Good Investing Talks - How to find great European stocks, Daniel Gehlen & Marc-Lennart Bräutigam?

Episode Date: December 22, 2021

Daniel Gehlen and Marc-Lennart Bräutigam of Gehlen Bräutigam Capital run the Gehlen Braeutigam Value HI funds. The fund is specialised on European small and midcaps.

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I really like their tool and it's a high recommendation by me. And now, enjoy the video. Good day or good morning, dear audience. Today it's great to have you back on good investing talks. I'm very happy to have two young and inspiring fund managers on here. Mark Leonard Breutigam and Danier Gein from GBC Value. Good morning to you.

Good morning, Timon. Thank you very much for having us. Hey, good morning, Tim, and thanks so much for having us. Really nice to be here. It's great to have you here and I've followed your work already a while and it's fascinating to finally talk to you. And as I like you and we know each other for a while, I've prepared especially hard questions for you. So we can have some fun with our conversation today. maybe let's start with the why behind your fund you started the fund with focus on

Europe we're going to discuss in this episode of good investing talks why did you start another fund with a focus on Europe yeah that's a very good question and I think it goes back to when Daniel and I met at Barclays and we've been very good question and we've been very working there together for a couple years. And then we, after we decided to move on, we sat together and brainstormed around the idea of a fund. And at the time, it wasn't clear if it would be a European fund or if it would be focused on small microcaps.

But the idea really was to, our goal at the time, and still is to kind of maximize the performance, over time for us and our investors. And then we kind of naturally ended up with the focus on Europe and small and microcaps. So Europe probably because that's where our expertise and our experience lies. When we worked in banking, we were also covering Germany,

the UK and a couple other markets. So it's probably, you could probably see say is our home markets. So a bit of a bias there definitely. And I think we felt that we have a very broad and deep universe there. And we also saw that a lot of the broker coverage with the MIFI-2 regulation and so on was kind of getting less and less. So small microcaps got less and less attention, especially in Europe with the new regulation. So we thought, this is a good space where we can apply what we learned in banking and what we saw in banking and then hopefully uncover some gems there.

In addition to what Mark said, what I totally agree with is we wanted to have some focus because the universe, even in Europe, is very, very large. And we feel it can be a big advantage to know a market quite well, like the German market or the French market. I mean, even those two markets are a bit different, and cultures and companies are different. So, yeah, getting a familiarity with the countries, we feel can be an advantage. And at least until today, we haven't felt that it's a limitation to mainly look at Europe. Maybe at some point that will be the case, and we feel like we must look at other continents as well.

but at this point I think we see a lot of opportunities in Europe still and like our process definitely doesn't lack the opportunities that we want to look at it's more the time that we need to look at single opportunities so until now we feel very happy with the focus and I think yeah it's good to be a specialist as well in some regard and then maybe just to add on that point we also saw that obviously the increase in ETFs in clients portfolios but then on the other hand side we also saw that we could add value with a very focused and concentrated portfolio that is kind of like acting away from the benchmarks and the markets and you have to remember when we started out, we started out with family friends and a couple probably semi-institutional

investors, family offices. And they have very, they had very limited exposure to the European small and microcap space. And then on the other hand side, we saw this trend towards boutique funds and just a limited number of very compelling propositions there. So we thought there's space and there's an opportunity there are many things to unpack in your answer but maybe let's start at the point with barclays it's not a typical german bank i think what made you go there in the first place and what were your learnings at barclays that still exists in your fund yeah so i can of course mainly speak for myself but i got to know mark doing barclays um when i was the there in Frankfurt in the German office in the M&A department.

So I think what brought me there was that I was generally interested in the investment banking space. I had two experiences before, had two internships doing my studies at Goldman and Barclays. It was just a good environment to learn a lot about analyzing companies, yeah, also about process management in some regard. but I think what we took with us from the Barclays experience is especially looking at companies in deep detail like some private equity firms do it doing their due diligence and yeah working together with them was definitely helpful to get like the right toolkit to analyze a company and to see how deep you can go at some points obviously we also question all the time where it makes sense to go very deep and where you might just gain some conviction, which isn't real.

