Contrarian Quality at GQG Partners – Rajiv Jain (EP.505)

“It has to be lower than what people think because if you look at the tokens, they're currently Everybody's bleeding. If you look at the pricing on GPU rentals, it barely covers the cost of GPUs, by the way, let alone everything else. And everything else has gone up too. The returns will be good, but you have no pricing power, which is completely opposite what used to be the case. Apple is a unique animal, so let's leave Apple aside. But if you look at the returns on these, it has to be lower because before they were capital-light businesses, not compute-heavy. If you look at Google, if they had not changed the depreciation policy, the margin would be high single digits operating margin. Their margin went from 7-8% to 23% after they changed their pricing policy 3 years ago. The question is, now this is debated, how long they last, who knows? These are far lower return on capital businesses. And Amazon, for example, their return on AI data center is far lower. On one side you're getting maturity on their core businesses. On the other side, you're getting to much more capital intensive business. The cumulative capex of all these MAG companies, in their history is $1.5 trillion. Think about it. Now they're talking about $3 trillion in just 3 years. So these businesses are created with not much capital. You're spending $1 trillion a year and the revenue on AI, talk about maybe $70, $80 billion. That's the revenue. When Google went public, I remember it was 2004, they were worth $50 billion market cap, but they're generating $700 million of free cash flow. Very cash generative business. 20% plus operating margins. If you look at OpenAI, Anthropic, SpaceX, a whole different league. As the numbers start coming out, then the realization will happen that how lopsided markets are and positioning. If you look at the profitability of the area that they're growing is far lower. Half or more of revenue is coming from OpenAI/Anthropic. How in the world OpenAI have invested $1 trillion when your revenue is maybe $20 billion? xAI, cash losses are give and take double-digit billions, 12 to 15, and their capacity utilization on the Colossus was 11%. Now they're selling the capacity to Anthropic. Our view is that this is a powerful technology, but the economics are really bad and time is not our friend. So if you're trading here, different matter, but the economics are not good economics.”

“It has to be lower than what people think because if you look at the tokens, they're currently Everybody's bleeding. If you look at the pricing on GPU rentals, it barely covers the cost of GPUs, by the way, let alone everything else. And everything else has gone up too. The returns will be good, but you have no pricing power, which is completely opposite what used to be the case. Apple is a unique animal, so let's leave Apple aside. But if you look at the returns on these, it has to be lower because before they were capital-light businesses, not compute-heavy. If you look at Google, if they had not changed the depreciation policy, the margin would be high single digits operating margin. Their margin went from 7-8% to 23% after they changed their pricing policy 3 years ago. The question is, now this is debated, how long they last, who knows? These are far lower return on capital businesses. And Amazon, for example, their return on AI data center is far lower. On one side you're getting maturity on their core businesses. On the other side, you're getting to much more capital intensive business. The cumulative capex of all these MAG companies, in their history is $1.5 trillion. Think about it. Now they're talking about $3 trillion in just 3 years. So these businesses are created with not much capital. You're spending $1 trillion a year and the revenue on AI, talk about maybe $70, $80 billion. That's the revenue. When Google went public, I remember it was 2004, they were worth $50 billion market cap, but they're generating $700 million of free cash flow. Very cash generative business. 20% plus operating margins. If you look at OpenAI, Anthropic, SpaceX, a whole different league. As the numbers start coming out, then the realization will happen that how lopsided markets are and positioning. If you look at the profitability of the area that they're growing is far lower. Half or more of revenue is coming from OpenAI/Anthropic. How in the world OpenAI have invested $1 trillion when your revenue is maybe $20 billion? xAI, cash losses are give and take double-digit billions, 12 to 15, and their capacity utilization on the Colossus was 11%. Now they're selling the capacity to Anthropic. Our view is that this is a powerful technology, but the economics are really bad and time is not our friend. So if you're trading here, different matter, but the economics are not good economics.”

“It's been painful last 12 months. We had significant exposure over the years. Nvidia has been the single biggest winner at GQG's history in terms of absolute profits. The problem we see is that the Mag 7, exception is Apple, are meeting their Waterloo. Number one, they're forced to invest in capex when they never had to. Google last quarter had $10 billion free cash flow, clean. That's it. That's without the share buyback, by the way. They used to buy $50, $60 billion. That's out of the window. They have no free cash to buy. The capex is running at higher pace than the cloud revenue. And cloud is a very low quality business now. There are 200+ new cloud providers. I'm coming now as a business owner. We have checked prices and we have begun to shift to other public cloud. Because it's cheaper. Everybody has two cloud. Public cloud is 90% plus penetrated for large enterprises. When people say 17, 18%, which Amazon says, I like, I don't know what numbers you're looking at. If you look at developed markets, who's not on cloud? The second thing is the capex is going through the roof. There's no free cash flow. So the business quality is going lower, but you're forced to invest in capex. Number 3 is that if you look at the advertising-driven model, you're running close to saturation. So you talk to, for example, a couple of largest consumer staple companies in the last few weeks and they say, look, our digital advertising is almost 9,500% penetrated. We are not gonna increase. In fact, we are gonna shift to point of sales more like Walmart type stuff advertising. This trend has lasted a long time. Digital is almost 75% plus of the total advertising pool. These companies are 90% plus of that. And I don't think so it's gonna go to 100. Massive capex, no free cash flow. Free cash flow multiples are like 100 times plus. The stock-based compensation, a huge issue. So they have to buy back stock. If you look at Nvidia, we reported the clean free cash flow was $25 billion. How do we get to that? Well, they invested $25 billion in new startups and other investments instead of capex. That is their capex. Nvidia invests in over 50+ of their customers in the last 6-9 months. Nothing wrong with that, but The free cash flow is a lot lower. It's a fantastic company with great management. That's a classic case. He's a true visionary. There's no question about it. And we are big fans of Nvidia. However, the free cash flow is now going down because you are forced to spend this money to keep the demand going.”

“It's been hotly debated and the debate has been around a few different things. Number one is the cloud. The data isn't there. Is that runway still there or not? Now we are getting more clarity that more than half of the backlog, hence probably the revenue too, is coming from basically Anthropic/OpenAI. If you look at Google and Microsoft, it's more than half OpenAI. Amazon is more than half. So they invest with OpenAI,, but they essentially give them compute credits, which are then utilized at Amazon. We don't know for sure, but that's what we believe is going on. The debate has been around how durable is that and can this become a more profitable business? The third is around as the pricing of tokens begin to go up, which it has, does the demand sustain? Because the whole issue of compute shortage, kind of a non-starter. If Starbucks starts selling coffee at 25 cents, there'll be shortage of Starbucks coffee. When you're underpricing everything, if you look at CoreWeave and Nebius, they're bleeding heavily. That means they're not covering their cost. The real test of shortage is when you price appropriately. It's a capitalistic system. So when you subsidize something, there will be shortage. There should be shortage. Those are things that there's been a lot of debate on, but I don't think so there's that much debate on longer-term aid from a technology perspective. Also in context of that, would it end tomorrow or could last 2 more years.”

“It's been hotly debated and the debate has been around a few different things. Number one is the cloud. The data isn't there. Is that runway still there or not? Now we are getting more clarity that more than half of the backlog, hence probably the revenue too, is coming from basically Anthropic/OpenAI. If you look at Google and Microsoft, it's more than half OpenAI. Amazon is more than half. So they invest with OpenAI,, but they essentially give them compute credits, which are then utilized at Amazon. We don't know for sure, but that's what we believe is going on. The debate has been around how durable is that and can this become a more profitable business? The third is around as the pricing of tokens begin to go up, which it has, does the demand sustain? Because the whole issue of compute shortage, kind of a non-starter. If Starbucks starts selling coffee at 25 cents, there'll be shortage of Starbucks coffee. When you're underpricing everything, if you look at CoreWeave and Nebius, they're bleeding heavily. That means they're not covering their cost. The real test of shortage is when you price appropriately. It's a capitalistic system. So when you subsidize something, there will be shortage. There should be shortage. Those are things that there's been a lot of debate on, but I don't think so there's that much debate on longer-term aid from a technology perspective. Also in context of that, would it end tomorrow or could last 2 more years.”

