We Study Billionaires - The Investor’s Podcast Network - TIP586: Mastermind Q4, 2023 w/ Tobias Carlisle and Hari Ramachandra

Episode Date: November 5, 2023

In today's episode, Stig Brodersen speaks to Tobias Carlisle and Hari Ramachandra. Stig outlines why he put LVMH on his watchlist and is waiting to buy the dip. Hari’s pick, Dollar General, is down 50%, and super investors like Chris Bloonstran, Seth Klarman, and Tom Gayner have invested, and insiders have been buying too. Tobias pitches Inmode, a stock facing a lot of bad news as a result, could be trading at a very attractive price.  Ensure you stay around for the end of the episode, where we share information about how you can meet up with our hosts William Green, Clay Finck, and Kyle Grieve in Omaha for the Berkshire shareholder's meeting. IN THIS EPISODE YOU’LL LEARN: 00:00 - Intro 11:33 - Why Tobias is bullish on InMode 38:35 - Why Hari is bullish on Dollar General  1:06:46 - Why Stig is bullish on LVMH   1:43:54 - How can you pitch your stock to the TIP Mastermind Community  1:59:43 - How to meet up with the TIP team and listeners in Omaha in May Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the waiting list for our TIP Mastermind Community. Contact Clay for more information about our exclusive weekend in Omaha at [e-mail]. Get help planning your trip to Omaha by listening to this episode or watch the video. Tune in to the Mastermind Discussion Q3 2023 - TIP576 or watch the video. Listen to Mastermind Discussion Q2 2023 - TIP557 or watch the video. Tune in to Mastermind Discussion Q1 2023 - TIP528 or watch the video. Listen to Mastermind Discussion Q1 2022 - TIP418 or watch the video. Tune in to Mastermind Discussion Q2 2022 - TIP450 or watch the video.   Listen to Mastermind Discussion Q3 2022 - TIP475 or watch the video. Tune in to Mastermind Discussion Q4 2022 - TIP496 or watch the video. Dollar Generals’s debt situation on page 35.   Listen to Chris Bloomstran’s interview with William Green about Dollar General or watch the video. Erwan Rambourg’s book, Future Luxe – read reviews of this book. Our FREE stock analysis resource, Intrinsic Value Index. Subscribe to our FREE Intrinsic Value Assessments. Tobias Carlisle's podcast, The Acquirer’s Podcast. Tobias Carlisle's ETF, ZIG. Tobias Carlisle's ETF, Deep. Tobias Carlisle's book, The Acquirer's Multiple – read reviews of this book. Tobias Carlisle's Acquirer's Multiple stock screener: AcquirersMultiple.com. Tweet directly to Tobias Carlisle. Hari's Blog: BitsBusiness.com. Tweet directly to Hari. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. On today's mastermind episode, I sit down with Tobias and Hari to pitch three different stocks we have on our radar. My pick is LV. AIMH, the second most valuable list of stock in Europe, that it's still growing very fast and when the valuation looks more and more attractive. Speaking of attractive valuations, Harry's pick Donald General is down more than 50%, and superinvestors including Chris Broomstrand, South Claremont and some gainer have invested, and insiders have been buying too.

Tobias is pitching in mode, a stock that has been facing a lot of bad news, but where it looks like the market could be all reacting, and we might be looking at a bargain price. Make sure to stay around for the end of the episode where we share information about how you can meet up with our host, William Green, Clayfing, and Carl Grieve in Omaha for the Berksia shareholders' meeting. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires

the most. We keep you informed and prepared. prepared for the unexpected. At Desjardin, we speak business. We speak equipment modernization. We're fluent in data digitization and expansion into foreign markets. And we can talk all day about streamlining manufacturing processes. Because at Desjardin business, we speak the same language you do.

Business. So join the more than 400,000 Canadian entrepreneurs who already count on us. And contact Desjardin today. We'd love to talk. business. Welcome to The Investors podcast. I'm your host, Stig Broderson, and today I'm here with Toby and Harry. How are you today, Jens?

Hey, Stig. Hey, Harry, good to see. Yes, Jake. Hey, Toby. Good to see you. Happy to be here. So perhaps before we dive into our picks, which is typically how we do things here on the mastermind meeting, we all present

the stock. We want to talk a bit about what we see right now in the economy, and there's so many things going on. right now. And so I'm going to throw it over to Toby. I've been talking about on Twitter, I've got a collection of the bad news stories that I see that might indicate some sort of recession coming. And I've also been tracking the inversion, the 10-3, the yield curve inversion. I know that that sounds like this, it sounds like this kind of technical indicator that you can probably ignore pretty comfortably. But I don't think it is so much a technical indicator

as it is, just an indication of what the Federal Reserve is doing in the economy. So when they see the mandate of the Federal Reserve is full employment and stable money. And it sounds like a funny, like those two things don't really sound like they should go together. But the reason that they do is when you have very low rates, really you get very low unemployment. And when you lift rates, you get higher unemployment. And so they're balancing those two. And so they see the economy gets overheated, which might show up as inflation or booming stock prices. They raise rates to cool it off a little bit.

And vice versa, if they see that unemployment's too high, it looks like the economy's in recession, they lower rates to try to stimulate the economy a little bit. In very sort of rough terms, that's what's happening. So we've gone through this unusual period where we had COVID, we had a shutdown. There were lots of stimulus that came out of the federal government through that period. So fiscal stimulus. And we had some monetary stimulus too in the sense we had very, very low rates. And we increased the money supply, you know, materially about 40% plus through that period of time.

It doesn't always flow directly into consumer prices. It can flow into asset prices. And I did both, which is why I think we had NFTs running up and the tech stocks going silly. all of these things that happen through that period of time. And so Powell, I think, is trying to somewhat put the inflation genie back in the bottle a little bit by raising rates here. We're at about, I think the 10 year is approaching 10%. I think the effective funds rate is somewhere between, it's sort of 5 and 6% somewhere

around that, which is sort of what the interest rates are in the economy, the effective funds rate for most borrowers. Those aren't particularly high on a long run. That's about the long run average. But we've gone through more than a decade of very, very low rates. And a lot of interest rates are. And in the pick that I'm going to talk about, this is a real effect. The higher rates are affecting the business of this company.

So the higher rates just, you know, a lot of people have borrowed at the lower rates. They've bought their businesses to run at the lower rates. When rates go up, it makes it harder for them to finance their business and they've got to roll over a lot of this debt. A lot of it's not paid out. Most debt is just rolled over. And so we're going to go through a period. now where these lower rates are going to start impacting the economy. The yield curve really just shows that influence. So it shows that at the short end, which is the shorter term end, the three-month

end, that's the end that shows up when the Fed is doing something because that's the end that they control. And the longer term end is less under their control. So they've raised rates. Rates have gone up historically, and that those rates going up has caused an inversion, which means that the front-end rates are yielding more than the longer-term rates. So historically, where we've had these inversions, there's been a recession that's followed on from it. I don't think that the recession has followed on sort of, I don't think it's a correlation. I think it's, in fact, what the Fed is attempting to do. I think they're trying to cool the economy down by raising those rates. And it's difficult. You look at it from Jay Powell's perspective. He is looking at an economy where a year

go rates were basically zero, rates are now at 5%. Stock markets close to an all-time higher, well, it's off, you know, coming up from maybe 10%, 5% and 10% since 2021 when it peaked. So we're about 22 months into that sort of drawdown, but it has been lower. It was lower in August, October last year. It's quite a bit higher than it was in October last year. And house prices, you can look at any search and you'll see house prices are more expensive than they have been at any other point in history. Mortgage applications are at like 30 year lows. All of these numbers are, you know, they're stretching to find, to go back in the data to find the last time that it kind of looked like this. And so it's just hard to the extent that you can

find comps. They look like they come from the 70s, which was not a great decade. There's a lot of inflation in the 70s, lots of unemployment. Stock market didn't do very well, had two big crashes. So the inversion, typically it takes about 12 months for the inversion to show up in economy. So it's 12 months from the beginning of the inversion to the impact on the economy, to the declaration of a recession. That's the average. We've only got eight instances, sort of in modern history, going back to sort of, I think it's like the 60s or something like that of these inversions and the recession that followed. So there's not enough that it's statistically significant. It's just that I think the logic of it is pretty straightforward.

Fed sees a hot, overheated economy raises rates, the impact of that. is eventually a slowing economy, lower asset prices. And where it's sort of 12 months into it, it was October 25 was the inversion last year. So October 25 would be 12 months, which is the average. This is the longest inversion that we have in the data. We've never stayed inverted for an entire year. So the Fed has kept the rates very high. And there's a lag between when the rates go up and the impact in the economy. Who knows how long it is. It could be 18 months to two years. So I think a lot of folks have, they either don't realize that it takes a year for the inversion to really, on average, for the inversion to have any impact on the economy or those higher rates to have any impact. And so they seem to think like this story is that happened a year ago.

Nothing's happened. Therefore, nothing's going to happen. Eight ends, eight instances is not enough. But that's the average. And it has been as long as 15 months. And this is the longest inversion record. So it's entirely possible. It's quite a bit longer.

If I look around the economy, I think that I can see a lot of weakness in individual notes. names when I look at their results, I think there are layoffs coming. The employment number is a lagging indicator. It's always the last data series to go. And in fact, when the employment actually starts ticking up, that's likely the point that it's time to buy the market because it's so lagging that when unemployment ticks up, that's sort of actually the point that you want to be getting a little, that likely asset prices have come down and it's time to buy. So that's my kind of thumbnail sketch of what I think is going on. That's all of those influences have sort of impacted the stock that I am going to talk about in a little bit and some other geopolitical things that are going on.

But I do think that that is real. I think the recession is likely coming. I think you need to be in names that are robust enough to survive whatever is going to come. And they typically last like 18 months, two years. The stock market could bottom a lot earlier than that though. I think what tends to happen as a stock market, we could be, we could have three to six months of a lot of volatility and much, much lower prices in three to six months. But at the time that it looks darkest, that's often the time to buy. So I think the likely after you get through that period, the Ford returns, particularly for value, it would be very good. So I sort of, I welcome these periods, even though they are a little bit stressful for everybody as we go through.

that I think it's a necessary part of clearing the dead wood out of the economy to allow the next phase of growth to occur. And the sooner we get it done, the better, in my opinion. Thank you for sharing Toby. Let me throw it over to you, Hari. What are you seeing right now? Yeah, I was very curious to know Toby's talk. So thank you, Stick, for asking that question.

So I think I can kind of, you know, add to what Toby said because some of the things that Toby touched upon, I'm seeing the symptoms on the ground. around like the layoffs in Silicon Valley, it hasn't stopped. It's a trickle now. It's not a flood like it started off. But there is every other week I hear there are layoffs that are publicly announced. But they're also getting smarter in the sense there are stealth layouts. There is these small numbers like 200, 300.

I'm not going to name the companies. You know them. They're all big. But I see that happening even now. LinkedIn recently announced a layoff. 700 or 800 people were let go. So I think it's almost like all these companies have got the memo from the Fed. So that is happening.

And also I see that there is a lot of pressure from the Wall Street for many of these companies to increase their profit margin now that growth doesn't seem that imminent in the near future. So that's also probably a contributing factor. The other thing I also kind of worry about or in the horizon is what Peter is a Han talks about is like, U.S. is the only OECD country that can afford to raise rates. The rest, even if they wish to with inflation, they can't because of the demographic situations they are in.

And also with all the geopolitical issues right now, it looks like energy cost is not going to come down anytime soon. So I don't think we will have the tailwind of lower energy prices going forward. now that like a major supplier like Russia is pretty much shut off many of the markets. So yeah, like when you look at all these data points, it's hard to imagine a good economy. When I look around in the neighborhood, the homes still selling fast, home prices are still all-time high. We are living in two different words. So that's very interesting.

