Latest / The Dutch Investors / #75 | 4 Quality Stocks to Start 2026 w/ Margin of Sanity

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#75 | 4 Quality Stocks to Start 2026 w/ Margin of Sanity · The Dutch Investors

0:04
SPEAKER_00: You might think you have a choice when you walk into an optical store, right?
0:08
SPEAKER_00: You see Ray Bans on the left, Oakley's on the right, Prada for Satchi frames, but it's all the same company.
0:16
SPEAKER_02: So despite only selling 2% of China's Baijo, Weizhou Mao Tai collects 21.4% of the revenue of Baijo in China.
0:26
SPEAKER_00: You cannot find a single photo of the founder and CEO.
0:30
SPEAKER_00: Nobody knows what he looks like.
0:32
SPEAKER_00: There's no photos available.
0:34
SPEAKER_00: That has to pique your interest, right?
0:37
SPEAKER_00: Maybe just quickly look up the stock price history of Leslie's Incorporated.
0:40
SPEAKER_02: Ooh, that ain't pretty.
0:42
SPEAKER_02: That's what happens when you compete with Pool Corp.
0:47
SPEAKER_00: So, welcome everybody.
0:48
SPEAKER_00: Welcome back to the Dutch Investors Podcast.
0:51
SPEAKER_00: Today, something a bit different.
0:53
SPEAKER_00: We're uh doing something special.
0:55
SPEAKER_00: I'm here with Peter from the Margin of Sanity podcast and Substack.
0:59
SPEAKER_00: And in today's episode, we'll be giving you four companies you probably haven't heard of before, why we like them.
1:06
SPEAKER_00: And the idea is that we'll be sort of comparing notes and sharing our thesis on four unique ideas to start off a brand new year.
1:14
SPEAKER_00: Sounds good, Peter?
1:15
SPEAKER_00: Sounds great.
1:16
SPEAKER_00: Let's do it.
1:17
SPEAKER_00: Let's jump in.
1:18
SPEAKER_00: I think you're first, right?
1:20
SPEAKER_00: Yes, I'll start.
1:21
SPEAKER_00: We were talking back and forth on companies we both didn't know.
1:25
SPEAKER_00: So I'll kick off this episode with a company I've had my eye on for some time.
1:30
SPEAKER_00: It's a very unique company.
1:32
SPEAKER_00: It's called Esular Luxotica.
1:34
SPEAKER_00: And you told me you're totally unfamiliar with this one, right?
1:38
SPEAKER_00: Never heard it.
1:39
SPEAKER_00: Don't even know how to spell it.
1:40
SPEAKER_00: All right.
1:41
SPEAKER_00: I won't ask you to.
1:44
SPEAKER_00: So this is a company I actually analyzed back in 2024, so uh some time ago.
1:51
SPEAKER_00: Let me briefly explain what the company does so you have some background.
1:55
SPEAKER_00: It currently has a market cap of about 125 billion euros, so it's pretty big.
2:00
SPEAKER_00: They generate about 27 billion euros, gross margins of 62%, and operating margins of about 13%.
2:10
SPEAKER_00: And you could argue that it's sort of a serial acquire, but what they do is they sell eyewear.
2:18
SPEAKER_00: Okay.
2:19
SPEAKER_00: Well, that's the end.
2:20
SPEAKER_00: Well, no, but for real, they they basically only sell eyewear.
2:24
SPEAKER_00: You might think you have a choice when you walk into an optical store, right?
2:28
SPEAKER_00: So you have all these options.
2:30
SPEAKER_00: You see Ray Bans on the left, you see Oakley's on the right, you see Prada, Versace frames, but it's all the same company.
2:39
SPEAKER_00: And Asilor Luxotica is the world's first and really only vertically integrated eyewear company.
2:48
SPEAKER_00: It basically has a monopoly.
2:51
SPEAKER_00: They design the frames, they manufacture the frames, they make the lenses that go inside the frames, they own the insurance companies that pay for the glasses, and they own the stores like Lance Crafters and Sunglass Hut, where you buy all of them.
3:07
SPEAKER_00: So it is such a powerful and strong company, and it's a company I would love to own at the right price, but that hasn't been the case so far.
3:17
SPEAKER_02: You said it's uh what a hundred and twenty billion dollar market cap?
3:21
SPEAKER_02: Yeah.
3:21
SPEAKER_02: What are the earnings or free cash flow sort of relative to that?
3:24
SPEAKER_00: I think free cash flow margin is about 8%.
3:28
SPEAKER_00: So you can do the math there.
3:29
SPEAKER_00: Okay.
3:30
SPEAKER_00: Net margin is a little lower, I think about 6%.
3:34
SPEAKER_00: But most of it goes to dividends since they're so large already.
3:38
SPEAKER_00: They do some share buybacks as well.
3:40
SPEAKER_00: But okay.
3:41
SPEAKER_00: I think they won't be able to grow much more, like get more stores.
3:45
SPEAKER_00: I think there are around 27,000 stores.
3:48
SPEAKER_00: Wow.
3:49
SPEAKER_00: But I think they can sell more glasses because you know, people having more screen time today is a big issue.
3:56
SPEAKER_00: Nearsightedness is a big issue, and myopia, I believe it's called, is a like an eye disease, and it's a they call it the global pandemic, actually.
4:06
SPEAKER_02: Huh.
4:06
SPEAKER_00: So they should be able to sell more glasses to more people.
4:10
SPEAKER_02: Okay.
4:10
SPEAKER_00: But I mean, the stores feel pretty saturated.
4:13
SPEAKER_00: Gotcha.
4:13
SPEAKER_00: Yeah.
4:14
SPEAKER_02: You know, my fiance just had uh laser corrective surgery, like really big.
4:18
SPEAKER_02: It wasn't even sorry, it wasn't laser corrected, it was they basically implanted a lens into her eye.
4:23
SPEAKER_02: Wow.
4:23
SPEAKER_02: But before that, the cost of those glasses were it was really an expense.
4:27
SPEAKER_02: And that was one of the things we talked about when she was debating.
4:29
SPEAKER_02: She's really afraid of the surgery, but that was one of the things we were discussing was the cost of your glasses over the the next 10 or 20 years versus the cost of the surgery.
4:38
SPEAKER_02: And I'm curious, is it only corrective eyeglasses or is it sunglasses as well?
4:45
SPEAKER_00: Yeah, it's all sort of glasses.
4:47
SPEAKER_00: Okay.
4:47
SPEAKER_00: You know, you talked about the expenses.
4:50
SPEAKER_00: Make a guess how much a frame might cost to make.
4:54
SPEAKER_00: To make.
4:55
SPEAKER_00: Yeah.
4:55
SPEAKER_00: It's gotta be cheap.
4:56
SPEAKER_00: It's gotta be like 15 cents, 20 cents.
5:00
SPEAKER_00: Well, it's a little more, but it's from the sources I found it's between two dollars up to 10, depending on what sort of materials you use.
5:10
SPEAKER_00: Okay.
5:10
SPEAKER_00: But they have like a 10x markup on these frames.
5:14
SPEAKER_00: So I mean it's ridiculous, right?
5:16
SPEAKER_02: Yeah, see, I don't fortunately, my eyesight's uh pretty good.
5:20
SPEAKER_02: I don't really deserve it because I look at screens so much, but and I read so much, but my fiance just wasn't given that same gift.
5:26
SPEAKER_02: And she not only was like paying so much for frames, but she was so particular about what she would wear that she was willing, you know, money wasn't an object because you're talking about your face.
5:35
SPEAKER_02: Yeah, you know, and if you're somebody who needs to wear glasses, you're not gonna cheap out on the way your face looks for like the next three years or however long you intend to hold the glasses.
5:45
SPEAKER_02: The other thing that I think is kind of interesting about that is I mean, I'm somebody who loses, I only buy$10 sunglasses because I'm gonna lose them.
