We Study Billionaires - The Investor’s Podcast Network - TIP660: Mastermind Q3, 2024 w/ Stig Brodersen, Tobias Carlisle and Hari Ramachandra

Starting point is 00:00:00 You're listening to TIP. In today's mastermind episode, I'm pitching Bettson. This is a company with Harron, but also trading in less than nine times earnings, high inside ownership, and attractive growth opportunities. During my pitch, I hope you'll see why I doubled down on Bettson as one of the stocks I have the most conviction in, and you'll hopefully also hear the bare case of why you shouldn't get ahead of yourself. Toby's pick is virtual financial.

Starting point is 00:00:28 It's gone up from 18 to 20. $29 since Toby originally pitched it here on the podcast, and Toby will outline why he's still bullish, and make sure to stay tuned for our discussion of whether the quality of the service is reflected in the price versus value ratio. I am really excited about Harry's pick Nintendo. Talk about high-quality IP. The stock seems to be an attractive spot in the console cycle, and in this episode we'll discuss whether the valuation is cheaper than what it appears at first glance.

Starting point is 00:00:58 I hope you enjoyed this episode as much as Toby, Hari and I enjoyed recording it. Without further ado, here is the mastermind discussion for Q3, 2024. Celebrating 10 years and more than 150 million downloads. You are listening to the Investors Podcast Network. Since 2014, we studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now, for your host, Stick Brow.

Starting point is 00:01:30 Welcome to The Investors podcast. I'm your host, Dick Broderson, and we are here today for the Q3 mastermind discussion. Hari, Toby, it's always great to see you, Jens. Thanks for having me Stig. It's great to see both you guys, Harry. This is one of the highlights of my quarter. Yeah, always fun to be here, Steg and Toby. Thank you. Same plus fun to what Toby said. I always look forward to this mastermind. Fantastic. So do I. And as always, we each pick a stock. And I don't know, we usually draw straw before we start the episode. I don't think we did that today.

Starting point is 00:02:13 So who wants to go first? I don't mind. Actually, mine is pretty short and sweet. My pick is Virtue Financial. Ticker is V-I-R-T. I pitched this in June, 2023. Then it was at $18. It's currently at $29.

Starting point is 00:02:31 The opportunity is not as good now as it was then, but it is still pretty good. So that's my little caveat at the start. This is a market maker, which is a financial intermediary. They sit in the sort of back end of the stock market. So I don't use these guys, but I use a market maker in my ETFs and they buy and sell. And so they're trying to clip out a penny when they trade. Citadel is the biggest in the market. They have about 40% market share.

Starting point is 00:02:59 These guys are second at about 25% market share. They're very, they're sort of attached to the amount of trading that goes on in the stock market. But when there's a lot of trading, they make a lot of money. When there's less trading, they make less money. So, you know, we had that big meme stock boom through 2020, 2021. That was when they did really, really well. They've done less well over this period of time, but it's still a pretty good business. They've got a lot of debt in there.

Starting point is 00:03:26 So that's potentially concerning or it's potentially something worth keeping an eye. And I just noticed this morning, they've tripped this Altman Z school. So I use a few. When I'm putting together the portfolios, I use Altman Z, Piatroski, all of those sort of Olsen, all these sort of little metrics for screening out, earnings manipulation, fraud, financial distress, looking for financial strength, all that sort of stuff. I've never found any single one of them works well in isolation. I just use them all collectively to kind of find things.

Starting point is 00:04:01 Because I think there's really unlikely to be financial manipulation. going on, or there's always a little bit of financial manipulation going, I should say, but you don't get the real fraud until you get the financial distress. So it all seems to go together. These guys have got, they've triggered one, Altman Z, and I think that's the debt levels, and probably the business because of the cyclicality of the business, and it looks like it's been getting a little bit weaker. Having said that, it's still a very good business. They still make a lot of money. There's not a lot of reinvestment required in the business. everything that they do make kind of flows out. And so it flows out as a pretty fat dividend.

Starting point is 00:04:38 When I pitched it last year was at 5%. It's currently at 3.5% yield. But then they're doing this big buyback constantly. So in 2020, they had like 122 million shares on issue. When I pitched in June last year, they had 95 million shares on issue. So they bought back a very material portion over that period. And they're currently at 87 million shares. So they bought it back a another $8 million, and that gives them a shareholder yield, which is the dividend plus the buyback over 10%. So the free cash flow is being redirected to shareholders, basically, which is one of the things that I like. How this business goes through a downturn, you know, like a stock market crash, I don't know. I think I said last time I was, I went back and I listened to the one that

Starting point is 00:05:26 the TIP that I did before, you know, the last one that I did for this. And two things really stood at. One is I seem to think that they do really well through a crash. I don't know if that's true or not. I think that they probably will do a lot of trading, but the stock will get hammered. I don't know about the business. So I'm probably less aggressive about how well they're going to do through a period like that. And the other thing is I was very bearish when I was pitching that. And just philosophically, I think that's a bad stance to be in the market all the time.

Starting point is 00:05:54 So sometimes since I recorded that, I've realized that it's funny to be like this old and making this realization, but basically no one can predict what the stock market's going to do regardless of what happens in the economy or macroeconomically valuation. Nothing really seems to drive the stock market, and it's a completely random, unpredictable process. I was worried about the 10-3 inversion for a long time. The 10-3 has been inverted for a record period of time. It doesn't seem that anything matters anymore, so I'm not saying that I'm flipping bullish

Starting point is 00:06:25 and that will bring on the giant downturn. I'm just saying, I don't know. It's unpredictable. it wouldn't surprise me if the market's up 50% next year or down 50% next year. The range of outcomes is massive. And so I'm sort of out of that game of trying to pick what's happening in the stock market and the economy. All I'm trying to do is look at little individual positions. So this is the way that I construct the portfolios for the for ZIG and for Deep is to take a group of businesses that generate pretty good free cash flow,

Starting point is 00:06:55 do pretty well on the assets that they have. use that cash flow sensibly, reinvest where it makes sense, buy back stock and pay a dividend, where that makes sense. I think these guys do both pretty well. It's not a very big company, it's very small, $2.5 billion market cap. Interprose value is 7.8 that tells you how much sort of net they're carrying there. And from memory, I have to check this, but from memory, the Interprose value to EB, it was about 7.4 times, and last time it was much cheaper than that. They've paid down some debt over the last 12 or so months since we spoke about them last. They've paid out plenty of money in terms of dividend.

Starting point is 00:07:34 They've bought back some stock. I think it's been like probably a representative period of time in the market. There were some good times and there were some bad times through that period. So I think the business is probably in about its steady state. Now, they pay out about half of what they generate. As a financial intermediary, as I said before, I don't really know how it would go through a downturn. But I think that they're probably going to survive and make it to the other side. run by very experienced guys. So I think it's a fair risk-adjusted bit here. I don't think it's

Starting point is 00:08:02 the most amazing thing I've ever seen. I don't think it's as good as it was, but I do think it's a fair risk-adjusted bit here. And it continues to be in my portfolios. We can rebalance out at any time in the future, but at the moment it's still there. And I think it's likely to be there because it's still very, it's one of the cheaper things in my screens right now. So that's virtually financial. Tell me what you think, fellas. Yeah, thank you, Toby. Stiggy, if I can go like a couple of questions. Toby, one thing that I wanted to ask you in general is, like, how you were saying, like, it's not the best, it's not a screaming deal, it's not like shooting fish in a barrel. Is it what you see generally in the market today? Like, but it's hard to find fish in a barrel.

Starting point is 00:08:42 Yeah, I think that's fair. I don't think there are any obvious bargains around. I think that October 22, the opportunity was very obvious at that stage. I did this sort of internal estimate for what the Ford returns are in the funds. And I thought that that was sort of, I would never say this publicly because you're just inviting, you know, it sounds like Kathy Wood saying 40%. I thought in October 22, it was like getting close to 20%, which I think is exceptionally high. That's a crazy high return.