“the cumulative CapEx of all these MAG companies in their history is $1.5 trillion. Think about it. Now they're talking about $3 trillion in just 3 years. So these bills are created with not much capital. You're spending $1 trillion a year and the revenue on AI, talk about maybe $70, $80 billion. When Google went public, I remember it was 2004, they were worth $50 billion market cap, but they're generating $700 million of free cash flow. Very cash-generative business, 20% plus operating margins. If you look at OpenAI, Anthropic, SpaceX, a whole different league. As the numbers start coming out, then the realization happened that how lopsided markets are and positioning. If you look at the profitability of the area that they're growing is far lower. Half or more of revenue is coming from OpenAI/Anthropic. How in the world OpenAI invested trillion dollars when your revenue is maybe $20 billion? x.ai cash losses are give and take double digit billions, $12 to $15 billion, and their capacity utilization on the Colossus was 11%. Now they're selling the capacity to Anthropic. Our view is that this is a powerful technology, but the economics are really bad and time is not our friend.”

“It's been painful last 12 months. We had significant exposure over the years. Nvidia has been the single biggest winner at GQG's history in terms of absolute profits. The problem we see is that the Mag 7, exception is Apple, are meeting their Waterloo. Number one, they're forced to invest in capex when they never had to. Google last quarter had $10 billion free cash flow, clean. That's it. That's without the share buyback, by the way. They used to buy $50, $60 billion. That's out of the window. They have no free cash to buy. The capex is running at higher pace than the cloud revenue. And cloud is a very low quality business now. There are 200+ new cloud providers. I'm coming now as a business owner. We have checked prices and we have begun to shift to other public cloud. Because it's cheaper. Everybody has two cloud. Public cloud is 90% plus penetrated for large enterprises. When people say 17, 18%, which Amazon says, I like, I don't know what numbers you're looking at. If you look at developed markets, who's not on cloud? The second thing is the capex is going through the roof. There's no free cash flow. So the business quality is going lower, but you're forced to invest in capex. Number 3 is that if you look at the advertising-driven model, you're running close to saturation. So you talk to, for example, a couple of largest consumer staple companies in the last few weeks and they say, look, our digital advertising is almost 9,500% penetrated. We are not gonna increase. In fact, we are gonna shift to point of sales more like Walmart type stuff advertising. This trend has lasted a long time. Digital is almost 75% plus of the total advertising pool. These companies are 90% plus of that. And I don't think so it's gonna go to 100. Massive capex, no free cash flow. Free cash flow multiples are like 100 times plus. The stock-based compensation, a huge issue. So they have to buy back stock. If you look at Nvidia, we reported the clean free cash flow was $25 billion. How do we get to that? Well, they invested $25 billion in new startups and other investments instead of capex. That is their capex. Nvidia invests in over 50+ of their customers in the last 6-9 months. Nothing wrong with that, but The free cash flow is a lot lower. It's a fantastic company with great management. That's a classic case. He's a true visionary. There's no question about it. And we are big fans of Nvidia. However, the free cash flow is now going down because you are forced to spend this money to keep the demand going.”

“It's been painful last 12 months. We had significant exposure over the years. Nvidia has been the single biggest winner at GQG's history in terms of absolute profits. The problem we see is that the Mag 7, exception is Apple, are meeting their Waterloo. Number one, they're forced to invest in capex when they never had to. Google last quarter had $10 billion free cash flow, clean. That's it. That's without the share buyback, by the way. They used to buy $50, $60 billion. That's out of the window. They have no free cash to buy. The capex is running at higher pace than the cloud revenue. And cloud is a very low quality business now. There are 200+ new cloud providers. I'm coming now as a business owner. We have checked prices and we have begun to shift to other public cloud. Because it's cheaper. Everybody has two cloud. Public cloud is 90% plus penetrated for large enterprises. When people say 17, 18%, which Amazon says, I like, I don't know what numbers you're looking at. If you look at developed markets, who's not on cloud? The second thing is the capex is going through the roof. There's no free cash flow. So the business quality is going lower, but you're forced to invest in capex. Number 3 is that if you look at the advertising-driven model, you're running close to saturation. So you talk to, for example, a couple of largest consumer staple companies in the last few weeks and they say, look, our digital advertising is almost 9,500% penetrated. We are not gonna increase. In fact, we are gonna shift to point of sales more like Walmart type stuff advertising. This trend has lasted a long time. Digital is almost 75% plus of the total advertising pool. These companies are 90% plus of that. And I don't think so it's gonna go to 100. Massive capex, no free cash flow. Free cash flow multiples are like 100 times plus. The stock-based compensation, a huge issue. So they have to buy back stock. If you look at Nvidia, we reported the clean free cash flow was $25 billion. How do we get to that? Well, they invested $25 billion in new startups and other investments instead of capex. That is their capex. Nvidia invests in over 50+ of their customers in the last 6-9 months. Nothing wrong with that, but The free cash flow is a lot lower. It's a fantastic company with great management. That's a classic case. He's a true visionary. There's no question about it. And we are big fans of Nvidia. However, the free cash flow is now going down because you are forced to spend this money to keep the demand going.”

“It has to be lower than what people think because if you look at the tokens, they're currently Everybody's bleeding. If you look at the pricing on GPU rentals, it barely covers the cost of GPUs, by the way, let alone everything else. And everything else has gone up too. The returns will be good, but you have no pricing power, which is completely opposite what used to be the case. Apple is a unique animal, so let's leave Apple aside. But if you look at the returns on these, it has to be lower because before they were capital-light businesses, not compute-heavy. If you look at Google, if they had not changed the depreciation policy, the margin would be high single digits operating margin. Their margin went from 7-8% to 23% after they changed their pricing policy 3 years ago. The question is, now this is debated, how long they last, who knows? These are far lower return on capital businesses. And Amazon, for example, their return on AI data center is far lower. On one side you're getting maturity on their core businesses. On the other side, you're getting to much more capital intensive business. The cumulative capex of all these MAG companies, in their history is $1.5 trillion. Think about it. Now they're talking about $3 trillion in just 3 years. So these businesses are created with not much capital. You're spending $1 trillion a year and the revenue on AI, talk about maybe $70, $80 billion. That's the revenue. When Google went public, I remember it was 2004, they were worth $50 billion market cap, but they're generating $700 million of free cash flow. Very cash generative business. 20% plus operating margins. If you look at OpenAI, Anthropic, SpaceX, a whole different league. As the numbers start coming out, then the realization will happen that how lopsided markets are and positioning. If you look at the profitability of the area that they're growing is far lower. Half or more of revenue is coming from OpenAI/Anthropic. How in the world OpenAI have invested $1 trillion when your revenue is maybe $20 billion? xAI, cash losses are give and take double-digit billions, 12 to 15, and their capacity utilization on the Colossus was 11%. Now they're selling the capacity to Anthropic. Our view is that this is a powerful technology, but the economics are really bad and time is not our friend. So if you're trading here, different matter, but the economics are not good economics.”

“It's been painful last 12 months. We had significant exposure over the years. Nvidia has been the single biggest winner at GQG's history in terms of absolute profits. The problem we see is that the Mag 7, exception is Apple, are meeting their Waterloo. Number one, they're forced to invest in capex when they never had to. Google last quarter had $10 billion free cash flow, clean. That's it. That's without the share buyback, by the way. They used to buy $50, $60 billion. That's out of the window. They have no free cash to buy. The capex is running at higher pace than the cloud revenue. And cloud is a very low quality business now. There are 200+ new cloud providers. I'm coming now as a business owner. We have checked prices and we have begun to shift to other public cloud. Because it's cheaper. Everybody has two cloud. Public cloud is 90% plus penetrated for large enterprises. When people say 17, 18%, which Amazon says, I like, I don't know what numbers you're looking at. If you look at developed markets, who's not on cloud? The second thing is the capex is going through the roof. There's no free cash flow. So the business quality is going lower, but you're forced to invest in capex. Number 3 is that if you look at the advertising-driven model, you're running close to saturation. So you talk to, for example, a couple of largest consumer staple companies in the last few weeks and they say, look, our digital advertising is almost 9,500% penetrated. We are not gonna increase. In fact, we are gonna shift to point of sales more like Walmart type stuff advertising. This trend has lasted a long time. Digital is almost 75% plus of the total advertising pool. These companies are 90% plus of that. And I don't think so it's gonna go to 100. Massive capex, no free cash flow. Free cash flow multiples are like 100 times plus. The stock-based compensation, a huge issue. So they have to buy back stock. If you look at Nvidia, we reported the clean free cash flow was $25 billion. How do we get to that? Well, they invested $25 billion in new startups and other investments instead of capex. That is their capex. Nvidia invests in over 50+ of their customers in the last 6-9 months. Nothing wrong with that, but The free cash flow is a lot lower. It's a fantastic company with great management. That's a classic case. He's a true visionary. There's no question about it. And we are big fans of Nvidia. However, the free cash flow is now going down because you are forced to spend this money to keep the demand going.”