5:52
SPEAKER_02: I know it.
5:52
SPEAKER_02: I know I'm gonna lose them.
5:54
SPEAKER_00: Yeah, so you know, you could argue that such a business, I think the business has become too powerful, where they basically can charge whatever they want because they own it all.
6:06
SPEAKER_00: And people need glasses uh for whatever purpose they want, for the sun, for corrective lenses, whatever it may be.
6:14
SPEAKER_00: Right.
6:15
SPEAKER_00: And I mean, you can charge up to like$300 for a pair of glasses, and it costs them like maybe$50 to make.
6:23
SPEAKER_00: Right.
6:23
SPEAKER_00: You could ask yourself, is that is it good for society that such a business exists and it's so so powerful now?
6:31
SPEAKER_02: Well, I always think about that Bezos, your margin is my opportunity sort of uh principle.
6:37
SPEAKER_02: And anytime I see a business with a high margin, I do sort of ask myself, would somebody be able to just on price alone compete?
6:44
SPEAKER_00: Yeah.
6:45
SPEAKER_00: I remember there is this Canadian company, I think it was.
6:48
SPEAKER_00: I'll have to look up the name, but they decided to go like challenge SLO Luxotica on price.
6:55
SPEAKER_00: They sold the glasses mostly online, which reduced costs for the stores, obviously.
7:00
SPEAKER_00: So you could try them on with like a camera and with like virtual reality, you could try them on.
7:06
SPEAKER_00: And the glasses were like a hundred bucks cheaper, a lot cheaper, but I think they failed.
7:11
SPEAKER_00: And I don't even know if they exist anymore.
7:13
SPEAKER_00: But this is one of the companies I found that was trying to do what you're saying.
7:17
SPEAKER_00: Your margin is my opportunity, but they sort of failed.
7:20
SPEAKER_00: But I do have a couple more fun statistics just to give you an idea of the sheer size.
7:26
SPEAKER_00: Nearly 1.5 billion people wear glasses from SC Lord Luxotica.
7:32
SPEAKER_00: Wow.
7:33
SPEAKER_00: They own 80% of all major eyewear brands.
7:37
SPEAKER_00: So from all the brands that are out there, they own about 80% of them.
7:42
SPEAKER_02: Wow.
7:42
SPEAKER_00: Yeah, I know.
7:43
SPEAKER_00: This was pretty crazy when I found out.
7:46
SPEAKER_00: So when we talk about competition, so you sort of have a couple companies that own different brands.
7:53
SPEAKER_00: So, for example, you have an Italian company called Safill, and they sell Jimmy Chew glasses, David Beckham, Tommy Ilfiger, Hugo Boss.
8:04
SPEAKER_00: You have a company in the United States called Marchin, they sell Kelvin Klein glasses, Salvatore Ferragamo, which is like a luxury brand, Nike, for example.
8:15
SPEAKER_00: Then you have Esilor Luxotica, and they sell Ferrari glasses, Chanel, Docchen Gabbana, Prada, Ray-Ban, Tiffany, Swarovski, Vulgary, and many more.
8:27
SPEAKER_00: Wow.
8:27
SPEAKER_00: And then you have three smaller ones, well, caring, you might know, from Gucci.
8:32
SPEAKER_00: They sell their own brands.
8:35
SPEAKER_00: Gucci, Saint Laurent, Cartier.
8:38
SPEAKER_00: And then two small Italian companies, Dirigo, but they are like just a fraction of the size from Asilo Luxotica.
8:48
SPEAKER_02: Wow.
8:49
SPEAKER_00: Yeah.
8:50
SPEAKER_02: Yeah, I was seeing that it's trading for like a trailing 12 months PE of 53.
8:55
SPEAKER_00: It's very expensive.
8:56
SPEAKER_02: That's expensive, yeah.
8:57
SPEAKER_00: Yeah.
8:57
SPEAKER_02: For an established name.
8:59
SPEAKER_02: I mean, I'm not sure what their earnings per share, you know, growth rate is over 10 years, but it would have to be pretty substantial to justify.
9:07
SPEAKER_02: Yeah.
9:07
SPEAKER_00: Yeah.
9:08
SPEAKER_02: Wow.
9:08
SPEAKER_02: That's interesting.
9:09
SPEAKER_02: I had no idea that there was one company that controlled essentially 80% of the glasses that are on everyone's.
9:14
SPEAKER_00: Yeah, I think they have like 60% market share globally.
9:18
SPEAKER_00: Yeah.
9:18
SPEAKER_00: Right.
9:18
SPEAKER_00: Interesting.
9:19
SPEAKER_00: So I have this little piece on its history.
9:22
SPEAKER_00: I think the history is one of the best parts of this entire company.
9:26
SPEAKER_00: So for anyone that really wants to hear the complete history, it's called the episode is called A Monopoly Hidden in Plain Sight.
9:33
SPEAKER_00: It's on the Dutch Investors Podcast.
9:35
SPEAKER_00: I'll tell you the story afterwards.
9:36
SPEAKER_00: It's very good.
9:37
SPEAKER_02: Okay.
9:38
SPEAKER_02: Yeah, I would love that.
9:39
SPEAKER_02: I always like a history.
9:40
SPEAKER_02: It helps me remember the rest of the case for some reason.
9:44
SPEAKER_00: So that was my first company.
9:46
SPEAKER_00: Uh all right.
9:47
SPEAKER_00: Yeah, let's kick it off with yours.
9:49
SPEAKER_02: I'm uh excited.
9:50
SPEAKER_02: Speaking of history, we'll start with Guejo Mau Thai.
9:54
SPEAKER_02: So we're saying, you know, companies you haven't heard of.
9:56
SPEAKER_02: So there's probably over a billion people on Earth that have heard of this company, and they're all in China.
10:02
SPEAKER_02: I had never heard of Mautai, but I had heard of something called Baigeo.
10:07
SPEAKER_02: So for context, this is a beverage company that we're talking about, and it's one that gets an over 90%, like consistently over 90% gross margin.
10:16
SPEAKER_02: I've never heard of that in my entire existence.
10:18
SPEAKER_02: Like, you know, maybe for a company like Visa, they might have a gross margin like that.
10:24
SPEAKER_02: Or like a very high margin services company.
10:25
SPEAKER_02: I've never heard of a beverage company.
10:27
SPEAKER_02: Even Coca-Cola, not the bottler, but the Coca-Cola, the Capital Light version of Coca-Cola that we see today, post-spin-off of the bottler, they're getting like a 60% margin, and they're not bottling it.
10:39
SPEAKER_02: Guaizhou Maotai bottles all their liquor.
10:41
SPEAKER_02: But let's step back.
10:42
SPEAKER_02: I need to sort of explain a few things about this.
10:45
SPEAKER_02: So this is a Chinese company.
10:47
SPEAKER_02: 90% of their revenue is in China.
10:49
SPEAKER_02: It's about a$250 billion market cap company.
10:52
SPEAKER_02: It's one of the largest companies in China.
10:54
SPEAKER_02: Any large Chinese index will have this company in it.
10:58
SPEAKER_02: So it's a very large company, but I don't hear it talked about a lot.
11:01
SPEAKER_02: Usually when people talk about Chinese equities, they're talking about Alibaba, Tencent, things like that.
11:06
SPEAKER_02: But this is a completely different kind of company.
11:09
SPEAKER_02: So Baigio is a type of liquor.
11:14
SPEAKER_02: It is not like sake, which is basically like a wine.
11:18
SPEAKER_02: This is like over 50% alcohol by volume.
11:20
SPEAKER_02: So it's strong, very strong.
11:23
SPEAKER_02: And so I actually speak some Mandarin.
11:26
SPEAKER_02: It's a long story, but Baijo, Bai means white, Gio means alcohol.
