Latest / The Money Puzzle / Big Shorts: CBA, Guzman Y Gomex...what's up?

Transcript

Big Shorts: CBA, Guzman Y Gomex...what's up? · The Money Puzzle

• 0:08
  Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
• 0:11
  Speaker 1: James Kirby, the wealth editor at The Australian. Welcome aboard, everybody.
• 0:16
  Speaker 1: You might think in a podcast like this, I have
• 0:18
  Speaker 1: lots of fund managers on the show, but I don't actually.
• 0:24
  Speaker 1: I've had maybe three or four a year. The reason
• 0:28
  Speaker 1: for that is, to be honest with you, a lot
• 0:30
  Speaker 1: of them sound the same. They say the same things.
• 0:34
  Speaker 1: And that type of manager, the traditional fund manager, is
• 0:37
  Speaker 1: now in deep trouble because index funds basically are eating
• 0:42
  Speaker 1: their lunch. You can see those big names that were
• 0:44
  Speaker 1: household names, Perpetual, Platinum, Magellan. They are deeply challenged now
• 0:50
  Speaker 1: because of index funds. And so what fund managers have
• 0:53
  Speaker 1: to do is they have to do something entirely different,
• 0:56
  Speaker 1: reproducing the index, as they call it, index hugging. It's
• 1:01
  Speaker 1: just simply no good anymore. You have to do something
• 1:03
  Speaker 1: very different to attract the investor and to make it worthwhile, basically,
• 1:09
  Speaker 1: to swing with someone and to have someone pick stocks
• 1:13
  Speaker 1: for you. Today, I have someone that I know for
• 1:17
  Speaker 1: quite a while, and he's in the business largely of
• 1:21
  Speaker 1: finding what we call small cap stocks or mid cap stocks.
• 1:25
  Speaker 1: I can tell you it's not a game for the
• 1:26
  Speaker 1: faint hearted. Because one year, basically, you can shoot out
• 1:31
  Speaker 1: the lights and the next year it can go all
• 1:34
  Speaker 1: off the rails big time. And that's how it goes.
• 1:37
  Speaker 1: It's volatile. You need an iron-like constitution to stay at it.
• 1:41
  Speaker 1: Dean Fergie runs the Cian Investment Fund. He's going to
• 1:46
  Speaker 1: talk about the market, what happened this year, some of
• 1:49
  Speaker 1: the big stories in stocks. Guzmany Gomez, is that a
• 1:52
  Speaker 1: big story? It's a big story, that's for sure. But
• 1:55
  Speaker 1: whether it's a big stock remains to be seen. Commonwealth Bank,
• 2:00
  Speaker 1: now there's a big stock, $ 200 billion stock being shorted.
• 2:03
  Speaker 1: Mind you, Guzmany Gomez, it turns out, has been shorted too,
• 2:06
  Speaker 1: kind of one week after it floated. It's been a
• 2:09
  Speaker 1: really interesting year. How are you, Dean Fergie?
• 2:11
  Speaker 2: Good morning, James. Thanks for having me on.
• 2:13
  Speaker 1: Great to have you on. We had a very interesting
• 2:16
  Speaker 1: show last week. conceptually, it was a very interesting show
• 2:20
  Speaker 1: because I had John Stenshold, who is the editor of
• 2:24
  Speaker 1: The Rich 250. And he's basically tycoonography is his thing.
• 2:28
  Speaker 1: He keeps in touch with all the tycoons. And we
• 2:30
  Speaker 1: did a piece about what they've been investing in and
• 2:33
  Speaker 1: the stocks that had been winners and losers for them.
• 2:35
  Speaker 1: And it's interesting because they had plenty of winners and
• 2:37
  Speaker 1: plenty of losers over the year. But just to give
• 2:41
  Speaker 1: everyone an idea. The share market this year, in the end,
• 2:44
  Speaker 1: kind of a normal year, maybe 9% across the board
• 2:47
  Speaker 1: for the ASX and maybe another 3% or 4% in dividends.
• 2:50
  Speaker 1: Is that how it's looking? If it was to keep going,
• 2:53
  Speaker 1: we're not finished yet, but would you call it broadly,
• 2:56
  Speaker 1: in the end, a fairly normal year in the scheme
• 2:58
  Speaker 1: of things?
• 2:59
  Speaker 3: Well, I think at the top line it is. I
• 3:02
  Speaker 3: think you might expect high single or low double-digit returns
• 3:06
  Speaker 3: in any normal year in the stock market. But I've
• 3:08
  Speaker 3: also seen there's been a real absence of activity in
• 3:13
  Speaker 3: the IPO market. So there haven't been those free kicks
• 3:15
  Speaker 3: for a lot of investors that play the stock market individually.
• 3:19
  Speaker 3: And also, I think it's also been kind of a
• 3:21
  Speaker 3: bit of a tale of two tales. Like you've had
• 3:22
  Speaker 3: a lot of the big cap stocks doing really, really nicely.
• 3:26
  Speaker 3: Small caps have performed a little bit better later on
• 3:28
  Speaker 3: in the year, but the micro caps are still really,
• 3:32
  Speaker 3: really kind of underappreciated and still in a real slump
• 3:36
  Speaker 3: at the moment. So We tend to operate in the
• 3:41
  Speaker 3: smaller micro-cabin, and we've found that in there it's been
• 3:45
  Speaker 3: quite a challenge just in terms of liquidity and investor
• 3:50
  Speaker 3: interest in that space.
• 3:51
  Speaker 1: For the listener, we have all sorts of listeners, but
• 3:54
  Speaker 1: for the everyday listener, just define those. What's a small cap?
• 3:58
  Speaker 1: What's the tier, is there?
• 4:00
  Speaker 3: I'd probably say small or micro-caps of anything under $ 100
• 4:05
  Speaker 3: million in market cap to... 500 to a billion in
• 4:10
  Speaker 3: small cap and anything over a billion is probably a
• 4:13
  Speaker 3: large cap stock.
• 4:14
  Speaker 1: And so let's just talk about some of the things
• 4:16
  Speaker 1: that have been going on this last quarter in the market.