“It's been painful last 12 months. We had significant exposure over the years. Nvidia has been the single biggest winner at GQG's history in terms of absolute profits. The problem we see is that the Mag 7, exception is Apple, are meeting their Waterloo. Number one, they're forced to invest in capex when they never had to. Google last quarter had $10 billion free cash flow, clean. That's it. That's without the share buyback, by the way. They used to buy $50, $60 billion. That's out of the window. They have no free cash to buy. The capex is running at higher pace than the cloud revenue. And cloud is a very low quality business now. There are 200+ new cloud providers. I'm coming now as a business owner. We have checked prices and we have begun to shift to other public cloud. Because it's cheaper. Everybody has two cloud. Public cloud is 90% plus penetrated for large enterprises. When people say 17, 18%, which Amazon says, I like, I don't know what numbers you're looking at. If you look at developed markets, who's not on cloud? The second thing is the capex is going through the roof. There's no free cash flow. So the business quality is going lower, but you're forced to invest in capex. Number 3 is that if you look at the advertising-driven model, you're running close to saturation. So you talk to, for example, a couple of largest consumer staple companies in the last few weeks and they say, look, our digital advertising is almost 9,500% penetrated. We are not gonna increase. In fact, we are gonna shift to point of sales more like Walmart type stuff advertising. This trend has lasted a long time. Digital is almost 75% plus of the total advertising pool. These companies are 90% plus of that. And I don't think so it's gonna go to 100. Massive capex, no free cash flow. Free cash flow multiples are like 100 times plus. The stock-based compensation, a huge issue. So they have to buy back stock. If you look at Nvidia, we reported the clean free cash flow was $25 billion. How do we get to that? Well, they invested $25 billion in new startups and other investments instead of capex. That is their capex. Nvidia invests in over 50+ of their customers in the last 6-9 months. Nothing wrong with that, but The free cash flow is a lot lower. It's a fantastic company with great management. That's a classic case. He's a true visionary. There's no question about it. And we are big fans of Nvidia. However, the free cash flow is now going down because you are forced to spend this money to keep the demand going.”

“There's a longer list of them. It's fascinating about semiconductors. Who would've predicted that the whole industry would be 12, 30, 10 forward revenue? In 2022, we wrote a paper, Is Software the New Shale? In last month, we put almost $10 billion to work in software. If you look at from the lens of what are the barriers to entry and is the outlook improving? If you look at steel, steel has become much more high barrier to entry business everywhere. Try set up a new steel plant in Europe. Good luck. Coal, very difficult. You won't get approval. Your grandkids might get approval. We are truly equal opportunity investor. Almost everything is fair game unless there are client restrictions depending on the bad history and forward quality. Today, for example, in 12 months now, we have almost nothing in semiconductors. We have almost nothing in tech. In last month or so, we began to get excited about enterprise software. Everybody feels that the HR system would be white-coded. Good luck with that. Significant energy exposure from time to time. And for 10 years we didn't have any exposure for energy. Very opportunistic in that context in terms of, because the barriers to entry in some areas are actually going up and some areas are actually gone down dramatically. If you look at capital cycle, it tells you where the longer term return should be. So we let it drive that.”

“Some of this learned behavior in terms of not anchoring to your past as much. If I look at my long-term record, there's not an area that I've not lost money in. You name it, every area. Over time you also learn that there's a benefit of if you lost money before, you probably better analyst now on that name. It becomes ingrained over time. So I don't have an issue flipping around at all. If I look at the long-term track record, I used to have a higher hit rate. The reason we consciously tried to lower the hit rate in last decade or so in GQG particularly versus on total, even if on total we begin to change that, the reason was because when you have a high hit rate, the problem is you have a high bar on what comes in. So you also miss a lot of multibaggers for that reason. You actually lower the hit rate because then you have a small position, you know it is not just check all the box and everything. Yeah, that's wonderful. But you also would miss the best ideas, the one where there's more doubt. That means if I have doubt, the world has doubt too. So if you lower the hit rate, that means you're also taking more chances. It's that early stage investing. If you're an angel investor, there's much more risk, but you'll probably have more home runs. Multi-baggers potential, the payoff would be greater, but you can't have a large position in that. Look at software today. We feel that it's a very intriguing area, these established businesses, but 10, 12 times earnings and folks feel they're completely going out of business. There's no sign of that. Not only that, they're growing 20% in some cases and you can't get rid of them even if you wanted to. We have some of the software companies, I would love to get rid of them. The users hate them, but they keep raising prices. We try to train an analyst. If you feel the data points are changing, bring it up. You can always go back in, which is why we only operate in large liquid names. We make too many mistakes, allows us to change our mind.”

“I think energy is a fantastic space because even if Hormuz opens tomorrow, it's gonna take some time. If you look at Qatar, they've already said that 20% of thereabouts of their LNG facilities are down. They'll take 3 to 5 years to fix them. That means that you can buy companies at double-digit free cash flow yield at $75, $80 oil. You don't see how it goes back to $70 and stays there. We don't need $150 oil. At $110, $120 oil, you're looking at 15 to 20% free cash flow yields. There are no managements who wants to increase capacity. It has nothing to do with the outcome of the war, but even if you assume that it opens tomorrow, most of the models are still assuming $75. The physical is trading at $110, $120. We talked to so many oil companies, said our realizations are running $10 to $20 in a lot of cases above what is trading in the futures market. If you look at jet fuel in Singapore, it's consistently traded at $150. Somebody's going to make a lot of money.”

“Utilities. Not simply because of AI, but the world has woefully underinvested in power infrastructure. Unregulated ones, they've done very well. We used to own them, we don't own them. But the regulated utilities, we've got Brazil, US, Europe, Asia, everybody excluding China has underinvested. The demand continues to surprise on the upside. You're getting 6 to 8%, some cases 9, 10%. You can buy utilities in the US, but they be giving you 5 to 10 year visibility of 8 to 10% EPS growth. That's faster than S&P. Last decade, S&P grew at 8% and that was a very good period. I'm probably excluding the recent spike in memory prices leading to S&P earnings upgrades. That won't last. Memory's as cyclical as they come. Every cycle people say, oh, this time is different. But look at the Chinese plants and the price demand destruction that's already beginning to take hold. If you can buy 17, 18 times with a 3, 3.5% dividend yield, you can compound at double digits. For a company that has highly visible 8% EPS growth.”

“I'm probably one of the longest surviving managers now because I became a copier in 1994. So it's 30-plus years. Emerging markets are a massive category which is underappreciated. The indices are completely lopsided. I mean, the 4 names now make up almost a third of the index. If you look at emerging market index, that's like a leveraged version of semiconductor. You would not have 20% in memory names in US, but you do have that in emerging market index. This is fascinating what's happening. Otherwise, if you look at some of these markets, they become large economies on their own. If you look at Brazil, is larger than Italy. These are huge systems now. So there's a more G7-focused, but the action in the other markets, if you look at from a G20 versus G7, is shifted away to G13. And not just China, but particularly India. It's a almost $4.5 trillion GDP. It's a large system. Indonesia, large system. And some of the larger banks in Indonesia are larger than European banks now. Nobody talks about them anymore, but there's a lot of action. If you take a long-term view, there's quite attractive set of stuff. Very bullish in Brazil. I mean, you can still find names like Itaú is still 7, 8 times earning this 7% dividend yield. And that's the only bank I know which has not earned 15% real return equity for 30 years. I don't know of any other bank. Family-owned. It's almost $100 billion market cap. It's not a microcap. So you still find these kind of opportunities. Petrobras, which we owned in a big way in last 5 years, When we bought it, it was 35% dividend deal. It today is 12% dividend deal at $75 oil. It's 6 times earnings. Why would you own Samsung, which is as classic as it gets? Now everybody's ramping up capacity. They never ring a bell in semiconductor industry. And China is adding capacity in a big way. Just to be clear, in August, everybody thought there's a massive glut. Since 6 months ago, we've gone from massive glut to we sold out for years. We'll find out. There's a lot of stuff in emerging markets, which is quite interesting outside of these tech world. There's a real alpha opportunity and absolute compounding that can take place in emerging markets.”