I think it's a very interesting time we're in. And one of the things that I remember thinking about whenever we started the podcast back in 2014 is I thought to myself so many times that this time there's so much uncertainty and something is going to break. And I can more or less say that I've said that every single quarter since we started in 2014. And now I kind of feel like we are in a place where there is a lot of uncertainty. And hindsight is always 2020. And whenever we look back, we can be, oh, of course, you know, we had the big drawdown

with COVID. Yeah, we didn't expect the pandemic. But of course, it was sort of like what we saw with the money printing, all of that. I had no idea what would happen if we had a pandemic. I'd never experienced a pandemic before. I didn't know what happened before. And so I think it's important to stay humble. And, you know, I think Toby had very interesting thoughts on what you're seeing, for example, with the interest rate. And I might see some things slightly different. Perhaps I'm just been looking at different data. I don't know. I think it's natural to compare it to the 1970s, but also think it's quite different

because the debt level are just so much different today. They're a lot higher today. And so I don't really know are we going. Like we have this dynamic where with interest rates going up and we do see inflation retract to some extent, but how much can the economy take? That's another thing. Like you're looking at the numbers of how much all the debt that we have, how much of that, simply like say, the government revenues are just going to be paid back with paying back the interest of government debt.

Like it's kind of ridiculous. And to your point before, Harry, where. The US is in a privileged position, but it's not like it's in a good position, but it's in a better position than many other countries. Like, what you see in Europe right now with the spread with the Italian interest rate compared to, say, the German, like, and they can't like, it would just break. It would just break Italy if you have with the kind of debt burden they have with the interest rate, and then you have ECB coming out, more or less repeating what DRA has said about whatever

it takes in terms of buying back bonds. And it's just like, I can't really see how this ends because you can't really, can't really continue to hike the interest rate, but then, you know, you sort of like have to do it because inflation is going to run, but also a big component of hiking interest rates also that, well, we have to finance this with the deficit that we have because we have interest rate in the first place. And, you know, going up, so it's sort of like you have this cycle where it's just really, really difficult to stop it. Like, if you really want it to stop it, it would be something like a sturdy or something like that, which is just not going to fly. You know, that's sort of like

what your first world countries impose on third world countries. And then they do the exact opposite, whenever they have a crisis, you know, whenever they go to Pakistan and whatever, Argentina, they say something like, you should stop spending money because now you're in a crisis, you know, don't invest in R&D, don't invest in your education system. And then, you know, we have all the politicians in the first of all countries, like whenever there's crisis, like, but now it's the time to invest and it's okay to run 10% deficits on government finance. So I just, I can't really see how this plays out. I do want to say, I have noticed that an ounce of gold just crossed $2,000 and we're closing in an all-time high.

So I kind of feel like I sounded like a fearmonger just before, but I do want to say that as much as I'm into equities, having a bit of your portfolio in some hot money might not be the worst time right now. I don't know if you can use that as a segue going into Toby's pick. Originally, I prepared saying something about, I now understand why Toby's skin is so fantastic, but perhaps I don't know if you could use that as a segue into the first topic here and with all the conflicts that we see across the globe. Yeah, so my pick is in mode, I-N-M-D is the ticker.

And the reason that Stig makes the gag about my skin is that it's a minimally invasive, non-invasive surgical procedure for aesthetics, mostly. So they have a variety of these different brands, but they're all basically the same ideas, but skin tightening and those kind of where it's somewhere in between full-on cosmetic surgery and the, the less invasive stuff that a cosmetician might do. It's in that in between. For people who, they say their target demographics, mostly women, 35 to 50,

who don't want the full surgical procedure, but want something that does a little bit more than, you know, like a cosmetic sort of update. All of their revenues, or most of their revenues are from the US, even though it's an Israeli company. It's an Israeli-based company. And that's one of the reasons why.

So what has happened if you look at the stock price, the stock price is down about 50% from its peak. which was July and then it had sold off. It was down sort of 30% something like that until earlier this month in October when they released their full year guidance and they had guided for 530 to $540 million for the year. They've guided down now to $500 to $510 million

of revenue for the year. So you get the idea this is a pretty small company and when that happened on that day, they sold off 20%. And I do own this thing so I've owned it. I'm not entirely sure. exactly, but a quarter or so. So we've taken a lot of that drawdown so far. This is a smaller company.

It's a $1.6 billion market cap. Enterprise value is about a billion dollars because they've got about $600 million in cash, net cash, which is the kind of business I like not stressed financially, going into what could be a difficult period financially. Stock prices at $19.73, so it was $46. So it's off more than half since July. It's a financially, a very impressive company.

It's small and it's only been listed since 2018, 19, something like that. So the financial statements don't go back publicly for a long way. But EPS, when it listed was 80 cents. EPS last time it reported was a little bit over $2. So it's grown very rapidly over those four or five years. They're still projecting revenue growth rates for the next few years will be, well, this is the estimates. So it's $520, well, we're 500 to $510 million this year for it to $1,000.

$6666 million in two years time. Now, I don't know how likely that is to eventuate, and I think that probably they're going to struggle going into what we're about to go into. I mean, I think there are lots of reasons why this stock is down, but I still think that the business itself is impressive. You know, the way that I invest is, I'm quantitative, I look at the financial statements, I put together a portfolio. This is in my mid and large cap fund Zieg. I do hold this. It's still in my model. I would still buy it now. So this is one of 30 names in that portfolio, just so you know how I'm waiting this thing in mind. It will be 3.3%.

When it went down, I bought a little bit more. If it goes down again, I'm likely by a little bit more at the next rebalance state, provided it's still in the model, but that's my belief is that it will be at this point. Return on equity, it's like 30% plus gross margins in the order of 40% plus. Sorry, gross margins are in the order of 80% plus, operating margins in the order of 40% plus. And for all of that, you're paying a P.E. under 10, price to cash flow under 10, price to free cash flow under 10. Most of the money just flows through to the bottom line. And it's a little bit tax advantage in Israel as well because they're in some tax zone in Israel. Ford growth is still like in the 10 to 13 percent annual compound kind of range at the top level. It seems to fall through a little bit, maybe a little bit higher than that at the bottom. So I think it's a reasonable risk adjust to bed. This is a better company than where it's trading at the moment. So it's a reasonable question to ask, why is this so cheap? Why me? Why now? It's Israeli. So there's clearly some geopolitical

risk there in the Gaza Strip, although they have got a press release saying everybody's safe and they're fine. And there's not a lot of consumption of the products. So they sell to the, they sell to the people who perform these procedures, not to the, not to the people who receive these procedures. So they're sending it, they're selling a machine that then somebody uses to perform these procedures. And they're selling these mostly into the US, so that it's unlikely, I think, that the business itself is impacted by the geopolitics of that region. Possibly a bigger issue for the business, but this is going to be true for many, many

businesses is some economic weakness here. I suspect, and I don't know, but I suspect that if you go into a period of economic weakness, then if people have got constrained budgets, I don't know that cosmetic procedures are high on the list of the things that they'll do. But people are strange creatures. They prioritize different things. It's not immediately true that these guys will see that reduction, but maybe at the margin,

maybe they won't see as much growth as they're predicting. I still think this thing is so cheap that it's such good value. If the business continues on the way it has been, even if it's just a little bit weaker than it has been, it's still too cheap at under 10 times PE. The other sort of risks for this thing, It's become a little bit of a gag on Finwit to say that all the semi-glutide and all the weight loss drugs impacting every single business.

You know, planes are going to be, people are going to be lighter, so planes are going to fire faster, which means that jet fuel is going to be consumed less. So that's going to be a weakness in the jet. It gets silly how far you can go out. There's a possibility that this is in some way impacted by people leaning down and therefore not needing skin-tuttening procedures. But I could easily make an argument that someone who leans down to say, that they need a skin tightening procedure.

So maybe it'll be a boon to them. I don't know. Maybe it'll be helpful. I have no idea. But it's worth noting that that does seem to be a recurring risk. It'll probably be in my disclosures for my ETS when it comes out. It's funny the stuff they identify every year is the risk. The main question for me is they've got $600 million in cash on their balance sheet. They don't seem to be spending a lot on R&D.

It seems to be largely unnecessary for them at this point. There does seem to be increasing competition. have a slightly different model. You know, there's a razor, razor blade type model. It's how much do you sell the initial machine for versus how much do you sell the recurring elements of the machine for? They've taken one direction. Some of their competitors have gone another direction. I don't know which is the correct direction to go. But at this price, I think it's sort of a little bit risk adjusted. It's worth taking a look at something like this. But the real question is, with all of this money on board, they're making a lot of money. They've still got pretty good margins.

A lot of this money is falling through the bottom line. not institute a stock buyback, like a material stock buyback at this level and really show that you have the financial wherewithal and the belief in the future of the business to spend that money buying back that stock. And in the absence of that buyback, that's the only thing that gives me a little bit of pause because I'd have one on if I believed in the stock and it was as cheap as this and I had the cash. But that aside, they could say, well, we're an early stage company. We're still growing.

We are still spending money on R&D. We need that money there. and we might be at the beginning of the of the economic weakness, not the end of the economic weakness. So we might need the resources to get through to the other side. So I think there's a reasonable like this way you wouldn't institute one. Having said that, I'd still be doing it here because I think these are pretty good prices. But that's sort of my pick in a nutshell.

The businesses, at least quantitatively, the business is much, much better than the price rich trading at the moment. there are some amorphous geopolitical risks and other sort of economic weakness and other sort of trends and things going on. But I don't know really realistically what the impact of those things is going to be. So I think as a risk-adjusted bet, as a small portion of portfolio, this is a good position to have one. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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That's Shopify. dot com slash WSB. All right. Back to the show. No, this is a very interesting pick. And the reason it is interesting is one, like, you know, any bad news that can hit them. It's like coming at them all at once. There is concerns about recession, there is inflation, there is geopolitical risks,

and they're at the heart of it right now. So I think that's why like Toby, I found this very interesting. And also thank you for going over this because I had never thought about this general area. And I was, after you shared the pick, I was looking at some of the data. And they said that the skin tightening market itself is growing at around 11 to 12 or 13% Cager year over year and expected to continue that growth. And the second thing in a way, correct me if I'm wrong, this can be inflation proof

because this is something that usually. the affluent, the upper middle class or the rich would go for. So their target customers, unlike the one that I will pitch later, are affluent. High net worth individuals are people with high income. So they might be, and probably in developed countries. They're predominantly in US or maybe in Europe. I don't think the world will have a shortage of people over 50 or 40. No, no time soon.

No time soon. So since all the bad news is out, the only risk I see, as you mentioned, Toby, is alternative procedures coming along, whether it is non-invasive or better devices if they're not investing in R&D and they might be distracted for a while and there might be somebody else who might overtake them. And I don't know how much of a switching cost they have. I'm assuming minimal. So that might be one of the risks that we have to keep in mind. Yeah, I don't know how competitively advantaged there, how much competitive there is in this stuff. I suspect there's not much really. If somebody can come up with a better procedure or a cheaper procedure, then that's where people will go. But it's a long process to get the approvals when you're going to do some sort of procedure on a person. So that's one thing that slows it down a little bit. And they're already selling into it and they've got a process for getting the approvals, getting their reasonably well resource, having said that, you know, a much bigger entrant could come in and change the dynamics of that. So I think, I do agree that there is some risk in this.

And the other thing that I should have mentioned, the economic weakness is not just a theoretical, I forgot to mention this as I was going through. But one of the reasons that they said that they missed guidance was that the higher rates are making it more difficult to finance the acquisition of their machines, which is, you know, because it's a business decision to buy these things. They buy them to then serve as a third-party customer. So at the margin, again, It makes zero percent interest rates make everything financedable. Five percent interest rates make things slightly harder to finance at the margin. I would say that there are just a huge list of things that are really nice about this company.

The income statement is just, it just makes you happy to look at the income statement. I don't know. I come across two months of an accounting nerve whenever I say that. But it is like it's a very neat income statement. The margins are really good. You don't have a lot of debt. We actually don't have debt to service. to have positive financial income, which you don't see too much these days. You have a lot of

marketing expenses, which is always interesting because generally with marketing expenses, you can also capitalize it, but generally it's expensed. And so that means that it's written off right away, but you're still building an asset, even though it might be expense through your income statement. And so in itself, I think that's very interesting. And I don't really know, because I don't understand the product well enough, how important that is. I will imagine it is important, but I couldn't be able to tell how much of that we can actually put into, let's call it maintenance capics compared to growth capics. But basically what I'm saying is that, you know, if marketing, if that makes you think

differently about the brand, it also has value. It's not just a pure expense for you as a company. So I definitely like that. I like that industry-wide, it's not common in this sector. This is that the founders are still involved, both in management but also ownership. It's not because it's this specific industry. You can say that about all industries, which you really like. And, you know, like Larkari was also getting at, you know, this is just the perfect storm.

