Good Investing Talks - Why do you like Alpha Group International PLC, Dede Eyesan?

Episode Date: June 18, 2024

It was our pleasure to welcome Dede Eyesan of Jenga Investment Partners as a first-time guest on Good Investing Talks!

Looking more at companies from an individual perspective, who are the managers, what's their long-term goal, what's their culture like, is there a strong focus on long-termism, or are they just trying to make goals in the short term? The joys of writing is simple is that you're able to also understand things as yourself simply. And how I think about, I guess, how I invest, I try to break it down to this simple format. And that's also had an effect on how, I guess, research companies and understand companies. companies and communicate my investment approach, just trying to keep things very simple. Investments are looking at the financial statements. I'm a strong believer that numbers can speak to you, but there's a limit to how much...

Dear viewers of Good Investing Talks, it's great to have you back on the podcast, and it's great to welcome DEDE ASN of Jenga partners for the first time on a podcast. And this is your first appearance. I ask you for a quick introduction. DEDE, who are you? Hi, Tillman. First of all, thanks for having me here. I've learned so much from listening to many great investors on Good Investing Podcasts. It's a real honor for me to be here today. My name is Dediah Yason and I'm the founder of Jenga Investment Partners, which is an FC authorized investment firm based in London.

I started Jenga in 2019 initially as an investment club. Another time we grew beyond the club and became a licensed fund manager based in the UK. Didy, can you maybe elaborate a bit more on your way into the finance industry? So did you, after finish 18th birthday, decide I want to be in full-time investor or what was, how did you get in the industry in touch with investing? So, I mean, my journey investing actually goes back to when I was 10. I was living in Nigeria. And my dad was really keyed on investing as an alternative source of income.

And I stumbled across the newspaper with him where there was like a little. list of all Nigerian stocks and he told me to pick three random companies and I literally picked the three companies that I could recognize and one of them was Nestle Nigeria which made Milo which is my favorite hot chocolate brand anyways I invested in three of them and then five years after that two of them had grown more than three-fording price while the one had fallen by half and of course the one that fallen by half was a bank a Nigerian bank and I was trying to really understand why the share price had changed so much over this period, over that five years period. And that was really how I learned the fundamentals of investing. So from understanding

how, what the balance sheet means and what it reflects to, you know, learning about, you know, the multiples and how to value companies. And fast forward in that, in university, I built a passion for investing. And I just asked myself, you know, what could I do that I could allow me, I want to exercise that passion and that was starting at an investment club with friends so I raised a bit of money 20,000 pounds from 20 different people and literally that was how

Jenga was born and finishing university I read a few books on how to start a phone if starting a phone is possible after university stumbled across a few stories and really that was my introduction to the finance industry and it's possible to start a fund after university

yes it's possible there's been a few successful investors who've done that across different strategies so it is possible but you need a team of people to help out on you know operations compliance legal which i was really lucky to find them before i actually wanted to start so we're a team of three people today you have a great passion for investing and you're also a global investor and you also publish interesting studies there's a link below if people want to get to your website where they find the but like when question came up for me and it might be a bit challenging how do you make sure not to get lost in this passion for investing and finding the like the next interesting thing

and really boiling it down to being boring and making money yeah so i mean one of the challenges so we run a global strategy and we look long only and can we can look at any company listed there are about 29,000 listed at the market cap of about 50 million that we can potentially look in but realistically you're probably not going to spend that much time in more than 100 of them over three four years and a huge part of the investment process is knowing how you can filter down from 29,000 to 100 companies that you look at maybe 15 20 you actually invest in or at any given point in time and i mean that's been trial and error and that's a process i keep refining every day but what we do is that we have screens and filters and we rely on those

as a way to filter out companies that don't really meet what we're looking for and i mean i mean i can talk more about what we're really looking for and but yes we use the screens filters and you know processes to filter out down companies so we don't get lost in the number of of list of companies out there. Maybe talk a bit about the screens and filters a bit. So with the screens, what we're looking for as investors? So we're looking for four things. We're looking for companies with first good business economics.