“First of all, we don't have any specialists even in the traditional analyst pool, which is a classic buy side and the non-traditional, non-traditional journalists basically. And they go wherever. On the traditional side, I'm not a big fan of specialists because specialists at major inflection points are usually wrong. If you're not able to compare, you don't know what good or bad is. Our view is we look at multiple screens. There's a heavy quant element to that. How do we get double-digit expectation? High single-digit, double-digit, 9 to 11% is my rule of thumb. If you do the math, which is what we did in Adobe at 50 times earnings, if it 5 years out multiple is 20 times and be growing at 15%, you're not going to make any money. Now it's a double-digit free cash flow yield at 10 times earnings. Even no multiple expansion, you're going to compound at 10, 11% and business probably would be around. You invest in tobacco in a big way. Cigarette volume has been declining at 7, 8% in US. And guess for last 5 years, Altria has outperformed Meta. I think now Microsoft and Amazon last 5 years. The cash generation matters. We go wherever we feel we can get high single, low double-digit cumulative return, even if the multiples sort of come down to historical normalized levels. That's why we don't own any US banks, particularly large Wall Street money center banks. They're all trading at some of the highest valuations on a price-to-book or price-to-revenue in some 25 years.”

“Quality is barriers to entry. If you look at this building here, there's no real barriers to entry. The restaurant across the street can be taken down and new high-rise can come. But if this building was on the beach here, there are no commercial office space in Fort Lauderdale on the beach, that'll be extremely valuable. So it becomes a high barrier to entry business. We are happy to own anything which has high barriers to entry. It could be steel in Europe. Cyclical— it is not bad quality. Every business kind of has somewhat cyclicality. You go through regular cycles. In our opinion, barriers to entry is what truly differentiates what can you earn over the return on capital over the full cycle. The second part of quality is it should be forward-looking quality, not backward-looking quality. If you look at the energy business, It has become far higher barrier to entry business than it used to be. If you look at the pipelines, how long does it take to get any approvals? You don't have to go into Keystone, but any other pipeline, it's a much higher barrier to entry business than it used to be. The tolls can last a lot longer than it used to be. Worse, if you look at software, the barriers to entry, generally speaking, are very low. Semiconductor industry, the barriers to entry are getting lower, not higher. Chinese are coming in a very aggressive way, including into semi-cap side, equipment side, memory side, they're ramping up capacity. That's a far lower barrier to entry business than what people think. One of the big lessons in investing is if Chinese are a competitor, be very careful because they will overproduce and kill you.”

“Quality is barriers to entry. If you look at this building here, there's no real barriers to entry. The restaurant across the street can be taken down and new high-rise can come. But if this building was on the beach here, there are no commercial office space in Fort Lauderdale on the beach, that'll be extremely valuable. So it becomes a high barrier to entry business. We are happy to own anything which has high barriers to entry. It could be steel in Europe. Cyclical— it is not bad quality. Every business kind of has somewhat cyclicality. You go through regular cycles. In our opinion, barriers to entry is what truly differentiates what can you earn over the return on capital over the full cycle. The second part of quality is it should be forward-looking quality, not backward-looking quality. If you look at the energy business, It has become far higher barrier to entry business than it used to be. If you look at the pipelines, how long does it take to get any approvals? You don't have to go into Keystone, but any other pipeline, it's a much higher barrier to entry business than it used to be. The tolls can last a lot longer than it used to be. Worse, if you look at software, the barriers to entry, generally speaking, are very low. Semiconductor industry, the barriers to entry are getting lower, not higher. Chinese are coming in a very aggressive way, including into semi-cap side, equipment side, memory side, they're ramping up capacity. That's a far lower barrier to entry business than what people think. One of the big lessons in investing is if Chinese are a competitor, be very careful because they will overproduce and kill you.”

“Depending on the assets. Some of these are irreplaceable assets. If you have a big footprint in Brazil like Petrobras, those are not replaceable assets. They are profitable at $75, $80 oil with a decent production growth of 2 to 3%. You can't replicate those assets. Energy and commodities are particularly are those where it doesn't matter till it matters. If you have one mineral barrel short, that's the only thing you think of. You don't think of semiconductor that way. There's lower barrier to entry business too. In shale, there are a bunch of companies which don't have that high quality assets. Shale depletes very rapidly toward 20 to 30%. So not everything would be high barrier to entry. The business that have long enough tail of producing at low enough cost could be attractive proposition versus something which is like software. If you look at it, How many companies have survived in software business over 30+ years? Microsoft is an exception and maybe Oracle. It's a lower barrier to entry business. Semiconductors used to be, in our opinion, it is not as high quality as it used to be because everybody is getting into the game.”

“Quality is barriers to entry. If you look at this building here, there's no real barriers to entry. The restaurant across the street can be taken down and new high-rise can come. But if this building was on the beach here, there are no commercial office space in Fort Lauderdale on the beach, that'll be extremely valuable. So it becomes a high barrier to entry business. We are happy to own anything which has high barriers to entry. It could be steel in Europe. Cyclical— it is not bad quality. Every business kind of has somewhat cyclicality. You go through regular cycles. In our opinion, barriers to entry is what truly differentiates what can you earn over the return on capital over the full cycle. The second part of quality is it should be forward-looking quality, not backward-looking quality. If you look at the energy business, It has become far higher barrier to entry business than it used to be. If you look at the pipelines, how long does it take to get any approvals? You don't have to go into Keystone, but any other pipeline, it's a much higher barrier to entry business than it used to be. The tolls can last a lot longer than it used to be. Worse, if you look at software, the barriers to entry, generally speaking, are very low. Semiconductor industry, the barriers to entry are getting lower, not higher. Chinese are coming in a very aggressive way, including into semi-cap side, equipment side, memory side, they're ramping up capacity. That's a far lower barrier to entry business than what people think. One of the big lessons in investing is if Chinese are a competitor, be very careful because they will overproduce and kill you.”

“Utilities. Not simply because of AI, but the world has woefully underinvested in power infrastructure. Unregulated ones, they've done very well. We used to own them, we don't own them. But the regulated utilities, we've got Brazil, US, Europe, Asia, everybody excluding China has underinvested. The demand continues to surprise on the upside. You're getting 6 to 8%, some cases 9, 10%. You can buy utilities in the US, but they be giving you 5 to 10 year visibility of 8 to 10% EPS growth. That's faster than S&P. Last decade, S&P grew at 8% and that was a very good period. I'm probably excluding the recent spike in memory prices leading to S&P earnings upgrades. That won't last. Memory's as cyclical as they come. Every cycle people say, oh, this time is different. But look at the Chinese plants and the price demand destruction that's already beginning to take hold. If you can buy 17, 18 times with a 3, 3.5% dividend yield, you can compound at double digits. For a company that has highly visible 8% EPS growth.”

“At the PM, we meet and we hash out what makes sense, doesn't make sense, or on phone call. So 2 PMs may say, "We're completely out on this name," and the other 2 may decide, "Okay, we both love this name and the analysts love this name, so it'll get tracked based on their positioning. It'll be this size in the book." How do you figure out those position sizes? This is the cemented process part. What you talk about is the sizing should be based on how a credit analyst would think. You can't have a very large position in monoline business, which operates a very narrow niche. Can't do it. So if you think about how does S&P would give AAA, it would never give AAA to an ENP company. Just can't. No diversity of their asset base geographically, business lines. But Exxon can get AAA. So the small company or even a large company when monoline can never be a large position. The top sizing always has to be as a credit analyst would look at it, can it be AAA? So it is not based on purely on the conviction, but much more on stability of the business so you don't blow up. Everything you try to do is just don't blow up. What is not acceptable is market down 40 and we are down 43, we outperform. It's like, no, we think more like long-short in a way. We can have very large position Exxon. We can't have Oxy, which we really like, but we can't have our same size position because Oxy is much more narrow operation. Much more risk.”