Like everything could go wrong. It's just going wrong. And whenever that happens, I like to think it's a good thing because we all have this recency bias. They also lower guidance. You know, there's so many things you can say that you don't like about this company. And so, you know, I remember one thing that stuck with me was there's this research being done that if you invest in companies where they've just announced that a lawsuit was filed against them,

typically like if it's thereafter and the market has reacted because of recency bias, you would actually outperform the market. It just kind of feel that was interesting. So, of course, whenever you see lower guidance, like as an existence shareholder, that's probably not what you want to see. But if you're new or if you want to double down, sometimes it can be an opportunity. Of course, it could also be a secular thing that, you know, that's just how you capital capitalism is. And it's, of course, starts with lowering guidance. But I just think that

there are so many wonderful things. So what do I not like about this pick? Definitely not the valuation. I like the valuation. I like how much cash they have. I should also mention that. But I think one thing I don't like is that I don't really understand the buyer. And here I'm not talking about the customer who wants to have wonderful skin like Toby. But, you know, the clinic buying the equipment. I don't know why that they're buying it. I don't know why they, they, potentially not buy it anymore. I don't know how sticky this product is. And to Tobis' point, I would also expect because I know nothing about the industry that if someone came up with a better procedure or it was cheaper, why wouldn't they go with that? So it's not as sticky as we

would like for it to be. And then there's the component of regulations. I don't really know how, what impact that has. And I would imagine since it's more cosmetic, I will not imagine that there's a lot of insurance that is a factor here, but that's just with the very little knowledge that I have. Because if you look at the financial statements, you know, they have, to Tobis point before, 66% of the sales in United States, 11% in Europe, and then international, it's the remaining 23%. And they talk about that in the financial statement as our international market, there are 27 languages and more than 27 regulatory bodies that we need to deal with. And I don't understand that component. And I'm sure they do. So I'm not saying that you should not invest

in the company because of that. But I think that I've learned from a better experience that as much as regulation can be a mode around what you do, it could also be the very opposite. And I think I would need to understand that component a bit more. I mentioned, you have some of the big tech companies and you could also say that argument about that. But I'd like to think, at least I understand the regulatory framework around that and the potential limitations for those companies. I don't really understand it for a company like this and how it could potentially be crazy, a best scenario around this. So those were just my two cents.

Let me throw back over to you, Toby. Yeah, in terms of the competition or the purchaser of the product, it's largely a financial decision for them. It's the payback period. And that's one of the, there are different approaches among the competitors, how they implement the razor, raise a raise of weight model, how much, I think in mode is a little bit more expensive up front. and then it's cheaper to own over time.

The payback period is about, I think I saw in about 12 months, something like that, to get paid back for the purchase of the machine, which I think is probably pretty good. In terms of the regulatory environment, or let me just say, in terms of that, in terms of the competition, I think that the business itself looks, financially the business itself is, it's worth a lot more. If the financial statements continue to into the future, if the future looks like the past, look, the business is way too cheap on the basis of its historical financial performance. And you're kind of paying under 10 times PE, under five times inquiries multiple EV, but under 10 times price to free cash flow, those are very cheap numbers.

That's sort of like a no growth static business, pretty ordinary business. You would still do sufficiently well, I think, at those kind of numbers. and this is clearly a much, much better business than that very high return on equity, reasonable growth, huge gross margins, huge operating margins, those sort of numbers. So it's, if the future looks like the past, it's way too cheap. The question is, does the future look like the past? And that's the difficult question to answer because it's a newish business with, you know, it's trying to adopt a business model that's slightly different to the other competitors out there.

What that looks like through a recession, what that looks like if they really become successful, invite some competition, I don't know. And I also don't know the regulatory environment well enough. Just sort of comment sensibly there. As I say, I'm a quantitative investor. I look at the financial statements mostly over a period of years sequentially to try and get to the economic truth of the business without looking at so much of the other stuff because I just think it's hard to, I can build a narrative one way or the other pretty comprehensively showing why it should be a good short or it should be a good long. And it doesn't help me make a decision ultimately So I decide to make a decision on financial statements alone.

And then the way that I protect myself is I make these positions, 3.3% positions in the fund. And I take the position up if it goes down a little bit in a quarter and I'd take it down if it goes up a little bit in a quarter. And I sell out of it if it works and I sell out if it falls apart. So that's how I'm thinking about this portfolio. So I'm trying to create a portfolio of good businesses that aren't too expensive that are doing reasonably well, good businesses that are very cheap. and that's a distinction between me and many other investors who will know a lot of this stuff down to a great deal of detail, because it's just, it's not possible to know this level of detail across as many names as I cover in the fund, but I protect myself by sort of constructing portfolios.

So I always say that, I try to say that every time I do one of these podcasts, just so that there's nobody at home who's like, I said that this is a really good pick, and so therefore go and put 100% of the portfolio in definitely don't do that. All of these things have risk. they have material risk. I'm looking at portfolio performance rather than individual names. Yeah, and one more thing I wanted to add is, if somebody is thinking of looking into this company's mode,

one of the things might be to look into their IP. If they have patents, that might be a form of protection they might have. They do, and they're trying to protect them. I always say that patents are just a ticket to the fight rather than the winning lottery ticket. They just let you get in the ring. and swing a few punches, but they don't determine the outcome. So I do think they have a patent.

They're protecting it. They're suing a company right now. That's their last filing. You'll see their last press releases is information about that. So they have some IP there. To what extent that is useful or not? I don't know. But yes, thanks for reminding me about that, Harry.

I think that was an interesting big Toby. Thank you. I'm going to look into it for sure. It's very timely. I can go next because some of the themes will continue. here. So I think keeping up with stocks that have declined more than 50%, I'm going to pitch mine in the last one year, and that will be Dollar General. So Dollar General, as many of you might know, is a retailer. They focus on moderate income households, that is anybody with $40,000 or less.

Mostly, they are completely in the United States. They have more than 19,000 stores in 47 states. their strategy is very much the opposite of the big retailers like Walmart or Target, in the sense that their stores are very small on an average 7,500 square feet, compared to the super stores, which are 187,000 square feet, that's Walmart. The second pillar of the strategy is they focus on communities who are not sold by big retailers or don't have access to many alternatives. So they're usually located in rural areas, which are away from any other alternatives

by at least a factor 15 or 20 miles radius. And as of now, 75% of dollar general locations are in towns of 20,000 or fewer population, and 75% of Americans live within 5 miles of a dollar. So that's kind of how they have positioned themselves. Their strategy is, as I said, and the strength also is that kind of a network of locations, low-priced items, and then really good scalable supply and distribution capabilities. Most of their sales comes from consumables, whether it's healthcare products, sanitary products, tobacco, all the stuff that people need on a day-to-day basis.

11% from seasonal, 6% from home products, 3% from apparel. I kind of think of them as like 7-11 on steroids, like they're conveniently located, but have more options. They also have ventured into like, you know, grocery or food with refrigerators in some of their locations. They also are trying to get into urban areas, especially what is known as food deserts, where there are not many options. And one of their key strengths is also that they basically sell in small packet sizes,

unlike the cost goes or the Walmarts of the world, because their customers don't have the flexibility to buy products in bulk and get the discount. So their tickets, ticket prices are usually less than $5. Their customers usually, when they buy, like, you know, average ticket item, like whatever they buy in a single visit will be $12 or less many times. This has two advantages. Number one, it protects them from online retailers like Amazon because when the ticket items

are smaller in value, it becomes less profitable to ship them, especially in a single day. And the second thing is, since they're focusing on moderate income households, they don't have the flexibility or the affordability to pay for the annual membership so that they can get prime or single-day shipments. And with only five-mile radius or within five miles of accessible distance for 75% of Americans, most of them would rather just go by what they want. So that's one thing. The second advantage they have is smaller ticket items has higher margins. So they have been historically known to have higher margins. So it works in two ways to their advantage.

One defensive, one the other ones from a profitability perspective. So that's kind of how they are situated. But however, the reason they are down today is, again, a combination of multiple things, a perfect storm. For example, they kind of, you know, went through time when there was a lot of stimulus checks going around, they were growing really well, but suddenly the customer habits have changed. This also goes back to our discussion about the current economy, like, especially the households that Dollar General serves got a lot of stimulus check.

They had a lot of money to spend Dollar General expanded into multiple different product categories to serve them. And then the stimulus check started waiting out, interest rates. started going up. And this shows us that, in fact, they said that, you know, the same-store sales have gone down, even though their overall revenue grew by 3.9%. Historically, their revenue has grown much higher in the past, at least in the 5% to 10%, but like the same-store sales did go down.

They brought it up back this year, though, back to 10%, but they had an inventory growth problem because of that. So they're recalibrating, re-adjusting to that. But it does tell us that not everything is rosy in the economy. The second thing is that they're trying to also attract more customers by lowering their prices. So even though their revenue has gone up, it doesn't mean that their profit has gone up. In fact, their profit margin has gone down this year because of they're lowering the margin

and they're also hiring more labor. So investing more resources there to improve the customer experience. So it looks like they're having to woo the customer. So far, they didn't have to because of increased competition, deteriorating economic condition of their customers. So all these factors are kind of putting a lot of pressure on them. If you live in California, especially in San Francisco or L.A., you're so familiar with this. Because there are stores which are closing down in San Francisco because they just can't handle the ship. One of the things in California at race is like up to 900, correct me to be

dollars. If you are shoplifting and caught up to $900, you cannot be persecuted. So by law, is I correct me if I'm quoting it correctly. I don't know, but that does sound like I think I have heard that I don't know what the number was, but there was something like that. And they also had an incident where one of their employees was shot in Florida. So it's like a lot of bad news. One of the other and in the communities they serve, they're all hurting.

And there is a lot of shrinkage because of that. And there is also the less affordability by their customer base. So that's what is causing the current conditions for them to go down. However, they are implementing a few new strategies that they believe will help them. One is they are basically implementing this digital strategy where they have an app that you can get coupons and they're implementing a treasure hand kind of a model that Tjamax and Ross have applied successfully in the past. Through these apps, there is also increased loyalty. And then there is also a self-checkout or no-contact convenient checkout which will reduce shrinkage as well as improve the. efficiency with which they can operate with lesser labor and improve the customer experiences,

their hope. And 70% of their target customers do have smartphone. So they believe this is a viable strategy. And they're almost done going through their excess inventory and they have brought the inventory growth down now and they hope that they will come back to their original mode where they were. So in terms of just general more to summarize, number one, they're a high margin business because of the small ticket items.

They have lower costs because of smaller footprint, which means lower rent, lower labor, lower maintenance. They're insulated from online retailers because of the small transaction size, roughly $12 per visit by their customers. And they're insulated from big box retailers because unlike, say, dollar tree or other stores, they deliberately choose a place where there is no Walmarts are targets of the world and they're far away. Whereas if you see, in California, when I was kind of doing the research for this, dollar trees are always located very close in the vicinity

and sometimes there's the same parking lot as Walmart. So they have taken a completely different strategy than Walmart. They did grow through acquisition in the past and they are quite acquisitive when it comes, it comes to growth, but they have been quite prudent so far. However, I think going forward will have to see whether their growth strategy will work as it has worked in the past. In terms of their performance, they're not as impressive as Toby's pick. It's only 15% average return on investor capital over the past five years. Their margin is in the low 30s, that is gross margin compared to, say, higher 20% of target,

basically. Nine percent is their average operating margin. And overall, like, you know, in terms of cost, one example I would like to give for operating leverage, they incurred around $60 in selling and general administration cost per square feet compared to, say, $80 per target. Their operating margin is now around 7.9%, but it used to be more than 10% usually. So it has So it has come down and obviously because of that, their operating margin also has declined quite a bit in the past. So at a peak it was around 10%, 10.67%, now it's around 7.99%. So their P also has accordingly adjusted from a high of 24.67 to now around 11.81. So their stock price has obviously reduced by 55%.

