Key Highlights:

Transcript:

Bill Mann: 0:00

At the time brokerages in this country were able to charge quite a bit for trading, and for the most part in the US and I think in a lot of Europe, trading is essentially free. Now it's not even a commodity, it's a lost leader for the brokers. The US market has never been more concentrated in a single industry or in a single small set of companies. So I would love to see those inflection points, because at this point you almost see a greater level of conservatism than you had even before the pandemic started.

Michael O'Mahony: 0:38

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Emmet Savage: 1:16

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Michael O'Mahony: 2:22

Hello, welcome, emmett. We have a very special guest with us today on this episode of Stock Club. Would you like to introduce him in all his glory, oh, I certainly would Thanks, mike.

Emmet Savage: 2:33

Well, Bill Mann, it's thrilled to have you on Stock Club. Simply put, you're one of a handful of voices who's inspired an entire generation of individual investors. I asked you to join us here today. Well, apart from being an old friend of mine and a guiding light of my own, but because you're joining us on the evening of Friday 17th of November, just four weeks from today, both you and your former Motley Fool Money co-host, chris Hill, are flying to Dublin to join us for our annual Horizon members event in the Westbury Hotel, and the team of the evening will be focused on finding outstanding investments for 2024 and beyond. I'll say a little more about that at the end of the show, but I thought about it, or put it up at the top because people are basically impatient and stop listening, so folks just click on the link in the show notes right now to secure a ticket. Bill, you're very welcome.

Bill Mann: 3:31

You know, if you compliment me like that some more, I would fly to Mars. You might actually turn up. Yeah, we were joking beforehand. It's my old pal, Chris Hill, who I've known since I started at the Motley Fool in 1999, and he had started here in 1998. And yeah, we're going to be in Dublin for a couple of days unsupervised.

Emmet Savage: 4:01

So well, I tell you we're going to interview Chris next week, so it's going to be like one of these. Is it a Spanish interrogation? What is it? Oh, the.

Michael O'Mahony: 4:11

President's Dilemma.

Emmet Savage: 4:12

Spanish and no, no, the President's Dilemma. We're going to ask you. So what are you going to do when?

Bill Mann: 4:17

you're in Dublin. We're going to ask Chris and see what he's like. I want to see the book of cows, like the usual, of course. Yeah, good guys.

Emmet Savage: 4:25

Look, Bill, instead of me riffing, which I'm going to do a lot of on this podcast, allow me to read your bio for our listeners. I'm sure it is just a handful who don't know who you are. Bill Mann has worked with the Motley Fool for almost 25 years, where he's currently the director of small cap research. He has held several leadership roles in the business, including the CIO of Motley Fool Asset Management. In addition to his lead analyst role, Bill is host of the Daily Motley Fool Morning Show. He's frequently appeared on CNBC, Bloomberg, Fox, CNN, BBC, CBS more or less anything that has a screen. Bill's been on it, and such is his expertise in corporate governance that he was asked by a US Senate committee to testify as an expert witness at a hearing regarding the collapse of Enron, and since then he's interviewed endless entrepreneurs and founders to understand what makes a great leader and the best long term stock investments. Don't forget to ask Bill for 50 signed photos of him smiling so we can sell it on our website. I don't know if I was meant to read that bit. That was a lot.

Bill Mann: 5:36

Bill, what have you not done? Do you know about my time freezing on CNBC?

Emmet Savage: 5:42

Oh yeah, I've watched it a few times. I've shown my family actually.

Bill Mann: 5:47

I couldn't remember the word reserves. We were being asked about mining companies and I'm walking my way into a sentence and I know I can't remember the word reserves, so I'm trying to talk my way around it and come up with a different way of describing the same exact thing. And it's not happening. And I get to the spot and I just freeze and it is so bad that the host of CNBC it was Liz Claimman at the time goes it's okay, bill. On live television On live television and Chris Hill at the time, who was our media expert afterwards I mean, basically it's a media expert's job afterwards to be like that was great. Maybe next time try this, and after that I finish, he goes. That could have been better Devastating.

Emmet Savage: 6:39

Well, you know it's the only way up. Hey look, no. And what? Where did it bring you to five hours of podcasting a week? That's right.

Bill Mann: 6:46

And certainly better, or I can routinely forget words and pause.

Emmet Savage: 6:51

Yeah, well, you know what we love you just the way you are.

