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Why being an investment analyst is the "best job in the world" · Capital Ideas podcast

• 0:00
  - Hi, I am Mike Gitlin.
• 0:01
  Welcome to another episode of our Capital Ideas podcast,
• 0:04
  where we get to know the people behind the portfolios.
• 0:07
  We hear from portfolio managers and analysts,
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  some of the lessons they've learned in their careers,
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  their ideas, investment edge,
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  and something about Capital Group.
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  Today, we have Kelly Murphy,
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  an equity analyst based in London.
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  She's been at Capital Group for six years,
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  and we're going to talk about everything
• 0:23
  from the online gaming market
• 0:25
  to finding opportunities in small caps,
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  and how at the age of three
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  she was already on the trading desk.
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  Kelly, welcome. - Thank you.
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  Thanks for having me, Mike.
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  - Glad you are here.
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  So, we're going to start off with a picture
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  because a picture's worth a thousand words.
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  And you discussed stocks at the dinner table growing up,
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  but you're also very early on a trading desk.
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  For our listeners,
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  can you describe the picture that's on the screen, please?
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  - Yes, so this is a picture of,
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  I think, 2- or 3-year-old me in pigtails,
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  beaming, sitting on the Wedbush ECM desk,
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  phone in hand, at a 1980s' Quotron machine,
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  I think, you know, pricing trades
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  as one does at 2 or 3 years old.
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  - That is a priceless picture.
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  So, give us a sense of your journey.
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  How did this all begin?
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  Talk about your interest in the markets in general.
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  - Yeah, so, as you mentioned,
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  my dad was in the business growing up,
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  so that meant stocks
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  were kind of part of the conversation at home.
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  And my mom had this phrase that she learned from her dad
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  that stocks were the little guys piece of the pie,
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  which I loved.
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  So, I loved that, as a kid,
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  I could own shares in these iconic companies
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  like McDonald's or Disney.
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  So, I always thought it was really fun,
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  and that interest kind of persisted.
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  I did my first investment internship in 2007
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  at the top of the market at TCW in New York.
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  And then the next summer,
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  I was at J.P. Morgan on the trading desk, 2008.
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  Very different market, in fact.
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  - Interesting summer. - I mean, it was,
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  it was an unbelievable summer.
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  It was an absolute crash course in volatility, in markets,
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  in lots of things, in life really.
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  I was so lucky to get an offer at the end of the summer.
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  So, I was a trader,
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  that was my first job out of undergrad, and I loved it.
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  It was really fun.
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  But I think I thought it would be more similar to investing
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  than it was.
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  I really missed the kind of deep analytical work I'd done
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  as a student.
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  So, I knew pretty quickly after a few years
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  I wanted to go back to business school,
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  try and become an investor.
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  And that's what I did.
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  I moved to London, got my MBA,
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  and then I've been doing investing ever since.
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  - So, you love being an analyst.
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  We've talked about it.
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  Why? What is it about it?
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  - I think it's the best job in the world.
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  I'm so biased, but I really do.
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  It's really, you get to learn for a living.
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  And I spend my days learning about new industries,
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  meeting with
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  thought leaders in their industry,
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  CEOs, CFOs.
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  I think it's fascinating, and it's also very autonomous.
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  You really make your decisions, you're responsible for them,
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  and then there's a report card at the other end.
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  - Accountability. - Yeah.
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  - So, you talked a little bit about the kinds of things
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  you do as an analyst,
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  but what's a day in the life of an analyst look like?
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  - Yeah.
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  - And I know every day is different.
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  - Yes.
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  - But index, what does a day look like?
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  - Yeah, that's actually the best part
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  is that every day is different.
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  I may be headed to Stockholm for an investor day
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  or going to Macau to meet with some,
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  some company management teams.
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  I can be anywhere in the world.
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  I might have earnings,
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  I might be studying up on a new industry,
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  I may have a bunch of time set aside
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  for really deep thinking,
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  and then all of a sudden one of my CEOs decides to retire,
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  and the stock blows up,
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  and I have to spend the next 30 minutes or three hours
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  figuring out what's going on.
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  So, I can be doing anything at any time.
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  I think most people think
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  that the job of an analyst is very desk-based,
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  and the truth is that's not what the day looks like
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  most of the day.
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  I'm not sitting in front of a spreadsheet
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  every day, all day.
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  - Not creating models 24/7.
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  - I do create models,
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  of course, it's a big part of my job, but
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  I would say the more fun and more important part of my job
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  is really interacting with my companies,
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  with their suppliers, with their competitors,
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  really deeply understanding the industry,
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  and then making decisions based on that.
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  - So, you have a very interesting role as an analyst.
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  It's sort of a 50/50 type thing as your coverage.
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  So, let's start with the first 50.
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  Large-cap gaming and leisure.
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  Online gambling in the U.S. has just gone insane.