But, yeah, that's, I think, what I learned most from Barclays. And then obviously I got to know Mark who worked in the London office, and we had a lot of conversations together and projects together. And he was just the guy in London for me that I could call later at night as well, who was still in a good mood. And it was just nice working together. with him. So even though it was not planned at the time, it was great that we got together in the end and until today. It just makes so much fun to work together, which is also one of

the most important things for me to do what we do at the moment. Yeah, and I think maybe just to add to Daniel's point, when I moved to London in 2015, I think it was just on the one end side super exciting for me to move to London and to get the exposure there. And when I arrived, I had a, it was a fantastic team, great colleagues, super international. We had people from all over the world in the team. Basically, every European country was there. Of course, also the locals, the UK guys. But then we also had people from the US. We had people from even one guy from Himalayas. So it was very international and obviously everything in English.

So for me, that was a great learning experience from a cultural standpoint and from a team standpoint. And then I interacted quite a bit with the German team as well. So that was great fun and very interesting because they were reaching. out on different transactions from the corporate finance side. And I was working on the ECM side. So mainly IPOs, rights issues, block trades. And we also sometimes use the bank's balance sheet. And in order to do this, we had to understand the risks of any transaction.

We were looking to get involved and the company. And so I think that was a great learning for me, also working with other teams. but then also going deep into the situations i was involved with i've also did my deep research on you and i found out that at mark's home after school they were gatherings to discuss stocks very early and that friends often came to to mark to do after after school stock research did you also start that early daniel uh i wouldn't say i started that early no to be honest um before until i finished school i think um i had little to do with stocks like my father definitely has a strong interest in the stock market but um that's kind of it and it only came

when i studied uh yeah finance for one or two years and i went through a international bank in Germany or a very large bank in Germany, bent through different departments. And then, yeah, I've always found analyzing businesses quite exciting and one of the cool tasks where you look at the company from the top and kind of gather information to get a full picture that always interested to me very much. And then, yeah, when I read a few books about investing in my first years, I got hooked to the stock market as well because it's just very interesting that from time to time it offers these crazy opportunities. And even though I like doing my studies in Frankfurt and then in London, I learned a lot about the efficient markets.

And I believe in it in large parts, I'd say it's still crazy. What kind of opportunities we at least think we see from time to time. So let's go back into the reason past and discuss your founder's journey. You're young founders. What mistakes did you on the way of founding a fund business and which would you looking back want to avoid or try to avoid with doing things differently? I promised you it will be some hard questions. That is a very good question.

And maybe I can have a go and then Mark can tell you all the real mistakes we did. I would say I'm personally very happy with the way we launched the fund. We launched it small with a few people and like 20 people also with smaller and larger tickets with 5 million euros. So with very limited amount of assets for an investment fund at least. although we were always super happy to get like these commitments from family and friends and just the trust they put in us and was enormous. And we always had the vision that this must be a longer term project. So let's say a three to five year project and then we can see where we stand.

And from the beginning we focus mostly or yeah, mostly like 95% on the performance and the business and not very much on kind of finding. many new investors quickly. And I'm actually very happy that we did that. So I think we haven't done too many mistakes in setting up the fund and growing it slowly until today. And it kind of pays off a bit now because now we have a track record and we get some more intentions. Also from investors we want, which is the other thing I think, yeah, where we didn't do mistakes. So no, I'm just talking where we didn't do mistakes is.

I already realize it then we try to find the right investors so if you ask about the mistakes maybe from time to time we could have tried to scale the business more quickly but I'm not really I don't really regret that we didn't I think it's good that we didn't until today

we kind of thought a lot about what we can do to engage with the right investors and maybe we spent some time there that in the end we wouldn't have needed to spend and probably I'd say the same on the investment portfolio that we looked at a lot of companies in the past deeply as well that we could have said no to very quickly so we could have looked at a lot of new opportunities I think for me the biggest learning is even though we had a good focus in the last three and a half years we could

have had even more focus and just focus on the two or three really right things to do And, yeah, in that way, have an even clearer path to what we do and grow. But I think overall we did fine. I'm quite happy with that. Yeah, look, I think, and thanks, Daniel, for giving me some time to think. No, what I think is, and I think you touched on it already, is the point that we probably spend, like, when we started out, were, we started out in a, or we are in a big universe.