“The biggest thing is that you begin to appreciate how little you know. You become humbler because the conviction level actually goes down. I begin to appreciate a lot more of Having, making sure that folks are constantly poking holes and have different opinion and debate, that's a must. And if you wanna survive, anybody in the business, if you can internally, that's part of the risk management. If you ask me, that's probably the biggest realization. Avoid deep ideologies. We've had a big explosion of AI, maybe we'll have it again. The valuations don't make any sense. Plus there are far better risk return opportunities. Exxon is almost similar market cap as AMD depending on the oil prices. This year they generate probably $50 billion of clean free cash flow. AMD will be lucky if they generate 9. I'm sure it's gonna change the world, but there's a gap between 9 and 50. That assumes oil at $75, not $120. At $120, be careful. AMD, AMD's a fantastic business management and everything else, but the math is just not working. Some of these, we are dogmatic about the math rather than dogmatic about our views as such. But with the forward quality, deep embedded ideologies is what is the most dangerous. Has to think that big teams and super specialists is what is needed and they'll do better. We're 180-degree opposite view. We are total PM/invest— everybody included is like 17 and we're running $160 billion. We want some turnover. Stability is fine, but you want some turnover. You want fresh thinking from time to time. Small teams is where alpha is gonna be. No PM should outsource of a super specialist. It's a bad idea if you have too many specialists. Large teams, it's just not conducive to good alphas.”

“There's no question that stress builds up. And maybe the stress is not a bad thing sometimes. You need a little bit of stress. Vast majority of our clients understand what they're buying into, and it's our job to ensure that they understand that we do take a lot of relative risk. We try not to take absolute risk. In last 6-odd months, we've had some redemptions. We still had net new money last year for 9th year. But we don't measure success by asset growth. When we went public in my first letter as the largest shareholder of the company, I specifically wrote two things. We will never have AUM targets and we never have margin targets so that nobody's confused. You can grow in the short run by doing other things, but you also start reducing the alpha opportunity in terms of how people think and behave. It's my job to make sure that we stick to our core ethos, which is why we are doing what we are doing. That somebody's retirement is at stake, somebody's kids are not going to college. I'll tell you a story. There was a firm I knew, I went to see them in 2003 and they won't let me go up to the 5th floor. I said, look, I can go up. They said, no, no, you have to wait. They said they had armed guards. I asked the guard, why do you have armed guards? He said, during the dot-com, they lost so much money, they get death threats. There's an element of not blowing up somebody's retirement. As long as we stick to that, we are fine. We'll have asset outflows, inflows, all of that. That's ebb and flow of any business. There's cycles in everything. Hopefully we attract the right kind of clients who think about the same way and we should be able to explain what we do too. That binds the organization together. Quite a bit of camaraderie in terms of fighting spirits because this is why we are doing what we are doing. This is what we feel the markets are missing. This is what we've done and this is why we'll do okay if the bad times do happen. Flip side is we'll underperform. Underperform is less of a problem than losing your shirt. The odds are stacking up of when cyclical businesses are selling at valuations which are even difficult to sustain for compounders. If I go back to dot-com, the biggest lesson was some of the biggest losses that came in my book were the names that were cyclicals and we paid high multiples on peak margins. I remember Japanese names which went from 5% operating margin to 25% margin and we paid 50 times earnings for that. Guess what? They went back to 5% margins. And market want to pay 8, 9 times for that, you lose your shirt. There's a laundry list of names which are selling at high multiples, good businesses, but they're cyclical and the cycle's always there.”

“It's evolved multiple times because I did not know where to start. I had a little bit of quantitative inclination. My feeling is that you're always good to have some guardrails so it keeps you out of stupid stuff. I started with building quant screens, what literature was around then. There was one element which I was gung-ho on, which was top-down models. I used to vouch for that, how wonderful those models are, the best countries and look at the best stocks quantitatively. Martin Zweig, Ned Davis type of stuff. Then came '96, '97, the Asian crisis. I was co-managing EM fund. What I found was the top-down didn't work. The reason why it was okay performance-wise was because the bottom of the balance sheet kept me alive. Fundamentals were fine, but the top-down didn't work at all. I became a 100% bottom-up investor after that. One crisis after the other. As I've evolved over the years, it's become where top-down is a risk management tool and we do use it heavily. It's a switch off, not switch on. It should help you reduce risk but not add risk. In other words, if Chinese growth is good and inflation is good, you don't buy China because of that. You still need valuations and corporate earnings. If there's a macro event, the war is a big one today, maybe you want to be careful about the risk. If interest rates are going up, inflation's going up, what are the implications of that? Backtest it, see if there's any empirical evidence. We do have a heavy reliance on that quantitative element. If you don't understand that basic math, you'll be roadkill. I have a strong belief in that.”

“First of all, we don't have any specialists even in the traditional analyst pool, which is a classic buy side and the non-traditional, non-traditional journalists basically. And they go wherever. On the traditional side, I'm not a big fan of specialists because specialists at major inflection points are usually wrong. If you're not able to compare, you don't know what good or bad is. Our view is we look at multiple screens. There's a heavy quant element to that. How do we get double-digit expectation? High single-digit, double-digit, 9 to 11% is my rule of thumb. If you do the math, which is what we did in Adobe at 50 times earnings, if it 5 years out multiple is 20 times and be growing at 15%, you're not going to make any money. Now it's a double-digit free cash flow yield at 10 times earnings. Even no multiple expansion, you're going to compound at 10, 11% and business probably would be around. You invest in tobacco in a big way. Cigarette volume has been declining at 7, 8% in US. And guess for last 5 years, Altria has outperformed Meta. I think now Microsoft and Amazon last 5 years. The cash generation matters. We go wherever we feel we can get high single, low double-digit cumulative return, even if the multiples sort of come down to historical normalized levels. That's why we don't own any US banks, particularly large Wall Street money center banks. They're all trading at some of the highest valuations on a price-to-book or price-to-revenue in some 25 years.”

“You always learn from mistakes. We had significant banking exposure from 2002 Fannie Mae, Freddie Mac, AIG, in Europe, Anglo-Irish Bank, Northern Rock, large positions. I got nervous in early 2007, so we had exited all our banking exposure and financial exposure. However, we had a lot of energy, so very bullish on energy and commodity. The whole thesis about decoupling didn't connect the dots at all. Come September, market sold off almost double digits post-Lehman. Within 2 weeks had fully recovered. I had too much energy exposure and that became disaster because that melted by October. I remember Shalombaji was down more than half in a matter of weeks. I've used it at the end of the day, relative is fine in an upmarket, but over the long run, if you don't have absolute returns, nobody needs you. You don't pay bills with relative performance. In a bull market, everybody thinks they're relative, but if you want long-term survival, you need an absolute orientation. That was an unhappy setup because I recognized the financial issues but didn't connect the dots on the energy side that how significant impact would be across everywhere else. We did okay. I mean, we obviously lost a lot of assets and we continued to grow from there on. It was a huge lesson in terms of how it'll ripple through. For example, if you look at today, one thing is fascinating is that cyclical parts of markets have done the best. I wouldn't have predicted that Caterpillar would be selling at higher multiples than Intuitive Surgical. Abbott Lab is selling at 14 times earnings. And SAP is 14, 15 times earnings and have Siemens at 28 times earnings. High rising inflation. On top of that, you have the biggest oil crisis almost ever. How much do you want to connect the dots? You could be very early. It's better to be early than try to time it. Once things find a catalyst, it happen. If you're running any size and scale, you won't be able to exit in timely manner.”