So there's a companies that are profitable, have an expanding or high return on capital. And from the unit economics, we think they're quite favorable compared to their peers. Second, we're looking for companies with, I mean, competitive advantages and what Warren Buffett calls more. So these are things with either high barriers to entry, network effects, high switching costs, and those sort of things. Third, we look for companies that have, you know, owner-oriented management teams. So not necessarily fund-led companies, but companies where management are incentivized alongside

their shareholders and there's this real sense of ownership by management. And finally, companies that are undervalued and nothing, you know, physics about it, just companies about it just companies are undervalued whether you're looking at it from a relative valuation lens or from an intrinsic value and it's combining all those four key things that we then use to screen companies or for example we try to focus on companies that either profitable or where we think the unit economics are profitable so if a company doesn't meet that we just simply screen it out and we look for all the things within its industry you already laid out the investment strategy a bit

but does the name Jenga stand for something? Yeah. Yeah, I mean so when I started investing I was reading like a few books on businesses and one of the lessons when you're starting a company is

you want something people can I guess pronounce easily and can relate to. So Jenga itself is a Swahili name. Most people know the game Jenga but it's actually a word in Swahili and it means either build or growth depending on the dialect you're using. And we have a bias towards, I guess, growth companies.

So the growth element is where Jenga reflects. And then when I think about what I'm doing for my partners is I'm trying to build their wealth over time. So Jenga, the second half, reflects that idea of building, you know, your partner's wealth over time. And that's how we got the name Jenga. And also it's a name that's globally known because of the game and we are global investors. So yeah, three areas of Jenga and that's how we reflect with what we're trying to do at Jenga investment partners. Jenga is also a game you can play all over again like investing. Yeah.

What kind of investments make you passionate? Maybe you can go back in time and think about one or two situations where I've been really passionate about an investment. did nonstop think about it and even tell everybody around you, this is so good. I want to, yeah. Yeah, I mean, I have to go back to the very first investment I made. And that was while I was still living in Nigeria. I was 10 when I initially made the investment back in 2009. It was a company called Nestle, Nigeria.

And Nestle have, I mean, they have global operations, brought in certain geographies. They list a subsidiary usually is due to the goal. government demanding that they do. So you think about India, you think about Ghana, Nigeria. They've listed their subsidiary. And the nature of their products also depend on the geography they're in. So in Nigeria, they have three key products. One is Milo, which is a hot chocolate brand. Another one is the Normagie cubes. And then the third one is a cereal called Golden One. And the funny thing about Nestle in Nigeria is that if you ask the average Nigerian, they would

generally think it's a local product, not knowing it's actually a company based in Europe making these things. And that's just a reflection of the strategy they had in Nigeria growing up. I mean, they communicated directly with the customers. But from a more investing, I guess, finance standpoint, I really understood what I was doing from a balance sheet understanding when I was 15. This was five years after I made the initial investment. And I mean, Nestle, to me, is a great reflection of what we're trying to look for and these are companies with strong moods so when you think about the brand milo in nigeria nine in ten kids will never replace you know their morning hot chocolate with anything else so it's either we're going to drink

mylo in the morning or we're not going to drink anything it's going to drink water so it's very hard to replace um milo and also i guess when you think about it from a barrier to entry it's yes it's easy making, you know, hot chocolate brown, you just get powder, you get cocoa, you get malt and you mix it up and you make the powder. But really, the barrier to success is what is really difficult competing against Nestle, Nigeria. And lots of local entrepreneurs have tried to compete with them, but literally all of them are filled. And the only real competitor there is Cadbury. And even Cadbury, the performance of Cadbury versus Messley over the last 15 years has been very far apart. So again, it's a real reflection of what we're trying to look

for. And then Nigeria is a young population, 220 million people. Average age is 18. So literally when you think about the market of young people, half of the population ability of 18. So that's a huge market for Nestle to grow. So I mean, between 2009 and 2014, when I initially bought the stock, it was growing 18% per year. Its profit margins around 23 to 24% EB margins. And then It was quite cheap. It was at eight times earnings at that point in time. It doesn't get much better. It's grown five-fold in five years. And I mean, that's, I wish I could find more Nestle's out there. But I mean, that's like, that's the beauty of investing and the idea of compounding with really strong quality, fast growing and also cheap companies.

And I mean, that's what we're looking for today at Jenga. And do you maybe have another example that's not a Nestle where you're really passionate about? Another example that's not Nestle is one of the first investments we made in Jenga. So it's L'Oreal. It's not Nesley, but then fun fact is that Nessly and L'Oreal kind of own each other. So they're kind of related in that example. But L'Oreel is more focused on the cosmetics industry. And cosmetics was a bit new for me.

So again, it's one of the ideas, one of the things I love about investing is, I guess, the idea of expanding your circle of competence. I'm with L'Oreal, going into cosmetics was a new area for me. I had to learn about the industry, Estilloder, and the relationship with distributors and retail stores. And it was just really fun learning about it. And having learned a lot more about Loreal, I think it's probably one of the top five highest quality companies.

It's one of the top five companies from a quality standpoint out there. I mean, they've only had six CEOs in the last 120 years since they've been existing. sorry, last 100 plus years since they've been existing. And I mean, it doesn't get much better than L'Oreal when it comes to culture and management and alignment with shareholders. I mean, they've never had an unprofitable year since the 60s. They've compounded 9 to 11% EBIT over the past decades. They still have an industry leading profitability.