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  It's hard to look at people's eyes
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  because they're looking at their phones,
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  and they're pushing buttons,
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  and they're gambling something.
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  So, talk a little bit
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  about what you thought of the industry a few years ago
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  and what it looks like today.
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  - Yeah, I was really lucky
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  because I started my career covering gaming
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  over 10 years ago in Europe
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  where we had actually already started this online journey,
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  this online migration.
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  Every industry in the world
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  has been going through some sort of digital migration,
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  where digital penetration has been going higher and higher.
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  But with gambling, that's been limited by regulation.
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  It just hasn't been legal in many places.
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  And so the online penetration has been artificially low.
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  I saw this journey in Europe,
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  and then I was really interested,
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  and my ears perked up in 2018 when PASPA was repealed,
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  this was the federal ban on sports betting in the U.S.,
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  and it basically opened the gates for states
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  to go state by state and do legalization.
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  And when that happened,
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  you're able to use this pattern recognition
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  that you've had in other markets and other places,
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  and that's the benefit of having global coverage,
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  of looking at the markets for a little while,
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  and all of a sudden you get to benefit from it.
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  And so, I kind of saw that and
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  a couple of my colleagues did as well.
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  And I had recently moved over to Capital,
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  and at that time,
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  I think street analysts were saying
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  that they thought U.S. online sports betting
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  could be a three to $5 billion market.
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  I thought it could be 25 billion plus.
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  - Right? It's incredible.
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  - It's an incredibly fast-growing market,
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  but we understand why. There's demand,
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  there's this artificial,
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  artificial lowering of the penetration rate.
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  Today, it's still very low.
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  So, in some countries like the UK and Nordics,
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  you have 60% plus penetration of digital gambling
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  versus offline. - What's it in the U.S.?
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  - And today it's,
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  it's less than 20% in the US.
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  - Okay, so there's a lot of room for growth.
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  - So there's a really long way to go.
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  And there's still
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  a lot of markets around the world that are liberalizing.
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  You have Brazil who recently liberalized,
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  multiple states are legalizing in the U.S.,
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  you have Canadian territories as well.
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  So, it's a big growing market.
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  I think it's really interesting.
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  It's very dynamic, and I've had fun.
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  It's been a real ride.
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  - So, what regulation giveth, it also can taketh.
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  - Absolutely. - So, how do you think
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  of regulatory risks,
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  because the pendulum tends to move back and forth?
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  How does that European experience with regulatory changes?
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  Are you seeing anything there that would concern you,
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  that gambling might have gone so far
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  that people get worried and have to then reregulate?
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  Where are we in that?
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  - Yeah, so as you say,
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  gambling regulation is,
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  it's a headwind and it's a tailwind.
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  The truth is that regulation happens
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  because it's the best for the ecosystem.
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  It's best for the players.
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  It's best for everyone if these are regulated products.
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  The most dangerous situation is if there are players
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  who shouldn't be playing, who are playing offshore,
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  they're never going to get protected.
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  So, regulation is important.
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  It helps protect players.
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  It's super important.
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  It also provides tax revenue for countries and states.
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  It can be a really important source of tax revenues.
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  So, regulation is not just a bad thing,
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  but it is something that
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  can be extremely volatile.
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  Tax rates can go up.
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  Player protection requirements can change.
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  And you just have to be able to ride that volatility,
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  understand what's priced in and what's not.
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  And we've seen, as you said, in the UK,
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  we've gone through this pendulum of regulation over time,
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  and that will be the same in the U.S.
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  We will see that in the U.S.
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  This is why we have our long-term point of view.
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  When we see that type of volatility in regulation,
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  we say, okay, well, what will it look like in five years?
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  We try and look through it.
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  - Yeah, that five to 10-year trend,
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  I guess that 20% penetration in the U.S. versus 60
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  in the UK or Europe,
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  it may go to 30, 40, 50 over the next decade
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  in terms of penetration.
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  - Yeah, it can go much higher.
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  And that's really not even to say anything
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  about online casino,
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  which is still only about 10% of the population
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  has access to online casino.
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  So, there's a number of these products
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  that will continue to grow and grow,
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  and the market will be bigger over time.
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  And also players will be increasingly protected over time
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  because regulation will look out for them,
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  and that's good and bad.
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  - So, in the large cap space,
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  gaming is one, leisure is the other.
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  Everyone talks about experiences.
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  - Yeah.
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  - So, it's a thing right now.
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  What are you seeing on the leisure front?
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  And if you're going to mention any stocks,
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  just remember no open orders
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  that you have on the trade house,
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  but what do you see in terms of leisure?
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  How are people trying to find those experiences?
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  - Yeah, what you said is exactly right.
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  People have been really spending on experiences,
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  especially since COVID.
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  It's been the area of spend
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  that's been the most resilient since COVID.