So we have probably 5,000 companies to look at. And in the beginning, you get then invited to all these conferences where you can meet companies and there's basically an unlimited amount of time you could spend on researching ideas, looking into companies, meeting companies, taking up meetings with brokers and so on. And I think what's really key is to be very quick in deciding if something is for you or not. So be very clear on kind of your framework and what you're looking for. And then be very, be very disciplined in just saying no to something that is not as compelling as it as it may be. and not like spend a week or two researching a situation,

which you could have probably cancelled out way earlier. And that probably goes then back to a couple other things as well. So we spoke to a lot of potential business partners. We spoke to a lot of different investors where probably in hindsight, it just didn't feel so right. And these are the things that took quite some time. So we could have been more efficient. But to be fair, it was also a learning experience for us.

And I think today we are probably more efficient in that sense. What are you optimizing your fund for? Is it, there's this dichotomy of assets or return? I think you partly gave already an answer to this, but maybe let's line it out explicitly. Yes, it's definitely been returns from the start. So we've always said, it's just the two of us. And the amount of time we want to spend on the research is, it's just, should just be way more than spending time on telling the story and especially in the beginning

because we started out with a couple ideas which we basically invested straight from the start in but then we had some cash left in the portfolio so we wanted to make sure that we deploy this in the best possible way for us and our co-investors And therefore, we knew that it's going to take a lot of time to deploy this. And so we didn't want to be distracted by doing too much marketing. And therefore, we always said, when we talked about the strategy and so on, we were always saying, like, the goal number one is to focus on the return and not the growth in the assets. Because we believe that if the performance is right, the money is going to come.

anyways, sooner or later. And that's why we've been focusing on the returns in first time. Maybe then let's go to your definition of Europe. What do you see as Europe? There are different definitions of Europe out there. So is it with Russia, without Russia? How do you see Europe? I'd say it's probably the broadest definition you can make of Europe that we see.

so including the UK, including Eastern Europe, where we haven't made an investment as least yet. At the moment, or two other people are working with us, Corey and Tristan, who are fantastic team members and, yeah, super smart and super helpful in the analysis of additional companies and also in just managing their portfolio. And Corey is based in Poland, so he has looked at Polish companies for, probably one and a half years now and got to a lot of companies in that space and it just looks like there could be a lot of compelling opportunities because some companies are quite good but the valuations are fairly modest to be honest. It's still what I also wanted to say

in the beginning is it's kind of a new market. It's a bit different than investing here in Germany. Maybe it's just a home bias but we want to be very comfortable with an investment that we make there, especially given that we are fairly concentrated. So we look at the entirety of Europe, but the largest part of our investments at the moment is definitely invest in Europe, countries like Germany, France, Italy, UK, and also Spain. Yeah, and maybe just to add a couple points, we've also been, we believe in this concept of the circle of competence.

I think that's evolving over time and that needs time. So as Daniel said, we started out in our home markets and then kind of build from there. And also, there are probably a lot of interesting opportunities in the Nordics as well, which are at the moment not so strongly represented in our portfolio. We've been looking into a couple of companies and we have one in the portfolio. Um, but, but for now we were just weren't, um, able to find too many great ideas for the right price. Um, and but, but that's evolving. You know, your watch list is growing. Your knowledge is growing. Um, and it's going to be really exciting for us. And that's also something that

excites us a lot about the job that you're just constantly learning and evolving and getting to know new companies and new countries and you're building, um, connections with investors, locally when you when you meet them on field trips or maybe just randomly by or maybe even in your network which is it's amazing to get to know to get to know other investors just just yesterday I spoke to someone who's based in France but he's actually from the UK and covering also a lot of the US and UK microcaps so good investing is definitely a great spot to get to to know investors. Thank you very much.

Maybe let's go back to your fund and I tried to describe it a bit. In the beginning, it was a German fund also investing in Europe and you're planning to transform it in a European, true European fund. Is this your game plan a bit? I mean, the fund structure is German, but we always focus. on Europe, so on all countries in Europe. We have even made two investments outside of Europe. We are not in these, I'd say, institutional limits that we say,

we cannot do a company above a certain market cap or if it reaches a certain market cap. We have to sell it. We don't want to have these limitations. But yeah, until now at least we fully focus on Europe. And if there's something we learned a lot about, by looking at the European company that trades in the U.S. or Canada, but it's also a European business, we might invest in it if we think it's an amazing opportunity. It probably goes along the lines of just finding the best ideas.

So wherever they are, wherever we see them, we go for them. Probably, as we said in the beginning, we started with a home bias. But then I remember there was a time in like Portuguese stocks or Greek stocks were like really, really cheap in the crisis. They had there locally. And I could very well see that that we go into these back into these situations or go into these countries and situations and weigh them a bit higher. I think at the moment we just see interesting situations in Germany, France. UK, we had a company in Spain, we have companies, or we have a company two in Italy. So, and one that's based in Sweden.

