is a NBFC called Bajaj

1:10:03

Finance which I'm a big fan of

1:10:05

which is much higher growth and

1:10:08

profitability than all these. So if you make

1:10:10

it a basket then you're really capturing the

1:10:12

entire Indian growth but today I'm going to

1:10:14

be talking about ICICI which is

1:10:17

the fifth largest bank as I

1:10:20

said 128 billion dollars in deposits

1:10:22

growing at 10% Kaggart for

1:10:24

the last five years. They had a scandal

1:10:26

in 2014, 13, 14, 15 which when a lot of banks had

1:10:32

scandals they were one of them and

1:10:35

because of that they had quite

1:10:37

a time restructuring everything

1:10:39

till 2018 after that

1:10:41

they have recovered and they have been

1:10:44

growing steadily their bank deposits. Their

1:10:46

loan growth is at 14%

1:10:48

Kaggart and the revenue

1:10:50

is around 27 billion dollars net

1:10:52

income of 2.25 billion dollars

1:10:55

which is growing at 17% over the past five

1:10:58

years Kaggart and a net interest

1:11:00

margin of 4.3%. They

1:11:04

are definitely not cheap because their price to

1:11:07

book is 3.7 and

1:11:09

their PE ratio is 18.5

1:11:12

but when you look at the growth

1:11:14

rates in terms of revenues or the

1:11:17

interest income and

1:11:19

also when you look at the

1:11:21

overall India story and how

1:11:24

India as a GDP is

1:11:26

growing, how the banking inclusion

1:11:29

is growing and with that

1:11:32

they're also getting this opportunity

1:11:34

to cross like for a

1:11:36

very long time when I was growing up

1:11:39

in India already that bank was

1:11:41

just go deposit money and get the money back.