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  I cover hotels as part of my leisure coverage,
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  and they've been benefiting from that
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  as well as
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  the increased penetration of branded hotels
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  around the world.
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  The U.S. has really high branded penetration.
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  It's 70 to 80%.
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  But in areas like Europe, it's more like 40 to 50.
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  And then in South America or Africa,
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  it can be under 30%.
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  So, there's a big tailwind
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  both towards spend for experiences
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  and then also branded penetration.
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  So, one stock that we hold is Accor Hotels,
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  which has more exposure to these markets
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  that have lower hotel penetration,
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  and as a result, more tailwinds for growth there.
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  They're also over-indexed to luxury,
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  which has been a much more resilient area of the market,
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  particularly over the last few years.
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  We've had, as everyone knows,
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  a lot of inflation in the U.S.,
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  a bit more of an affordability challenge.
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  And that's been true across the world.
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  It's not just here.
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  So, the area of the market that has been the most resilient
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  has been luxury.
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  And so, I have been sniffing around there a bit more
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  over the last few years.
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  - And you think this experience versus stuff trend,
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  is that secular or is that cyclical?
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  - I think that there's probably some cyclical aspects to it.
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  Look, in COVID,
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  a lot of us front-loaded a lot of our spend on stuff.
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  We all bought the new devices,
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  we all bought the new furniture.
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  - The Peloton at the time.
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  - Yeah, we all bought the Peloton.
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  And so, of course, there was a cyclical element to it.
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  And as soon as we were free,
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  we were so excited to get back on the road,
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  to get to a concert, to get to a hotel.
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  And so, I think there is some cyclical aspect to it,
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  but the truth is there's also a secular story,
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  and this is driven by social media as well.
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  People really value the experiences that they have
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  and the experiences that they can show to others.
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  - So, we talked about your coverage being 50/50 large cap,
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  and we went through gaming and leisure,
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  or leisure as you said it now living in London.
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  On the other side is small cap.
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  - Yeah.
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  - So, half of your coverage is small cap.
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  And you talk about turning over rocks.
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  Share a little bit of how you find those unknown stocks
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  that people haven't found yet
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  that you're able to access early.
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  - Yeah, you know,
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  so I was hired as a small- and mid-cap generalist in Europe,
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  and turning over rocks is just a cornerstone of what we do
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  as small-cap investors.
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  I think part of it is that sometimes there are companies
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  that just stay small for a reason.
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  And part of it is that you sometimes need
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  a little bit more turnover in small-cap investing.
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  And so, that means you kind of need to kiss more frogs
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  in small caps.
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  So, I think we meet with 8,000 companies a year
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  that are small cap at CG.
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  - 8,000? - 8,000.
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  And that is 40% of all of the company meetings
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  that we're doing are just with small-cap companies.
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  So, this is a really interesting
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  and dynamic part of the market.
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  And as you said, there are these small,
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  we call them acorn to oaks,
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  companies that can be small but grow into big companies.
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  And one of those,
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  one of those was Flutter,
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  which we actually invested in.
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  When it was still a small cap,
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  it was still under $6 billion market cap,
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  and now it's $40 billion today.
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  - Tell folks who don't know about it.
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  What does the company do?
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  - Yeah, so that's one of our online gambling companies.
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  And they,
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  I had covered it since it was European company,
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  Paddy Power Betfair.
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  And it had rolled up a bunch of companies over time.
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  And then when PASPA was repealed in the U.S.
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  and sports betting was being legalized,
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  they bought FanDuel,
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  which was a really important brand in the U.S.
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  They and DraftKings had dominated daily fantasy sports.
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  So, that was the beginning of a really long journey
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  when we could kind of see that.
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  But we look at all different types of companies.
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  I've looked at,
• 13:20
  I'm invested in an IVF company and a pet health company,
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  a consumer retail trading company,
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  an auto company.
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  So, it's this type of investing in small-cap
• 13:29
  is much more diversified
• 13:31
  than the investing that I do on the large-cap side.
• 13:34
  - Yeah, it's like you said about being an analyst,
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  every day is different,
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  and all these companies are very different,
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  and their management teams are very different.
• 13:42
  So, you have the experience of both,
• 13:45
  the large cap and the small cap.
• 13:46
  How is seeing management at those companies
• 13:49
  different and the same?
• 13:50
  - Yeah, I think it's more fun, honestly.
• 13:54
  I think it's one of the most fun things
• 13:55
  about doing small-cap investing
• 13:56
  because you get amazing access to your companies.
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  These companies don't always have a ton of investors
• 14:02
  knocking on their door.
• 14:03
  They may be $1, $2, $3 billion market-cap companies.
• 14:06
  It's very different to a U.S. mega cap
• 14:09
  where it might be very difficult
• 14:11
  to get a meeting with the CEO.