Starting point is 00:09:12 Now I would say it's like, it's closer to, you know, down the other end, closer to 13, something like that. So that's sort of the size of the moot. Zig has, Zig's portfolio has got more expensive and the other side of the portfolio getting more expensive is that Ford returns get lower. And so I think that that's what's happened over kind of coming up on 18 months or so. There are fewer things around and the economy does seem to me from the portfolio holdings, it does seem to be slowing a little bit. Hard to see how that kind of plays out because I think that I really, so through 2023, I thought the economy and the

Starting point is 00:09:47 portfolio holding slowed obviously. Like there was a lot of slowing through there. And it didn't shop and an NBEI didn't declare it at a recession. The stock market didn't wobble. The stock market's just got more expensive since then. So I don't think I'm very good at, you know, extrapolating evaluation to what's going to happen. So I really have no idea. I just think that for something like Virtue, more trading is better. And there's this general trend over time. Clearly, 2021 was an outlier in 2024's not as big as 2021. But I think over time, there's just generally more interest in the stock market. It's bigger, more people trade. This is a sort of business that just grow in line with that over time. And it'll be, because it's, you know, pretty cash flow

Starting point is 00:10:33 generative, it doesn't require a great deal of reinvestment. It just seems to mostly flow out and I use it to buy back stock. I think it'll do pretty well, provided it's managed. That's the risk that you always have with these businesses that they get a little bit too aggressive at the wrong part of the cycle. And there's no bottom. But I think that they're probably well managed enough that they'll be fine through to the other side. But yeah, it's not as easy as it was in October 22, but there's still some reasonable opportunities around. Thank you, Toby. And my second question is, is it fair to think of this business as a toll gate? And if yes, I'm curious why they have like almost $6 billion in debt. I would assume they're

Starting point is 00:11:10 like really asset like they've just deployed it. Did you say to consider it as a toll gate? Yeah, because you're saying like they're going to take a fee for every transaction. So they're just sitting and collecting free for all transactions? Yeah, they don't quite have, you know, it's not like a monopoly because there is good competition out there. Citadel's bigger. I'm sure they would like more market share. Citadel would like more market share.

Starting point is 00:11:35 Virtue wants more market share. These guys trade every single market in the world, make a market in just about everything, all of these different securities and geographies. From that perspective, it's a great little, you know, financial intermediary business. I think there's a pretty good business. is pretty cash flow generative. I think that they use a lot of capital. They use a lot of debt capital to support that.

Starting point is 00:11:55 They could use equity capital for it, but then their returns are much lower. I think they can run the business on debt and it juices their returns up. I think that because they're on both sides of the trades all the way through, they're pretty well armed, but they may carry some of this on their balance sheet as well. But they don't really like to do that. They're trying to hold it for a very short period of time and get it off the balance sheet. And the debt probably helps them do that. It's a business that I think it will be a little bit cyclical.

Starting point is 00:12:23 And if you look at it, you know, it looks like it's run up to some stock price and then run back. It's only been public since like 2015. And you can see it runs up and down. It looks like it's sort of been in a range for a really long period of time. And if anything, it looks like it's closer to the top of its range here. I don't really, you know, I'm not a stock market chart guy. I'm looking at the fundamentals here. And they have bought back a lot of stock over that period of time.

Starting point is 00:12:45 And they have been quite cash-led generative. And it's been a pretty wild period in the markets, and they've made it through well unscathed on the other side. Could be more wild in the future. And I don't know how they go in a 2007-89 type scenario, but I think that they're in pretty good shape here. So I think it's a reasonable bit. And I, just in my portfolios, this is a 3.3% position. I'm not putting on 20% positions or anything crazy like that just so everybody knows I size these things fairly small and I rebalance back to 3.3. whenever I rebalance. So don't go putting the whole lot on this thing. I don't recommend that.

Starting point is 00:13:23 I like that you say that, Toby, because whenever I'm going to pitch my stock, I'm going to say it's one of the five stocks that I own. But anyways, Toby, I'm hesitant to ask you this question because I'm very worried that you're going to ask me the same question in which I probably won't have a good answer. So I should probably, I should preface why I'm asking this question here. And then Toby can retaliate whenever I'm going to make my pits afterwards. But I remember back in the day whenever I was teaching at the local college, and we were doing a lot of company presentation and they had to do different type of analysis. And one of the things that most students highlighted regardless of the company was that they had the best product in the industry. And whenever you hear enough time, you're sort of like, you and you have to ask questions. As the teacher there and you're so, you're going to ask questions like, how do you know? What's your source?

Starting point is 00:14:12 And this is probably just me being like grumpy old man. But, you know, very often they would say, like, I rated on the website. And you're like, well, you know, we have to talk about sources here. Like, if they say on the website, they're great. They're probably a bit biased. And so one of the things we're working on was how can we come up with objective measures for various products to say, when is something better? Because very often was so that the company they were looking at had the best products. And I've seen that same tendency whenever I am reading different analysis of different companies.

Starting point is 00:14:41 You know, if there are four competitors and I would read about all four, it would always, always be highlighted by the person. And the person who is like doing the analysis is typically always bullish because otherwise they don't want to spend time creating an analysis in the first place if they're not bullish. And so whenever I'm looking at something like virtue and I'm comparing to Citadel, I can't wonder but ask why are they better, like why is virtue a better product, for example? I don't know that it is a better product than Citadel. I think that what you want in a market maker is coverage of many, many different securities and commodities and markets and virtue offer that. And that's probably from the people who engage a market

Starting point is 00:15:20 maker, which is like, so if my ETFs need a market maker, maybe you can get away without a market maker, I don't know, but they're the ones who stand. They create the bid ask. They sit on either side of the spread. They make their money as people trade on either side of the spread. And they do that across a very large range of products. And that requires industry knowledge and, you know, an enormous technological capability. It's hard to get into that cold. So there is some pretty significant barriers to entry there. But having said that, they're not the biggest. There's a bigger one there. And it's probably fair to ask, what are they doing that's not as good as their competitor? And honestly, I don't know the answer that there are a lot of these financial intermediaries around.

Starting point is 00:16:05 When you're setting up any sort of business that interfaces with the stock market, you're probably engaging with one of these. The costs are paid by the traders, paid by the consumer, paid by by market participants who sit on either side of these trades. And so it's sort of, it's a little bit of an invisible cost. That was the complaint about Robin Hood that they were selling order flow information, but they were able to like let people trade for free because they made so much money on the spread and it's selling the information. And these guys are a little bit in the same. I don't know what they do with the information. They could very well be selling. the information, but I think they're the end consumer of the information. So they're just

Starting point is 00:16:43 creating a market. I feel like anybody could do that, but I think there is some risk in it. It's technologically difficult, so that's the barrier to entry there. I don't know that it's the best product out there. I think everybody is basically offering kind of comparable terms, and maybe they're trying to get those spreads tighter, but you used to be able to trade more tightly on small cap stocks, and they've blown out the spread there legislatively a few years ago to five cents. Who really knows what goes on the dark arts of lobbying to get you spread a little bit wider? I don't know how that works, but these guys have done pretty well through. I think what's been a tumultuous period in the markets, you had the 2020 flash crash for the COVID,

Starting point is 00:17:20 and then you had the crazy run through all of 2021 with the meme stocks and all of the just bananas action that's happened since then. It's probably calming down a little bit, but the very next thing in the market could be a giant crash, which aren't really. I have no idea. It's not a, it's not a, it's not a simple kind of markets to survive. And so I think the fact that they have survived is pretty good evidence that they can. They will continue to do that. It doesn't mean they've got the best product. They've got a competitive product at least. This is more like a process question, more than say only to virtue that has run up a bit. I'm kind of curious to hear how you avoid value traps. And so you're looking at something like virtue that's, let's say, training a low

Starting point is 00:18:02 multiple. Again, it's run up. So let's just more talk about process. And then say, okay, like the stock price are moving sideways. Fundamental still look solid, but also sideways. You are paying the opportunity cost of time. You are betting on mini version to happen. How long can something be on your screen before you're like, no, I just waited two, three, five. I don't know how long you would wait. And then that mean version just doesn't happen and you look elsewhere. Or do you just stick with it and say, I know that this is what should happen, so I'm just sticking to my guns. I think that value traps are very hard to identify prospectively. I don't think you know that you've got a value trap until five years later and it hasn't done anything.

