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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, which 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.
▶️ RELATED EPISODES:
– Intrinsic Value Analysis Of Dollar General & Apple | Buffett’s Investment Framework: https://youtu.be/vDFrRUbGrl8
– How To Attend Berkshire Hathaway’s Shareholder Meeting | Intrinsic Value Of Apple: https://youtu.be/OJ8TrdaV-zU
– The Vigilant Investor’s Guide to Success in Stocks & Life w/ Chris Bloomstran: https://youtu.be/kM8Z7cWtKV4
– Mastermind Q3 2023: Stocks on Our Watchlist: https://youtu.be/BIU8t35baOM
– Mastermind Q2 2023: Stocks to Buy Now?: https://youtu.be/DhN8uBjrrgU
– Mastermind Q1 2023 | Disney, Spotify, Amgen Stocks & ChatGPT Discussion: https://youtu.be/rxM-3HneF_k
IN THIS EPISODE, YOU’LL LEARN:
– Why Hari is bullish on Dollar General
– Why Stig is bullish on LVMH
– Why Tobias is bullish on InMode
– How can you pitch your stock to the TIP Mastermind Community
– How to meet up with the TIP team and listeners in Omaha in May
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(00:00) you go to Omaha and you read all the Warren Buffett letters and and you read all the books about buffets and him Monga just talks about how you should just never go into retailing I do think that retailing is appealing because it’s very easy for us to understand so perhaps before
We dive into our piics uh which is typically how we do things here on the masterman meeting uh we we all uh present a stock we wanted to talk a bit about uh what we see right now in
The economy and there’s so many things going on (00:34) right now and so I’m going to to throw it over to to Toby uh first to hear like what is what are you seeing in the economy right
Now 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 uh the inversion the 103 the yield curve inversion I know that that’s sounds like this it sounds like
This kind of technical indicator that you can probably ignore uh pretty comfortably but I I (01:10) 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 the 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 the do is when you 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 (01:44) 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 looks
Like the economy is 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 Co we had a shutdown um there were lots of stimulus that came out of the federal government
Through that period so uh fiscal stimulus and we (02:22) had some monetary stimulus too in the sense we had very very low rates and we increased the money supply you know materially 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 and all of these things that happened through that period of time and so pal I think is
Trying to somewhat put the inflation Genie back in the bottle a little bit by raising rates (02:57) here we’re we’re at about I think the uh the 10e is approaching 10% I think the effective funds rate is somewhere between it’s sort of five and 6% it’s 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 you
Know and and in the pick that I’m going to talk (03:28) about this you this is a this is a real effect the higher rates are affecting um the business of this of this company so the higher
Rates just you know a lot of people have borrowed at the lower rates they’ve borrowed they’ve set 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 it’s most debt is just rolled over and so we’re going to go through a period now (03:55) 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 the shorter term end the thre Monon end that’s the end that um shows up when the when the FED is doing something because
That’s the end that they control and the longer term end is um less under their control so they’ve raised rates rates have gone up um historically and that that those rates going up has caused an inversion which means that the front end rates are (04:30) yielding more than the the later the
Longer term rates so historically where we’ve had these inversions there’s been 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 J Pal’s perspective he is looking at an economy where a year ago rates were BAS (05:00) basically zero rates are now at 5% stock market’s close to an all-time high L it’s off you
Know coming up maybe 10% 5 and 10% since 2021 when it peaked so we’re about 22 months into that sort of draw down but it has been lower 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 30e lows all of (05:36) 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 the extent that you can find comps they look like they come from the
70s um which was not a great decade there was a lot of inflation in the 70s lots of Unemployment uh 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 the economy so it’s 12 months
From the beginning of the inversion to (06:05) 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
(06:41) where sort of 12 months into it uh 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 um 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 2 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 (07:12) 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 month eight eight ends eight instances is not enough uh um 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
(07:41) in individual 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 the actually the point that you want to be getting a little but likely asset prices have come down and it’s time to buy so that’s my that’s my (08:12) kind of thumbnail sketch of what I think
Is going on um 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 G political things that are going on but I 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 T typically last like 18 months to two
Years the stock market could bottom a lot earlier than that though I think what tends to happen is (08:43) the stock market we could be we could have 3 to six months of a lot of volatility and
Much much lower prices in 3 to six months but at the time that it looks darkest that’s often the time to buy so I think likely the after you get through that period the Ford return particularly
For Value 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 them that I think it’s a necessary part of clearing
The dead wood out of the economy to allow the (09:13) next phase of growth to occur and the sooner we get it done the better in my opinion thank you for for sharing Toby uh let me throw
It over to you har what are you seeing right now yeah I was very curious to know Co talk so thank you stick for asking that question so I think I can I can kind of you know uh add to
What this Toby said because some of the things that Toby touched upon I’m seeing the symptoms on the ground like the layoffs uh in Silicon Valley it hasn’t stopped it’s a trickle now it’s (09:47) 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 that are stealth layoffs that is like these small numbers like 200 300 I’m going not going to name the companies you know them they’re all big but I see that happening even now uh LinkedIn recently
Announced the layoff 700 or 800 people uh were let go so I think um it’s it’s almost like all these companies have got the memo from the Fed (10:23) so that is happening and also I see that
There’s a lot of pressure from the Wall Street for many of these companies to incre increase their profit margin now that growth doesn’t seem that imminent in the near future so that’s also probably a contributing factor um the other thing I I also kind of you know worry about
Or in the rizon is what Peter zahan talks about is like us 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 uh (11:00) they have they are in uh so that’s 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 um the Tailwind of lower energy prices uh going forward now that like a major supplier like Russia is pretty much shut off many of the
Markets so um yeah like when you look at all this data points it’s hard to imagine a good economy but I when I look look around in the neighborhood the homes still selling fast home prices are still alltime high (11:42) we are living two different worlds
So that’s very interesting yeah thank you for for sharing Hari you know it’s um I think it’s it’s a very interesting time you’re in and one of the things that I remember thinking about whenever we started of 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 (12:17) of feel like we are in a place where there is a lot of uncertainty and and hindsight
It’s always 2020 now whenever we look back we can be oh of course you know we had the big draw down with coid yeah we didn’t expect the pandemic but of course what 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 I’d never experienced a pandemic before I didn’t know what what what happened before and so you
Know it’s I think it’s important to to stay (12:42) humble and you know I I think Toby Toby had very interesting uh thoughts on what you’re seeing for example with the interest rate and I might I might see some things slightly different perhaps I’m just
Been been looking at different uh different data I don’t know I I I don’t I I think it’s natural to compare it to the 1970s but I also think it’s quite different because the debt level are just so so much different today like it they’re a lot higher today and
So I don’t really know where we going like we (13:12) we have this Dynamic where with the interest rates going up and we do see inflation retract to to to some extent but how much can the economy take that’s another thing like uh you’re looking at the numbers of how much
Um all the debt that we have how much of that simly say the government revenu is just going to be paid back with with paying back the the government the interest of government debt like it’s kind of ridiculous and to your point before har where the US is in a privileged
Position but it’s it’s not like it’s in a good (13:45) position but it’s it’s in a better position than many other countries like what you see in Europe right now with the spread with the Italian uh interest rate compared to say the German like and they can’t like it would just
Break it would just break uh Italy if if you had with with the kind of debt burden they have with interest rate and then you have ECB coming out more or less repeating what ra said
About whatever it takes in terms of buying back bonds and it’s just like I can’t really see how (14:10) 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 there it’s sort of like you have this cycle where it’s just really really difficult to stop it
Like if you really wanted to stop it it would be (14:35) something like aurity or something like that which is just not going to fly you know that’s sort of like what what uh your First World countries impose on third world countries and then they do the you know the exact opposite
Whenever they have a crisis you know whenever they go to to Pakistan or 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
(14:59) politicians in the first First World countries like whenever there’s crisis like but now is the time to invest and it’s okay to run 10% deficits uh on on government Finance so
I I I just I can’t really see how how this plays out so I I guess there’s a long in way of saying I have no no clue what’s go what’s going on I 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 and so without I kind of feel like I sounded like a fearmonger uh just (15:29) before but I I do want to say that as
Much as I’m into equities having having a bit of your portfolio in in some hard money might not be the worst time right now but who knows so um I don’t know if we can use that as a segue going
Into to to Toby’s pick I I originally I prepared saying something about I Now understand why Toby’s skin is so fantastic but but perhaps perhaps I don’t know if you could use that as a segue into your into the first topic here with with all the the conflicts that we see across the
(16:01) globe yeah so my pick is in mode inmd is the ticker uh and the reason that Stig makes the gag about my skin is that it’s a it’s a minimally invasive non-invasive um surgical procedure for Aesthetics mostly so they have a variety of these different brands but they’re all basically the
Same the same ideas that skin tightening and those kind of uh where it’s somewhere in between full-on cosmetic surgery and the the less invasive stuff that a cosmetician might do it’s it’s in that in between um for people who they say (16:46) that their target demographics mostly
Women 35 to 50 who don’t want the full surgical procedure but want something does a little bit more than you know like a cosmetic sort of update um 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 uh which was July uh and then it had sold off it was
(17:19) down sort of 30% something like that until earlier this month in October when they released their full year guidance and they got they had guided for 5 $ 30 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 um and when that happened on that day they sold off 20% and I do own this thing so I’ve I’ve um I’ve owned it I’m not entirely sure exactly but
A quarter or so so we taken a lot of that uh draw (17:53) down so far um this is a smaller company it’s a $1.6 billion market cap uh Enterprise Value is about a billion dollars because they’ve
Got about $600 million in cash uh net cash which is the kind of business I like not um stressed financially going into what could be a difficult period financially um stock pric is at $19. (18:18) 73 so was $46 so it’s off more than half since July it’s it’s a financially a
Very impressive company it’s small and it’s only been listed since 20189 something like that so Financial 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 still projecting Revenue growth rates for the next years will be well this is this is the this is (18:51) the estimates so it’s 520 well be500 to $510 million this year through to $666 million in two years time now I don’t know
How likely that is to eventuate I I think that probably they’re going to struggle going into what we’re about to go into I don’t I mean I think there are there are lots of reasons why
This stock is down um but I still think that the business itself is is impressive you know the way that I invest is I’m quantitative I look at the financial statements I put together a portfolio
(19:24) this is in my mid and large Cap Fund Zig I do hold this it’s still in my model I would still buy it now um so but this is one of 30 names in that portfolio just so you know how