Michael O'Mahony: 6:54

Yeah, Bill, now, just as we're talking about being put on the spot, I want to put you on the spot a little bit because I was doing some recce on you before the show and actually found your Enron testimony that we mentioned during the intro. So there's one particular bit I took out that I'd like you to kind of expand on. It says in the end, analysts from large broker firms have minimal structural incentive to be accurate in their predictions. Rather, their built in incentive is to be as favourable to the corporate clients as possible. Given like 20 something years that have passed since then, do you believe that this landscape has evolved since then, or are things broadly the same?

Bill Mann: 7:33

I think it's worse. Yeah, I think it's, I, if you so at the time. So that was the end of 2001. At the time, brokerages in this country. In this country we're able to charge quite a bit for trading and for the most part in the US and I think in a lot of Europe, trading is essentially free. Now it's not even a commodity, it's a lost leader for the brokers. And so you have these investment banks. How do they get paid? They get paid based on companies doing secondary offerings and debt offerings and mergers and acquisitions. They have no incentive at all to come out and say, hey, I don't think this company is doing great, because essentially that means, well, okay, we're not going to consider this bank for our next offering. So brokerage in this country in this country at least and the United States you know we are kind of all about us, but it is the largest market by market cap in the world. It's about 44% of the total world market cap. So it is a meaningful market for every single company and every single investment bank. So I don't think it's gotten better at all. The only thing that I would say is, because of the way that brokerage has changed, that there's become less and less of an incentive for the sell side analysts to even cover smaller companies, which is somewhat beneficial to us if you are someone who fishes in the small cap waters. So they are at best ignored.

Michael O'Mahony: 9:20

At best ignored. I like that. This is why you see all the price targets chasing the actual stock price and why everyone is bullish on Nvidia six, seven months after the rally rather than before.

Bill Mann: 9:31

I wish I could find this. I wish I could find this graph again, but someone I want to say it was Kellosch concepts put together a price chart of Tesla through 2020 and 2021. And then, you know, and on a time series, they just did the price targets of all of the big analysts and it was unbelievable watching it follow in lockstep yeah, the price itself. So they weren't out ahead. You know there was there, you know. You know you know the old phrase there. You know. You know there are no atheists in a foxhole. There are no atheists on Wall Street either. I mean, you know the company shows you what it is through its price action and they will follow, but I don't know why you're getting paid for telling us what the stock has already done.

Emmet Savage: 10:28

It's a fact. I mean, you worked, as far as I recall, in your early days, bill, looking for small cap investments on a newsletter since retired, I expect called Hidden Gems, and you spent I don't know how many years looking for those stocks that were under followed, underappreciated, misunderstood, but broadly there was no opinion out there on them and there was some absolutely incredible businesses to be found. Do you still mean predominantly like if you were to describe your investment style? What would you say is your core philosophy? Or, better still, what would you say is your investment style if you could only say it in a tweet?

Bill Mann: 12:55

I have a metal detector, I'm looking for things I'm looking to for things that are unseen by by the market, and I guess the good news is, even in as as highly of an observed market as United States market is and I always describe our market as being highly efficient but it's not the same thing as being fully efficient so there are huge parts of the market, and think about what we were just talking about, the fact that Wall Street analysts it's not really worthwhile for them to track at all or put out and put ratings at all out on companies that are five billion dollars and smaller from you know, in a Market cap perspective. So they are out there and I would say, if anything, at that end of the market in the United States, things have become even less efficient over time, which is great for people like me who try to fish in those waters. Wait, you asked me to say that very briefly and I went.

Emmet Savage: 13:54

Don't worry, you can do long tweets.

Bill Mann: 14:00

I gotta go and get the blue star and write as long as.

Michael O'Mahony: 14:08

I was just gonna say just on the small cap investing With so much experience in it, do you notice like an inflection point when the institutional money comes in is there? Is there that tipping point that you achieve and it's like that's, that's the money shop, basically?

Bill Mann: 14:23

yeah, it happens. I mean, we just talked about Tesla earlier and Tesla is now as close to a trillion dollar company. So there is no, by no definition is it a small cap. But there were companies like Chipotle, for example, that just simply won for years and years, and years and years. And you really do see, the investment banks start to get interested in companies after they have won for a while, even if they are smaller, one of the challenges in the US right now. So the S&P 500 has had a pretty good year, but the S&P 493, which is the S&P 500 minus the big seven tech stocks, has not had a good year. So no, if anything, in this country, you have been Punished for moving away from any big cap tech companies here. So it's almost the opposite of an inflection point right now. Like them, the US market has never been more concentrated in a single industry or in a single small Set of companies. So I would love to see those inflection points, because at this point you almost see, you know, a greater level of Conservatism than you had even before the pandemic started.