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  So, I love building these
• 14:14
  relationships with management teams,
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  and not just at the top, also in middle management.
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  Sometimes those can be some of the most important
• 14:20
  and rewarding relationships,
• 14:21
  and those people go on to grow with the company.
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  And sometimes a CEO is named and I realize,
• 14:28
  "Oh, I've known him for 10 or 15 years."
• 14:30
  - I met that person 10 years ago
• 14:32
  when they were doing X, whatever it was.
• 14:34
  - Yeah, I met him when he was the U.S. CFO
• 14:36
  of a really small division.
• 14:38
  And so, it's really fun to go on that journey with people.
• 14:40
  And I think sometimes in small-cap companies,
• 14:43
  you're able to do that a bit more.
• 14:45
  - So, what would,
• 14:47
  if you love a certain business model
• 14:49
  for a certain small-cap company,
• 14:51
  but they do something,
• 14:52
  what scares you away?
• 14:53
  What makes you say,
• 14:55
  even though I think their business is an interesting one,
• 14:58
  I'm just not going to take the risk.
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  What are those risks?
• 15:01
  - So, I would say I'm not great with companies
• 15:04
  that are not yet generating cash.
• 15:06
  I have a pretty deep--
• 15:08
  - Do you like them to earn money?
• 15:09
  - cash flow generation bias. - Yeah, okay.
• 15:11
  - So, I will say,
• 15:12
  I am not going to be the one that's great
• 15:15
  at finding that startup that's not yet generating cash
• 15:18
  but growing very quickly.
• 15:20
  And we have to make sure
• 15:21
  that their funding situation is going to be okay
• 15:23
  and get them from A to B.
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  That's not always going to be me.
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  The other thing is
• 15:28
  management incentives are super important.
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  I mentioned earlier,
• 15:31
  that's a big part of my process
• 15:32
  is understanding management teams,
• 15:33
  understanding their decision-making and their incentives.
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  And so, if I see an area
• 15:37
  where incentives are not quite aligned,
• 15:39
  that's also a big red flag for me.
• 15:42
  I looked at a IPO in Europe a number of years ago,
• 15:46
  and I won't mention any names here,
• 15:49
  where it became very clear in my diligence
• 15:51
  that the founder was just cherrypicking some good assets
• 15:55
  and keeping them for himself
• 15:56
  and then doing this IPO
• 15:57
  with all the assets that he didn't want.
• 15:59
  - Okay, that's sort of a red flag.
• 16:01
  - It was a huge red flag.
• 16:02
  And even though I thought
• 16:03
  it was a really interesting business
• 16:04
  and there was really high returns,
• 16:06
  it was growing pretty quickly,
• 16:08
  I was like, "This is not for me."
• 16:10
  It's not going to be for me.
• 16:12
  And it ended up being a pretty bad IPO, frankly.
• 16:15
  The stock floundered for many years,
• 16:18
  and then the founder came back
• 16:20
  and bought it at a discount to where they had IPO'd it.
• 16:22
  - Well, those are always good lessons.
• 16:24
  We'll get to other lessons learned.
• 16:26
  So, in your office in London,
• 16:28
  I'm going to do the office treasure hunt,
• 16:30
  because in your office in London,
• 16:33
  and the job is a stressful job,
• 16:36
  but we have a lot of shot glasses, Kelly.
• 16:38
  - Okay.
• 16:39
  - For those folks who are listening,
• 16:42
  I'm holding five shot glasses.
• 16:44
  So, talk a little,
• 16:45
  we have it on the screen as well,
• 16:47
  talk about why you have five shot glasses
• 16:50
  and they all smell a little different.
• 16:52
  - Okay. - No, no. Okay.
• 16:53
  - You know that's not true.
• 16:55
  - All right. All right.
• 16:56
  I couldn't help myself.
• 16:57
  - I will say, off the bat-- - Yes.
• 17:00
  - these are not for drinking,
• 17:01
  and they have never been drunk out of.
• 17:03
  And to tell the story of the shot glasses,
• 17:05
  I have to kind of go back
• 17:06
  and tell the story of our retreats,
• 17:09
  because that's why I have the shot glasses.
• 17:11
  So, we have an amazing culture of retreats at Capital Group,
• 17:16
  and I know it sounds very luxurious,
• 17:17
  but these are actually very intensive
• 17:19
  multiday get-togethers that we have
• 17:22
  where investors from all over the world will come together.
• 17:25
  We'll meet companies,
• 17:26
  we'll talk about stocks,
• 17:27
  we'll talk about portfolio construction,
• 17:29
  we'll talk about decision-making,
• 17:31
  and we'll have some time together to build our relationships
• 17:35
  and really cultivate those strong relationships.
• 17:38
  And we call them retreats.