I’m waiting this thing in mind it’ll be 3.1 3.3% when it went down I bought a little bit more um if it goes down again I likely buy a little bit more at the next rebalance state provided it’s
Still in the model but that’s my my belief is that it will be at this point um return on Equity it’s like 30% plus gross margins are in the order of (20:00) 40% plus uh 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 PE under 10 price to cash flow under 10 price to free cash flow under 10 most of the most of the
Money just flows through to the bottom line so and it’s a little bit tax advantaged in Israel as well because they they’re in some tax Zone in Israel Ford growth is still like in the 10 to 133% annual
Compound kind of range at the top level it seems to fall through a little bit maybe a little bit (20:34) higher than that at the bottom so I think it’s I think it’s a reasonable risk adjusted bed this is a better company than where it’s trading at the at the moment so
It’s a reasonable question to ask why is this so cheap why me why now uh it’s Israeli so there’s clearly some geopolitical risk there in in the Gaza Strip although they have S they’ve got a press release saying everybody’s safe and they’re fine and there’s not a lot of consumption
Of the products that so they sell to the they (21:02) sell to the the people who perform these procedures not to the not to the people who receive these procedures so they’re sending a they’re selling a um a machine that then somebody uses to perform these procedures so and they’re
Silling 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 I suspect and I
(21:35) 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 I don’t 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 at if the business (22:06) 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 it’s become a little bit of a gag on fin twit to say
That you know all the semaglutide and all the weight loss drugs um are impacting every single business you know planes are be people are going to be lighter so planes are going to fly faster which means that jet fuel’s going to be consumed less so that’s going to be weakness in the jet
(22:36) you 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 tightening procedures but I could easily make an argument that someone who leans down decides that they need a skin tightening
Procedure and so maybe it’ll be a burn to them I don’t know maybe it’ll be helpful I have no idea but this it’s it’s worth noting that that does seem to be a that’s a recurring risk it’ll probably be in my disclosures for (23:02) my ETFs when it comes out it’s funny
The stuff they identify every year as the risk the 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 it seems to be
Largely unnecessary for them at this point there does seem to be increasing competition they have a slightly different model uh 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
(23:35) they’ve taken One Direction some of their competitors have gone another Direction I don’t know which is the correct direction to go um 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 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 why not Institute a stock buyback like a material stock buyback at this (23:59) level and really show that you have
The financial wherewithal and the belief in the future of the business um 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 early stage company was still growing we are still spending money on R&D we need that money there and you
(24:28) know 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 the other side so I can I think those are reasonable arguments why 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 that’s sort of my pick in a nutshell the business is at least quantitatively the business is much much better than the price where it’s trading at the (24:54) moment um there are some a more office
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 on thank you uh thank you Toby uh Hari uh would you like to go first with h with comments or questions sure no this is a very interesting pick and U the reason it is interesting
Is uh one like you know any bad news that (25:31) can hit them it’s like coming at them all at once there is uh concerns about recession there is inflation there is geopolitical risks and
They’re at the heart of it right now uh so I think that’s why like Toby I found this very interesting and also thank you for going over this because I 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 uh skin tightening Market um itself is growing at around 11 to 12 or 133% kager year-over year and
(26:06) 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 uh the upper middle class or the rich would go for so they they 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 Pro predominantly are in us or maybe in Europe and I I don’t think the
World will have shortage of uh people over 50 (26:48) or 40 no no time soon no time soon so uh in that sense it it’s very interesting and timely one and why while I’m speaking I should congratulate Toby on his pick on locked Martin what a timing um again yeah it’s sad and
Paradoxical so I’m not in no way saying we should celebrate but um but um but this one seems very timely especially since all the bad news is out uh the only risk I see as you mentioned Toby is uh alternative procedures coming along um whether it is non-invasive or better devices if
(27:33) they’re not investing in R&D uh and they might be distracted for a while and there might be somebody else who might um overtake them and I don’t know how much of a switching cost they have I’m assuming minimal um so that that might be one of the risks that we have to
Keep in mind yeah it’s I I don’t know how much competitively how competitively advantaged they are how much competitive their advantage there is in this stuff I suspect there’s not much really if if somebody can come up with a better (28:08) procedure or a cheaper procedure then
That’s where people will go but you know it’s a long time it’s a long process to get the approvals when you’re going to do some sort of procedure on on 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 the the reasonably well resourced having said that you know a much bigger entrant could come in and change the Dynamics of that so I think I I I do agree that
(28:40) there is some risk in this and I the other thing that I should have mentioned the economic weakness is not just a theoretical um I 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 there a it’s a business decision ision to buy these things they buy them to then service an a third party customer
So at the margin again it makes you know 0% (29:08) interest rates make everything financeable 5% interest rates make things slightly harder to finance at the margin um Toby as uh I’m tending
To say as always I I I like your pick and you there there are many there there I would say that there just a you know a uh a huge list of things that are that really nice about this company um
The the income statement is just um it just makes you happy to look at the income statement I don’t know I I I come across too much of a accounting nerve whenever I say that but it is like it’s
(29:46) it’s a very neat uh income statement the margins are really good um you don’t have a lot of debt or you actually don’t have thatb to to to service you have positive Financial income which you don’t see too much these days um you uh you have a lot of marketing expenses which
Is always interesting because generally with marketing expenses you can also capitalize it but but generally it’s it’s expensed and so that means that it’s written off right away but you’re still building an an asset even though (30:16) it might be expense through your income
Statement and so um I just in itself I think that’s very interesting um and I I don’t really know because I don’t understand the product well enough um how important that is I will imagine it
Is important but I I I couldn’t be able to tell like how much of that we can actually put into let’s call it maintenance capex compared to to growth capex um but but but on basically what I’m
Saying is that you know if marketing if that makes you think differently about the brand uh it also (30:48) has value it’s not it’s not just a pure expense for you as a company so um I I
Think I definitely like that I like that that um industrywide um it’s not common in this sector this is um that Founders are still involved the founders are still involved both in like the in in in management but also in ownership it’s just it’s not because it’s this this specific industry
You can say that about all industri uh which which you really like and you know uh like like Hari was also getting at you know this is just (31:22) the perfect storm like everything could
Go wrong is just going wrong and and whenever that happens um um I like to think it’s a it’s a good thing um because we all have this recency bias they also low guidance you know there’s there’s so many things you can say that you don’t like about this company and so you
Know I I remember one one thing that that stuck with me was uh there’s there’s this uh research been done that if you if you analyze uh sorry if you invest in companies where they’ve just (31:52) announced that a lawsuit was filed against them typically like if if it’s day after and the
Market has has reacted because of recenty bias you would actually outperform the market it just kind of kind of feel that that was interesting so of course whenever you see lower guidance like if as an existance shareholder that’s probably not what you want to see but if you’re if you’re
New or if you want to double down sometimes it can be um be an opportunity of course it could also be a secular thing that you know that’s (32:16) that’s just how capitalism is and it’s of course starts with with lowering guidance but I just think that there are so many a wonderful
Thing so what do I not like about this pick uh definitely not 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 uh and here I’m not talking about the customer who wants to have wonderful skin like Toby but you know the the clinic buying the equipment (32:46) I don’t know why that they’re buying it I don’t know why they potentially not buy
It anymore I don’t know how sticky this product is and based you know to to Toby’s point you know if yeah 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 as sticky as we would like for it to be um then there’s um the component of regulations I don’t really know how what impact that has um and I would (33:19) imagine since it’s um more cosmetic
I would not imagine that there’s a lot of insurance that that is a factor here but that’s just with a very little knowledge that I have and because if you look the financial statements you know they have to before 66% uh of the sales in United States 11% 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 I I don’t understand (33:52) that that component and I’m I’m sure
They do so I’m not saying that you should not invest in the company because of that but I I think that I I’ve learned from bitter experience that uh as much as regulation can
Be a mode around what you do it could also be the very opposite and I I don’t I think I would need to understand that component a bit more you know I I mentioned you know you have
Some of the big tech companies and they you know you could also say their argument about that but I I’d like to think at least I understand (34:21) the reg regulatory framework around that and the potential limitations for those companies I don’t really understand for a company like this
And how it could potentially be um creates say a bare scenario around this so um those were just my uh my two cents let me throw it back over to you uh Toby yeah in terms of the um the competition
Or the the purchaser of the the product it’s always it’s I mean it’s largely a financial decision for them it’s the and the payback period and that’s one of the there there are (34:55) different approaches among the competitors is the where how they implement the razor razor
Blade model how much the I think in mode is a little bit more expensive up front and then it’s cheaper to earn over time the payback period is about I think I I think I saw 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 let me just say in terms of that in terms of the competition I think that the (35:22) business itself looks financially the
Business itself is is it’s much it’s worth a lot more if the financial statements continue to into the future if the future looks like the past has looked the the business is too way too cheap on the basis of its historical financial performance and you you’re kind of
Paying you know under 10 times PE under five times acquir as multiple EV bit under 10 times priced to free cash flow those those are very cheap numbers that’s sort of like a no growth static (36:00) 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 those sort of numbers so it’s 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 that’s the difficult question to answer because the it’s a newish business with you know it’s it’s trying (36:31) to adopt a business model that’s slightly different to the other competitors out there um what that looks like through a recession what
That looks like if they really become successful and they invite some competition I don’t know and I also don’t know the regulatory environment well enough to sort of comment sensibly there as I say I’m I’m a quantitative investor I look at the financial statements mostly over a period
Of years is sequentially to try and get to the economic truth of the business without (37:02) looking at so much of the other stuff because I just think it’s hard to I I can build a narrative one way or the other pretty comprehensively showing why it should be
A good short or why 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. (37:24) 3% positions in the fund and I take
The position up if it goes down a little bit in a quarter and I 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 that’s I I’m thinking about these as 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 uh that’s that’s a distinction between me and many other investors
Who will know a lot of this stuff down to a (37:51) great deal of detail because it’s just it’s not possible to know this level of detail across 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 and definitely don’t do that all of these things have risk they have material risk I’m looking at portfolio (38:18) performance rather than individual names yeah and then one one more thing I wanted to add