People of Luriel love the company so much. And I mean, it doesn't really get much better. And it's another example that an investment we made at Jenga when we started. That said, now we don't own L'Oreal anymore because we thought the price got a bit too high. I think now's about 39 times ending. So it's having that, I guess, discipline to sell when you think things get a bit pricier. And that's another area of investing that we've had to learn a bit more on recently. What were, what are insights that made you stop thinking about an investment?

you were really passionate about like if you had something that you were really passionate about but did deeper work and realized there is no need for be passionate about this idea sometimes I mean I don't get passionate about investments until I think

there's a lot of upside I mean sometimes I'm passionate about a company so like I like football as a I enjoy watching football and then I found out that like lots of football teams in Europe are listed so So in Germany, one is called Dortmund. They're listed on the stock market.

So when I heard dot one, I mean, then they had a really amazing place. When I heard they were listed, I was like, I would love to check this out. But at first glance at the economics, I was like, yeah, this is not something I really want to spend much time in. And that's because at some stage in those four things, I mean, I mentioned in an investment process. So first business economics, second competitive advantage, third, owner-oriented management, and then fourth valuation. At some stage in those four things, they kind of fail the test. So Dortmund filled the test of economics because they spend so much buying players and having to keep fans happy, which is low economics for us.

So we just lost interest there. And I mean, I try not to get passionate about investments until it meets the fourth stage where it's undervalued after we don't know the research. So, D.D., where do you get your ideas from invest into potential stocks? So 90% of our investments in our portfolio come from our internal stock screen. So what we do is that we bucket all 29,000 companies listed above a market cap of $50 million into 60 buckets. So these buckets represent sub-industries. So for example, under consumer discretionary, apparel, textile, and luxury goods is one of these 60 sub-sectors.

and then that has about 530 companies and we spend about a minute or two quickly just trading about the business description and having a first glance at the financials and just trying to understand what they do and the ones where we think there's like potential for strong unit economics and growth and I guess good return on capital we will shortlist them and then take that list of 550 to 50 we do the same process spend a bit more time about 30 minutes to an hour and then we take that list to about 10 minutes 10 to 15 names and then from there we spend a lot more time doing a deeper dive into each of them and then that's how we might have one or two ideas and then that's how it comes into the portfolio and just to conclude we don't definitely can't

spend all all the years looking at all 60 of them so we have to prioritize on the ones where we think are deeper within a circle of competence and also ones where we think there might be more potential due to growth or due to profitability or just to ease of understanding them. What aspect do you spend the most time on in your research process? So the time we spend most on, well the area we spend most on would depend on the investment opportunity. So for example again looking at textile uproar and luxury goods, We looked at that early last year and we decided to invest in three companies. But what we really spent at trying to answer,

we were trying to understand which of these companies would have better exposure into growth in the Chinese consumer because, again, that's the largest consumer market right now. And that's where we see the most potential going forward. So a lot of our time was really spent trying to understand that question. And of course, you have different types of companies. You have the French luxury brands like MES, LVM, you have U.S. athleisure companies like

Little Lemon. You have newer, I guess, shoe brands like Decker's Outer Who and Huka-Wun-1. And you also have the Chinese domestic brands like Anthosports, Boussideng. But yes, we were trying to really spend our time looking at that. And that's where the bulk of our time went towards. And then I guess after there, we're looking more

at companies from an individual perspective, who are the managers, what's their long-term goal, what's their culture like? Is there a strong focus on long-termism? but they're just trying to make goals in the short term. And I mean, that's the process. And it will differ, differ depending on the sub-industry and the opportunity set.

Which free investment mistakes have helped to improve your research process the most? That's a really good question. So when we started, we were, I was, we initially focused on South Africa. And my goal was to have an African strategy. So that was the first mistake I made focusing on just South Africa. and the reason why I said that was a mistake was I I guess I had limited myself to a certain group of companies exposed to the South African economy

and if you're not from the US, India or China investing in just one country can be quite difficult because the number of opportunities you're exposed to either due to industry format or just due to I guess where the economy is at. It's really difficult. So that was I guess my first lesson in investing and guess just having been broad and being open-minded to new companies, new ideas,

and also having that eagerness and willingness to learn about different markets and industries as you grow. That was my first big invested mistake. I guess also when you look, I guess, at a more company perspective. I mean, we've had a fair share of, I guess, mistakes here and there. So, for example, we invested in Facebook at the wrong time. Now I know Facebook is about metal platforms has been a great stock, But there was a period, yes, back in time where things weren't going so well. And I mean, there I had to learn, I guess, more about the impact, smaller deficient and have on conglomerates.