So they also posted a decline. They guided down their EPS, declined in EPS, guided their EPS growth down. So everything that could go bad has gone bad pretty much for them. So that's my pick. And I would like to know, is it a value trap or is it something you guys would consider? This has been a popular name among sort of FinTwit circle. So I've seen this. A lot of people follow Dollar General, Dollar Tree.

follow those names. And I think it's because they think that there's something special there. Retail is tough, particularly the sort of discount retail is really tough. There's some real competition there, as you pointed out, Walmart and Dollar Tree and various other Costco, maybe not directly competitive because they sell bigger ticket items with a, you have to pay the subscription fee, the membership fee, whatever it is. But still, like, competing, we're just dividing up the pools of customers who are going to go to each one.

When I look at it, I think it is, you know, it's amazing how much it's come off from $250 to where it is now, which sends it back to where it was in like 2019. It's even cheaper than it was through COVID, through the COVID crash, all that sort of stuff. It's crazy that it's all the way back to here, which I think really speaks more. You know, I get a little bit of criticism as a value guy who talks a little bit about macro, but for a lot of these names, like, I just don't think, see how you can look at Dollar General and not have some sort of macro opinion. It's clearly the reason why they're weak is because their end consumer is weak or weaker than they were when they had all the stimulus through COVID. The questions, I think, the real issues for this, they took on a lot of debt to buy back stock when the stock was much, much higher than it is now. And so the stock is down a lot, the debt is still there. There's some weakness in their end customer.

And there's a lot of weakness in their end customer. And I can't tell. And this is one of the really tough things about having that. COVID comp through there, you don't know to what extent this is just coming off that sugar rush of all the stimulus that came through, whether this is, and probably both are true, or whether it's sort of extreme weakness in their end customer, that everybody is starting to feel the pinch. I think this is, it's an interesting pick. I do think it's undervalued. I think that the management's taking all that debt to buy back stock at much higher prices

is a concern. And the, you know, the, The debt being there is a concern, particularly if we still have to go into the period of the real economic weakness. I don't know. A few retailers have sort of quietly slipped out the back door through this process. It's been rough to be in retail. Some surprising once right aid declared bankruptcy. I don't know about you guys. I don't know if it's a right out or whatever the other. Every time I go in there, I'm astonished at how much money I spend in all these places. I don't know how they do it. What's the competitor to write-out, Harry, do you?

What's the local competitor? Is it Walgreens? I see them together most of the time. Maybe just right-ed that I go to. Yeah. Wal-Greens. I don't know. But whenever I go into this place, I'm always blown away at the amount of money that I spend.

So they must be doing okay. But right-aid is like somehow right-aids gone into bankruptcy, too much debt. And we've seen that with quite a few bed bath and beyond GameStop, I guess. GameStop has got a lot of weakness there, but they were able to raise some money because of the funny stuff that happened with the stock. retail is tough. Dollar General has a lot of debt, has a impaired end customer at the moment. There is a little bit of a, they do have a finite amount of runway here. They have to kind of resolve all of these issues. There's some risk. It's undervalue, but there's some risk in it

is kind of where I get to. Thank you. Steve? So I use debt aroma a lot just because I'm curious, you know, that's my intellectual snacking. And it's always fun to see what some of the best investors in the world are buying. And it's also interesting to see who are doing inside of buying. And sometimes those two, this task just seem to align. And so you had some of the investors that are following, Chris Brunstren, Sir Clarem and Tom Gaynor. And they all use different approaches to investing.

But for different reasons, I would say at the very core, of course, they agree in terms of how to value your business. But the three of them all either added or built a position in Dahl general. And then on top of that, you also see decent amount of insider buying. So that has to make you, you know, excited. And there are a lot of things I like about this pick. And also I like the valuation, but to the hardest point before, that's typically the case with value traps.

You like the valuation until you don't anymore. And I think we can talk specifically about Dahl General, but I also think there is a component of just not liking retail in general, which is also something Toby talked about. and why you typically don't see that multiple expansion that you might hold for in retail just because that's not how retail trades. And that's the case for good reason. And I remember whenever I was brand new into the space of investing and, you know, I went through, I had my ride a passage, whatever you want to call it, you know, you go to Omaha and you read all the Warren Buffett letters and,

and you read all the books about Buffett and Haman Mongo just talks about how you should just never go into retailing because it's such a terrible, terrible industry. And of course, course, after reading that, I started to invest in retail because I wasn't smart enough not to, not with particularly great results. I do think that retailing is appealing because it's very easy for us to understand. And so it's easy for us as investors to understand, which is probably also why it's appealing, but it's also appealing for people who want to start up a new business because they can understand that. And there's this famous story of Sam Walden that was found. I don't remember which story was, but he was like finding like laying down on the floor

of a retailer. And then someone came up to him and like, what are you doing? And he was measuring the distance between the different aisles in the supermarket. And the point of that story is, I don't know if it's true or not, though, but the story of that is nothing is hidden in the world of retailing and everything can be copied. You don't have completely buy into what you said before about the competitive advantage. At the same time, you just don't have that competitive advantage in retail in that mode as you do in many other businesses. I think that's the irony. We were supposed to invest in something we understand, but whenever we understand it very often, a lot of other people also understand it. And I was quite excited whenever I heard you pitched all general compared to the last time when you pits Palantir, because I started it, I read the reports. I still don't know what Palantir are doing. And so, you know, I sometimes have to rely on my smarter friends like you are. It's like, this is actually what Palantir is doing. And even after listening to what you said, I'm still like, I'm not completely sure what they do. But I can easily see how you can build. I know I'm sort of probably over-exaturating a bit here. But there's something to be said about what can be understood and what you could be invested in.

But then I'm also, I also feel like I wanted to say Buffett and his bed on Apple, that he started in 2016 and whatnot. It was just there hiding in plain sight for all of us to see. And we all used Apple products. It was so easy to understand. And the balance sheet was just pristine. And the income statement was easy to understand. And I definitely did not invest.

I just spent all my savings on Apple products, but I did not invest, even whenever I was seeing what Buffett was doing. So I know there's only so much you can say about. It's easy to understand and everyone does it. Apparently, that was definitely not the case with Abel and me. But at the same time, I also feel that there's something to be said about whenever you do that extra work. Let's talk about the debt situation, for example.

I don't like how much debt that they're ticking on. I don't like some of the asset allocations decisions. Like, they're still increasing the dividend. I'm like, why was that not caught a long time ago? And there's something about, yeah, you don't want to cut your dividend. You have to signal the right thing to the market, yada, yada, yada. But I know the payout ratio is like 20% or whatnot. not like they can, quote, unquote, afford it. But they're still taking on a lot of debt that they're

not supposed to take, or I would argue that perhaps not supposed to take on. And I looked into, I looked into the debt and the maturity. And I'll make sure to link to that. This isn't, I'm sure to link to it in show notes, but you can look at it at page 35. And so all companies in the financial statements, whenever they're regulated by the SEC, they're supposed to tell about the debt situation, like the obligations. And you can go in and find that. And then you can compare it to the income statement about what the coverage ratio is. So how many times can you pay that debt back? And so that's breaking down. And I just, so roughly I would say it's something like, and so this is breaking down as like total less than one year, one to three years, three to five years,

and five plus years. And I just, I can see that they can still service the debt obligation, but you still have to do a bit of work there. And someone that also has to be refinanced and high interest rate. I don't know about the credit rating right now, but I would not imagine that the credit rating is improving right now. So they might even more expensive. debt to take on. And so we can, of course, look at, like, brilliant investors like Chris Roomsrand and the like and be like, yeah, he probably figured it out. But I still, and I should also mention he actually went down Williams' podcast and talked about Delgenial and outlined the both these is not too long ago. I'll also make sure to link to that. But I still like to

be able to look at the debt obligations and then see that there's at least a coverage ratio of five, preferably 10, which is not the case. You're probably looking more at two or the three here. And so if you can read that situation better, like, I don't know, I'm coming up with the famous was it Greenblatt whenever he did that with Marriott's hotels and he figured out the whole debt situation and all of that and he got rewarded handsfully for that. It's just because of that, and that probably also some of the upside that I'll be missing for not investing in general. Some of that is just too difficult for me to do.

And I guess I would still like to have a very nice margin of safety in an understanding the debt situation. And I don't really feel I have that now. then of course you can make the argument that there's a margin of safety in the price that you're paying in the first place. And it is indeed very, very attractive. And I was speaking with it. We were one of the members of our mastermind community the other day. And I was saying, I think it was training 110 or something.

And what is it, training 115 or whatnot today? I was telling him, like, I kind of felt like a lot of that risk was we had a bit more margin of safety. And I would say the intrinsic value is probably higher than what you're seeing right now. And then he looked at me and I don't know how long he's been invested, he looked at me and said, you know, Stake, there were people who bought in 180 who said the same thing. And I was like, okay, yes, I've tried those without your trust before. It's painful. Both of you pointed out that, you know, the retail business being very hard. And as Buffett says, it's a widow maker. So, yeah, I think that's one of the things why I, it's almost like one of those

investments for me where I have to really hold my nose and then do it if I have to buy because retail is a tough business and as Toby was pointing out to Friday closing shop or playing for bankruptcy. There was Aldi and European retailer, I guess they came in. They tried to do this kind of, you know, smaller footprint, smaller square feet shops. That didn't work. Walmart had this, I forget the name.

They had this initiative where they had the smaller footprint stores like Dollar General or Dollar Tree. they wanted to do that. It didn't work out for them. So it's a tough business. I am not sure whether I should see that as a strength of dollar general that all these big guys did try to compete in that space. Or should I see it as maybe they're not seeing value in that area that they don't want

to put their effort? Because if Walmart really wanted to kind of put their foot down and go for it for a couple of decades, they could have probably conquered that market, they didn't. So, either it's not viable for them or it might be that it was already saturated with dollar tree, dollar general. There are a couple of other similar retailers. So that is one. The second thing is, are we approaching a railroad moment here or are there still airlines in terms of speaking of Buffett, right? Like, is it getting consolidated, fewer players that people have realized enough for now that they're not new people are not venturing or the existing ones are becoming more rational?

I don't know the answer. That is one thing that we need to think about. The last one is that they recently had a CEO change. So they brought back their old CEO on October 12th. It's almost like the Disney moment where the new guy was short-term on his job. But then the earlier CEO has come back. I don't know. Should I see it as a positive or are panicking?

So yes, there are more questions. One of my assumption for pitching this is that it's like, Toby's pick likely. All the bad news is probably priced in because everybody knows about. And then the second thing is when I look at its competitors or peers, they're all selling in the P multiple of 15 to 30, whether it's Walmart at 30, Ross at around 24, target around 15. So I don't think they are much rosier than dollar general in terms of their position. So not sure why they're probably the negative sentiment on dollar general right now is higher, is my assumption. But having said that this is no Microsoft, this is not like a multi-year compounder, I guess.

At best, it will be like a good pop and probably then you collect the dividend if you continue to hold it. So, yeah, I think that's my take. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a stock two or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

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back to the show. Wonderful. Thank you, Harry. It was a very interesting pick. Toby, do you have anything here for Harry before we do my pick? No, let's see you. Great job, Harry. Like you mentioned that before, I'm probably pitching the very opposite of Dollar General.

I'm pitching LVMH and most known for Louis Vuitton and Christine Dior and a few other brands. So definitely the very opposite. You can buy it as an ADR. if you're US-based, you can also buy it on all the major European exchanges. And yes, the ticker is LVMH, just like the brand. And LVMH is behind 75 brands. I mentioned Louis-Tung before, Christian Jor, Tiffany's, you name it. And until very recently, it was the most valuable company based on market cap in Europe. But it has just been eclipsed by the Danish pharmaceutical company, no one is. But that's the case. And now it's the second most valuable company in Europe.

Now, I do not have a position in LVMH, not because it's not a great stock. It is most certainly, yes. But also what you very often see with high quality companies is that they're trading at generous multiples. And, you know, this is not too different. And perhaps it is anyways. But if you just look at this stock at a glance, it's currently trading at a P of 20 and the price of free cash flow of 18. And I would also say that with the interest rate of called 5%, it doesn't look that up

appealing, but I would argue later in my pitch here that you need to normalize some of those earnings. And whenever you do that, it's a lot more attractive than it appears. So please don't just look at it at a glance, but dive a little deeper. Another thing I wanted to mention is that I think that the company is such of a high quality that even if you don't like the price right now, put it on your watch list, perhaps just buy a few shares just to make sure that you have a bit of skin in the game and start following what's happening with the stock. It's very interesting. This is a company that's been on my radar for quite some time. And it's not because I'm big on fashion, not at all.