Is and if if somebody’s thinking of looking into this company’s Moree one of the things might be to look into their IP uh 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 you know the winning lottery ticket they just they they let you get in the ring and swing a few punches but they don’t (38:51) determine the outcome so I do think
That they have a patent they they’re protecting it they they they’re suing to they’re suing a company right now that’s their last fil and you’ll see their last uh their last press release is is information about that so they have some IP there to what extent you know
That that is useful or not I don’t know but yes thanks for thanks for giving me reminding me about that Harry all right fantastic uh Hari do I have more for Toby’s PE or if not would
(39:24) you like to throw to me or would you like to to pitch your uh uh pick afterwards no I think that uh that was an interesting uh uh pick Toby thank you I’m I’m going to
Look into it for sure it’s very timely I can go next because it’s some of the themes will continue wonderful please think you don’t mind so I think uh keeping 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 uh many of (39:56) you might know um is a retailer um they focus on moderate income households that is anybody with $40,000 or less mostly they are completely in United States they have more than 19,000 stores in 47 States um their
Strategy is very much the opposite of the uh big retailers like Walmart or taret uh in the sense that they’re uh stores are very small uh on an average 7500 Square ft compared to the super stores which are 187,000 square ft that’s Walmart uh the second
Um pillar of the strategy is they focus on (40:45) communities who are not served by big retailers or don’t have access to many Alternatives so they’re usually located in rural areas um which are away from any other Alternatives by at least a factor of 15 or 20
Miles radius and uh as of now 75% of Dollar General locations are in towns of 20,000 or fewer population and 75% of Americans live within five miles of a Dollar General so that’s kind of how they have positioned themselves as their um their strategy is as I said um and the
Strength also is that kind of like network of (41:37) locations uh low priced items uh and then really good scalable Supply and distribution capabilities um most of their sales comes from consumables whether it’s Healthcare products Sanitary products tobacco all the stuff that
People need need on a day-to-day basis 11 from 11% from seasonal 6% from Home Products 3% from apparel uh I kind of think of them as like 71 on steroids like they’re conveniently located but have more options um they also have ventured into like you know grocery or
Food uh with refrigerators and some of their (42:21) locations they also are trying to get into urban areas especially of what is known as food deserts where there are not many options and uh U one of their key strengths is also that they basically sell in small
Packet sizes unlike the cost go of the Walmarts of the world because their customers don’t have the flexibility to buy products in bulk and get the discount so in so their their tickets ticket prices are usually less than five dollars their customers usually when they buy uh their
Like know average ticket item like whatever they (43:04) buy in a single visit will be $12 or less many times um this has two advantages number one it protects them from online retailers like Amazon because when the the ticket items are smaller in value it becomes less profitable to ship
Them especially on 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 um uh shipments so and with only five M radius
(43:50) or within 5 miles of accessible distance for 75% of Americans most of them would rather just go buy 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 um in
Two ways to their advantage one defensive one the other one is from a profitability perspective so that’s kind of um um how they are uh situated but however the reason they are down today is again um combination of multiple things a (44:29) perfect perfect storm uh for example
Um they kind of in a went time when there was a lot of stimulus um 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 generalist 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 Teck started wearing out interest rates (45:12) started going up and this shows
Us that uh in fact they said that you know the same Source sales have gone down even though their overall Revenue grew by 3.9% historically they had Revenue has grown um much higher um uh
In the past in the at least in the 5 to 10% but like they the same St sales did go down they brought it up back uh this year though back to 10% but uh they had a u inventory growth
Problem because of that so they’re recalibrating readjusting to that um but it it does tell us that you know not everything is Rosy in the (45:56) economy uh 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 profit margin has gone down this year because of they’re lowering the margin and they’re also hiring more labor so investing more uh resources there um to improve the customer experience so it looks
Like they are having to woo the customer so far they didn’t have to because of increased (46:33) competition derating economic condition of their customers so all these factors are kind of you know putting a lot of pressure on them they also cited shrinkage growing shrinkage which is
Another uh if you live in California especially in San Francisco or La you’re so familiar with this because there are stores which are closing down in San Francisco because they just can’t handle the shrinkage um one of the things in California at is like up to 900 correct me Toby here dollars
If you are shoplifting and cod up to $900 (47:10) you cannot be persecuted so by law is I correct me if I’m 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 that it was something like that number yeah that that has resulted in a high um volume of shrinkage for many retailers uh and and they
Also had an incident where one of their employees was shot uh in Florida so it’s like a lot of bad news one of the other and in the communities they Ser they’re all hurting and there is uh a lot of
(47:48) shrinkage because of that and there is also um the less affordability by their customer base so that’s what is causing uh the current um conditions for them to go down however they are implementing few new strategies that they believe will help them uh one is um they’re basically
Implementing this digital strategy where they have um an app that you can get coupons and they’re implementing it treasure hand kind of a model that TJ Max and Ross have applied successfully in the past through these apps there is (48:33) also increased loyalty and then
There is also a 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 whole um and uh 70 70% of their Target customers do have smartphones
So they believe this is a viable strategy um and uh 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 uh (49:16) where they were so in terms of um just
General mode to summarize um number one um there are a high margin business because of the small ticket items they have lower cost because of uh smaller footprint which means lower rent lower labor lower maintenance um they’re insulated from online retailers
Because of the small transaction size um of roughly $12 per 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 (49:54) Walmarts or targets the world and they’re
Far away whereas if you see when in California when I was kind of doing the research for this Dollar Trees are always located very close in the vicinity and sometimes it’s the same parking lot as Walmart so they have taken a completely different strategy than Walmart
They did grow through acquisition uh in the past so um and they’re they’re quite acquisitive when it comes but uh comes to growth but they have been quite prudent so so far um however I think going forward we have to (50:30) see whether their goow strategy will work
As it has worked in the past in terms of their performance they’re not as impressive as Toby Pi it’s only 15% average uh or return on invested cap the past five years their uh margin is in the
Low 30s that is um gross margin compared to say uh uh 20% higher 20% of Target basically uh 9% 9% is their average um operating margin for the past uh five years uh compared that to
Around 6% per Target um and uh overall like you know in terms of cost one one example I would (51:13) like to give um for operating leverage uh they incurred around uh $60 in selling and general Administration cost uh uh per square fet 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 uh there operating margin also has declined uh quite a bit in the
Past so from at a peak it was around 10% 10. (51:54) 67% now it’s around 7.99% so their PE also has accordingly adjusted from a high of 24.6 7 to now around 11.81 so their stock price has obviously reduced by 55% so um they also posted a decline they guided down their
EPS uh decline in EPS guided out there in their guided their EPS growth down so um everything that could go bad has gone bad much for them uh so that’s my pick and I I would like to
Know is it a value trap or is it something you guys would consider hey everyone I just wanted to take a quick moment here to tell you (52:38) about this premium superfood Shake I have recently fell in love with called kachava kachava is made from plant-based
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Your first order that’s kachava.com SB a lot of people follow Dollar General Dollar Tree follow those names and I think it’s because they they think that there’s something special there I don’t know it well enough to comment um it’s retail is tough particularly the sort
Of discount retail is really tough there’s some real comp competition in there as you pointed out Walmart and Dollar Tree and various (54:24) other Costco you know maybe not directly competitive because they sell bigger ticket items with a you know it’s a you have to pay
The subscription fee the membership fee whatever it is but still like competing we’re we’re just dividing up the pools of customers who are going to go to each one that I when I when I
Look at it I think I think it is I think it is you know it’s 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
(54:59) cheaper than it was through Co through the coid crash all that sort of stuff it’s crazy that it’s it’s all the way back to here which I think really speaks more you know I 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 a some sort
Of macro opinion it’s clearly the reason why they’re weak is because their endc consumer is weak or weaker than they were when they had (55:24) all the stimulus through through Co the the questions I think the real issues for for this are 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 uh there’s some weakness in the 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 big Co comp through there you don’t know to what extent this is just coming off that (56:01) Sugar Rush of all the stimulus that came through or whether this is and
Then probably both are true or whether it’s sort of extreme weakness in their end customer that everybody is starting to feel a pinch I think this is um it’s an interesting pick I I think
It’s I do think it’s under valid I think that the Management’s taking all that debt to buyb stock at much higher prices is a concern and the um the debt being there is a concern particular if we
Still have to go into the period of economic the (56:37) real economic weakness I I don’t I don’t know a few a few retailers have sort of quietly slipped out the back door through this process
It’s been a it’s been rough to be in retail some surprising once r r declared bankruptcy um I don’t know about you guys I I don’t know if it’s a rate or whatever what the whatever the other every time
I go in there I I I’m astonished at how much money I spend in all these places I don’t know how they do it what’s what’s the what’s the (57:05) competitor to r at har what’s the
Local competitor is it Walgreens I see them together most of the time maybe did I go to yeah Walgreens I don’t know but whenever I go into this place I’m always like blown away at the amount of money that I spend so they must be doing okay but rid is like slipped somehow
R a’s gone into bankruptcy too much dead and we’ve seen that with quite a few Bed Bath and Beyond uh you know GameStop I guess has got a GameStop has got a lot of weakness there but they were able to
(57:34) raise some money because of the funny stuff that happened with the stock retail is tough Dollar General um 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 these issues uh there’s some risk it’s under value but there’s some risk in it is is is kind of where
I get to thank you Ste so um I’m really happy that you that you um Pitch do Dollar General I was uh I was actually not sure which company I (58:10) would pick and I’m going to tell about
That later but uh it’s the very opposite of Dollar General I would say but it was it was one of those two uh two companies because um so I I I use uh dat Roma a lot just because I’m I’m I’m curious
You know that’s my intellectual snacking and it’s always fun to see what um what some of the best investors in the world are are buying and it’s also interesting to see who who are doing Insider buying and sometimes those two uh you know the Stars just seem to align and so you had
(58:42) um some some of the investors that I follow including uh Chris brunen uh s claran Tom Gainer uh and they all use different approaches to investing but for different reasons I would
Say at the very core of of course they they agree in terms of how to value a business but uh the three of them all either added or built a position in doll General and then on top of that you also
See a decent amount of Insider buying so that that has to make you you know excited and um there are a lot of things I I like about this uh this pick (59:18) um and uh also I like the valuation but
You know to to to to um to horris point before that’s typically the case with uh with value traps you like the valuation until you don’t anymore and um you know I I think we we can talk specifically
About do genal but 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 hope for in retail just because that’s not how retail trades and that’s the case for
(59:52) for good reason and you you know I I remember whenever I was brand new into the space of investing and you know I I went through I had my rer page whatever you want to call that