“The biggest thing is that you begin to appreciate how little you know. You become humbler because the conviction level actually goes down. I begin to appreciate a lot more of Having, making sure that folks are constantly poking holes and have different opinion and debate, that's a must. And if you wanna survive, anybody in the business, if you can internally, that's part of the risk management. If you ask me, that's probably the biggest realization. Avoid deep ideologies. We've had a big explosion of AI, maybe we'll have it again. The valuations don't make any sense. Plus there are far better risk return opportunities. Exxon is almost similar market cap as AMD depending on the oil prices. This year they generate probably $50 billion of clean free cash flow. AMD will be lucky if they generate 9. I'm sure it's gonna change the world, but there's a gap between 9 and 50. That assumes oil at $75, not $120. At $120, be careful. AMD, AMD's a fantastic business management and everything else, but the math is just not working. Some of these, we are dogmatic about the math rather than dogmatic about our views as such. But with the forward quality, deep embedded ideologies is what is the most dangerous. Has to think that big teams and super specialists is what is needed and they'll do better. We're 180-degree opposite view. We are total PM/invest— everybody included is like 17 and we're running $160 billion. We want some turnover. Stability is fine, but you want some turnover. You want fresh thinking from time to time. Small teams is where alpha is gonna be. No PM should outsource of a super specialist. It's a bad idea if you have too many specialists. Large teams, it's just not conducive to good alphas.”

“You wanna make sure that there's enough diversity of thinking in the team. You never want a team that agrees with you 100%. Huge mistake because it simply will cheerlead you. That allows you to at least have the other. The worst, in my opinion, it's the uncomfortable other. The biggest lesson in 2008 was there are plenty of articles in the press about the mortgage crisis. I remember there's a Businessweek article, "How Toxic Is a Mortgage?" a year and a half before the crisis happened. This is the COVID of Businessweek. There are plenty of articles of mortgage bubble. Wall Street was in complete la-la land. AIG went under and the lesson was let's talk to the analysts or journalists who are predicting this, which was the starting point of hiring journalists. Now we have equal amount of journalists and traditional analysts. Their job is to take the opposite view by default. Journalists are pretty good at that. I've learned a lot hanging around with journalists. Half the team is journalists who basically criticize everything we do. And their compensation is structured that way. Otherwise, if you structure the comp where they agree, it's wonderful, it works, guess what'll happen? They'll agree with you. You want to structure the compensation where actually by default they cannot agree with you. They're simply measured based on their calls over the long run. That was the biggest lesson. And since 2010 in Montreal or here, we hired a group of people who essentially take the opposite side. By the way, it makes everybody very uncomfortable still to this day. If you're bullish on a name, And the other side says these are the negatives. They would operate in context of former employees or regulators, former regulators.”

“The obvious negatives of going public. But I thought when you're in private partnership, there's one tool missing of having a good structure in terms of compensation. If you look at the negatives of larger listed pairs, it's because there's little inside ownership. So you held hostage to whatever the flavor is in Wall Street. That is not true in our case. 75% owned by insiders, number one. Number two is that it gave us effective tools for structuring compensation because if you look at the long-only world, one of the drawbacks of having private partnership is the senior partners who are the rainmakers don't leave. How do you infuse new blood? 'Cause their income goes to zero as soon as you partage the ball, right? And you can structure it different ways, but this allows us to have our cake and eat it too. Because if somebody leaves, they take their equity, they can sell it in the market if they want to or not. In the meantime, it allows us to structure a company in so many meaningful ways. So transition to the next generation, if we have to transition equity to the next generation, it's easy to structure this way. So I thought it solved a lot of different things. Why Australia? It's funny because we had a good familiarity with Australia. Some of the earliest clients came from Australia. They were the same institutions. One of the reasons was they only report twice a year. I said, that'll be a lot less work. It was going over here now. But I actually like that quarterly reporting doesn't do much good. Transparency is fine, but multiplies the work. 6-month reporting is good enough in my opinion. I'm talking about as an investor because most of the world has 6 months anyway. Australia made it easy because we knew a lot of client base who are also possible investors. So we listed in 2021. How's that gone relative to your expectations? It's done its job because it gave us a currency. Stock will do what it'll do. But what we didn't want to do was give a lot of equity at every level, senior level, yes, but not at younger levels or folks who just joined the company. Because you don't want everybody looking at stock price, cash, which is cash. We were pretty thoughtful in terms of not making equity-oriented. Then if the stock price goes down, then we say, oh, what's happening in the business? It shouldn't move the needle. It has been super helpful in structuring compositions over the long run.”

“There's no question that stress builds up. And maybe the stress is not a bad thing sometimes. You need a little bit of stress. Vast majority of our clients understand what they're buying into, and it's our job to ensure that they understand that we do take a lot of relative risk. We try not to take absolute risk. In last 6-odd months, we've had some redemptions. We still had net new money last year for 9th year. But we don't measure success by asset growth. When we went public in my first letter as the largest shareholder of the company, I specifically wrote two things. We will never have AUM targets and we never have margin targets so that nobody's confused. You can grow in the short run by doing other things, but you also start reducing the alpha opportunity in terms of how people think and behave. It's my job to make sure that we stick to our core ethos, which is why we are doing what we are doing. That somebody's retirement is at stake, somebody's kids are not going to college. I'll tell you a story. There was a firm I knew, I went to see them in 2003 and they won't let me go up to the 5th floor. I said, look, I can go up. They said, no, no, you have to wait. They said they had armed guards. I asked the guard, why do you have armed guards? He said, during the dot-com, they lost so much money, they get death threats. There's an element of not blowing up somebody's retirement. As long as we stick to that, we are fine. We'll have asset outflows, inflows, all of that. That's ebb and flow of any business. There's cycles in everything. Hopefully we attract the right kind of clients who think about the same way and we should be able to explain what we do too. That binds the organization together. Quite a bit of camaraderie in terms of fighting spirits because this is why we are doing what we are doing. This is what we feel the markets are missing. This is what we've done and this is why we'll do okay if the bad times do happen. Flip side is we'll underperform. Underperform is less of a problem than losing your shirt. The odds are stacking up of when cyclical businesses are selling at valuations which are even difficult to sustain for compounders. If I go back to dot-com, the biggest lesson was some of the biggest losses that came in my book were the names that were cyclicals and we paid high multiples on peak margins. I remember Japanese names which went from 5% operating margin to 25% margin and we paid 50 times earnings for that. Guess what? They went back to 5% margins. And market want to pay 8, 9 times for that, you lose your shirt. There's a laundry list of names which are selling at high multiples, good businesses, but they're cyclical and the cycle's always there.”

“Positive were fine, right? In terms of core structure of the process. But for example, if you look at on the team side, I build out the team afresh. Young folks and train them. Well, there was one negative of that. If the team has grown just with you, they're gonna think like you. What are the chances somebody who's lived with you for 15 years is gonna disagree with you? None. So when we launched, I said, we are gonna hire, that's why I don't wanna hire the same team again. First of all, I wanna preserve their business 'cause I felt like I built a cathedral, I don't wanna burn it down. From a client perspective, it's a little bit unfair 'cause why should clients be impacted? And a lot of clients actually thanked, they said like it was early separation. So their business did fine for multiple years. I did tell my successor there, you'll kick my ass or I'll kick your ass, but it'll be fun competing. I don't wanna bring anybody else. The team side, when we hired, we hired a lot of folks from the long-short world, particularly folks who had experience 10, 15 years. Why? Because I thought what is the chance they will agree with me? None. First, they're coming from a hedge fund world. Number 2 is their 10, 15 years experience. That was one of the biggest differences. Second thing was we don't allow any personal trading here. Everybody has significant skin in the game. And I understand people have sometimes different views. I've had almost all of my net worth outvalue GQG in the products that clients would consume. Same exact vehicles. There were a bunch of other things in terms of alignment, how we thought about fees. For example, fees. I think what's the biggest problem in hedge funds is they charge too much. There's only so much juice in the game. These are efficient markets. This is not like '70s. Buffett can do whatever sitting reading Moody's manual and pick up stock 2 times earnings. Those days are long gone. Fees should be below median because that ultimately impacts the net performance, which is what determines whether we survive or don't survive. Focus on performance only and do everything to enhance performance. And that means lower the fees because it's very hard to cut down fees later on 'cause the organization is structured that way. It's kind of like a Costco model. Manage with lower income rather than having the income that you can't cut it afterwards. On the team side, which is the biggest change in terms of structuring the team, I'll give you another example. The journalists, what I found was that they were super helpful. But once you left the country, you need cultural context. You can't have an American journalist cover Brazil or China. We need to make sure we hire to cover those markets too. Somebody who has left, who has lived there, but have an American true independent journalism. A lot of these countries don't have independent journalism. So you're getting kind of nuanced stuff. But I think the big thing was building the team afresh. Massive alignment, no personal trading, keep the cost low and keep the team small. The last one was separation of management of the business versus managing the investments. 'Cause I was co-CEO at Vontobel at the end and CEO is a different job. I'm fortunate to have somebody of Tim's caliber. I love to say that I have 20 people reporting to me and he has 220. So he runs the whole business, which I think is the important part of just to make sure. So those are some of the lessons.”