And Facebook's case, it was the exposure to, I guess, their Oculus and AR and VR devices that was really impacting their bottom line. And I guess also technology, when you think about regulation that was coming from the government and also the impact Apple privacy data was having on Facebook. I mean, these are all external factors and they definitely do impact how, I guess, the individual opportunity set is. So again, that was a huge lesson for me as an investor, especially investing in companies

that get more exposed towards tech-enabled industries. So let us compare your research process with like five years ago, on which part of your research process are you now spending way more time and effort? I'm definitely spending a lot more time understanding competitive advantage beyond just the quantitative side of competitive advantage. So again, I mean, when you're looking at investments, you're looking at the financial statements. I'm a strong believer that numbers can speak to you, but there's a limit to how much is focusing too much on what the return on capital is today. So you have lots of

companies five, ten years ago. They had double digit return on capital. If you looked at their five performance they were doing really well and there was a strong indication of a mode or of a competitive advantage but when you really think about the external shifts happening in the world so you think about things like AI you think about things like the global political situation and globalization all these factors sometimes have an impact on individual companies and I I'm spending a lot more time really understanding what is quality what is competitive advantage what are most how can we think about them? So at Jengen, I mean, one of the things we do recently is that when we start the investment

process, rather than starting in just union economics, we also start on the competitive advantage. And now we kind of bucket quality into nine different sub-areas. So the first area is the barrier to entry. And then the final area is test of time. So we also like communists that have tested time. So they've been through bad managers. They've been through World Wars or they've been through, you know, high drill particular tensions in their local environment so we'll spend a lot more time looking at

those factors really and that definitely impacts the longer term irr you see in these companies hey timon here it's great that you've made it that far into the video and i think it shows a certain passion for investing you're having if you want to dive deeper and go further down the rapid hole you're invited to apply to my community good investing plus It's a place that's very helpful to people who are ambitious about investing. It's helpful to investment talent as well as Experian fund managers. So if you're interested, please click on the link below. And now, without further ado, enjoy the conversation.

You also want to discuss a certain stock you find interesting at the moment. It's Alpha Group International listed on the London Stock Exchange. What kind of problems is Alpha Group solving? So Alpha Group, I mean, first, before just answering, I came across Alpha Group because we were trying to understand business services from a holistic perspective. So these are companies that don't necessarily have physical assets, but what they have are people who can solve problems for businesses. So it's a huge range of businesses. So you have things like IT consulting, you have HR services, and then you have this niche. where you're helping businesses solve their FX problems.

So if you're a global business, you have to have exposure to different currencies. Some of them you have to hedge and some you don't have to hedge. In the past, these services could either be provided internally where you employ a head of finance and has a background in FX and the person does it. But there's a limit to how much one person can do this thing. And sometimes employing a whole team solving this issue. can be quite expensive for a business because you have to pay a salary for each and whenever one of them.

What then happened, I guess, in the late 90s was that the banks took this function on board into bank corporations. They started providing their clients with FX solutions. The problem with banks is that they tried to cross-sell so many different things. So the alignment in terms of having the best solution and also the one that's going to make the most money for banks,

that wasn't really aligned. So leading up to the financial crisis, as FX solutions were becoming more complex, there were advising clients to take on these products. And then after the financial crisis, there was a huge regulatory changes into that sub-segment. So you had quite a few of these, I guess, focus niche FX solution providers coming. So AlphaFX, for example, Alpha Group was founded in 2009. And, I mean, that was really how they came across. So they saw this gap in the market where we could just focus on, I guess, on FX and business services for their clients.

And, I mean, that's what they've done. How did you discover the stock? We screened. So I love financials, but not banks, so financials, ex-banks and insurers. So I just screened, you know, the different types of financial services companies out there. There were a bunch of them consumer lending platforms. And that was how we came across Alpha FX and their competitors. And what made you invest in it?

So Alpha Group, I mean, I could go into more detail, but it basically met all four things we're looking for. So it met the strong unit economics. It met the competitive advantage over their rivals. It met oneroriented management team. And then finally, we thought it was undervalued where we made the investment back in 2020. So that's why we invested in them and we still hold them to today.