You know you you go to Omaha and you read all the Warren Buffett letters and and you read all the books about buffets and him and him and Monga just talks about how you should just never go into retailing because it’s such a terrible terrible industry and of course after
Reading that I started to invest in in retail because I wasn’t smart enough not to not with (1:00:24) particularly great results and um I 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 I don’t remember which story was but he was like founding
Like laying down on the floor of a retailer (1:00:52) and then someone came up to him like what are you doing and he was was measuring the distance between the the different aisles in the 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 um I I completely buy into what you said before about the competitive Advantage but at the same time you just don’t have that competitive advantage
In in retailing that mode as you do in many (1:01:17) other businesses and so um that’s the irony we we’re supposed to invest in something we understand but whenever we understand very often a lot of other people also understand it and I was I was quite of excited whenever I heard you pits
Do General compared to last time when you pits paler because I started it I read the reports I still don’t know what paler are doing and so you know I sometimes have to rely on like my smarter
Friends like you har like this is actually what pener is doing even after listening to what you (1:01:43) said I’m still like I’m not completely sure what they do and so but I but I can easily see how you can build I know I’m sort probably overexaggerating a bit here but there was
Something to be said about what can be understood and and what you could be invested in but and then I’m also um I also feel like I wanted to to say you know um Buffett and his his bet on
Apple that he started in what 2016 or whatnot it was just there hiding in plain side for all of us to see and we all used app products it was (1:02:11) 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 with apple and me but at the same time also feel that there’s something to be said about whenever you (1:02:35) do that extra work um you know let let’s talk about the Deb situation for example
I don’t like how much debt that they’re taking on I don’t like some of the asset allocations decisions like they’re still increasing their 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 y y y but like and I know the payout Rao is like 20% or whatnot so it’s not like they can’t quote unquote (1:02:59) afford it but they’re still taking on
A lot of debt that they’re not supposed to take or I would argue they’re perhaps not supposed to take on and I looked into I looked into the Deb and the maturity and I’ll make sure to
Link to that this is in I sure to link to it in show notes but you can look at it at page 35 so all companies in the financial statements whenever they’re uh regulated by the SEC they’re
Supposed to um to to tell about the uh the debt situation like the obligations and you (1:03:26) 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 it’s like
Total less than one year one one to three years three to five years and five plus years and I I just I can see that they could they can still service the debt obligation but you still have
To do a bit of work there and um some of that (1:03:53) also has to be refined and an high interest rate U I don’t know about the credit rating right now but I would not imagine that the credit rating is improving right now so there might even be mean even more expensive
Debt to to take on and so we can of course look at like brilliant investors like Chris rstan and and the like and be like yeah he probably figured it out but I I still and I should also mention he he actually went on Williams podcast and talked about do General and outl
The both Theses not too long ago I’ll also make (1:04:19) sure to to link to that but I still need to be I still like to be able to look at de 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 two or three here and so if you if you can read the that situation better like I don’t know I’m coming up with the famous um was it green blood whenever he did that with marage hotels
And he figured out the whole debt situation and all of that and he got rewarded uh hands for that (1:04:46) it’s just because of that and and that probably also some of the upside that
That that I’ll be missing for not investing in D General some of that is just too difficult for me to do and I just want don’t want to I guess I I would still like to have a a very nice
Margin of safety and and understanding the Deb 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 in the price that you’re paying in the first place and it (1:05:12) is indeed very uh very attractive and
I was I was speaking with one of the members of our Mastermind Community the other day and I was saying I think it was trading 110 or something and what is it trading 115 or what whatnot not
Today and I was I was telling him like I kind of felt like a lot of that risk was was uh you know we had a bit more Marin of safety and I would I would say the intrinsic value is
Probably higher than what you’re seeing right now then he looked at me and I don’t know how long (1:05:38) he’s been invested but he looked at me and said you know steti there were people
Who bought in 180 who said the same thing I was like okay yes I’ve tried those value TRS before it’s painful um so so anyways um those are some of the things I like but also some some of the
Things that I that I I don’t like about the pck no thank you Toby and I think this is really good feedback I think both of you pointed to pointed out that you know the retail business being very
Hard and as Buffett says it’s a Widow Maker so (1:06:10) yeah I think that’s one of the things why I it’s almost like one of those Investments for me where I had to really hold my house and
Then do it if I have to buy because um retail ril is a tough business and as just uh Toby was pointing out to write a closing shop or playing for bankruptcy that was Aldi and European retailer
I guess they came in they tried to do this kind of you know um smaller footprint smaller uh square square feet shops that that didn’t work Walmart had this I forget the name they (1:06:49) they had this initiative where they had the smaller U 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 um 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 you know put
Their foot down and go for it for a couple of (1:07:25) uh 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 a couple of other um uh 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 buffet right like uh is it getting Consolidated with fewer players that people have realized enough for now that they’re not new people are not venturing
(1:07:58) or the existing ones are becoming more rational I don’t know the answer that is one thing that we need to think about um the last one is that they recently had a CEO change so they
Brought back the old CEO on October 12th it all was like the Disney moment where the new guy was shter on his job but then the old the earlier SEO has come back I don’t know why should I see it as
A positive or are they panicking so yes there are more questions my my one of my assumption for pitching this is that it’s like Toby Pi (1:08:35) like all the bad news is probably priced in because everybody knows about it so and then the second thing is when I look at its
Competitors or peers um 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 they are much Rosier than Dollar General in terms of their positions so not sure why they’re uh probably the negative
Sentiment on Dollar General right now is higher is my assumption but having said that this is (1:09:12) not Microsoft this is not like a multi-year compounder um I guess at best it will be like a good pop and probably then you collect the dividend if you continue to hold
It um so yeah I think that’s that’s my take on wonderful um thank you thank you har was uh very interesting uh pick um like I mentioned there before I’m probably pitching the very opposite of Dollar General um I’m pitching lvmh and most known for Louis vuong and and Christine Jor and a
Few other uh Brands so definitely the the the very (1:09:52) opposite um you can buy it as an ADR if you’re us-based you can also buy on all the major European exchanges and yes the tiger
Is lvmh just like the just like the brand and uh lvm is behind 75 uh Brands uh I mentioned L Tong before Christen yor Tiffany uh you name it and until very recently uh it was the most valuable
Company uh based on market cap in Europe but it has just been eclipsed by uh the Danish pharmaceutical uh company no norisk that’s the case and now it’s second most valuable company in (1:10:25) Europe now I do not have a position in lvmh uh not because it’s not a great uh stock it
Is most certainly is um but also what you very often see with with high quality companies is that they’re trading at generous multiples and you know this is this is not too different and perhaps
It is anyways but if you just look at the stock at a glance is currently trading at a PE of 20 and a price of free cash flow of 18 and I would also say that with the interest interest rate of call it 5%
Um it doesn’t look that appealing but I would (1:11:00) I would argue later in my pits here that you need to normalize some of those earnings and uh whenever you do that it it’s a lot more
Attractive than it appears so please don’t just look at it and the glance but dive a little deeper um another thing I wanted to mention is that um I 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 your watch list perhaps just buy a few shares just to um just to make sure that you have a bit skin in the game and start following uh
(1:11:29) what’s happening with the stock it’s it’s very interesting um this is a company that’s been on my radar for quite some time um and it’s it’s not because I’m I’m big on on fashion uh not
At all um I’ve been married like last last week my wife and I had a 13-year anniversary which means that to the best of my knowledge I have not picked my my own clothes for the past 14
To 15 years like so you might be wondering why why am I you know pitching a fashion brand but I or a fashion house but I would say that (1:12:01) it’s not the case I I would say
That if if you make a bet on lvmh it’s a bet on brilliant Capital allocation and not so much on fashion and I also get to to that later um the founder of lvmh he’s also the CEO today and is
Currently the second richest man in the world uh after a long period of being the richest but uh lvm8 has traded down Tesla has traded up so now Elon Musk is back at the top uh but still with
A net net worth of 180 or billion dollars Benard I know I probably just fine so lvmh the company (1:12:36) we’re going to talk about here it’s from uh it’s founded in 1987 but the brands they’re
Representing there are much older and I’ll make sure to if if like they have a fascinating story in terms of of that but I’ll just make it make it short here um and I should probably also say
That I should apologize literally for my French because I’m going to say a lot lot of fren French words and I’m I’m terrible with French so uh the name is moy Hennessy Louis Vuitton still it’s it’s
(1:13:08) know known as lvmh so louisi Tong is sort of like first I don’t know it’s a bit confusing and it’s the merg of louisi tongue that was originally founded in 1854 and the founder
Name was Louis Tong yes you guessed it and he was the trunk maker of Napoleon the Third wife and in turn to the noble families of France and so in 1987 uh the company emerged with mu Hennessy
Uh which is the top authority in uh champagne and and cognac then itself was also formed by a merger and I probably should also apologize to (1:13:41) a Dutch audience because I think Mo is actually supposed to be pronounced Mo or something like that uh it’s it’s a Dutch
Name but the company was actually still founded in uh in France and so regardless the business today is a luxury conglomerate and so while L tongue is core to uh lmbb the the company is just so much more and you can think of it as a conglomerate with five major business units
So you have wies and Spirits fashion leather goods perfume and cosmetics watches and jewry and then selective retailing but the one (1:14:14) 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 L vuong and Dior out as the two most important uh Brands whenever you read the financial statements um they don’t break it out into different brands how much that they’re selling but it it is still in that order of the most important um and uh fashion and leather
Goods just have an outstanding uper margin of more than 40% and whenever you’re buying a stock you’re you’re you’re of course buying (1:14:47) the future cast flows and and not the uh not the past but it’s also important to understand the past before before you can
Understand the present and it used to be Western Europe and the United States where lvmh made its money but today Asia uh is the most important Market with 41% of the conglomerate Revenue overall um and I should also say whenever you you read the financial statements they have
Asia and then they have a segment called Japan and then they have uh Asia excluding Japan and still they don’t they don’t break that (1:15:19) up but still China by far is the most important market for them uh and that is the case for lvmh um you really
Need to understand that which we’re going to get to a bit later and so partly it’s uh it’s because we expect uh growth to come from from the Asian region but also because the Asian consumers buy higher margin products so for example you can see that simplistically
They’re buying the the fashion leather goods with a 40 plus% upate margins whereas for example something like Sephora which is like (1:15:51) it’s it’s grouped on selective retailing uh they’re growing fast in the US right now but they have operary 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 uh too and so I think I might be confusing here because I introduced lvmh as a luxury conglomerate but I’m also
Talking about more conventional retailing such as a Sephora even though it’s still a very small part (1:16:19) and very small part of the upating margin so perhaps we should talk more about the luxury component that’s also where they make their money and I’ve uh borrowed a quote from the
