Good Investing Talks - What are good ways to invest in South Korea, Petra Capital?

Episode Date: November 3, 2021

ve into this market.

Good morning or good day to everyone. It's great to have you on today again for good investing talks. Today I'm talking to two men from Korea. It's great to have you on Albert and Chen from Petra Capital. You're currently in Seoul, or? That's right. Thanks for having us today. And good morning to you and good afternoon to us.

Yeah, thanks for having us. It's great. You invest for Petra Capital, but before we go, into the investing stuff let's take a look at some maps i brought for you so let's start with this map here this map is taken from a report of good water capital um if you want to read the whole report that is on coupang and korean internet company and you can find it in the links below so this map shows the total inhabital land of south korea um to describe it for the people who listen to the podcast only

South Korea is approximately the same size as Indiana but the livable land in South Korea is only roughly the size of Rhode Island which is only a 20th of the size of Indiana

so it's quite interesting to observe this. There's also another version of this map you can see it here it's a breakdown of the usable land in South Korea It's quite interesting to see this as well. So to put this in a question for the beginning of our conversation,

what is your take on this map? Yeah, as you can see, it's a small piece of land where everybody is living together. So for long history, there was a huge emphasis on sort of living together peacefully. So Korean people in general, there was a huge emphasis on civility and trying to lead peacefully together. At the same time, because they're all living in a small space, they have to look what other people are doing. And you have to find an edge in a sort of super competitive environment. So in that sense, I think the education,

was one thing that people found a way to have an edge. So when I actually look at the map, as Chen explained, actually about 70% of the land is mountains. But without mountains, if you think about the size of the South Korea, the population density is one of the highest in the world. But if you just look at all the inhabitable land, the population density is really high. And that's why Korean people live in a very crowded area that actually make us very competitive, very competitive environment.

So always that kind of environment has pros and cons, but somehow it creates that competitive environment, creates a lot of strong companies, competitive companies, and also the current phenomenon, the Korean culture, pop culture, that also from that type of of environment. So if you look at the area around Seoul, it's really a lot of people that very high the population density there. Yeah, so South Korea has 50 million people, and then about 20 million of them actually live around Seoul. Seoul has officially, I think, are 11 million, but if you include the satellite cities, it's nearly 20 million. So it's a very small place with a lot of people, but most people are concentrated living in around Seoul, which is which is a capital.

And think about the land, it's very small land, and virtually South Korea has very little natural resources. And if you think about in 1950s, when we had a war, Korea was one of the poorest countries in the world. And we had to focus on education. That's probably one of the reasons why Korea has developed so rapidly over the past several decades. How do you think about infrastructure in Korea?

I've heard Korea already has 5G rolled out everywhere. Is it with this living structure easier to roll out something like 5G in Korea? If you're, for example, somewhere in the east in the woods, do you also have 5G there? How do you think about this? Yeah, of course, it has something to do with the government policy. But again, the population, a lot of people live in a very quiet area, but easy to, to update this kind of infrastructure. That's part of the reason I always keep that way.

And also Korea is always known for having a strong manufacturing sector, having high technology. So that, you know, as is small, the land itself is small, but they can create these towers and the lines rather quickly. So it's a combination of the land size and plus that the Korean in general, the industry, was already developed so that they can quickly build these things. So, you know, I don't know whether this is a good example, but I have a sister in U.S.

and she's going through the sort of renovation of her house. And she was complaining that, you know, it's taking forever and asked her, like, how long did it take? It's almost six, six months for, you know, relatively small house. But something like that in Korea would take maybe two weeks. So there is that sort of So there is that tendency for people to work very quickly And then there's that emphasis on doing things done quickly

With the I guess that means you also have the crapmanship I think you had often visitors from outside of Korea Coming the first time to the country like from Europe or the US Is there anything they noticed that is special about the country That Outsiders often say to you that I haven't thought about this when they're coming the first time to Korea. Yeah, so for example, you know, obviously it is like an island.

You can go to north. So the shipbuilding, for example, was the one industry that was very developed early in Korean industrial development times, just right after the Korean War when everything was pretty much reset. So shipbuilding was one. And then based on that technology, you know, we moved on. into a lot of construction industry as well because, you know, after Korean War, there was nothing.

And so transportation, machinery, and things like that were probably earlier industries that was developed from the modern Korean history. Is shipping still a topic in Korea? Are there still ships produced? Koreans are still considered to be number one in the number one shipbuilders. they make, you know, of course there's Chinese, they're making a strong competition, but all these very highly sophisticated ships are still made by Koreans, so they're still number one in the world. But luckily for Korea, I mean, the ship, you know, ship is, shipbuilding

is no longer that profitable. And so, you know, maybe the beginning was more shipbuilding and, you know, automobiles and things like that, construction. But now Korea has developed into other more sophisticated industries like, you know, EB batteries, semiconductor chips. You know, probably heard about Samsung and LG, for example. So I think, you know, it started from maybe shipbuilding and other construction related, but nowadays, I think that maybe built the base. And then now I think Koreans are generally, you know, pretty competitive in all different

type of technology or infrastructure-related sectors, in my opinion. So Korea is mostly known for high-tech, not the ship-building type of manufacturing. So you mentioned 5G, and if you ever visit Korea, you will see a lot of technologies already installed in all of the places, just everywhere, even house and subways, it seems everywhere. It's all high-tech. It's a high-tech country, basically, I think. We will come to Stockton investing soon, but I did get so many questions that I still want to talk a bit about the macro perspective.

And you want to say it like this on Korea. There were questions coming about the relationship with the North. Like, is there still any economic relationship or are the two countries really clearly separated? Basically, two countries are almost completely. isolated. And for a time, we had in North Korea at a certain place, we had a spatial zone where Korean companies can operate. But it's closed now. And virtually, it's totally separate isolated economy. In fact, because of the North Korean attempt to build the nuclear facilities, you know, basically it's sanctioned by U.S. and other countries. And therefore, I think it is, it is

illegal for any Korean national to do any type of business activities with North Korean at this point. So there is, I think, as far as I know, there is zero activity between South Korea and North Korea. If the unrealistic scenario happens and North Korea decides tomorrow that they want to reunite with South Korea, what would that mean? What would be the impact of such reunification? I think emotionally a lot of most people probably would welcome reunification, but at the end, if you think about the disparity between North and South and economically and culturally and everything, we might have a problem about the merging these two different, totally different cultures and economists. But initially, people probably will welcome, I think, at least.