I'm happy to talk more about, I guess, the investment case. Please do. So, Alpha, I mean, Alpha FX, like I said, was founded in 2009. The founder, Morgantil-Tilbrook is still, you know, the CEO and he still runs Thin's day-to-day. From a unit economics, just walking through our investment projects, from a unit economics, Alpha-FX is quite asset-lite, so it doesn't need, you know, large capex or large offices to run their function. What they basically do is that they recruit a number of people, they train them in their own culture.

there's a strong, they try to incentivize them about finding the right solutions for clients. So they work, their clients range from companies like ASOS and retailers to funds and logistic companies, basically companies that need FX solutions. So they focus on those areas and it's quite profitable. So they've averaged profit margins around 35 to 40%. And I guess really what they, I guess moving on to, I guess the comparative advantage, what alpha FX do differently is how they incentivize their people. So most, not just the banks, but also their competitors, incentivize their staff on being able to make as much money from clients. So

they'll recommend like complex products and things, FX solutions or options that will make, you know, high, not really high volume, but like high margins for, for the companies. And Alpha FX saw this problem with their peers. And what they said was that, we're going to build a different culture, we're going to find outsiders coming to the field, and we're going to try and focus on really the solution we're providing for clients. So again, they've grown all their clients organically, and they're diversified. They have about 170 million pounds in annual revenue, and 40% of that is operating profits. And then also, I guess, four years ago, they started a new division called alternative banking solutions.

So what they realized was that they were having a lot of funds and investment companies become clients. And they asked the client to know what other problems are you having that's unrelated to FX. And one of those problems was alternative banking. So being able to set up bank accounts in multiple countries. That's something they started doing. And it's already a profitable business for them. And I think it's about a third of their revenues and profits right now. And that's how they're growing.

It's a 100% organic story, and they're growing revenues around 25% per year. And there's a long-term target for strong growth, strong profitability. And I really admire the management team as being outsiders in the FX, traditional FX industry. Maybe walk us a bit for your research process. What kind of rocks did you turn around before buying the first stock? first stock being first stock for the fund or in alpha effects case

in alpha in alpha so I mean alpha effects so again we're looking at financial services that are not banks or insurers because I find banks

balance it a bit too complex and insurers it's also quite complex so we're looking at this type of companies and there's a wide range of them so for example we spend quite a bit of time on the consumer lending platforms, especially the ones in China.

We thought the business economics were good, but we struggled to really see how they could continue growing at the rate they were growing for a long time. So we wanted something that wasn't in the lending segment of financial services. And then when we, I guess, narrowed down more into the FX solutions, there were all the companies. So in the UK, there's about three other companies in FX solutions. So there was Equals Group, Argentex and some other players. And when we looked at them, I mean, I've spent quite a bit of time on their peers.

They're all debt-free, profitable companies. But Equals Group and the other players, I felt they were spending a bit more time on just focusing on complex solutions. And they were trying to, I guess, predict their approach to ethics solution was predicting what clients, what exchange rates are going to go up and down and then telling clients that, whereas Alpha FX was the complete opposite where they were focusing more on what do the clients need, what are they trying to solve, what's their goal, and then providing what they think made sense without having that incentive of complex products. So again, there was a huge focus on the

qualitative aspects of understanding the culture, the incentives, and that was really what made just pick Alpha FX over the peers. And I mean, just concluding, every six months, we look at the trading updates, we're trying to check is our initial thesis still in place. So again, there was a slowdown last year in revenue growth for Alpha FX. So before last year, they were growing about 25%.

But then last year, they only grew by 12%. But then what then happened was that, again, the growth was slow because business activity reduced. when interest rates go up, you know, people are less keen on making huge investments in the business. So the organic growth dropped. But what happened with AlphaFX was that because they had opened the alternative banking solution, they were able to make money on interest income. So they made like 70 million on interest income last year.

And that was, again, because they had opened the alternative banking solution. So that also grew their profit by more than double. And I mean, now they've used some of that money to buy back shares and those who are looking at, you know, things like potential acquisitions and new areas for reinvestments. So again, that's the beauty of their holistic solution across alternative banking and FX. Going a bit away from Alpha Group, what do you do when thesis creep happens? So not your original thesis isn't fitting the facts anymore and the company behaves differently than you thought. What do you do then? I mean, the short answer is to sell if the thesis changes.

But I mean, I guess the question relates, when do you sell and why should a crisis creep make you sell? It's a difficult one. So again, we try to focus on what's the potential IRA we can make from the situation. So if a business used to be, this is a hypothetical scenario. If a business used to be in FX solutions, now they stopped doing FX solutions, and now they're in consumer goods. That's quite an extreme example, but we're trying to understand, you know,

what exactly is the potential market here and what is their track record here? It could be a thing that, you know, they had kept it as a small project and now they want to make it a big project. But if it's something where we just don't see management having any track record or a totally unrelated industry, we just sell it immediately.