11:30
SPEAKER_02: Beer is pijo.
11:32
SPEAKER_02: Baijo just means white alcohol.
11:34
SPEAKER_02: Baijo is a very popular type of liquor in China.
11:38
SPEAKER_02: So if you think about Russians drinking vodka and maybe Americans drinking Kentucky bourbon, Scots drinking whiskey scotch, they would call it whiskey, we would call it scotch.
11:49
SPEAKER_02: In China, they drink baijo.
11:51
SPEAKER_02: That's a very popular type of liquor.
11:54
SPEAKER_02: So the name of the company, if you just read it phonetically, it sounds like Quechi Mautai.
12:01
SPEAKER_02: This is like a romanization.
12:03
SPEAKER_02: And the name Guijo Mao Tai is basically almost an address.
12:08
SPEAKER_02: You know, if you think London, England, uh Guayzhou is a province in China.
12:12
SPEAKER_02: It's a very rural, a lot of industrial activity over there, not much going on, not a lot of giant major cities, but Mao Thai is a small village, and it's sort of famous for doing one thing and one thing only, and that's making baijo.
12:27
SPEAKER_02: The Guizou province itself has sort of a long thousand-year history of making baijo.
12:34
SPEAKER_02: And ever since the 1700s, historically, we can see something called Mao Thai liquor.
12:39
SPEAKER_02: Different emperors throughout Chinese history have written about the baijo coming out of Guizhou.
12:45
SPEAKER_02: And so somewhere in the 1800s, we can see a few different breweries get, you know, merged together and become Guizhou Mao Thai, which is essentially just a distillery.
12:56
SPEAKER_02: So telling a lot of history here, and I'll just finish with this: Henry Kissinger, Richard Nixon, Obama, and Chairman Mao, Zedong, all famously drank this throughout the communist revolution and out of the Dong Xiaoping era and into today, Gweizhou Mao Thai, this particular beverage, this particular, it's got this really weird red and white packaging.
13:19
SPEAKER_02: It almost looks like WD40 or something, like some sort of industrial cleaning fluid, and probably tastes like it too.
13:26
SPEAKER_02: But it's famously been sort of on the table at every big gala, wedding, social, political, business event.
13:34
SPEAKER_02: It's like a famous bottle in China, and it represents patriotism, it represents diplomacy, intelligence, affluence, wealth, prosperity, and it represents China in many ways.
13:49
SPEAKER_02: So I can say all of this, but first of all, we can just talk about there's a lot of different kinds of baijo that gets produced in China.
13:56
SPEAKER_02: In China in 2024, there were 3.9 million tons of baijo, the liquor.
14:01
SPEAKER_02: Like not Guajo Mautai, but Baijo, the type, right?
14:05
SPEAKER_02: vodka, but Baijo.
14:07
SPEAKER_02: 3.9 million tons of it.
14:09
SPEAKER_02: And of that 3.9 million tons, only 2% was Guijo Mao Thai.
14:15
SPEAKER_02: But out of the$110 billion US dollar Baijo market in China,$23.7 billion was Guijo Mao Thai.
14:24
SPEAKER_02: So despite only selling 2% of China's Baijo, Guaizhou Mao Thai collects 21.4% of the revenue of Baijo in China.
14:35
SPEAKER_00: Is that due to their luxury pricing or is it more premium pricing?
14:39
SPEAKER_02: It's luxury pricing.
14:40
SPEAKER_02: So Guaizhou Mao Thai sells for whatever they say it sells for.
14:44
SPEAKER_02: They don't produce as much as everyone wants every year.
14:48
SPEAKER_02: They limit their production, and every year they produce a little more, and every year they sell a little bit more.
14:52
SPEAKER_02: That's how they grow.
14:53
SPEAKER_02: But they intentionally limit production because it is supposed to be a rare type of product.
14:59
SPEAKER_02: Some Chinese people actually invest in it.
15:01
SPEAKER_02: They'll invest in a bottle of Guizhou Mao Tai.
15:03
SPEAKER_00: And how much does a bottle cost?
15:06
SPEAKER_02: So, like if you want to get just a bottle from a store, like that year's bottle, sort of like wine, different years have different prices associated with them.
15:13
SPEAKER_02: You could get a bottle for anywhere from 300 to a couple thousand.
15:17
SPEAKER_02: And if you want to get an old vintage bottle on auction, it might cost somewhere like a million dollars.
15:23
SPEAKER_02: So it's a really unique type of beverage.
15:26
SPEAKER_02: You know, we were talking about things that don't change, and it's, you know, it's not like it's impossible that all of a sudden this falls out of fashion, but it's so embedded into the cultural heritage of China that it's able to command this sort of pricing power.
15:42
SPEAKER_02: And the other way you could look at it is to go back to that sort of producing only 2% of China's Baigio, but getting about 24% of the revenue.
15:52
SPEAKER_02: We put it another way, in China in 2024, there were six bottles of Baijo produced per person, but there were 14 people per bottle of Mao Thai.
16:03
SPEAKER_02: Then we could talk about the series liquor.
16:05
SPEAKER_02: Basically, their flagship Mao Thai.
16:07
SPEAKER_02: They produce a couple kinds of liquor, but they're they have one product that's their flagship, and that's the famous red and white bottle, very sort of simple looking.
16:16
SPEAKER_02: They also produce a couple other kinds of liquors that are all sort of related or connected, and it's a roughly 50-50 split by volume.
16:25
SPEAKER_02: So they produce about as much flagship as they do all the other series liquors, but about 87% of their revenue is from that flagship bottle.
16:34
SPEAKER_02: And this is a business where they're getting 97% of their revenue out of China.
16:38
SPEAKER_02: So this is a Chinese business selling to Chinese people.
16:41
SPEAKER_02: Their return on equity is tremendous, 33%.
16:46
SPEAKER_02: So a great return on equity.
16:48
SPEAKER_02: They're trading for something like 21 times trillion 12 months earnings, at least they were the last time I checked.
16:54
SPEAKER_02: The balance sheet is clean as a whistle.
16:56
SPEAKER_02: And they've completely outperformed the market since their IPO and somewhere around 2001, 2002, maybe.
17:02
SPEAKER_00: Their statistics are unbelievable.
17:06
SPEAKER_00: Like their visa, like 50% net profit margin, return on invested capital of 65%.
17:14
SPEAKER_00: My God.
17:15
SPEAKER_02: Yeah, it's an insane business.
17:17
SPEAKER_02: This is what happens when you when A, you're selling to wealthy people.
17:22
SPEAKER_02: People will also people will give this as a gift at a wedding.
17:25
SPEAKER_02: It's actually kind of an easy gift.
17:27
SPEAKER_02: You know, if you think, okay, I'm gonna go with my wife and my kid to this wedding.
17:31
SPEAKER_02: It's in the US, we have like roughly$100 a head.
17:34
SPEAKER_02: So you can give someone cash or you could buy them a bottle of Mautai.
17:37
SPEAKER_02: They're never gonna dislike that.
17:38
SPEAKER_02: So banquets, weddings, any sort of business event, galas, conferences, Mao Tai is gonna be there.
17:46
SPEAKER_00: Yeah, it's almost like an investment if you give it to someone.
17:49
SPEAKER_02: Yeah, it is.
17:50
SPEAKER_00: It's sort of like buying a kid a bond or something like that.
17:53
SPEAKER_00: Yeah.
17:54
SPEAKER_02: So why is the stock price down 25% since the last five years?
17:58
SPEAKER_02: So a few things.
17:59
SPEAKER_02: One is China slowed down in general.
18:02
SPEAKER_02: I think a lot of different Chinese businesses have sold off since their sort of peak, and I don't know, maybe that was 21, 22.
18:09
SPEAKER_02: I didn't follow it too closely, China in general, but that's one.