1:11:44

But now when I go to any of

1:11:46

these banks I go to ICICI HDFC whenever

1:11:48

I go I have my accounts there they

1:11:51

pitch me different products whether it's

1:11:53

insurance products whether it is portfolio

1:11:55

management products whether it is mutual

1:11:57

funds whether it is

1:11:59

fiction deposit It's money market and

1:12:02

private banking facilities. They

1:12:05

have a bunch of different products, very

1:12:07

similar to US banks. So if I

1:12:09

think of these banks, they're all like

1:12:12

what Wells Fargo or JP Morgan Chase

1:12:14

or Bank of America were in

1:12:17

the 1950s probably. That

1:12:19

nascent stage. So my

1:12:21

picture is you got to hold on

1:12:23

to this for the next 15 to 20 years. The

1:12:28

RBI, which is the Fed of

1:12:30

India, the Bank of India has

1:12:33

three banks or

1:12:35

two banks, I believe. HDFC and ICICI

1:12:39

has been recognized as the

1:12:41

systemically critical banks. So

1:12:43

that means they are covered by the equivalent

1:12:46

of FBI's insurance. So

1:12:49

to Toby's point, for the

1:12:52

next 30 years Toby, I'm pretty sure

1:12:54

these banks mistake. As long

1:12:56

as the India growth story is alive, these guys

1:12:58

will do well. So that's my pitch. I

1:13:01

would submit to you in terms of valuation,

1:13:03

what do you think? I know that it's

1:13:05

right now for the Indian market,

1:13:07

but among them I felt ICICI

1:13:10

and HDFC are kind

1:13:12

of relatively these neville prize for the

1:13:15

growth that they will capture in Indian

1:13:17

market. I like

1:13:19

the pitch, Harry. I looked at

1:13:21

my, I wrote a book called Concentrated Investing. I have

1:13:23

it just here. It came out in 2016. I

1:13:27

was just trying to remember that we had

1:13:29

an interview with an investor who had looked

1:13:31

at all of the Indian banks quite

1:13:33

a long time ago. And

1:13:36

I just, I don't think that investor actually made

1:13:38

it into the book. So I can't

1:13:40

remember if I've told this story in a book or not, but they

1:13:43

looked at the Indian banks as a way to get into, for

1:13:46

exactly the same reason that you have

1:13:49

identified them, that India was going to do very

1:13:51

well. They wanted to be

1:13:53

exposed to India. That was the

1:13:55

smartest, easiest, most direct, highest

1:13:58

talk, highest return. an

1:14:00

investment way of doing that was to be invested

1:14:02

in the banks and they had done it much

1:14:04

earlier and so we wrote concentrated investing in 2016 and I

1:14:06

had a look in 2016 and

1:14:10

his thesis was you want to be invested in the

1:14:12

biggest bank rather than many or

1:14:15

the second biggest or the third biggest rather than a

1:14:17

long way down the list because that

1:14:19

was the surest safest way of doing

1:14:21

it. And I looked in

1:14:23

2016 and I looked at ICICI just

1:14:25

then and I noted that when I

1:14:27

look at it in 2016, the

1:14:30

stock price hadn't gone anywhere since 2005. It

1:14:33

had gone up and down quite a few times in that period.

1:14:36

It just hadn't moved at all over that period

1:14:38

and it was trading around $5 in 2016 or

1:14:40

maybe even a

1:14:42

little bit less than that $5 in 2006 or 2005 and I had a look at

1:14:44

it then. I

1:14:49

think it's trading close to $30 now so I

1:14:51

did finally get that giant run that looks like

1:14:53

it's run really hard and it's looking a little

1:14:55

bit stretch but you point out

1:14:57

that there's massive

1:14:59

growth coming in India for infrastructure and it's

1:15:02

going to require all of this credit so

1:15:04

it's likely that these banks continue

1:15:06

to get better. My questions are and I

1:15:08

think I do vaguely remember us

1:15:10

doing an Indian bank discussion on

1:15:13

a mastermind some years back. So

1:15:15

I think my question is the same now as it

1:15:17

is then. Why not? Is this one

1:15:20

of the biggest banks and therefore it falls

1:15:22

into that category of you're going to be fairly...

1:15:25

You don't need to go finding the value

1:15:27

bank here. You just need to find banks

1:15:29

that will be beneficiaries of this theme that

1:15:31

you're identifying and it's this bank

1:15:33

therefore in that pocket of banks and it's safe

1:15:35

to buy this bank for that reason.