So it's quite a broad exposure and well diversified over Europe, I would say. But not saying that that could be skewed to another country way higher in the future. just always depends on where we see the best situations for us and our investors. You already mentioned that you have now two teammates already, which is you're still, in my eyes, you're still quite early in your fund journey. Why did you decide to add teammates that early and what value do they bring and who are they? Mark already said in the beginning it was like we always thought of us as a team of two and never really had the plan to expand the team early.

And we didn't actively look for someone to add to our team. The fund was also still very small, and we also felt that we could handle the job with the two of us. That being said, Corey Kournisto, which is our third team member. He's an American who has studied at LSE together with me in 2015 in the master's program. So I knew him very well and he's a very good friend. And then he approached us about two and a half years ago that he wanted to move from Hong Kong where he has been with a very large international bank for four years to Poland for personal reasons

and that he would be very interested in working with us, which honestly surprised me a little bit because we were just very small at the time. And it was obvious that we couldn't offer, like, at least the same salaries as a large bank, as the same salary as a large bank. Yeah, but we talked on water. Yeah, but we talked about this. And Corey was just very passionate about what we do and about the strategy of the fund. So in the beginning, we just made it kind of as a loose corporation where he helped us analyze investments.

And that went so well that we. very quickly, yeah, just integrated him fully as the third team member and he adds a lot of value in analyzing new companies and it's just great to have to have more eyes and we are still a team that is small enough to have the advantages of a small team of quick decision ways and of quick discussions. Yeah, I remember when Corey wrote us. And Corey is also, he studied with Daniel and Trist and as well in London at the LSC. And Daniel brought him forward at the time and we discussed it in depth.

And it came unexpected. But I think we are very, very glad to have him on board. I think he's doing a fantastic job. he is basically fully working on its own we do a lot of sparing internally where we help each other on the decision-making part and the research part but it's just super helpful to have him on board a because he's a great guy and b he's doing a great job on the investing side he's picked a couple very very good investments so far and he's monitoring them very well I think I'm just very glad to have him on board.

And it also gave us the opportunity to focus a bit on marketing, which you could see in the last couple of quarters. It kind of paid off when we managed to onboard some very, very long-term thinking and very wonderful investors. And so we were able to accelerate on both sides, not just the return. but also on collecting on on adding to the to the AUMs of the fund and I mean to be fair we also had a couple of fantastic interns over time also Tim our working student did a fantastic job in the time he was with us so we had some support on that side but Corey is it's really fantastic as he is like a full team member. And now also adding Tristan to the team gives us a lot more flexibility

also again on the marketing side. And then he brings on a lot of expertise from his prior experience in the hedge fund where he was mainly focused on software, SaaS companies and payments companies where Daniel and I as generalists are like not too deep into the topic. But it's obviously very important for the future. So we also have to involve and it's, again, fantastic to have him on board. And yeah, it works really well. With Tristan, it's similar to Corey. We have studied together at LSE, all of us.

And then Mark got to know him, I think, already four years ago as well or five years ago even. And we talked about several investment opportunities all the time, even though he didn't work with us. So at this point, we kind of thought it could make a lot of sense that he works full time with us. And we knew him very well before he joined the team. So now it's a very smooth transition and it's just great to have like another like opinion on some stocks with us, but also someone who can look at a lot of new companies independently. What we were always or what we are very kind of concerned about is,

that we lose the edge of what many say is the edge of a one man's one man shop that you have the guy who does the research who also does the decisions and i think we've seen it in banks probably also in p.e firms that you can have hierarchies and the decision process might not be optimal so we feel like with four members and with the way we have structured the company it works very well but I think we are also at least very cognizant that we don't want to grow a huge team where people are not responsible for decisions and it's just kind of a consensus decision all the time. So thanks to Corey and for keeping our back here that we can do a podcast.