Emmet Savage: 15:45

You touch on a couple of interesting points there. First, you mentioned a number of five billion dollars and I was about to ask you like what in your mind now constitutes a small cap? Because when I started it was, I think, a business capitalised between a hundred million and maybe 250 million. Then it grew up a bit. You know now we're talking about. Are we thinking about companies below five billion?

Bill Mann: 16:06

I think that's a pretty good asset test. The way I used to think about it is any company that was in the Russell two thousand and so, yeah, the US has. You know there are. Every country has a number of indices, and the S&P 500, the Nasdaq and the Dow Jones industrial average are the large cap Indices. The Russell two thousand is the lower two-thirds of the Russell three thousand, so the Russell One thousand is kind of their, their, their version of the S&P 500, only twice as many companies. So the Russell two thousand, very top of that, starts at about five and a half billion dollars Now, and so that's pretty much where I would, where I would consider Small cap there and below. To me, the market cap almost isn't even the most interesting part, because what you have in this country now is huge swaths of the market that are just ignored. So there are companies that are 20 and 30 billion dollars in size now that are pretty much ignored by by the investment banks, and so they behave like what you would think a small cap is Because of, you know, because they have, they do no fundraising activity, they aren't in any danger of doing second areas or raising debt. So to me the number itself is almost less important than the profile of the company on Wall Street.

Emmet Savage: 17:41

But the father's number isn't important. At what point is it just too small for your taste? I what? What is a nano cap in your mind? Or rather, why do you say no, too small?

Bill Mann: 17:52

Well, so for my taste, I would. I would invest in most anything. The practical, practical matter of being someone who is a public stock picker is that you can't really observe something without changing the nature of it and the smaller it is. I mean, if you tell 50 people about a five million dollar market cap company, you're gonna like that company on fire. And I always say that we have no interest in ringing the dinner bell at the securities and exchange commission. Right, you don't want to have some fun. That is the analyst's form of playing with fireworks. After a couple of years, oh for sure. So we have. We have recommended and I am comfortable with companies that are sub one hundred million dollar market caps. But whenever we release something like that we've done a couple of times we are very, very clear. You know, almost like a. You know a, a, a black label at the top of the top of the page saying hey, if you mess around with this, you are going to get a price that is very different from the one that we are telling you. It is right now, it's just going to happen. You limit orders, wait a couple of days, do not try to be first to buy this company and Does it work? Ish, you know, like I, you know, there are a lot of people who are just you, who just say, hey, man, just give me those, just give me that ticker, and I don't, I don't know how you go about saving them from themselves. Right, like to me, I, I don't. I think so differently in terms of why I might buy a company, that the ticker is far from sufficient for me, but it is how some people do. But because of that, I would say about 100 million is the floor.

Emmet Savage: 19:59

Okay, gotcha, that's smaller than I thought, and I think you and Mike and I we've all observed the pop where you open your mouth, you point out something that isn't followed very well and then suddenly the price just jumps and there's a correlation between your word and its share price and invariably within three days it settles back where those who got undecided they've changed their mind.

Michael O'Mahony: 20:19

I think you're overestimating my influence there.

Emmet Savage: 20:25

I don't know if I thought this was the right thing to do. No, no, no, you're understanding yourself, you want to feel powerful.

Bill Mann: 20:32

Find a $5 million market cap company and try that one. You'll feel like Zeus.

Emmet Savage: 20:40

Yeah, well, this is the guy Mike writes and edits a weekly email we have here called Charging and Fearless, which is named after the Charging Bull and Fearless Girl Statues on Wall Street, and its purpose is to find great stock investments, irrespective of where they're listed. So you mentioned that America is by far the biggest, the best and the most efficient capital market system in the world, but there are a lot of other countries out there. There's probably 60 other countries that are, I think, fair game to have a close look at. Many moons ago, bill, I remember you were a director of FOT To this day remains as one of my favourite investment services, and it's the now retired global gains, where you went searching for great investment opportunities all over the world and the only criterion was that they needed to have some form of listed entity in the US. Having travelled the world back in the day for global gains I think you went to China, you went to Brazil, you went to a lot of nice places. I kind of junk it, I have to say, but it sounds like a boondoggle.