I mean, it's a tough question, right? But there's no doubt that most people in Korea, South Korea, want this reunification to happen eventually. But as I ever mentioned, the difference between South Korea and North Korea is huge now. I guess it's much bigger gap than East and West Germany before the reunification. So what's likely to happen is if somehow the leaders in North Korea decide to reneur out with the South Koreans. It will be more like a step-by-step approach. You know, maybe as a people with certain, you know, visa or business reasons, they can travel

first and then, you know, they'll take a probably slow process to become full reunification. And, but in the longer run, of course, you know, South Korea is rich, but North Korea is one of the poorest countries in the world. So this will be a financial burden on South Korea. Koreans for a while. But for the long term, I think once the reunification does happen, then you know, the Korea becomes suddenly, you know, with now 70 million, 75 million instead of 50 million, and then it's no longer an island. There's a, you know, straight path to China through North Korea. And there's a cheaper labor in Chinese, or in North Koreans. Plus South Korea has zero natural resources, but North Korea is known to have some precious metals and some resources in

their mountains and in their land. So this could be a boon for South Korea or Korea in general in the longer term. Now let's move more into stock market topics. I heard this interesting story about Korea and its relationship to Western investors that there was a face. Many Western investors were coming into Korea because they liked how cheap some stocks and net net worse and they bought them and more came and more bought. And finally, they went back to the value they had before because it were only Western buyers buying up these cheap stocks. how is the this leads me to the question how is the stock market culture in south korea is there an independent stock market culture do you have new trends like we have in the west

with robin hood or trade republic that people buy more stocks there's more domestic interest in stocks or how are things going at the moment for the stock market culture in korea but historically uh korean market has moved uh intent of with other emerging markets. But you just mentioned Rabin Hood, that type of phenomenon in the US. And after the pandemic last year, the Korean market has similar phenomenon as well.

Because we have the last year, the Korean market performed. Actually, the performance was one of the best in the world last year. And it's mostly retail driven foreign investors, sold stocks, and Korean institutions also sold stocks, but retail investors, it's the same until just now. So that is a big change before we just, the Korean market was swayed heavily by foreign investors and institutions, but now we have large amount of retail-driven trading volume.

Maybe it won't stay as much as now, later, but it won't. at least as we think, we won't go back to pre-pendemic days. So it's actually a big change. And for the viewers, we're not familiar with the Korean market. You saw the land is small, there are a lot of mountains, but we have very active stock market, which is now the total market for Korean stocks is around the 2.1. So that makes the Korean style market to be 11th largest in the world.

So it's actually bigger than Switzerland. and it's about similar size to Germany. I checked last time was maybe 2.2. So Germany is a little bit bigger. German stock market is bigger. But the Korean market is quite large and definitely bigger than Australia, bigger than Brazil, and Italy.

I mean, Italy is now sort of shrunk a little bit. And there's a lot of sporting players as well. The 30% of the market participants are international investors. So they are a meaningful share. And you mentioned the American investors, so they come and going out, depending on the global situation and so forth.

But now the Korean retail is also a strong player, as I've mentioned. So I think traditionally, I think the Korea was more influenced by foreign inflow or outflow, but since the pandemic and maybe going forth, I think there will be more, I guess, stability within Korean market in terms of forwarding inflow and up flow. And I say that because, you know,

Korean people in general, they're overall, I mean, they have a lot of, you know, wealth, a lot of capital to invest. But, you know, prior to, you know, a few years ago, most of Koreans were investing in real, state. And I think that's kind of true for a lot of Asians. But I think there's definitely a lot of money to be invest in stock market.

And as the country develops further, people begin to realize the best way to, you know, increase your wealth is investing in equities rather than real estate or non-growing assets. Do you have a rough number, how many Koreans hold stocks? In Germany is, I think, like 10 to 20 percent. So not that many stocks. You know, for Koreans, technically, the largest investor in Korea is a national pension service. That's like a national pension for everybody. And they represent like maybe not nearly five to five to six percent.

So that means basically everybody's investing in stock market. Because we have a national plan and everybody's, you know, tied up with that performance of that MPS. Yes, but I can check the numbers, but I'll say the number of people that own stocks, I mean, that could be like, you know, the big investors versus like the young people, they own maybe five, six shares of, you know, Samsung or something, but it's, but it's quite high number. I think it's definitely more than the German number. I'll say maybe 40%. I don't have the right number with me at this point, but I would say probably more than 40%, especially after the pandemic. I had some questions coming from private investors, how they can invest in South Korea. The best way is probably to invest with us, I think. I know that answer would come up. But if you just want to buy one stock, do you have an idea how to do this? You know, maybe I can step up a little bit.

For an investor like yourself, individual, you're kind of not allowed to invest in Korea. I mean, that is a big hurdle. Because to be able to invest in Korea, you have to apply for what's called a foreign investor ID. So till then you get up in the morning today, suddenly I want to invest in this Korean K-pop company. Technically you cannot because you need to be registered with the government. So, you know, you could do what you could do is you have to go to your broker, maybe the Deutsche Bank, and then they'll, you know, make you or, you know, make the application process for you. But typically with those banks, unless your initial amount is large enough, they won't go through that process.

So that means not a typical, you know, like Ravino type investors, even if they want to, they know what company to invest in Korea or they have some sense of what to invest in Korea. They cannot. So that is a big hurdle to begin with. And then once then, you know, you go through the process, you know, or, you know, typically, you know, you need to. to invest X amount of money to help these brokers to get this Korean ID, then you can actually, you know, with a click-up button, you can trade in any stocks. Actually, if you want to get the ID by yourself, you could do yourself. You can go to the Korean government site and to do that, but it has hassles.

So a lot of people actually end up being discouraged from doing it. But like I said, Korean style market has, you know, many companies, like over 2,000 stocks. There are some big companies like Samsung and LG and Hyundai Motor, for example, but there are many small cap companies as well. Over, you know, 1,500 companies are below a billion market cap range. So there are a lot of choices. So it's hard to say, you know, which, you know, And, you know, I don't want to say you go for one stock or other stocks, but it all depends on your, I guess, risk appetite and then what kind of, you know, investment horizon you have with this opportunity. So how do you go about selecting the stocks you have in your portfolio?

I think you hold 20 to 30 stocks. How you go about picking them? Yeah, we, yeah, we take. Of course, we cannot just look at every company in alphabetical order if that's not possible. So we have more than 2,000 stocks listed. And so we have our own screening tool. We narrow down the list from the, I think among those 2,000 stocks about the half are probably not investable.

So basically, our universe is to start from the 1,000 and we narrow down that list to more undervalued, more competitive companies. And we go through that process and we always have some companies in the pipeline. And from there, we just start the research. So when I ever says not investable, that means they're either losing money or they're too small. So you have to understand, Petra, we're mostly now, you know, managing institutional money, client's money and you know there is you know when you you know manage those kind of money there's liquidity constraints and things like that we need to abide by at the same time because

we're a value investor and then basically we have a long-term investment horizon we don't trade that often meaning like you know every firm has different style but we're I'm sure you're very familiar with a volume investing style it takes a bit of time for us to research and find the company but once we buy We tend to be a holder for a longer time because by being value investor, whatever we buy at this point, it's not probably the market's favorite stock or favorite positions. So therefore, given our sort of the investment style, given our client base, you know, we have sort of rooted out what's investable versus not investable. And given that where Petra has been in business over now into 13th year, and then we have invested. in Korea even before starting Petra.

So we have a pretty good sense of what are the good companies versus, you know, sort of the questionable companies, you know, not only just in terms of, you know, profits and loss, but the governance and then the management skills and so forth. So we do have a pretty good short list that we review, you know, whatever possible. At the same time, you know, we are always looking for new ideas. So we look at the new IPO companies and then, you know, look at the corporate events. And then so we're very keen on, you know, what, you know, what event could change the valuation of the company. So basically we have, of course, we have a set process, but we are in the business of buying undervalued companies, under value stocks.