18:12
SPEAKER_02: Two, one of the other things to dislike about the business, but two of their chairmen have been put into prison for life for bribery.
18:22
SPEAKER_02: So Yuan Rangao, he was the chairman until 2018, and he was served a life sentence in 2021 for taking 110 million yuan in bribes.
18:32
SPEAKER_02: Gaoi Dong, a later chairman, was sentenced to life in 2024 for accepting also about 110 million dollars or billion yuan in bribes.
18:43
SPEAKER_02: So that's another thing you could dislike about the business.
18:46
SPEAKER_02: If it's true, right?
18:47
SPEAKER_02: I mean, things happen in China.
18:50
SPEAKER_02: If it's true, there's also, if you read the uh New China playbook, it's a good book and it talks a little bit about the usefulness of bribes in developing economies that have a lot of regulation.
19:01
SPEAKER_02: It helps kind of grease the wheels.
19:02
SPEAKER_02: You can almost look at like bribery as a form of economic stimulation because it helps get things moving.
19:09
SPEAKER_02: It's pretty contrary to the way that I think, but there are many who would make that argument that bribery is sort of it's the rule or it has been the rule in China.
19:18
SPEAKER_02: But Xi Jinping has been cracking down on this recently.
19:21
SPEAKER_02: The other thing he's been cracking down on is luxury spending.
19:24
SPEAKER_02: And he sort of came out not so much against Guezhou Mao Thai, but against extravagance and extravagance spending for the wealthy and business leaders and things like this.
19:35
SPEAKER_02: And so it all of a sudden, for a little while recently, it's been a bit less safe for officials to go spend, you know, millions and millions of dollars on things like Mau Thai or sports cars or anything like luxury items like that.
19:49
SPEAKER_02: So, how long that will last, I don't know.
19:52
SPEAKER_02: I'm not somebody who thinks he is capable of predicting the whims of Xi Jinping or the CCP.
19:59
SPEAKER_02: That's not my business.
20:01
SPEAKER_02: And it's one of the, you know, a lot of the things that are sort of novel to China are the things that have, I don't want to say put me off the stock, but gave me a bit of a hesitation.
20:10
SPEAKER_02: Last and probably most, I don't want to say concerning, but unusual and difficult to think about is that 60% of the company is controlled by the Guaizhou province.
20:22
SPEAKER_02: So this is a that is a holding company, it's a state-owned entity, meaning that while there are outstanding shares, at the end of the day, the largest shareholder is the state.
20:32
SPEAKER_02: So that's a bit so a bull might say, okay, yeah, that's true, but that can also be really helpful because now they'll have state support for anything that they need.
20:44
SPEAKER_02: You know, the state is invested in the long-term growth of the company, but you know.
20:50
SPEAKER_00: Yeah.
20:51
unknown: Yeah.
20:51
SPEAKER_02: Double-edged sword, right?
20:53
SPEAKER_02: Double-edged sword, yes, exactly.
20:55
SPEAKER_02: Yeah.
20:56
SPEAKER_02: Yeah, so that's pretty much it.
20:57
SPEAKER_02: The mode is in the mind of the over, you know, one whatever it is, 1.5 billion people in China.
21:04
SPEAKER_00: Do you think this company is just as beloved by the youth, or is there a risk that like the younger generation doesn't really have anything with this specific drink or you know, this is something I've thought about.
21:19
SPEAKER_02: I will say that at this point, you know, about half of their sales are direct to consumer on the they have a the Mao Thai app, iMautai, I think it's called.
21:29
SPEAKER_02: And they have an app that is a direct-to-consumer app rather than just selling in retail locations.
21:35
SPEAKER_02: And that's generating, I want to say about 40% of their sales.
21:40
SPEAKER_02: So, I mean, I'm not that doesn't mean that older people in China aren't using that app.
21:44
SPEAKER_02: I think this would be something that would be great to talk to some people who live in China, younger people.
21:49
SPEAKER_02: I actually have a friend, my friend Pei, I could ask him.
21:52
SPEAKER_02: But it's a fair question because there's a lot of brands I can think of that my my mother or my grandmother might really like.
21:58
SPEAKER_02: Wow, in their minds, it's the same.
22:00
SPEAKER_02: Incredible brand, and I don't even know what it is.
22:02
SPEAKER_02: You know, yeah.
22:03
SPEAKER_00: What does help?
22:04
SPEAKER_00: I just talked to John Lin a couple of weeks ago, a China expert sort of bridging the gap between the Dutch and China.
22:12
SPEAKER_00: And he is saying that there is a massive secular trend going on where the Chinese are trying to get rid of sort of Western luxury and Western products.
22:23
SPEAKER_00: For example, Nike and Louis Fueton and her mess is becoming less of a thing in China, while the homegrown brands are becoming a lot bigger.
22:35
SPEAKER_00: So that does work in their favor, right?
22:38
SPEAKER_00: So yeah, yeah.
22:39
SPEAKER_02: Yeah.
22:39
SPEAKER_02: You know, it if you think about if you look at it from a Chinese perspective, I think Chinese people, many of them are very proud of what China's achieved over the last 20 or 30 years.
22:48
SPEAKER_01: Yeah.
22:48
SPEAKER_02: And some degree of national pride, nationalism makes sense.
22:52
SPEAKER_02: And Gweizhou Maotai is a symbol of that, quite directly.
22:55
SPEAKER_02: So that's Guizhou Maotai.
22:57
SPEAKER_02: That's my hidden in plain sight way to bet in China.
23:01
SPEAKER_02: But I'm curious what the third position of our day is going to be.
23:06
SPEAKER_02: And, you know, I also don't really know very much about this company, so I've heard it talked about before, but maybe you can go ahead and inform me about your second company here.
23:16
SPEAKER_00: Yeah, this is the most AI-like company you have ever heard of.
23:21
SPEAKER_00: Adido Polska, and I'll just kidding.
23:24
SPEAKER_00: They're just basically a supermarket chain.
23:27
SPEAKER_00: And yeah, that is about it.
23:29
SPEAKER_00: They're a Polish supermarket chain.
23:31
SPEAKER_00: But what makes them pretty unique is that they have net margins of around 5%.
23:38
SPEAKER_00: And for a supermarket chain, that is really high, especially if you compare it to competitors that typically operate with margins between one to maybe two and a half percent at a high point.
23:52
SPEAKER_00: You can basically think of it as a Walmart of rural Poland, okay, but more standardized.
24:00
SPEAKER_00: So the company has had a very strange 2025.
24:04
SPEAKER_00: From January to May, the stock price grew about 40%, then just a decline by about 30%, and it's now just up about 3% this year.
24:14
SPEAKER_00: Most of this is due to uncertainty with what's going on between Russia and the Ukraine and the EU, but also due to the ongoing price war in Poland.
24:26
SPEAKER_00: There's a lot of competition, but also due to the fact that they're now looking to grow into busier cities, which have lower margins, more competition.
24:36
SPEAKER_00: That's the gist of it.
24:37
SPEAKER_00: So Dino Polska appears as just any other supermarket chain, but if you look a little closer, it is actually pretty unique.
24:46
SPEAKER_00: The first point is standardization.
24:49
SPEAKER_00: Every store is exactly the same.
24:52
SPEAKER_00: They're about 400 square meters, they have the same layout, they don't rent, they own the land, and they build the stores themselves with their own construction company.
25:05
SPEAKER_00: So they basically are like a copy-paste machine, and they and by doing so they guarantee the lowest price for their 500 products and they're vertically integrated.
25:16
SPEAKER_00: The second pretty unique aspect is meat, and it sounds pretty irrelevant, but in Poland, fresh meat is part of that culture, so they own their own meat processing plant called agro Ritzina, apologies for my Polish, and they truck fresh meat to every single store every single morning.