Bill Mann: 21:40

I also went to Nigeria and Saudi Arabia, though I remember that.

Emmet Savage: 21:44

You recommended Guinness. You recommended Guinness in Nigeria.

Michael O'Mahony: 21:47

Guinness Nigeria as far as.

Emmet Savage: 21:49

I'm called, so what countries outside of the US attract you today?

Bill Mann: 21:54

So I'll give you a developed market and then a developing market. My favourite developed market outside of the US is actually Sweden. And yeah, yeah, I mean yeah, the Swedish market is very interesting because it is incredibly well regulated. That is simply the case. You go across the board in the Nordic countries. I also think that it almost doesn't need to be as well regulated as it is in the Nordic countries. There is something about the Nordic countries and the ethos there. They don't pay their executives exorbitant amounts of money. They don't have these crazy stock options plans where, even if you identify a company correctly, most of the gain ends up accruing to the insiders rather than outside investors. But there's also in Sweden a tendency to look outside of the country, because Sweden is a rather small market. So you have fantastic companies that are based in Sweden that have footprints well outside of the country, and so to me, that is one of my things.

Michael O'Mahony: 23:13

Yeah, lots of serial acquirers as well. Isn't that kind of a thing?

Bill Mann: 23:18

Lots of serial acquirers. Indie trade is one. There are a bunch of them, and they are serial acquirers in the model of Berkshire Hathaway, in that they very much focus on that redeployment of capital first and foremost. And again, I think that there's no more powerful substance on this earth than incentive. And so, unfortunately, with most acquirer companies, the thing that correlates the most with the acquisition and the increase in market cap is how much the executives get paid and how much they earn. And it turns out that if you tell someone, if you do this thing, you're going to get paid more, they are going to convince themselves that this is a really good, really smart thing to do, whether it is good or smart for anybody else. And that's not being cynical, that's just reality. So in Sweden, because executive compensation does not seem to be correlated so much with the market cap of a company, I think you end up with smarter outcomes.

Emmet Savage: 24:30

No question about it. John JT and I went up to Sweden a few years ago to visit the first North Exchange, which, as you know, is owned by the Nasdaq, and we are considering it for an alternative listing for my Wall Street, and I was really taken aback at how incredible the calibre of companies are on that exchange. It is just, it's a landscape of wonderful businesses, very capital, efficient names that we know, names that seem familiar, and then those that are never heard of that are just literally printing money. I am a huge fan as well, and I love ABBA and I love AppSuit Vodka.

Michael O'Mahony: 25:07

So I mean Volvo. You know there's so many things and very Emel I just put in very appropriate for a new project coming up as well. Isn't that right?

Emmet Savage: 25:16

Yes, yes, it is. We've been working on a product for the longest time, and we're calling the product Nexus, which is fusing AI with state-of-the-art screening, and we're using hedge fund data from more or less every exchange in the world and I say more or less because we excluded some because the reporting was so horrible and we've been tweaking, feeding and training an AI system for about two and a half years and certainly the voting machine is starting to look pretty good. I mean, only six months ago it looked like the Bride of Frankenstein, but the names and the analysis it's producing now on its own is definitely giving us goosebumps. And Sweden is top of the pile. It's top of the pile and there's no question about it.

Bill Mann: 26:00

And the returns have been there as well. I mean Sweden accounts for 0.05% of the number of listed companies in the world. I know the number of listed companies is kind of a bizarre way to frame, but over the last 20 years there are only five countries that have had more than 10 baggers than Sweden has had. So the proof is in the pudding that it actually pays off and I'm not sure that investors are well-served going out and looking for 10 baggers. I mean that's a pretty high-risk way to invest. You know you end up with a lot of 0.1 baggers. But if you're going to do it, a country where they get there by just simply growing 14%, 15%, year in and year out which is what happens with these Swedish companies that are serial acquirers, that are good capital allocators is maybe the safest way to do it.

Emmet Savage: 26:58

As far as I recall, the Swedish population is highly incentivized to invest. I think some like 20% of their salary in indigenous and home-listed companies. I can't quite recall what the tax break is, but it really has created an ecosystem which favours individual investors, retail investors and promotes businesses to behave extremely well, because the entire nation's pension is pinned to the performance of these businesses and it's kind of self-cleansing it is self-cleansing and if you think about the old adage about Sweden, it was what 12 million people and nine last names right.