No, just kidding. Yeah, it's also good to bring in fresh people to so we also. appreciate Tristan kind of challenging the current investments we have, which he doesn't know so well. So he's getting up to speed there and sharing his views, which is helpful, also in terms of the waiting and how he in the portfolio and how he sees those investments. And I think that's also very helpful to bring in some fresh mindset at some point. brings me to the question how do you see yourself as leaders or maybe isn't leader isn't like the right word it's maybe manager of the flow it seems to be better describing for you

yeah that's a very interesting question and obviously it's still relatively new to us I think what I really enjoy about is is that I think what Daniel and I really have to do is making sure that we set the framework within the team for the team so the team can operate within the framework and then just to make sure that everyone has enough time to focus on what they really focus on want to focus on and what brings them joy and happiness and what excites them i think that's that's very important and i think it's just great when you have people on board that you don't have to lead too much actively so they they are proactive themselves they are looking out for a situation but then when we are a bit time constrained and we have a potentially interesting idea, then they can also help us out on the research side if they're interested in the situation as well, obviously. Yeah, to add on what Mark said with the framework, maybe to add some details, how we think about it. It's very important for us that all of us are incentivized in the right way,

So we are all incentivized and focus on the success of the fund and especially on the returns. And also, yeah, as mentioned, I also incentivized in that way. And that's also why we made Tristan and Corrinate them partner because we think that makes the most sense. We are a team of four partners that want to grow this fund and business successfully. And in the end, it's also just four people that really love the job. So Mark and I have done it while being at Barclays in the few hours that we have. had left in the week just because the job is so cool and Tristan and Corey feel the same way about it. So I think if we put out the right framework, as Mark mentioned, it's not so difficult that

everyone is just motivated and doing the work because people really like the work and you don't have to control if someone is working, for example. And we want to have it that way and no one is free riding because everyone just loves doing what we do anyways. Yeah, and then probably also just providing them with the right tools so making sure that you have to write systems in place that they have access to expert platforms and stuff like that so that they can accelerate on their job and yeah i think that comes in addition with the with the framework and making sure that they that they have the the freedom um to to leverage that expertise then and that platform so as we already learned due to this podcast your guys are really serious

germans and you you it's also reflected in your fund positions and your research so if you look on your website there are case studies on gaming companies and wine companies um so how did you come to to research this ideas and what is so interesting about the game industry and the wine industry for you. Maybe I can start with the gaming industry, which is something I've looked at for a lot of years. I think somewhere here are some poker books as well because in the past I've personally played quite a bit of poker. And that's why I got to know several platforms and that's how my interest in the topic in general sparked. And then when I looked at the stock market, it seemed obvious to me to look at some of the

companies i know already from um yeah you potentially using them as as a customer and yeah we've looked at quite a lot of these companies in europe especially the b2c companies in that space and um in the end we had one gambling company um but yeah recently also added to gaming companies if you look at endor and guillemot yeah on the I think you can't say too much, obviously, but I think Daniels did a lot of work on the gambling side with Barclays. So he gained a lot of expertise there and was able to leverage that with the fund. And then more recently, we came across gaming hardware space. So we started looking into Endor and we started looking into Gilmott.

I think when Corey first came up with the idea of investing in a gaming hardware company that does, like, steering wheels and pedals and so on, that was very new to us. So we didn't have any prior experience. I played Grand Tourismo very early on on the PlayStation. So it was kind of aware and probably need for speed as well. But that was many, many, many years ago. And I think a friend of mine even had one of those things. but they were very, very basic. And then we started looking into the space and we were quite excited about the products and how that's evolving and like how, also how the virtual world and the real world are like coming together at the moment,

which is like totally groundbreaking and new. So it's very exciting for us to see that. And Thomas Yakimae, the founder and CEO of and or he is driving that. And there's some very, very interesting tailwinds for this development where all the big racing series, they recognize that they need to do something in order to get to know, in order to win new customers, especially on the younger side.

And therefore, you probably saw the F-1 Netflix series. that is one of the big things they were doing in this regard and gaming is obviously something that is great to involve young, young fans as well. It's also the technology that's helping a lot with Twitch, where you can stream the races and you can sometimes even compete with your, with Formula One drivers or other professionals. And we have we already saw some youngsters getting into professional teams by winning certain competitions on the simulator. And I think, we believe that these are very interesting tail wins and something that has

recently started to take off, but it's not really something everyone's kind of aware of. So that's a very interesting situation. And if you ask how we kind of find the situations, I think those are actually pretty good examples. This gambling is just like something that we found personally interesting, but then there are also a lot of decent companies actually. And three years ago or so, they weren't very popular. The business models weren't very popular, but they were decent. So we just looked at kind of most of the companies in that space. Whereas with Endor, I think that came through Corrie, who read an article.

at a decent value block online. Italian wine brands and the wine spades came from another investor that we talk with a lot. And yeah, that's a actually very good source for investing ideas is talking to other fund managers and investors. And then there's naked wines who's also owned by a few investors that we value very highly. And there's a lot of content and good investing, for example, on it as well. So just the community and like the connection to a few investors that we talk with regularly gives us a lot of ideas. But then it's also just quite random where the ideas can come from and we try to be very open to different channels.