Starting point is 00:18:44 I think you just kind of have to trust the fact that there's enough turnover in the portfolio and there's enough competition for positions in the portfolio that something, you know, if it stays good and cheap, that's great. Like, that's the ideal scenario. I always give the comparison. You know, Motleyful used to run these ads of IBM. and Tutsi Roll, and IBM was a great business that it was very expensive. Tutsi Roll was also an unknown great business that didn't grow a lot. IBM was a very high growth business. Tutsi

Starting point is 00:19:10 was not a high growth business, but it was a high return on invested capital business. And all of that capital was tough for them to reinvest in the business because it's not like kids are eating more and more Tutsi rolls over time. All of it was just redirected to buybacks and dividends. And that was an outstanding performer, even though it didn't ever get more expensive. It was always cheap for the entire holding period. That's really your ideal stock. You want something that's a very, very good business that nobody knows about, nobody ever pays up for, and you just sit in this thing for the rest of your life while it keeps on giving you those high returns and invested capital. It's not compounding, but by virtue of the fact that it's

Starting point is 00:19:46 buying back stock, you're holding in it is compounding. That's a little bit what's happening here. Holding is compounding. There is a little bit of margin, you know, sort of multiple expansion. but I've been invested in lots of value traps and I've spent a lot of time trying to figure it out. I think that business is so unpredictable. It's so hard to see often what's going to happen in the future that you really just can't know. And so I think that's why I like to hold 30 positions

Starting point is 00:20:11 because there's always something happening in 30 positions. They're moving up and down and they're bouncing around and there are positions that are trying to come in, positions that are getting expensive and some things are sitting there. You know, Dillard's, which is a holding of mine, but was not when, you know, Dillard's, one of Buffett's lieutenants held Dillets and he held it for the seven years and it really didn't

Starting point is 00:20:30 do anything for the first six years of his holding period but then through COVID they reduced their inventory and they had some cash flows come in and the thing moaned and it continues to be very cheap I think which is why I hold it but I held it on and off for that period for exactly that reason that I just thought kind of looks like dead money and then I missed the big move in Dillets which you know I think it ended up being like a 35% compound holding period for whichever one office lieutenant's held it, but it all came in one year where it like went up 10 times or something like that. So I think you just need to be patient, entertain yourself with the other things in the portfolio doing things. Not that's necessarily true for virtue, just as a general principle.

Starting point is 00:21:11 I don't worry about it. I try not to turn the portfolio over unless the opportunities that are coming in are, you know, they're materially better than the things that are going out. So it's just, it's so hard. And I also know there was like another very unreasonable question for me to ask because it's like if we could all identify a value trap, we wouldn't be invested in the first place. And some of you probably also heard the irony of, you know, I was asking about how do you identify a value trap? And then Toby was like, you just have to be patient. I was like, that is exactly, that's exactly true and exactly also the problem. Like, you have to be patient. So fantastic. It's tough, man. Look, I think.

Starting point is 00:21:49 think it's 50-50. I think when you philosophically, like I know historically, like I know historically in my funds, it's about 50-50. I'm right and about 50 and about and the market's right on 50. But the expectation is the market is right about everything. And so when the market is wrong, the re-rating is quite significant. And that's how you get the outperformance. And you hope that you're buying so cheaply that when it turns out that the market was right, your estimate is, you know, comparable to the markets and so you don't lose much. That's the theory. Of course, there's a lot of movement around. But the idea would be it's asymmetrical. in the sense that if the market is wrong and the financial statements reflect the business into the

Starting point is 00:22:25 future, that you get that big re-rating up. And if the market is right and the financial statements sort of come down, the business comes down to where the market estimate is, then you haven't lost that much because that was what the market already thought anyway. So that's the way I think about it. Actually, this was a great question, Steve. Thanks for asking and fantastic discussion. I think The key takeaway for me, Toby, for what you answered is, you've got to be willing to kiss few frogs to find the prints. So if you say, like, I will never get into a value trap, you probably will not find those undervalued gems as well.

Starting point is 00:23:03 I think that's right. I think you have to be prepared to put stuff on where you know all of the problems with it. And everybody else knows all the problems with it. And the risk is that you look dumb because you put it on and everybody knew it was wrong with it, and then that is what actually happens. But there's enough times where, and meta's a good example of that, where everybody knew where the problems with meta, where Mark's stuck spending all this money on the Metaverse.

Starting point is 00:23:26 It's like $12 billion a year. TikTok's such a better product, so much more addictive than Instagram, the Blue Book's disappearing. All of that was a compelling narrative that I heard at the time and 100% believes myself, but the thing was quantitatively cheap. It was half price when we put it on, and then we bought it. again. Was it a value trap? I think we bought it at like half price what quantitatively it was worth. And then it went down to one third quantitatively what we thought it was worth. And that's a pretty big drop and bought it more of it down one third because as we rebalance, the position goes up.

Starting point is 00:24:00 If the position's gone down, it rebounds up to equal weight. And I didn't feel good about it at any point through there because everybody else seemed to be right and the stock's price was telling me that I was wrong. But fortunately for me, I don't rely on my own intuition about these things. I just do it quantitatively and it goes in the portfolio. There's always that risk, every single position. This one could, virtually could be a disaster, could blow up completely. And I'm on record talking about it on the famous investors podcast. So I'm cruising for a bruising here, but on balance across a portfolio, the way that I construct the portfolio, my expectation is that the returns are sort of sufficient to justify the risk that is taken. And then I try to minimize

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Starting point is 00:28:46 That's Shopify.com slash WSB. All right. Back to the show. Thank you so much, Toby. Wonderful, wonderful discussion. Harry, would you like me to go first or would you like to pitch? your pick? Yeah, I can pitch stick. So my mind is continuing with the theme of it's very hard to find undervalued stocks today, as we were saying, and also be willing to bet on few companies

Starting point is 00:29:15 that might be looking bad like we are talking about meta, where the things that were not going their way. So in that light, my pick is Nintendo and I promised my son, so I'm going to give the credit to him. He said, you've got to build credits where it is due because I discovered this talk thanks to him because he and his friend, he's a high schooler, a freshman in high school, he and his friends, I see them all the time raving about some of the Nintendo games like Super Mario. In fact, like I have hard time limiting his gaming time. And I also discovered to him a huge ecosystem of people on YouTube and other platforms making a lot of money, just playing games. I instig with the staff talking before this show where I was telling Stig that you're

Starting point is 00:30:07 spending so much of effort producing all this podcasts. And there are this bunch of kids like 15 year olds, 18 year olds, just streaming their act of playing games. All they're doing is talking and playing games. It's not scripted. And it's like half an hour, one hour video. and it has millions of views as thinking stick is in the wrong business. I am in the wrong business.

Starting point is 00:30:31 I typed up in bullet form five pages of notes to do like a 50-minute pitch. I'm so much in the wrong business, sorry. So when I looked at that, I got very curious. So, of course, my son also helped with a lot of research. He was so enthusiastic. Whenever I used to bring up PlayStation and Xbox, he would be passionately defending Nintendo and throwing back at me data and some of these data from him actually. Like, I didn't know that among all the top 50 in the history games produced, almost half of all the most popular games in the history is from Nintendo.

Starting point is 00:31:12 Whether it is Super Mario, Zelda, farm animals, and I don't remember all the names, Pokemon. Those are the ones that I remember. but more than half is from Nintendo. The distant second is Activision with only four games. And the other thing is all these games, they are basically been there for more than 30 years. They're into game console business for almost 40 plus years. And most of these games are like 20, 30 years in the making.

Starting point is 00:31:44 So that means they're running their 10 sequels or 11 sequels. and still very popular. So there are generations who have grown upon these games. And the other speciality of them, I see them as like Apple and Disney combined in the gaming world, in the sense that they are a vertically integrated player. They produce most of their own games. They have their own gaming console. And then they have created a niche for themselves in the sense that if somebody has a PlayStation,

Starting point is 00:32:17 they would normally not have Xbox because they're competing gaming consoles and they are for serious power gamers. But Nintendo card out is niche for casual gamers, family gamers. And many kids get introduced through Nintendo into the gaming world. So if you have a PlayStation, you still might have a Nintendo Switch, for example. Or if you have an Xbox, you might still have a Nintendo Switch, but not PlayStation or Xbox and vice versa. So they have card on this niche as a family casual gaming and I can see that my daughter is also picking up. She's like six year old and they make it very easy for kids to get into

Starting point is 00:33:00 gaming. And because of that, their majority of their profit actually comes from software because that's where the margins are. It's like 80% plus margins in their software business. And if you So look at their overall margin, they are around 32% now and it's consistently growing. So their revenue is growing at around 11% year over year for many years now. Of course, it's a cyclical business. So sometimes there might be a spike in the revenue when their new gaming console is released. They have the record of the most number of consoles sold at $863 million in the history. The second place goes to PlayStation with around 600 million and Xbox is at 187 million.

Starting point is 00:33:46 So that shows their dominance. But their revenue kind of fluctuates because of that. Say, for example, in 2021, they had recorded around 16.5 billion in revenue. In 2017, there were only four. In 2023, they are 11 billion. One of the things that, and this is where the risk called service is that right now, the market is not very pleased with them because they delayed the relays of their latest gaming console switch, next version. Because of that, they were punished. Actually, had I wished it a month back, it would have been much better.

