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RTC11: A deep dive into 2x very successful investments · The Curve

• 0:00
  Welcome to the Curve Podcast, a conversation for women who want to learn more about money,
• 0:06
  their money for the future they want to have. We're all busy and the pursuit for financial
• 0:12
  confidence and increasing your wealth should be a simple one. That's why the curve was created.
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  This podcast is for women to learn about investing in a non-scary or intimidating way.
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  With short episodes you'll have time to learn, digest and understand everything to do with the
• 0:28
  world of investing. Don't expect to be an expert on day one. No question is a silly question.
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  If you're asking it, so is everyone else. So thank you for being here and for listening,
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  because together we really can raise the curve.
• 0:44
  Oh, today's a very exciting podcast episode for us isn't it? It sure is we have our first official
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  guest on raising the curve. Oh, he's the cutest. Oh my god, I keep calling her a boy.
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  But got a new puppy and she's the cutest thing either. She's just sitting. Do you know what I feel
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  like? You know, in Austin Powers, how like Dr. Evel's just constantly striking something?
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  I got real what it was. But if you could see me right now, she's just sitting on my lap and I'm
• 1:13
  struggling. She looks like a little cat. She's so good. She's very cute. I got it today, so
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  she couldn't stay at home. So definitely not. She's had a learn all about investing.
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  Totally. Little Mesa. I'm going to do my best to not concentrate on the dog and actually
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  concentrate on what you're talking about, but no promises. That will be great. So today we're
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  going to be talking about some real life investing example. Some that went really well and some
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  that didn't go so well. And I sort of, I don't know, I think we've had these conversations and we've
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  talked about a lot of the theory when it comes to investing in finance and the principles and that
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  kind of thing. But then when it comes to actually putting it into practice or then, you know,
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  jumping on shazies and investing in a company, there's no, it doesn't feel like there's real
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  life examples. So today, that's going to break down some companies and some investing opportunities.
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  Why they were good investing opportunities and why they weren't so good. So are we going to be
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  focusing on one good and one bad in this episode? Oh, yes, I'll try and do two. So I'll do two good
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  ones and then two bad ones because every investment is different. And so it'll be great to have a
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  few examples really. Yeah. Okay, great. Let's start with the good. I feel like the good mood.
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  Yes, I need to pick me up. Let's go good. So I guess a starting point when a few episodes go
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  when we talked about how to pick a winner. So I'll just run through again what those attributes
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  were that we should be looking for in a company. Firstly, it was being in a structural growth
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  industry. So that means you want to find companies that are in an industry that's growing because
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  therefore it's much, much easier to grow your revenue and your earnings if you're underlying
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  market, for example, is growing. So for example, you wouldn't invest in a newspaper company,
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  you would do an online pay wave scenario or something that's clearly a booming market. Exactly.
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  Yes, there's there's too many investible companies out there to to make it hard for yourself.
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  So number one, structural growth industry. And when I talk about structural, it's like what you
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  said, you want a trend that isn't, isn't cyclical. So it's not going up and down and up and down
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  and up and down. It's a long term structural trend. Like you said, with pay wave, people
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  everyone moving to online payments and digital payments, that's a multi-multi-year trend.
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  So you know that that industry is going to be growing for a number of years.
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  What would be like a middle ground of that? I mean, newspapers obviously not a booming industry.
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  It's very obvious that there's online. What would kind of be something that's trendy but might not
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  last? Maybe like COVID, like COVID, I mean, it's, gosh, it seems like it's been lasting.
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  Like, hand sanitizer, do you mean? I hand sanitizer, toilet paper, those kind of trends that are
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  booming, but it's because of something very specific. And it's one off. You know, it's not going
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  to be going on for multi-year. Yes, there might be a step up in hygiene practices amongst people
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  for for a number of years, post this whole pandemic, but yeah, investing in a hand sanitizer
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  business or toilet paper, if you're trying to get exposure to the hoarding of toilet paper
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  that we had to come, you know, they're just too short term to to play. It's too hard. It's like fast
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  fashion. You know, it's cool for a bit and then it's no longer relevant. Exactly, exactly.