25:38
SPEAKER_00: And one of our analysts went to Poland, and usually there are no lines.
25:43
SPEAKER_00: Dinopolska is more of a supermarket you go to every day, not like for weekly goods.
25:48
SPEAKER_00: But there is always a line at the meat section of the store.
25:53
SPEAKER_00: So people go there every day to get fresh meat.
25:55
SPEAKER_00: And the fact that they are not within busy cities right now is very interesting because they can get the land cheaper and there is a lot less competition.
26:05
SPEAKER_00: You can sort of create your own local monopoly if you target a town with just 2,500 people, for example.
26:13
SPEAKER_00: These towns are too small for any other competitors to try and go in there.
26:18
SPEAKER_00: One of them will go bankrupt for uh will go away.
26:23
SPEAKER_00: So, and all the mom and pop shops can't really survive once uh Adino Polska is in their town, and they generate pretty attractive returns on capital of about 20% on each store they open.
26:37
SPEAKER_00: Just to be clear, besides the three things I just mentioned, they don't really have a distinct mode in the classical sense.
26:45
SPEAKER_00: But due to their economies of scale, vertical integration, and this standardization model, they have become very good at just doing the same thing over and over again.
26:56
SPEAKER_00: And it shows since going public in 2017, they have returned 31% to shareholders Kegger.
27:06
SPEAKER_02: Wow.
27:06
SPEAKER_00: Yeah.
27:07
SPEAKER_02: Wow, that's a really impressive return.
27:09
SPEAKER_02: And is this exclusively a company that operates in Poland?
27:13
SPEAKER_00: They currently only operate in Poland, and I don't think they're planning on going outside of Poland anytime soon.
27:20
SPEAKER_00: They have many stores, I believe around 3,000 now.
27:24
SPEAKER_00: They open about a store each day, which is pretty fast.
27:27
SPEAKER_00: Wow.
27:27
SPEAKER_00: Yeah, or at least every other day they open a store.
27:30
SPEAKER_00: Their biggest competitor is Bidronka.
27:33
SPEAKER_00: They do a similar thing.
27:35
SPEAKER_00: They don't have the standardization model, but they focus on like these small towns as well.
27:40
SPEAKER_00: And they're looking to expand to neighboring countries in the east.
27:45
SPEAKER_00: So investors are sort of thinking that is something Dino Polska might try as well.
27:52
SPEAKER_00: I don't think this concept works in Germany or the Netherlands or Belgium, but I think it works in less developed, a little like the Czech Republic, countries like that.
28:02
SPEAKER_00: Yeah.
28:03
SPEAKER_02: Huh.
28:03
SPEAKER_02: So what do you see as sort of the the next five or ten years of the company look like?
28:09
SPEAKER_02: Is it a story about just improving margins and operations and capital returns with some growth?
28:13
SPEAKER_02: I mean, you were saying they were opening a store a day, but at a certain point, that can only continue so long if they're gonna stay in Poland.
28:20
SPEAKER_00: Yeah, we think they can do this the same pace for about seven to ten years, and then they'll definitely have to either go into very busy cities or go outside of Poland.
28:34
SPEAKER_00: What I like about it is that I mean they have the track record of just doing the same thing over and over again, and every single store they open is highly profitable, and all the cash flows go back into opening new stores.
28:49
SPEAKER_00: So I don't really have a reason to get out of this position at the current moment.
28:55
SPEAKER_00: The only thing I do worry about is like increasing competition.
28:59
SPEAKER_00: How many stores can you really open before you cannibalize your own operations?
29:04
SPEAKER_00: Like competitors start.
29:06
SPEAKER_00: I don't know, like a little is one of my favorite supermarket chains, and they are pretty big in Poland as well.
29:11
SPEAKER_02: Yeah.
29:12
SPEAKER_00: And then to make an estimated guess on who's going to win is pretty difficult.
29:18
SPEAKER_00: Yeah.
29:19
SPEAKER_00: So that is one of the things keep my eye out on.
29:22
SPEAKER_00: But so far it's looking pretty good.
29:24
SPEAKER_02: The fact that they own the real estate, I think, is really interesting.
29:28
SPEAKER_02: And beyond that, something I've never heard of is that they own their own construction company and that they're building their own.
29:33
SPEAKER_00: Yeah, it's a pretty cool story.
29:35
SPEAKER_00: You cannot find a single photo of the founder and CEO.
29:39
SPEAKER_00: There, he does no public appearances, he doesn't appear in any earnings calls.
29:44
SPEAKER_00: Nobody really knows what he even looks like, besides like the employees that work closely with him.
29:50
SPEAKER_00: He wants to stay out of the picture, and I believe he stepped down a couple years ago, but he still owns about 30% of all shares, and he is still a member of the board, I believe.
30:03
SPEAKER_00: Okay, so he still has a saying in the company.
30:06
SPEAKER_00: And last time I checked, Dino Polska has no CEO, and they sort of run the business with three independent like directors, and it has worked very well so far.
30:17
SPEAKER_00: Yeah, it's a pretty unique story.
30:19
SPEAKER_02: Yeah, that is really it's very unique.
30:21
SPEAKER_02: I've there's so many different little things that make it a bit special.
30:25
SPEAKER_02: I the only time that I've ever engaged in a lot of like direct retail stuff like that was I had an Ulta position for a little while there, and it actually did okay.
30:34
SPEAKER_02: I I wrote a post about it, something like why I sold Ulta and why I might live to regret it.
30:39
SPEAKER_02: So far, I'm living to regret it because I had some similar concerns about various competitors.
30:45
SPEAKER_02: I mean, my concern there was a limited total addressable market in the US.
30:48
SPEAKER_02: Granted, they were supposed to be expanding, but it was just a great business with a very steady history of good operations, good margins, a good model, responsible capital management, returns to shareholders, all the things that, you know, I think investors look for.
31:05
SPEAKER_02: But so if they can expand, if they can keep copy-pasting, as you said, which I like in Poland for a while, then yeah.
31:12
SPEAKER_00: If I look at my own investment like style, I like to look for two things.
31:17
SPEAKER_00: I either want businesses that have very high optionality, which are like the Googles, the Amazons, that sort of companies.
31:25
SPEAKER_00: Or I like companies that are very boring.
31:28
SPEAKER_00: So I have this holding company called 3i.
31:30
SPEAKER_00: It owns the discount chain action, and they are just doing the same thing as Dino, Polska, opening cheap stores, uh the same standardization model, just doing the same thing over and over again.
31:41
SPEAKER_00: They have no optionality, but what they're doing works well.
31:45
SPEAKER_02: Yeah.
31:46
SPEAKER_00: Just to correct myself, the founder owns about 50% of the outstanding shares.
31:53
SPEAKER_00: Wow.
31:53
SPEAKER_00: And he is the or was when we did the research, the richest man in Poland.
31:59
SPEAKER_00: For example, we don't know if he's married, we don't know if he has children.
32:05
SPEAKER_00: He didn't even come to the Polish stock exchange when Dino Polska went public.
32:11
SPEAKER_00: Nobody knows what he looks like.
32:13
SPEAKER_00: There's no photos available.
32:16
SPEAKER_00: It's pretty, I mean, that's that has to pique your interest, right?
32:19
SPEAKER_00: It definitely might it might concern me a little bit, but it is also interesting.
32:24
SPEAKER_02: I have a it's sort of another double-edged sword.
32:26
SPEAKER_02: I kind of like management who I really dislike promoters, is what I'll say.
32:32
SPEAKER_02: I don't like people who are, I mean, as soft-spoken, sweet, and intelligent as he does seem, Jensen Huang going on every podcast on earth kind of concern would concern me as a shareholder, or any anyone who seems to engage in the limelight.
32:45
SPEAKER_02: So I do kind of like that attitude.