And undervalue stocks could be just everywhere. it changes from time to time. So, of course, we have our own set of formula-based approach. But again, we just look at everywhere. We look at our existing portfolio companies. And we always, we are very curious. We just look at all the related companies, their suppliers, their customers. So we read a lot.

There could be many different ways to find undervalue stocks. So we just try to do many different things because it could be random sometimes. Yes, I know that you mentioned the net nets, but then nets is like I said, it's easy to see, right? Because anybody can run the numbers and it's trading below cash value. But that means the fact that these companies are staying that cheap for a long time, that means there's something wrong with the company. So we actually find a lot of netness to be, as your American friends, have. you know, conclude at the end, there tend to be, you know, terrible companies or declining businesses. And that's why they're trading cheap. Although from time to time in that NANET bucket,

we can find some misunderstood or misprice companies that shouldn't belong there. But those, you know, we could always invest. But just going into NANETs and looking at the matrix, low PV, low P.E, I don't think that that would be a right approach. Because there's so much competition going on, there's a lot of people participate in markets. You know, yes, the quantity of the aspect of the companies and stocks are important, but we think that there's a lot of value in analyzing the quality of aspect of the business. And that's where actually the real intrusive value comes in. You mentioned that there are questionable companies in South Korea.

how do you avoid them and what practices you don't want to see when we mean by questionable and basically mostly the business itself so some industries obviously they face declining fortune and that's probably why they trade at a very low multiple and that type of things and so of course in just like in every country, sometimes some companies have some problems in accounting and management. But basically, the most companies in the debt net, they have a very difficult business outlook. That's probably

what we mean. And also when I say a question of, I mean, it's maybe not the best term to use, but like, you know, biotech companies, for example, if the companies continue to lose money, but for some reason, people think that there is a small probability that they could make some new hit drug that could be distributed to global markets. To us, that is questionable, business model or questionable. So, you know, of course, those companies could turn out to be a home run.

And for some people, that may work for them as a potential target company, but given our tendency and given our, So this approach, we cannot, you know, bet our investors money on an unproven future cash flow. So that's what I mean by, you know, questionable. So that's both the companies are only trading on hopes and also the questions, the country, the companies are cheaply valued. But if they're declining and they're going to lose out to Chinese or they only have one customer, you know, maybe like a one example, I mean, we mentioned. shipbuilding, but, you know, maybe a vendor that works with one large Korean shipbuilder.

I mean, the outlook is not that good. So those companies, we just do not view them to be investable. You already mentioned governance, and I've brought you another chart I want to show you. It's the ownership structure of Samsung for the people you listen to the podcast. It's a very complicated chart with crossholdings and crossholdings and arrows in some directions. And yeah, it's hard to understand how to grasp. So let me start with the questions. How do such structures come about and are they still built today?

I think it's basically the legacy of all days when Korea first developed the big business back in 1960s or 70s. And then the government tried to develop homegrown, a few, the big, companies so and there is uh but in korea didn't have enough capital so that uh this kind of uh very complex structure was the probably the only way to have to expand into a different business but that's back but that's then but now uh we have we live in a different the u s so now uh the problem we have at the moment is how to entangle that the legacy the complex structure of a big conglomerates in Korea. But it's basically studied from the historical reasons. Basically, this Korean Chabber, it's called Chabber and Korean conglomerate model was copied

from Japanese model. In Japan, you know, they're more advanced back then and and you know, Korea, as you know, was under influence of Japan for many years. So when they saw Japan, how Japan develop, the Korean government basically copy the model. So create a national champion by allowing them to own, you know, company A and then money you earn from company A, then you buy company B and C and D, even though they're not maybe necessarily related type of industries. And that's the, so the interesting you mentioned, the Samsung group, that they're one of the oldest Korean businesses. And so that's the legacy. But as you should, but as you should, you shown the diagram, you know, that there are many companies that are owning each other, but

if you really analyze Samsung Group now, there's only one company that is worth a lot. That's the Samsung Electronics. That's over, I think, $450 billion. But the rest of the other companies, although they look, you know, interesting in the graph, you know, they're like really small dots now relative to Samsung. So what does Korean chevers or the conglomists have figured out now is that, you know, The old model of owning many companies, you know, owning bits of these companies

and, you know, creating, you know, many small businesses, small entities is not as good as creating a one large one that can be very global player. So that's why a lot of Korean conglomers they're in the process of breaking up this type. Also, the Korean law, by the way, does not allow this type of cross-holding structure anymore. Although there are some lawmakers that wanted to

sort of force these companies to break these these structures but at the end at the end of they basically you know no more in the future but they let these the old style to remain but because of tax and other reasons you know they it's becoming more practical for them to unwind these type of ownership structures so I think the you know it may take a little bit of time, but so Samsung, this ownership of each other, will probably remain for a while, but I think if fast-forward like, you know, 25 years from now, I think these type of structure will be probably a thing out past. I think it takes time, yeah, but that's natural.

Unless you have addressing measures, it takes time and it's difficult to have the drastic measures in a democratic country. And the chain mentioned Japan and Japan, the same complex that the structures actually were dismantled by General McAdler when the U.S. Army occupied Japan after the World War II. They just dismantled all these kind of landmarks. And now it's impossible to do the same thing, so it takes time, but it'll be done, I think, in the future in Korea.

Yeah, but for investors like us, sometimes these type of weird structure or complex structure provides an opportunity. Because, you know, the general reaction would be like, you know, you're a foreign investor or who's not a familiar to the credit market. You look at the structure and how do I invest in any of these companies? So you, you know, you pass on to another target. Yeah, yeah. Yeah. Yeah.

But for us, you know, for every complex structure, there is maybe a key company or there's a company that is, it looks like it's kind of intertwined, but it's actually at the end or it's. it's not really, it's a part of a larger complex structure, but it's actually simple in terms of its own ownership itself, then that could be interesting target for us. So when you're in that kind of a complex structure, the middle of the chapter structure, then there is automatic discount. But from time to time, some companies,

although they're part of the conglormates, their ownership structure is toward the end of the web of the organization, or maybe that company, you know, used to be a private company but may go public in the future or has this gone public, then sometimes these discount is not fair for that particular entity. So that has also happened. So for us, these type of complex structures, because we're in Korea, we're familiar with this type structures were firmer with accounting treatments and then how these structures were originated were able to pick the sort of the bad ones or actually good ones from these bad

bad entities so it's an opportunity to us sort of how do you profit from such structures so one model is that you invest in a company at the end of such a holding structure and if it gets listed or something, the discount goes away, or? Yeah, or it's already listed, but there is a big discount, but then there's a discount to, you know, just because it's a conglormant, they have automatic discount, but later people find out that it's not the discount, you know, maybe holding company level, there should be discount, or if company owns A and B and B owns C, then there should be discount, but if there's one company that is just at the end, part of maybe hold coal, but

but is separately managed independently operating and it's got good features for the future outlook, then that discount should go away. But at the same time, the company itself must be competitive. So for these, the values to be unlocked or recognized by market, you know, not only the discount factor, but if the company itself is growing, even if there's a discount, the stock price will move up.