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  And the issue is that is knowing when to exit and that's the hard part. When you try and pick
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  those short term trends, they can work for some people, but yeah, you've got to be pretty on the
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  pulse. So structural growth industry, number one. Yes, that's the number one. Number two is
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  found lead or an aligned management team. So someone that's running the business that is going to
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  run it like you want them to personally invested in the success of that company. Exactly. So
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  they're either it's a large shareholder. It's the founder that's that's driving it and therefore
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  they're passionate in there. They want to see this business grow or it's just a management team
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  that really has an alignment with shareholders in terms of their performance indicators or their
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  targets. They're trying to achieve our in line with what what shareholders are trying to achieve
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  in terms of returns. So if they've had three previous businesses that they have doubled in five
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  years, you know, you can it gives you a bit of confidence. Exactly, exactly. Good check,
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  we're good. Thirdly is a competitive advantage or what we call a moat. It's like a moat around
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  a castle. You want a company with either a strong brand, strong pricing power, low competition,
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  something that's going to make that business that's going to keep the competition away,
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  whether it's a great piece of technology or a patent or it can be it's that one's quite broad
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  in getting. Do you think something like all birds would be a good example in the way that they've
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  the materials that they make their shoes out of? Yeah, that's a good that's a good example.
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  Yeah, there is that innovation and that point of difference. What would be a really deep,
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  strong moat difficult to swim across? Filled with sharks and conguards. A good example would be
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  I always tend to lean to classify its companies. So companies whereby the more you advertise,
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  let's say they sell cars online, the more cars you have, the more buyers that you get looking at
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  those cars, therefore there's more cars to sell because you've got more buyers and it creates
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  this network effect and that just creates those companies to get bigger and bigger and bigger
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  and it leaves behind the small ones because you can never get that traction because you can never
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  get those eyeballs. But what's the tip point of difference between that and Kaya down the road
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  that's selling horrific, small ugly Honda jazzes? Nothing. I mean, side note could be nothing
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  wrong with Honda jazze, I've got one. That Kaya down the road could be very successful, but what I'm
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  saying is if you want a long term growth business, then you want to invest in something with a
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  competitive advantage and the network effect like that creates a really strong barrier to competitors
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  coming in or a patent if there's a patent on a for a health care company that's a patent. A patent
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  is like a legal agreement where someone can't copy what you've just done. So you could have a patent
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  on eyelash growing serum. Is that a thing? Yeah. I mean, sorry, I don't even mind just go
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  with these random examples. No, I saw some on Instagram posting like, I've changed to this new
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  eyelash serum that's why it came up, but no, I just mean like, would it be something like that
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  or like, olderplex, you know how they've got that really intense formula to create a strong
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  blonde hair. No, you don't have blonde hair. No, don't. But I imagine it would be something like that
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  where they're like, you can't copy this because it's a recipe that we've made up or whatever.
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  Yeah, and patents are mainly in health care companies or with around a drug in a health care
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  company or a piece of technology that someone has invented and they've patented that so that
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  competitors can copy. It's like a copyright. Yeah, and it just allows, it gives you a head start
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  on competition. And fair enough, you've put a lot of effort into you're discovering that
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  that drug or inventing that technology. And so you get a period of a few years of no competition
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  or low competition. So a strong competitive advantage would be a company that has a patent over
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  whatever it is they're selling. Yes, yeah. The fourth attribute to look for is having some sort
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  of revenue visibility. So being able to see where your revenue is coming from or have it locked
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  in. So either if a company's got a contract, multi-year contract and you can see that the
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  revenue is coming in for the next four or five years or whatever. So it's just having that
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  visibility. It gives more stability to the earnings and gives you more comfort in the growth
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  and the outlook of that business. And then lastly is a strong balance sheet. So by that I just mean
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  having a lot of cash on the balance sheet or having no debt or low debt just gives companies
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  flexibility to grow, to return money to shareholders. There's just gives them flexibility really and
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  that we bet a position for a rainy day. So a structural growth industry make sure it's found
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  a lead or an aligned management team have a competitive advantage slash moat and good revenue
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  visibility and a strong balance sheet. Top five to look for when looking for a good investment.
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  And so what the examples that we're going to look at today are they companies obviously that
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  tick all of those five boxes? Yes, I've tried to find some that tick all of those. I mean,
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  it is difficult and it's not a hard and fast rule that they have to. I mean many companies that
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  don't tick those boxes have also done well. But for me personally, I get a lot more comfort
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  in investing companies that have ticked those boxes than I do if they haven't. So
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  All right, so what's our first example? I'm quite excited to a little case study. Well,
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  we'll start with an international one that you may have heard of. Or is it Nike?
