Chit Chat Stocks - Subsea 7 and a Lifetime of Value Investing with Bob Robotti (Ticker: SUBC)

Episode Date: October 27, 2022

Subsea 7 delivers offshore projects and services for the energy industry worldwide. The company provides project management for heavy machinery offshore projects. This includes everything from design to installation.  Listen as Brett and Ryan ask Bob questions about the company, its business model, and valuation. Enjoy the show! ***************************** Interested in becoming a member of 7investing? Subscribe with code “MONEY” and get $100 off your annual subscription for life: https://7investing.com/checkout/  ******************************  Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested to see more of Bob's work? Follow him on Twitter here: https://twitter.com/BobRobotti?s=20&t=CyIvo0ZEdvDVvNxruG_i3w Contact us: [e-mail] Timestamps Subsea 7 | (9:27) Differentiation | (30:35) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive interview where we have on an analyst to discuss a single stock. And today we have on Bob Robati. He's the founder and CIO of Robati and Company. He's been investing in the industry for a long time, and you're going to be able to hear his expertise and just overall experience when you listen to the interview. But it was a lot of fun. We're talking about sub C7, but he does kind of get right into it. So do you want to give a brief description of what sub C7 is? Yeah, I want to tease this and say this is by far the best interview we've ever done. Even if you're someone that's been on the show, you're going to listen to this and think,

all right, yeah, this guy knows this business inside and out. And what is it? Subsea 70. Probably have never heard of it. If you're listening, I'm guessing 99% of you have not heard of it. It is a global leader in offshore projects and services for the energy industry. So think oil and gas offshore, wind offshore, stuff like that. So they make offshore possible for the big oil giants and the big energy giants.

So it's an energy company, but not the energy companies we think of. It's more of the energy. It's a supplier for the energy business, and they have engineering expertise. He goes through all the other details. So much information. You might have to listen to this one twice. But yeah, it really was that good. All right.

Before we get to the interview, we want to talk about our exclusive sponsor. I've got a new way to tease this. So first of all, if you don't know, 7investing, they're our exclusive sponsor. And I've said before that they have research on more than 200 plus companies. So I went ahead and kind of just broke down the math. With the code money on the annual, you get $100 off.

So it's $299 for the full year. There's research on more than 200 plus companies. So for each deep dive, it's worth, you're basically paying $1.50. And I can tell you firsthand, having been a subscriber for a year, that these are worth more than $1.50 per deep dive. You're learning a ton about the businesses and there's going to be more deep dives throughout the year that you have it. So I really think it is worth the investment. You can use our code money.

Like I said, get $100 off at checkout. Use the link in the show notes. Without further ado, let's get to the interview with Barbara Boddy. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode.

Okay. Welcome in. Today, we are joined by first-time guest, Bob Robati. He is the founder and CIO of Robati & Company. And we're going to be talking about Subsea 7, but I also want to get more on your background because you've been in the industry for a long time. So let's start there. When and how did you get into the industry? And then what's kind of the genesis story for body and company? What inspired you to start it? So, I've been in the business almost 50 years and that's what it was. I graduated 1975, Bucknell, a degree in accounting, came to New York, worked for a public accounting firm, became a CPA. In that process, learned accounting, the language of business. It's a key integral part since we are bottom-up stock pickers

and therefore, financial statement analysis is a critical part of understanding the historical information to give a view into the potential future cash flows of the business, which are the critical element in valuing any business. I was extremely fortunate because the accounting firm that I was with audited a number of legendary investment advisors. Probably the largest involvement I had was with auditing Tweedy Brown. And Tweedy Brown, of course, many of you may not know actually, was actually next door neighbors to a firm called Graham Newman. And that's Ben Graham, Graham Newman. And he decided he wanted to go to the south of France and read literature because investing was a grind. And so he did that. And when he shut down his shop, you know,

Warren Buffett went back to Omaha. Walter Schloss walked into Tweedy Brown's office as did Tom Knapp. And so the Tweedy people, you know, are kind of a direct descendant of Graham, Ben Graham's business. And in that process, the client they picked up was Buffett. And so for Buffett, they probably accumulated most of his interest in Berkshire Hathaway. So that's kind of the root and genesis of that firm. And so clearly value investors since before that phrase was probably popular and known. And then I had another client to the firm was Mario Gabelli. So I worked for Mario as his CFO and was a shareholder in the company when he was first starting up his business. And it was great because every day he'd have a morning meeting

where he'd go through his favorite idea. And so that's what I did. I had a three-year executive MBA program taught to me one-on-one by Mario Gabelli. He paid me to attend the class. I didn't pay him to attend the class. All of that drove my interest in picking stocks. That's the passion that I have in finding the firm because I didn't want to be a CFO anymore. I wanted to pick stocks on my own. Therefore, no one else would hire me, so I had to start my own business. In 1983, we started the firm. That's what we do. We do all our own bottom-up research. We're dyed in the world's stock pickers. And we've been doing it for an awful long time and have had a lot of experience. And of course, the post-financial crisis period was like really great experience

because it was difficult to outperform the market doing what we did during that period of time. So we further learned a lot. Yeah. And we want to talk about Subsea 7, but you gave us some notes beforehand about your guys' philosophy and all that stuff. and I think it's good context for why you're invested in sub C7. So, you know, how are you guys, I guess, positioned today and what are your thoughts on just, you know, it's, it's tough to do any sort of broad, you know, macro stuff is, is, you know, we all know it's very, very difficult, but what are your thoughts on the environment today as someone who has a lot of experience within the industry? Right. And that's what it is. I guess in 1976, I invested in a,

an offshore oil service company called Atwood Oceanics, an offshore drilling company. So that was my first investment kind of area. So therefore I've been in it and I've seen the industry over time. And it's a critical element of our understanding and knowledge. And, you know, you never know, obviously what the macroeconomic is going to hold. But, you know, we, I think we have a reasonable understanding of the dynamics of what happens. So, so that's it. So, and that's we did so initially when i started to invest the tweety brown was really known for buying net networking capital stocks and so therefore fundamentally cheap stocks um and in that process that's what we started to do and so we bought really cheap stocks and then over time what

happened is some of those stocks did really well and of course then you go back and you figure out okay so which are the ones that do really well and why did they do well and what those were were companies that tended to be cyclical businesses going through difficult times and then therefore in that process, the outlook for the business becomes negative and therefore investors flee and the stock trades for significantly less than what the business is worth if it survives the process and comes out the other end. And then critical elements in that success were who were the people who controlled it? So therefore, who's allocating capital when a business is going through difficult times has a huge impact on what the opportunity is set is when it recovers.