Sometimes what happens is that they expand into a near vertical In those cases, for example, in AlphaFX, when we made an investment in AlphaFX, we were aware of the alternative banking solution, but we didn't think it was going to be such a big portion of their revenues and profits. When that happened, we spent quite a bit of time really trying to understand what exactly is the problem they're solving here. In the UK, it takes about eight weeks to open a business bank account. If you're opening it with Alpha FX, it's going to take less than two weeks in most cases. So it was a very clear solution that they were providing. And some that were able to measure it in terms of their cost, they're saving their clients, their time they're saving the clients, the level of efficiency they're providing for their clients, and the ease of use and the ease of onboarding for their clients. So it was very clear what the value proposition was. and management made our lives as shareholders much easier because they set long-term targets in terms of the number of clients

want to have on board, how the revenue model is going to look like, how we're going to grow out of the UK. So now they're in other European countries. They're also in Canada and I think Australia as well. So how they're going to grow beyond just the UK and it was very clear for us. So in that scenario, it was easy for us to be, I guess,

comfortable with their expansion beyond, you know, FX solution. But again, not every company, is going to make me that comfortable to stick around when something else is growing, and it's just being aware of, you know, if management has been realistic with you, you as a

shareholder. How do you think about the exit here, in this case of Alpha Group International? Yeah, so I guess the exit case, more specific to Alpha Group, we have a hurdle that we're trying to achieve a 15% IRA

and we can either get, we can get an IRA or 15% from three sources. One, you have, I guess, earnings growth where the business is growing their earnings by 15% given it's at a sensible valuation. The second would be multiples expansion. That's usually during periods, I guess, markets are negatively sentiment. There's negative sentiment or a company with alpha effects. There isn't really any negative sentiment, so we don't see much of the return coming from multiples expansion.

The third area where, I guess, you can make your money, I guess, your IRA of 15% would be areas where, I guess, managers give money back to the shareholders so to think about dividends or share buybacks. With Alpha FX, we're really thinking about, we're really focused on the first bit, which is the earnings growth. Can they grow earnings at 15% without the multiples going too high? So our exit at Alpha Group is quite simple. It's when we think they're going to stop growing at that magic 15% per year. And they can't go to other things like paying high dividends or buying back lots of shares. And that's where we, I guess, we will exit an investment. The other area that will make us exit an investment is if we see something much better.

So one of the joys of an investing is that even when you've made an investment that you think is going to be very good, you have to spend more time and spend time really looking at new ideas. And if you find something, I guess, in financial services that we think is going to offer a better IRA or have a higher quality economics, we should we will exit alpha group for that company so those are the two key areas where we would exit alpha group as shareholders we've just discussed a real-world business and another real-world business is your fund so what is your why for starting a fund so I when I started the investment club while I was in university so the investment club I reached out to 20 friends. I had a passion for investing since I was 10. So when I got to university, I was like

I need to do something with my passion. And I reached out to 20 friends and I told them, I don't think we're going to make much money, but I would love, you know, to have some of your money to invest and build a track record in case I want to do something afterwards. And some of them didn't respond, but 20 of them responded and they gave me a thousand pounds each. And that was really how we started the investment club. And then over time, the first two years, our performance was decent. And I asked myself, you know, what exactly can I do beyond just running an investment club? And then the idea of actually running a real-life fund came about. And for me, it was, I think what was really unique about that opportunity was, I was in a position where I could

merge, I guess, what I can do for a career with my passion and what I want to spend my time doing. And that was really just all things coming together. And then also I met our current CEO Anil Joshi along that process of discovering how the fund process works. And I mean, that really was my answer. And that was really why I started, you know, spending my career and my time doing something I'm extremely passionate about. That's what keeps me up today. And that's what keeps me going when the market goes down or the market goes sideways for a long time. It's just that passion for investing. This origin of from the investment club, how did it shape your approach or made it differently?

So I mean, we could look at starting of fun from different, like we could look at managing of fun from different angles. But I mean, just looking at how we communicate with investors. So again, this was when I was in third year of university, literally 15 of the, you know, those 20 people had no idea what stock, I mean, they knew what stocks were, but they've never invested. So it was very clear that if I'm going to be managing their money, I'm going to have to write in a simple way and communicate to them in a way where what I'm writing makes sense. And I guess one of the joys of writing simple is that you're able to also understand things

as yourself simply. And how I think about, I guess, how I invest. I try to break it down to its simple format and that's also had an effect on how i guess research companies and understand companies and communicate my investment approach just trying to keep things very simple so again that was one one big area that the investment club um had and that's one way it impacted the way i guess i run jenga today and the way i manage money today another area i guess is realizing how much work goes into setting up a fund because an investment club yes it's just an investment club or you have to do the legal, the audit, the month reports, you need to make sure the reports are accurate and send it out

to people and write an annual report. I mean, there are lots of areas of writing a fund, so it made me, it prepared my mind for, you know, the operational elements of building a fund. And now, I mean, it's not easy, but it's something I've been prepared for. And now I have a team of people who are helping me out in several areas. I probably wouldn't have realized that if I didn't test things out by our investment club. So, I mean, yeah, that's how it's really helped me. So let me expand this question a bit.