From the famous K Chanel uh 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 what defining what luxury is and this is a massive company the market cap of lvmh is more than 300 billion EUR
So uh how can we talk about luxury uh at that (1:16:52) scale because by definition luxury is something that you know that scarce and so I think there are different ways of looking at this so perhaps we should talk about uh what’s a premium product so I recently bought a a new
IPhone iPhone 15 and um I did not buy the cheapest model I bought the second cheapest model so I needed a bit more of hard 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 more
For those say $200 more you get uh you got a bit (1:17:28) more of hard drive space now it might be ridiculously overpriced it probably is but you still get more features someone who is who knows
A lot more about fashion than me would probably disagree whenever I say that’s not the case with a Louis vitt Tong bag for example if you look at the materials of a $10,000 back and look at it of
You know a $500 B I would 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 this this uh the
(1:18:00) next thing here about uh cost of go Souls the the multiple of that is is of course different between the uh the different types of backs that they have I’m just using backs and Sample you can basically choose any kind of um any any kind of item that they’re selling but
For backs it’s around 15 some lower and some higher that they sort of like Mug up on the um uh the cost of good Souls so like this is like the margins are crazy for a product like this if
We can talk a bit about uh pattern recognition (1:18:30) here one thing I I really thought of even though lvm is is much much better like I cannot help but think of a a product like um Coca-Cola you know you have carbonated water and sugar and a few other inexpensive ingredients
And then you slab a brand around it then you control the entire value chain which lbmh also does and then you know that’s basically what you’re looking at here right now of course it’s not not as cheap as water and sugar whenever you’re creating a bag but it’s not that
(1:18:56) expensive it’s really really The Branding and um it’s also it’s also interesting whenever you look at the balance sheet uh for lvmh so I’m just going to throw some numbers at you so we are looking at around 80 billion euros uh in Revenue but they have 30 billion euros in
Marketing like it’s it’s such a huge component of uh of the business and then we we are back to to to the point about is marketing real expens should it all be expensed or you really building an asset and I’ll I’ll argue that you will (1:19:28) have to add some of those marketing
Expenses whenever you do the evaluation um back into your into upating earnings and they’re already across the the entire company making 25% upating margin so it’s uh it’s it’s quite uh significant but if we if we talk about competitive advantage and
Uh competitors um and I I should probably say that the first have a competitive Advantage I wanted to talk about here it’s not so much just lbmh compared to say a or or caring uh but just
More the business of luxury in general it I just (1:20:02) mentioned caring there which is also a French brand but like they’re probably most known for Gucci and usang uh and and a few other brands
And so um you know old Brands old luxury Brands had this mode around them that were just harder to disrupt and I kind of I wanted to talk a bit about that here because um if we come up with the more
Recent example something like open AI you know AI is you know changing so many things disrupting so many things and if you look at open Ai and Har I can probably talk way more about this nikan most
(1:20:36) people would say that they have a mode around them and they have a first move Advantage then we read about something like entropic you know and there were some of the defectors of open Ai and they got funded by$ billion dollars of Amazon and now they’re competing fiercely with
Open Ai and I don’t know who wins but even the best art director in the world if you gave him $4 billion and said okay don’t work at Louis vong here anymore start up your own brand he’s not going to disrupt Louis vuong (1:21:05) the same way as uh and Tropic are
Going to potentially disrupt open AI again that’s my that’s my my claim with very little knowledge about fashion and very little knowledge about uh Ai and and I should I should probably also just say that um probably come up with an anecdote before I throw it over to to you
Guys but there’s this anecdote and again I it it’s probably the the same lines as Sam walon lying on on the floor to to measure the the this between different aisles but um there’s this (1:21:36) story where Bano he asked Steve Jobs about whether or not he thought people
Would still be using iPhones in 30 years and job said he wasn’t sure but he was quite sure people would still buy dong pong and drink that in 30 years which is also owned by lbmh 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 uh from there I love lvmh as a business that’s Bernard I know started whatever they had
(1:22:10) 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 selling the 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 (1:22:41) good sense for which um which of those luxury brands are uring and will be desirable 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 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 birkshire
Hathaway but it’s something like that in the sense (1:23:14) that it’s it’s an it’s a conglomerate it’s an acquisition based conglomerate that buys businesses that have these high margins and but it’s more luxury whereas bksh sort of go anywhere do anything I think that they uh 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 an ounce
(1:23:46) is probably worth like 150 that kind of range so the value itself has gone up five times the stock price has been you know much much wilder than that through the run the stock price is currently I think it’s about fair value um right now so there’s not a big discount
But this business has shown you that’s 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 it’s going to be worth more
Next year probably or not necessarily next year (1:24:17) but you know what I mean in 5 years time it’s probably worth more they’ll find some more stuff to buy they’re reasonably disciplined in their in what they pay they’ve the brands th Thrive underneath them I think this is a
I think this is a this is not 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 a PA that
Was outside of my funds then this is the sort of thing that I would potentially hold as as a (1:24:47) distinctly different strategy to what I do where I also think it would be quite a solid
Pick that you know in five or 10 years time you would assume that the business would still be bigger because they’ve got diverse diverse income streams across lots of different um product lines they understand the nature of supporting the luxury brand you have to invest in it you got
To invest in it through marketing there have to be premium products on top of that have to make them desirable they’re very very good at (1:25:17) doing that so I really respect and admire lbm it’s one that I would love to own at the right price I don’t own any don’t
Plan to buy any because I only invest in my funds but good pick S I like it yeah I think I I would second that in I was just thinking about Dollar General versus lvm if I’m supposed
To hold one of these for 10 years I would any day hold lbm match um because I think it’s one of the um businesses that is most protected by from any effects of Genera AI in general AI basically because as I think that was (1:25:56) a good quote St you about what
Steve Jobs said about iPhone versus some of the brands of lbmh I think uh 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 um I think uh and also I looked at their
Um dividend they have been consistently paying dividends they have been consistently increasing their dividends so that’s that’s a good point that Toby brought up as well uh in terms of their revenue growth um I think they’re they (1:26:36) have been growing their revenue at
Around uh quite a healthy uh Pace like correct me if I’m wrong saying except for 2020 when the revenue declined they have increased the revenue yeah the higher teams right uh most most of the times and sometimes you cing 20% so that’s very interesting I think I
I 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 because unlike say Toby Pi on the skin inbb where you’re developing the relationships with these medical (1:27:17) professionals or institutions and um
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 um so I that’s one thing that might concern me but I I’m not too concerned because anybody else entering this business has to do that so so there will be a cap on
(1:27:53) their margins at some point is how I see so I don’t know like 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 it might be a good buy but it’s more like a a stable dividend earning stock that you keep as a safe place not for something that would double in next few years necessar like
20 what what was that rule by monish B 20 26% a year yeah definitely not 26% a year no so this is more like the way I look at it is it’s like buy it (1:28:35) and forget it like a Burkshire as we
Were saying it’s more like Burkshire probably not I don’t know whether it’s from here on Berkshire and lbms might grow similarly so that’s that’s what I see it the issue for something like this is always overpaying because the everybody knows 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 (1:29:07) 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 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 Lu stuff that’s a really tough question to answer it’s
Because wealthier people do seem to be largely insulated from a lot of the economic pain that comes through I bought coach in 20 2008 n when (1:29:37) 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 and everybody seemed it people was still buying handbags through that 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 (1:30:03) feel good about so very hard to pick what happens I think but um but it’s a good business even if we have a period of economic recession you probably beyond that
People 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 at this price you don’t have that five or 10 years of dead money yeah I I don’t think you have that uh either chi I agree with
That I’m not saying that it’s a very cheap uh stock either uh here at the time of recording (1:30:35) it’s trading at 670 Euros um the uh the founder uh bought it back uh so the ownership
Structure is a bit special so he has a holding company that owns um uh lvmh and it’s it’s it’s a dual share class kind of thing where he owns less of the uh uh of the shares but he still has
Control uh the family and so uh he bought it back at 8 8810 EUR just to to give you an an idea um there is if we can if we continue a bit with the comparison to Burkshire um and it’s um I would
Say oh I’m probably going to be crucified for (1:31:17) this if I say it’s higher quality than the bur here so I’m not going to I’m not going to say that but uh definitely the the um R return on Capital employed is much higher than with Brookshire like we’re still talking close
To 20% and this is a company with what like 300 north of 300 billion dollars uh um and so it’s a it’s it’s a huge company and they’re still compounding really really well and um there
Are quite a few things I wanted to to add to that a part of it is that um they have like a almost a (1:31:49) status of uh like the first buyer if one of the fashion houses in Europe are uh being
Sold uh they’re very they’re very connected to fashion houses in Europe and um you typically don’t want to sell to Americans uh for um and for me being American this space is should should be seen as a compliment so I definitely don’t want to offend our American uh listeners but
For example you mentioned coach before uh Omar tapestry I I um I’m reading this just read this book here called future locks I’ll make sure to (1:32:24) link to 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 if if uh none of the European fashion houses want it they bid it to the Americans afterwards which just gives you a selection bias and another thing is that um um which seemed like it might play against this but actually also meant as a
Compliment lvmh’s founder Bano has sort of like a reputation for being American which uh to me is very positive because you have (1:32:55) a strong focus on shareholder value but in many in many fashion houses actually not seen as a good thing so he’s 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 like activism and that that way of conducting 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 (1:33:23) like the way that he wanted like started to sue them because they paid some in dividends
While you know the the the deal was um was about to get signed and like there was just a ton of stories about him and he was just that close to buying Gucci and then he pulled out in the last
Second because he wanted to you know uh talk about a few a few dollars and cents and so uh he he understands valuations really really well um U and know and so um and also I I’m sort of
Like trying to figure out what is it that this (1:33:53) company does so well because you it it’s sort of like difficult to compare them to to some of the competitors like the most obvious one would probably be a company like caring that owns Gucci salang and a few others
Like I mentioned before and not something like air which is like family owned by many many deration and still still controlled by the family and they have one brand so and it’s um I 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 lvms are (1:34:22) consistently growing and the think Co it goes back to to Capital allocation and I was speaking with um with industry expert um from a mastermind Community L Yubel about what what is it that they do so well and the way he explains
To me because I again I know nothing about fashion that he he said that there were like they have their 75 Brands and it’s it’s sort of like up to LVH to figure out what should now be
Be fashionable like where should we put our Focus right now and that gives me and yes I prepared (1:34:54) this uh that gives me a chance to come with another KOCO Chanel um quote it’s just