And then the other one is identifying businesses that really have differentiation. So there's something about that company that's different than the other players in the industry. And that may even be good ownership management that therefore is opportunistic when there are times that you can invest capital and buy things for a fraction of what they're worth. So we regularly invest in companies that are cyclical businesses. And we tend to invest in them when the cycle is negative, and it probably gets worse before it gets better. And so therefore, we're frequently in a stock too soon. And so that has its own kind of risks. But the critical element is understanding and getting more conviction about the business. The business

continues to move further along to its recovery period. The company frequently becomes a better competitor and increasing its earnings power, even if that's latent and isn't manifested. And so, therefore, those things kind of grow over time. So, looking for businesses like that, that really end up being, we are really not value investors. We're growth investors. That growth, in many ways, really is recovery of a cyclical business that potentially has a significant long runway of opportunity. Then I'd also say, the longer the business has been bad, the bigger the runway and the better the runway is because that process of difficult times means right-sizing, downsizing, consolidation, and the remaining players are really tough mudders

and really have competitive advantages. If you really identify the right kind of companies and the right businesses, the competitive landscape is pretty narrow. Therefore, there's an extended the period of time of growth in those businesses. So it sounds like you're describing some of the characteristics of the company we're about to talk about, which is Subsea 7. So let's get into it. This is probably a company most of our listeners are unfamiliar with. So what does Subsea 7 do and where do they operate? And so I don't feel bad if most of your listeners don't understand what the business is. Most investors don't know what it is. And so to a certain extent, I'd say that it creates some of the opportunity because it isn't obviously going to pop up on

people screens. So what it is, is an oil service company. And of course, let me stop right there because I perpetuated a misnomer and a misconception. It's really an energy services company, right? And that's two elements I'd emphasize. One of them is the oil business is frequently given that label, but it's really an oil and gas business. And that's critical because there is definitely controversy on the topic, but natural gas is a fossil fuel that has a lower carbon footprint than clearly does coal. The availability of it is, there's a lot of it. It's interesting because it takes time. So the natural gas part of the business is a budding part and always historically has been part of it. So it's a gas and oil business,

but more importantly is all energy today is kind of becoming interrelated. And so therefore, it's not just oil and gas, you know, really is our renewables. And so therefore that is part of equation and that's part of the energy deliver that's going to come that we need and that's what i'd suggest i'd suggest the world is short of energy in really all its forms and so therefore renewables clearly are something that it will have a growth great growth pattern in front of it but the fact of the matter is when you look at energy today right maybe 10 of it comes from from real renewables, and that is wind and solar. You can't grow 10% fast enough when the aggregate demand for energy continues to grow. We're looking to moderate the growth in energy,

but across the world, developing parts of the country particularly, there's an increasing demand for energy. There's a small component that everyone says we should grow. The other component, societal pressures have moderated and actually shrunken some. And so, we're at this intersection where you need energy, and you need reliable energy, and you need economic energy. And so, those things, that means there's an extended period of time for fossil fuels to be part of that equation, but an integral part and an opportunity, we think. All right. And you talked about all the different types here. It's not just oil. They are exploring renewables.

I think any listener will probably understand offshore wind, and that's a big part of kind of, I don't know, it's a big theme. It's in the news a lot. How big of an opportunity is it for Subsea 7, and how do you think about that as an investor right now? Yeah, well, Subsea 7 is interesting from an oil service point of view in terms of how big an opportunity that really is for it, given the nature of the business that it has. And of course, they've done things, management and the board and capital allocation have been critical to position them to take advantage of that opportunity.

They used to have an interest in a joint venture. They own 50 percent of the partner in it was a Russian private equity firm who probably 10 years ago was anxious to sell. They were opportunistic in buying it for four times, five times EBITDA when there were two vessels. One was brand new, therefore needing limited capital to continue to remain, and the other one, which was recently upgraded and therefore in good condition. So you had a business that wasn't going to require capital because it had a modern, efficient fleet, and they bought it for four times pre-tax cash flow. When that happened – and that's what it is. The pieces of equipment, not only in their core business, they install and decommission offshore platforms. That's part of the business.

And so, therefore, they have this equipment that can lift extremely heavy loads to put those platforms or to take those platforms away. And as easily you could put on a platform for an offshore oil or gas well, well, you can put in an offshore fixed platform. So that's what they've been doing is continuing to grow out their footprint, which is a logical extension of the business they're already in and repurposing the equipment they have. now they in addition to that first acquisition or they're buying out their partner they then a number of years later bought out another business that does the cable installation so runs the umbilicals to all of these offshore platforms takes the electricity away to shore so all of that cabling and subsea pipe play they do with this other piece of the business and then two years ago they also merged with another Norwegian public company called OHT that has equipment that

brings jackets from the Middle East. I mean, sorry, from Asia where most of them are fabricated and brings them to wherever you're installing the offshore wind. And then also has equipment that lifts the turbines and puts it on top of the tower once it's been installed. So what they've done is they've built out a fully integrated service offering to do fixed offshore wind, which is, that's not the way that business has been. It really has been piecemeal that you would do all these pieces. Historically, in their own business, they can do an offshore installation of oil or a gas field, which is much more complex, and have the equipment and expertise to do that. It's a one-stop shop. You give them the business. They do the engineering. They do the procurement

of the equipment. They do the installation of the equipment. They're a contractor that does all those works. Now, they can do the same thing in wind. They're probably one of the fewer competitors that has a full offering and, therefore, can do, effectively, a soup to nuts kind of opportunity. So that's a, you know, it's a good part of the backlog they have. And clearly that business has extremely great growth, especially since you got the high price of fossil fuels are really driving up energy costs. And so therefore it's making it economic. You know, one of the ways to accelerate the renewable businesses, you know, the traditional business is more expensive. Cost becomes a clear motivator in that process. So they've been opportunistic

and they've been able to, starting with a small piece, build out that business and make strategically intelligent acquisitions. And actually, they're doing even more right now because they have recently agreed to participate in a rights offering to raise $200 million of equity for Seaway 7. That's their control subsidiary in this business. They also are lending $300 million from Subsea 7 to Seaway 7. They also are guaranteeing a $150 million loan. So there's a substantial financing package that is going in to further build out that wind turbine installation business of Seaway 7. And I think that's part of it, too, is that today, offshore wind more and more is being done by oil majors who are their historic customers also. So therefore, they already have a relationship with that customer.