• 4:18
  Speaker 1: It's been really interesting because you mentioned IPOs. And when
• 4:21
  Speaker 1: we did the show last week, Guzman y Gomez, the
• 4:23
  Speaker 1: Mexican takeaway chain, had just arrived on the market. I mean,
• 4:28
  Speaker 1: they'd literally floated an hour or two earlier. And that
• 4:33
  Speaker 1: was the biggest float for a long time, I think
• 4:35
  Speaker 1: three years. It instantly successful on a technical basis in
• 4:40
  Speaker 1: that it listed and it immediately rose by 30%, up
• 4:44
  Speaker 1: to $ 30. Now, in the week that's passed, a lot
• 4:48
  Speaker 1: of questions about this float. And you just said at
• 4:51
  Speaker 1: the start there that we need IPOs and we do
• 4:53
  Speaker 1: need IPOs. Some people think this is great. It's wonderful
• 4:56
  Speaker 1: for the market. Hey, we finally got a big IPO
• 4:59
  Speaker 1: that took off. Some people say this is as good
• 5:01
  Speaker 1: as it gets for those guys. Believe it or not,
• 5:05
  Speaker 1: there's already a million shares shorted in them. They haven't
• 5:09
  Speaker 1: passed the level that they passed that first day. They
• 5:13
  Speaker 1: were $ 30 and they're $ 29 now. What's your view on them?
• 5:16
  Speaker 1: And more importantly, what is their significance as a float?
• 5:22
  Speaker 2: Well, I'll start with the positives.
• 5:24
  Speaker 3: I think it's been a fantastic result for the market.
• 5:30
  Speaker 3: You've had a very large float that have had both
• 5:34
  Speaker 3: promoters and distractors involved. So it wasn't all one-way traffic
• 5:38
  Speaker 3: in terms of the expectations. It's come on at a
• 5:42
  Speaker 3: significant premium with quite material volume trading over the first
• 5:48
  Speaker 3: few days. So I think in terms of looking at
• 5:51
  Speaker 3: the health of the market, I think it's been fantastic.
• 5:54
  Speaker 3: It's a real sign that things are starting to get
• 5:56
  Speaker 3: back to normal. For me, in terms of pure valuations,
• 6:02
  Speaker 3: given what else is out there, it just doesn't stack up.
• 6:08
  Speaker 3: I'm a fundamental investor and maybe being a fundamental investor
• 6:14
  Speaker 3: is not as irrelevant as it has been in the
• 6:17
  Speaker 3: past in this market. I feel the market becomes very
• 6:20
  Speaker 3: Gets very excited about certain themes for a while and
• 6:23
  Speaker 3: then forgets about them and looks at the new kind
• 6:25
  Speaker 3: of shiny thing. This is a new shiny stock, but
• 6:29
  Speaker 3: look at the revenues, the underlying profitability, which is close
• 6:34
  Speaker 3: to zero. I think their NPAT for the year was
• 6:36
  Speaker 3: about $ 3 million.
• 6:38
  Speaker 2: It's trading at a market cap of $ 3 billion.
• 6:41
  Speaker 3: So that's a pretty steep multiple, if you ask me,
• 6:43
  Speaker 3: for earnings.
• 6:45
  Speaker 2: It's a bit irrelevant when they're so small.
• 6:48
  Speaker 1: That's higher than NVIDIA.
• 6:50
  Speaker 2: Yeah, but again, it's off a very, very low base.
• 6:52
  Speaker 3: I think the best comparison is something like Domino's. So
• 6:57
  Speaker 3: the market cap of Domino's and Guzman is broadly the same.
• 7:03
  Speaker 3: Domino's does $ 4 billion in sales.
• 7:05
  Speaker 2: Guzman does $ 760.
• 7:06
  Speaker 3: So it does six times the sales. It's got 20
• 7:10
  Speaker 3: times the number of stores. The profitability of Domino's is
• 7:15
  Speaker 3: $ 120 million at the bottom line. So there's a massive
• 7:19
  Speaker 3: gap in an evaluation between two, I'd say, similar stocks.
• 7:24
  Speaker 3: The difference being that Guzman is new. It hasn't had
• 7:29
  Speaker 3: a bad track record. In fact, everything it's listed into
• 7:31
  Speaker 3: has been fantastic so far, albeit over one week period.
• 7:35
  Speaker 3: Domino's has had early massive success and recently has struggled
• 7:40
  Speaker 3: a little bit.
• 7:41
  Speaker 1: So it's all promise really, isn't it? It's worth $ 3 billion.
• 7:44
  Speaker 1: Someone was saying that it's working out at about $ 17 million.
• 7:46
  Speaker 1: Each Guzman and Gomez on your shot, each one, they're
• 7:49
  Speaker 1: worth $ 17 million each according to the stock market. So
• 7:52
  Speaker 1: people are betting that they will do a Domino's. Is
• 7:54
  Speaker 1: that it? Just have this ramp up period.
• 7:56
  Speaker 3: It has to be right that If you've got that
• 7:58
  Speaker 3: much expectation built into the current market capitalization of the stock,
• 8:03
  Speaker 3: then it's all expectation. It's expectation that they can take
• 8:07
  Speaker 3: this success story in Australia and replicate it overseas, which
• 8:12
  Speaker 3: they may be able to do. I mean, they've got
• 8:15
  Speaker 3: a management team that's been proven so far, but we've
• 8:19
  Speaker 3: seen with Domino's that you go into new jurisdictions with
• 8:23
  Speaker 3: all those different challenges, and it's a little bit harder
• 8:25
  Speaker 3: than building out a franchise in a country that you're
• 8:30
  Speaker 3: very familiar with. Yes.
• 8:31
  Speaker 1: And you know the rules and the regulations and the logistics,
• 8:35
  Speaker 1: et cetera. And you have your relationships, I suppose, with
• 8:37
  Speaker 1: your bank. Yeah.
• 8:38
  Speaker 3: Yeah.
• 8:39
  Speaker 2: And just understanding the customers as well.
• 8:41
  Speaker 3: People have quips that taking Mexican food to the US
• 8:45
  Speaker 3: isn't overly unique and there might be some competition over there,
• 8:49
  Speaker 3: but it'll have to be very successful to justify where
• 8:53
  Speaker 3: it's trading now. But does that mean it won't continue
• 8:56
  Speaker 3: to go up?
• 8:57
  Speaker 2: I don't know. The trend is there at the moment.
• 9:01
  Speaker 1: If you saw shorts, a million shares, it's not enormous.
• 9:04
  Speaker 1: But when you see people actually taking a bet and
• 9:07
  Speaker 1: shorting a stock, but something like Guzman, which is a
• 9:10
  Speaker 1: new stock, what does it mean to you?
• 9:14
  Speaker 3: Yeah, look, we don't short stocks as a business. My
• 9:17
  Speaker 3: sort of philosophy is that your losses are unlimited and
• 9:22
  Speaker 3: your gains are capped at 100%.
• 9:23
  Speaker 1: I think....