Fantastic where she says I don’t do fashion I am fashion so I love that code and it it it just made me think of the way that they to Capital location and the way they take a brand like remova and just
All of a sudden make it so much more popular and then like hike prices and like they they really create fashion which is just absolutely uh amazing so I’ve talked a lot about all the good things I
Wanted to talk about some of the bad things (1:35:24) before we we talk about valuation I think perhaps the biggest risk factor for me is that I don’t understand the Asian market and uh and which is really the key to understanding lvmh and um I I would like to highlight my
Own show shortcomings before I before I get to that because I I speak Danish and English there’s nothing written in Danish about this so I would I would go to my English s which is mainly us sources and they would talk a lot about um lvmh and how they bought Tiffany and
Company like and and they’re going to (1:36:02) paint a really good business case about what like it’s just amazing what lbm have done and how it’s be rebranded and talk about Beyonce and JC and we all love them and it all seems like fantastic like
This is this is the company you should you should understand and and and and buy but then whenever you read the financial statements you will see that uh watches and jewelry isn’t that important to lbmh 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 Company is (1:36:32) not just that segment they have bulgary in your Blau and so many others like it it it’s a great case study it doesn’t move the needle but it’s a great case study and you and and youd buy into the future cash
Flows and not the past cash flows and so you really need to understand the Asian market and uh um I read up on that and I I I think I’m still I’m still confused about un really truly
Understanding the Asian market I mean it’s it’s so vast and it’s it’s so it’s so different um so (1:37:04) for example um if if 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 you know they if if you if you sort like look look at the landscape of Japan you know you have the uh takyo Saka k
Region and you know uh I I read a book about like how the landscape uh really determines like for example uh why is it that brick and mortar are so powerful in Japan but not to the same extent
In China just because of the way you know (1:37:35) the just the country but also the preferences um 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 lvmh 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
(1:38:04) different languages and it’s different you have a 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 of China and I I had an experience uh a few years ago that really made me humble
Have a have an American friend who uh who who uh was staying in uh 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 to to visit (1:38:35) him in chingu and I was like I don’t understand that word like I what and he was like yeah yeah you know it’s a it’s
A city twice the size in New York I was like I’ve never heard of this like this was a few years ago I never heard about it and it’s twice as big as New York and I was like oh okay uh I
Wasn’t sure how to to you know could could he tell me more about he like oh yeah okay if you don’t know that uh you it’s just right next to Chong Chen I have no idea what Chong chin is
(1:39:02) but it’s four times the size of New York and so whenever I don’t un I don’t even I haven’t even heard about this city there was four times to size in New York and here I am
Wed 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 uh the Americas you know
And I was said yeah tell me about the common (1:39:31) denominator between Colombia and the us because it’s all in the Americas and you’ll be like it’s called Americas but there’s America and the Colombia and Ecuador it’s not really the same and a Chinese person would be like yes ex exactly
And so um I think that makes me humble whenever I look at um at the company because you would really need to figure that out if you really want to to to bet back on lbmh 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 uh in (1:40:07) the price that you’re paying at the same time I just wanted to to say um don’t
Please don’t look at this as a p of 20 like one of the key things are how much of that marketing expense should you add back into normalize your earning and size does matter I know this is a
This is a massive company but there’s still a lot of runway for for growth um not just in uh what what you would call personal luxury where there’s still a lot of uh you there’s still a lot of growth opportunities but they recently (1:40:37) uh went into Hospitality which is a
Much much much bigger segment and there’s a lot of lot of things here where you can um sort of like buy one get get get a lot for free um just one example could be something like advertising
Uh size really really matters and they have so many Brands so um they have a lot of uh puring Power when it comes to that it could also be something like real estate so you would think that they um they would they would pay the highest rents because they always have the
Most prominent places they actually don’t (1:41:09) they pay the lowest because they provide the customers so not only do they get get the best locations they pay the lowest rent because they can make a break uh massive malls because they’re just decide not to
Go there and so um size really really matters in this and there was a bit like you know you know the Netflix effect where you talk about you can spread uh you know the content creation on on
More users it’s the same thing whenever it comes to advertising when it comes to real estate and so on and and so forth so um what I would (1:41:40) encourage you to do is continue to study how much of the um of the marketing expenses should be added back to normalized
Earnings and I kind of feel that’s a bit more art than science um and so I want to say It’s relatively reasonable priced right now uh but if you’re really into high quality companies and something that can compound for a long time despite being a north of $300 billion dollars uh
Company probably take another look at MV uh lvmh so um yeah thank you s I think one one interesting point you brought up was understanding (1:42:14) Asia and their exposure to Asia which is around 41% of the revenue and China might be a big factor in that uh is the growing tensions between
The west and Asia especially China uh and whether that is going to impact with kind of you know nationalism and anti-west uh sentiments in China Well India is also a good good market for them probably in the future because uh India’s India is not just one India like similar to what you’re
Saying in China like I see like three indias there is India which um uh per capita income (1:42:53) is as good as a country like Poland um and the size of that population is also like a
Country like Poland like say 30 40 million people but that I hopefully will grow but we don’t know and so there is a lot of it’s 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 (1:43:27) believe rather than a risk for existing revenues uh for the company but uh but I’m still not convinced that the marketing is an investment in their case how much of it will of course there’ll 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 uh they will invest a lot in warehouses and after that they don’t have to invest it’s like you got to keep
(1:44:04) investing it’s my assumption yeah I I agree with you on that I think they still have to do that where I might have a slightly different opinion I I would love to hear Toby’s thoughts
Also are that so if they have 80 billion Top Line and then billion in marketing and then 20 billion uh they also have all expenses of course but then 20 billion in operating um income I would
Argue that some of that 30 billion had to be added back to normalized earnings I would not say all of it is a is pure let’s call it (1:44:37) maintenance capex for like of
Better words uh but I’ll be curious to hear uh uh Toby I I should say that not only do you have wonderful skin you you seem to be a person who knows slightly more about uh fashion then than
I do I don’t honestly but I I I admire the brands I I I don’t lots of different people value companies in different ways I don’t really like adding Back N 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 (1:45:11) and you could easily add some of that back and it could be but you know guessing what it is who knows really you you really 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 being it’s close to fair value for where
(1:45:38) it is now but what you’re 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 impa sounds like they’re very good operationally if they’re getting that’s
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 things so that’s that you know that’s uh (1:46:07) that makes me feel good about the
Way that it’s managed I look through the the valuation is um I think it’s close to fair value it’s it’s at 150 bucks it’s come off a lot it’s come off from uh it’s closer to 100
It’s under under 150 now at that level it’s 20 times PE as you mentioned before free cash flow yield is to around 3% so the question is in a world of 5% interest rates how much growth are
You how solid is the growth how much growth are you expecting does it justify that price (1:46:42) there that’s that’s the part where I look at it and I say e FCF at 35 times say so say 3% free cash flow yield that’s clearly growing and can grow into the future in a
World where you 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 would I want to just sit in some cash and
Maybe consider it where the differential is just a little bit that’s the that’s the only little part that I struggle with but then equally how often (1:47:13) do you get to buy it I mean this is
Still cheap for lvmh it hasn’t come back this much for a long time how how how greedy do you really want to be I don’t know and I honestly I don’t know the answer to that I don’t have to make
The decision so I’m I can’t 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 that’s the that’s the sticking point for me 35 times free cash flow that
Is growing versus a 5% risk-free cash at bank on (1:47:42) deposit yeah how do you fall out there that’s the question yeah all all good questions and I I I think I I probably see slight slightly
Slightly different multiples uh for for a number of reasons um but I I I actually wanted to go back to this whole thing about potentially adding uh some of the marketing expenses back and I know
That probably sounds way too aggressive and it probably is uh for for a lot of investors what I what I would like to to compare it to is let’s say that they’re not uh building a brand and
(1:48:14) improving a brand let’s just say that they’re buying a brand instead and then so um what happens then accounting wise so they they have something happening on their on the balance sheet where they uh it’s assume they’re financing with cash and then they put a new asset on the
Balance sheet uh and the obvious reasons pay a lot more than um since this is luxury they will pay more than the book value so they’re going to have a lot of Goodwill uh on the balance sheet
Now and all of that will will be impaired at (1:48:46) some point in time and so what and I I mean I’m making all kinds of uh I’m TR like trying to draw a balance sheet and then
Draw another uh income state with my hands which doesn’t work well for for podcasting at all but whenever you do that you don’t see the same type of expense on your income statement you 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 to the point I had before about why is it that I come with this outrageous (1:49:16) idea of saying um you’re actually building a brand a lot of that is you know really investment capit even though it’s already written off well if you compare 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 it did a good
Job sort of like explaining um impairments and (1:49:41) Goodwill and in the in taxing between the balance sheet uh and income statement but uh I think it’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 uh potentially look at a multiple and say oh it’s it’s it’s trading at DES but uh sort of like paint that
Paint that color around it um who knows Toby and Har um please I I kind of feel I’m way (1:50:09) too bullish on this and I I haven’t even made a position yet so please tell me why I shouldn’t I should shouldn’t invest in in this stock for me it’s like uh should
I just keep it in the dry power of for better opportunities later not just this but um is this a cinch um I’m so it is definitely a good business it’s it’s very interesting it’s a good long-term hold but in the current interest rate environment and economic situation uh am I locking
In my funds that I could have waited for better (1:50:48) opportunities um is what are businesses that are much better uh of course lbmh is still really good but it’s kind of you know it’s it’s
About opportunity cost is how I see it yeah and I think you bring up a great point there har because the opportunity cost have changed in so many ways now with the interest ratees uh going up and it used to get around 0% when whenever we were just sitting there waiting
Cash and you know you’re right like now we could be getting 5% while we’re waiting for (1:51:18) something that’s really really cheap um so good good point um Jens uh before we we end the episode um any any comments to lvm anything in general before I I give you opportunity
To to talk a bit more about where people can can learn more about you not good solid pick from my perspective wonderful uh Toby where can uh where can people learn more about you here before we end
This segment I run aquiris funds we have two funds deep which is small and micro domestic us value and Zig which is mid and large cap (1:51:55) domestic us value I’ve written some books that are all in Amazon under my name and I have a website aquiris multiple.com which just got
Some free screens and all of our blog posts and podcasts and various other things there thanks for having me S pleasure as always uh Toby uh hary where can people learn more about you yeah I think X or Twitter harama is my handle uh happy to continue the conversation
There um I also have a Blog bits busness uh. (1:52:27) com uh so look forward to comments feedback and conversations fantastic all right uh let’s uh let’s just end this uh segment here J thank you so much for for uh making time for for the mass man meeting as