So that new construction firm that does the full offshore wind business are people they do business with on a regular basis and like that one-stop shop, fully integrated offering in that process. So I think you briefly alluded to it earlier, but I'm curious, why sub C7 now? Why does this opportunity exist to begin with? Yeah. So as good as the opportunity is in offshore wind, and it is, there's strong growth. The business has changed. So last year, which is interesting because Seaway 7 itself is probably an extremely compelling investment, right? There's a street analysis on the company that have an underweighting on it and have concerns because they have a couple of contracts where they've lost money. And so they said that six months ago. They say, yeah, we have a couple

problem contracts. We've taken losses on those. We'll be done with those contracts by the end of the year. So we think those operational issues are behind it. But in that process, what they also realize and determine is the way we design the contracts doesn't make sense. Because no matter where you are, even if it's a relatively benign ocean environment, there's a lot more ocean activity than one thinks of. And so therefore, when you can work, how often you can work is different and understanding that for nine months they really hadn't bid on new contracts and because that's what they've done is they've gone back to all of the people who have new offshore wind contracts and said these are the terms and conditions we're going to have these are the

requirements for costs and how it works this is how much is a pass-through so therefore it's not our cost so therefore increasing costs will be you will pay for that so that those changes have been made. And we really think the business has matured and there's an understanding that they have for the historical business in terms of how to do these things offshore, which are engineering wise, much less complex, right? If you're talking about a fixed offshore wind platform, you're talking about relatively shallow waters, as opposed to their core business, they're installing things in 5,000, 6,000 feet of water, right? The subsea surface is not a sandy bottom that's smooth. there are mountains and all kinds of activity below, how to install all of that, how to get

the piping to bring the controls to control all those offshore wellheads, and then to bring that to the surface and then connect it to a floating platform is extremely complex engineering. This is a much less engineering complex business. Therefore, they clearly have the capability and got up the learning curve sooner. The cost of offshore wind is going up. That is not only The contract terms that they have are different, but people like Siemens Gamcia who make the turbines, if you look at their earnings in the last two years, this year, they're losing money and it's a dramatic amount of money they've lost. And that's what it is, is cost of materials have definitely gone up.

And so that hadn't been incorporated into the original bids and how they price things today and how they bid it. Once again, a company like Siemens is now saying there's cost plus escalators are going go to you it takes time to deliver these things there's a different cost structure we thought so cost of the turbines cost more the cost of the installation cost more so all of these things are identified already as you know that's reversing a trend because the trend had been in renewables the cost kept you know have gone down for 20 years so i think that there's a maturity in that business that's actually causing some cost hiccups that will on a fixed offshore

wind business the cost of those things are going up i see the elements because i see who the players are, who are providing those services and that equipment, and that's all going to cost more money. So that's part of the equation. And how quickly you can ramp up that activity is, again, a physical limitation. And when you install an offshore wind platform, what do you do? You take huge amounts of cement. Big CO2 produces when you make cement. You put huge amounts of steel on it that's a fundamental material you have those turbines on it that have copper wiring rare earth minerals you know everything that we know is already in kind of high demand and so and the availability of some of those things is problematic how it plays out so all the cost

elements are going up uh and so therefore offshore wind will take and once you ramp up activity inevitably in anything where you've got ramped up activity things happen delays happen slowdowns happen there's integration issues so offshore wind you know we think is is is increasing but now the real opportunity in sub c7 is not in that business because i think yes they'll make good margins in that business but they won't make the margins because that business doesn't have the barriers to entry their core businesses and that is to develop offshore oil and gas fields there the competitive landscape is extremely positive today and and really interesting and they're positioned we think better than anybody and differentiated from most and therefore that's

where the real opportunity is in the core traditional uh business so that's what i will well let's get into it now we have this as a follow-up later why is the competitive landscape so much harder why are the excuse me why are the barriers to entry so much larger in the oil and gas part? And why does Subsea have that advantage? And that's an evolution of something that happens over time. That is also accelerated by the fact that you've had since 2014, an extended period of time of extreme financial difficulty in the industry. If you look back at 2013, 2014, the number of competitors, there probably were five or six different large competitors, and there were 15 other smaller competitors and people were getting into the business.

So, for example, there's a company that was formed, Siona, was formed by Goldman Sachs. They raised money. They hired managements from the top companies. They built a brand new vessel at the top of the market and set up the business and then never got a contract because an oil and gas company said, okay, show me your portfolio of doing a billion dollar contract, installing the stuff in 5 000 feet of water you don't have that i know you got the vessel that theoretically can do it i know you have the people who did it for another company i know you have well you don't have it and so goldman and others had gotten into the business and then what happens is once that business turned you know that business was liquidated out that vessel is now was bought

for a fraction of what it was built for and it's kind of still tossing around in the industry mcdermott bought that uh thing but the number of competitors people have gone away but gone through bankruptcy sub c7 bought a company called emos that was a joint venture with um um i forget the japanese company that had put money into it and just couldn't the business couldn't run so what they did was they bought the spool base they bought the equipment that got them into the middle east where they weren't before and they bought that for 100 million dollars which was a fraction of what those assets were so in the downturn right sub c7 not only saw a significant number of competitors go away it was able to acquire assets at extremely discounted and

distressed valuations as were some of its competitors able to do today there are four companies that kind of can do most of these contracts that can bid on them and two of those are troubled still financially today one of them is mcdermott and the other one is uh cypam saipan's controlled by the italian uh government and just recently did a rights offering that the government had effectively backstopped because the investors didn't want to invest in it uh and so it's still financially troubled so you have two financially troubled competitors and you have two well-financed competitors and the other one is a company called technique fmc and sub c7 so first off the number of people in the industry today is a fraction of what it was and you really got it

down to there's maybe four people but there's really an oligopoly so you have only two people importantly though the business has fundamentally changed in how you deliver your service offering so instead because that's what the historical problem one of the problems with the business is you would do the engineering after that an oil company will come to you with a project and say let's we want to develop this field and here's what we think we want and uh tell us what it's going to cost to do that so now they've been able to convince the oil companies like wait a second each one of you comes to me with your own design and plan well that really doesn't really make any cents. In addition, for 40 years, we've been doing these projects. We have a breadth of knowledge

from all of those contracts. Come to us and say, I have this field that I've discovered that I want to develop. I've got these four wells. This is what I think the reservoir looks like. I will tell you how to build that field. I will put in standardization as opposed to you want everything designed from the ground up, that costs huge amounts of money. And so, one of the things is, right, Subsea 7 does have this Subsea Alliance, which Schlumberger, that's a critical differentiator. Schlumberger is the highest quality, best oil service company in terms of technology, knowledge, breadth, and capabilities.