• 17:40
  And I was at a retreat a couple of years ago,
• 17:42
  it was one of my early retreats,
• 17:44
  and I was at the airport with a colleague,
• 17:46
  and we were just joking,
• 17:48
  who buys these shot glasses?
• 17:49
  Why are there always shot glasses in an airport?
• 17:52
  Like, who is buying these?
• 17:53
  - Right next to the T-shirts.
• 17:54
  - Yeah, they're there.
• 17:55
  And they're always there.
• 17:58
  And so, I was like, kind of as a joke,
• 18:00
  "I'm going to start collecting them.
• 18:01
  I'm going to do it."
• 18:03
  And so I started, when I remember
• 18:05
  and I'm at a retreat at the airport afterwards
• 18:07
  when I'm trying to find a gift for my kids,
• 18:09
  I'll also grab a shot glass and collect them.
• 18:12
  And so there,
• 18:13
  I think we have shot glasses
• 18:15
  from Singapore, Tokyo, London, Oceanside,
• 18:18
  all over the place.
• 18:20
  And it's really--
• 18:21
  - So, it reminds you of the retreats as well.
• 18:23
  - It reminds me of the retreat,
• 18:24
  and it reminds me of the specific retreat.
• 18:26
  And I can call back and say,
• 18:27
  "Oh, that's the one where we spent a ton of time
• 18:29
  seeing this company was so interesting.
• 18:31
  Oh, this is the one where we all did personality tests
• 18:33
  and figured out how we make decisions."
• 18:35
  And so, it's really fun to look back on it.
• 18:37
  It's also just a good conversation starter
• 18:39
  when people come in the office.
• 18:40
  No, it's what I recognize when I went in.
• 18:42
  But let's talk about your investment edge,
• 18:46
  because I think we've had 35 or 40 podcasts now,
• 18:50
  and every single one
• 18:51
  of our investment professional's edge is different.
• 18:55
  Some of them may rhyme,
• 18:56
  but they're all unique to that person.
• 18:59
  So, what is your edge?
• 19:01
  So, I asked around for a little help on this
• 19:03
  because I think sometimes
• 19:04
  it's good to ask other people too.
• 19:06
  And a theme kind of came out,
• 19:08
  and this is finding comfort in discomfort.
• 19:11
  So, I'm kind of,
• 19:13
  I think growing up in a more volatile sector
• 19:15
  really helped me temper myself
• 19:19
  to be able to go into situations
• 19:21
  where there's a lot of volatility,
• 19:23
  but I feel like I have high confidence in what's going on,
• 19:26
  and I can look through it, I can find the comfort,
• 19:29
  I understand why the stock is down,
• 19:31
  and those can be great opportunities.
• 19:33
  So, we talked about Flutter,
• 19:34
  which actually was down a lot in COVID
• 19:36
  because people were really worried
• 19:37
  they were going through a merger.
• 19:39
  We were able to find comfort that we could see through that.
• 19:42
  And then Las Vegas Sands,
• 19:44
  we had bought earlier this year when, after April,
• 19:49
  basically the stock was pricing in nothing
• 19:50
  for their Macau business,
• 19:52
  which is a huge portion of their business.
• 19:53
  And we could see Macau's not going away.
• 19:57
  We did the math.
• 19:58
  Even if they have to exit,
• 20:00
  here's what this business is actually worth.
• 20:02
  - You're getting Macau for free.
• 20:03
  - You're getting it for free.
• 20:04
  And so, we were able to pile in,
• 20:06
  a bunch of portfolio managers came along with me.
• 20:09
  And so, it's those opportunities that are scary.
• 20:12
  It's not an easy time to buy a stock.
• 20:13
  In fact, it's a very scary time to buy a stock.
• 20:16
  But it often can be a really important opportunity to
• 20:19
  create value for the shareholders.
• 20:21
  - So, would you say you're naturally a contrarian?
• 20:24
  - Yes, I think so.
• 20:25
  And I think most people in my personal life
• 20:27
  would tell you the same as well.
• 20:28
  - But that helps, right?
• 20:29
  I mean, you want to be buying when other people are selling.
• 20:33
  If you believe in the fundamentals
• 20:34
  of that business long term,
• 20:36
  that's a great opportunity with our long-term system
• 20:41
  to be able to build a position.
• 20:42
  - That's the hope. I would say,
• 20:44
  I do not have a 100% track record but--
• 20:46
  - Well, I'm glad you mentioned that.
• 20:48
  So, you don't have a 100% track record.
• 20:51
  Where has it gone off the rails?
• 20:53
  - Yeah, it goes off the rails for everyone.
• 20:55
  I listen to the podcast and everyone always says,
• 20:57
  "Oh, gosh, I have so many mistakes.
• 20:59
  - Everyone does say that. - Everyone says that,
• 21:00
  but it's because it's not them.
• 21:03
  And it's not just because CG people are so humble,
• 21:05
  which they are.