I've been married. Like last week, my wife and I had a 13-year anniversary, which means that to the best of my knowledge, I had not picked my own clothes for the past 14 to 15 years. So you might be wondering, why am I pitching a fashion brand or a fashion house? But I would say that it's not the case. I would say that if you may bet on LVMA,

is a bet on brilliant capital allocation and not so much on fashion. I'll also get to that later. The founder of LVMH, he's also the CEO today and is currently the second richest man in the world after a long period of being the richest. But LVMAT has traded down, Tesla has traded up, so now Elon Musk is back at the top, but still with a net worth of $180 billion, but I know are probably just fine. So LVMH, the company we're going to talk about here, is founded in 1987, but the brands that are representing there are much older. And they have a fascinating story in terms of that, but I'll just make it short here. And I should probably also say that I should apologize literally for my French, because I'm going to say a lot of French words. I'm terrible

with French. So the name is Moie Hennessy Louis Vuitton. Still, it's known as LVMH, so Louis Vuitton is sort of like first, I don't know, it's a bit confusing. And it's the merge of Louis Tong that was originally founded in 1854, and the founder's name was Louis Tong. Yes, you guessed it. And he was the trunkmaker of Napoleon III's wife and interned to the noble families of France. And so in 1987, the company emerged with Mouet Hennessy, which is the top authority in champagne and cognac. Then itself was also formed by a merger. And I probably should also apologize to a Dutch audience, because I think Mouet is actually supposed to be pronounced Mouet or something like that. It's a Dutch name, but the company was actually still founded in France. And so regardless, the business

today is a luxury conglomerate. And so while Lutong is core to LNBH, the company is just so much more. And you can think of it as a conglomerate with five major business units. So you have wines and spirits, fashion and leather goods, perfume and cosmetics, watches and jewelry, and then selective retailing. But the one really to look out for here is fashion and leather goods. That's 50% of the revenue, but 75% of operating profits. And here, especially Vuitton and Gior stands out as the two most important brands. Whenever you read the financial statements, they don't break it out into different brands, how much is selling, but it is still in that order of the most important. And fashion and leather goods just have an outstanding operating margin of more than

40%. And whenever you're buying a stock, you're of course buying the future cash flows and not the not the past. But it's also important to understand the past before you can understand the present. And it used to be Western Europe and the United States where LVMA made its money. But today, Asia is the most important market with 41% of the conglomerate revenue overall. And I should also say whenever you read the financial statements, they have a segment called Japan and then they have Asia excluding Japan. And still they don't break that up, but still China by far is the most important market for them. And that is really the case for LVAS. And that is really the case for LVMH. You really need to understand that, which we're going to get to a bit later. Partly, it's because

we expect growth to come from the Asian region, but also because the Asian consumers buy higher margin products. So, for example, you can see that they're buying the, you know, if simplistically, they're buying the fashion leather goods with 40% operating margins. Whereas, for example, something like Sephora, which is like, it's screwed on the selective retailing. They're growing fast in the US right now, but they have operating margins of, 5 to 8%. So it's not just a question of looking at, whenever you read the financial statements, yes, you look at revenue, but you very much look at the operating margins too. I think I might be confusing here because I introduced LVMAs as a luxury conglomerate, but I'm also talking about

more conventional retail and such as a Sephora, even though it's still a very small part and very small part of the operating margin. So perhaps we should talk more about the luxury component. That's also where they make their money. And I've borrowed a quote from the famous Coco Chanel, because she has a great definition of luxury, and that is, luxury is a necessity that begins where necessity ends. What better way of talking about defining what luxury is? And so we have this irony where we talk about luxury at a scale. Like, LVMH, it's a company with more than $400 billion of market cap.

Like this is a massive, massive company. The market cap of LVMH is more than 300 billion euros. So how can we talk about luxury at that scale? Because by definition, luxury is something that's scarce. And so I think there are different ways of looking at this. So perhaps we should talk about what's a premium product. So I recently bought a new iPhone, iPhone 15, and I did not buy the cheapest model. I bought the second cheapest model. So I needed a bit more of hot drive space. And I think I paid an additional $200, something like that. So an iPhone 15 is a premium product, but it's not luxury. Because you get a bit more.

more for those, say, $200 more, you get a bit more of hard drive space. Now, it might be ridiculously overpriced. It probably is, but you still get more features. Someone who knows a lot more about fashion than me would probably disagree whenever I say that's not the case with a Louis tongue back, for example. If you look at the materials of a $10,000 back and look at it of, a $500 back, I would make the claim that they're not too different. But the branding is very, very different, which is why you're willing to pay significantly more. And the next thing here about cost of good souls, the multiple of that is, of course, different between the different types of backs that they have. I'm just using backs and example. You can basically choose any kind of,

any kind of item that they're selling. But for the backs, it's around 15, some lower and some higher that they sort of like mug up on the cost of good souls. So like this is like the margins are crazy for a product like this. And if we can talk a bit about pattern recognition, here. One thing I really thought of, even though LVMATs is much, much better. Like, I cannot help but think of a product like Coca-Cola. You know, you have carbonated water and sugar and a few other inexpensive ingredients, and then you slab a brand around it, and then you control the entire value chain, which LVMA also does. And then, you know, that's basically what you're looking at here right now. Of course, it's not as cheap as water and sugar whenever you're creating it back, but it's not that

expensive. It's really real of the branding. And it's also interesting whenever you look at the balance sheet for LVMH. So I'm just going to throw some numbers at you. So we are looking at around 80 billion euros in revenue, but they have 30 billion euros in marketing. Like it's such a huge component of the business. And then we're back to the point about, is marketing a real expense? Should it all be expensive? Are you really building an asset? And I'll argue that you will have to add some of those marketing expenses. Whenever you do the evaluation back into your upbringing, and they're already across the entire company making 25% operating margins. So It's quite significant.

If we talk about competitive advantage and competitors, I should probably say that the first type of competitive advantage I want to talk about here is not so much just LVMH compared to, say, Ame or Caring, but just more the business of luxury in general. I just mentioned Caring there, which is also a French brand, but they're probably most known for Gucci and Yusanne Lerang and a few other brands. And so all luxury brands have this mode around them that are just harder to destroy. And I wanted to talk a bit about that here because if we come up with a more recent example, something like Open AI, AI is changing so many things, disrupting so many things.

And if you look at Open AI and Hurricane probably talk way more about this than I can, most people would say that they have a mode around them and they have a first move advantage. Then we read about something like Anthropic, you know, and there were some of the de factoers of Open AI and they got funded by $4 billion of Amazon and now they're competing fiercely with Open AI. I don't know who wins, but even the best art director in the world, if we gave him $4 billion and said, okay, don't work at Louis Vuittang here anymore, start up your own brand. He's not going to disrupt Louis Vuittang the same way as Entraga going to potentially disrupt open AI. There's this story where Benano, he asked Steve Jobs about whether or not he thought

people would still be using iPhones in 30 years. And Jobs said he wasn't sure, but he was quite sure people would still buy Dong Ping Yong and drink that in 30 years, which is also owned by LVMH. So I got a few other points about competitive advantage, a few other points about some of the risk and valuation, but I want to throw it back over to you guys and continue the conversation from there. I love LVMH as a business. That's Bernard Arnaud, started whatever they had. He had some low margin manufacturing business the family did, and I think he went to New York is the story that I have read something like this. And he saw the margins,

or what they were selling the premium luxury, the luxury goods rather, what they were selling luxury goods for. And he realized that there was much more margin if you could sell a little bit more of the magic. And I guess the way that you sell the magic is you spend $30 billion a year in marketing to make them an object of desire.

And so they do that very well. And they've got a good sense for which of those luxury brands are enduring and will be desirons. in decades to come. I think they've got a really good stable of brands there and they've been very good at picking them and they seem to also thrive under LVMH's ownership. So it's a great business run by a very smart businessman. He's got kids who he's bringing into the business as well. I think it's something like, it's like a, it's not a Berkshire Hathaway, but it's something like that in the sense that it's a conglomerate, it's an acquisition based conglomerate that

buyers, businesses that have these high margins, but it's more luxury focus, whereas Berkshire sort of go anywhere, do anything. I think that they're, if you look back at, I've run back through five years of just looking at the valuation, rather than the share price, just looking at the growth in the valuation, the value has grown very materially over the last five years from, you know, whatever, it was probably worth 20 or 30 bucks, and now it's probably worth like 150 that kind of range. So the value itself has gone up five times. The stock price has been much, much wilder than that through the run. The stock price is currently, I think it's about fair value right now. So there's not a big discount. But business has shown, you know, that's where

you've had to buy this business at fair value or a little premium to it because it's the value is going to be worth more next year probably or not necessarily next year. But you know what I mean? In five years time, it's probably worth more. They'll find some more stuff. to buy. They're reasonably disciplined in their, and what they pay. The brands thrive underneath them. I think this is a, I think this is not the usual thing that I would buy because it's just a little bit expensive for me. But if I was running discretionarily, if I had a PA that was outside of my funds, then this is the sort of thing that I would potentially hold as a distinctly different strategy to what I do, where I also think it would be quite a solid pick that, you know,

in five or ten years time, you would assume that the best of the best thing. business would still be bigger because they've got diverse income streams across lots of different product lines. They understand the nature of supporting the luxury brand. You have to invest in it. You've got to invest in it through marketing. They have to be premium. Products on top of that have to make them desirable. They're very, very good at doing that. So I really respect and admire the LBH. It's one that I would love to own the right price. I don't own any, don't plan to buy because I only invest in my funds, but it's a good pick stick. I like it. Yeah, I think I would second that in, I was just thinking about Dollar General versus LVMH.

To hold one of these for 10 years, I would any day hold LVMH. Because I think it's one of the businesses that is most protected from any effects of generative AI in general, AI, basically. Because I think that was a good quote, Stiggy, about what Steve Jobs said about iPhone versus some of the brands of LVMH. I think there is an intrinsic value to the brand, the scarcity, the recognition, and then margin is built into their business model because they can't sell it for cheap. So I think, and also I looked at their dividend, they have been consistently paying dividend. They have been consistently increasing their dividends. So that's a good point that Toby brought up as well.

in terms of their revenue growth, I think they have been growing their revenue at around quite a healthy pace. Correct me if I'm wrong. Except for 2020, when their revenue declined, they have increased their revenue higher teens, most of the times and sometimes you're crossing 20%. So that's very interesting.

I think in case of their marketing spend, I don't know whether I should see it as an investment or as a toll that they have to pay. Unlike, say, Toby's pick on the skin, I-N-B, where you're developing the relationships with these medical professionals or institutions and there's a lot of greasing happening there. So there's an investment part of it here.

It's like every few years, a new star is born. Somebody else becomes more popular. So it's almost like a tax they have to pay. They have to keep going after this new celebrities and new events that they have to be part of. So that's one thing that might concern me, but I'm not too concerned because anybody else entering this business has to do that. So there will be a cap on their margins at some point is how I see. So I don't know. Yeah, it is probably like, you know, we can only get it at fair value.