Maybe you can pick one of the stocks you mentioned and give some more lights on your due diligence. You do before you let them in your portfolio and also you do while they are in your portfolio as a long-term oriented holding. maybe something with bottles okay well maybe we can do italian vibrance because naked wines is already known so well yeah so we came across the idea first when we talked to fabian and dimitri from scott aguja which are investors we value very highly and talk to um fairly regularly best wishes to both so like greetings to both and that was probably three or maybe four years ago and then we researched the company

and found it quite interesting in general because the CEO is kind of the founder merged a business into it and still owns the decent part of the shares so management owns around 9% of the shares and he's extremely driven in our view and passionate about the business So every time there's an earnings call, he tries to sell some of the bottles and you can really feel his energy.

Mark can talk about it a bit as well because he visited them a few weeks ago. Yeah, and so we thought the stock was always interesting. It was always pretty cheap, especially for a defensive company. And it had some very interesting characteristics, especially that one of the business lines was growing very decently. and the other one wasn't so the group growth looked low yeah but the company overall was profitable and we thought was well managed um now we also talked or heard from investors and talk to a few of the suppliers which are aldi and lydel and idika and they're just very um tough suppliers we always thought so we always thought it was positive that they had high margins with these

suppliers and from people who actually bought from italian vine brands we got to know that they are one of the few wine suppliers that you can't really get around as these companies because they are very reliable and offer good quality and have like brands that are fairly well known as well known as you can be in that part of the wine space probably um and yeah so that was very positive and then around one and a half years ago when corona hit we we took another look we never thought it was that cheap or fulfilled our return expectations but when corona hit the business actually got a tailwind because they don't sell via hotels restaurants or catering they just sell via wholesale and directly to the end customer and it turned out fairly quickly that people don't drink much less wine they still drink similar amounts they just drink it at at home and not in restaurants. So that was a nice tailwind for Italian vine brands and could lead to some more structural developments as well.

On the other hand, the stock went down and we felt that was the time when we got a very good return expectations and back then build our position. Yeah, thanks Daniel and maybe just to add on the recent field trip. So it was really impressive to see simply the size of the production facilities there. I've been to Vineries before, obviously, but that's just on another level and everything is like huge, extremely professional and well integrated. So they have their own laboratory, then they have their own production and then

their own filling machines or bottling machines. And basically it was just really impressive to see that. And then afterwards, the CEO. He spent some time with us over a dinner where they served as amazing food and great wine and gave us a tasting. And I just broadly also got a very good feeling about the guys again. And also, I think if they treat their customers that way, so very, very well, I think that's helpful for such a company.

This brings me to the next question about investments or research that has led to a disappointing or bad outcome for you. Do you also have an example for this? And how did this outcome change your process of investing? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community Good Investing Plus. Good Investing Plus is a place where we help each other to get better as investors day by day.

If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus. Just go to good minusinvesting.net slash plus. You can also find this link in the show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. Maybe we can also spend a few minutes on idea generation and I look at already mentioned some points where you get your ideas from. But when I look at your portfolio, even for European, there are some companies and names in it that are unique and different than other portfolios of investors I see. Is there anything you focus lead doing different when generating ideas?

So I think there are a couple aspects to the idea generation process. And I think one is definitely what Daniel mentioned, speaking to other investors and see and read their letters, their fact sheets and so on, because obviously there are other or they are, they are very smart investors out there. So it's always good to see what they're doing. And then reading a lot of like specialized um blogs newsletters and and so on so staying on top there then obviously again good investing is a great place to do both um and and then but then we also do like some screening in certain cases where for example we had the feel towards the end of 2000 2008, beginning of 2009, sorry, 2018 and beginning of 2019, when we saw that the automotive

market was in a bit of a turmoil due to issues in China. And then we thought there might be some very interesting contrarian place in that space. So we launched a screen where we looked for all the companies in Europe in that second within our focus area. And we came, we probably had like something between 35 and 50 potential investments. And we thick deep into them and at the end we narrowed it down to like a handful and ended up investing in two of them, which was LeBelier at the time in Aquil. Ackwell is still in the portfolio, a little bit. Rubellier got taken out by a Chinese investor or competitor.