Starting point is 00:34:24 Now the price has recovered a bit. So I would wait, frankly, if this is not a place where I would be very excited to buy. But just going back to this trend, they have been consistently growing their profit margins, their free cash flow is growing at around 22 or 23 percent, earnings per share is growing at around 28, 29 percent per year. That's because of a lot of buybacks they do. They have a cash position of around 14.2 billion, and their total debt is only 4 billion. So they're very secure balance sheet.

Starting point is 00:35:02 Their enterprise value is around 45 or 46 billion and give it to EBIT is around 10.6 billion. So not really cheap. The reason I am interested in this is it's more like a venture bet because they are orchestrating a transformation or change in the direction. So what they're doing now is basically instead of just being a, there was console and All their games were restricted to their own console. They're opening up to mobile gaming. They're also opening up to franchising their characters. They're also getting into movie business with that Super Mario character.

Starting point is 00:35:45 In fact, in 2023, Super Mario grossed around $1.3 or $1.4 billion. And I watched that movie with my son. It was a big craze. And their gaming business with Pokemon Go had $1 billion plus downloads. Now they are getting into augmented reality and Pokemon is a great example of a company getting into augmented reality successfully. And we know how AR and VR is still in a nascent phase. And I think Nintendo is boys with their experience to take advantage of that. They have done it time and again.

Starting point is 00:36:22 If you look at their history from gaming arcades to new platforms, they have always been able to leapfrog and take advantage. of the next trend. So for me, this is a long-term hold because I believe they have a very safe franchise. They have a very loyal customer base. And they are poised as one of the key players who can take advantage of new technology trends that might come in. And also they have the track record of producing really engaging games and they can leverage their existing games to get into the new technology trend.

Starting point is 00:37:00 So that's kind of the pitch on the company. Valuation-wise, I do know, like, and I was ready for you guys to rip me apart on the valuation. So I would say it is not compelling at this point. And Toby and Stig, I'm looking forward to your questions there. But either I will wait and put it on my watch list. But this is a company, I believe, is a keeper, at least for next five to ten years. Yeah, I think it's a great pick. I love Nintendo. I think it's a fantastic business that IP is just invaluable at this point. I agree with you about the games are all fantastic, really fun games to play. My kids watch that movie and they will watch that over and they'll watch that anytime. They're happy to keep on watching that. And they badger me constantly for the little handheld game and for like a console to play it on. They love all of that stuff. So that's pretty good. That's my Peter Lynch by what you know. I've never bought it, but I've heard a few pitches for it over the years.

Starting point is 00:38:02 I love every single time I hear the pitch. I love it. I actually don't think it's that crazy overvalue. I don't think it's overvalued. I think there's a reasonable argument that it's kind of, I mean, I don't know if the business is flattered by the fact that they've had, you know, I don't know how they've gone through some sort of like, I know they have to, they turn over the console and then there's new games and it's a little bit.

Starting point is 00:38:21 I don't understand that cycle. So I'm just looking at the numbers here. But I, you know, the growth has been pretty consistent, pretty good. If you expect that to go on into the future, there's an argument that it's pretty good value here, even though it's run up a lot. And it looks, I think that multiples are kind of more expensive than they have been over the recent past. But I still think on an absolute basis, it's not bad value. And, you know, great business. There's no question about the quality of the business. I think the quality of the business is phenomenal. People love the characters. It's been around for a long time. It's embedded in multiple generations now. I remember Nintendo when I was a kid, my kids are interested in. So it's like that kind of enduring longevity. I agree. It's something like Disney, Apple.

Starting point is 00:39:05 There's a lot to love about this stock. I really like it. I'm just as Harry's pitching and I'm wondering why I don't own it personally. The only strange thing is when I pull up the stock price chart and I go back to the max, which my little just can get on Google here, goes back to 1998. So 26 years, something like that. And it's only up about four and a bit times over that period. and it's had a few, it had a monster run up to 2007, and then it had a run up again to

Starting point is 00:39:33 2021. It's had a little bit of a run up now, but it looks a little bit bum bust, but the business, I don't think is boom-bust. I think the business is pretty solid. It's one of those, I don't know why the stock chart looks like it does. I was expecting to look at the stock chart and see this ramp like that and then have Harry pitching and then having to worry about the very top of that ramp, but it doesn't look like that at all. I don't know. I think this is, a really good pick. I think it's a really interesting stock. Good job, Harry. Well, thank you, Toby. I think just one couple of comments on Toby's points there. Yeah, that's a very good observation. Like the boom burst. It's like a boom burst. It's like a cyclical

Starting point is 00:40:11 business almost. And looking at the quality of the business, you wouldn't expect that. But you see that in the revenue. Also, you see that in the stock price, as you were saying. What drives that, the gaming cycle? Yeah. The dates you were mentioning are all related to their new console launches. And that's one of the issues with them is like they were all cassettes earlier. And the games were not transferred from one platform to the other. And what would happen is they would move from one platform to the next platform. And some of their platforms were not a hit because people have to buy the new games for

Starting point is 00:40:49 that platform all over again and they would not probably migrate to that platform that well. Even PlayStation has that issues. But now all of them, not just Nintendo, are gradually moving to subscription business in the sense that there is no longer cassettes. It's all download-over-level games. So it's a digital game. So you get to keep the game even when you move to the next platform. So you might be incentivized more to buy the next platform.

Starting point is 00:41:16 However, having said that they're always prone to this boom-bust kind of issue so far because of the success of their gaming console. And this comes in like every few years once they have to not, you keep launching new gaming console according to the technologies and whatever available at that point of time. And sometimes it's play session who wins, sometimes it's Xbox, sometimes it's Nintendo. So depending on that, when in case of Microsoft and Sony, they have other businesses to buffer that. But Nintendo is a pure play. So if you want a pure gaming play, I think that's Nintendo, but it comes with that cost. Yeah, great IP, just instantly recognizable IP across the world generationally.

Starting point is 00:42:02 So that's very, very powerful. I think they've got the best of Disney and, as you say, and some aspects of Apple there as well. Yeah, very, very attractive business. Perhaps the best from Disney without the bat. But you absolutely right, it has a lot of the same attributes. And, you know, it's wonderful whenever you have something like Mario Brothers, where you own the IP, you don't have to reinvent the wheel like, let's say, you work for a lot of

Starting point is 00:42:28 movie franchises. So it's interesting, and I would agree with you on the valuation. I don't think it's that high, but that also factors in where I think we are in the cycle, in the console cycle, which I could very much be wrong about. And in preparation for this call here, I read an analysis where they plotted all the difference. So like Nintendo 64, GameCube, Wii, Switch 1, now there's going to be the other switch. So they don't have the same platform issue to Harri's point like they have if they're completely moving away.

Starting point is 00:43:05 So I think if you factor that in, you could probably argue that it's, I don't want to say cheap, but it certainly doesn't look too expensive. And then I also can't help but wonder if that is the case with the console cycle. And everyone knows that, why do we then still see it? Because it's quite evident when you look at the numbers. But it's just fascinating itself.

Starting point is 00:43:25 That's probably because we're all, just all people. So it's hard for us not to be not to be caught up in that. I like the pick. I think it's a high quality pick, a clear IP. There's a motor around it. And I also find it interesting that they are, and it's not with a big part of their earnings. I want to say it's like 10%ish. but like they're going into a slightly different model, for example, with a theme park that

Starting point is 00:43:51 Universal Studios are running for them. And I read there was almost like a half a billion dollars and then they're operating it and we're sort of like buying the IP and, you know, the good things about that. And it's, it's one of those things that are probably in the too hard basket for me to figure out if that's a good thing, especially whenever, like, so whenever you read about retailers, for example, some retailers would own their own property. And so you would read the bull analysis and it would say, They own properties. That's amazing because they own it.

Starting point is 00:44:19 And as you all know, it's better to own the properties. Then you read about the other retailer and it says, oh, they're leasing it. And as we all know, it's always better to lease it. So whenever I was reading about the theme parks and how they were licensing the IP, I was like, that is so good because they don't have all of these cars. They only get the, and I was like, I don't know. Ask Disney. Like, I don't know if it's truly a better model.

Starting point is 00:44:40 It's probably one of those where you have a certain confirmation bias. and if you like the pick, you also think it's the right strategy for them. Yeah, I think you both are helping me make the pitch better and fine-tune it. Actually, I forgot to mention over the theme park. Thank you for winning that upstick. I think that's not material at this point of time from the revenue perspective. It's an experiment, I would say. So they're trying to diversify their revenue streams,

Starting point is 00:45:06 but that franchising to Universals Studios in this case, I'm supposed to visit next time my son is big kind of an ordeal. pressing me hard on that to go to the universe's studio because now they have Super Mario there. But I see this more as deepening their presence in the mindship of people, basically, through these theme parks or franchisee. Now you can, you go to Target, you will see Legos with Super Mario and dolls of Super Mario. So they're doing everything that Disney does basically with their characters because they're so iconic characters. In fact, in 2014 Olympics, the Prime Minister of Japan dressed up as Super Mario, I heard.