So it's probably trading at a lower P than the last five years for sure. So it might be a good buy, but it's more like a stable dividend earning stock that you keep as a safe place, it's not for something that would double in the next few years. The issue for something like this is always overpaying because everybody knows it's a good business. Everybody knows the brands. It is run very well. It's well financed, all those things. The risk is that they perform so well for so long.

they get well ahead of themselves and people buy them and then it's just dead money for five or 10 years. I don't think you've got that problem here. I do think it's an at about fair value. I think that fair value probably chops around a little bit for the next. I don't know what if we have a little bit of weakness. Does that impact the people who buy luxury stuff? That's a really tough question to answer. It's because wealthy people do seem to be largely insulated from a lot of the economic pain that comes through. I bought Coach in 2000. eight, nine, when everything was blowing up, I bought Coach. And I was a much more discretionary kind of investor at that point. I was sort of wandering around looking at all the stores and watching

people actually buying. And I asked people who bought. And everybody seemed to, people were still buying handbags through the period of time. People tend to buy small luxury items. So lipstick does very well through periods of economic recession because you still, you know, it's not such a huge expense, but it's something that you can feel good about. So very hard to pick what happens, I think. But it's a good business, even if we have a period of economic recession, you probably, beyond that, people are still going to want to buy all of those products. It's probably pretty well insulated ultimately. So I like it. I think it's a good pick. And at this price, you don't have that five or ten years of dead money. Yeah, I don't think you have that either, Toby. I agree with

that. I'm not saying that it's a very cheap stock either. Here at the time of recording, it's trading at 670 euros. The founder bought it back. So the only ownership structure is a bit special. So he has a holding company that owns LVMH. And it's a dual share class kind of thing where he owns less of the shares, but he still has control. And so he bought it back at 810 euros, just to give you an idea. There is, if we can, if we continue a bit with the comparison to Berkshire, and it's, I would say, oh, I'm probably going to be crucified for this if I say it's high quality in the Berkshire. So I'm not going to, I'm not going to say that. But definitely the return on capital employed is much higher than with Berkshire. We're still talking

close to 20%. And this is a company north of $300 billion. And so it's a huge company and they're still compounding really, really well. And there are quite a few things I wanted to add to that. Part of it is that they have like almost a status of like the first buyer. If one of the fashion houses in Europe are being sold, they're very connected to fashion houses in Europe. And you typically don't want to sell to Americans. And for me, being American in this space, should be seen because I compliment, so I definitely don't want to offend our American listeners.

But for example, you mentioned coach before, OMA Tavistry. I'm reading this or just read this book here called Futur Locks. I'll make sure to link to it in the show notes. And it talks about how the fashion houses in Europe has a right of first refusal because they don't want to sell to Americans. And so if none of the European fashion houses wanted, it, they bid it to the Americans afterwards, which just gives you a selection bias. And another thing is that, which seems like it might play against this, but actually also

made as a compliment, LVMAT's founder, Beno, has sort of like a reputation for being American, which to me is very positive because you'll have a strong focus on shareholder value, but in many fashion houses actually not seen as a good thing. In a way, he's like the first and last buyer, because a lot of those houses also can't stand each other. But the reason why I wanted to mention this is that he really got his education in the States, and he saw activism and that way of conducting the cognitive business with LBOs and the predatory behavior. And he's just shown that over and over again.

Most recently, whenever they bought Tiffany and company, the way that he wanted, like, started to sue them because they paid some dividends while, you know, the deal was about to get signed. And, like, there was just a ton of stories about him. He understands valuations really, really well. Also, I'm sort of like trying to figure out what is it that this company does so well. because it's sort of like difficult to compare them to some of the competitors. Like the most obvious one would probably be a company like Caring that owns Gucci and a few others like I mentioned before and not something like M. which is like family owned by many, many derations still controlled by the family

and they have one brand. And it's, I read through the financial statements and I couldn't really figure out why is it that they're not growing and why is it that LVMAs are consistently growing? And I think it goes back to capital allocation. And I was speaking with the industry expert from a mastermind community in Lange Yubel about what is it that they do so well? And the way he explains to me, because again, I know nothing about fashion, that he said that they have their 75 brands.

And it's sort of like up to LVMA to figure out what should not be fashionable. Like where should we put our focus right now? And that gives me, and yes, I prepared this, that gives me a chance to call with another Coco Chanel. quote, it's just fantastic, when she says, I don't do fashion, I am fashion. So I love that quote. And it just made me think of the way that they took capital allocation and the way they take a brand like Remova and just all of a sudden make it so much more popular and then the high prices and like they really create fashion, which is just absolutely amazing.

And so I've talked a lot about all the good things. I wanted to talk about some of the bad things before we talk about valuation. I think perhaps the biggest risk. factor for me is that I don't understand the Asian market, and which is really the key to understanding LVMH. I would like to highlight my own shortcomings before I get to that, because I speak Danish and English. There's nothing written in Danish about this, so I would go to my English sources, which is mainly U.S. sources. And they would talk a lot about LVMH and how they bought Tiffany and company. And they're going to paint a really good business case about what, like, it's just amazing what LVMAs have done, how it's to be rebranded, and talk about Beyonce and

Jayce and Jacey, and we all love them, and it all seems like fantastic. Like, this is, this is the company you should understand and buy. But then whenever you read the financial statements, you'll see that what's your jewelry isn't that important to LVMH. It's 10% of the operating profit. And if only of that, 23% of that is in the US. And oh, by the way, Tiffany's company is not just that segment. They have Bulgaria and Nebula and so many others. It's a great case study. It doesn't move the needle, and you'd buy into the future cash flows and not the past cash flows. And so you really need to understand the Asian market. And I read up on that. And I think I'm still, I'm still confused about really truly understanding the Asian market. I mean, it's so vast and

it's so different. If you look at just China, there's this saying that China is not a country, it's a continent in itself. And you can't really compare it to Japan. If you sort of look at the landscape of Japan, you have the Tokyo Osaka-Kobe region, and, you know, I read a book about like how the landscape really determines, like, for example, why is it that the Brigh and mortar are so powerful in Japan, but not to the same extent in China, just because of the way, you know, just the country, but also the preferences. Another thing I learned about Japan was that whenever you had, like, that huge slump in the 90s, where just, like, the economy is terrible. That was really whenever LVMA took off. That was really whenever people started spending so much

on handbags because there was a generational shift going on in Japan at the time. Whereas you can't really compare that to China because that's really just characterized by the speed of change. And you have so many different cultures, you have so many different languages. And it's different. You have different types of loyalty to a brand in China. And you can't even use China as just one market because it's so diverse in the different regions of China. And I had an experience a few years ago that really make me humble. I have an American friend who was staying in a Chinese city for a long period of time. And he asked me if I wanted to visit him. I was like, sure, give me an excuse to visit you. And he asked me to visit him in Chengdu. And I was like, I don't understand that word.

Like I, what? And he was like, yeah, yeah, you know, it's a city twice the size in New York. And I was like, I've never heard of this. Like, this was a few years ago, I'd never heard about it. And it's twice as big as New York. And I was like, oh, okay, I wasn't sure how to, to, you know, could you tell me more about? It's like, oh, yeah, okay, if you don't know that, it's just right next to Chong Chen. I have no idea what Chongqing is, but it's four times the size of New York. And so whenever I don't understand, I don't even, I haven't even heard about this city. There was four times the size of New York.

And here I am wanting to talk about understanding just China, not just all the other Asian countries that are very, very different too, but just China. It's just, it really makes me humble how little I understand this. And I, if I can make a comparison, it's a bit like if I said, the Americas, you know, and I said, yeah, tell me about the common denominator between Colombia and the US, because it's all in the Americas. And you'll be like, call America, but there's America, and the Colombia and Ecuador, it's not really the same. And a Chinese person would be like, yes, exactly. And so I think that makes me humble whenever I look at the company, because

you would really need to figure that out if you really want to bid back on LVMA. And so if you are as ignorant as me, I would probably say you need to put a lot of emphasis on that margin of safety in the price that you're paying. At the same time, I just wanted to say, please don't look at this as a P of 20. One of the key things are how much of that marketing expense should you add back into normalize your earnings? And size does matter. I know this is a massive company, but there's still a lot of runway for growth, not just in what you would call personal luxury, where there's still a lot of growth opportunities, but they recently went into hospitality, which is a much, much, much bigger segment. And there's a lot of things here where you can sort of like buy one,

get a lot for free. Just one example could be something like advertising. Size really matters, and they have so many brands. So they have a lot of purchasing power incomes to that. It could also be something like real estate. So you would think that they would pay the highest rents because they always have the most prominent places. They actually don't. They pay the lowest because they provide the customers. So not only do they get the best locations, they pay the lowest rent, because they can make a break massive malls

because they just decide not to go there. And so size really, really matters in this. And there was a bit like, you know, the Netflix effect where you talk about, you can spread the content creation on more users. It's the same thing whenever it comes to advertising when it comes to real estate and so on and so forth. So what I would encourage you to do

is continue to study how much of the, of the marketing expenses should be added back to normalized earnings, and I kind of feel that's a bit more art than science. I want to say it's relatively reasonable priced right now, but if you're really into high-quality companies and something that can come part for a long time, despite being a north of $300 billion company, probably take another look at LVMH. Yeah, thank you, Stick. I think one interesting point you brought up was understanding Asia and their exposure to Asia, which is around 41% of the revenue, and China might be a big factor in that, is the growing tensions between the West and Asia, especially China,

and whether that is going to impact with kind of a non-nationalism and anti-West sentiments in China. Well, India is also a good market for them, probably in the future, because India is not just one India, like similar to what you would think. In China, like I see like three Indians. There is India which for capital income is as good as a country like Poland, and the size of that population is also like a country like Poland, like say, 30, 40 million people.

But then there is other parts of India will not be able to even afford LBMH or not by NBH product. But that hopefully will grow, but we don't know. So there is a lot of, it's very easy to look at 1.2, 1.3 billion people and say, oh, that's a market. But no, that's not the market. It's probably 20 or 30 million people for them,

or even less than that, actually. So, yeah, I think. that is one risk that is worth highlighting when we are looking at it, but it's more a risk for growth, I believe, rather than a risk for existing revenues for the company. But I'm still not convinced that the marketing is an investment in their case and how much of it will. Of course, there will be like mind share and all those things, but I'll be surprised if their marketing expense would not keep up with percentage of revenue similar to what it is today. They might have to forever. It's not like they will invest a lot in warehouses and after that they don't

have to invest. It's like you have to keep investing. It's my assumption on the sample. Yeah, I agree with you on that. I think they still have to do that. Well, I might have a slightly different opinion. I would love to hear Toby's thoughts also are that. So if they have 80 billion top line and then 30 billion in marketing and then 20 billion, they also have all expenses, of course, but then 20, billion in operating income, I would argue that some of that 30 billion had to be added back to normalize earnings. I would not say all of it is a, it's pure, let's call it maintenance capax for like a better words. But I'll be curious to hear Toby. I should say that not only do you have wonderful skin. You seem to be a person who knows slightly more about fashion than

I do. I don't, honestly, but I admire the brands. Lots of different people, value companies in different ways. I don't really like adding back, you know, amounts that are spent and saying that's not a real expense, even though I do agree that there's a big discretionary component to marketing and you could easily add some of that back. And it could be, but, you know, guessing whether it is, who knows, really, you really, you want them out there spending the money, protecting the brands. It makes them hard, like, if they're spending $30 billion a year on marketing, it makes them very, very hard to compete with. I don't think you need to worry about too much the precision there. I think you could look at something like this and say, it's not deep value. It's close to fair

value for where it is now. But what you're banking on is the fact that they can buy more of these businesses, grow the businesses that they do have over time. They'll always have pretty solid pricing power. It sounds like they're very good operationally if they're getting, that's real own operator type stuff where you go in and negotiate the lowest rents. You know, how often do you see people buy flagship stores or flagship buildings and overpay for those sort of thing? So that's, But, you know, that makes me feel good about the way that it's managed. I look through the valuation is, I think it's close to Fav A, at 150 bucks, it's come off a lot. It's come off from closer to 200.

It's under 150 now. At that level, it's 20 times P, as you mentioned before. Free cash flow yield is, it's not quite right, but it's saying free cash flow yield is, it's under 3% at the moment, or it's around 3%. So the question is, in a world of 5% interest rates, how much growth you expect, how solid is the growth, how much growth you're expecting? Does it justify that price there? That's the part where I look at it. And I say, EVFCF at 35 times, say, 3% free cash flow yield that's clearly growing and can grow into the future. In a world where you've got 5% interest rates, that's the only thing where I sort of look at that and I think, would I buy this right here right now?

I want to just sit in some cash and maybe consider it where the differential is just a little bit. That's the only little part that I struggle with. But then equally, how often do you get to buy? I mean, this is still cheap for LVMH. It hasn't come back this much for a long time. How greedy do you really want to be? I don't know. Honestly, I don't know the answer.

And I don't have to make the decision. So I don't actually have to go and buy it. So I don't have to force myself to do it. But that's the sticking point for me, 35 times free cash flow that is growing versus a 5% risk-free. cash at bank on deposit. Yeah, how do you fall out there? That's the question. Yeah, all good questions.