And I think these are times when screens work really well, but obviously also in other cases. Yeah, I fully agree. I think there's a lot of sources where we can get ideas from. And it's just very important for us to quickly focus on the right ones, which we've mentioned previously as well. but in the past we had some ideas where we thought, yeah, this could be interesting if there's some good findings

in a due diligence process and we looked at it, then there weren't. By now, I think if we are not very excited about an idea very quickly, then we don't look at it in depth because there's just so many ideas. I mean, you can also basically go from A to Z through the French market and look at companies, but they would take so much time. So we focus on companies, which either have, have high returns on capital and could do very well, but not too expensive or which are just

absolutely cheap for some reason and just these companies where we think we can earn a very good return over a few years. And we look very quickly at the corporate governance and the management and how that is structured as well, because especially in microcaps, I think you have a lot of orange or red flags there from time to time. But on the other side, you also have a lot of companies where the founders are still involved or where there's a very passionate management that also owns shares and there's very many there's very many positive examples in this space as well and we want to look for those and maybe just to add on Daniel's thoughts is that in certain cases we also like working with very specialized brokers so some that are just focused on a small

microcap space for example and that understand what we are looking for and and every And then we get a great idea from there as well, which we then explore further, obviously. Is it also a plus for you that there's less research and less coverage in Europe? Or are you also losing something because you can't rely on other research sources and other insights? Maybe in the beginning you are losing something because you have to do some more work. to get to know the company a bit better, but in general, I think it's one of the major reasons why we value that space so much that it's still in some regards very underdeveloped in the investor space and there can be extremely good opportunities in that space because so few people

are looking at it and can look at it. So even the ones that have broker coverage sometimes, yeah, the broker coverage is just steered by the company or the broker. just updates it once a year. And then you also have some examples where investors just don't look very much. Yeah, so basically have to do your own research. And that obviously is very time consuming, but it also gives you the chance to gain an edge. Also by speaking to the shareholders and management teams involved, as well as experts and so on around it, and other investors, of course.

And I think that's a very interesting aspect on the one hand side from the broker side, but then also in terms of how the companies are dealing with their own investor relations, things. Like some are considering broker coverage, some don't. And obviously, that can be really interesting if the company may consider to add broker coverage. and make their shares a bit more visible, especially over time as they might grow and get a bit more mature and maybe start at like 50 or 100 million market cap, and then they go maybe to 200, 300,

and then they might add more and more research, and then the shareholder structure also changes. And when that happens, that can also change the valuation of a company because some investors might be willing to pay a bit more for a company and there can also be super interesting situations where companies maybe just listed on the wrong stock exchange where it's probably maybe listed in Germany but there might be a good case for the company to list on NASDAQ or somewhere else where investors are just willing to pay more if certain things are fulfilled in the in the

first place. So I think there's a there's just and that's all the stuff we dealt with in the bank as well and what we saw a lot like on the large cap side where everything is run mostly very professionally and so on or where you where the companies just get very professional and educated advice from banks and then we can also try to kind of transfer that knowledge and there's expertise into the small microcapped space where it's oftentimes just very underdeveloped. And so this can also be good catalysts for companies and our investment. How are you going about assessing the fair value of a company? You have this nice chart where you compare the fair value of your portfolio against like

the current price of the portfolio in a letter. Can't such a assessment not lead like, is there a risk? that leads to a false security if you own great compounders? So I'd start with the first part. And the chart you see we definitely also talked about if we want to include it. It's our view of the fair value of the companies we own and it's kind of based on a base case that we think is very reasonable. But obviously there's more to evaluation than one case. We also look at different cases, but we want to have some idea of the value of a company

or the return potential of a company because we also use that to invest in companies or not. And we thought we want to be most transparent to our investors, which we try to be with our quarterly letter, where we talk about the portfolio and especially about the companies in the portfolio, because then investors know what they're in. invested in. And then we also wanted to give them an idea of what we think the portfolio should be worth at the moment. It might only be a rough idea, but yeah, that's our view on it. And we value most or nearly all of our companies with a discounted cash flow model because that's the intrinsic value of the business. I think we know about all the shortcomings of the