Bill Mann: 27:33

Like if everyone around you is invested in your company, like you are looking at people every single day who depend on you.

Emmet Savage: 27:45

Bill, you have no idea how well I can relate to that comment. That's right. Who told you to say that? Everybody, basically?

Bill Mann: 27:56

Oh man, for anyone who makes stock recommendations publicly. If you don't feel that type of thing in your soul, you are in the wrong business. Right, I feel in my soul, and we understand as investors, that you're going to be right. If you're right, 51% of the time, you've probably crushed it. That's just how it goes. Whenever you put an investment out there, you are putting it out based on what has happened in the past and then, from that point, what you believe will happen in the future. Some companies are more predictable than others, but the more predictable a company is, the less efficient it's going to be. That's just yeah. That's reality, yeah.

Emmet Savage: 28:48

And on top of that, it only takes a couple of outsized winners to boost your performance, to boost your Kaggle, to boost your reputation. I mean, I've had two 100 baggers, and one of them is thanks to you, I might add. So beer's on me, so you mentioned Beer.

Bill Mann: 29:05

Come on, man, I didn't say how much. A lot of beer breweries. So you mentioned it was another market.

Emmet Savage: 29:16

You said Sweden is a first world market and then another. Are you interested? What's the other, Mexico?

Bill Mann: 29:23

Really.

Emmet Savage: 29:23

I can't believe it.

Bill Mann: 29:24

Yeah, so Mexico actually has a very highly developed regulatory system, much higher than you might think. And Mexico it will be a long time thing happening, but after COVID and at that point in time let's take a company like Procter Gamble. During the beginning of COVID, they had 27,000 products, 17,000 of which were dependent on at least one ingredient, coming solely from China. Right, so we can talk about China, as you know, as friend or foe. You know, in the US, I don't think that matters quite as much as the fact that one of the things that the pandemic taught American companies was that they were highly dependent on a single source, and that is something that is a weak point in their supply chain. So, forgetting any other, you know, forgetting any other, like geopolitical discussion, how do you solve that? You solve that by broadening your markets. You solve that for broadening your sources, and so you know, we're calling it reshoring here in the US. We're calling it, you know, a bunch of different things. One of the countries that's right nearby, that has an incredible infrastructure, is Mexico, and so you're seeing a huge amount of American companies that are moving or at least doubling down on the infrastructure that they have now, the supply chains that they have now in China and a lot of other markets, and Mexico is kind of at the top of the list. So I think that this is a story that you're going to see play out not over. It's not a 2023, 2024 story. This is a 2035 story. So that, to me, is the other country that is incredibly interesting for investors.

Emmet Savage: 31:19

That is fascinating, would I be right in saying about 20 years ago you recommended buying shares in the National Airport of Mexico?

Bill Mann: 31:28

One of them, I sure did.

Emmet Savage: 31:29

Yeah, that was yeah.

Bill Mann: 31:31

And, by the way, yeah, they're still out there and they are still minting money, and every time a new airport opens in Mexico, they end up ending up in three different companies, and I don't even think you have to choose right, Like it's you know, one is a, you know one's on the West Coast, one's the centre and then one is the East Coast. So what do you want? Acapulco or Cancun, or do you want Monterey, where everything is being produced? So the Mexican airports have done so well that they've gone out and bought Colombian airports. They've got a lot of airports in San Juan, Puerto Rico, like. These companies have done great and I think they're going to continue to do so, particularly because, from a logistical standpoint, there is almost no better place to go for American companies.

Emmet Savage: 32:24

Have you got a top three favourite? Sorry, Mike, I just want to keep on this Mexico thing. Hit us with three names. You don't need to go deep, but just three names.

Bill Mann: 32:32

So we could talk about the three airports, for you know, for example, one. I'm not going to say them in Spanish, because they have. They have not bothered. They have not bothered to give themselves shortened Americanized names, to kind of appreciate, but it's hard when you have to say them out loud when I studied German, so my Spanish is funny. One is PAC, pac, it's the Pacific area. Omab is central Mexico which is, you know again, Monterey and the Southeast, you know Cancun. Cozumel is Acer A-S-U-R.

Emmet Savage: 33:10

So yeah, that's it Tollgate businesses. They're just going to keep collecting for the rest of time.