So, they've joined together, they on the equipment side and Subsea 7 on the engineering and installation side. and therefore are doing comprehensive contracts where they say, we will tell you how to develop the field, and we will tell you what to use, and then we will standardize, but we will use technologies that only we have. And therefore, that means the cost of that's going to be different. The time to develop it is different. Time to develop is critical because that means first oil and cash flow for you starts sooner rather than later. So the integrated alliance they have. The only competitor there is Technip that does the installation that merged five years

ago with FMC that does the equipment. So, those two companies merged and were the driver in changing that business. And the only competitor to that is Schlumberger didn't have the installation, partnered a number of years ago with Subsea 7 to have an integrated offering. And that integrated offering substantially changes the cost and increases, shortens the time. So, since 2020, where they've done the integrated awards, 60-plus percent of the new contract awards by dollar amount have gone to the subsea alliance, Schlumberger Subsea 7. So, they are winning the majority of the business. And why? Acro BP is a Norwegian-based company that in 2012 sanctioned a project in Norway,

and there were five other projects sanctioned. In 2012, 2013, and 2014, the business was very active. Delays happened, cost overruns, all the things that happen when you have a significant ramp-up in activity. They did an engineering study and said, 60% of the time we spent on engineering wasted. We're going to need to do this integrated process. So they were an early mover who went to Subsea 7 and this company, Ocker Solutions, a competitor to Schlumberger, and said, we're going to do a different project. We're going to work together, our guy and your two people together, and we'll engineer this and we'll then execute. And you're the only person we're going to go to. So we're not going to competitively bid it out because we think the efficiencies we get from

working together. Ocker BP says that the time to develop a field has gone from 22 months to nine months. And the cost is 40% less than what it was before they had this integrated solution. So these integrated solutions really do also increase the size of the opportunity because they make fields economic. Because if you could develop it for less money in a shorter period of time and start to generate cash flows and reduce the risk of a stranded asset. That's a dramatic improvement for the oil company. So they want to work with the people who can do integrated solutions. That's technique. That's sub C7 in the alliance and sub C7 in the alliance are winning most of those contracts. So that's a fundamental change to the business with a huge barrier to

entry because McDermott or Saipan tried to do the same thing and were unsuccessful in partnering up with someone that has won any awards. Therefore, you really have, we think, a duopoly in big, large, complex projects. The larger the dollars, the bigger the feels, those are the ones that the alliance is winning. That's a huge differentiator that changes the business. That's what it is. We try to invest in single businesses. We think there's an opportunity that you change the paradigm. You change the business. Therefore, one of the questions that people will ask is, well, what's the earnings power of this business? We'd suggest that you can't look at historical information to make that determination. So it's somewhat

difficult. And that's our experience. So the last 10 years, we've been extremely successful investing in businesses related to home building. So in 2009 and 2010, the industry, of course, imploded. There were opportunities to spend right-sizing, downsizing, tremendous consolidation. and the company we identified was a distributor that we thought had a different offering than its competitors. That one company today has consolidated four of the top five large companies, is by far the largest provider, but also delivers very differentiated service-doing components. There's another situation where we identified a company that we thought was changing the nature of the service offering that took it from being a competitive business with fragmented owners

and to a handful at most and one or two people at the top who have a very different business model than the rest of the industry does and very different profitability, barriers to entry, sustainability, all of those things. And we think the same thing is here unfolding in sub-C7. All right. Well, that leads to the next question, Ryan. We should save the board of directors one to the end.

Yeah, I want to ask. Do you have a follow-up here? Yeah. So you mentioned the big differentiator there. And I guess anytime there's a conversation around energy-based companies, you hear the cliche, high prices are the cure for high prices. And if the high prices come along, it's going to attract more competition. Is that differentiator that you talked about there going to – will that prohibit competition? Absolutely.

There's nobody who's going to be able to build – like Goldman tried to build a competitor when the playing field was a lot larger. lower and the ease of entry a lot easier, they were unsuccessful. Someone coming along today to try to get and integrate, and it was built together. Technique merged with FMC. You already had two companies that for 30 years had been in the business who were the top of their individual pieces put that together. It's not just one piece you've got to build. You've got to build multiple pieces. In addition, Subsea 7 and the Alliance just recently announced that Ocker Solutions is actually merging their business in to Schlumberger and that Alliance. Subsea 7 is actually putting in $300 million of new capital, own 10% of that joint venture.

One of the other equipment providers has been incorporated in, and it also widens the breadth of expertise. So, it's not just installing to do the development of the field to produce. It's also subsea processing. So, there's the life of the field. So, not only do you want to develop the field, but you also want the maximum recovery over the 20 years that you produce in that field. Inevitably, there's work that you do at various times because something happens. Well, as a problem the production starts to peter out salt builds up sand builds up waxes build up you need to go out and service the wells so therefore you need or you need to inject something in to pull out more oil and so subsea processing is part of it the separation so you don't need to build

a larger floating platform so subsea processing is a critical service uh an equipment differentiator and Acker and Schlumberger have further improved the product offering and eliminated a competitor in the process. There's one fewer company that you could possibly have as one of the building blocks to put together to have that competitor. That's one of the barriers. The other barrier, though, more important that I think is true. That's what we do think. Not only do we think energy is at this inflection point, but we also think that a lot of basic industrial businesses are old economy businesses that have gone through an extended period of time, decades even, of poor returns. And so therefore, we think there's really substantial changes to those

businesses that have occurred. And yet, there clearly is a concern about the environment and CO2, whatever it is. Environmental impact is something today that clearly is a more important consideration and a mitigating factor. So today, our view is the historic problem in the oil and gas business is the cure for high prices is high prices, right? High prices means high profits, high profit speeds, new capital comes running in. The fact of the matter is between the barriers to entry, but more importantly is, well, what's the life of this asset? Am I going to go build a vessel that's going to run for 30 years? I don't know what oil is going to look like in 20 years from now. So how do I do that? Or if I build a vessel, what vessel do I build? Because that

vessel today potentially uses diesel, but they're installing electric or they're looking to put in LNG. So therefore, the power source that you have with these vessels is different than what it was the past so the environmental concerns and the barriers to do things today are very different than historically have existed so the sustainability we think in many businesses old industry businesses we're invested in a business called wesley chemical that we think you know that's uh the podcast i did with with andrew walker i talked about the company they make a thing called chloralkalite chloralkalite is a which does you take huge amounts of electricity and you put it with salt and you make chlorine and caustic soda to build a new chloralkali plant

is a difficult thing to do who wants to build a chloralkali plant it's a you know and and where can you build it because the other part of energy is the demand for energy and the failure to kind of bring on new supplies in the bulk of the business and that is the fossil fuel component means we're short of energy and but north america is different than the rest of the world right in north america we have a reasonable amount of oil but we have an overabundance of natural gas and we have an overabundance of coal and of course you know those are two critical elements that mean and natural gas is interesting because coal you can put in a ship and move and so therefore the market worldwide market equilibrates natural gas you can't do that quickly right it takes