model, but it still helps us to get an idea about the embedded expectations. and what we can expect from returns from a company and then the qualitative part to those these models is much more important and the last thing I want to say is it's obviously if you do very detailed models that can be a false sense of of conviction that you gain and you just update these models and don't maybe don't think enough about the qualitative part of the business and we try to balance that quite a bit and the later stage definitely the more important part of our analysis yeah and i would add that it also helps with so i think there's definitely a risk to fall in love with the company once you've researched it in depth once you've followed it and maybe in cases

in some cases it even gives you a very good return so it's really hard to kind of step away from from the company that has brought you great joy for the portfolio. And therefore, we also have a waiting system, so how we weigh the companies in the portfolio. And price is definitely something that's very important here, besides the quality and the growth prospects of the company and a couple other aspects. and so and then also it helps in terms of the team we have so usually one or two of us are in the lead for an investment and the others are trying to challenge that and we have regular discussions around it and that really helps to have even if one of us would fall in love with the investment there's still two or three guys that can challenge it with less uh emotion

involved. So I think that's very helpful in that sense. And it's good fun. But yeah, I heard many times that selling is probably the hardest part in investing. And I would definitely agree. It's just not easy. It probably helps to be disciplined. And when you invest for the first time, like really write down why you are buying the company. What's your investment case there? What are you looking at? for and then what do you have at hand and then so then you once your case is played out you can revisit that and reevaluate um the the case compare it with other opportunities you have um and then make an informed decision on do you want to sell it completely do you want to sell a part of your investment um or you want maybe just hold on to it because it's still a great investment or maybe the company has come up with something new that excites you and that gives you good prospects for the future. So yeah, it's definitely something we spend a lot of time on, especially also individually, but also amongst the team. Is there a certain hurdle rate you have before letting a company in like the return expectation 20% of an initial investment?

Yeah. So we look at it on a long-term horizon. So we invest with a mindset of at least five years, I would say. And then there's two things on the one hand. We try to get an idea of the value of the company. And then we apply a margin of safety. And that should be big enough for us to buy the company. So we usually want a discount of 40% or higher to the fair value. And if you want to say it in a different way, then you can also look at it. look at what we expect for the return for the next five years if our case materializes. And I'd say in general, our expectations there are above 15%. We like to be conservative. 20% is probably a good hurdle rate that you mentioned. But it definitely depends on the investment as well. If we can be totally sure that it's a double in four years, we'll always be very with it, I think. Otherwise, if there are risks, then maybe our return expectations should be or are a bit higher.

Well, we also care about how risky the investment is if there's downside. And we try to find these that are, to us, at least obviously very, like very obviously too cheap, way too cheap and just invest in these situations and don't try to be too smart about some very difficult situations. There's not much to add from my side. Then is there anything to add for the general interview? Do you have a point we haven't covered some greetings to Tristan, to Corey, to Dimitri, to Fabian? Yeah. Do you have something to add? No, I mean, maybe just to highlight that we have a concentrated portfolio of around 20 stocks.

We both Daniel and I are invested in the fund. We strongly believe in it. And we are very happy to have Corey and Tristan on board now. So definitely high to them. But I guess also a big thank you to you, Tillman, and for having us here today. It feels, I mean, we started out with the fund like three and a half years ago. And it just feels amazing to be here now and be interviewed by,

We started out so small and so definitely also a big shout out to our seed investors who helped us ramping up the fund and just getting getting a foothold into the industry, which was definitely challenging for us. But without them, it wouldn't have been possible. So definitely a big thank you to our and also our friends and family who have supported us. are on the way in all sorts of occasions and time. I can't add anything to that. And I would add, obviously, to our partners at Hansa and West, Donner Roychel and everyone who we might have missed. So thank you very much for that, for your support and ongoing support. I hope they also enjoyed the interview as I did.

It was fun to have you on. I hope you survived many of my bad jokes very well. And thanks for coming on. Yeah, I'm always terrorizing you with bad jokes. It was fun to have you on. Thank you very much for coming on. And bye-bye to the audience. Bye-bye.

Thanks so much. Bye-bye. As in every video, also here is the disclaimer. You can find a link to the disclaimer below in the show notes. The disclaimer says, always do your own work. What we're doing here is no recommendation and no advice. So please always do your own work. Thank you very much.