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  Is it Microsoft? No. Is it HP? Is it any of your go-to suggestions? No, it's Facebook.
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  Okay, yeah, no. So Facebook's share price has gone from $38 to $320 since its IPO nine years ago.
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  So that's over 25% per year if you'd held it for nine years, which is nuts. That's a great,
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  great investment. This company ticks all those boxes. So you can see when it does tick those
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  boxes, I'm not saying all cases that will do well, but when it does tick those boxes, you can get
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  great investments. And so let's if we run through them. Is Marks? I could still see you.
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  Yeah. So he owns, he owns, he still owns 30%. Does he? So he owns 55 billion dollars.
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  55 billion dollars of stock. Is that in terms of business success up there was with the most?
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  That Amazon would probably Amazon Jeff Bezos and Bill Gates, Microsoft. So anyway, so he owns 30%
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  and he runs it as well and he's young. And so he's you can really get behind the fact that he's
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  going to run that business and he's going to run it well and because he is because he owns 30%
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  of the stock, he's hopefully not going to do anything stupid that's going to impact the
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  share price because it then it impacts him personally. So I mean, I feel like they also
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  have a money. I know it's probably there's probably a tipping point by the time that you get to.
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  I'm fine. I care at this point. I'm fine. Five billion. I've still got 50 left. But you get
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  what I mean in terms of their interest are aligned with ours. It's she orders such an expensive
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  share by the way. Oh yeah. Three hundred dollars for one share. How many shares would that have
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  sold? Shit loads, right? Shit loads. Crazy. But that's why you can't just look at a share price
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  when you look at that. That might be yes, that yes, you're right. That is an expensive dollar amount
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  three hundred and twenty dollars versus when it was thirty eight dollars nine years ago. Those
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  dollar amounts like three hundred dollars a lot for a stock. But you've got to look at it in relation
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  to earnings. So let's run through the five criteria. So with Facebook, is it an structural growth
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  industry? Yes, yes. It's in social media. So more people are online. You've got this trend going
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  from offline to online. And then you've got more people doing more through social media. So if you
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  think back to Instagram where you could just look at photos now, you can shop and Facebook isn't just
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  Facebook. It's Instagram. It's WhatsApp. They've they've they've history has shown that they can
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  make good acquisitions or grow other apps. And the data behind that like that is nuts. The amount
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  of information, they're probably not me better than I know myself. Well that's terrifying. And so
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  that that's a great competitive advantage and a great most. So there's two point seven billion
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  people that use Facebook Instagram WhatsApp. They're the Facebook apps on a daily basis. Every day
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  every day there is even billion. That's crazy. How many people even in the world that's got to be
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  majority? Right. No. No, but that's a shitload of people. Someone quickly Google that. How many people
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  are in the world? I'd love to know. Two billion people in China. I'm pretty sure. Okay. I'm so
• 13:01
  way off. But if you think that's again, another growth angle for them is the fact that there's still
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  so many people out there that don't have internet, don't have phones. They haven't maxed out yet.
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  Exactly. And then revenue visibility. So because of all their users, you can just see how their
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  revenue is kind of ticking over without them doing anything. They could literally probably stand
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  still and still get revenue. So it's it's kind of a case when you when you reach that many people,
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  you don't have to do a lot to keep generating revenue. And in that sense, can I just say we've
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  just had word that there's 7.9 billion people in the world. And you said how many Facebook reach
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  every day? Nearly three million. That's not that dumb from me. Three billion. Sorry. Three billion.
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  Millions three billion. Yeah, that's half of the world. Every day. Imagine if the curve could reach
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  half the people in the world every day. Oh my god. Inspiration. Do you think everyone would
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  just be super wealthy? Yes. Oh my god. Someone messaged me about the day saying, I'm listening to
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  podcasts. I feel ritual ready. I love that feedback. That's great. And then lastly, the strong balance
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  sheets. So Facebook has over $80 billion in cash on its balance sheet. So it has a lot of flexibility
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  to buy another Instagram. Whatever the next app is, it can just go out and buy it. It could build it.