Starting point is 00:45:48 That's right. Yeah, I remember saying that at the Olympics, yeah. So I think that there's a good strategy, marketing strategy. So I don't see it as a profit center, but more as a cost center for them so that they can gain more mind share among the population through these theme parks and franchises. I think the real meat is in their games because that's probably 80% of the, you know, of their revenue with 75% or more in profit margins. So that's where the real money comes in.

Starting point is 00:46:21 But that's a good point, Sticks. I don't know how this strategy of getting into theme park goes. They should not be as far too much of a Disney with the resorts and theme parks and all. That will be quite capital intensive. Do you know what is funny? It's just like Stig was saying before, I was thinking exactly the same thing. It's great that they don't have those Disney theme parks completely forgetting, that I was at Universal Studios with my kids, like in the last six months.

Starting point is 00:46:47 And that was one of the things that they really wanted to see. They really want to go in and have a look at the Nintendo display because they recognize all of the characters and they want to go on it. And look in there. I think, yeah, the IP is just invaluable, particularly because, you know, the movie is all references to my generation's stuff. So it appeals to me and it appeals to my kids at the same time. And I think they did a good job.

Starting point is 00:47:11 It wasn't just recognizing, rescuing the people. Princess, she was sort of driving the story more and more involved, which is great. If you got a daughter, you know, she's a little bit more active in the story. I thought they did a really good job with the whole thing. Yeah, indeed. I enjoyed that movie too. 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 Vantta is a game changer. Vanta automates your compliance process and brings compliance, risk, and customer trust to on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise

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Starting point is 00:50:51 So in my next life, I want to be as smart as Toby and have 30 stocks. I don't know. I just don't think I'm wired that way. I have five stocks, and I'm going to talk about one of those stocks here today. And it's Betzen. It trades on the Swedish stock exchange under the ticker BETS, bets, of course, and then OTC in the States as BTSBF is only north more than a billion dollars is. So it's a very small company and it's a gambling company.

Starting point is 00:51:19 And the way it came on my radar was because I recently took a small position in Evolution Gaming and to fully understand evolution, and I still hold that is like a 1% or whatever it is of my portfolio. You know, one thing is to read the filings, which I did, but really to understand it, you also want to read the file. of competitors, customers, basically really understand the stakeholders. And so one of the customers are Bettson. So I was thinking, why not read their 10K and see what I can learn about how they work together? And then I realized I probably like Bettson more than evolution. So I doubled down on Bettson and right now it's roughly 9% of my public portfolio.

Starting point is 00:52:00 And Bettson offers gambling and sports betting online casino. The business model is relatively simple. They attract players onto the platform and the bet against the house and no surprise, on average, the house wins, and then they pocket the difference. And whenever it comes to gambling, online gambling, it's very scalable. You have the software. It's about bringing in people. And of course, there is some marketing expenses to that, but it scales pretty well. Of course, regulators also know that. So you are taxed three times whenever you're in that industry, just so you know. So you pay for for a license, then you pay a part of your winnings, and then you also pay corporate tax

Starting point is 00:52:42 on your profits. So you get taxed quite a few times there. It is a good business and the EBIT margin are north of 20%. Betza now has 10 consecutive quarters where operating income are at an all-time high, so they definitely have a lot of tailwind. Now, let's talk about competitive advantage and competitors. I would probably make the claim that they don't have a competitive advantage. Then you might ask the question, why would you invest in a company that doesn't have a mode? I generally come from the mindset that the vast majority of companies, they do not have a mode. And if they have one, it's very narrow and there is just someone who's waiting to storm your castle. A really good sign of a company having a mode is that the G of J of J.J is all over them

Starting point is 00:53:30 and talking about how much they have a monopoly. And then the company in response would say, Oh no, look at poor me. We don't have any mode at all. We don't have any monopoly. We're just such a small fish in a big pond. That's whenever you know that you have a real mode. If a company tells you too much about that they have a mode and they're training at eight times earnings, they don't have a mode. Anyways, Betton is competing in a tough field. There are so many operators out there, both public but also private. And I also want to say that if you look at it, they might look like there are hundreds and hundreds. There are some consolidation. And the bigger players, the holding companies, including bets and even though bets on one of the smaller ones,

Starting point is 00:54:13 they have a lot of brands under them. So if you're based in the States, for example, you might be familiar with Fanjul. So that's owned by Flutter. And they also own Pokedstars, Bedfair, Petty Power and so many others. And it's the same thing with Bates and they owns more than 20 brands. So there are not as many companies out there. They are operating by some of the same companies. So let's say that Bettson's main sport, by far, that's football, saga for our American listeners. But they also have a brand BitSafe that's very much tailored to the basketball industry. So they get players through that, through those sponsorships, but then they will go into the same platform as everyone who are watching football and betting on football, and then there's a funnel

Starting point is 00:54:57 to the casino games afterwards. So they have different entry points, but it's sort of all funneled to the same place. And the way that Betzen has been growing and they're growing in 15% annually, while they're paying a 50% payout ratio, I should say. But the way that they have grown, for example, recently in Belgium with their acquisition of Bet First, is that they very much buy their license. So a company like Bet First, they didn't have the full suite of games, but then Betts someone come in and say, you'll be basically buying a company, but we're really buying the license. And there are a ton of different licenses, whether it's for sports betting, but Tiber Sports betting, live casino, online casino, all of that, good stuff.

Starting point is 00:55:33 So they roll out and scale the business in different countries through that. So whenever you look here at a company at 8.8 times earnings, there must be some hair on it. And the answer is absolutely yes. Aside from them not having a moat, there's definitely some hair on it. So one of them is they have exposure to Turkey. They don't really talk too much about it in their filings, probably for good reason. But they indirectly have an exposure, I should say. So they made a deal with Realm back in 2010. At the time, it was sold for only 1.9 million euros, which was seen to be a very, very low

Starting point is 00:56:10 amount. So I'll imagine that they have a very attractive deal in place with them. So if you read the 10K, I think that's what they put in as licensing fee. So there's like this very interesting thing they don't talk too much about. And so it's something that could go away. Again, it hasn't gone away, but you would have to factor that in. I would also imagine that the margins are pretty good on that deal. And so it's probably more than 25% of the business that can go away. So it's up to you how much you want to weigh that probability into your thesis. Then you have the piece of regulation. And you can argue that regulation can be as much of a tailwind as it could be a headwind. There are in many different countries. It's not like they're only in one country. And then if they

Starting point is 00:56:53 shut it down, then, you know, the business is just gone. So take it for what for what it is. But whenever the new market opens, it's typically a way for operators like Bitson to expand their operations. Operators can also operate in unregulated markets, but it's sort of like slightly different. They don't, in that case, pay taxes, but they also can't market typically. And then the third thing I wanted to talk about was that I had a chance to do a bit of a scuttled butt research. And so I asked someone who was an insider and he was willing to to job on a call with me. And I asked him the silver bullet question. So the Warren Buffet silver question, like, who is your biggest competitor? And he sort of agreed with me that didn't have a moat,

Starting point is 00:57:33 which depending on how you look at is good or bad. But again, it's a company growing very, very fast with 50% payout ratio. So perhaps there is somewhere, somewhere. But I approach this by saying they don't have a moat. And he basically said that his concern was, it's not a good of a product as a product like Fanjoult, for example. And some of the European-based companies are, I should probably say, preface that by saying some of the legacy European-based companies, they have been not doing a good job necessarily of innovating, perhaps because it's been a bit too easy to do what they do. And whenever you try their products, it's not gamified as well as a product like Vanjewel,

Starting point is 00:58:20 for example. So I would very much look at what markets competitors would potentially be competing in. The bigger markets for, this is sort of like, they probably sounds a bit off, but the bigger markets who bets and they're very niche-based, so they're big in Peru, in Italy, and in Greece. This is not your typical markets for a small cap from Sweden who are in gambling, and they're very good at targeting individual markets. Now, let's talk a bit about the valuation. So it's a relatively new position for me. My average price here was 120.7 Swedish croner. It's at the time of recordings trading 130. Here we're looking at a company with roughly 20% return on investor capital, 8.8 times price to earnings. It just looks cheap. Even if you factor in some of the risks that I mentioned, you know,

Starting point is 00:59:14 Some of them are more mature markets that they're in. Sometimes what the regular edge would do is that they're going to increase taxes and the operators can't really do too much about it because they're already in the market. I should also mention there's a huge tailwind from a lot of markets that are opening up right now. I can't really figure out why it's so cheap, which probably gives you a pause, and it probably should give you pause. I think that there is an element of it being a sin stock. It doesn't sound nice to say that you're investing in a gambling company.