Always Jans yeah thanks s so as we’re letting go of Toby and Hari in this epode segment I want to welcome my co-host clay think uh clay you just came back from New York uh 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 (1:53:05) us about what is the masterman community and how’s that related to you know this the discussion I just had here with Toby and and Hari hi St yes I just got back from New York City to meet with our Mastermind 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 (1:53:40) 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 spent alone you’re in Denmark I’m in Nebraska um 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 uh 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
(1:54:10) grounded and thinking about what 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 uh 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 try and gaug how much interest there would be in something like this and we were pretty sure that (1:54:40) 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 I’ve really enjoyed being a part of it so to give a brief overview of some of the benefits that members receive um 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 you know allow members to collaborate with each other and allow members opportunities to get new ideas share new ideas and learn and (1:55:14) then another aspect of the live
Zoom calls that’s been really really popular is our Q&A with our special guests sometimes we’ll bring in you know guests that have been on we study billionaires for example here shortly we’ll be having Tobias Carlile join us and that will actually happen before this recording goes
Live but um you know we have 15 plus members RSVP to sit in on a Q&A with Toby which is uh really fun and then the past we’ve also had Chris mayor and gotam bade and then members also get
(1:55:49) access to an online Community Forum so they could connect uh 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 um Kyle grieve our Millennial investing host is also quite active on our online Forum 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 and then most (1:56:21) importantly with the community it’s
Really just an opportunity to connect with many like-minded investors and that’s what I found to be the number one reason that people are joining and the reason people are staying around and you know 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 kind of have that idea flow from people that (1:56:51) 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 what they’re looking for and what what excites them for example when I
Got to New York City I I grabbed dinner with uh 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
(1:57:21) 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 wanted new ideas and that’s just really great for us to know Stig because then we can prioritize that and you know do do the best we can to offer them that 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 (1:57:53) meet people in person and that’s great too so it’s just really cool to see us bringing together these 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 said clay and if I can go back to what you said about um we just did
The first live event in New York like I think it’s important also to to know that we’re sort of like building the plane uh as we’re flying it you know it’s like we we would like to say that
(1:58:27) we have like a fantastic road map of what’s going to happen the next 10 years we we certainly don’t because to your point before speaking with with two of the members of the community like we really want to to meet you in person and and get to know how we can best
Deliver value for you and uh the best way for us to know is by asking and for for you for you to tell us so I think we should probably start there and so I I don’t know um how this is going to look
Like perhaps we’re going to have way more (1:58:55) Live Events perhaps we’re going to have fewer Live Events perhaps we’re going to do more online I we don’t really know um so that’s one of the things I very excited about starting something that’s very new we just we
We just don’t know and I should also mention uh now that um we’re talking here that I’m GNA host a launch in London England uh November 23rd for The Mastermind Community um this show should go
Out uh I want to say November four so um if you listen to this make sure to you know reach out to (1:59:27) Clay and hopefully sign up for The Mastermind community and and attend and so
If you were sort of like were saying wait wait wait wait s that makes no sense clay just said that we gonna 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 uh Clay is way more organized than I am let’s start there Clay is very is much more organized and uh so he would he will plan these fantastic weekend events um for example in New York uh for me I for for many different
(2:00:00) reasons I don’t want to Bard you with right now uh I travel a lot and it’s very often with relatively short notice I do that and so but and whenever I go different places I’m always always thinking hey meet new people that’s wonderful and so sometimes I would just
Type up in the in the masteran community online and send out an email to our to our members hey I’m in in this case uh London come and meet up with me for lunch if you if you want to so it
Really comes from there and I I would say that (2:00:29) some of the closest friendship I have today is through tip directly indirectly and you know just just as one example we we had a an event uh in 2019 in in Vienna this was before the masterman community and uh but anyways and
I one of the listeners him and I really just hit off you know the the following year my wife and I uh visited him and his wife in Brussels and then of course she had Co so like nothing
Really happened but uh then as recent as last weekend he came and visit and you know um we are soon going to go into clusters for guy (2:01:04) guys spear events get together and
This is not sort of like my way of saying sign up for the master man Community get new friends that I kind of feel that that would probably come off the the wrong way but what I think I found and
One of the the very very valuable thing I found from the masterm community has been that you know we were just all so busy with with family and koreas and and whatever and I have you know
I’ll be the first to say I have wonderful friends here in my hometown um and you know we we we hang (2:01:37) out we have a beer and we talk about the the game last week or or whatever we do but
Like they’re not interested in investing and and if they’re interested in investing is a bit more the uh you know rub Hood let’s buy a call option that expires tomorrow kind of thing it it’s not like do read financial statements like that’s not the type of investment uh you
Know discussions that we’re going to have and so one of the things I really appreciate about this mastering Community is that you meet you (2:02:06) meet just like-minded people from all over the world and you have a chance to to hang out with them have a ton of fun and also talk
About investing and you know I I’ve been doing these Mastermind discussions 10 since um 2015 with Toby and Hari and I learned something new every time and we also you know become friends because of all these discussions that that we we have and 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 (2:02:40) stock pick and um I I just know because I get all the emails afterwards that there’s so many in our audience that
Have comment questions and everything is very valuable and it would be wonderful if most more people heard that you know I I can respond back to an email but then it’s between that person and and me and so um I I like the idea of how the Mastermind
Community enable us to to communicate with more people but still keep a relatively small group and sort of like find that balance because okay (2:03:15) let me let me come up with an example you know I I mentioned to you clay some time back that I was considering p Ing lbmh and you
Said that L from our 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 had uh 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 (2:03:42) is kind of like the ethos of how we’re
Trying to help each other in that and this is just one example but I I think the example just captures what the master man Community is all about you know helping each other and and um helping each other and also being on being on the same journey in the you know
This journey into value investing and soon uh we’re going to have a discussion together with the masterman community who have been then listening to this episode we’re going to have here today and my discussion with Toby and (2:04:11) Hari and then we can all sit together
As a group and and talk way more about the uh the stock that we had the opportunity to do in this episode um so anyways but I have very selfish reasons as you can probably tell for for me to know more about lbmh and and hear from the community members but clay
I know that uh there are a ton of other stocks that we are currently discussing um so perhaps you can shed some light on on some of that yeah it’s funny you say you have selfish reasons you
Know to talk about lvmh because some of the (2:04:41) companies you know I that come to mind for me that I’ve been talking about with the community or companies that I own so uh you
Know I guess I’ll be the first to say that you know if you’re looking to join this group just to get stock ideas that you should go buy then it’s probably not for you because you know you
Shouldn’t just look for you know an opportunity to purchase a stock that somebody hands you on a silver platter because inevitably that company’s going to be going through hardship and go (2:05:10) through draw downs and you’re GNA have 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 meig um I think a lesser known one is Tech neon which you know discovered through one of my episodes with Chris Mayer and then you pitched it in The Mastermind episode and
Then the community is um quite interested in it because we’re you and me and Kyle are talking all about it uh with the group when we actually had a (2:05:39) call talking all about it as well um
Another one that comes to mind is consolation software which you know I own I own both of these names full disclosure and uh it’s another one you’ve pitched you know in The Mastermind episode where we can talk about it more uh with the community and then you also mentioned Lance
And he’s outlined some of his top Holdings in his small fund and um you know a couple picks in the e-commerce industry so it’s just really cool to have that opportunity to share your best ideas (2:06:07) with others in the group and then I also think it’s really interesting to discuss and kind
Of find out and talk about names where you know Mr Market is just just going crazy uh an obvious example from 2022 I think is just meta um we didn’t have the community then but I’m 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 you know it seemed that everyone in the market was just given up on it and obviously it’s rebounded quite (2:06:41) dramatically and I think another
More recent example is Dollar General um I didn’t sit in on the call but I know that uh a few members were definitely interested in that stock given that it’s pulled back around 60% from a ties and then you know you think about how sometimes these pullbacks they can
Be just really shortlived 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 (2:07:13) amount of time whether that might
Be shortlived or may you know consider whether their moat is still intact so I I really think that is just a a really cool thing to see you know Mr Market is just kind of going crazy maybe it’s Justified maybe it’s not um this is definitely not my way of saying that
Dollar General is a buy um it’s not one I’ve uh dug into further but a lot of members have been reaching out to me since I did an episode on them um last year and then one more example
That I wanted to mention um that sort of ties (2:07:46) into 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 roundt discussion and essentially it’s what you’re doing with Toby and Har 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 um 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 (2:08:16) that round table so it’s going to I think it’s going to make for 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 uh um (2:08:43) 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 table one of
Them practically manages his portfolio full-time it seems like uh you know some of these members I meet they’re they seem to be more passionate about investing even than uh myself I can’t speak for you Stig but man these guys just love stocks it’s it’s pretty crazy so yeah
One of them manages his portfolio full-time I believe he’s like partially retired you (2:09:13) know some some of these really successful people they they retire but they get their get their hands in in different things uh once they retire from their regular
Career and then the other person doing the the round table pitch today he uh 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 too to 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 (2:09:45) me and you to learn Stig but also the the group over overall so I think it’s going to
Make for a really fun discussion yeah you you definitely don’t want to be the smartest guy in the room in in any room and I I certainly am not the smartest guy not even kind of close in The
Mastermind Community um so uh so like like clay and I has been hinting at it’s a it’s a very selfless deed uh to meet up with really really smart people and talk to them about uh about Stock Investing and and you know I think (2:10:13) that’s just a very healthy way of um
Approaching like you you want to continue to learn like that’s the tra continue learning it’s the same reason I go to uh I’m going to go to guys uh event there in in cluster cluster Switzerland in uh January February like I’m certainly not the smartest guy in that room either but it’s like
Doing some of those Live Events are just such a wonderful way of continuing to learn network with with fellow investors and I also want to jump in here and talk about Omaha a little bit
(2:10:46) we just wrapped up our New York City meet up up and I’ll be the first to say that so many people that attended absolutely loved it um we’re going to be having our second Mastermind Community meet up in Omaha during birkshire weekend and some of you might be