• 9:26
  Speaker 3: On the basis on valuation, it is easy to justify
• 9:30
  Speaker 3: that it is a logical short, but it also would
• 9:33
  Speaker 3: have been a logical short at $ 25 or $ 20, and
• 9:37
  Speaker 3: it's trading here at $ 30. So it's not something I
• 9:40
  Speaker 3: would personally be doing. I can understand the logic behind it,
• 9:44
  Speaker 3: but I have seen many stocks in the domestic and
• 9:49
  Speaker 3: international markets become completely hyped and overvalued and wiped out
• 9:55
  Speaker 3: shorts very quickly. The main example of that overseas has
• 9:58
  Speaker 3: been what's happened in GameStop. You've had a lot of
• 10:02
  Speaker 3: investors just driving the stock price up to what would
• 10:05
  Speaker 3: appear to be artificial highs to wipe out shorts. And
• 10:08
  Speaker 3: once you take a bit of a pain on a
• 10:10
  Speaker 3: short position, if you can't take any more pain, you
• 10:14
  Speaker 3: have to close that position.
• 10:16
  Speaker 2: By buying stock, which makes your short look worse.
• 10:20
  Speaker 3: So I think it's a little bit dangerous, but I
• 10:22
  Speaker 3: can understand why some investors have decided to do it.
• 10:26
  Speaker 1: The irony is that they have to buy the stock
• 10:29
  Speaker 1: to cover the short, which means they drive the stock up,
• 10:32
  Speaker 1: which is the exact opposite of what they were trying
• 10:34
  Speaker 1: to do. It's really interesting. It's fascinating. I mean, our
• 10:37
  Speaker 1: listeners would know the basics there on shorting that people
• 10:40
  Speaker 1: borrow stock, obviously, and they try to profit then when
• 10:44
  Speaker 1: the stock is, they try to drive it down basically.
• 10:47
  Speaker 1: And in doing so, they make money when they get
• 10:50
  Speaker 1: the stock back. It's a strange game. It goes back
• 10:52
  Speaker 1: to the 1920s. We were sort of something of an
• 10:56
  Speaker 1: exemption and there wasn't much shorting here for a long,
• 10:59
  Speaker 1: long time. Quick history. Jim Chanos, the hedge fund manager,
• 11:03
  Speaker 1: famously shorted Macquarie Bank back in 2007. And it was
• 11:08
  Speaker 1: a very successful short. Macquarie went from about $ 80 to
• 11:12
  Speaker 1: $ 17 at the time. He made huge, enormous amounts of money.
• 11:15
  Speaker 1: That meant people came into the Australian market. Various people,
• 11:19
  Speaker 1: Glaucus came in at one stage, especially on the old
• 11:23
  Speaker 1: MFS plantation stock and all that. There were lots of
• 11:26
  Speaker 1: successful ones in the early days. Now people are more
• 11:28
  Speaker 1: sort of attuned to it. I'm using this as a preamble, Dean,
• 11:33
  Speaker 1: to something I suppose more important for people, which is
• 11:35
  Speaker 1: Commonwealth Bank. It's got 800,000 shareholders. I imagine just about
• 11:40
  Speaker 1: everyone listening to this show has direct or indirect holding
• 11:45
  Speaker 1: in a Commonwealth bank. You couldn't avoid it, right? Because
• 11:47
  Speaker 1: it's just about the biggest stock. Now it's been shorted substantially, yeah? Yes.
• 11:52
  Speaker 1: At the moment. And Phil King, there's some names in
• 11:55
  Speaker 1: the market publicly saying they're shorting it. Of course, they
• 11:57
  Speaker 1: tell us they're shorting it because that's part of the game,
• 12:00
  Speaker 1: isn't it? That to let it be known you're shorting.
• 12:03
  Speaker 1: But tell me when I say to you that there
• 12:05
  Speaker 1: is now Short activity and more shorts than usual. I
• 12:09
  Speaker 1: think about $ 3 billion on the line betting against Commonwealth Bank.
• 12:14
  Speaker 1: Commonwealth Bank is about $ 213 billion stock, as I say,
• 12:19
  Speaker 1: and it's worth maybe $ 130, I think, at the moment.
• 12:23
  Speaker 1: What do you say? How should people react when they
• 12:26
  Speaker 1: hear that?
• 12:28
  Speaker 3: I wouldn't think they'd be too concerned. I mean, unless
• 12:32
  Speaker 3: they're sure there's no something specific within the Commonwealth Bank
• 12:36
  Speaker 3: that is likely to materially impact its business. Yeah. And
• 12:41
  Speaker 3: I'd think something like a data breach or, you know,
• 12:46
  Speaker 3: like a trader that has blown up some money in
• 12:49
  Speaker 3: a foreign exchange deal or something like that, betting against
• 12:52
  Speaker 3: the largest, most successful bank in Australia because you think
• 12:56
  Speaker 3: it's a little bit overvalued.
• 12:58
  Speaker 2: I just don't really see....
• 13:02
  Speaker 3: Much of a potential gain in the short to medium
• 13:05
  Speaker 3: term from doing that.
• 13:07
  Speaker 2: That would be my perspective.
• 13:09
  Speaker 3: We've seen the stocks up 20% or 25% this year
• 13:14
  Speaker 3: on no real upgrade in earnings just because people like
• 13:18
  Speaker 3: the yields.
• 13:19
  Speaker 2: They trust it. It's the biggest bank.
• 13:21
  Speaker 3: It's almost the biggest stock on the Australian market. So, yeah,
• 13:24
  Speaker 3: certainly a small amount of CBA being shorted I don't
• 13:28
  Speaker 3: think is cause for concern.
• 13:30
  Speaker 2: It would be comfortable holding because I think it's a
• 13:33
  Speaker 2: very solid business, well run.
• 13:35
  Speaker 1: And in your end then, and we're kind of leading
• 13:38
  Speaker 1: into your particular sort of zone, I imagine there isn't
• 13:42
  Speaker 1: much shorting at the small cap, medium caps end of
• 13:45
  Speaker 1: the market. And if there is, it seriously makes a
• 13:48
  Speaker 1: difference on like a $ 3 billion worth of shorts against ComBank,
• 13:51
  Speaker 1: you know, petty cash, throw it out the window. But
• 13:53
  Speaker 1: if someone goes in with a big short on a
• 13:55
  Speaker 1: tiny stock, I presume it just cuts it to shreds
• 13:58
  Speaker 1: or could cut it to shreds.
• 14:00
  Speaker 3: Yeah, I mean, look, there are structural issues with respect
• 14:04
  Speaker 3: to shorting in Australia. The practical reason is you have
• 14:07
  Speaker 3: to borrow stock from another shareholder. So if I own
• 14:11
  Speaker 3: 100 shares in CETA or I can lend them to you,
• 14:15
  Speaker 3: you can sell them. And at some stage in the future,
• 14:18
  Speaker 3: you have to buy them back and then give them
• 14:20
  Speaker 3: back to me.
• 14:21
  Speaker 2: That's the way it works. If I was a big holder.