three to four to five years to build the the liquefaction of that gas at source the ships to transport that the facility that can take it from the liquid back into the gas all of that three different pieces of the infrastructure all have to be built out there's a significant timeline to build those out and so natural gas in north america sells it a fraction of what it does in the rest of the world rest of the developed world the middle east sells we've invested in america but there's no developed economies there and therefore they still have to get it out too and that's what they're in the process so so for we think five to ten years north american industrial and energy intensive businesses are advantaged because they have an

energy cost that's going to be less than the world's competitor price and so you know that's that's we think a really interesting macro because that's so we also talked about that macro who the hell knows the macro and of course we basically don't know what the hell the macro is either. But I think we have actually windows into certain pieces of it, the industries we know, because there's a guy, Theo van der Beek, who coined the phrase grassroots macroeconomics. So by understanding a particular business, you do understand the macros associated with it. And therefore, it can give you some understanding as to, oh, no, this is a very likely economic outlook for the next three to five years. And so therefore, we think there is visibility in

our businesses because things don't change. These are long-dated businesses that take lots of capital and time to change the supply and demand factors. Therefore, there's predictability for an extended period of time. The environmental concern means the cure for high prices isn't necessarily high prices or that is substantially deferred because of the environmental impact of building out those businesses. Right. All right. I'm going to combine these two questions here because I think they're really the exact same. Let's put some numbers behind this. How do you value subsidy stock today? Maybe give, I don't know, any sort of earnings projections you guys put together. And why do you think gross margins could trend higher? Because I think one thing that

any first time someone looks at this, they're going to say the gross margins on this business look bad. They were higher previously, but will that come back? And if so, why do you guys think that? And again, I'm going to revert back to, no, the industries like this are fundamentally going through radical changes. And to think you understand the business based on historical results is a mistake. You kind of can't. And that's what we saw in the distribution business for home building. It fundamentally changed. And the longer the difficult time, the more that accelerated change because what you could do and how you could differentiate yourself and that's the same thing here so we think to to it now sub c7 i you know so so before sub c7 we were invested

in a company it was acergy because that's what it was in 2011 acergy merged with sub c7 so the three and the four player merged to become the number one player so therefore we were in it then And Acergy used to be a thing called Stolthorpe Shore. So in 1995 is when we first invested in Stolthorpe Shore. So we've been invested in the industry, you know, that extended period of time. So that's the window that we have in terms of this business and how it is fundamentally changed. But another critical thing of how the business is fundamentally changed. Ten years ago, the business was an oil development business.

Today, at least a third of the business is developing gas fields. and so that's an incremental new space for a business that in the past that's what it was you know what's the old woody hayes right at ohio state was famous because they would never throw the ball because he said when you throw the ball you know only one two things three things can happen and only one of them is good and so therefore we don't want to do that and so here in the oil and gas business it's kind of the same thing if you drilled the well any place but definitely offshore. If it was a dry hole, that was no good. If it was an oil well, oh, potentially that's good if it's big enough and I can develop it. I drill a gas well, what the hell am I going

to do with gas in the middle of nowhere? It's not worth anything. So gas was not something that could be economically developed. The world's a different place today, right? LNG is a big part and a growing part and critical in the next 10 years to how do you get affordable energy is going the development of offshore fields because so that's what's happened is discoveries that are offshore mauritania there's no onshore gas market in mauritania so theoretically that's not economic but someone's willing to sign a 20-year contract to take that gas from mauritania in asia someplace to therefore have dependable reliable supply of natural gas so so you have a much bigger opportunities that the the the addressable market is radically larger than what it was

um and so that's that's a that's a differential component too but but but the as i say it's those barriers to entry that therefore mean there are fewer people who will be able to deliver the services that sub c7 can and so therefore the margins will not be equal to but i have a very strong conviction higher than they were um and what now the other part of the earnings are there like probably five elements that determine margins in subsidy seven the first one is uh what's the contract and what's the contract terms of course what's the contract terms are really critical too in terms of what's the working capital requirements and what's the pass-through in terms of cost increases but then a critical element is what happens what are the work order changes that

happen to that contract so once it gets awarded okay i'm going to develop the field and you're going to drill 15 wells and some of those are producers and some of those are injection wells and i'm going to tie in each one of those wells to the surface and do all of that work you do that based on the four wells that you've drilled and therefore based on that you have a model for what you think the reservoir looks like and what's recoverable then you go drill those other 11 wells that you need to produce the field when you drill those other 11 wells you get incremental information that says well the field's different than what i thought and therefore instead of us doing this if we do this we can have higher recoveries better economics quicker payback

and so therefore you moderate the contract and so therefore those changes therefore there's no that's not a competitive environment the only one who's going to do the change order or you and so therefore that's a negotiation process between you and the operator in terms of okay what's the incremental dollars and margins associated with it and those margins tend to be much higher as you make changes to the contract. A third element that's critical is, okay, I have pieces of equipment and I move these, right now it's 34 vessels, I move around the world where I need it to do what work. The closer the density of the work as it builds out, the efficiencies I get because I can move that vessel not on that contract, I can move it to this one and have a

lower cost vessel do that work or do three pieces of work before it moves to this location. So the optimization, the efficiencies that you get in terms of the physical plant, radically improve as the business goes up. The other fundamental piece is that the industry today is in very tight supply. Therefore, there are contracts today that you see only two of the four top guys bidding on because the other two guys don't have equipment, aren't interested, don't have availability at that time period. As the activity level continues to ramp up, it becomes tighter and tighter, the project capability and who can bid on it. The bidding process starts to change, the costing starts to change, and the margins start to change.

I have a high conviction that the size of the addressable market is larger than what it used to. There are substantially fewer competitors. There's substantially more differentiation in terms of the top two competitors and what they can do. One has technologies that apply to one field to develop, and the other has technologies for the different field. Therefore, they probably – you bid that one because you have a suite of offerings that i don't have i bid this one because i have a suite of offerings that you don't have so therefore in contracts it becomes an extremely uncompetitive situation so and then in addition of course you have the incremental business that you are doing for offshore wind that you were doing next to nothing the last time you had

really good margins in this business at the same time you did all you made those acquisitions in the downturn you that's what they and that's what they did right over the last number of years they spent 2.7 billion dollars to renew the fleet they have a fleet that could do anything and everything and can do a lot more work and you don't need to spend anything on new capital uh the business in this difficult period right also paid like 520 million dollars of dividends it bought back over 300 million dollars worth of stock today has no net debt so going through an extremely difficult period where competitors went out of business and two of their competitors are still financially troubled today this company is in strong financial position and making commitments because they see