Wondering you know why I’m mentioning it now well um you said this episode’s 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 those are probably the best days to be
(2:11:16) in Omaha and the reason I mentioned this is because the earlier you book this stuff the better because hotels fill up flights get get booked and it it’s just you know Omaha it’s
A you know it’s a big big city for Nebraska at least but it’s by no means your New York City where you have the multiple airports you have an international airport um 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 uh jumped a gun we we (2:11:48) talked all about this last year’s dig you know covering everyone’s questions everything you need to know about the Burkshire 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 uh 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 (2:12:17) us STI with 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 uh this past year in 2023 I’ll say we only did free events because we didn’t have our Mastermind Community yet and it it was quite overwhelming so I’m definitely looking forward to having a smaller group and you know
Really building out those deeper relationships (2:12:49) because when you when you’re uh with a group where you don’t really know anyone it’s just like a ton of surface level conversations with people you uh generally you know 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 you know they weren’t asking me you know just uh surface level questions that really don’t dig deeper and uh like I mentioned we have currently 80 members of the community and
(2:13:19) my guess my best guess would be that we’ll have 25 to 30 or so of the community uh joining us in person in Omaha and uh I certainly know that a handful of people that were were in
New York City they already uh plan on meeting us an Omaha again too yeah and and and I should also say that if you if you haven’t been to Omaha uh and this might just be all my own biases um it’s
It’s just very nice to have a group group you can meet up with just in just in general um and you can go to these free events like I don’t (2:13:56) know we probably had 400 people or
Something like that go through our events and like if if you spend two minutes with each of those 400 is 800 minutes times 60 like someone better with than than me with math would probably
Say it’s like what 13 hours of like it’s it’s a lot and you don’t even get to get to speak with people and I kind of feel like it’s probably one of the the lessons we learned also again perhaps
A bit for for selfish reasons that we would really like to connect a bit more with our (2:14:26) audience and you know it’s it’s kind of it’s kind of like being a difficult decision because a part of me also um 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 masterman community is certainly also from all walks of life so it’s not it’s not like that it’s more Christian especially for me I get very ID
Whenever I go to places where there are a ton of (2:14:53) people and you’re supposed to to mingle like for me that’s like it’s just really really difficult and um it’s a little easier whenever
You have like the same like let’s say you have 25 people to hang out with or what whatever and then you of course whenever there’s 25 people there are some that you have more in common with than than
Others but it’s like you can have conversations with those people for consecutive days and really you know get to know them I kind of feel that’s (2:15:21) really nice you have a you have a place
To go you have an itinerary it’s just like it’s a little easier and especially you know when if if you come there and I know like clay would have HomeField Advantage because he used to live there and and today lives very very close but like it’s for me like say flying in you
Know I I never owned a car that’s sort of like a different discussion but like I to me it’s like really really nice that everything is walkable but the walkable area in in in Omaha is just
(2:15:49) very very small so if you don’t want to be dependent on a car you can of course rent a car uh if if if you want to and you might say well there’s also Uber yes but this is this is
Like you have four 40,000 people coming into relatively uh I don’t know like 3,000 people whatever but like in that area it’s just so congested so you can’t like if you kind of feel like I I’ll be one of those 40,000 people just showing right up to to the event together with
With with Warren Charlie and all the others like (2:16:16) no you’re not gonna get an Uber and so so like there are so many of those things where to me I can just say it’s so it’s so nice
Either either to I I 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 Office 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 I was there the first time in 2014 to me that (2:16:46) just gave me a lot of less angst of
Of going there in the in the first place and you can really focus on the reasons why you’re you’re there and I should also say we would really like for the community to to feel like it’s it’s small and and feel more like it’s a mastermind group for example you know Clay you
Mentioned before that you knew this specific individual in the group uh L 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
(2:17:13) have 500 members and we don’t want to be 500 members so like we want to to keep it uh small and I should also say that we do see this as a as a two uh two-way street you know uh we
Want to make sure that that everyone is vetted before they they join uh the community but it’s it’s again it goes both ways because we also want to make sure that we can add value for you coming
Into the community but anyways um clay I I wanted for to to you to be a bit more practical about all of this yeah I can’t help but jump in with (2:17:47) a couple other comments there because you mentioned just something so so important um you know turning back to the surface level
Conversations um a couple of the things I learned from our New York City Event is a lot of people don’t just want to learn um to be a better investor or learn about a specific name um since so many in our group are just like just very successful in many
Walks of life whether entrepreneurship running a business you know excelling in their career um one of the things we did was we created these (2:18:25) member cards where each member would essentially say you know here’s my background here’s you know my line of work and uh 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 uh
There’s we also do things like have them fill out some sort of vulnerability so like what can they (2:18:52) 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 jump over the uh the uh
Surface level conversations and really dive in and you know you read someone’s card and you you’ve realize that hey they really need help with this and I know that I can help them with
That so it’s really a a fantastic way I think for people to you know dive in deeper and really build those relationships and another thing I (2:19:24) uh selfishly do is uh 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 yeah you know every 30 minutes you have to be going to a new place you know exactly at this time we need to head to the the restaurant restaurant or whatever um 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 for New York City for example we just had a happy hour right off the bat so everyone (2:19:54) met each other everyone had a
Chance to kind of uh get their feet wet get to know who who was going to be there and then you know the 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 uh I’m just really excited for Omaha even though we just got back um from New York City here but anyways if this sounds exciting to you to apply to join listeners can go to the investors podcast.
(2:20:25) com Mastermind Das application again that’s the investors podcast.com Mastermind application and for those who don’t want to type all 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
(2:20:57) myself Kyle grieve who’s our recent host of millennial investing then you can apply to join by going to that link and 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 and that’s shown on the application and it sort of reles to the point you add Stig of wanting to keep the group small and keep the group tight-knit so if joining the community you think
Is right up your alley and especially if you want (2:21:27) 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 uh feel free to reach out to me at clay the investors podcast.com um always happy to hear from the audience if there’s any way I can help them wonderful wonderful uh thank you so much uh clay for taking the time to jump on this call all right
Uh everyone again thank you so much for for tuning in and um yeah we see each other again uh for (2:22:00) for another episode take care constellation software is a great stock and you might be thinking if if it’s such a wonderful company why don’t you have a position
Well as it’s very often the case whenever you find a high quality company the market also knows that it’s a high quality company so Mr marget sells the company to you at a at a very high multiable you
Have to pay attention whenever that is to your advantage and the multiable is more attractive
17 Comments
InMode reviews are poor what I have seen. I think it's a big risk and questionable if their solutions work. At least I would not buy a company that I don't know whether their products are bogus. Of course, this might be the case for lot of these beauty products claiming to make you look younger or whatever. Still, for me that risk is bigger than geopolitical risk. I think you can establish a factory pretty much anywhere. Causes hassle & short term issues but not lomg term.
The retail market is crowded with many competitors hence it requires the management team to constantly monitor and tweak their business operations. since Todd Vasos has assumed his position on Oct/13 as CEO and yet he has to address the following: (1) What's their plan to improve their daily revenue/margin/cost structure as per store ? Dollar General tends to set up their stores around population less than between 1000. and their main customers have budget concern and is reluctent to pay more with their savings and food stamps. (2) Despite Amazon and Temu both have varity of choices to fulfill the customers need, they would have to reach over 30~40 USD as per order to remain profitable. However, If Dollar Gener wants to attract new customers besides low-income consumers, they would have to develop their own brand SKUs to cover the increasing transportation cost. (3) the value of the stock has been inflated since its IPO with initial PE Ratio less than 18 and current PE Ratio fluctuates between 11 and 12. and if you check the bloomberg terminal, their bond PV value (04/03/2050) has been in sharp decline, so DG could buy then back without shadow of doubt.
I really enjoyed to see Tobias picking InMode, a company that I have been adding since December 2022. Thankfully the stock felt that much since July 2023 (note that most of the drop was before the war started). I just want to add 2 comments that may add to your thesis. 1) The founder and CEO of the business is aging, so soon or later he will start thinking about retiring. Maybe the cash pile is related to his willing to retire with a big chunk of money. Just speculating here, but look at his age and retirement. 2) InMode has almost no competition on the RF procedures. Whereas most of the industry is laser-based, InMode is playing on its own field. They developed and patented the radio-frequency procedures that they are applying, and until a decent competitor appears on the market, InMode can keep these fat margins and returns on capital. I see no material competition on the specific niche they are, so their financials will mostly keep strong.
Hope that I added some color to your InMode investment thesis. All the best and thank you for your Mastermind episodes
Did these guys say anything meaningful? Nope…
Did the first guy say that the 10-year is trading at 10% yield?
I hope he just misspoke
Great show guys, interesting the different ways you approach value. Inmode looks good just going by the numbers as you say Toby. I have another Israeli company that looks undervalued that i wont cross promote, but perhaps some market disconnect/value fishing in this pond?
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The conversation or topics discussed does not match what the Channel is for? Are you derailing from your core?
Trying to time the market is dumb. I guess they are too smart for dumb stuff.
But even dumber is using data to try and time the market. He completely ignored that the market has never rallied for this long following a bottom and found a new bottom.
First off, the guy on the top left stares at his phone the entire time he’s not speaking. At least pretend you’re interested.
Speaking of whom, a perma bear rant followed by InMode?
You do realize INMD is run by a fraudster right?
Look at their numbers. Why did their entire management sell out? Why are they holding so much cash? Why do so many of their patients have permanent damage?
Do more research my man.
I’m sorry, you’re qualitative but picked INMD?
Huh?
by the number I like inmd, it is interesting that USB and Canaccord Genuity downgrade it. on the other hand, Gordon Haskett upgrade DG.
if it wasn't your podcast, it is so hard to understand what to invest. good jobs, guys.
Thanks guys interesting picks!
Too long winded but good content
I couldn't follow so i stopped listening. No timestamps. I dont want to listen to something forever to figure it out.
Thank you, guys, for this discussion. Enjoyed and learned! Toby's pick is very interesting and current valuation makes it very attractive. After looking at the financial details, a few items look too good to be true. 1) The R&D spend is <3% of the total revenue.. how is this company able to continue to innovate and bring new equipments to the market? or is it that they simply require to tweak their RF bipolar technology for different applications? 2) They literally don't have any Dep/Amo and CAPEX based on last 5 years statements. Why is that so?. A few concerns 1) cashflows are less than earning indicating non-cash earning, 2) sale/marketing spend is increasing and is ~40% of revenue…likely not a concern and needed to educate Doctors of the new products.
I don't mean to moralizing but I genuinely have had better experiences at the dentist than dollar General