So meaning for us, we have, two ways of making money, right? One is that we find the right company, they continue to grow or, you know, become competitive. So even with discount, the value increases. At the same time, there's a chance that people recognize that this discount is not fair or is too much, then that the gap tend to, the discount tend to get reduced. So that's how we play with this type of conglomates or whole co type of situation. I think when there is a discount, Some people, some investors are actually confused because when there's a discount, the people might think that the stock cannot go up, but it's a different thing, actually.

So let's say that the stock is valued, the value is 100, and there's a discount, 20%, it's 8. And the value, the doubles, then it becomes 160. So still 20% discount, but the stock price goes up, can go up if the value, the value of company, the underlying business improves. So the existence of a discount, unless it widens, it shouldn't be a reason to buy a stock. And as you know, Tim,

I mean, the whole-co discount is not just, you know, relevant in Korea. You know, Berkshire is always discounted. Soapank is discounted. And, yeah, so it depends on... Yeah, it's always. Yeah, so what we like is not the whole call itself, sometimes we want to buy the sub-series which are also listed so that you know discount is always

I think there should be a discount at the whole company level but at the subsidiary level operating company level maybe the discount is not sometimes you know not warranted yeah the Berkshire Hathaway is a very good example it's always traded lower than the sum of the old these underlying businesses. But stock price always, over a long time it goes up because underlying, the value of underlying businesses, because they go up. There's always a discount. But the fact that in Korea, we have a lot of conglomerates, so we have more discounts.

But in other countries, too, the complex businesses, holding companies, are always traded at a discount. That's a fact. And then I know we're talking about the conglomerates and Korean discussions. discount. But, you know, like I said, there are 2,000 stocks. And, yeah, there are conglomates, but there are just many independently owned companies that are not part of this old legacy. In fact, nowadays, the more the valuable companies are non-related to each other. Like, you know, it could be, for example, an internet company, which is not part of the old legacy business

of, you know, conglomates, or, you know, pharmaceutical company. or some new technology-related businesses, they're not part of the conglomates. And so there are plenty of opportunities. I mean, we're choosing 25 to 30 companies in general. So even if we have a rule saying, you know, we don't want to touch any of the congloments, we still have plenty of opportunity given the fact that, you know,

we're able to pick competitive 25 to 30 companies. You already mentioned Berkshire Heatherway, and this holding has a great shareholder culture and created value for the shareholders over the long term. Do you have such holdings like Berkshire Heatherway in Korea as well? I think the Berkshire Heatherway is unique. So in terms of a relationship with the shareholders, even in other countries, not just Korea, no company is quite the same as Buckshare Heather. So in Korea, we have medical graduates, but yeah, some companies have, we have some issues regarding governance, but basically it's improving. And so it's more and more the companies, they care about the minority issues. It's changing.

But no company is quite the same as much trade with the same further countries, too, I think. Yeah, so Korea for many years had a bad reputation, you know, being natural. shoulder felony, but it's not a cutting fraud or cheating or underhand transactions, but it's more like treating other shareholders unfair, meaning they never pay dividends. They don't necessarily make the best capital allocation decision. You have an extra cash. You know, you have a choice of investing in your core business versus buying hotel. Sometimes they'll, because of the family's whim, they decided going to hotel business or something, which is not as, um, profitable, not as capital efficient.

So that's been the problem. But lately, because I think as I mentioned earlier, there's MPS, which is the largest shoulder, they're trying to become more like in Norwegians, the NBM, and then CalPERS type, so they become a little bit more vocal. And as this, you know, the Korean stock market gets bigger and bigger, there's obviously foreign influence, foreign, very sophisticated foreign investors also come in and make their displeasure or their intent to be known. And also people like us, in Korea, they're now, there are a lot of active managers

are becoming a little bit more vocal about things. But if you think about it at the end of day, if a stock price remains low, the biggest loser in that case is the largest sharehold, which is the conglomerate owner. So I think nowadays, there's a more sort of consensus being built that, you know, what's good for the company and good for shareholders having the stock price to go up. That means you have to be a little bit more considered about treating other minor shareholders that is paying back, you know, dividends, paying back dividends, buying back shares, and then making the proper capital allocation decision. And also we have, basically, Korea is very entrepreneurial. So we have many new companies developing just every year. And if you look at those companies, many of them already have outside shareholders,

even before going public, their venture backed and also private equity funds. So they have basically better governance compared to all the conglomerates. So we have more and more such companies. So that also big change, if you look at large Korean companies. You already mentioned activism. Is there activism happening in South Korea? And how would you do activism if you want to do it in a good way? Right.

So the activism, I think, is now, I guess, it was not a familiar word like five years ago. But now I think everybody knows what activism is about because, you know, And, you know, Elliot management, which is one of the largest activist fund, you know, have invested in Korea, made a big news investing in Samsung and Hyundai Motor, which are, you know, the two large companies in Korea. And also their local activists have started. And as I mentioned, MPS, for example, they have voted against management in shoulder meetings and so forth.

So this is now becoming more relevant. But still, I think compared to U.S. or Europe, I think the activism type of investment is still very small, but I think it's growing. And I think from our perspective, you know, talking with the management, asking them to do the right thing, I mean, that's a common sense approach. It's not, you know, really asking them to do anything quite difficult, right? You know, look, you have this amount of cash. You haven't done anything with this cash for past five years. And then you're not really growing that much. Then best thing for you to do is return cash to shelters, which is common sense thing, right?

So from our perspective, the best way of approaching this type of activism is, you know, talk common sense to common sense with the management and show them you know how the math works and like I said once again the biggest beneficiary would be themselves

because they own the largest amount of shares and so you know because Korea is part of Asia in Asian culture does not really like you know people insult you on your face

or writing nasty letters so here will be I would say, more shoulder-friendly type of engagement is, I think, the right approach. And we've done some of that, and I think it's the same thing in Japan, but it's definitely going to be something that would become more and more relevant in the investment space. I think basically if environment changes, the companies also change. More and more people become more vocal, then I think the company's, will respond. And one of the difficulties in Korea in terms of activism is that

large amount, most list of companies have large controlling shareholders. Well, if you have the one, if a company has the controlling shareholders, large amount of shares, then it's inherently difficult. So it's very difficult to force them to change. So we have to persuade and we have to change the environment, then the company probably will change. And that's, is actually, it's a changing. But maybe as lower than many people hope, but it's changing. That's a fact. Are there any great Korean capital allocators you could recommend outsiders to study?

Yeah, I mean, there's some. I mean, you know, I don't know how much you're familiar with the Korean, Korean businesses or listed companies, but for example, I think Elch H&H is an example. It is a part of LG, the congloment,

but it's LG already as a holding company structure and it belongs to belong as an operating company, but it's a company that is professionally managed. This CEO is used to

work for Proctan Gamble, educated in U.S., so he's been sort of using the capital, acquiring many different related, this business is really in the, the H&H stands for health and household. So they own like the cosmetics, the Coca-Cola, they also, for example, they own Coca-Cola bottle company in Korea. So they own this type of consumer-related products, but he's been able to use that extra cash to acquire other competitors and other businesses and continue to compound the business. So that, you know, he will be an example.