the industry is at this inflection point the business is taking off and therefore putting capital to work because they have access to that capital so uh you know it's we think you know the earnings power of this business has been transformed by what's you know really gone on over the last number of years difficult times in the consolidation right sounds like a good formula for success there last question i guess on sub c7 specifically um well management yeah what what what do you think of management it sounds like it sounds like they have a great track record but yeah and maybe some of the capital allocation over the years yeah so so that's what you know a critical element when we look at these investments too was like okay so who who are

the owners and who are the managers and how does that work and we think we have a business that has products and services that have the capability to be different but part of that is to leverage difficult times to be opportunistic to grow out that earnings power of that business when things are available for much less than they can be acquired if you have the building and so that's what sub c7 did it did many different things and that's because you know we love the the jockey here so the jockey here is christian so christian siem has a holding company called siem holdings it owns over 25 percent of sub c7 uh and therefore he controls the board he controls management management is a meritocracy when he merged together sub c7 which he had controlled for

you know its inception with acergy which he did not control but he had been looking to merge with with that business. He had the guy running Acergy run the entire company. So again, it was not his guy because it was the CEO. It was Jean Cahuzac was a better manager and therefore more capable. Therefore, he became the CEO. So therefore, there's a meritocracy that you have from an owner who's an owner who's looking to generate capital returns. He's also looking to generate capital returns. So therefore, how they position the company, what they do, how they deploy capital, all things that he's grown out the earnings power of this business, the breadth of the business. so that's a really important thing so uh board ownership management are differentiators that

really are more because technique fmc has had all the same things and we think today is a good competitor but we don't think it's anywhere near as good a competitor and you'll see that in margins sub c7's margins are better and will be better than what techniques uh uh margins are okay maybe one last question kind of want to invert it what would it take for sub c7 to be a poor investment like how how could this turn out to not go the way you think it could yeah see uh i could see external events happen that you just don't anticipate right if you had asked me in 2019 i would have said sub c7 was a really interesting investment that's really going to do well The business is improving. It's going to have, you know, earnings by 2022 that are going to be higher than they've ever been before.

The stock's trading at, you know, a low single digit PE multiple. Obviously, it would have been wrong, right? That, you know, we had COVID, the world slowed down and all those things happened. So, you know, things, external things definitely can happen. Of course, external things can happen that probably also fundamentally change the business. So I would say that there's a fundamental change that's happened in the business, right? So the analogy in my mind is 1973 and the oil embargo, right? So what happened was, of course, there was a war in the Middle East, and the Middle Eastern countries were shipping oil to the West, specifically the United States, and decided to withhold deliveries. And therefore, the cost of oil went from $3 a barrel to $12 a barrel.

And so people say, oh, it's the 1973 war that caused the prices to go up. Of course, it wasn't the 1973 war. It was the fact that 15 years before that, the United States production had been declining, the United States importation of oil from the Middle East, and that dependency had grown large, and there was no alternative. And so, therefore, someone was able to use a lever, and it was a tipping point where they did that. Today, I would suggest that energy across the world is in strong demand. Availability is limited, right? And it's limited for many reasons, right? Over the last five, six years, the business has been a poor business.

Capital has been reinvested by the people in it because there's no returns in it because the commodity price has been low. So therefore, you didn't reinvest in the business. Of course, there's also a concern about the environmental impact, which is real. And therefore, that's constrained and moderated the activity and the reinvestment in these businesses that deplete resources. They are finite, depleting resources. So that situation has kind of developed this opportunity.

So, from 2019 to today, I would suggest to you that the earnings power of Subsea 7 is probably higher today than what it was then because in that delayed process, it didn't change the fact that – and we've actually moved this further along to our dependency on and the lack of activity to bring on new supplies. And so, therefore, if some external event happens, it can defer the realization of this event. But that's what we also find is the deferral isn't the elimination. And the deferral means further consolidation, further opportunities for the strong, well-managed to further improve their earnings power and the potential of the business. So I frequently say, in 2025, I will have a better investment if for the next two years this business is difficult. And therefore, of course, that means the stock will underperform over that period of time. But that underperformance of the stock means the economic competitive position of that company and its earnings power is substantially improved.

And therefore, I will have a better investment in 2025 to the extent that I do that. So it's the same thing. There are things that could delay this. That delaying, I think, would further increase the earnings potential of the business and the dramatic opportunity. Makes sense. Do you have any more questions on subsidies? Okay. I want to ask one more question. It's not about sub C7, but you've been investing for a long time and you've seen a lot of different environments. We have a pretty young, generally young investor base. What's one piece of advice you have for anyone that's kind of starting in the investment world today?

Yeah. I think it's an extremely interesting and difficult time for younger people, right? Because our observation is that post the financial crisis, we've lived in a world that's a total anomaly, but an anomaly that lasted so long. it lasted a decade. And then it lasted two more years because the beginning of COVID further delayed any changes. So you have a 12-year period where you have this economic environment that people based on experience say, well, I know how the world works, and I know these things, and I know investing, and I know these things, having lived through a unique period in American financial history, in world financial history. It's a period of time where it was an extremely low growth for an extended time period. You had very low inflation rates. You had low, no negative interest rates, something you hadn't seen that we've never seen in mankind. It's a

once-in-a-thousand-year event. You just lived through and invested in a period of time. That was a once-in-a-thousand-year event. And that's the experience you have on which you have an investment framework. That investment framework was anomalistic economic environment. And as much as we don't know the economic future, the economic future for the next 10 years is going to be very different than the last 12 years. That's what we think. Here's the analogy we have. For 12 years, every investment, how do you figure out an investment? First, you figure out the risk-free rate of return. And then you figure the risk associated with the investment that you have, you want to have a risk premium on it to get your return right so i would submit to you that for

easily a decade i don't there is no what's the risk-free rate of return is it the 10-year treasury the 10-year treasury over most of the decade lost money right inflation was two percent and the 10-year treasury was one and a half percent so you're losing money you're not losing money in your pocket but you're losing purchasing power so that's not a risk-free rate of return when you invest and you lose money you're guaranteed to lose money and that's happened for a decade. People built a foundation of investment on a bad foundation in the wrong place. What's happened, of course, in the last two years is people see inflation kind of happening. Of course, they probably think, oh, that old guy, Rabadi, he grew up and he started for inflation,

but inflation's dead. That's what people said two years ago. That's not individual investors. The consultant, the investment committee that I'm on for the university that has a high paid, well-known consultant. When I said two years ago, what investments do we have to protect us in case there's inflation? He said, not happening. There is no such thing as inflation. Inflation's dead. And you can't get in anyway, because like, what would you invest in? Oil? That's not an inflationary hedge. And I said, well, actually, you're kind of right. I agree with you that oil is not necessarily an inflationary hedge. Oil is predicated on the supply and demand, right? The supply and demand really dedicates the price. And so you could have