Starting point is 00:59:44 there are, you know, for example, whenever the Norwegian sovereign fawns so loud of evolution, AB, like the game provider. Like, so there are different headwinds from being in that space. They're net cash, I should say, but, you know, there are a lot of gambling companies that are not net cash, and it's rather expensive for, let's call the sin stocks to raise capital compared to other industries. So I think that that probably has something to do with it. And then, you know, in the industry, everyone talks about draft kings, Flutter, and they have a big focus in the in the states because there are so many states that are opened up right now. And, you know, they're going at it hard, shared illusion taking on debt.

Starting point is 01:00:27 And I don't know, it's sort of like in the too hot pile for me. So a conservative Swedish small cap company that's paying out 50% dividend, just it's not as, it's not as racing. It's not as exciting, I think. And I also mention that one thing I really like about them is that they have a high degree of inside ownership. And so if you go into the 10K and see who owns what, and then you look at some of the names and you look at some of the history of Batson and it was originally founded by the CEO's

Starting point is 01:00:56 father with two other guys and then their children are now taking over the shares. So they control. It doesn't look like it's one family controlling a company, but it's sort of like the same few families that founded the original company, it was called Cherry at the time, back in the day. And so they're sort of like sticking together. But then, before to throw it over to you guys, I just want to say that as much as it's probably a sin stock and it doesn't sound nice, there's a lot of tailwind from a new generation. So he was just one data point. I read in the economy the other day was quite interesting. So in America, 25% of adults plan to wage on the

Starting point is 01:01:33 Super Bowl, which was kind of interesting. So it's 44% more than last year. But here's the, here's the kicker here. Only 6% of baby boomers gamble regularly. It's 25% with millennials. Now, there were no data about GNCs, but I will imagine that it's even higher for GNCs. And one of the ironies is that there is so much negativity around the gambling section, probably for good reason. And they're regulated so heavily because of that. But you see so many companies out there, not just the social media companies, but you see so many companies out there, even like normal e-commerce companies, they're using the same tricks, if you want, as the gambling companies to attract people. They're gamifying the shopping experience right now, and they're not being regulated.

Starting point is 01:02:17 So anyways, I just kind of felt that was interesting to point out. Jens, let me throw it back over to you guys. I think this is a really interesting pick. The valuation is very, very compelling. It's very, very cheap for a good quality business that looks pretty safe, net cash, all that sort of stuff. The main risk is that regulatory risk, but they've been around for so long. They seem to know how to deal with that. The funny thing is that, you know, how you said that was an interesting statistic, 6% of baby Bermas, 25% of millennials and Gen Z, probably even higher again. That's my personal experience is exactly that. I know a lot of guys who are 10 or 15 years younger than me, maybe more 10 or 20 years younger than me, gamble on everything. They have these

Starting point is 01:02:57 apps and they just gamble constantly on these things. So I just wonder if that's like an existential risk that, you know, it wasn't that long ago that it was all illegal. And then, you know, remember the online poker and then Draft Kings came in and now it's sort of ubiquitous and I wonder if there's going to be some sob stories out of that and the regulators already don't like it for whatever

Starting point is 01:03:18 reason and then they'll come in and try and squash it. That's the sort of but that's probably more of an American thing than the Swedish thing. What do you think? How do you handicap something like that? Yeah, I don't know how to particularly handicap this and I think I'm

Starting point is 01:03:33 probably biased whenever I almost sound like I'm going to disregard it. Part of it is a bit, is a bit American in the sense of, perhaps because Americans are very smart and they know that there are a lot of traps and a lot of bad things happening in gambling. So it's not legalized in all states. And even in those states where it was legalized, they're only limited, at least in some states. And Betson are, they have very, very small presence, almost non-existing presence in the states, which I personally think is a good thing because they're competing with, with Flotter. and Drive Kings, and I can see why the products are so good. And right now, they're just burning

Starting point is 01:04:12 so much cash being in the US and gaining market. Yeah, and it's probably the right strategy. I don't know, but it's just really difficult for me to figure out whenever the company is losing so much money. So something I would be quite concerned about if I invested in a company that was, for example, like Flotter. I would have to figure that out, which is not necessary. I hope it's not necessarily whenever it comes to Bettson. Otherwise, yeah, it looks really, really cheap for the quality of the business. It's the sort of thing that I would buy because it's got, doesn't have the moat. That's the most important thing for me.

Starting point is 01:04:43 Stig, no mode. That's very attractive. Yeah, so I think Stig, very interesting pick as Obie was saying, what got my attention was 25% of young adults are into like, you know, sports waging. That's a very interesting statistics. I think this might be benefiting from. all the social media trends as well. So that might be fueling it because now people kind of share what they're winning.

Starting point is 01:05:10 I see all this WhatsApp group suddenly spam WhatsApp group, I should add, suddenly popping up on my WhatsApp talking about, hey, there is gambling app or whatnot, and there are groups of people discussing and showing of how much money they made and whatnot. So I think there is definitely like, you know, how people have this, how do I say? say not such a good will towards, say, Facebook or meta, but the stock is still doing good. Same with, say, tobacco companies. I think this is one of those where it's not something very pleasant and, as Toby put it best, right? Like, it's where the money is, but it's not something that you can talk about in a cocktail party that much.

Starting point is 01:05:56 No, it's better to just put it like on the public platform where everyone can listen to it and judge you for. for investing in it. The funny thing is it's like there's some cultural resistance to it in the States that, you know, I've encountered since I've got here, but I come from a culture like Australians, Australians love to gamble. There's gambling everywhere in Australia. There's this horse race once a year, the Melbourne Cup. I think like 100% of Australians gamble on it. Like, I think school kids gamble on it. I think it's, it's like a, it's a much sort of more accepted part of the culture. Every single bar that you go to in Australia has, they call it a TAB. It's like a place that you can place a bed. I think it's all gone online now, and I kind of missed all of that transition online in Australia,

Starting point is 01:06:36 but I do think it's funny, and I think that the rest of the world knows that Australians like to gamble too. So that's my excuse. It's part of my culture. I come from a gambling culture, so you can't criticize me for, and personally, I don't like to gamble. I do all my gambling in the stock market because I like positive, expected value bets, and I don't like the VIG.

Starting point is 01:06:53 So there you go. You know, it's kind of interesting. You would say that, and we're talking about the new generation here also. I was looking into Evolution Gaming, as I was mentioning. here before. And they launched a new game called Stock Market Live, which is ironic because I don't think it's the Stock Market Live. And it's just like, I was thinking, but the stock market is sort of a game, but it's not. It shouldn't be gambling. It should be like, buy and hold. And that's just not how the new generation are seeing it. Like, it's Robin Hood and end of the day option contracts.

Starting point is 01:07:24 Yeah, yeah, that's crazy. Yeah. It's, it's, it's, that's real gambling. That's a fig and a at the end of the day. It's pure randomness. Yeah. Well, well, sudden, you know, I do think that there's a cultural element to it where I don't know if it's as a grain here in Denmark as in Australia, but I don't think it's probably as front upon as it would be in some places in the States. And I think that there are probably, they're probably just different cultural reasons for that. But I do see, and here's this is sort of like the macro guy in me coming. So you should probably not listen at all to what I'm saying here. But let's just look at the States.

Starting point is 01:08:01 but it could be anywhere in Europe, for that matter. You're seeing so many places where they have public deficits, right? Like, that's the rule. So you need to print tax dollars. Then you also have, you also want lower unemployment. You especially want certain groups not to be unemployed. If you build resorts, casinos, they provide that type of employment for, you know, sometimes an occupation that you can't really outsource, it has to be on location.

Starting point is 01:08:33 That's one part of it. Then there's just another part of it, because we were talking about live casinos, but online casinos, because of everyone getting your better, better internet connections, and there are some really good experience out there. So if you tried going to like a really smoky casino and you see some types there that you probably don't want to sit next to, like, you can hang out with your friends, you know, at home and get a really cool experience with a live dealer now. And whenever you're looking at these gaming companies, they're making more and more money from those.