32:46
SPEAKER_02: And I like managers who are willing to not only stay out of the public eye, but also occasionally piss off shareholders by, you know, perhaps waiting to buy back shares or you know, suspending a dividend because there's a growth opportunity somewhere else.
33:00
SPEAKER_00: I I like that sort of thing, but I wouldn't be too worried about him not being in the spotlight because he has been at the helm of the company for 25 years.
33:10
SPEAKER_00: Yeah.
33:11
SPEAKER_00: He, I mean, if I were him, I would want to stay the richest man in Poland.
33:16
SPEAKER_00: I would want to make more money.
33:18
SPEAKER_01: Yeah.
33:18
SPEAKER_00: I mean, he still owns 50% of the company.
33:20
SPEAKER_00: So if the company does bad, he will do bad.
33:23
SPEAKER_00: So just something to keep in mind, I guess.
33:26
SPEAKER_02: Have you talked to any Polish friends or any other Polish people about their experience?
33:31
SPEAKER_00: Yeah, so our analyst Matthijs went there and just visited some stores.
33:35
SPEAKER_00: I've interviewed a couple Polish investors, people that talk to management from Dino Polska.
33:41
SPEAKER_00: And yeah, they're all pretty positive about the company.
33:44
SPEAKER_00: I mean, for some reason, some investors like to think that when you go to a Dino store, it's so unique, but it's just the chain, and there's boxes on the floor, and there's people working, and it's but at the end of the day, it's about selling their goods in an efficient way.
34:02
SPEAKER_00: And you know, for example, all of the roofs are filled with solar panels and they don't need any power.
34:09
SPEAKER_00: Uh the solar panels do enough.
34:11
SPEAKER_00: Huh.
34:11
SPEAKER_00: Things like that just make the story a lot more compelling.
34:15
SPEAKER_02: Yeah.
34:16
SPEAKER_02: Yeah.
34:16
SPEAKER_02: That's a really interesting case.
34:18
SPEAKER_02: I'll probably add that to my watch list, and if for whatever reason it really takes a hit, I might pick up some shares.
34:24
SPEAKER_02: That's actually a pretty interesting.
34:25
SPEAKER_00: Yeah, it's been going down since a couple months, like I said.
34:29
SPEAKER_00: It's coming to a point where I might consider adding to it.
34:33
SPEAKER_00: So I think the valuation is still not cheap.
34:36
SPEAKER_00: I think it's about 25 times earnings, but for their growth path, I still think it's pretty attractive.
34:46
SPEAKER_00: Yeah.
34:47
SPEAKER_00: Okay.
34:48
SPEAKER_00: Very cool.
34:49
SPEAKER_00: We have a couple deep dives on the company.
34:52
SPEAKER_00: We'll make sure to share it with you.
34:53
SPEAKER_00: It's free for all the listeners as well, for those that are interested.
34:57
SPEAKER_02: So uh very cool.
34:58
SPEAKER_00: Yeah.
34:58
SPEAKER_02: Well, hey, speaking of companies that are going down.
35:01
SPEAKER_00: That's a good switch.
35:02
SPEAKER_02: How about that for a transition?
35:04
SPEAKER_00: So well, excited about this one.
35:06
SPEAKER_02: Yeah.
35:08
SPEAKER_02: Well, you know, look, it depends on the time frame you look at.
35:11
SPEAKER_02: But, you know, in the recent history, in the past couple of years, ever since the peak in COVID, this has been this is a theme I've kind of looked at a lot recently, which is I call it like the COVID hangover plays.
35:21
SPEAKER_02: You know, companies that sort of did exceptionally well in an unsustainable way during COVID, investors got way too over their skis with the company.
35:29
SPEAKER_02: And then when everything started to normalize, if you just look at revenues over four years, it's declining.
35:35
SPEAKER_02: But if you actually sort of normalize it all out, it's actually pretty substantial growth still.
35:39
SPEAKER_02: I mean, this is a company that's earning more than it did in 2019, double earnings per share since 2019.
35:45
SPEAKER_02: And over the past couple years, it's down because it was, I mean, maybe tripled its earnings from 2019 to 2021.
35:53
SPEAKER_02: And now it's, you know, things are normalizing.
35:55
SPEAKER_02: So anyway, I'm getting ahead of myself.
35:57
SPEAKER_02: But yeah, so I texted you yesterday.
36:01
SPEAKER_02: I think you might really like pool corp, and you said, we'll see.
36:04
SPEAKER_02: We'll see.
36:05
SPEAKER_02: And I think I figured out why you might be skeptical.
36:09
SPEAKER_02: I looked up that in the Netherlands there are about 20,000 people per pool, and in the US, it's 31 people per pool.
36:17
SPEAKER_02: So I might have a different experience with pools per capita than you do.
36:22
SPEAKER_02: Wait, really?
36:23
SPEAKER_00: There's a pool for every 31 people?
36:28
SPEAKER_00: That makes no sense.
36:29
SPEAKER_00: I think we have one swimming pool in our entire city.
36:34
SPEAKER_00: Yeah.
36:34
SPEAKER_02: So here's the thing in the states, a lot of households have pools.
36:38
SPEAKER_00: Uh so does this include like these inflatable pools and things you can set up?
36:43
SPEAKER_02: Uh so not like a kiddie pool, not like a pool for a kid, but like uh, for example, they have we have below ground pools, right?
36:49
SPEAKER_02: Which is where you dig a big hole in the ground, yeah, and then above ground pools.
36:53
SPEAKER_02: But we have one as well.
36:54
SPEAKER_00: Yeah.
36:54
SPEAKER_00: So uh I think those are more common here, but I don't think there's many, if any, like pools within in the ground here in in my particular town.
37:04
SPEAKER_00: Gotcha.
37:05
SPEAKER_00: Besides it's always cold here.
37:07
SPEAKER_02: So that's the thing, is you know, I mean, the Netherlands and you know, northern Europe in general, space is a little more limited and it's cold, you know, so you wouldn't expect that many people to have pools.
37:17
SPEAKER_02: Here in Spain, there are a lot more pools.
37:20
SPEAKER_02: So weather's gonna really, it's gonna be really weather dependent.
37:23
SPEAKER_02: And it varies a lot by state in the US as well.
37:25
SPEAKER_02: I think Arizona might have something like you know, 20 people per pool, and like Michigan might have like 170, you know, so it varies a lot by state.
37:34
SPEAKER_02: Weather's gonna come into play, of course.
37:36
SPEAKER_02: But even where I grew up in the Northeast, a lot of people had pools.
37:39
SPEAKER_02: And so it would make sense that to a European, you'd go, pools?
37:42
SPEAKER_02: Why?
37:43
SPEAKER_02: I mean, that's just not an important part of life.
37:45
SPEAKER_02: But in the US, you know, a lot of people have pools.
37:47
SPEAKER_02: Uh so it's about of something like eight or 10% of households have pools, and you also can think about hotels, gyms, spas, things like that.
37:57
SPEAKER_02: Public pools as well, of course.
37:59
SPEAKER_02: We have the YMCA.
38:00
SPEAKER_02: It's always fun to stay there.
38:02
SPEAKER_02: And, you know, so you think pool, and I don't know what comes to mind, but nothing really like that interesting.
38:09
SPEAKER_02: But here's the thing with a pool, and I know you guys are big into ASML, as am I.
38:14
SPEAKER_02: I think one of the simple ways you can think about pool corp, which is like the pool company of the US, and they're expanding into other countries, but you can think about the model sort of like ASML, where you have an installed base and then you have service and maintenance.
38:30
SPEAKER_02: So you have some part of the business that is building pools, you know, that's gonna grow when you build more pools, just like ASML is gonna grow their installed base when chip fabs expand and things like that.
38:42
SPEAKER_02: But then you also have the service maintenance and upgrades.