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  It could put 82 billion dollars behind building a new piece of technology. So you can see how the
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  stronger get stronger in terms of maintaining their competitive leadership and therefore maintaining
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  their growth. And that's why the share price has gone from $38 to $320. Holy moly. They've
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  never. They ticked all of the five things. Are there any other any New Zealand examples that
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  have done that? Yeah. So I think one is main freight. You may have heard of that. Yeah. So this is
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  a New Zealand company. It's a massive logistics and transport company in New Zealand. They've
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  done very well. They've done very well, particularly during COVID, as you can imagine,
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  everyone's doing online shopping and sending parcels and moving freight around the world.
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  So the issue price has gone from $17 to $70. So the issue price has gone from $17,
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  $17 to over $70. And how long? In the last five years. Wow. And that's a Kiwi company. How cool
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  is that? That's amazing. $70. That's pretty high. That's a great return. What's that each year?
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  What's the growth on that? That's better than Facebook. That's only 33% per year return. I'm
• 15:36
  investing all my money into main freight. But we don't want. We don't just follow the investments
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  that go on. I'm such a sheep hunter. I'm like, I'm sold. You're not the only one. Take all my money.
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  That's amazing. Wow. That's why we're giving you the tools to find the next main freight,
• 15:56
  to find the next Facebook. That's what you want to find. But main freight still, I mean, I know you're
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  not saying go and invest in it now, but it still would be a good investment. I mean, I know,
• 16:05
  again, past returns and oh, sign of future returns, etc. But it's a pretty solid and
• 16:12
  crazy year on year. It is. Yes. And it still does tick all those boxes. So if you just,
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  if you didn't know how historically the share price had done, it was sitting here today.
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  It would still be a good investment based on just that knowledge. But based on the
• 16:26
  ticking all those boxes. Yes. Yeah. So thanks for the hot tip thing.
• 16:32
  Please don't sue me if main freight tanks tomorrow. No, I'm not giving advice. I'm just saying,
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  it's a good example of something that's done really well. Exactly. And that's what we're doing.
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  We're trying to put these attributes into real life examples today. And so is there any other
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  companies that spring to mind that have been really successful? We don't have no other numbers,
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  but they're not in like freight. So they're like, so seek. So that's an Aussie listed company. And
• 16:59
  like I said, when I was talking about the classified companies and you get those network effects.
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  So it's the largest employment marketplace in Australia and New Zealand. It's got the biggest
• 17:10
  range. If I'm an employee and I need to fill a role, I'm going to advertise on seek because it's
• 17:15
  going to have the most eyeballs. It's also going to pretty strong brand, doesn't it? Like if you
• 17:18
  think I need a new job, sex kind of. Yeah. I'm not going to, I'm not going to try and put that
• 17:24
  role on some small obscure employment website that no one looks at because five people have been
• 17:30
  exactly because it's because they're not going to have the rate. So that's what I mean when
• 17:33
  terms of these classified businesses can get bigger and bigger and bigger. The rich,
• 17:38
  rich are the poor, yeah, poor are successful, get more successful, the less, yeah, yeah. It is true,
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  though. It is a bit of a snowball effect. It's like if you go past a full restaurant, you're not
• 17:46
  going to go to the one next door when no one's at. Yeah, exactly. I feel like I've used that example
• 17:51
  before. You have must need to think of some new material. But it must start eating out.
• 17:56
  Must start cooking more at home. That's the best compliment anyone's ever given me.
• 18:02
  I remember watching that movie and thinking, she's like, she's like, she's like,
• 18:05
  I'm smoking. Must stop drinking. Must not have a bottom the size of two bowling balls.
• 18:13
  Also can relate. Can we go into a little bit more detail with main fray and why they're so
• 18:21
  successful? Yeah. So I guess coming again back to those five attributes that I keep
• 18:25
  having on about, don't know what I've seen there was. So firstly, like we just said, it's in a
• 18:32
  growing industry. So it's in a structural growth industry. It's benefiting from more online shopping,
• 18:37
  more parcels, more like globalization in general, just people in companies and businesses buying
• 18:43
  more from overseas and getting in wanting it to be shipped and delivered ASAP. You want it now.
• 18:50
  You want it instantaneously. So more of us buying stuff from China and you want to keep it.