And I think there are a few more. I mean, but once again, the M&A culture is not as, what's the right term? It's taking place, but, you know, U.S., you know, every day you get up, you know, you see one company, margin another company, and as if the CEO's job is to be a MNA specialist. And because you're also, you have incentive to grow your company and your whatever compensation is tied to your stock price and so forth. So there's a little bit of, I guess, if you don't do anything, then you're as if, you know, you're not doing your job. But so we don't have that kind of culture here. But I think it's gradually and slowly is changing. And sometimes I think

for CEO, you know, proper job is say no to certain mergers. I know a lot of mergers end up being, you know, capital destroyer. So just because you're acquiring companies, that's, you know, you have to acquire the right companies and then have the right, the post-merger plans. But here, I think, you know, I see that some, you know, good allocator is not doing the deals, and just returning cash to shelters i think that would be you know another example we have some the companies like that being uh yeah paying out a substantial amount of their extra cash to shelters is it common in south korea that um companies hold a lot of cash on their balance

sheet like it is in japan and what is the reason for this i i've heard that japanese companies needed this cash because banks are bad with financing in Japan? So it's, Korea is, in a way, it's similar and that the lending is not vibrant. That's one of reasons. And another reason is in Korea, we had the very severe financial crisis back in 1997. Before that, most companies in Korea were leveraging. And after going through that crisis, it changed everything. Most companies, they thought that they, for the next crisis,

they thought that they needed to accumulate a lot of capital. But things change. Now it's more than 20 years and past, but still a lot of companies, their sentiment is still tied to that crisis. That's probably one of the biggest reasons why some, many Korean companies that sit on top of a large amount of cash. Yeah, so during that

the Asian financial crisis in 97, 98, many actually large companies went under because they're very levered. So the ones that survived have that kind of sort of the still bad memory of company being too much

levered and so they end up being under levered or over cash. And then as, you know, after the Asian crisis, the Korean companies start to recover, and then they basically went through the global financial crisis, which was more U.S. driven, but still they kind of sell the same thing. Although not Ukrainian companies actually were not that affected because they already were holding a lot of cash. And so basically there kind of reinforces the idea that, you know, holding cash is good. And then even during the pandemic, although, you know, in 2020, U.S. government quickly print out money and then everything was back to normal quickly.

But initially, some foreign investors have started to call us saying, oh, now it's time to invest in Korea because Korean companies have out of cash and they're not going to go bankrupt. So depending on the market situation, depending on how things are happening, taking place globally, sometimes having some cash balance, I think it's good for the shareholders. However, in Japan, they went too extreme and Korea at a certain extent. But it's also a function of these Korean companies becoming very profitable. So it's not their intent to just sit on cash, but they're just keep making money. Do you see sophisticated buybacks happening in South Korea, like the people buy stocks back

when there's a discount to intrinsic value? Or are there any buybacks at all in South Korea? I think that the buyback in terms of the amount of buybacks, it's quite small compared to the U.S. But on the other hand, when you look at the U.S. situation, in most companies buy back their shares at an elevated price. So that's not the sensible way of buyback their own shares. So it's the opposite. But Korea, I think the traditionally buyback to the share. to increase the share the value has been somewhat aware,

but it's increasing that's a new trend. Yeah, so larger companies like Samsung, Hyundai, they start doing it, and then a mid-sized company are starting to follow. And also, you know, like I said, they are sitting on cash and then, you know, if they have no, you know, any plan to use that cash, the best way to use cash is buying back shares. And buying back shares definitely more favorable in terms of tax treatment for the business owners. So I see that when it was stock prices down, they tend to buy back shares and then also just keep the stock price competitive.

I think some subjugated CEOs have served to buying back shares. So it's not as active as U.S. in any way, but it's definitely kind of. I've started. The movement has started. Is there a dividend gift culture in South Korea? Like it is in Japan, like people get pens or food or whatever as a dividend gift. And this is popular for stock owners to wait for such presence as a dividend. No, no.

I mean, it's not a dividend, but you go to showholder meetings, they give you like, you know, for example, for the people that come to shoulder meetings they give you like maybe pen or something as a sort of gift but but but it's not not not as a part of it okay then it's just a Japanese thing there's one guy that made it very popular this kind of gift culture and made also stocks popular let's talk a bit about the IPO market in South Korea is it a bit like Germany like we have many interesting companies that aren't public that are held private and they don't need to go to the stock market? Or how is it in South Korea? Are companies easier gravitating to the stock market and they're doing an IPO?

I think that the most companies, most private companies in Korea who want to go public are mostly in the technology industries and they have financed by venture capital funds. So usually those outside investors have to exit. So they always think about going public. So it's quite vibrant in Korea, most companies. Those type of companies are not family-owned traditional businesses. They are mostly venture-backed technology companies. So basic, just the path for them to go public.

So it's quite natural and that's very vibrant in Korea. Actually, if you look at the Korean venture capital industry, It's quite sizable now, and the venture capital, the funding, the investment size, investment compared to the GDP is Korea is only behind the U.S. and China is third in the world. It's quite vibrant. So as many companies go public and a lot more these days than before. So it's different because mostly they want to go public these days. Yeah.

And also, you know, I guess unicorns are, you know, ones that could go public anytime. surprisingly, you know, of course, the U.S., China, and there's India. I think after that, maybe UK and Germany, I think Korea has the most number of unicorns. I think it may be 12 or 13 at this point, and there's more smaller ones that are going to be unicorns. So I understand in Germany, somebody have joked that all the good companies, you know, they never go public. They just stay within family. But here, we don't have that kind of mentality. So most people want to go public and also it's usually a sign of success.

Here, when you operate a public company versus private company, even though a private company may be bigger or more profitable, that people tend to recognize the public companies more. So here, all the good companies, unless, I mean, of course, there are some exceptions here and there, But generally speaking, they end up going public. So if you're an investor in Korea, you know, there's an opportunity to also get access to these great companies. They're coming in from the new IPOs. So in Korea these days, it's, I mean, quite rare that the large, sizable private businesses to stay private. It's quite rare to stay in Korea.

How are you profiting from IPOs and how are you playing IPOs as an investment case? Yeah. So when we analyze companies, as you know, generally we look at public companies, but as a part of our analysis, we have to look at their competitors, new players, and so forth. And then oftentimes they are non-public companies. So we do have sort of the good knowledge of, you know, the sizable non-public companies. And as Albert mentioned, they could go public any time, you know, because of the sort of the trend and then the, and these companies are typically backed by, you know, private equities or venture capitalists. So we do pay closest attention to them.

And when they go IPO, you know, we look for the right opportunity to, you know, buying to these companies. You sometimes, given the market sentiment, we can go participate in IPO, or oftentimes we wait until the company go to IPO and then usually there is a pop and then there's a decline, then it allows us to buying these companies at a discount price. With Petra Capital, you're investing since, I think, 13 years in South Korea. If I would have a time machine, go back to the year 2009 where you funded the business and talk about your portfolio at this time. How would it be different?

What kind of stocks would I find in there that I don't find today? So basically we buy undervalued companies and undervalued companies always in different times in different industries. So if you go back to 15 years ago, we probably would have bought that undervalued companies in that type. So basically, we actually are agnostic to industries. So probably back then, we had bought undervalued companies in a different sector than now. That's how I think about it.