And I think I probably see slightly different multiples for a number of reasons. But I actually wanted to go back to this whole thing about potentially adding some of the marketing expenses back. And I know that probably sounds way too aggressive and it probably is for a lot of investors. What I would like to compare it to is, let's say that they're not building a brand and improving a brand. Let's just say that they're buying a brand instead. And then so what happens then accounting wise? So they have something happening on the balance sheet where they, it's assuming they're financing with cash. And then they put a new asset on the balance sheet. And the obvious

reasons pay a lot more than since this is luxury, they'll pay more than the book value. So they're going to have a lot of goodwill on the balance sheet now. And all of that will will be impaired at some part in time. and I'm making all kinds of, I'm trying to draw a balance sheet and then draw another income state with my hands, which doesn't work well for podcasting at all. But whenever you do that, you don't see the same type of expense on your income statement. It looks like you have a much lower expense, even though you're still getting the same brand value. So that's sort of like to the point I had before about why is it that I come with this outrageous

idea of saying you're actually building a brand. And a lot of that is really investment capital, even though it's already written off. Well, if you compare it to the other thing where they actually, let's say they would buy Gucci, it would just not flow through the income statement the same way, but Gucci is still a very powerful brand to own. And I think that, I think it's important to understand that difference. And so I don't know if I did a good job sort of like explaining impairments and goodwill and the intact between the balance sheet and income statement. But I think that's important to understand whenever you look at the income statement.

Like you really have to, I call it normalize earnings. You can call it whatever you want. But like, please. I think it's important not just to potentially look at a multiple and say, oh, it's trading at this, but sort of like paint that color around it. Toby and Hari, please, I kind of feel I'm way too bullish on this. And I haven't even made a position yet. So please tell me why I shouldn't invest in this stuff.

For me, it's like, should I just keep it in the dry powder for better opportunities later? Not just this, but is this a cinch? So it is definitely a good business. it's very interesting. It's a good long-term hold, but in the current interest rate environment and economic situation, I'm locking in my funds that I could have waited for better opportunities, is what are businesses that are much better.

Of course, LBMH is still really good, but it's kind of, you know, it's about opportunity cost, is how I see. Yeah, and I think you bring up a great, point there, Harry, because the opportunity costs have changed in so many ways now with the interest rates going up. And it used to get around 0%. Whenever we were just sitting there waiting cash and you're right, like now we could be getting 5% while we're waiting for something that's really, really cheap. So good point. Jens, before we end the episode, any comments to LVM8, anything in general before I give the opportunity to talk a bit more about where people can learn more about you?

No, good solid pick from my perspective. Wonderful. Toby, where can people learn more about you here before we end this segment? I run Acquirers funds. We have two funds deep, which is small and micro-domestic U.S. value, and Zieg, which is mid-and-large-cap domestic U.S. value. I've written some books that are all in Amazon under my name, and I have a website, AcquirisMultable.com, which has got some free screens and all of our blog posts and podcasts and various other things there. Thanks for having me, Stig.

Pleasure. As always, Toby. Hari, why can people learn more about you? Yeah, I think X or Twitter, Harry Rama is my handle. Happy to continue the conversation there. I also have a blog, bitsbusiness.com. So look forward to comments, feedback, and conversations. Fantastic. All right. Let's just end this segment here. Good second, Harry.

Thank you so much for making time for the master meeting as always, Jens. Yeah. Thanks, Steve. So as we're letting go of Toby and Hari in this episode segment, I want to welcome my co-host Clay Fink. Clay, you just came back from New York. You just met our mastermind community. And perhaps for some of the listeners out there who don't even know what we're talking about,

could you perhaps talk to us about what is the mastermind community? And how is that related to the discussion I just had here with Toby and Harry? Hi, Stig. Yes. I just got back from New York City to meet with our mastermind. mind community. And first, I'll just say that it is just so nice, you know, getting to meet people in person who listen to our show, especially those who are our most passionate listeners here at TIP. And, you know, most people don't know this, but I know you certainly

know that with podcasting, it can sometimes just feel like you're in a bit of a silo. You know in the back of your mind that a lot of people are listening, but so much of your time is just been alone. You're in Denmark. I'm in Nebraska. I visited Denmark and it's, I see it as very similar places and most of our listeners aren't, you know, aren't where we're at, unfortunately. And, you know, getting to meet our audience members, especially those that are really, really passionate about what we do, it's just a really nice spark. And, you know, it's just awesome just to keep us grounded and thinking about why we do what we do here and who we're doing it for. So that's just something I wanted to mention. It's just always cool meeting with our audience. Anyways, the TIP Mastermind

Community, it's a paid group we started Stig back in April 2023. And it's so interesting to think back on because we started it, you know, almost just to see how much people would like it and just gauge how much interest there would be in something like this. And we were pretty sure that our audience wanted to join a community like what we could create. And I personally think that, the 80 or so members that we have have really enjoyed being a part of it. So to give a brief overview of some of the benefits that members receive, I'd say first off, we have these weekly live Zoom calls that many members have absolutely loved. And we've been doing so many different things with that just to allow members to collaborate

with each other and allow members' opportunities to get new ideas, share new ideas, and learn. And then another aspect of the live Zoom calls that's been really, really popular is our Q&As with our special guests. Sometimes we'll bring in guests that have been on We Study Billionaires, for example. Here shortly, we'll be having Tobias Carlisle join us, and that will actually happen before this recording goes live. But, you know, we have 15 plus members, RSVP, to sit in on a Q&A with Toby, which is really fun. And in the past, we've also had Chris Mayer and Goddum Bade. And then members also get access to an online community forum so they could connect, share posts, you know, kind of share what's happening.

And then you get access to TIP hosts, so you and I Stig. And then Kyle Greve, our millennial investing host, is also quite active on our online forum. And then members also get invited to our in-person events that we host, which as of today, we plan on having twice a year. We just had our first successful live event in New York City, and we had around 17 of our members able to attend that. We're going to be linking photos to the event of us grabbing dinner, hanging out in Times Square in the show notes for those that are interested in seeing what

our events looked like. And then most importantly, with the community, it's really just an opportunity to connect with many like-minded investors. And that's what I've found to be the number one reason that people, people are joining and the reason people are staying around and they really just like connecting with those like-minded members. And then another part that I found interesting that people, you know, something that people are really looking for is the ability to share new ideas and then get new ideas from others.

So they kind of have that idea flow from people that they can trust and people that they know. So if the mastermind community sounds exciting to you, then maybe one of these things, you know, sounds exciting. Maybe all of them. It's interesting how each member they kind of have their own taste of what they're looking for and what excites them. For example, when I got to New York City, I grabbed dinner with two members of our community who I now consider pretty good friends.

One of them manages his own small fund and then the other works for a very large fund as an equity analyst. And I asked them, you know, what were they looking for when they join this and, you know, why have they stuck around since April or May? And they made it very clear that they weren't. wanted new ideas. And that's just really great for us to know Stig, because then we can prioritize that and do the best we can to offer them that type of value. Then I know other people in the group who, you know, I hop on a call with them. And they're just like, yeah, I just want the opportunity to

meet people in person. And that's great too. So it's just really cool to see us bringing together the incredible people that, you know, have the opportunity to collaborate and have this group that really lifts everyone up together. Yeah, and I think that's very well set, Clay. And if I can go back to what you said about, we just did the first live event in New York, I think it's important also to know that we're sort of like building the plane as we're flying it.

We would like to say that we have like a fantastic roadmap of what's going to happen in the next 10 years. We certainly don't. Because to your point before, speaking with two of the members of the community, like we really want to meet you in person and get to know how we can best deliver value for you. And the best way for us to know is by asking and for you to tell us. So I think we should probably start there. And so I don't know how this is

going to look like. Perhaps we're going to have way more live events. Perhaps we're going to have fewer live events. Perhaps you're going to do more online. We don't really know. So that's one of the things that's very excited about starting something that's very new. We just, we just don't know. And I should also mention now that we're talking here that I'm going to host a, to lunch in London, England, November 23rd for the mastermind community. This episode should go out and I want to say November 4. So if you listen to this, make sure to, you know, reach out to Clay and then hopefully sign up for the mastermind community and attend. If you're sort of like, we're saying, wait, wait, wait, wait, wait, that makes no sense. Clay just said that,

we're going to have two live events a year. Like what's, what's going on? There were Omaha and, you know, New York and then the thing in London. So Clay is way more organized than I am. Let's start there. Clay is much more organized. And so he will plan these fantastic weekend events. For example, in New York, for me, for many different reasons I don't want to bore you with right now, I travel a lot and it's very often with relatively short notice. I do that. And so, but whenever I go different places, I'm always thinking, hey, meet new people. That's wonderful. And so sometimes I'll just type up in the mastermind community online and send out an email to our members. Hey, I'm in, In this case, London come and meet up with me for lunch if you want to.

So it really comes from there. And I would say that some of the closest friendship I have today is through TIP directly, indirectly. And just one example, we had an event in 2019 in Vienna. This was before the mastermind community. But anyways, one of the listeners, him and I really just hit it off. You know, the following year, my wife and I visited him and his wife in Brussels. And then, of course, you had COVID, so like nothing really happened. But then as reason as last weekend, he came and visit and, you know, we assume going to go into clusters for Gatsbyers events together. And this is not

sort of like my way of saying, sign up for the mastermind community, get new friends. I kind of feel that would probably come off the wrong way. But what I think I found, and one of the very, very valuable thing I found from the masterman community has been the, that we were just all so busy with family and careers and whatever. And I have, you know, I'll be the first to say, I have wonderful friends here in my hometown. And you know, we hang out and we have a beer and we talk about the game last week or whatever we do. But like, they're not interested in investing. And if they're interested in investing is a bit more the Robin Hood, let's buy a call option that expires tomorrow kind of thing.

It's not like, do refinance statements? That's not the type of investment discussions that we're going to have. And so one of the things I really appreciate about this mastermind community is that you meet just like-minded people from all over the world and you have a chance to hang out with them, have a ton of fun, and also talk about investing. And, you know, I've been doing these mastermind discussions since 2015 with Toby and Hari. And I learn something new every time. And we also, you know, become friends because of all these discussions.

that we haven't. And another thing I also want to say is that I am well aware that you can talk much more about any stock that we do here. So we talk, I don't know, 30 minutes about each stock pick. And I just know because I get all the emails afterwards that there's so many in our audience that have comments, questions, and everything is very valuable. And it would be wonderful if more people heard that. You know, I can respond back to an email, but then it's between that person and me. And so I like the idea of how the mastermind community enable us to communicate with more people, but still keep a relative to the small group and sort of like find that balance. Because, okay, let me come up with an example. I mentioned to you, Clay, some time back that I was

considering pitching LVMH. And you said that Lance from a community, he could help with some of the qualitative analysis of the stock. So I jumped on a call with him the other day and had a very thoughtful discussion with him. And then he mentioned another community member. who knew someone who had ties to the management of the company. And I was like, oh, this is great. So they can give me another perspective of the company. And so that's kind of like the ethos of how we're trying to help each other in that. And this is just one example.

But I think the example just captures what the master man community is all about, you know, helping each other and also being on the same journey in the, you know, this journey into value investing. And soon we're going to have a discussion together with the masterman community who have been then listening to this episode we've got to have here today. I discuss him with Toby and Hari, and then we can all sit together as a group and talk way more about the stocks that we had the opportunity to do in this episode. So anyways, but I have very selfish reasons, as you can probably tell for me to know more

about LVMH and hear from the community members, but Clay, I know that there are a ton of other stocks that we are currently discussing. So perhaps you can shed some light on some of that. Yeah, it's funny you say you have selfish reasons, you know, to talk about LVMH because some of the companies, you know, that come to mind for me that I've, been talking about with the community or companies that I own. So I guess I'll be the first to say that if you're looking to join this group just to get stock ideas that you should go by, then it's probably not for you because you shouldn't just look for an opportunity to purchase

a stock that somebody hands you on a silver platter because inevitably that company is going to be going through hardship and go through drawdowns. And you're going to need to have that research and that conviction to hold through the growing pains with the company. But, you know, some of the stocks that come to mind for me, Stig, I think a lesser known one is Tech Neon, which you discovered through one of my episodes with Chris Mayer, and then you pitched it in the Mastermind episode, and then the community is quite interested in it because you and me and Kyle are talking all about it with the group, and when we actually had a call talking all about it as well. Another one that comes to mind is Constellation Software, which

I own both of these names, full disclosure, and it's another one you've pitched in the Mastermind episode where we can talk about it more with the community. And then you also mentioned Lance, and he's outlined some of his top holdings and his small fund and a couple picks in the e-commerce industry. So it's just really cool to have that opportunity to share your best ideas with others in the group.