• 14:23
  Speaker 3: In a small stock and someone said, I want to
• 14:26
  Speaker 3: borrow your shares to short them, I would probably say no.
• 14:30
  Speaker 2: As such, because there'd be downward pressure on the price.
• 14:33
  Speaker 3: But you're right that those mid-cap stocks where there is
• 14:38
  Speaker 3: a free float around and companies can borrow and short,
• 14:43
  Speaker 3: it can make a significant difference. And often those businesses,
• 14:46
  Speaker 3: if they are in a single business stream and there
• 14:49
  Speaker 3: is something going on, we've seen a number of the
• 14:51
  Speaker 3: retailers struggling recently because of just reduction in earnings, then
• 14:57
  Speaker 3: you can see some really significant falls in this business.
• 14:59
  Speaker 2: And good gains to be made.
• 15:01
  Speaker 3: And I'll look at other businesses like Blue Sky was
• 15:03
  Speaker 3: one of the ones a few years ago that got
• 15:05
  Speaker 3: seriously shorted and ended up surviving.
• 15:08
  Speaker 2: So that was a great trade.
• 15:10
  Speaker 3: But then again, we've seen big short reports on things
• 15:13
  Speaker 3: like WiseTech that have appeared to have merit at the time.
• 15:19
  Speaker 3: And WiseTech again has been a fantastic performer in the market.
• 15:23
  Speaker 1: So it's a great test at its best. It is
• 15:26
  Speaker 1: actually a great test of a stock if they come
• 15:28
  Speaker 1: out the other side of a short attack.
• 15:30
  Speaker 2: Yeah, look, absolutely.
• 15:33
  Speaker 3: And in a way, I think a number of companies
• 15:35
  Speaker 3: will sort of complain, oh, we shouldn't let shorters release
• 15:37
  Speaker 3: their reports.
• 15:39
  Speaker 2: You're in a public market, you're a public company.
• 15:41
  Speaker 3: People have opinions on what they think your business is
• 15:43
  Speaker 3: worth and how well it's managed and its prospects and
• 15:47
  Speaker 3: opportunities and its valuation. So they should be allowed to
• 15:51
  Speaker 3: past comments and the market will make up its mind.
• 15:54
  Speaker 3: It won't always be right, but that's what a marketplace is.
• 15:57
  Speaker 1: What we'll do, we'll take a short break and we'll
• 15:59
  Speaker 1: come back and we will talk about your layer of
• 16:00
  Speaker 1: the market and what you do. We'll be back in
• 16:02
  Speaker 1: a moment, folks. Hello, welcome back to the Australian's Money
• 16:14
  Speaker 1: Puzzle podcast. I'm James Kirby, Wealth Editor at The Australian.
• 16:17
  Speaker 1: And this week we are talking to Dean Fergie of
• 16:20
  Speaker 1: Cian Investment Management. He's a fund manager, specialises in a
• 16:24
  Speaker 1: special layer of the market, which is small caps and
• 16:27
  Speaker 1: micro caps. That is a completely different area than many
• 16:33
  Speaker 1: of us are familiar with. I mentioned at the start
• 16:36
  Speaker 1: how I don't have many fund managers on the show
• 16:39
  Speaker 1: because many of them are doing the same thing. Now,
• 16:41
  Speaker 1: someone like Dean does something entirely different. He specializes in
• 16:45
  Speaker 1: small businesses that are listed on the market. That means
• 16:49
  Speaker 1: he's not sitting at a screen doing his quant sort
• 16:52
  Speaker 1: of mathematics. He's actually getting to know them. He's literally
• 16:56
  Speaker 1: going out and sitting in front of these guys and
• 16:58
  Speaker 1: asking them questions about their business. A lot of these
• 17:01
  Speaker 1: businesses don't have stock broker research notes that you or
• 17:05
  Speaker 1: I could get. So it's like original research notes. And
• 17:09
  Speaker 1: just conceptually, Dean, it is a game where things go
• 17:11
  Speaker 1: really right or really wrong, right? So I think it
• 17:14
  Speaker 1: was the year before last you had a 30% return
• 17:18
  Speaker 1: in one year, and then another year you had a
• 17:20
  Speaker 1: minus 25% return. How do you steer through that? Is
• 17:25
  Speaker 1: that how it goes? Is that what you have to
• 17:27
  Speaker 1: come to expect, your line of work?
• 17:28
  Speaker 3: I would say the last four or five years have
• 17:32
  Speaker 3: been very unusual in terms of how the markets reacted,
• 17:37
  Speaker 3: certainly at the smaller end. There's been an incredible amount
• 17:41
  Speaker 3: of nervousness and then hype and momentum driving stocks.
• 17:48
  Speaker 2: And so the.
• 17:48
  Speaker 3: Volatility has been extreme. And it's been, I think, in
• 17:53
  Speaker 3: our space, a really difficult time to invest because you
• 17:57
  Speaker 3: just don't always seem to know what's going to capture
• 18:00
  Speaker 3: the market's attention and what's going to drive stocks. We
• 18:03
  Speaker 3: looked at just how hyped up stocks went through COVID
• 18:07
  Speaker 3: when everyone was home and everyone was investing and the
• 18:11
  Speaker 3: stock market was going bananas. And so why is this
• 18:14
  Speaker 3: happening on a fundamental basis? Because there was governments throwing
• 18:19
  Speaker 3: money at people that were sitting at home, trading the
• 18:22
  Speaker 3: stock market, trading Bitcoin and buying stuff online.
• 18:24
  Speaker 2: And then that kind of all blew up. And now
• 18:27
  Speaker 2: it's sort of starting to ease its way back. So
• 18:30
  Speaker 2: it is hard.
• 18:31
  Speaker 3: Like I would have normally said to our clients, you know,
• 18:34
  Speaker 3: bad year, you might expect negative 15% in a good
• 18:37
  Speaker 3: year might expect plus 15%. Now at the moment, it's
• 18:41
  Speaker 3: sort of can be negative 30 to plus 50, which
• 18:45
  Speaker 3: is just, we don't say to our clients, we're the
• 18:48
  Speaker 3: sort of investment manager that you put 20 or 30%
• 18:51
  Speaker 3: of your money with. You might look at allocating 5%
• 18:56
  Speaker 3: of your SIP towards a micro-cap investor. And if you
• 18:59
  Speaker 3: have a couple of good years, you can turn that 5%
• 19:01
  Speaker 3: into 10 or 15%.
• 19:04
  Speaker 1: And I suppose what you're doing is in a way
• 19:06
  Speaker 1: you're combining, rather than you, the investor, putting that particular investment,
• 19:11
  Speaker 1: which has a, I don't know if you're comfortable with
• 19:13
  Speaker 1: the word speculative, but it's riskier than buying a blue chip.