38:45
SPEAKER_02: So the difference is that pool corp actually gets a lot more, a higher percentage of its revenue from service maintenance and upgrades than a company like ASML.
38:53
SPEAKER_02: ASML is something like, and now I know it's almost like a little bit, I realize I'm comparing a pool company to ASML, but the dynamic here is whether you were taking this.
39:05
SPEAKER_02: Well, here's the thing, right?
39:06
SPEAKER_02: There are a lot of similar elements.
39:07
SPEAKER_02: And the price is the same.
39:09
SPEAKER_01: The price is the same.
39:12
SPEAKER_02: And I mean, pools are pretty high tech these days, you know, those filters, the pool toys.
39:16
SPEAKER_02: I mean, God.
39:17
SPEAKER_02: But, you know, yeah, besides like the absolutely insanely different things about the business, the similar thing is that you have part of the business that's the growth of the installed base of pools or you know, lithography machines, and then you have main maintaining and upgrading.
39:32
SPEAKER_02: The other thing that's similar is if you buy an ASML EUV machine and then you don't have service and upgrades, you might as well not have the machine.
39:40
SPEAKER_02: Same with a pool.
39:41
SPEAKER_02: If you put a pool in your backyard and you don't have some amount of water treatment or filtration or whatever, you are basically breeding mosquitoes and you're breeding all sorts of fungus and algae and all kinds of things you don't want.
39:56
SPEAKER_02: So you have to do that.
39:57
SPEAKER_02: If you're gonna use your pool, you have to maintain it.
40:00
SPEAKER_02: And with pool corp, about 60% of their revenue comes from you know service maintenance and upgrades.
40:04
SPEAKER_02: Now, pool corp is a B2B business.
40:06
SPEAKER_02: So the pool market in the United States is extremely fragmented.
40:10
SPEAKER_02: There's all kinds of different like pool service companies, hotel pool service companies, pool, you know, the it's just the pool guy, right?
40:17
SPEAKER_02: Like the people who come and take care of pools.
40:20
SPEAKER_02: You know, there's a whole market of people who do that, and those people shop at pool corp.
40:25
SPEAKER_02: It's pretty much as simple as that.
40:26
SPEAKER_02: Only about 8% of pool owners do it DIY.
40:30
SPEAKER_02: The rest use providers, other businesses that maintain and service pools, and those people shop at pool corp.
40:38
SPEAKER_02: I think it's 80% of the B2B market is pool corp.
40:42
SPEAKER_02: So basically, they're sort of like a the way to think about it, I guess, is you have all these different companies.
40:47
SPEAKER_02: You have chemical companies and equipment manufacturers, motor manufacturers, pool cleaning robot companies, et cetera.
40:56
SPEAKER_02: All these like disparate entities, and pool corp buys in bulk from them and they ship it to their, I think 200 something plus warehouses throughout the US.
41:06
SPEAKER_02: And then any sort of pool service or supply or maintenance company can buy their products from Pool Corp directly.
41:14
SPEAKER_02: So it's a simple, it's sort of like uh, I know it sounds like I'm just using like buzzwords here, but it's a little bit like the Costco thing where they buy in bulk from all these companies and get lower prices, and then they pass a lot of that saving on to the other businesses.
41:27
SPEAKER_02: They get this is not a high margin business, very different from Guijo Mautai.
41:31
SPEAKER_02: Something like, I don't know, like 7% net margin or something like that.
41:35
SPEAKER_02: It's not that impressive, but the growth is impressive, and the margins have expanded as well over time as the business has expanded.
41:41
SPEAKER_02: So, you know, they leverage their size to get lower prices from wholesalers, and then they just pass a lot of that along to their end customers, which are businesses.
41:53
SPEAKER_02: So the business is pretty straightforward in that sense.
41:56
SPEAKER_02: They supply all the stuff you need for your pool.
41:59
SPEAKER_02: Now, during COVID, the reason it's down is because during COVID, of course, famously the US all of a sudden everybody was buying houses, building houses, upgrading houses, interest rates were low, everyone had money, and there was just this huge surge in pool construction, a new pool construction.
42:15
SPEAKER_02: And this made their earnings look incredible because all of a sudden all these new pools were being built.
42:21
SPEAKER_02: But now all that has slowed down, and so revenue has fallen down, and that's mostly losing the new pool construction.
42:28
SPEAKER_02: Because if you're gonna go build a pool, you're also gonna get all your tile, your liner, all that stuff, you're gonna get it from pool corp.
42:35
SPEAKER_02: So when new housing starts slow down, so do new pool constructions.
42:41
SPEAKER_02: It's almost mechanical.
42:42
SPEAKER_02: But as things start to normalize, the business should normalize as well.
42:45
SPEAKER_02: You know, there's a little bit of a, it's a little bit of a bet on the housing market, which I might have overexposed myself to with another position of mine, which I think I'm probably gonna sell some of today and buy more pool corp because it's trading so cheap at this point.
42:58
SPEAKER_02: But as the US housing market starts to normalize, it should the pool corpse business should start to normalize.
43:04
SPEAKER_02: And the other tailwind would be that the installed base of pools in the US ages.
43:10
SPEAKER_02: And, you know, people were built in pools in the 60s and 70s and 80s as well.
43:14
SPEAKER_02: As those pools age, the tiles need to be replaced, the caulking needs to be replaced, the liners need to be replaced, the motors, the filters, all that needs to be refurbished, replaced, and this creates like a sort of a second tailwind for pool corp.
43:29
SPEAKER_02: So if, of course, if housing just like it starts to explode in the US, so will pool corp's revenue.
43:35
SPEAKER_02: But every time there's a spike in housing, you're also getting a spike in the installed base of pools.
43:40
SPEAKER_02: And so you're gonna get a sort of carry wind that's gonna flow through to the service and maintenance segment of the business.
43:48
SPEAKER_02: So that's the basic thesis.
43:51
SPEAKER_00: I think a better comparison, maybe, and you can correct me if you don't think it's better than the ASML one, is perhaps like an elevator company like Kone.
44:00
SPEAKER_00: Where just once you have the elevator, you need to get maintenance and repairs.
44:07
SPEAKER_00: Kone, for example, I think they sell the elevators at a loss, but the contracts for maintenance are like 10 to 20 years.
44:16
SPEAKER_00: And you gotta have them check the elevators, repairs.
44:19
SPEAKER_00: There's only Kone can do it.
44:21
SPEAKER_00: Okay.
44:21
SPEAKER_00: So I think that will be a pretty good comparison.
44:24
SPEAKER_00: Yeah.
44:25
SPEAKER_00: Do they only sell pool stuff?
44:27
SPEAKER_00: Because looking at their site, they also sell outdoor living, grills, lawn care equipment.
44:35
SPEAKER_02: Yeah.
44:35
SPEAKER_02: So I was just about to say, I think this is called the Horizons brands.
44:38
SPEAKER_02: And Pool Corp has been expanding into all sorts of different outdoor living, basically just improving your backyard.
44:44
SPEAKER_02: You know, in the States, I'm not sure how it is in the Netherlands.
44:47
SPEAKER_02: I know in Taiwan, it's really uncommon to invite people over to your house.
44:51
SPEAKER_02: You know, and as a matter of fact, I learned that usually in Taiwan people will spend more on watches and nice clothing because they always go out to meet people.
44:58
SPEAKER_02: They don't often have people at their home.
45:00
SPEAKER_02: In the US, it's the opposite.
45:01
SPEAKER_02: All we do is, hey, come over, have dinner, we'll go out to the pool, we'll grill, we'll barbecue.
45:06
SPEAKER_02: If I was in the States and you came to visit, we'd hang out outside, you know, in the backyard.
45:11
SPEAKER_02: That's just like what we do.
45:12
SPEAKER_02: If we're not in a basement, we're in the backyard, you know.