• 21:07
  It's because in this job,
• 21:09
  40% of the time, even if you're amazing,
• 21:12
  40% of the time, you're wrong.
• 21:13
  And that's just the truth of it.
• 21:15
  And if you are approaching it the right way,
• 21:18
  you take it as a learning experience and move on
• 21:21
  and you hopefully use that,
• 21:23
  those learnings for the next time.
• 21:24
  That doesn't make it enjoyable.
• 21:26
  It's very much not enjoyable, but we've all been there.
• 21:29
  So, I'll talk about an early blowup that I had,
• 21:33
  as we call them sometimes.
• 21:35
  - So, this is at Capital
• 21:37
  or in your prior career? - This is pre.
• 21:38
  This is actually pre-Capital. - Pre-Capital, okay.
• 21:41
  Well, that's even better for us
• 21:42
  because we can hear the story but not have to be--
• 21:44
  - And benefit from the learnings.
• 21:46
  - Perfect. - Exactly.
• 21:47
  So, it was a very early one,
• 21:49
  and this is when
• 21:50
  I had picked up some European leisure coverage
• 21:53
  many years ago.
• 21:54
  And if you follow the markets in the U.S.,
• 21:57
  you'll see that there's been a number
• 21:59
  of fantastic restaurant rollouts.
• 22:01
  Really great.
• 22:03
  This is a great way to grow quickly, generate good returns.
• 22:06
  There's been a ton of great restaurant stocks.
• 22:08
  There have not been that many in Europe.
• 22:10
  And there was one for a little while,
• 22:12
  and it was called The Restaurant Group.
• 22:13
  And when I joined, I was super excited about it.
• 22:16
  It was a holding that was growing,
• 22:19
  basically casual dining brands
• 22:22
  and mostly okay. - It was rolling them up.
• 22:23
  Was it rolling them up?
• 22:25
  - It wasn't rolling them up,
• 22:26
  but it was rolling out multiple brands.
• 22:28
  And so, it was growing unit 7%,
• 22:30
  it was growing like 3% to 4%.
• 22:32
  So, this is like 10-plus percent topline growth,
• 22:34
  really high returns,
• 22:35
  like 20-plus percent ROICs, paybacks under three years,
• 22:39
  really cash-generative.
• 22:40
  It was a great--
• 22:41
  - Return on invested capital.
• 22:42
  - Yes, sorry, return on invested capital.
• 22:45
  It was a great business.
• 22:47
  And to grow so quickly,
• 22:49
  they were also making some decisions behind the scenes
• 22:51
  that were not super apparent.
• 22:52
  And one of these is that they were basically
• 22:54
  rolling out too quickly.
• 22:55
  They were cannibalizing their existing stores.
• 22:57
  And usually you'd see that
• 22:58
  come through in the like for likes,
• 22:59
  but to hide it in the like for likes,
• 23:00
  they were pushing price.
• 23:02
  And it was difficult to get a good sense of this
• 23:04
  because all of their competitors were private.
• 23:07
  So, as I said before,
• 23:08
  there's so many public restaurant companies in the U.S.,
• 23:11
  this was basically the only one in the UK.
• 23:13
  So, it was very difficult to see, and I totally missed it.
• 23:16
  And what happened is at some point they warned,
• 23:19
  and the perception of the brand had completely changed.
• 23:23
  It was too late.
• 23:24
  They thought it was just something cyclical,
• 23:25
  but what had happened was structural.
• 23:27
  They had been pushing price too long.
• 23:29
  Their competitors figured it out,
• 23:31
  and they went and they discounted hard
• 23:32
  because you know what?
• 23:33
  A private competitor owned by PE,
• 23:35
  they don't need to make 20-plus percent returns.
• 23:38
  They can lever up.
• 23:38
  They can make much lower returns.
• 23:40
  And so, they were pushing hard,
• 23:42
  and The Restaurant Group never recovered.
• 23:43
  I think it was trading at 500 at the peak,
• 23:47
  I think we sold it down 50%, which felt awful.
• 23:51
  But then it got taken out a few years later at 60P.
• 23:53
  So, you know, it was bad.
• 23:55
  So, the 500 down to 250 and down to 60.
• 23:59
  But the lesson learned,
• 24:00
  it seems like it was just wanting to grow at all costs.
• 24:04
  - It was wanting to grow at all costs,
• 24:05
  but it was also a lesson for me in my process.
• 24:07
  And that was really about understanding what's going on
• 24:11
  in the private market as well.
• 24:12
  We cover public stocks,
• 24:14
  but it's really important that we understand what's going on
• 24:17
  in the entire ecosystem.
• 24:18
  And so, that was a really early learning for me.
• 24:21
  And now understanding what's going on with private companies
• 24:23
  is a huge part of my process.