• 19:17
  Speaker 1: Rather than narrowing your bet to one stock, you actually
• 19:20
  Speaker 1: get a basket of stocks. How many stocks would you
• 19:23
  Speaker 1: hold in the fund, the C & fund at any
• 19:25
  Speaker 1: given time?
• 19:25
  Speaker 3: Typically we'd hold kind of around 25 stocks.
• 19:29
  Speaker 1: Right.
• 19:30
  Speaker 2: So it is very diverse.
• 19:33
  Speaker 3: But what we have found, certainly in a couple of
• 19:38
  Speaker 3: years prior, was that.
• 19:39
  Speaker 2: When investors decide that.
• 19:42
  Speaker 3: They don't want to be in smaller micro cap stocks,
• 19:46
  Speaker 3: everything gets sold and liquidity make the volatility much increased.
• 19:52
  Speaker 3: Shares go down and then you'll have a period, you know,
• 19:55
  Speaker 3: particularly two years ago where you had a number of
• 19:58
  Speaker 3: falls post COVID and there was a hell of a
• 20:02
  Speaker 3: lot of tax loss selling as well, which comes around
• 20:05
  Speaker 3: in June. So it was just a bit of a
• 20:07
  Speaker 3: vicious circle. Um, It's good to feel that things are
• 20:10
  Speaker 3: starting to improve at the moment.
• 20:12
  Speaker 1: Tell me, when you get a beauty, I think you
• 20:17
  Speaker 1: have a gaming software company that did very well for you.
• 20:20
  Speaker 1: What's that called again?
• 20:21
  Speaker 2: PlaySide Studios.
• 20:23
  Speaker 1: PlaySide Studios. How did you pick them?
• 20:25
  Speaker 3: I'm always interested in people that like investing in businesses
• 20:28
  Speaker 3: that are based in Taiwan or Belgium or the US.
• 20:33
  Speaker 3: PlaySide's actually based just up the road from where I
• 20:37
  Speaker 3: live in Port Melbourne. Over the last couple of years,
• 20:40
  Speaker 3: they've grown from about 80 staff to around 320. So
• 20:45
  Speaker 3: I've kind of seen the growth in my backyard. They
• 20:50
  Speaker 3: were doing contracts for some very big international customers. So
• 20:55
  Speaker 3: they do programming for Meta, part of Facebook, and Netflix,
• 21:01
  Speaker 3: and a gaming company called Ak-Blizzard. So they had blue-chip clients.
• 21:06
  Speaker 3: They were doing some really decent revenues. that was profitable,
• 21:11
  Speaker 3: only mildly profitable, but they've just ended up driving some really.
• 21:16
  Speaker 2: Really good business decisions.
• 21:19
  Speaker 3: They've bought kind of a viral name or brand called
• 21:24
  Speaker 3: Dumb Ways to Die, which has sort of become very
• 21:26
  Speaker 3: successful with TikTok and Instagram and with the minor games.
• 21:31
  Speaker 3: And so their revenues have almost tripled in the last
• 21:34
  Speaker 3: couple of years and the business is just going from
• 21:37
  Speaker 3: strength to strength.
• 21:38
  Speaker 1: And do you know them? Like, do they know you?
• 21:40
  Speaker 1: Can you get them on the phone? Is it that
• 21:42
  Speaker 1: sort of relationship?
• 21:44
  Speaker 3: Yeah, yeah. Look, I know Jerry Sackis really well, actually.
• 21:47
  Speaker 3: And Mark Kolopoulos is one of the board members there. So,
• 21:50
  Speaker 3: you know, we were probably a little bit fortunate or
• 21:54
  Speaker 3: lucky to know those people personally before the stock actually listed.
• 21:58
  Speaker 3: And we put a little money in just pre-IPO. So
• 22:02
  Speaker 3: it's been a really good success story. But Because obviously
• 22:06
  Speaker 3: that's outweighed often against a lot of ones that aren't
• 22:08
  Speaker 3: great success stories.
• 22:09
  Speaker 2: Sure.
• 22:10
  Speaker 1: As someone where it's literally you're knowing the company and
• 22:17
  Speaker 1: that's important and other people don't know the company. So
• 22:19
  Speaker 1: you're on your own making these decisions, right? It's not
• 22:21
  Speaker 1: like you're with a herd. It's not like there's a
• 22:23
  Speaker 1: whole pack. It's not like you're deciding today to buy NVIDIA.
• 22:27
  Speaker 1: or you're deciding today to buy Guzman y Gomez, right?
• 22:29
  Speaker 1: It's like you're on your own. How important is the
• 22:33
  Speaker 1: people to you and key person risk? How important is
• 22:37
  Speaker 1: that at your level of investing?
• 22:38
  Speaker 3: It's generally pretty important. Like if you're investing in a company,
• 22:43
  Speaker 3: I mean, even people say about Guzman y Gomez that
• 22:46
  Speaker 3: Steve Marks is.
• 22:47
  Speaker 1: He's the whiz behind the whole thing. Yeah.
• 22:50
  Speaker 2: Just an absolute.
• 22:53
  Speaker 3: So energetic and what he's built full credit to him
• 22:56
  Speaker 3: he's built a great business up from scratch over 10
• 22:59
  Speaker 3: years so you have to invest in the people but
• 23:02
  Speaker 3: sometimes the risk is that you have a loyalty or
• 23:07
  Speaker 3: an association with them that gets a little bit too
• 23:09
  Speaker 3: close and when you start seeing things maybe unravel or
• 23:14
  Speaker 3: stock becoming too overvalued you become just too wedded to
• 23:18
  Speaker 3: the stock to make purely objective decisions. I think that's
• 23:22
  Speaker 3: just something you can't avoid, but you've got to be
• 23:26
  Speaker 3: aware of as much as you can. But I'd much
• 23:28
  Speaker 3: prefer to be investing in someone I knew, that I trust,
• 23:31
  Speaker 3: that I respected, rather than... I mean, how many people
• 23:35
  Speaker 3: know Jensen Huang at Nvidia or have spent much time
• 23:39
  Speaker 3: with Mark Zuckerberg or any of those guys?
• 23:41
  Speaker 2: They just don't.
• 23:42
  Speaker 3: So I would rather make an objective financial decision with
• 23:46
  Speaker 3: someone I can meet and look in the eye and
• 23:48
  Speaker 3: speak to and get.
• 23:51
  Speaker 1: Yes. And what about something I've always wanted to find
• 23:54
  Speaker 1: with fund managers is that a lot of them can
• 23:59
  Speaker 1: be naive, I think, about figures. By that, I mean
• 24:03
  Speaker 1: they're very, very dependent on the numbers and less interested
• 24:09
  Speaker 1: in the management. And you were talking about how in
• 24:13
  Speaker 1: the micro-cap, small-cap level, the people really, really matter. With
• 24:17
  Speaker 1: all due respect, I say, come bank. Matt, come on.