How are you different with your fund then compared to other solutions on the market? So I guess one of the difficult challenges with the funds is that there are literally thousands of funds out there, active funds. And if you look at like the last 10 years, there are even passive funds that are exposed to, I guess, thematic ideas. You have global funds and you have, you know, private funds as well. So it's really challenging to be the only you in your bucket. So we do global equities. And it's challenging to say that there's no fund you can do what we already do. There are funds out there.

But what makes me different is really my story. And I guess what motivated me to invest in and where I come from and how I think about the world. And that's reflecting, I guess, in how I invest. And again, growing up in Nigeria, seeing, I guess, most investors today come from, you know, countries like the US and Europe and, you know, they look at the world from, I guess, from a top-down view where you look at US first and then you look at other countries. For me, I look at the frontier markets and then I look up. So that perspective and I guess that way shapes how I think about opportunities and the opportunities out there. It makes me appreciate certain things more

and also makes me, I guess, value certain things less. And that's been, I mean, reflected in our portfolio. So, for example, our largest company today, which has also been one of our successful bets in the past two years, come from Kazakhstan. And when I speak to US fund managers about it, once I mention the country it's from, they automatically, you know, shun it out. And I mean, it's been a good holding for us that's listed in the US now. But I mean, just having that perspective is something that I guess makes me different from most investors out there. And I guess also one of the things I've learned from the really successful. investors is that you don't have to be completely different from everybody else.

So Charlie Munger wasn't different from Warren Buffett, but if you invested in both of them, you'll have done quite well. So what I try to do, and the lessons I've learned from, you know, these really successful investors is do the really simple things, do them well, and do them consistently. And that's really what I try to do at Jenga, my role as a fund manager, just doing the simple things really well. when you read an annual report, just make sure you actually read it and you make good notes. When you think about the financials of a business, don't just look at past, you know, performance, really think and critically analyze how it is today and see it tomorrow. I mean, just those simple things, just making sure I'm consistent and I do.

Well, that's really what I try to do at Jenga. So how would you describe your competitive advantage as a fund manager then? I mean, the competitive advantage is that we have a different perspective in how we think about the world. That's really the competitive advantage. Being young, I'm 24, and if you look at that portfolio, we have quite a bit of consumer-exposed companies. And these are companies that, in some cases, they're exposed to, I guess, the younger generation of consumers. And some of the cases, they were originally exposed to younger consumers, but they were able to grow into older generation. And I mean, being unique, being young, that allowed me to understand the potential there.

So for example, you think about L'Oreal, you think about the customers and consumers. Being young, seeing what happens on social media, allowed me to really understand the potential for a cosmetics company. And why even some companies as big as L'O can still grow double digits and transition into growing in China even much faster and expanding to different categories. So again, I mean, that's really the competitive advantage, I guess, having a youth exposure to life and having a different exposure to life from where I'm given from where I'm from. It's maybe a bit of a tricky question. I don't want to disclose you, force you to disclose too much. But as a young fund manager with 24, what kind of investors were open to invest with you, their money? Zero.

So when we started, we didn't have any, we didn't have any like, when we started, when we started, of the fund, I mean, the struggle for us was that when we launched the investment, when we finished the investment club to the fund, when we got a license, we couldn't have retail investors. We could only work with accredited investors. And I literally had a zero network in the accredited investor space. So we had no prospective investor. But I mean, through word of mouth, we're able to meet a few people who, I guess, had read either research or someone who told them about us. This was a very few number of people, and that's how we started. So, I mean, now we just try to focus on, I guess, writing our research,

putting a word out there through word of mouth, and I guess we just try to grow things organically, and hopefully the right people who believe in us, see us at some point. So that's how we started. Zero. Okay, then it's quite a challenge, but if you're young, you can do this. I mean, we keep course slow as a firm, So I, I mean, our office rent is, we have an office in London, but we don't pay anything because we were part of like an accelerator program who we're willing to provide office space for three years. And I mean, just having that principle of having a very low cost, I guess, living and also low cost, I guess, business expense has allowed us to, I guess, survive so far with such a low cost client base.