Bill Mann: 33:16

Yeah, and they've done a really nice job. So they've done a really nice job. So obviously the government or some local transit authority owns the airport, and so what they have is the concession to run it. So all they really need to do is make sure that they run it in a way that the government says hey, we're doing so well, we're just going to keep renewing. There's no reason for us to look around and change jockeys because these companies have just done a great job.

Michael O'Mahony: 33:49

Bill, I'm going to kind of flip the script from Mexican airports back to tech companies. You mentioned them, the dominance of the current market now and how top heavy it's become. But you could say for the last 15 years they've really dominated and lifted the stock market as a whole. So how do you evaluate tech stocks and especially the kind of story stocks are like? Highly relevant, but maybe with the lack of profitability or a lack of history so far.

Bill Mann: 34:20

So let me say at the top that my long-term track record of being wrong about story stocks is almost unbroken. I interviewed Elon Musk in these offices in 2012 and I bought Tesla and it doubled in 2013. I was like, well, that's about as good as it's going to get Guess what. There have been very brief periods of time in the intervening decade in which I felt smart, but they have not been very long. So I think one of the most important things to understand about tech stocks as far as I evaluate them now that I've kind of crapped all over my capacity to do so is I think so many people get wrapped up in looking for companies with super high growth rates and they forget that the incredibly successful companies are the ones that grow for such a long period of time that if you were to go into day one of your MBA program and produce a discounted cash flow for these companies, the professor would fail you. So that's the magic of Apple. It's not that it's grown 40% a year, it's that it's grown 13% for 30 years in a row.

Michael O'Mahony: 35:46

And brought back half a trillion worth of stock as well.

Bill Mann: 35:50

Exactly, no, exactly right. So when you think about a discounted cash flow statement, you've got like the five years that you can predict or the 10 years that you can protect, and what you put on the end is that, you know, is the terminal growth rate. What kinds of companies and this is not easy, right what kinds of companies are going to break that terminal growth rate? And to me, in tech, what you have to look for are unbounded companies that have something that I call the capacity to suffer that, if they disappeared, would be screamingly painful for any, for the companies that they supply. I mean, those are the, those are it? So I am not particularly interested in companies that are growing at 70% and have really light capital models, because what I see in a company like that is a company that can be disrupted really easily Because they're in the process of disrupting, disrupting something else. And if it doesn't, if it didn't take much capital to create this company, it's not going to take that much capital to create the one that disrupts it. So if you think about an Apple, for example, and hey, let's, you know, let's, let's, let's get on a podcast and talk about how smart we are, for saying nice things about Apple. Apple is a capital intensive business, amazon is a capital intensive business. So someone who is in a garage right now trying to think of what big company that they can disrupt, these two are non starters right. So I actually look for, you know, for companies that tend to have, I guess, what you would call lower조조, less sexy economics than where a lot of people might immediately focus on.

Emmet Savage: 37:49

Which I suppose brings me back to the stock you mentioned at the top of the cast, which is Chipotle, which you, I think, honed in on 15, 16 years ago, which is when I invested. Do you see anything out there today that reminds you of Chipotle way back in 2006, that it just has the resonance to go? You know what I see these traits I remember with Steve L's passionate founding qualified chef who was very kind of authentic on the mic and a customer promise that we could all connect with. Is there anything out there that you can do? Yeah, that kind of feels like that.

Bill Mann: 38:27

Well, there are a few, Just to go straight back to Sweden, one of which is a company called Evolution Gaming which is in the process, which has and they don't grow very quickly, but they actually are growing somewhat quickly but they produce live casino games via video for casinos all over the world. I don't know if you all have followed this, but in the last two weeks, all of the several Las Vegas casino and casino companies were hacked and they paid tens of millions of dollars to get it. Yeah, my brother-in-law lives in Las Vegas. He sent me a very funny, slash, sad picture of the giant marquee in front of the Cosmopolitan casino and it had Microsoft Windows. Hey, do you want to restart your system? Right? Yeah, the marquee I have to take the mouse over and hit refresh. These companies are actually looking for ways to run gaming in a remote way that doesn't increase their own potential for vulnerability. Evolution Gaming has done that in centralised and it is incredibly profitable for their customers. So the customers are delighted and you look out at what they provide and it's really limited, based on evolution's capacity to train dealers in this type of format to get the infrastructure set up and nobody's going after them. There is almost no one. You see these small cap companies and they say well, we're going to go and try and compete with evolution. I'm like, you're doomed. You're absolutely doomed, because it's a scale business and the bigger the scale gets, the more profitable this company becomes.