• 24:20
  Speaker 1: He could go tomorrow and they'll find someone else who's
• 24:22
  Speaker 1: really good. And it's not a crisis. But in a
• 24:25
  Speaker 1: little company that you might be invested in, there's some whiz,
• 24:27
  Speaker 1: male or female, and the company's built around them. And
• 24:31
  Speaker 1: they're instrumental in this and they've got skin in the game.
• 24:33
  Speaker 1: But you have to believe what they tell you. How
• 24:36
  Speaker 1: do you decode between the numbers and their interpretation of
• 24:40
  Speaker 1: the numbers? Because they can say to you, hey, we're
• 24:43
  Speaker 1: just about to turn the corner. We're just about to
• 24:45
  Speaker 1: sign three contracts. They're not lying, right? They might believe that,
• 24:49
  Speaker 1: but how do you? You're a bullshit detector.
• 24:54
  Speaker 3: Yeah. I mean, that's the case with all these. I mean,
• 24:56
  Speaker 3: all these people that are running smaller businesses are very entrepreneurial.
• 25:00
  Speaker 3: They're very aggressive. They're often very optimistic. And so sometimes
• 25:06
  Speaker 3: you can get caught up in that, and that's fine
• 25:08
  Speaker 3: if they're right. But for me, the results have got
• 25:11
  Speaker 3: to meet the narrative. And you can only have that
• 25:16
  Speaker 3: proven up over time.
• 25:17
  Speaker 1: Yeah.
• 25:18
  Speaker 3: So it's about saying, okay, James told me this back
• 25:22
  Speaker 3: in 2014.
• 25:23
  Speaker 2: I'll write that down. I'll keep notes.
• 25:25
  Speaker 3: And six months later, has that happened?
• 25:28
  Speaker 2: Is he ahead of expectations? Is he behind? That kind
• 25:30
  Speaker 2: of thing.
• 25:31
  Speaker 3: So that's what I find is just matching up the
• 25:34
  Speaker 3: results with the the previously estimated timeline. And that's what
• 25:38
  Speaker 3: time in the market gives you. You know, coming back
• 25:41
  Speaker 3: again to, you know, like a Guzman versus a Domino's.
• 25:44
  Speaker 3: Guzman has, it's all promise, but no results as yet.
• 25:50
  Speaker 3: Domino's promised a lot early on, delivered a lot, promised more,
• 25:54
  Speaker 3: didn't deliver. And that's what's happened to the share price. So, yeah,
• 25:58
  Speaker 3: that's sort of probably my.
• 25:59
  Speaker 2: Answer to that.
• 26:00
  Speaker 3: It's got to be, don't get too excited as much
• 26:05
  Speaker 3: as you can help it.
• 26:06
  Speaker 1: Don't get as excited as the CEO. All right, on
• 26:09
  Speaker 1: the opposite end then, when things go really wrong, and
• 26:12
  Speaker 1: I don't know whether you're in satire or not, I'm
• 26:14
  Speaker 1: sure we have some people who are in it, but
• 26:15
  Speaker 1: it would seem to be this year's example of a
• 26:17
  Speaker 1: company that has absolutely, whatever the opposite of shot the
• 26:22
  Speaker 1: lights is, they've crashed basically, haven't they, by 50% or
• 26:25
  Speaker 1: more in recent weeks. And they were seen as this
• 26:28
  Speaker 1: wonderful online jewellery company company, the sort of secret company
• 26:32
  Speaker 1: everyone missed. Could you tell people what happened there and
• 26:36
  Speaker 1: why that's how a stock goes wrong sometimes like that?
• 26:39
  Speaker 3: Look, I don't really know what's happened with CETA. What
• 26:42
  Speaker 3: I can tell you is I've just never been a
• 26:45
  Speaker 3: believer and I've always thought there were a lot of
• 26:51
  Speaker 3: red flags.
• 26:53
  Speaker 2: Yes, right. It became... wildly successful very quickly.
• 26:58
  Speaker 1: Did you did you take a look at them at
• 27:00
  Speaker 1: any stage.
• 27:01
  Speaker 3: I did but i just never got it fundamentally i
• 27:04
  Speaker 3: never understood why premium you know ultra premium brands you
• 27:11
  Speaker 3: know these are companies selling like.
• 27:13
  Speaker 2: Polo shirts for two.
• 27:14
  Speaker 3: Thousand dollars would want to be having them discounted through
• 27:19
  Speaker 3: a third party operator out of australia i just i
• 27:22
  Speaker 3: never got why hermes and Prada and all those other
• 27:26
  Speaker 3: brands would want to have a middleman doing that. I
• 27:31
  Speaker 3: think at one stage early on, I asked them sort
• 27:34
  Speaker 3: of how many employers they had and they said they
• 27:37
  Speaker 3: had 30. And I just thought to myself, how is
• 27:41
  Speaker 3: a business with 30 employees doing hundreds of millions of
• 27:45
  Speaker 3: dollars in revenue and tens of millions of dollars in
• 27:50
  Speaker 3: EBITDA with 30 employees?
• 27:52
  Speaker 2: I just didn't understand. how they were doing it. And
• 27:55
  Speaker 2: then the business was so secretive.
• 27:58
  Speaker 3: They wouldn't really tell you very much. They refused to
• 28:00
  Speaker 3: answer questions. All at the same time, while founders were selling.
• 28:05
  Speaker 1: Licks of shares into the market, yeah.
• 28:08
  Speaker 3: Tens to hundreds of millions of dollars of shares. I mean,
• 28:11
  Speaker 3: it's just red flag on red flag on red flag.
• 28:14
  Speaker 3: But at the same time, the business was doing really
• 28:16
  Speaker 3: well and big firms were in there driving the share price.
• 28:20
  Speaker 3: I think at one stage it was worth a couple
• 28:22
  Speaker 3: of million dollars. So in the market, there's always dozens
• 28:27
  Speaker 3: of companies you regret not buying and you've just not
• 28:31
  Speaker 3: let it get to you. And that was when I
• 28:33
  Speaker 3: just thought, I think at some stage there will be
• 28:36
  Speaker 3: a judgment day on this and it appears it's coming. Now,
• 28:41
  Speaker 3: whether I'm ultimately right or wrong, I don't know.
• 28:44
  Speaker 2: I don't really care.
• 28:46
  Speaker 1: It looks like it's gone, Dean. It's down 50%. Yeah.
• 28:51
  Speaker 1: In weeks.