And that's just been, that's my nature. That's just been who I am. And that's how we just run Jenga. so we're able to do these things even with a low client base. How do you think about, like coming back to your fund, how do you think about portfolio construction? What is your framework there? So a framework goes back to how, what we're looking for when we're investing.

So it's the four points, business economics, competitive advantage, good management and valuation. it's very hard to find companies that meet all four. And one of my learnings is that one should not like sacrifice one, don't sacrifice low valuation because you can't find anything, or don't sacrifice good managers because you can't find anything. So finding companies that meet all four is a big challenge and you really need to understand companies at a very deep level. And because of that, there's a limit to how many companies I can really spend that much time on.

So we have a fairly concentrated portfolio of 15 to 25 names. Right now we have 16 names. We try to keep it at 15 or 16 at most times. So just from that number, the number of companies, I mean, the portfolio weight into each company would vary between 3 to 7.5% at when we buy them. We try not to buy, we don't do startup positions where we put 0.5% of our fund into the company and we try to watch it. We just try to buy companies that we have a strong conviction for, so minimum of 3%, maximum of 7.5% at when we buy it. Sometimes, if we're doing a good job, the company would grow because their earnings growth is higher than we thought or their opportunities become bigger than we thought. So they become a large position in the fund.

We limit that at 15%. So if a company becomes 15%, we try to trim it by a bit. And that's just because I think it's responsible to diversify because, again, it's impossible without being an owner to know all the risks that's associated with businesses. And the world has changed a lot from 30 years ago where there's just so much hidden risk that we're not aware of. So you think about the impact Internet has had on the businesses and AI is having on industries. There's just so many changes that's happening out there. So we try to diversify responsibly and we look at diversify. not just the companies, but also the industries, the countries.

So, for example, we have 16 companies, but that comes from 10 different countries. They're incorporated in 10 different countries. So we try to diversify from that viewpoint as well. And that's really our portfolio construction. There's no physics behind it. It's just you try to keep things from a common sense and tailored to what we actually do. So it's a function of what we actually do. you already mentioned Facebook or meta how it's called today

do you still own it or when have you sold yeah so that was a mistake for us we sold towards the bottom at the end of 2022 so that was a big mistake for us where it's gone up I don't know 280% since then it's painful watching meta platforms but again it's one of the difficult it's one of I guess the great parts of investing where not every decision you make will be right, but it's about really looking back at, you know, the decisions that you made in the past and understanding what went well, what went wrong.

So with Facebook, I think the mistake I had made was that I had allowed the noise get to, I guess, the fundamentals with Facebook. And, I mean, Facebook is one of those comments that there's always something happening in the news. It's either TikTok is coming or Cambridge Analytical or something. There's always something going on. And I was spending just too much time trying to track meta platforms. And, I mean, that was the lesson there, not letting the sentiment really impact how you think about communists fundamentally.

And now that's how we just try to take that lesson into the communists we're investing in today and not letting, I guess, the sentiment and what the court of public opinion says about the company affect our decision making. So nowadays, you would just buy. Yeah, the bottom, not sell. Not sell. Yeah, but I mean, some cases, you should sell them. So again, with Facebook, I mean, when I look back, you look back at the core way they make money, which is advertising revenue.

The question is, is Instagram and Facebook still being used by people? The answer is yes. Is it still an efficient way for small businesses to advertise? The answer is still yes. Is there still potential for Facebook to grow? The answer was yes. It was slowing down. I think it was about just under one point something billion back in 2022, but then it was still

growing as a sense of time. Yes, there was competition from TikTok when you think about reels and I guess video element of social media. There was also competition from Amazon because Amazon was growing their advertising revenue in their e-commerce division quite strongly, but the Facebook was still a thin. Instagram was still a thin and when you get to nine times earnings. You have a profit margin of about 30, 35% each year. And one point something billion people are using your platform. And you have a founder like Marcus Zuckerberg, who was still in charge, who's still super focused on execution. I think sometimes you have to just, you know, think, see through the cycle. And I mean, that was the mistake with me, made with Facebook.

I have asked my questions. And for the end of our interview, the guest usually has the chance to add something. So is there anything? thing to add, Didi. As Charlie Munger would say, nothing to add in this case, yeah. Then thank you very much for answering the questions in detail. And thank you very much for your time and also a nice bye-bye to the viewers. Bye, bye, bye, thanks, gentlemen. Bye.

I really hoped you enjoyed this conversation. If you did, please leave a like and a comment and for sure, subscribe to my channel. Traditionally, I want to close this conversation with the disclaimer. So here you can find the disclaimer. It says, please do your own work. This is no recommendation. What we are doing here is just a qualified talk that helps you, but it's no recommendation.

Please always do your own work. Thank you and hope to see you in the next episode. Bye bye.