Yeah, I mean, I think the market's change is so fast that you have to adjust. I mean, we were a value investor in our heart, but value could mean different things for different people. And I don't know, 15 years ago, maybe, you know, you mentioned net nets, but net nets were more attractive back then than now, for example. But 15 years ago, we would have bought companies there more, you know, cash flow focused, like, you know, Coca-Cola type of companies would be a good example that would have bought that have a stable cash flow. But, for example, you fast forward now, whatever was stable cash flow for the past five years, sometimes it's not as meaningful because things are changing so fast and, you know,

they're newcomers and with different models. So, you know, to be a successful value investor, you, I think you have to find, of course, the, you know, the undervalue opportunities or discount opportunities, but discount or undervaluineness couldn't come from different factors. Is the change in the Korean stock market to a more tech-oriented stock market? market also affecting you, your models, your thinking? So we now own more tech companies. That's true. But that's not because we just bought for the sake of buying technology companies

because it's hard. But we just found that more competitive companies now in technology sector because as I mentioned before, many Korean companies in the technology sector are growing very fast and very competitive. So that's why probably we own more techs. But also like, you know, it's tech, but if you think about it, like, is, you know, Amazon or tech company? I mean, it's a tech company, but it's a retail company, basically.

It used to be, you know, people go to physical places to buy things, but now people buy online. So there's a, you know, a change of how people behave or buy things and sell things. and I think Korea is definitely going through the same process or changes. And we find opportunities in these type of tech companies, but I guess some tech companies are more, you know, more tech driven, like a semiconductor company, but some like internet businesses, we don't, it is tech company, but we kind of view to be more either a consumer brand

or sometimes retail. So, you know, I guess the notion that we could categorize these companies by different sectors, sometimes it's not, I think, it's not exact science. So basically we go whatever opportunity is. And as you mentioned, in nowadays, especially in the past few years, there's a transformation of sort of everything going digital. And so a lot of companies that we own in tech sector, are the companies that are going through that changes or also the beneficiary of, you know,

distillization of contents and products. And if you look at the U.S., the market, your stock market, many of dominant companies are dominant in other countries to in most countries in the world. And Korea is one of the exceptions in Korea. we have our in homegrown domestic companies are dominant in many areas. That's why we have many opportunities in that sector in Korea. I think, Tim, I had mentioned this to before. You know, everybody in the world, when they listen to music, they use Spotify.

And that's sort of the global brand, or that's what everybody seems to use. But Korea, there is a company called Melon. It's a brand called Melon, but now it's part of Kakao. entertainment, but it was almost 10 years before Spotify, they're already doing the streaming music. Although it happened that they were only operating in Korea. And nobody else was doing streaming music because they didn't have enough, you know, the proper infrastructure and, you know, you need to have a proper streaming. You need to have a fast internet, fast devices. So Korea was the first one to do it. And so you come to Korea, still mainland is number

one. Spotify has very small market share. However, you know, the, I guess the, I guess not a problem, but the limit of that company was that it only grew within Korea and their upside is pretty much limited. So since then, a lot of companies that become successful in this type of, you know, innovative products or contents realize that the opportunity is bigger outside of Korea. So you see a lot of Korean tech companies or, you know, the contents providers have gone to Japan, have gone to China, and then they move, you know, their business model outside of Korea. And they become much bigger companies. So I see that as a very positive change. Korea seems to be very export oriented. So do you have a rough idea about the revenue share that

goes to export, and that is Korean in your companies? Okay. I think our current portfolio, maybe I'll talk about general market. General market, because Korea is, you know, you saw the land, this kind of island, so they had to earn money outside. So now I say if we get the company level in general, 70% is probably export oriented, or maybe even more. and 30% domestic

Yeah However, the companies They won't probably I would say maybe 50-50 at this point Because it's not by just Our choice We go whatever is at the good opportunities And we see some of the domestic companies

Are still growing within Korea You know, more like You know, domestic internet businesses and so forth So, you know, right now is probably 50-50 But You want to add anything So actually one of the companies we own, their revenues, more than 95% of the revenues actually come from outside of Korea. That's one extreme example, though.

But interesting is that it's not the traditional company you're thinking about, the Korean shipbuilders or Korean Samsung selling cell phones. I think the 95% revenue, Arbor is talking about, it's actually a renewable energy company. It's a wind power company that probably nobody outside the investment world and also the wind power has ever heard of, but somehow this company figured out their business model and then they just went global from the beginning. And also the fact that the wind does not blow strongly in Korea. So that that's another reason why they were not able to make it big out here. But with their technology, they went global.

They went Europe, U.S., and 95% of their revenue from U.S. from overseas, but it's in the renewable sector, not the traditional sector you're thinking about, the machinery and the, you know, the manufacturing. How many stocks do you hold and what kind of stocks are these? So we typically own around 20, but at the moment, we own fewer than training stats. How do you decide to invest in a new stock and how do you decide how to say certain positions, right? Oh, in terms of sizing, we own probably as low as 3% to as high as 10%.

That's our typical way of sizing. And it depends on the competitiveness of underlying business, also how much is undervalued. So there are many factors, and that's how we size our portfolio. Yes, as we mentioned earlier, we're a sector. So we go whatever the opportunity is, but, you know, when you, it's oftentimes out of value investors get into trouble as any given moment, there's a certain sector that would be heavily undervalued or discounted for a right reason. Like before, it used to be like, you know, oil and gas, for example, it used to be like a bank sometimes would be. And then if you end up by a whole bunch of banks, that's not, that's not good for you. So part of our portfolio construction is risk management.

So yes, we go whatever the highest discount is, the undervalue is great. But we do look at, you know, risk factors, meaning we don't want to put all of our companies in one from one industry or several industries. So we do think about those things when we pick companies. but if you look at our portfolio it's a pretty well-diversified sector allocation at this point so if I look at your portfolio what is the size of certain style so how many compounders do you have how many special aid situations are you invested in so it also depends on the environment but at the moment we own I would say more compounders than other times So it depends on the opportunity set at the time.

Yeah, because, as you know, Korea is still one of the cheapest markets in the world. And, you know, 2020 was an unusual year that Korean market did perform very well after the pandemic. But prior to that, it was always underperformer. So we still think that some of the companies that remain, despite the, the, the, the, the, the, the, price going up last year is still very undervalued, meaning that they could compound or grow even further, especially when things reopen. And I think the trend, I know there is a Delta variant and there's all kinds of uncertain factors. But at the end of day, I mean, we expect the economy will go back to normal. And then Korea being net exporter, they're likely to benefit

from the reopening of the global economy. How will the companies, your own profit from the reopening? Because they're exporters, meaning, as I ever mentioned, some of the companies, they get more revenue from overseas. And as their brand gets stronger, they make more money.

Maybe initially their 50% of their revenue was from overseas, now becomes 70%, 80%, what's popular in Korea, now popular in Singapore, Japan, China, maybe even in Germany. So, you know, Whereas more business activities, I think these Korean companies are likely to benefit from the increased business activities among the global buyers. But then again, rebound and reopening the related recovery is sometimes for many companies.