• 28:52
  Speaker 2: Oh, look it. Yeah.
• 28:54
  Speaker 3: And I think sometimes when you have these big hits
• 28:57
  Speaker 3: that it's really, really hard to recover from. You know,
• 28:59
  Speaker 3: I said I was saying they'll do no profitability this
• 29:02
  Speaker 3: quarter after doing 10 plus million per quarter for the
• 29:06
  Speaker 3: first three quarters. So if you extrapolate that, the business
• 29:09
  Speaker 3: will never be profitable again.
• 29:13
  Speaker 1: On that particular layer, it's a very, it really is
• 29:17
  Speaker 1: the most tricky end of the market, small caps. And
• 29:20
  Speaker 1: if you've done any investing at all, you would probably
• 29:22
  Speaker 1: know that in the mid caps, in the blue chip space,
• 29:26
  Speaker 1: you know, you may do well or you may do badly,
• 29:29
  Speaker 1: but it's all within a zone. But in small caps,
• 29:33
  Speaker 1: I mean, you can literally lose 90% of your money
• 29:35
  Speaker 1: or you can have a triple, four bagger, five bagger.
• 29:38
  Speaker 1: That's the business that Dean is in. It's a fascinating
• 29:42
  Speaker 1: end of the market. And sometimes I imagine it's very
• 29:44
  Speaker 1: helpful to have someone to hold your hand. All right,
• 29:47
  Speaker 1: we'll take a short break. We'll be back with some
• 29:48
  Speaker 1: really good questions in a moment. Hello, welcome back to
• 30:01
  Speaker 1: the Australian's Money Puzzle podcast. James Kirby with Dean Fergie
• 30:05
  Speaker 1: of CN Investment Management, who was a fund manager at
• 30:08
  Speaker 1: the small and micro cap end of the market, which
• 30:10
  Speaker 1: we haven't actually had a look at for quite some time.
• 30:13
  Speaker 1: I've got two questions here. I've just narrowed it down
• 30:15
  Speaker 1: to two, Dean, because they are probably the ones I
• 30:19
  Speaker 1: think we'll get the best answers from you on. One
• 30:22
  Speaker 1: is from Luke, and we've been talking about stock splits
• 30:25
  Speaker 1: of late. In the Australian market, the famous stock splitter
• 30:30
  Speaker 1: is CSL. Listeners are into overseas stocks, and invariably they
• 30:35
  Speaker 1: are into the same 10 overseas stocks that everybody else
• 30:37
  Speaker 1: is into, one of which is NVIDIA, and they've done
• 30:40
  Speaker 1: a split. So Luke says, what does the data say
• 30:43
  Speaker 1: on stock splits? Do they perform or underperform relative to
• 30:47
  Speaker 1: the market after a stock split? I'm wondering, is there
• 30:50
  Speaker 1: any behavioral psychology involved in investing? post-split seemingly, but not
• 30:56
  Speaker 1: actually lower price. It's a great question. Could you explain
• 31:00
  Speaker 1: to the general listener what a stock split is, if
• 31:03
  Speaker 1: you would, quickly, and then whether it makes a difference
• 31:06
  Speaker 1: to you when it has happened?
• 31:08
  Speaker 3: Yeah, well, basically, they're saying if you have 100 shares
• 31:11
  Speaker 3: at $ 1, we'll turn that into 200 shares at $ 0. 50.
• 31:13
  Speaker 3: So the value is still $ 100, but the share's in
• 31:23
  Speaker 3: isolation look like they're half the price. The empirical evidence
• 31:28
  Speaker 3: unequivocally is that that adds some value to the value
• 31:35
  Speaker 3: of cluelessness.
• 31:37
  Speaker 2: I think it was like 3% to 4%.
• 31:40
  Speaker 1: So people think it's cheaper, but it's not cheaper, right?
• 31:44
  Speaker 2: No, it's not cheaper.
• 31:46
  Speaker 3: There are enough people on the edge that are prepared
• 31:50
  Speaker 3: to buy more shares at a lower price, even if
• 31:53
  Speaker 3: there's twice as many on issue as beforehand.
• 31:56
  Speaker 2: And we saw that happen.
• 31:57
  Speaker 3: Tesla did a stock split, I think, a couple of
• 31:59
  Speaker 3: years ago and it made material impacts. So the answer
• 32:02
  Speaker 3: is yes. Put my fundamental finance theory hat on, it
• 32:06
  Speaker 3: shouldn't make any difference, but you can't argue with the
• 32:09
  Speaker 3: data and that's the data.
• 32:10
  Speaker 1: I suppose there is a point at which it gets
• 32:12
  Speaker 1: absurd where a stock is just expensive per stock.
• 32:15
  Speaker 3: Yeah. At the micro end, you're also having the issue
• 32:18
  Speaker 3: when stocks get so bummed out and land up being
• 32:21
  Speaker 3: 0.2 of a percent, 0.2 of a cent. They'll do
• 32:23
  Speaker 3: a consolidation as well because people think a 2 cent
• 32:26
  Speaker 3: share is far too cheap to make it 25 cents. Yes, yes.
• 32:30
  Speaker 1: Oh, that's very interesting. Yeah, the opposite. Forgotten about that
• 32:33
  Speaker 1: stock consolidation. So, Luke, that's the opposite, right? Let's say
• 32:37
  Speaker 1: you have Zing Zing Widgets. And as Dean says, they're
• 32:41
  Speaker 1: trading at 0.25 cents each share. And they say, this
• 32:44
  Speaker 1: looks so bad, everybody. What they do is they say
• 32:47
  Speaker 1: to the shareholders, for every 10 you've got, you now
• 32:51
  Speaker 1: have one, which is the opposite of the NVIDIA thing
• 32:53
  Speaker 1: where they say for every one you have, you now
• 32:56
  Speaker 1: have 10. So it's a stock consolidation.
• 33:01
  Speaker 2: Yeah, look, I don't know. I'd suggest it probably goes
• 33:03
  Speaker 2: the other way because the reason they're consolidating is just the.
• 33:07
  Speaker 3: The businesses are so bummed out.
• 33:08
  Speaker 1: Yeah, times are not good as opposed to, for one thing,
• 33:12
  Speaker 1: that's for sure with the stock splits, things have been
• 33:15
  Speaker 1: pretty good when you get them. CSL, as we say, Tesla,
• 33:18
  Speaker 1: we mentioned Nvidia. Not always. I remember some dot-coms did them.
• 33:22
  Speaker 1: That's going back a fair bit, but there.
• 33:25
  Speaker 3: Was- Maybe CBA needs to consider doing a stock split
• 33:28
  Speaker 3: given it's.
• 33:28
  Speaker 1: An over $ 100. That's right.