• 24:24
  I spend more time at industry conferences sometimes
• 24:27
  than I do at sell-side conferences.
• 24:29
  I want to understand what all the competitors are doing,
• 24:32
  what the whole supply chain looks like.
• 24:34
  - The whole sector. - Yeah.
• 24:34
  It's a very, very different approach
• 24:37
  than I had at the very beginning where I thought,
• 24:40
  "This is the one company I need to understand."
• 24:42
  And that's really good.
• 24:43
  - Good lessons learned all around.
• 24:45
  Folks who teach lessons are mentors.
• 24:47
  And you mentioned that Greg Wendt is one of your mentors.
• 24:51
  He was a former guest.
• 24:52
  He's now retired from Capital Group.
• 24:54
  Can you describe the picture we put up of the two of you?
• 24:58
  - Yes, I love this picture.
• 24:59
  So, this is Greg and I
• 25:02
  under the very famous Welcome to Fabulous Las Vegas sign on,
• 25:06
  it was actually our first trip to Las Vegas together
• 25:09
  after he had handed over coverage
• 25:11
  of the Vegas casinos to me.
• 25:13
  And Greg, he has been an incredible mentor to me.
• 25:17
  As you mentioned, he's retired,
• 25:18
  so he's no longer here,
• 25:19
  but he was so fun to work with while he was here.
• 25:22
  And he was an analyst's analyst, right?
• 25:25
  So, he was one of these famous CG career analysts.
• 25:28
  He was an analyst for I think over 30 years
• 25:30
  when he handed me the coverage of the Las Vegas casinos.
• 25:33
  He'd covered them for 30 years, which is incredible.
• 25:36
  I mean, you don't get that anywhere else.
• 25:39
  - Institutional knowledge.
• 25:40
  - There's so much institutional knowledge.
• 25:42
  And not only that,
• 25:43
  he was so good at imparting that knowledge.
• 25:45
  So, he was so collaborative.
• 25:48
  And we went on that trip to Las Vegas,
• 25:51
  and we were seeing a bunch of companies.
• 25:52
  He was handing over relationships,
• 25:53
  and we were having a great time,
• 25:56
  and he said,
• 25:57
  "Tomorrow morning, why don't we wake up a little early?
• 26:00
  We'll go on a walk.
• 26:01
  So, put on your running shoes."
• 26:03
  And I had not brought running shoes.
• 26:05
  You may not have noticed in that photo,
• 26:07
  but I was wearing business casual.
• 26:09
  - It doesn't look like you were ready for a jog.
• 26:11
  - I was not ready. - Okay.
• 26:12
  - But we started there,
• 26:13
  and we went on a multi-hour walk around the strip,
• 26:17
  and he was giving me an asset-by-asset tour
• 26:20
  of every single building in Vegas.
• 26:23
  This is where
• 26:24
  so-and-so developed this and sold it to this person,
• 26:27
  and this person went bankrupt,
• 26:28
  and this is where I saw Sinatra play for the last time.
• 26:30
  And so, it was just unbelievable.
• 26:32
  He had this way of,
• 26:35
  he's really a people person,
• 26:36
  so he has incredible relationships,
• 26:38
  but he also had this way
• 26:39
  of imparting this knowledge and history to me
• 26:42
  that was really special, really important.
• 26:43
  - So, you're going to give some very legal
• 26:46
  inside information here,
• 26:47
  because what we're seeing is folks
• 26:50
  who are interviewing at Capital Group
• 26:52
  are watching these podcasts.
• 26:53
  - Yeah.
• 26:55
  - So, tell someone who's watching this podcast
• 26:58
  who's going to interview here to be an analyst,
• 26:59
  what advice would you have for them as a brand new analyst?
• 27:03
  Forget the interview process.
• 27:05
  But someone's coming in,
• 27:06
  and they're from a different industry,
• 27:08
  but we feel like they have the capacity to do this role,
• 27:11
  what's advice you give to new analysts?
• 27:13
  - So, I think sometimes
• 27:16
  younger analysts, newer analysts,
• 27:18
  the biggest trouble they have
• 27:20
  is they want to know everything.
• 27:23
  They want to come in, and that's great.
• 27:25
  We want them to be the expert in their field.
• 27:27
  We want them to do all their work,
• 27:28
  but they're never going to know everything
• 27:30
  about a public company.
• 27:31
  - That's a high bar.
• 27:32
  - In fact, it would not be legal for them
• 27:34
  to know everything about a public company.
• 27:35
  So, you have to be able to get to the point
• 27:37
  where you figure out, look,
• 27:38
  these are the two to three most important things
• 27:40
  about this company.
• 27:42
  I feel like I've figured them out,
• 27:44
  and now I have conviction I'm going to go act on that.
• 27:45
  Because I think sometimes,
• 27:47
  especially people coming from other industries,
• 27:49
  private equity,
• 27:50
  or maybe they come from school,
• 27:53
  they feel like they need to have every single answer.