1:15:38

And the other question is do you feel

1:15:40

like this valuation is stretched and the problem

1:15:42

might be even though you do get all

1:15:45

of that underlying growth is

1:15:47

the issue that it takes a little

1:15:49

while to catch up to the valuation and you have something

1:15:52

similar to what happened between 2005 and 2015 or

1:15:54

2016 where the stock price didn't really go anywhere. interested

1:16:00

in your thoughts on that. Yeah,

1:16:02

well, thank you, Toby. I think those are really good

1:16:04

questions. I'll answer the first one that is it one

1:16:06

of the biggest bank? I think it is one of

1:16:10

the biggest banks in terms of

1:16:12

the private bank. So in the

1:16:14

top five, there is three state-owned

1:16:18

banks and two

1:16:20

private banks, that is HDFC and

1:16:22

ICS here. And

1:16:24

ICICI is one of the top five. The

1:16:27

reason they were not doing well between 2005 and 2016 is because

1:16:29

they had a lot of scandals

1:16:33

then. And during that

1:16:35

regime in general in India, there was a

1:16:37

lot of corruption and scandals and that's the

1:16:39

reason that government was booted out. And

1:16:42

ICICI was no exception to that

1:16:44

except HDFC, which stayed clean

1:16:47

throughout the time. And that's the reason they're

1:16:49

always richly valued. And what

1:16:51

I've seen with HDFC, I think that might be the one

1:16:53

that we had a discussion long time back. Any

1:16:56

time I saw HDFC, it felt expensive, but

1:16:58

they always do. And

1:17:01

ICICI, I'm assuming will be now

1:17:03

that it is clean and there is a new

1:17:05

operator, CEO, Sandy

1:17:07

Bakshi, who is really well regarded

1:17:10

in the industry. Finally,

1:17:12

I'm assuming that ICA will get into

1:17:14

the class of HDFC because 2005, 2006,

1:17:17

if you look

1:17:20

at their deposits, they were both same. In

1:17:22

fact, HDFC was slightly lower than ICSI. But

1:17:26

then because of all this scandal, ICICI kind

1:17:28

of lost its way, but now they're coming

1:17:30

back. So that's number one. Number

1:17:32

two, I agree that holding the largest banks will

1:17:35

be the best. But

1:17:37

what I'm seeing is the value migration from

1:17:39

state bank to the private banks because of

1:17:41

the services they offer and not

1:17:43

just the volume, but

1:17:45

the quality of deposits. The

1:17:48

kind of customers who tend to be with private

1:17:50

banks are the ones who

1:17:52

are the high value customers and the

1:17:54

state bank usually attracts the low kind

1:17:57

of, you know, LTV kind of customers. Because

1:18:00

of the facilities the private banks knew

1:18:02

it's on par with any other US

1:18:04

bank in terms of their online digital

1:18:07

banking facilities and also customer service. If

1:18:09

you cross a certain amount of deposits in

1:18:12

the bank, you get a private bank who will

1:18:14

be available to you, can help you. Many

1:18:17

times when I go to India, I don't

1:18:19

even go to the bank. I come home and

1:18:22

help me with all my stuff. And

1:18:24

then you also brought up the other part

1:18:26

is like, you know... Just the

1:18:28

valuation. I think

1:18:31

when I look at their valuation in

1:18:34

terms of price to book, which is a

1:18:36

good measure for any bank, 3 and

1:18:39

4. Yeah. But when I

1:18:41

look at say something like JP Morgan cheese, it's 1.87

1:18:43

almost 2. So

1:18:47

relatively they are valued higher. But then the

1:18:49

way I'm looking at it is JP

1:18:51

Morgan is like so big, like

1:18:54

growth opportunity and compared

1:18:56

to JP Morgan and if

1:18:58

you look at the market

1:19:01

gap of 93 billion and

1:19:03

the deposits that are there and it's going

1:19:06

to grow in terms of the rate of

1:19:08

growth of the GDP, I'm

1:19:10

assuming that the

1:19:13

valuation will catch up eventually, but

1:19:15

it's provided we are willing

1:19:17

to hold it for a longer term. But

1:19:20

yes, as I present they are stretched and

1:19:22

any stock in India today will feel like

1:19:24

that. Yeah, I

1:19:26

was looking at the Cape ratios

1:19:28

for globally and perhaps no surprise

1:19:30

to you Hari, India

1:19:33

is the most expensive just overtaking the

1:19:35

US now. And it's

1:19:37

kind of interesting whenever you look at how the sector

1:19:39

has been different sector has been broken down. So in

1:19:41

the States, financials are 25% and it's almost 38%

1:19:43

in India. I

1:19:47

know there's a lot that of course goes into

1:19:50