Starting point is 01:09:03 Like, you might be thinking of sports betting, but like where the future really is and you really more or less feel that you're in a casino. And it's at your fingertips for better or for worse. And so it's not because I think all of us are going to like using headsets or glasses or anything like that, which would probably give you an even better experience. But like even just on your laptop, it's kind of interesting how good the experience is. And then there is just a Then there's an element of it's going to sound not sound nice, but you know, the, I call sort of like the seven sin type framework where, you know, we have different things in us as humans. That's just hardwired into us. And so instead of perhaps looking for what's the next disruption and how do I bet on the next disruption, perhaps you want to bet up, bet on what's not going to be disrupted. And I think, sorry, no pun intended by saying betting on that, but you know, it's like, I would bet on betting not being disrupted if I can put it like that. Yeah, I think the risk is regulatory rather than cultural, probably. You know, the same thing happened with the poker boom, you know, when they had a lot of people playing online poker.

Starting point is 01:10:08 And then there are a few kind of young guys who blew themselves up and did it in a, you know, made a spectacle of themselves sort of trying to atone for it. And I think that created some of the pushback against online gaming or online poker here. But that seems to, that's, that's old, that's my generation, that the new generation of kids haven't got. to that point yet. But I do think that the, I wouldn't be surprised if there's this explosion now, but in like maybe a few years time, three to five years time, there's some pushback in the States. But that seems to be the nature of the states. They open up and they kind of move it around a little bit. I think probably the Nordic countries, Australia and some of those other countries, it's just an accepted part of the culture and it's always been there and it'll probably always be there.

Starting point is 01:10:51 So it's probably, like you say, you're just betting on it, not changing. with metal coming up with VR and AR after they're getting into Gamleaks casino, imagine like, you know, how it would it be with AR and VR. They feel like you're inside the casino. That's not a good feeling. It's not a good feeling.

Starting point is 01:11:13 You know, there is this saying in the poker community. It took a genius to invent the poker chip, but it took 100 geniuses to come up with the online poker chip. Like, it's, it's so easy to bet online money that it's just, it's like, and even if you sit at a live casino, which you hopefully don't, but even you, even you sit in a live casino and you put like a hundred dollar chip in the middle, like, it doesn't feel like real money, but try and sitting there with your, you know, with your mouse. It's like, it's like playing a game. It's like playing Nintendo, you know, you don't, you don't even, you don't even think about it, which is probably

Starting point is 01:11:49 why you shouldn't invest in a dirty company like that. But that was one of the five, five stocks in my portfolio bets and that I recently doubled down on. I would say that's why you shouldn't be, that's why you shouldn't gamble. In this instance, you're saying you get to be the house. Like, there's a big difference between being the house and being a gambler. I think that you're much better off being the house than you are being the gambler. Well, sir. Obviously.

Starting point is 01:12:09 Yeah. Ultimately, I'll win. Gamble, gamble on the house. Yeah. All right, Jens. Thank you so much as always for making time. Horry, where can the audience learn more about you? Yeah.

Starting point is 01:12:23 I think it was fun conversation. Thanks to both of you. I'm always hanging around on Twitter, now eggs. Hary Rama is my handle. Please come. Looking forward to conversations. I have two ETS, ZIG, which is a mid-cap, large-cap. Currently, it's a little bit at the smaller end, kind of small, according to Morningstar,

Starting point is 01:12:44 but deep value portfolio is sort of the way that I've described it. And deep, same thing, small and micro, and have a website, acquire as multiple. I'm also on Twitter. I refuse to call it X. I'm greenbacked, terrible, G-R-E-E-E-N-B-A-C-K-D. It's far too hard. I think I'm going to change it to my name or something. So I always love doing these things. I'm envious of the picks that you guys had. I think I'd give myself bronze or maybe fourth. I'll give you guys tight gold. Today was a good one. Thank you for having me. Thank you, Toby. And perhaps next time we should just, instead of preparing and coming up with a pitch, we should just all sit in game. Like what Harry suggested. Too many followers. Too many followers. Yeah, right. That's perfect. All right, jens. Thank you so much for your time. And I'll see you again next quarter. Thanks, Stig. Thanks, Harry. Good seeing you guys. Awesome. Thank you, guys. See you. So at this point in the episode, I want to transition into the next segment. And I just jump on this call here with you.

Starting point is 01:13:42 Play a welcome here to the episode. Hi, Sting. It's always great to chat with you. You know, I wanted to have this other segment here about the mastermind community because I selfishly have more use of the mastermind community than I thought possible, really. And, you know, I have this wonderful opportunity to jump on this call here with Toby and Hari once a quarter and then, you know, I'll pitch a stock and then hopefully they're going to say some bad things so I don't invest all my money in like bad stocks. But, you know, what I really like about our online community is that it's there 24-7. So I can be told that I'm wrong 24-7.

Starting point is 01:14:19 And I sometimes like to think of it as, you know, Omaha, your fingertips. That sounded corny. But that's sort of like how I'd like to think of it. And in the mastermind community, I really get this chance to speak with you and very thoughtful investors. And we get a, you know, in this case, you know, I was pitching at Batson. And in the mastermind community, I have a chance to have a sounding board. I can pitch it before I jump on the podcast and, you know, display my ignorance to the world.

Starting point is 01:14:49 And luckily, some people would sort of like try to tear me down in a good way. You know, we're very respectful in there and talk about the bullcast, talk about the bad case. And so, you know, it's, I really like the opportunity to have a chance to speak with investors, not just about, you know, a specific stock like we're doing here, which is also good and very important part of the process, but also things like, how do you start a position? How much should you know about a position before you initiated? How do you size it? How do you find additional information and weigh that information?

Starting point is 01:15:21 So the mastermind community for me has just been a very wonderful way of geeking out about stocks on our calls with our members. Yeah, I like how you mentioned having Omaha at your fingertips. We host these live Zoom calls and there's an app we can use so you can use on your computer or your phone. and, you know, it's really at your fingertips, literally. And I just love being surrounded by so many like-minded investors. You know, one would think that being connected with like-minded people would be easy. But I think when it comes to value investing, it's actually really, really difficult. And I think what also comes with the mastermind community and being surrounded by all these great people is so many of them just have this growth mindset, which is also something I think is super rare.

Starting point is 01:16:11 I think it's one thing to be into investing, but since our members are highly vetted, you also have people that just love reading. They oftentimes have been in the markets for many years. They've built a successful business or have a very successful career. And they can share all these things just related to all aspects of life as well. And even for me, when I think about my own kind of investing journey, I'm connected with many of the guests on the show, the host here at TI. And I feel like even my access to like-minded investors is very limited because I don't want to ask Stig to hop on a call with me every week to talk stocks.

Starting point is 01:16:51 But the community, like you said, it's always there at your fingertips and we host these calls and you always have that outlet at least as an option. And it's nice to be able to put something on your calendar and just sort of commit to something too, I think. And now we have over 100 members of the community. and I'd like to mention that it almost feels like there's somebody for everybody in the group. For example, I was chatting with a prospective member from China. And I was just like, hey, not everyone in the group is interested in investing in China,

Starting point is 01:17:21 but there's always at least a few people that are interested in something like that. Or most people probably aren't interested in Betzen, but there's probably a few people that are interested in learning more or maybe know a thing or two about the company. So it's nice to have that balance where it's not too crowded, where there's a thousand people that want to talk about Nvidia and Tesla and today's market news. And it's not too small where everyone's in their own niche, essentially. So I personally like to collaborate with others that own the same stocks I do

Starting point is 01:17:51 or they're interested in the same stocks that I am. And say if a stock I own is going through some turbulence, I personally like to chat through things with others, kind of get a better sense of the situation, and increase my understanding of the business. And probably my favorite part of the community is just our live events. I'm a big believer that you really just can't replicate, you know, what happens in person and replicate that in person connection in the same format online.

Starting point is 01:18:21 Yeah. And now that you mentioned it, I'm making my way to London here the day after tomorrow to have a dinner with one of our members. And I'm just like, I'm just so impressed by the caliber of the members. Like he's a high ranking as a manager from BlackRock. You know, why else would I meet people like that? And so, and I should also say that, you know, the event in London would already have taken place whenever you're going to listen to this episode. We have some, you know, some editing time and all of that stuff. And I don't know if I call it an event. I don't know if that's the right word here. We're meeting up in the community and eating good food in London. Let's call that an event. And because I'm the one who are arranging it, sort of, you know, there is no strict agenda. It's just. really, you know, we find places to meet and then we talk about investing, we talk about life. It's not like we have like a very strict point-by-point agenda with different topics that we

Starting point is 01:19:17 go through. And, you know, I also think that there is an element of, you know, so I'll be hosting this here in London and later we're going to talk about plans that you and Kyle have in New York City. And I think that it's hard not to have some kind of DNA from the people who are hosting it. So, for example, or perhaps as you say, lack of it, I've been working on this with a good friend about organizing a lunch and a dinner for a community. And anyone who know me, they definitely know that I'm not a sommelier by any means. So, you know, I have a good friend. He would help with the wine menu.