“There's no question that stress builds up. And maybe the stress is not a bad thing sometimes. You need a little bit of stress. Vast majority of our clients understand what they're buying into, and it's our job to ensure that they understand that we do take a lot of relative risk. We try not to take absolute risk. In last 6-odd months, we've had some redemptions. We still had net new money last year for 9th year. But we don't measure success by asset growth. When we went public in my first letter as the largest shareholder of the company, I specifically wrote two things. We will never have AUM targets and we never have margin targets so that nobody's confused. You can grow in the short run by doing other things, but you also start reducing the alpha opportunity in terms of how people think and behave. It's my job to make sure that we stick to our core ethos, which is why we are doing what we are doing. That somebody's retirement is at stake, somebody's kids are not going to college. I'll tell you a story. There was a firm I knew, I went to see them in 2003 and they won't let me go up to the 5th floor. I said, look, I can go up. They said, no, no, you have to wait. They said they had armed guards. I asked the guard, why do you have armed guards? He said, during the dot-com, they lost so much money, they get death threats. There's an element of not blowing up somebody's retirement. As long as we stick to that, we are fine. We'll have asset outflows, inflows, all of that. That's ebb and flow of any business. There's cycles in everything. Hopefully we attract the right kind of clients who think about the same way and we should be able to explain what we do too. That binds the organization together. Quite a bit of camaraderie in terms of fighting spirits because this is why we are doing what we are doing. This is what we feel the markets are missing. This is what we've done and this is why we'll do okay if the bad times do happen. Flip side is we'll underperform. Underperform is less of a problem than losing your shirt. The odds are stacking up of when cyclical businesses are selling at valuations which are even difficult to sustain for compounders. If I go back to dot-com, the biggest lesson was some of the biggest losses that came in my book were the names that were cyclicals and we paid high multiples on peak margins. I remember Japanese names which went from 5% operating margin to 25% margin and we paid 50 times earnings for that. Guess what? They went back to 5% margins. And market want to pay 8, 9 times for that, you lose your shirt. There's a laundry list of names which are selling at high multiples, good businesses, but they're cyclical and the cycle's always there.”

“Long-term vision is only one thing, Kikaz performance. That's what makes this fun. We want to attract people who are passionate about investing. If we deliver that, I think it'll be fine. If we don't deliver that, we have no reason to exist. This is the only business where you don't need an average. Somebody needs an average phone. Somebody needs an average car. You do not need an average manager. Vanguard is happy to do it for you for 2 base minimum. Is the above average anyway. If he can't deliver above average performance, he's not needed. It should permeate everywhere. Everything you do is simply on performance. It's exciting because you're setting up an environment where you know the long terms will not be good. Maybe one year is good, two years, but the math is very powerful. The longer you go out, the return profile from these valuations and where interest rates are. And people forget in 2010 you start with 10 times earnings from 25 times earnings, maybe 30 depending on what values you look at. 2000, 2010, you lost two-thirds of Microsoft. It's getting into fertile ground because everybody owns the same stuff from index to private equity to private credit. Mostly hedge funds too. Private world is worse in a way. And if you look at the valuation of some of those, and I'll give you the example of Figma, which was hotly contested asset Adobe wanted it. If you look at the chart, it gone straight line down, 80, 90% decline once it listed. SpaceX is wonderful, but $18 billion revenue and $5 billion loss. The valuation is over $100 trillion. More power to you.”

“Long-term vision is only one thing, Kikaz performance. That's what makes this fun. We want to attract people who are passionate about investing. If we deliver that, I think it'll be fine. If we don't deliver that, we have no reason to exist. This is the only business where you don't need an average. Somebody needs an average phone. Somebody needs an average car. You do not need an average manager. Vanguard is happy to do it for you for 2 base minimum. Is the above average anyway. If he can't deliver above average performance, he's not needed. It should permeate everywhere. Everything you do is simply on performance. It's exciting because you're setting up an environment where you know the long terms will not be good. Maybe one year is good, two years, but the math is very powerful. The longer you go out, the return profile from these valuations and where interest rates are. And people forget in 2010 you start with 10 times earnings from 25 times earnings, maybe 30 depending on what values you look at. 2000, 2010, you lost two-thirds of Microsoft. It's getting into fertile ground because everybody owns the same stuff from index to private equity to private credit. Mostly hedge funds too. Private world is worse in a way. And if you look at the valuation of some of those, and I'll give you the example of Figma, which was hotly contested asset Adobe wanted it. If you look at the chart, it gone straight line down, 80, 90% decline once it listed. SpaceX is wonderful, but $18 billion revenue and $5 billion loss. The valuation is over $100 trillion. More power to you.”

“You always learn from mistakes. We had significant banking exposure from 2002 Fannie Mae, Freddie Mac, AIG, in Europe, Anglo-Irish Bank, Northern Rock, large positions. I got nervous in early 2007, so we had exited all our banking exposure and financial exposure. However, we had a lot of energy, so very bullish on energy and commodity. The whole thesis about decoupling didn't connect the dots at all. Come September, market sold off almost double digits post-Lehman. Within 2 weeks had fully recovered. I had too much energy exposure and that became disaster because that melted by October. I remember Shalombaji was down more than half in a matter of weeks. I've used it at the end of the day, relative is fine in an upmarket, but over the long run, if you don't have absolute returns, nobody needs you. You don't pay bills with relative performance. In a bull market, everybody thinks they're relative, but if you want long-term survival, you need an absolute orientation. That was an unhappy setup because I recognized the financial issues but didn't connect the dots on the energy side that how significant impact would be across everywhere else. We did okay. I mean, we obviously lost a lot of assets and we continued to grow from there on. It was a huge lesson in terms of how it'll ripple through. For example, if you look at today, one thing is fascinating is that cyclical parts of markets have done the best. I wouldn't have predicted that Caterpillar would be selling at higher multiples than Intuitive Surgical. Abbott Lab is selling at 14 times earnings. And SAP is 14, 15 times earnings and have Siemens at 28 times earnings. High rising inflation. On top of that, you have the biggest oil crisis almost ever. How much do you want to connect the dots? You could be very early. It's better to be early than try to time it. Once things find a catalyst, it happen. If you're running any size and scale, you won't be able to exit in timely manner.”

“First of all, we don't have any specialists even in the traditional analyst pool, which is a classic buy side and the non-traditional, non-traditional journalists basically. And they go wherever. On the traditional side, I'm not a big fan of specialists because specialists at major inflection points are usually wrong. If you're not able to compare, you don't know what good or bad is. Our view is we look at multiple screens. There's a heavy quant element to that. How do we get double-digit expectation? High single-digit, double-digit, 9 to 11% is my rule of thumb. If you do the math, which is what we did in Adobe at 50 times earnings, if it 5 years out multiple is 20 times and be growing at 15%, you're not going to make any money. Now it's a double-digit free cash flow yield at 10 times earnings. Even no multiple expansion, you're going to compound at 10, 11% and business probably would be around. You invest in tobacco in a big way. Cigarette volume has been declining at 7, 8% in US. And guess for last 5 years, Altria has outperformed Meta. I think now Microsoft and Amazon last 5 years. The cash generation matters. We go wherever we feel we can get high single, low double-digit cumulative return, even if the multiples sort of come down to historical normalized levels. That's why we don't own any US banks, particularly large Wall Street money center banks. They're all trading at some of the highest valuations on a price-to-book or price-to-revenue in some 25 years.”