an inflationary environment and not have a price increase and you have a decrease. but conversely cause effect if you do get much higher oil prices because you have been under developing that and it is in short supply and high demand prices will go up and if you have prices going up then you have inflation and so therefore it's the causality it's not the result of inflation and therefore that's the protection if you can invest in materials in short supply that potentially is an inflation edge so so the inflation and that's what's really happened in the last two years right inflation's happened we see that we know that and now the market is still invested on the presumption that inflation will come down on the speculation that inflation

will come down because you know even today with a four percent four and a half percent 10-year treasury if inflation's eight and a half percent you'll loosen four and a half percent every year on that investment. That's not a risk-free rate of return. And if it ends up that inflation rate ends up being 6%, well, the 10-year treasury needs to be 7.5%. Where the hell is 7.5% on the 10-year treasury? And that's the foundation. That's the risk-free rate of return, the foundation. So I say that there's a tornado that's hit the financial markets. And Dorothy's house, the risk-free rate of return, is not in Kansas anymore. And I don't know where it's going to end up because nobody knows where inflation is going to end up.

And that will determine where the house lands. And therefore, what's the risk-free rate of return that therefore you need to figure out your investment? What I also think is when that house lands, you want to be in a different house because the economic environment is not going to be the benign environment it was for 12 years. And it's a very different place. And if you were in the house you were in, that could be the wrong house for the next 10 years. So I do think that people have, and that's professionals too. And that's what I say, professional money is the same thing. The puck was down one end of the ice. If you wanted to outperform the market, you had to be invested in the US. And if you're invested in the US,

you had to be invested in the S&P. That's no other market. You can't outperform that. That was the place to be. What happened? All the capital moved to that end of the ice. It all went there. The only way to outperform the S&P 500 was to have the NASDAQ index, the QQQ, which was a higher concentrated of just the winners of the S&P. And so, therefore, all the capital's there. And that's what we think today. The opportunities in those old economy companies that have consolidated are radically different

businesses than they are. They have Buffett-like attributes, barriers to entry, sustainability, high cash flows, strong balance sheets. So Buffett type businesses, and they're available at gram valuations. So it's the price of a cigar bud. It's a single digit PE multiple. But a company has net cash on the balance sheet that's buying back 10, 20% of its outstanding shares, therefore increasing the earnings power per share over the next three to four years. But nobody wants to invest in that because, oh, I know that business is a crappy business. And there's a guy that I know who you see I used to work for who is

a great investor. And he said exactly the same thing on one of the companies. He said, four times earnings, net cash, who cares? I know that business. That's a crappy business. I said, Mario, that's the perception that keeps people away from things. And there, in my mind, is an analogy. So when I entered the business in 1975, that was after the 1973-74 stock market crash. And what happened in the 73, 74 stock market crash was it was the nifty 50, one decision stocks. You bought the stock, you just owned it. You forgot about it. So, you know, and that you can't go wrong owning that stock. And what happened at 73 was there was an oil embargo and the price of oil went up and inflation went from 3% to 12%. So suddenly you had inflation. You had these stocks

that, you know, you just own, you just put away. Your valuation didn't matter. It was just a great company no matter what it was. And so here, I think there's potentially, there's a replay of a lot of the same things kind of happening. And then Tweedy made their reputation because from 75 on, they did really great. Because what were they investing in? They were investing in net networking capital businesses, right? And I could do that. I was an accountant at CPA. I can calculate book value. I can calculate net networking capital. Now, any business that you can buy for less than net networking capital is clearly a pretty lousy business. Nobody wanted to invest in those lousy businesses because it's a lousy business, but the valuation was

disconnected and provided the opportunity. That's what it is in a lot of these old economy companies today. The valuation is dramatically different than what you see other places. The financial strength of these businesses is vastly different but nobody cares at least for the time being it'll take a couple years for it to play out for these things to therefore demonstrate no that the economic and their economic fundamentals are there the present value of the future cash flows are is a multiple where these stocks trade for today i mean what are we uh for any listeners that maybe i don't know doubting that i mean what do we see buffett buying today Occidental Petroleum. That's his biggest, you know, his, his way, his huge investment.

But it's okay. Cause, cause Buffett. So I said, I really like Christian Siam and that's a critical part of the element of it's a really positive thing. And it was a book written by, uh, on Christian, uh, maybe two, three, four years ago. And they identified a lot of, uh, operate owner, operator managers that had phenomenal returns over time. And Christian was one of the guys they identified. And of course what happened is though, you know, uh, you know, paraphrasing Buffett's comment about, you know, when a bad business meets a great manager, it's the business that keeps its reputation. When a great manager goes through a period of time of extended poor economic environment for his business, his reputation gets tarnished because he's making

the right decisions. But, you know, there's a difficult macro environment that he kind of can't control. He can then make movements to adjust to that, continue to position his company so that eventually he will. So Christian's reputation has been damaged because in the last three, four or five years, he had to restructure one of his companies in bankruptcy. Therefore, the environment was not conducive and, therefore, it caused problems. I see a lot of managers who really are good managers, quality people, who the environment gave them a difficult situation and they were protected, but it was extended and long enough where their reputations are tarnished. Buffett's reputation is somewhat tarnished. People plenty of times will say, oh, he lost it. He

doesn't have it anymore and he's you know he's gone he's old hat and whatever else so so uh so and i i don't you know so right what's the phrase the phrase uh when when when graham wrote security analysis right which is the you know the core piece of the beginning of value value investing what's the quote he has a quote from paris right and it is what the hell is it there it is those who have fallen shall be restored and those in honor shall fall so so that's what it is right that's why i'm so excited today because the rotation is such that it's happening we're at the beginning of a huge rotation and where to invest capital and that's what is that puck that puck was down there everyone's down there and they're all

realizing maybe they're someplace else they don't know where to go yet them. Here they are. That's what we're seeing. In my mind, we're seeing the restoration of stock pickers. Not only the old economy reviving, the restoration of stock. Stock picking is going to be a critical differentiator. That's not just value investments or these things I'm talking about. It's growth too. Anything that was a high-growth company, clearly those stocks are going through a substantial repricing. Some of those companies will be really good. Some of those companies will not be good investments. Just like when the 73-74 financial stock market crash happened, the nifty-fifty, some of those didn't make it. Most of them did, but some of

them didn't. Today, there probably were more companies that had valuations that were really on the come that probably will have viability issues going forward, and there may be more losers but you know that that adjustment's in the process of happening today and and is and there's a there's a big analogy i think in terms of what happened in the nifty 50 right sizing and correction where we are today okay well i think that's all the questions we have um i guess for any listeners that want to try to keep up with your thoughts what's is there one place that they could do that is there do you post any of your analysis anywhere uh yeah i guess we uh well we have a of course i'm dating myself as an old guy right oh we have a website and therefore we post