• 27:55
  But actually,
• 27:57
  they really need to be able to act on conviction
• 27:59
  before they know everything.
• 28:00
  - It's a little bit of combining that IQ and EQ.
• 28:02
  Because the IQ is something important
• 28:06
  to be smart about something, to learn it,
• 28:07
  to be able to regurgitate it thereafter.
• 28:09
  But then the analysis
• 28:12
  and then how to build conviction
• 28:14
  and how to get other people to come along with you,
• 28:16
  that's the EQ part that you're helping them learn as well.
• 28:20
  - Yeah, I totally agree.
• 28:21
  This is a job that is a science and an art, right?
• 28:24
  And different types of people succeed
• 28:26
  at different parts of the job.
• 28:28
  And we are sort of an aggregation of people
• 28:31
  who do things different ways,
• 28:32
  and people have different muscles and strengths,
• 28:34
  and the hope is that you are able to balance both a bit.
• 28:37
  - Alright, we're going to finish on a personal side.
• 28:40
  So, you grew up here.
• 28:42
  You grew up in Pasadena, California,
• 28:46
  but you've been in the UK for 13 years.
• 28:48
  I'm going to ask you a few questions.
• 28:50
  - Okay.
• 28:51
  - And you can only offend one side or the other each time.
• 28:55
  So, that's good. - I'll offend everyone.
• 28:57
  I'm sure.
• 28:58
  But we're going to look at U.S. and UK.
• 29:00
  - Yeah. - Better food?
• 29:01
  - Oh.
• 29:04
  I would say LA, better Mexican food
• 29:06
  and London, better Indian food.
• 29:08
  - You're not going to be able to win on all of them.
• 29:09
  - I won't. - Okay. All right.
• 29:12
  Better climate?
• 29:14
  - London summers are the best,
• 29:15
  but LA has it for the other nine months of the year, so LA.
• 29:19
  - Worst traffic.
• 29:21
  - Oh, gosh, they're both awful.
• 29:23
  I think LA by a hair.
• 29:25
  - I think LA gets it by a little bit as well.
• 29:28
  Better beer?
• 29:29
  - Oh, I have to say London.
• 29:30
  There's nothing like
• 29:32
  a pint on a lovely summer afternoon.
• 29:35
  - And do you now call it soccer or football?
• 29:38
  - Oh, I have a 6-year-old son
• 29:40
  who was an Arsenal superfan.
• 29:42
  - So, you're calling it football.
• 29:43
  - I got to call it football. - You got to call it football.
• 29:45
  Okay, we're going to finish with gratitude.
• 29:48
  I'm going to ship you this mug
• 29:50
  so you don't have to carry it back to London,
• 29:52
  but I'll let you hold it
• 29:54
  and share with us something that you are grateful for.
• 29:58
  It can be personal, professional, anything.
• 30:01
  It's a judgment-free zone.
• 30:03
  - I'm grateful for so much.
• 30:04
  We talked about luck a couple times in this podcast,
• 30:07
  but I am most grateful for the absolute lottery that I hit
• 30:11
  when I met my husband.
• 30:13
  I have the best husband in the world.
• 30:14
  He's amazing.
• 30:16
  This job is not easy.
• 30:17
  I travel all the time.
• 30:19
  I'm stressed sometimes.
• 30:21
  And he is an incredible ballast,
• 30:22
  and he's an incredible ballast for our family.
• 30:24
  He's a great dad, super great partner.
• 30:26
  And he can kind of
• 30:28
  hold down the house when I'm in Singapore or Macau or Vegas,
• 30:33
  and I'm so grateful.
• 30:34
  - He's great.
• 30:35
  I have had the opportunity to meet him,
• 30:37
  but how did you meet Cameron?
• 30:40
  I'm just curious as we're finishing up here.
• 30:42
  - This is a loaded question, I know.
• 30:43
  - No, well, I just thought we might want to share it
• 30:45
  with 100,000 people.
• 30:47
  - You know, coming back full circle,
• 30:50
  my dad actually introduced us.
• 30:52
  Yes, at a Christmas party in Pasadena many, many years ago.
• 30:55
  So, we were a setup, and I'm really grateful for it.
• 30:59
  I have so many things to be grateful for to my dad.
• 31:01
  He got me interested in this business.
• 31:03
  - And your husband. - Now, yeah,
• 31:05
  introduced me to the most important person.
• 31:07
  - Two for two.
• 31:08
  Kelly, thank you for joining us.
• 31:09
  It was a fun conversation. - Thank you.
• 31:11
  - You shared a lot of wisdom with a lot of people.
• 31:13
  I appreciate you being here.
• 31:15
  And thank you all for joining.
• 31:17
  Have a great day.
• 31:18
  (bright music)