And then I also think it's really interesting to discuss and find out and talk about names where Mr. Market is just going crazy. An obvious example from 2022, I think, is just meta. We didn't have the community then, but I'm pretty sure if we did have the community in 2022, a lot of people would have been talking about meta and how it just kept falling and falling. And it seemed that everyone in the market was just given up on it.

And obviously, it's rebounded quite dramatically. And I think another more recent example is Dollar General. I didn't sit in on the call, but I know that a few, members were definitely interested in that stock, given that it's pulled back around 60% from its highs. And then, you know, you think about how sometimes these pullbacks, they can be just really short-lived. So I think there's a lot of value in having that opportunity to chat about a company with others and get their opinion on it and, you know, see if, you know, when a name draws back by that much in a short amount of time, whether that might be short-lived or may, you know,

consider whether their moat is still intact. So I really think that is just a really cool thing to see, you know, Mr. Market is just kind of going crazy. Maybe it's justified. Maybe it's not. This is definitely not my way of saying that Dollar General is a buy. It's not one I've dug into further, but a lot of members have been reaching out to me since I did an episode on them last year. And then one more example that I wanted to mention that sort of ties into, you know, sharing individual stocks is the day we're actually recording this dig, we're having two of our top members come in for what we call a roundtable discussion. And essentially it's what you're doing with Toby and Harry, where members share a pick. They do sort of a presentation. We actually, you know, have them do

a bit of a PowerPoint. So it's easy to follow along and kind of hit on all the high points on why they like an individual name. And then, you know, we have over, we're going to have 15 members attending that roundtable. So it's going to, I think it's going to, make for a pretty manageable group where there's going to be a lot of people interested, you know, sharing comments, sharing questions. And, you know, it's just really cool to see, like, some of our top members come in, share their very best idea. And, you know, it gives them a chance to prepare and have that presentation ready. And then we share that presentation with the whole group. So then the group can look into it and be prepared with questions or, you know, what they like or don't like about it.

So, yeah, those two members, I also wanted to mention that are doing the round-take. One of them practically manages his portfolio full-time. It seems like some of these members I meet, they seem to be more passionate about investing even than myself. I can't speak for you, Stig, but man, these guys just love stocks. It's pretty crazy. So yeah, one of them manages his portfolio full-time. I believe he's like partially retired.

You know, some of these really successful people, they retire, but they get their hands in different things once they retire from their regular career. And then the other person doing the roundtable pitch, he started a really successful accounting firm out of Atlanta. And he just absolutely loves this stuff as well. And it's just really cool for me to have that opportunity to meet people who, you know, just have a lot more experience than I do in the markets. And there's so much, you know, for me and you to learn Stig,

but also the group overall. So I think it's going to make for a really fun discussion. Yeah, you definitely don't want to be. be the smartest guy in the room and in any room. And I certainly am not the smartest guy, not even kind of close in the mastermind community. So like Clay and I has been hinting at, it's a very self-est deed to meet up with really, really smart people and talk to them about stock investing. And, you know, I think that's just a very healthy way of approaching. Like, you want to continue to learn. Like, that's the trick. Continue learning. It's the same reason I go to,

I'm going to go to Guys event there in a cluster, Switzerland in January and February. Like, I'm certainly not the smartest guy in that room. But it's like doing some of those live events are just such a wonderful way of continuing to learn, network with fellow investors. And I also wanted to jump in here and talk about Omaha a little bit. We just wrapped up our New York City meetup. And I'll be the first to say that so many people that attended absolutely loved it. We're going to be having our second mastermind community meetup in Omaha during Berkshire

weekend. And some of you are wondering why I'm mentioning it now. Well, you said this episode is going live November 4th. And the Berkshire meeting, I guess I'll say is Saturday, May 4th. And we'll probably plan some things from Friday through Sunday. So those are probably the best days to be in Omaha. And the reason I mentioned this is because the earlier you booked this stuff, the better, because hotels fill up, flights get booked.

And it's just, you know, Omaha, it's a big city for Nebraska at least. But it's by no means you're New York City where you have these. multiple airports, you have an international airport. So the earlier you get this stuff booked, the better because it just becomes more of a headache to do it later after, you know, everyone's already jumped a gun. We talked all about this last year's dig, you know, covering everyone's questions, everything you need to know about the Berkshire weekend. That was episode 500.

So that was about something we recorded about a year ago. If anyone wants to learn more about Berkshire weekend right now. but definitely get your stuff booked if you plan on going to Omaha. For those who aren't aware in the audience, I was actually born and raised in Nebraska and I'm still based here. So I'm quite familiar with Omaha. And it really helps us stig with the headaches of planning something like a live event because planning something is already hard enough.

So it's much, much easier when you're already familiar with the area, you know, what sort of businesses are around, what areas you should be in. And this past year in 2023, I'll say, we only did free events because we didn't have our mastermind community yet. And it was quite overwhelming. So I'm definitely looking forward to having a smaller group and really building out those deeper relationships. Because when you're with a group where you don't really know anyone, it's just like a ton

of surface level conversations with people you generally don't follow up with and stay in touch with. So that was one thing I really liked about New York City is I knew who I was going to be meeting with. They weren't asking me just surface level questions that really don't dig deeper. And like I mentioned, we have currently 80 members of the community. And my best guess would be that we'll have 25 to 30 or so of the community, joining us in person in Omaha.

And I certainly know that handful of people that were in New York City, they already plan on meeting us in Omaha. again too. Yeah, and I should also say that if you haven't been to Omaha, and this might just be all my own biases, it's just very nice to have a group you can meet up with. You can go to these free events. Like, I don't know, we probably had 400 people or something like that go through our events. And like, if you spend two minutes with each of those 400, it's 800 minutes times 60, like someone better than me with math, we probably say it's like, what, 13 hours of something? Like, it's a lot. and you don't even get to speak with people.

And I kind of feel like it's probably one of the lessons we learned. Also, again, perhaps a bit for selfish reasons, that we would really like to connect a bit more with our audience. And it's kind of like being a difficult decision because a part of me also, I don't probably because I'm a teacher at heart. Like I want to, I kind of feel that there's something nice about meeting as many as as possible from all walks of life. And I should also say that the master's men community is certainly also from all walks

of life. It's not like that. It's more a question of, especially for, For me, I get very timid whenever I go to places where there are a ton of people and you're supposed to mingle. Like, for me, that's like, that's just really, really difficult. And it's a little easier whenever you have, like, let's say you have 25 people to hang out with or whatever.

And of course, whenever there's 25 people, there are some that you have more in common with than others. But you can have conversations with those people for consecutive days and really, you know, get to know them. I kind of feel that's really nice. You have a place to go. you had an itinerary, it's just like, it's a little easier. And especially, you know, if you come there and I know, like, Clay would have home field advantage because you used to live there and

today lives very close. But like, it's, for me, like, say, flying in, you know, I've never owned a car, but that's sort of like a different discussion. But like, to me, it's like really, really nice that everything is walkable. But the walkable area in Omaha is just very, very small. So if you don't want to be dependent on a car, you can, of course, rent a car. If you want to, you. You can, of course, and you might say, well, there's also Uber. Yes, but this is like, you have 40,000 people come into relatively, I don't know, like 300,000 people, whatever in Omaha. But like in that area, it's just so congested. So you can't, like, if you kind of feel like I'll be one of those 40,000 people just showing right up to the event together with Warren, Charlie and all the others, like, no, you're not going to get an Uber.

And so I've both tried, like, staying like really near all the events, which has been really nice, but it's obviously also more expensive. and I also been, you know, in Council of Loves, which is like, I don't know, 30 minutes away or something like that. And like to know someone who can sort of like show the ropes, because I was certainly a newbie when I was there the first time in 2014, to me, that just gave me a lot of less angst of going there in the first place. And you can really focus on the reasons why you're there. And I should also say we really like for the community to feel like it's small

and feel more like it's a mastermind group. For example, Clay you mentioned before that you knew this specific individual in the group lens and you knew him well enough to know that he could perhaps help me with a stock. And we can't do that if we have 500 members and we don't want to be 500 members. So like we want to keep it small. And I should also say that we do see this as a two way street. You know, we want to make sure that everyone is vetted before they join the community. But it's again, it goes both ways because we also want to make sure that we can at value

for you coming into the community. But anyways, Clay, I wanted to you to be a bit more practical about all of this. Yeah, I can't help but jump in with a couple other comments there because you mentioned just something so, so important. You know, turning back to the surface level conversations. A couple of the things I learned from our New York City event is, you know, people, a lot of people don't just want to learn to be a better investor, learn about a specific name, since so many in our group are just like, just very successful

in many walks of life, whether it be entrepreneurship, running a business, you know, excelling in their career. One of the things we did was we created these member cards where each member would essentially say, you know, here's my background, here's, you know, my line of work and my back and, you know, the lines of work I've been in in the past. Here's what I'm looking to get from joining this live meetup. maybe it is something with investing. Maybe there's something with my business where, like, you know,

this is one of my growing pains within my business. And then there's, we also do things like have them fill out some sort of vulnerability. So like what can they offer to the group for members who are looking for, you know, maybe tips to grow their business or whatever else? So I think those member cards, they really, you know,

kind of jump over the surface level conversations and really dive in. And, you know, you read someone's card and you've realized, that, hey, they really need help with this, and I know that I can help them with that. So it's really a fantastic way, I think, for people to, you know, dive in deeper and really build those relationships. And another thing I selfishly do is, you know, I create the itinerary of what we're going to be doing.

But I also don't want to make it too structured where, you know, every few minutes, you have to be going to a new place, you know, exactly at this time, we need to head to the restaurant or whatever. I really want to, you know, open up the schedule a bit to, to allow that serendipity to take place. So, you know, maybe right off the bat, we have it for New York City, for example, we just had a happy hour right off the bat. So everyone met each other. Everyone had a chance to kind of get their feet wet, get to know who was going to be there. And then, you know, the days that followed, you know, there was a lot of open time for people to, you know, maybe go grab coffee with a specific person or whatnot. So I really just think,

I'm just really excited for Omaha, even though we just got back from New York City here. But anyways, if this sounds exciting to you, to apply to join, listeners can go to theinvestorspodcast.com slash mastermind dash application. Again, that's theinvestorspodcast.com slash mastermind dash application. And for those who don't want to type all of that in, we're also going to provide the link to this in the show notes. It's probably easiest to fill out the application on your computer. rather than your phone.

And by the time this episode goes out, we're going to have the registration list out for those who want to go to Omaha, and spots are going to be limited. So if you're interested in joining the group, meeting many incredible people, including myself, Kyle Greve, who's our recent host of millennial investing, then you can apply to join by going to that link. And just as a disclaimer here, I'll also mention that our community is priced at north of $150 per month. And we've been gradually hiking that price over time.

time. And that's shown on the application. And it sort of relates to the point you had Stig of wanting to keep the group small and to keep the group tight knit. So if joining the community, you think is right up your alley. And especially if you want to get registered to meet us in Omaha, we'd absolutely love to have you join us if you feel you're a good fit. And also, as always, if you have any questions, comments, concerns, feel free to reach out to me at clay at theinvestorspodcast.com. I'm always happy to hear from the audience if there's any way I can help them. And so lastly, just before we let you go, we are also offering a VAP package for the Berkshire weekend here in 2024.

And this is the first time we're doing this. Just to clarify, this is not a part of the mastermind community we talked about before, but something completely brand new. And with Clay, Kyle, and only a few other VAP guests, you'll visit the places in and around Omaha that's important to Warren Buffett in a limousine, included in the offer. Also, two exclusive dinners, one hosted by our very own William Green. And for both dinners, you get to meet prominent value investors we have, Francoa Housong, and Golden Bay that already confirmed their attendance, and we'll soon announce another prominent value investor. So I should also say there

are more in this offer than only the dinners and the limeride. If you want to learn more, you can apply for one of the few remaining VEP packages and learn more. more about what they include by emailing clay and theinvestterspodcast.com. Thank you for listening to TIP. Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only.

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