It's just one time. And we look at many companies, they strongly rebounded recently. but the performance before the pandemic was not good. And in that in that case, their fortune won't change after the one-time recovery. So we focus more on their long-term outlook instead of the one-time recovery. Maybe you want to share one or two examples of compounders you invested in. And maybe also tell us why you like them and why you're invested in them. And one company I would talk about is a company called Kakao.

It started as a messaging app similar to WhatsApp. And Kakao started well before, not well before, but before WhatsApp and other messaging apps in other countries. And when it first came out, we just didn't do your chat with using that messaging app. But we just look at how other similar. companies are doing in other countries and how it could make profit in the future. So we look at many related industries and the industry where this company could morph into and whether there is already a dominant player in related sectors or many things. And some companies in other countries, for example, let's say in China, there's a Vichet,

they probably went ahead and started to make profits and we'll look at the cacao and whether they can do similar things in Korea. And we just realized that cacao has a potential to go into other related business and leveraging the massive dominance of their messaging app in Korea and this. And that's why we look at this cacao and but when we first bought cacao and it was because many investment in Korea didn't realize their potential value it was traded at a very cheap price and and all of a sudden going through the pandemic people realized the potential value of this company and we realized and we knew that the company's interest value is growing and still growing so that's one of the compounders we own at the moment and it's one

the successful investment portfolio. Just to mention about Kakao, that it's 90% of the Korean population uses Kakao. So I know in probably Europe you use WhatsApp, right? And like in China, WeChat, it's kind of regionalized, but Korea is still 90%. And so with that type of customer base, they actually developed into like an Uber type of tax handling app. which is their number one. They also, as I mentioned, about the streaming music,

they acquired this company, Melon, to service streaming music. And then they also went into other contents building business, like the web tunes. I don't know if you're familiar with that concept, but it's the people that the cartoons or the comics you read online. And so, and also they went into FinTech. So because of their dominance in the chatting or the messenger app and with the right CEO,

they're able to grow their business into related businesses. And that's why, you know, for example, in the US, you have Facebook, you have Uber. You know, you have PayPal in different companies, but within Kakao, you have everything in it. There is messenger app, fintech, tech sealing app, and even now games added as well. So, you know, yes, they're, they're, lately, you know, getting into a little bit of regulatory issues of antitrust law and things like that because they're becoming bigger and bigger. But overall, I think they have, you know, reached to a certain point where they're going to be dominant for many, many years and they're going to be more profitable.

So it just started as a messaging app. Now it is morphed into a big business which are dominant in many different areas. Basically, as Chenix spent this combination of Facebook, PayPal, Uber, and also at the large internet bank and the mobile game, just many different fields are dominant in Korea. And then how they structure also interesting is that instead of doing it in one corporation, they have created each operating company separately with different CEOs. So although it is part of Kakao, they work independently and they compete against each other. And then each time they went specimen of the business, they have received investment from global private equity firms or, you know, another player is like 10 cents to keep their

valuation going. And some of which were IPO, which actually definitely had a positive impact on the Kakao stock price. And we think that there is going to be a few more entities that will go IPO. So this is one of those compounded with a catalyst that would, you know, add value to the total valuation. And Kakao, I think, is now top five companies in Korea, over 70 billion market cap and it was very quick rise but it was sort of a lot of work that were done that made him to be ready to go to this the big big empire with your portfolio how are you playing the change to renewable energy you already mentioned this one wind company and also a battery company 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 investor 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. plus you can also find this link into show notes i'm waiting for your application and without further ado let's go back to the conversation so maybe let's go back to the beginning and link our conversation with it we talked a lot about culture and the uniqueness of south korea so if you think of an outside

an investor coming to Korea, what would he miss if he wouldn't invest with locals and doesn't have the local knowledge? I think the people outside of Korea, unless it's a very size of a company like Samsung electronics, just it's very, sometimes it's difficult to understand the business. I mean, not just business, but the culture. Because when you make an investment decision, one of the most important factors is the management. And it's very difficult to understand the capabilities of Korean management because of the language barrier, cultural difference, and that you should, sometimes you have to be on the ground.

So those factors are, I think, that the difficulties the most foreign investors face when they invest in Korea. So it's kind of similar things that you face in investing Japan in, you know, language. I would say if you have to pick two countries that speak the worst English, it's probably Japan and Korean. Yeah. But because, I mean, I guess the younger generation is different, but I'm just saying in terms of language, I mean, this is another interesting point. But, you know, the Korean language is very, very different from, you if you have to pick one language that is, very different from English, you know, the Korea will probably rank, you know, top, top three. Whereas, like, German, you know, you know, Germans, you know,

basically all from alphabet. So I know you speak, you know, very fluent English. I think, you know, of course, you're probably a student, but, you know, for Germans, it's more natural to learn English. Whereas for Koreans, it's completely different. That the water order, the sound, and so especially the older generation, you know, people, they have difficulty learning English or, you know, while they're, they may be smart in their own way, they're not good at expressing their, what they want to do in English. And also, we also see that in disclosure statements. You know, for example, in Korea, disclosure rule is pretty good, but they're not required to produce in English. So if you look at the Korean version,

would be maybe 100 pages, very detailed, and they produce an English version would be like 10 pages somewhere. So for non-Korean-speaking person, invest in Korea, you have this advantage. Even though the larger companies, they produce everything in English just for sake of their IR purposes, with the foreign investors. And then also another thing is the diagram that you showed us earlier, the complex, you know, the Chabber, structure. So they're whatever bias. They see anything complex. They'll say, oh, this is, they must be doing something questionable. This is not analyzable. But so they have a good excuse saying, I don't want to do work. Whereas, you know, for us, like I said, it is not always case, but sometimes

we find opportunities in cases like that. And so that's, you know, another, you know, big disadvantage. when you're not familiar with the market. And also the Korean history, you know, as I mentioned, it's long, 5,000 years. But if you look at the Korean capitalism history is relatively short. It only started in 1970s. So for people who, you know, being in Korea for many years, studying Korean markets, Korean history, Korean financial markets, we know our knowledge about the Korean market is much deeper than, you know, I don't want to say.

pretentious, but if you're investing in New York, investing globally, yes, maybe your knowledge level may be higher in terms of the investment in certain sectors. But when it comes to investing in Korea, you know, we do have a competitive edge because we're, you know, we know the history inside out dynamics. Why this company went bankrupt? Why? And, you know, which family has bad reputation, good reputation? So I think that's, I think, in every, really difficult. It's kind of similar problems that a lot of investors have in Japan, international investors have in Japan, but, you know, kind of maybe more extent because, yeah.

Yeah, we found out quite interestingly to many U.S. or European investors, they understand Southeast Asian companies better than compared to Korean companies. So I think that, as Chen mentioned, Korea and Japan are probably the hardest to understand. And sometimes foreign investors, they come to Korea to meet some companies. I'm not talking about the really big, large companies, but small, small companies. And they bring an interpreter, translator. But still, they misunderstand. It's very difficult, actually.