Michael O'Mahony: 40:42

Okay, I like that. Looking ahead, then, are there any trends right now that you're particularly bullish on, or, conversely, are there any ones that you're very cautious about?

Bill Mann: 40:53

I would say that the one that people have latched onto is AI in particular. I think there's a huge amount of frothiness around AI. We were tracking the number of companies, the types of companies, that were mentioning that they are moving into AI, and it was well. Domino's is basically a tech company, but they're getting into that in a very big way. I'm not sure that we as investors understand yet. I don't want to make this sound dismissive, because obviously it's something to be learned and we will all learn. When you're talking about artificial intelligence, what you might be talking about is not a competition enhancer, but a load leveller, something where, if everybody has access to the same technology, what is your edge? What edge do you have? We don't know what the best technology is, we don't know what the implications of it are and we don't really know what companies are going to gain by deploying it, but at the same time, we do know that there are going to be these things. I am very, very interested in the companies that have big costs in customer service, particularly in an online format that artificial intelligence is going to bring to them. I think it is going to make Mercado Libre's cost of SG&A their employment costs much lower in Coupang and Amazon and any company that really operates in an online environment as a retailer, I think that they are about to benefit in a really, really big way. Domino's Pizza is another one. As the SaaS companies and I know that Mollye Fool has a number of recommendations in software as a service I think that they are going to struggle, competing against a lot of them, against artificial intelligence companies that are trying to take costs out of their cost of births. This is a really, really big potential risk for them.

Emmet Savage: 43:26

It is like every new technology, whether it was the Stone Axe 2 million years ago or the Loom or the Luddites we are not taking this on. We got whatever it was. We have our textiles in the old fashioned way, right through to the internet. For me, ai today feels a little bit like the internet in the late 90s, where we knew something big was happening, but beside Amazon there were like 30 other apparitions. There were just non-business businesses, and it feels exactly as you said right now, that AI is sponsoring a lot of conversation, but it really is just the new tool that you need to adopt into your business model to take costs out or to keep up with the other guys. I think in our own industry, we would be foolish to ignore AI, because if you think of stock graphs and data feeds from the exchanges, from FactSet, they are just a lovely history book. There is one slice of it that is today. It is the filter. We can look at the market as it is at this moment in time, but in order to, I suppose, take all the learnings from this vast amount of data and extrapolate something with the learnings of the great, we can use these tools, but really that is where we are at today. I think it would be foolish for us to not at least start to dip our toes in and build something around us.

Bill Mann: 44:49

I think that is exactly right. I think if you are going to invest in AI as an individual investor, you have to give yourself the grace to know what you don't know we always talk about. One of the most important things that you can do as an investor is to keep a journal, particularly when you are deciding to make a transaction in a company. One of the most important things that you can do is just write down before you trade like this is why I am buying this company In AI. I think that probably, if you make 20 investments, you are going to be wrong on 19 of them. That is the Amazon lesson. You have to give yourself the grace of understanding the game that you are playing. If I want to be invested in AI, I am going to go across the board and think of maybe those 20, somehow I'm married to 20 companies. You can invest in all of them, but recognize that you're making that decision as a basket and the companies that will end up winning will become a larger and larger part of your portfolio. But I think so many times, people who invest are interested in their hit rate. They're like, oh, I invested in that company and it went down. It turns out, I'm an idiot when, in actuality, if you are playing a game where you are attempting to invest in an eventual winner in a segment of the market that we don't know that much about but is going to be a competitive knife fight, I think you have to give yourself the grace that you are going to be wrong a huge number of times, but that will be if you've done it correctly. That will be solved by the one 50-bagger 100-bagger that you end up with in the mix.

Emmet Savage: 46:38

Here. Here I mean six months ago. It was Mike who said to me we should not start to produce a stream of business stock recommendations because they're in AI, because even the people inside the business aren't quite sure how it's going. It feels like a cutting-edge farm or biotech. It's kind of even the guys on white coats, I think. And well, I really hope this works out, because if it doesn't, we've kind of bet the farm on it. And you're looking at a business like NVIDIA, which clearly that horse has bolted. I'm sure it's got a few laps left in it, but when we're talking in the age of the trillion-dollar winner and then all these other businesses that are weaving AI into what they do, it feels like it's bifurcated somewhat. So for us and my Wall Street, we're now using AI to just analyse every type of business. So it might tell us to buy a boat manufacturer as opposed to a chip maker.