“I'm probably one of the longest surviving managers now because I became a copier in 1994. So it's 30-plus years. Emerging markets are a massive category which is underappreciated. The indices are completely lopsided. I mean, the 4 names now make up almost a third of the index. If you look at emerging market index, that's like a leveraged version of semiconductor. You would not have 20% in memory names in US, but you do have that in emerging market index. This is fascinating what's happening. Otherwise, if you look at some of these markets, they become large economies on their own. If you look at Brazil, is larger than Italy. These are huge systems now. So there's a more G7-focused, but the action in the other markets, if you look at from a G20 versus G7, is shifted away to G13. And not just China, but particularly India. It's a almost $4.5 trillion GDP. It's a large system. Indonesia, large system. And some of the larger banks in Indonesia are larger than European banks now. Nobody talks about them anymore, but there's a lot of action. If you take a long-term view, there's quite attractive set of stuff. Very bullish in Brazil. I mean, you can still find names like Itaú is still 7, 8 times earning this 7% dividend yield. And that's the only bank I know which has not earned 15% real return equity for 30 years. I don't know of any other bank. Family-owned. It's almost $100 billion market cap. It's not a microcap. So you still find these kind of opportunities. Petrobras, which we owned in a big way in last 5 years, When we bought it, it was 35% dividend deal. It today is 12% dividend deal at $75 oil. It's 6 times earnings. Why would you own Samsung, which is as classic as it gets? Now everybody's ramping up capacity. They never ring a bell in semiconductor industry. And China is adding capacity in a big way. Just to be clear, in August, everybody thought there's a massive glut. Since 6 months ago, we've gone from massive glut to we sold out for years. We'll find out. There's a lot of stuff in emerging markets, which is quite interesting outside of these tech world. There's a real alpha opportunity and absolute compounding that can take place in emerging markets.”

“First of all, size is always an anchor. There's no reason to believe otherwise. However, we have a wide open space. If you look at the peers underperformance, it wasn't because we couldn't move. It's a conscious decision to not own tech. It's not we ended up being underperforming. There's a big difference. It's a conscious decision to avoid semiconductors after being very big. 40% plus was tech not that long ago. So size is always an anchor, but it's ability to find right spots. And we operate in large-cap space. These are large liquid names. Most of the growth managers would not operate with that sort of wide landscape. Question is, are you moving enough on right space where the alpha opportunity is? If you've narrowly pegged in one area, you just cannot outperform the full cycles. Because what if this is like '70s? What if you get a 10-year bull market in energy and commodities? You have no game left. There was a big hedge fund boom in the late '60s. Most of them didn't survive in the '70s because the game was on the electronics and tech world and Nifty 50 that didn't survive. Our view is that we need to have enough tools in the toolkit because the question is, do you want to move? And maybe you make the wrong moves, but do you have the ability and the willingness to move?”

“I became a portfolio manager for emerging markets in 1997, then co-manager for others in 1997. The timing was interesting because this was Jan '97. As you know, Asian crisis was 6 months later, which by the way, for some reason I always had that interesting view of starting because when I joined Vontobel, as a co-PM for emerging market. That was October 31st, 1994. A month and a half later, there was Tequila Crisis. I didn't really know what the hell was going on because the banks melted, they disappeared, and we had exposure. Then came the dot-com bubble. We didn't fare well on some of the international and global book. EM did better. My boss left after the dot-com bubble burst. I became CIO in January 2002, and quickly 75% of clients fired us. The quantitative came to my rescue in a way that what fundamentally quantitative look attractive. I remember 2002, we ended up making a big bet on South Korea because there was so many of these companies selling 5 times earnings, like cosmetic companies in AmorePacific and Lotte Confectionery, Lotte Chilsung in beverages because it took 4 or 5 years after the Asian crisis and the earnings had come through, the business had restructured, but they were very cheap. There were these kind of bets, but the business went down from a billion, billion and a half to almost $250, $300 million.”

“You always learn from mistakes. We had significant banking exposure from 2002 Fannie Mae, Freddie Mac, AIG, in Europe, Anglo-Irish Bank, Northern Rock, large positions. I got nervous in early 2007, so we had exited all our banking exposure and financial exposure. However, we had a lot of energy, so very bullish on energy and commodity. The whole thesis about decoupling didn't connect the dots at all. Come September, market sold off almost double digits post-Lehman. Within 2 weeks had fully recovered. I had too much energy exposure and that became disaster because that melted by October. I remember Shalombaji was down more than half in a matter of weeks. I've used it at the end of the day, relative is fine in an upmarket, but over the long run, if you don't have absolute returns, nobody needs you. You don't pay bills with relative performance. In a bull market, everybody thinks they're relative, but if you want long-term survival, you need an absolute orientation. That was an unhappy setup because I recognized the financial issues but didn't connect the dots on the energy side that how significant impact would be across everywhere else. We did okay. I mean, we obviously lost a lot of assets and we continued to grow from there on. It was a huge lesson in terms of how it'll ripple through. For example, if you look at today, one thing is fascinating is that cyclical parts of markets have done the best. I wouldn't have predicted that Caterpillar would be selling at higher multiples than Intuitive Surgical. Abbott Lab is selling at 14 times earnings. And SAP is 14, 15 times earnings and have Siemens at 28 times earnings. High rising inflation. On top of that, you have the biggest oil crisis almost ever. How much do you want to connect the dots? You could be very early. It's better to be early than try to time it. Once things find a catalyst, it happen. If you're running any size and scale, you won't be able to exit in timely manner.”

“In summer of 2022, we start buying semiconductors and we had no exposures. I felt like great job, we walk on water. In October, this whole thing heated up between US and China, the restrictions and the stocks were in freefall. I got very nervous. We sold out. We must have sold literally at the lows. So you book loss and sold out. And it was 10-15% of the book, was not nothing. Semiconductors were not liked at that point. We went against that and we booked a loss. And turned out this was weeks before ChatGPT came along and these stock took off. So we went back into them in March, April when he said, no, no, no, the data is turning, so we need to go back in. That's one. The second one probably would be that I've not been a big fan of airlines. We owned a few here and there, nothing major at all in a long time. We start buying airlines in December of 2019 and like few percentage points of the company level. I remember one of our analysts who covered China actually said, oh, there's this virus in China which is spreading. And it's dismissive. Then it spread a little more in Asia. I said, look, what if this like SARS? So we started cutting back and we had to book our loss because it was a contrarian trend November, December. In January I said, I don't know how bad this is. Who knew this is gonna be? We cut our losses quickly on the airlines, Delta specifically. We bought energy and airlines because oil stocks we had not owned for 10+ years. At that point they had begun to show well on screens. The cash cost gone down from 100 breakeven to the 30s. Some of these names, they're selling attractive valuations. Little did I know that was literally 6 months later oil would be negative. So we cut our loss, but that allowed us to flip around quickly in late 2020, early '21 'cause we've already done the work. There is a benefit because you only learn if you own a stock. We can talk whole day about how wonderful the business is, but once you own it and once you're underwater in that name, it sharpens your thinking quickly.”

“Over the years, we've begun to appreciate how difficult it is to assess management quality. I probably meet a lot less management than I used to because I found that I'm not very good at it. You sort of were very good, but you're riding the tailwind. Let the record talk. Others meet, so we have started to differentiate again and you don't want to have everybody in the same meeting and everybody think the same Kool-Aid. If I've not met them, chances are I'll be more critical. When people say, oh, I met the CEO and oh, he's so wonderful, okay, that should be the base. If he's a good salesperson, you probably should be in agreement with whatever the CEO was saying. Management quality matters, but at the end of the day, numbers should still be the defining factor.”

“First of all, size is always an anchor. There's no reason to believe otherwise. However, we have a wide open space. If you look at the peers underperformance, it wasn't because we couldn't move. It's a conscious decision to not own tech. It's not we ended up being underperforming. There's a big difference. It's a conscious decision to avoid semiconductors after being very big. 40% plus was tech not that long ago. So size is always an anchor, but it's ability to find right spots. And we operate in large-cap space. These are large liquid names. Most of the growth managers would not operate with that sort of wide landscape. Question is, are you moving enough on right space where the alpha opportunity is? If you've narrowly pegged in one area, you just cannot outperform the full cycles. Because what if this is like '70s? What if you get a 10-year bull market in energy and commodities? You have no game left. There was a big hedge fund boom in the late '60s. Most of them didn't survive in the '70s because the game was on the electronics and tech world and Nifty 50 that didn't survive. Our view is that we need to have enough tools in the toolkit because the question is, do you want to move? And maybe you make the wrong moves, but do you have the ability and the willingness to move?”