Starting point is 01:19:53 He would say things like, we need the 2018 vintage and not the 2017. I'm going to pretend like I know what I want to talk about. And, you know, he would say, oh, like these grapes from this province in France. not the other province, obviously. And so we've been working together on that. And whenever I say work together, it's basically just me nodding and, you know, apparently paying for the wine. And so I kind of feel like, you know, it's really the ultra introvert here

Starting point is 01:20:23 who are trying to create an event, which in my case, I'm always inclined to make a cheeky remark about we only have a private dining room for one of the meals. my way of being extroverted. So anyways, but really, really this day here in London, very structured way of being unstructured, I guess that's the best way I can communicate it. And we want to have two events in the state annually for the mastermind community. We hope to have a recurring one in Europe, which would probably be in London. We're still working in that. My best guess is it's going to be London because there were a few communities member there and it's very easy to access. And I also wanted to mention that whenever possible, we do a few non-recurring events.

Starting point is 01:21:13 There would be one in Copenhagen, Denmark, November. We're also doing something in Dubai, but we would talk about that another time. I want to throw it over to you, Clay, because we have something coming up here in New York City. Yeah, so regarding the wine situation, you mentioned, Guy Speer in Omaha put me in the exact same spot. I'm like you. Like, I know next to nothing about wine. And the guy looks me in the eye and he's like, what kind of wine do you want, Clay? And I'm just like, I have no idea. And I know he's really into that stuff. So I just let him handle it. But I take a very similar approach to you, Stig, when it comes to organizing events. You know, I want maybe a little bit of structure, but definitely

Starting point is 01:21:54 not too much structure. So I sort of see my job is really helping facilitate meaningful connections. and meaningful conversations with the group overall. So, yes, we're going to New York City in October, from October 4th through the 6th. We have around 20 or so members registered to attend, many of which, of course, based around the New York City area, so that accessibility is really good. Each member, they're welcome to bring a spouse or a friend. It kind of makes it easier with traveling and whatnot, and many of the members send off their wives to go have fun or go do shopping in the city.

Starting point is 01:22:29 The first night, October 4th, we have a space booked, one of the members, I was very happy one of the members, he mentioned that we could go to the top floor of the building he lives in and catering food and socialize there. And, I mean, that's just going to be an amazing spot for us to socialize and whatnot. And then Saturday, we have a private space booked at a restaurant in the city. So I'm very much looking forward to New York City. We did an event last year, learned a lot of things on how we want to set this up, and then more to come on what we're going to be doing during the day, Friday, Saturday, Sunday.

Starting point is 01:23:06 So I'm really looking forward to it. That's fantastic, Clay. And, you know, whenever we speak with our community members, like what they appreciate the most, they always say live events. And then next is the calls that we have together as a community. I keep on saying we, but like I should give all credit to you, Clay, because you're running your community so well. What kind of plans do you have for group calls coming up? Yeah. So I agree that members also really love the Zoom events as well. We typically do at least

Starting point is 01:23:38 one a week and it definitely isn't all me. You know, I take trips and do different things. I'm like, hey, stay, can you cover me here? And you've been very helpful in helping fill in the gaps on sharing your knowledge and using some of your connections to provide value to the community. So So here in August, just to look at some of the things we've done here in August and then coming up in September, we have a Q&A with Toby Carlyle, longtime friend of TIP, and then we have a member spotlight with a member that's based in London who works in the investment industry, and he's been an investor for many years. So I'm super excited to bring him in for a member spotlight.

Starting point is 01:24:17 And then we have a few great guests presenting or joining the community in September as well. So we have another member spotlight in September. There's a private investor I'm connected with outside the community who's joining us for a Q&A and he owns many of the high quality names that community members are familiar with. So companies like Kopar, Berkshire, Constellation Software, Old Dominion Freight Line. Also, Mitch and Shreve is going to be joining us for a Q&A after my podcast goes out with him in September. We're going to be chatting about Hermes and how wonderful of a company that is. So I want to mention one of the previous calls we did. You and Kyle hosted what you called like a bear bull analysis where you talked about Evolution A-B and you took the bull side of the

Starting point is 01:25:06 argument and Kyle discussed the bear side and kind of argued both cases. And Kyle actually set up a similar call on Technion for later in October, which should make for yet another interesting discussion. And since we're discussing the Zoom calls, a lot of our members live very busy lives. So we record essentially all of these. And I have some members like I chatted with in Omaha tell me that they pretty much listen to all of our recordings. I was quite surprised, you know, some of these people treat a lot of these calls we host just like they do with the podcast. They're tuning in to a lot of them. Yeah. And I think that's a good point because there's a whole, you know, time zone thing. Your central is on the West Coast.

Starting point is 01:25:47 I'm based in Denmark. So we often have luckily many of the same people. And I can sometimes see on your calls and on my calls. I was like, yeah, that's probably a time. Something like, who's actually awake when we have this call? So we try to cover as many times zones as we can and also have it different times a day. And then, you know, sometimes I would have the privilege of also speaking with members on a one-on-one call. And very often we talk about stock investing is really hard not to.

Starting point is 01:26:16 and stock investing is also at the very core. But like you were saying before, Clay, there's also the element of, you know, it takes a village, right? So we're like 100 plus people. And then like you said, some people might be interested in, I don't know, Betts and then others are interested and whatever. And so sometimes what I think you do such a great job of is that connecting people, whenever you know, they have similar interests.

Starting point is 01:26:39 And so one thing I've been looking into here recently is to acquire a, I'm going to say, business podcast or a small media company, let's say, you know, one to five million in revenue. And I have no idea what I'm doing, to be completely frank. And so, you know, it's not because, so I'm speaking with other community members about that, not in the sense of they have a business podcast with, you know, because we, I don't know, it's going to sound like a terrible advertise, but we're probably looking at something like 20 million plus 50 million downloads annually type podcast. and so you're basically just buying a company.

Starting point is 01:27:16 It's not because any of the community members have any kind of podcast like that, but they made a number of private acquisitions. And so the discussion is more, it's not so much about doing business together or raising funds or anything like that. It's more about, okay, so I'm looking to buy a private company. You've already bought multiple private companies. How do you do that? And so it's really, like I call it a support group.

Starting point is 01:27:38 I don't know. It probably sounds like very different whenever you're human. self saying that, but I sort of like think of it as a support group where we help each other in any way we can. Yeah, I love that. And I hop on calls with each new member that joins. And, you know, sometimes maybe they haven't quite yet joined. They just want to figure out what in the world the mastermind community is.

Starting point is 01:28:02 And it's surprising to me how, you know, we talk about it on the show, but it's really not clear to people what it actually is. So I'm a big fan of trying to simplify things. So I've sort of narrowed this down to, there's three big things. I think people get a lot of value out of the community to try and simplify it as much as possible. So the first reason I think a lot of people enjoy the community is just the networking opportunities. So again, I mentioned all our members are vetted.

Starting point is 01:28:31 You have to apply to join. And like you said, like some of the people joining are just like, wow, it's amazing some of the people we have in our podcast audience that are interested in, you know, joining a community like this and networking with others. So yeah, first the networking opportunities, you know, through our online calls, through the online platform we use, and then the live events in person. And then the second reason I think a lot of people join is just continuing on this journey of lifelong learning. So, you know, members present different things. We bring in podcast guests to discuss. A lot of members are big readers. So we're sharing the books we're reading and the things

Starting point is 01:29:09 we're diving into. So that's definitely the second thing is just sort of an extension of the podcast of extending, utilizing that opportunity to continue to learn. And then the third thing, a lot of people just love getting and sharing stock ideas. So it's definitely not a place to get stock recommendations, but maybe you get some ideas from others that from other people who are also value investors, they are big fans of the show and they really get everyone's sort of on this, everyone's sort of looking at a lot of stocks through a similar lens. It's probably the best way I'll put it. So if any of this sounds interesting to you, you can add your name to the waitlist on our website. That's theinvestorspodcast.com slash mastermind. And I think that's all I have, Steg.

Starting point is 01:29:54 Thank you so much, Clay. And thank you so much for hosting such a wonderful community together with Kyle. It's absolutely fantastic. So with that being said, I think we'll just end the episode. Great. Thank you, Steg. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP660: Mastermind Q3, 2024 w/ Stig Brodersen, Tobias Carlisle and Hari Ramachandra

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