some stuff on the website and i'm probably not so religious about posting it on the website and i do some interviews and some of it gets there and some of it doesn't you know because i'm more interested actually in talking to the managements and thinking about the businesses and you know i am on the boards of four of the investing companies we have and going to board meetings and talking about the business and understanding the fundamentals, the breadth of knowledge and information that you get if you sit on a board and understanding the key pieces of the business and how it really runs. And then you get opportunities for the rest of the world, too, because who's the supplier

and who's the customer and what are they doing and how do they do that? So not only feeds information better on that investment that you have, but it also provides other opportunities that you can identify that someone's substantially mispriced in the marketplace. so that's a lot more fun to me than is being so good at writing articles and making sure they're posted and doing interviews but i love talking about it because clearly i'm passionate about what we do yeah and you have that is clear you have done some other interviews as well so we'll maybe try to link to those also that's right there's a number of interviews we've done in

recent times because it's easy it's again it's easy for me to talk about something it's harder to write down all the works and all right well thank you bob we got to throw our disclosure on here. We want to remind listeners that Brett and I are not financial advisors. So anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thanks again, Bob, for coming on the show. Before you leave, so I do own over, I think I own over 1% of Sub C7. I'm fully invested in it. It's one of the largest positions in my portfolio. So therefore, you shouldn't believe a word I say

because I'm just talking up my own book. That's fair. We'll put the disclosure at the beginning as well. Okay, great. No worries. No worries. All right. Thank you all for listening.

We'll see you next time. Hey, Simon, we wanted to ask you a few questions about 7investing so listeners could get an idea of what they're getting. what inspired you to start the company and what exactly is sub-investing well hey ryan thanks again for having me you know we from years of working in the investing industry it was inspired by conversations with people that would just always have kind of the same negative perception of the stock market right it's it's too hard or i don't have time for this for this to stack

against me and those conversations kind of led me to say hey we need to create a site that actually does inspire people to say, you can take control of your financial future. You can invest in stocks, you can find good stocks to buy and hold for long periods of time. And at the end of the day too, we know that everybody is different. We don't believe that there is one stock that fits for everyone, right? Maybe you're a dividend loving, paycheck cashing income investor that might want an option that's going to be a lower risk dividend paying stock, especially right now with the economy being what it is. And then other people might say, hey, I'm ready to hold on for 20 or 30 years. I want to take some swings for the fences. Let's go after those high growth

opportunities. And so I said, this would be something that would be even more fun rather than just doing educational and by myself. I said, what if I brought together a team of seven advisors, all with a diverse background and a diverse perspective of the stock market so we could uncover more stones and look at a bunch of different stocks with a bunch of different investing styles in a whole bunch of different industries. And so Seven Investing is kind of the genesis of all of those that we started in March of 2020. And we said, let's look at a whole bunch of different stocks. Let's do the legwork of the analysis. And let's present our seven favorite actionable ideas every month for investors to choose from. And let's start the

conversation about which of these stocks is right for you and which one might be the right fit for your portfolio, knowing that investing is a very personal thing. All right. If you are a subscriber of 7investing, what do you get? Can you give an overview of what subscribers get? On the very first of every month, Brett, we release our seven new recommendations. So we are coming up on October 1st here, at least in the recording of this. And on October 1st, we'll release seven recommendation reports. Some of them will be low risk. Some of them will be high risk. Some of them will be biotech. Some of them will be financial services. We run the full gamut. And as a member, you get immediate access to all of the new reports.

But you also get access to all of our old recommendations as well. We track all of them in real time on our scorecard at 7investing.com slash recommendations. And we also provide company updates on all of those previous recommendations as well. We check in on how things are going. And sometimes we even see red flags that we think people should be aware of. There's risks for any opportunity at the time that you recommend it. And sometimes it's really willing, it's really, it's really needed for investors to kind of understand the risk and reward relationship. And then the last part of it is in addition to

issuing new recommendations and providing updates on them is we know that this is a long-term journey. We know that investing is something that we want to take years, if not decades to accomplish whatever we want to get to as the end goal. And so we always every month make it a point to be very available for our subscribers to ask us questions. We have a members-only call right in the middle of every single month. We have a community discussion forum that we have available 24-7 to not only talk to our advisors, but also other investors. I think that's one of the key differentiators for 7investing is that we know this is a long-term journey. We know it's a very personal thing. We know they're going to have questions along the way. We don't want to just

broadcast stock picks and disappear. We want to be here with you throughout this entire journey. And you mentioned seven recommendations each month. Sometimes those might be repeats, but obviously there's a lot of companies now in the 7investing universe. So how do members get a grasp on the advisor's conviction around certain ideas? Do they have a way of knowing whether advisors like certain ones more? That's the most common question we've gotten, actually, since we started is, what's your favorite ideas right now? We've done the diligence on almost 200 unique companies now and put them on the scorecard. And people would say, hey, this is too much to keep up with. How do I even know where to start? And so we've kind of evolved as a company. One thing that we've started doing is best buys every month. Each advisor gets to pick any of their or another advisor's previous recommendations and put the flag on it that says, this is my best

buy for October. And we publish those for subscribers. The other thing that we've started doing is issuing conviction ratings on companies that are also right there on the score card. So if you see a previous recommendation, we go everything from potential sell, which is the most negative flag we can put on a stock, to strong buy, which is the most positive, bullish flag that we can mark things with. And you can filter through all of those to really quickly see, here's some of our favorite opportunities. And we've taken this even one step further now, Ryan, which is we've created a strong buy portfolio where every quarter now we've gone ahead and self-selected as a team through a pretty methodical process

our 20 favorite ideas, our 20 highest scoring companies that we've collectively come up with, our favorites of the entire scorecard. And we put these into what we're calling a strong buy portfolio that we publish each quarter, also available as an added benefit for no extra charge for seven investing members. All right. Last question here. What does it cost to become a 7investing subscriber? And as we'll talk about or we have talked about before, if you're a listener, use code money to get $100 off your annual subscription.

That's right. We do have a monthly option. You can come in and check out the entire scorecard for a month just to see what you're looking at for $49 a month. But our most popular plan is actually the annual option because it's at a discount to that. In fact, we've got a discount on the discount, like you mentioned, Brett. But $399 for the year is our annual option price. But if you use money, the Chit Chat Money promo code, it's down to $300. So you're basically getting the subscription for half price if you sign up for the annual

offer with that promo code. That does not expire after the first year. As long as you remain an active subscriber, you get to lock in that $100 off a year benefit. All right. Well, as he mentioned, use that code MONEY. Thanks for joining us, Simon. Thanks very much for having me.