Yeah. And also the fact that, you know, the sort of the global banks, like Goldman Sachs or, you know, J.P. Morgan, they only cover larger companies. And, yeah, so like companies like CSWIN, I mean, they certainly cover LG Chem, you know, very deeply, but like a company like CSWIN would never come to their radar. In fact, even within among the Korean brokerage firms, there's not much coverage when they were small, but now there's a lot of coverage. And now there's also English coverage. But, you know, there's definitely opportunity for us to get in there before the company becomes large.

How fast is Korea changing? I've had some discussions with Chinese investors and they say you have to have people on the ground to understand the change and even after two or three years, it can be totally different. Is Korea changing that fast as well? But still changing very fast at the development stage of China. Of course, at that stage is changing very fast. in Korea back into 80s.

I think that China, the current stage, the development stage of China is more similar to 80s or early 9s of Korea. And the Korea changed faster than now. But still, we think that Korea is changing very fast. It's quite different from five years ago, even more so compared to 10 years ago. Very fast, actually. Yeah, probably, you know, less, you know, less. lesser pace than China, for sure, because Korea is no longer growing, you know, several percent, you know, it's more like growing of 2 percent, 2.5 percent.

But certainly I talk to people, friends, you know, that visit from Europe or U.S., you know, they're the regular visitors. And then every time they come here, you know, what happened to this tower? Or, you know, now we have all new devices. So it's definitely more changing and also especially younger generation. I think, you know, I mentioned about the lack of language skills. I don't know, maybe that's the, you know, the problems a lot of parents had. So, you know, I think the new thing for Korean parents to do is send their kids to overseas, learn, you know, English and other languages.

So you see Koreans all over U.S., all over Europe. I'm sure you see a lot of Koreans in Germany as well. So when they come back, they bring in sort of different, you know, views, different perspectives. So that's making changes. So some, you know, traditional people that don't like it. You know, why is Korean people dying, young people dying their hair in this color, that color, you know, the way they're dressing and things like that? So there is that sort of the conflict between the generations, which is another topic to discuss. But so we see a lot of that taking place.

You know, I have three sons in high school. in high school, junior high and elementary school, you know, their mentality, even amongst the elementary school student to high school, quite different, you know, you know, because one kid, he's used to just using cell phone only. He's never, he kind of skipped the computer went to cell phone. Whereas the older one, you know, he used cell phone all the time too, but he used, you know, he started his internet with the computer. So how they behaved, how they enjoy their, you know, the products and then contents, it's already different. So it's probably the product of both world changing and also Korean people adapting fast to this type of environment.

For the end of the interview, I want to give you the option to add something we haven't discussed. Is there anything you want to add? The one thing I want to add is actually that still many foreign investors when they think about Korea, Korea is dominant by the cyclical industries. That's right if you look back at five, maybe ten years ago. But now if you look at the largest companies in the Korean stock market by market care, it's all heightened, all new economies that we have. two semiconductors and two bios, to a mobile platform, to elect the EV batteries, is all changed.

If you look at all around the world, only probably the U.S. stock market is comprised by the new economy companies. Of course, I'm not talking about their valuation, but it tells you about the transformation of the Korean economy. So basically, Korea used to be the cyclical interest dominant. But now it's secularly growing new economies. So I think that in that sense, Korea has a very good outlook. Yeah, I think I want to add about maybe a different topic, but it's a coronavirus, how government dealt with it. Basically, it kind of shows how the Korean people are very efficient or how they're how

they operate things. For example, you know, I know Europe, I think most of you, you know, in Germany and other countries are probably 70%, 80%, fully vaccinated. But Korea, they were late on getting the vaccine, so still less than 60%, although we're going to get to 70% within a couple months. But just give you the sense of the number of cases, you know, 15 million people in Korea, right? cumulative cases, 300,000. Like Germany, I know it's 83 million, but 4 million in the number of deaths. Korea less than 2,500, Germany, 90,000. Like UK, maybe a slightly bigger country than Korea.

A number of deaths, Korea once again, 2,500. UK, 130,000 number of total cases, 300,000 versus 7 million, or almost 8 million now. And so you think about it, coronavirus started in China and came to Korea very fast. And at the time, nobody had vaccines, right? And it shows how Korea is very efficient at managing this type of crisis. And you saw the map, as earlier, very intense, very, very dense. They all live in Seoul. but everybody's using subway, bus, public transportation, but, you know, things are fine.

Yeah, it's still packed public transportation. And so, you know, I know I talked to colleagues in Europe and U.S., everybody's working from home, but for us, we really didn't have to work from home. I mean, we only recommended to those people that want to stay home for whatever reason. But right now, Korea, it's almost back, even when, you know, the vaccination, rate is less than 60%. So that's kind of showing you. And of course, there's a reason why they were able to, you know, do the, you know, handle this situation well. But it's the contact tracing through the app. They have the efficient hospital system. Everybody's, you know, online. So,

for example, if I get vaccinated, I don't know how you do it in Germany, but everything is through online, online app. I can see which hospitals are giving, you know, these shots and then exactly exactly what time, where. And so things like that, I think, you know, there could be a little bit of infringement on the privacy issue for people who are, you know, infected with virus. And they got quickly found out. And then they were sent to this facility.

And then they had to disclose who they were for lunch and dinner. And sometimes your, you know, kid and girlfriend got discovered in that process, things like that, which was an issue in the beginning. beginning. But at the end, I mean, he shows that Korea is very good at managing this type of process and crisis management. So what I noticed about Korea's upgrade is that whenever there is a crisis, Korea tend to do a little bit better. That's, as Arbor mentioned, 1997 Asian financial crisis. A lot of jobs were lost. Many companies went under. But after that, Korea became a different nation. And then during the global financial crisis, also when things were bad, but Korea was able

to sort of upgrade itself and go more global. And I think this pandemic, for example, it's another example how I think that the positive things will happen for Korea. And this is when people start playing Korean games, online games. They start, you know, listen to Korean music. Like, you know, you've heard probably PTSD and some of the, you know, like they're not popular amongst the men, but certainly amongst teenager girls all over the world, they're popular. And there's, I don't know if you watch Netflix. There's a new, you know, the drama called Squid Game became number one everywhere, I guess, in the world, but it's a Korean-speaking drama.

So either you can dub it or you can read subtitle, but he became number one. And I think the CEO of Netflix recently said that this, this, this, program may become the largest success. It's an all-time-based in Netflix history. Yeah. So the point I'm trying to make is this pandemic, you know, it's a very kind of depressing time for many people. And this is a negative event overall for global citizens.

But I think somehow, I think the Korea is likely to use this opportunity to grow and become more competitive. So I think that certainly there's going to be a head, or so tailwind behind Korean content business, which is a drama, movies, you know, music. And when these products do well, the Korean products become popular, just like Japan in 80s. So we certainly think that even if they come up with a mediocre product, if the brand is good, they want to drink. Like I think, I may get trouble by saying this, but start. I mean, what do you like Starbucks?

I don't think it's the quality of the coffee, but it's a brand and image. So something like that could happen for Korean companies. For the next pandemic, I try to get into the internship at your place because I think it's one of the safest place in the world if a pandemic happens. But now I want to say thank you very much for our interview and also thank you very much to the audience. It was great that you joined us for that long. and I wish you all the best and say bye bye my pleasure 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