• 18:56
  One to three days is crazy. It's insane. Yeah. That's a growing industry. So therefore,
• 19:02
  the business has just been benefiting from that underlying growth as well.
• 19:05
  Secondly, founder led. So the founder is the chairman now. So little less day-to-day involvement,
• 19:13
  but still oversight on the business. And he still owns nearly 20% of the stocks.
• 19:17
  And then the competitive advantage or the most? What's their most? Did they deliver faster
• 19:22
  than other companies or something? I guess the most there or the competitive advantage is
• 19:28
  is their logistics network being superior to others. Therefore, they get more customers.
• 19:33
  Therefore, they can ship more. You kind of just get the bigger, again, the bigger, bigger,
• 19:37
  bigger. So they obviously did a good job and therefore they go to them and then it's just like
• 19:42
  growing from there. And you invest in their network. And I mean, it's probably a weaker
• 19:47
  mode to be honest, but you're considering they've done so well. And it's got a good brand as well.
• 19:52
  It is quite masculine. Don't your hair feels like a boys club?
• 19:56
  Hmm. Main, right? Main, right. I think it's just logistics.
• 20:00
  Just logistics. You just like anything I bet.
• 20:03
  And then also it's got a strong balance sheet. So it's still got a little bit of debt,
• 20:09
  but analysts are expecting that next year won't have any debt. In my opinion, I prefer to invest
• 20:14
  in a company that has little, little debt or cash because a company that has a lot of debt
• 20:19
  when things don't go their way, you're up shits, Creek.
• 20:23
  Shits, Creek. I think it's, I think it's shits, Creek.
• 20:28
  Oh, you're up shits, Creek. Shits, Creek. Without a paddle.
• 20:33
  Is there anything else to note on mainframe as a why it would, it has traditionally been such
• 20:38
  good investment? I think it just comes down to being well run and being in an industry that's
• 20:44
  growing. A lot of it does come down to leadership. It's just limiting your risk. And coming back to
• 20:49
  what we always say is that what's investing is about is trying to limit your risk. And so it's
• 20:54
  investing in quality companies with these attributes, which will limit your risk to the downside,
• 20:59
  or limit your risk of that investment failing. As much as possible.
• 21:03
  As much as possible. Yeah. So it's kind of taking these boxes to make sure that you're investing
• 21:07
  in quality businesses, really. So we're not gambling. But also don't just buy things because they're
• 21:12
  going up. I feel like that's the worst reason. I just feel a little bit like, because I'm still
• 21:18
  newbie. I feel like investing in companies like Facebook or like mainframe, or like, you know,
• 21:24
  things that have such a strong history for me seem way safer than me doing my research and
• 21:30
  finding the load. I don't know. A puppy breeder down the road who's, thanks, they're going to be,
• 21:36
  you know, going global. And ticks all the boxes. I would way rather go for something that feels safe.
• 21:42
  Is that a bad idea? It is because what's just, yeah. Investing in something that's gone up so strongly
• 21:50
  in such a short space of time is not a good investment reason. So for something that has doubled
• 21:58
  in six months, not to say that it won't double again in six months. But if you're just buying that
• 22:03
  and you know nothing about the business, you're just jumping on a bandwagon. That's not investing.
• 22:06
  That's gambling. What is the, what are the earnings look like for the next five years, 10 years?
• 22:13
  And with these attributes, you can get pretty confident that these businesses that tick these boxes
• 22:20
  are going to be able to grow earnings for the next five 10 years. And that's what you want to
• 22:26
  invest in a growing business. That's what it comes down to. I'm starting to glaze over on time.
• 22:31
  Yes. I reckon we may be saved the two bad examples for the next episode.
• 22:36
  Okay. Yeah. We don't want to finish on a load. Yeah. But we're going to finish the next episode on a
• 22:40
  load. Yeah. All right. I'll try and think of an inspirational coach. It's stunning. Great idea.
• 22:46
  Hey, thank you, Vic. That was really insightful. No worries. Thank you so much for joining us on
• 22:52
  today's episode of Raising the Curve. Please subscribe to the podcast and leave a review on
• 22:58
  what ever platform you're listening on. For more information about the curve, the work we do
• 23:03
  and how you can learn more, head to thecurve.co.nz or find us on socials at the underscore curve nz.