Bill Mann: 47:33

Yeah, and NVIDIA is such an interesting case. It was a company. If you go back and you look at the chart for NVIDIA and we use something here all the time called drawdown charts and the drawdown chart basically shows you what NVIDIA's price is in a time series as a percentage of its all-time high at the time, and with NVIDIA, there was a 13-year period in which it didn't recross it's all-time high from like 1998. 13 years in which you would have been invested in NVIDIA and the best you could have done was nothing. Yeah, and so these types of winners. You look back now and you're like ah, nvidia was obvious. Nvidia was a hall of horrors for investors for a long, long time, but at the same time, it's just ticking along and developing in a way that not even Jensen Wong at NVIDIA necessarily knew what the outcome was going to be Like. He didn't know that someone was going to invent crypto and it turns out that the best processor to mine crypto was NVIDIA. He didn't know that AI was going to come out, and it turns out that the NVIDIA processors are really, really, really good for AI. He just knew that if we built the best graphics processors we can, the market is going to show up.

Emmet Savage: 49:03

It's amazing and what you said, this hall of horrors, it's the autobiography of Apple, Microsoft, Nike, I mean these stocks that we all look in the rear view mirror now and go, oh, I should have seen it. And like I knew this was going to happen. Well, you had 16, 20, 25 years to get in there, when it was just a couple of cents per share, and I think we're looking. You know, that's the world we're in and I think the number one attribute that you and Mike and I value the most is patience. You know, yeah.

Bill Mann: 49:33

You have to because we don't actually have what I would describe as an analytical edge Right. Whenever I see a stock price and whenever I start analysing a company, my first, second and third instinct is to say the market has it right. And a lot of times people hate hearing that from you. Like, hey, here's a stock idea. You know it's possible that this will return zero, Like. What fun is that, Right, Like. But at the same time, the market is really pretty good at figuring out what companies are worth, and so time is what you have Right. Like, if you focus on companies that are doing something that you think eventually will be something big, you've got to give yourself the grace that the stock market probably isn't going to recognize right away. And it's really hard for us because you know, we've taken tests. Our entire lives, our entire childhood, we took tests and the teacher would grade it and give it back and, like you get a mark right and it's either, it's, it's instant feedback. Yeah, the stock market owes you no feedback whatsoever not, not soon, not ever, and it's it's. I think that if there's one thing that people should take away, is that for the most part, the stock market is right, but where it is wrong is that the market in general is impatient and that the fancy term that we sometimes drop on people when we want to sound smart is time arbitrage. You know that. We that that if, if analysts are saying, well, the 12 month view is this, your best thing that you can do is say, All right, I'm going to start thinking about what this company is going to look like three years from now, Like if I jump into the DeLorean and I go back to the future and I jump out three years from now. What is this company doing and why? And it's hard, you know, and in some ways it feels like a dumb exercise, but I really think it's the most important thing that people can do.

Emmet Savage: 51:47

Bill, I could talk to you all day, as could Mike, but rather than do that, let's talk in person. I'm really looking forward to seeing you in person, and that date, again for our listeners, is Friday 17th of November. We're going to focus on finding outstanding investments for 2024, 2025 and so on, and for the first time, we've decided to offer a very limited number of tickets to non horizon members 149 euro for a ticket, two tickets for $249. Our euro, I should say open bar food, is on us and the biggest network event of its type on this side of the Atlantic. And, better still, if you want to subscribe to Horizon afterwards, we'll credit the value of your ticket. So click on the link in the show notes right now to secure just one of a handful of tickets for non horizon members and join us on the night for more of these chats and laughs and smart investing insights. And we'll have to, I guess. Sober yourself and Chris up for the show, right.

Bill Mann: 52:45

I will behave. I cannot wait to come in and to see you. It was a wonderful event last year and I'm just honoured to be invited back and hopefully I will return the confidence because I think what you all do at my Wall Street is amazing. You've definitely helped so many people and you know I really just honoured to come and play a part in November.

Emmet Savage: 53:17

Well, bill, the honour is entirely ours. Mike, bill, mike usually wrap up, being, as I'm, the talker.

Michael O'Mahony: 53:25

Give it a go. No, I'm looking forward to what you come up with to close this.

Emmet Savage: 53:27

Bill, thank you for joining us here today.

Michael O'Mahony: 53:30

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