that waiting. I was a bit surprised to see

1:19:52

that also considering how much is still

1:19:54

public. I don't know, perhaps some of that

1:19:56

is floating in the public market. And so

1:19:59

perhaps that. that explains some of it. To

1:20:02

me, it's tricky. I can't... I

1:20:04

completely buy into the thesis of the rise

1:20:06

of India. I think most people do. Whether

1:20:09

or not banks are the right way to play that,

1:20:12

I don't know. I went through the earnings call

1:20:14

here and tried to read the balance sheet and

1:20:16

I frankly, I just don't understand it. And

1:20:19

I don't know, it probably says more about

1:20:21

my limited skill set and it says about

1:20:23

the complications of it. And they break

1:20:26

down, it's wonderful if slides and they give

1:20:28

their own ratings to the different assets and

1:20:30

that who am I to say that whether

1:20:32

it's AA minus or not,

1:20:35

I don't really know. I think it's to

1:20:37

me, it's a tricky bet. And you

1:20:39

said 3.27 hard before on price to

1:20:41

book, it seems high. But

1:20:44

again, there might be some wonderful quality

1:20:46

that I don't really understand. What's

1:20:49

interesting from a currency perspective is how

1:20:51

much it has recently stabilized. Rupees

1:20:54

say compared to the

1:20:57

US dollar for example, which has definitely

1:20:59

been an issue in the past and it

1:21:01

seems like there is for better,

1:21:04

for worse, a more stable environment right now

1:21:06

in India than in a long time. So

1:21:09

I don't know the best way

1:21:11

to play the bull case for

1:21:13

India. I'm almost inclined to say

1:21:15

something along the lines of buying a passive ETF.

1:21:18

But then I also just said that it's

1:21:20

priced very expensively. But at

1:21:22

the same time, it's also the

1:21:24

fastest growing of the big economies in the world

1:21:27

and why wouldn't it be priced as the most

1:21:29

expensive. So those are my two cents

1:21:31

on your pay card. Very interesting. Thank you for bringing

1:21:33

into the group. Yeah,

1:21:35

thank you Stig. I think you're part of an interesting part.

1:21:37

Why is India's like 38%

1:21:41

of India stock market is financials. One

1:21:44

of the reason is they don't have big

1:21:46

tech like US. In

1:21:48

fact, I think the way I look

1:21:51

at it is India is getting industrialized

1:21:53

now seriously compared to the past

1:21:55

at a very high rate. So I think

1:21:57

there are a lot of different industries coming up now. But

1:22:00

I think that's a good point actually because

1:22:02

the financials are quite a big component of

1:22:04

the overall market. In

1:22:07

the 90s and early 2000s, it was

1:22:09

only outsourcing companies like Infosys and TCS

1:22:11

would just take projects and do for

1:22:13

US companies. But lately

1:22:17

in the last 10 years, I'm seeing

1:22:19

product companies, whether it is Fresh

1:22:21

World, Chazoho, Zomato, there

1:22:24

are many that went public

1:22:26

recently in India and there are many

1:22:28

in the pipeline for all

1:22:30

product companies, mostly SaaS based

1:22:32

companies. Right now, it's

1:22:34

more like you take the model in US

1:22:37

or people in Indian context or you

1:22:39

become the low cost producer of the same product.

1:22:42

That's the model that they are taking now. So

1:22:45

it will be really interesting what next 20 years

1:22:47

will bring or will there be innovation for

1:22:50

India market will be yet to be seen. All

1:22:53

right, fantastic, Hari, Yen and Toby.

1:22:55

As always, thank you so much

1:22:57

for your time. Before

1:22:59

you go, could you kindly give a hand

1:23:01

off, Hari, perhaps you first to where people

1:23:03

can learn more about you. Yeah,

1:23:06

I'm mostly hang out on Twitter, sorry, X

1:23:08

now. Hari Rama is my

1:23:10

handle. I would love to engage with

1:23:13

you there and look forward to your comments

1:23:15

and feedback. My blog

1:23:17

is bixbusiness.com. I

1:23:20

run acquirer's funds. We have two

1:23:23

funds, Deep, which is small and

1:23:25

micro domestic US value and

1:23:27

Zig, which is mid and large cap domestic

1:23:29

US value. I've written some books that are

1:23:31

all in Amazon under my name and I

1:23:33

have a website acquirer'smultiple.com, which has got some

1:23:36

free screens and all about blog posts and

1:23:38

podcasts and various other things there. Thanks

1:23:40

for having me, Steve. Thank you for listening to TIP. Make

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