• 33:30
  Speaker 2: That'll worry the shorters.
• 33:31
  Speaker 1: I know. You don't need many CBA shares to have
• 33:34
  Speaker 1: a nice holding of them these days. Question from Rowan.
• 33:37
  Speaker 1: The ASX seems like it's being pigeonholed as a backwater
• 33:41
  Speaker 1: for legacy Australian businesses who predominantly dig up rocks, lend
• 33:46
  Speaker 1: money to buy houses or sell services. What needs to
• 33:50
  Speaker 1: change to make the ASX a place worth listing on
• 33:53
  Speaker 1: for future focused companies? You must be really interested in this,
• 33:56
  Speaker 1: are you? That the ASX is shrinking, that there is
• 33:59
  Speaker 1: less stocks listed than there was a year ago. Because
• 34:04
  Speaker 1: you're into the market, you need lots of IPOs, don't you?
• 34:06
  Speaker 1: I mean, you need that feed, if you like.
• 34:08
  Speaker 2: No, it's actually, it's a very good question.
• 34:10
  Speaker 3: You look at the ASX composition, and it is, you've
• 34:14
  Speaker 3: got your big four banks and a bunch of resources
• 34:17
  Speaker 3: companies that dig dirt out of the ground.
• 34:19
  Speaker 2: Plus a few other telcos. So it's a very.
• 34:21
  Speaker 1: A couple of supermarkets, and they take up, what percentage
• 34:24
  Speaker 1: of the market do they take up? Like half or more?
• 34:27
  Speaker 2: Yeah, I think it's more than 50%.
• 34:29
  Speaker 3: And then you throw Aldi and IGA in there, it's
• 34:31
  Speaker 3: close to 80. So everything's very, very.
• 34:35
  Speaker 2: Consolidated in Australia. There's not a lot of competition.
• 34:37
  Speaker 3: You know, I look at, you know, and I think
• 34:41
  Speaker 3: it's maybe a bit of a cultural issue in Australia,
• 34:43
  Speaker 3: you know, the tall poppy syndrome. So if you've tried
• 34:47
  Speaker 3: to start up three businesses and failed at them in Australia,
• 34:51
  Speaker 3: you regard it as a bit of a failure. Whereas
• 34:53
  Speaker 3: if you do that in the United States, you regard
• 34:56
  Speaker 3: it as a thriving entrepreneur.
• 34:58
  Speaker 1: Yeah.
• 34:59
  Speaker 3: So, you know, I'd like to see Australia, and there's
• 35:01
  Speaker 3: been a lot of press this week about it, is just,
• 35:04
  Speaker 3: you know, funding more startups. Give young entrepreneurial people a
• 35:11
  Speaker 3: go and have access to capital so they can make
• 35:14
  Speaker 3: it big and have that confidence that they can, you know,
• 35:19
  Speaker 3: do something special on a global scale. You know, there's
• 35:21
  Speaker 3: been a handful of them. Obviously, the The marquee ones
• 35:25
  Speaker 3: are things like Canva and Afterpay that have made it globally.
• 35:29
  Speaker 3: But I think we need more of that positive investment
• 35:33
  Speaker 3: can-do culture that you start funding some of those startups
• 35:36
  Speaker 3: that they can progress through to being commercial businesses that.
• 35:40
  Speaker 2: List from exchange and thrive.
• 35:42
  Speaker 3: That would be my underlying view rather than if you're
• 35:46
  Speaker 3: not a legacy bank or a big miner, we don't
• 35:51
  Speaker 3: really want to know about it.
• 35:53
  Speaker 1: And the companies you deal with at that end of
• 35:55
  Speaker 1: the market, the smaller caps, do they have to depend on–
• 36:00
  Speaker 1: VCs aren't interested in them, right, because they're listed. They're
• 36:03
  Speaker 1: not covered by brokers. Most fund managers don't invest in them.
• 36:08
  Speaker 1: So what do they do? Are they internally funded? Is
• 36:11
  Speaker 1: that it? Is that must be it?
• 36:13
  Speaker 3: They still do have access to capital in the markets,
• 36:16
  Speaker 3: but it's harder than it used to be. I think
• 36:19
  Speaker 3: what I've seen in the last couple of years is.
• 36:23
  Speaker 2: Well, two things happen.
• 36:24
  Speaker 3: The companies bunker down, conserve their cash, run their businesses
• 36:28
  Speaker 3: efficiently and start getting growth at the bottom line, which
• 36:33
  Speaker 3: attracts investors. Or in fact, they get taken over. And
• 36:37
  Speaker 3: that's what we're seeing a bit at the moment. A
• 36:39
  Speaker 3: number of these small businesses are getting takeover offers from
• 36:44
  Speaker 3: international companies have just seen the value in the market
• 36:47
  Speaker 3: because everything's so bummed out. But I mean, that's not
• 36:49
  Speaker 3: a great outcome for investors, but I'd just like to
• 36:52
  Speaker 3: see more businesses listed as thriving in Australia rather than
• 36:55
  Speaker 3: just trying to have a safety net of let's get
• 36:58
  Speaker 3: taken over.
• 37:00
  Speaker 1: Yes. Okay. Very good. And thanks for that, Rowan. It
• 37:03
  Speaker 1: is actually a real theme in the market and more
• 37:06
  Speaker 1: so now because of two things. One, our own market
• 37:10
  Speaker 1: is shrinking in terms of number of listings. Very hard
• 37:13
  Speaker 1: to do an IPO. We've had an IPO, which is
• 37:16
  Speaker 1: all fine, but we all hope it goes okay because
• 37:19
  Speaker 1: if it doesn't, And it disappoints people in the short
• 37:22
  Speaker 1: to medium term. There won't be any more IPOs for
• 37:25
  Speaker 1: a long time of any significance. Everyone gets scared again.
• 37:28
  Speaker 1: The other thing is people used to run off and
• 37:30
  Speaker 1: join NASDAQ or whatever. But I was reading this morning,
• 37:32
  Speaker 1: they're like about 300 million in revenue before they let
• 37:34
  Speaker 1: you on. the big US exchanges. Okay. Hey, look, thank
• 37:37
  Speaker 1: you very much, Dean.
• 37:38
  Speaker 3: Cheers.
• 37:39
  Speaker 1: Thank you very much for coming on the show. It's
• 37:40
  Speaker 1: really good, really interesting to talk to you. That's Dean
• 37:43
  Speaker 1: Fergie of Cian Investment Management, small cap fund manager. Keep
• 37:48
  Speaker 1: those questions rolling, folks. Love to hear your questions, opinions, comments, complaints.
• 37:53
  Speaker 1: TheMoneyPuzzle at theaustralian.com.au. Talk to you soon. Thank you.