45:14
SPEAKER_02: And so if you own, let's say you own your home, you're one of those people who bought, you know, at a low interest rate back in COVID, and you go, well, I don't want to like, you know, I don't want to lose this 2% mortgage or 3% mortgage that I have on my house.
45:29
SPEAKER_02: So maybe we'll just do some improvements and let's start with the backyard.
45:33
SPEAKER_02: You know, so you might want to an outdoor patio, a fire pit, things like that.
45:38
SPEAKER_02: And pool corp sells all that stuff too.
45:40
SPEAKER_02: Why would you lose your mortgage rate?
45:42
SPEAKER_02: Right now in the States, mortgage rates are higher, significantly higher than they were three or four years ago during COVID.
45:48
SPEAKER_02: So a lot of people bought homes and locked in a low mortgage rate, a low fixed rate on their home, and they don't want to sell their home to upgrade to a bigger home because then they'll have to get a higher interest rate on that money.
46:01
SPEAKER_00: Oh, you can take it with you?
46:02
SPEAKER_00: Sometimes I really forget how life can be so different in different Western countries, right?
46:07
SPEAKER_02: Yeah.
46:08
SPEAKER_02: I have a friend who's a mortgage broker.
46:10
SPEAKER_02: I could ask him, but this is something like Wall Street Journal talks about this all the time.
46:13
SPEAKER_00: And oh, okay.
46:14
SPEAKER_02: It's called the lock-in effect.
46:16
SPEAKER_00: It's off topic, but I think we have like 20 million bikes and only like 16 million people here.
46:21
SPEAKER_00: So it's probably this a totally different story in the United States.
46:24
SPEAKER_00: Yeah, this all tracks.
46:26
SPEAKER_00: Yeah.
46:26
SPEAKER_00: So you think Pool Corp is attractively valued currently?
46:30
SPEAKER_02: So yeah, it's trading at something like 21 times.
46:32
SPEAKER_02: The last time maybe it was 22 times earnings the last I checked.
46:36
SPEAKER_02: You know, if you're looking at the last couple years, it looks like a falling knife.
46:40
SPEAKER_02: But if you really look at the company's history since 1995, this is a company that has just like a really stable business.
46:45
SPEAKER_02: And the housing boom that we just saw during COVID really just like it twisted the numbers.
46:50
SPEAKER_02: It made everything look way better than it ever was gonna be.
46:53
SPEAKER_02: And investors at that time were willing to believe anything.
46:56
SPEAKER_02: So the stock just traded up well above$500 a share.
47:00
SPEAKER_02: It was just, it was never gonna last.
47:02
SPEAKER_02: And as it started to come down, you know, I think Berkshire took a position.
47:06
SPEAKER_02: You know, who knows if that's Warren or who or what?
47:09
SPEAKER_02: But the thing about pools is it's one of those things that's just like even if robots run the world, humans still want to take a dip when it's hot.
47:16
SPEAKER_02: There's no technology disruption.
47:17
SPEAKER_02: And we can actually talk about the one company that tried to compete with these guys.
47:21
SPEAKER_02: I think it's called Kelsey's Incorporated.
47:23
SPEAKER_00: Yeah, my my question was going to be that how hard can it be to sell these maintenance contracts or tools or equipment?
47:32
SPEAKER_00: If somebody else does it cheaper and just as well, why wouldn't people switch?
47:36
SPEAKER_02: So here's the thing.
47:37
SPEAKER_02: So at any of Pool Corp's warehouses, you're gonna have about 200,000 different SKUs.
47:42
SPEAKER_02: So it's a lot of different items.
47:44
SPEAKER_02: Pool Corp has warehouses that are strategically positioned that they own or have capital leases for.
47:49
SPEAKER_02: And these are in specific locations where a lot of people have pools.
47:52
SPEAKER_02: You know, they have a lot of data on this kind of stuff.
47:55
SPEAKER_02: They have to keep everything stocked.
47:56
SPEAKER_02: They use a lot of different software to anticipate what people need and when and where.
48:03
SPEAKER_02: So they look at data from customers and see, okay, you know, in this town in Arizona, last year we actually had, you know, more chlorine sales than we expected of this particular type of tablet.
48:13
SPEAKER_02: So let's stock a little bit more of that.
48:14
SPEAKER_02: So they've spent decades optimizing their service.
48:18
SPEAKER_02: Now they have Pool 360, which is an app that technicians and service providers can use to order all their equipment.
48:26
SPEAKER_02: It helps Pool Corp keep everything stocked.
48:28
SPEAKER_02: The warehouses is just a big part of this.
48:30
SPEAKER_02: They also have really just like good relationships with their customers because they're not greedy.
48:34
SPEAKER_02: You know, sort of like the Costco thing.
48:36
SPEAKER_02: Like they're not here to nickel and dime service providers.
48:38
SPEAKER_02: They understand that this fragmented sector is exactly why they have a business.
48:44
SPEAKER_02: So they're not trying to run people out of their business.
48:46
SPEAKER_00: So do I understand it correctly that they sell to the maintenance people, or is it to consumers directly?
48:52
SPEAKER_00: No, so to maintenance people.
48:54
SPEAKER_02: This is a B2B.
48:55
SPEAKER_00: Yeah, it's B2B.
48:56
SPEAKER_00: So it's the Swiss company Hebrit that sells like toilet equipment and pipes to the plumbers.
49:04
SPEAKER_00: Yeah, there you go.
49:05
SPEAKER_02: Except this is the only company that does it.
49:07
SPEAKER_00: There's no competition.
49:08
SPEAKER_02: Well, okay.
49:09
SPEAKER_02: So say there's no competition is probably wrong.
49:12
SPEAKER_02: Like you can buy certain things on Amazon, maybe, or you know, you can get certain chlorine products at Home Depot or whatever.
49:20
SPEAKER_02: And like I said, 8% of pool owners do a DIY, roughly.
49:24
SPEAKER_02: Numbers from Google, so I don't know.
49:26
SPEAKER_02: But you know, you can try to do all this yourself, but you really have to be like testing the water.
49:31
SPEAKER_02: It's gonna take you time and effort and labor to maintain your own pool.
49:36
SPEAKER_02: So most people don't do that.
49:37
SPEAKER_02: Most people hire somebody, and those people want to make sure that they're able to provide that service at all times.
49:43
SPEAKER_02: They also, pool corp also offers like net 30, net 60 credit terms for their customers.
49:49
SPEAKER_02: So the customer can sort of accept the job, get it financed, get the materials and equipment that they need to repair a pool or to treat it chemically and provide that service, get paid, pay Pool Corp back, and they have a business.
50:03
SPEAKER_02: You know, so Pool Corp is sort of the enabler of these, like, I don't know this number, but I'm gonna guess about like 10,000 individual small businesses, mom and pop, or maybe, you know, a regional one here and there.
50:13
SPEAKER_02: So, you know, it's important that these people can provide that service.
50:16
SPEAKER_02: If you're having your fourth of you know, fourth of July party, you don't have that in the Netherlands, but if you want to get your pool ready for the summer, you're gonna have a big party, and all of a sudden your technician tells you, actually, we don't have that product and no one can swim in your water safely.
50:30
SPEAKER_02: They're gonna all get a disease if they do.
50:32
SPEAKER_02: There goes your part, you know, this is like very bad.
50:36
SPEAKER_02: They, you know, you got one job, it's make sure my I can swim in my pool.
50:40
SPEAKER_02: So, yeah.
50:41
SPEAKER_02: Now, speaking of the B2B, B2C, there is one company that tried to compete with Pool Corp.
50:47
SPEAKER_02: So, this is a company, I believe it's called Leslie's Incorporated.
50:51
SPEAKER_02: This was a B2C pool supply company.
50:54
SPEAKER_02: So they were serving that percent of the market that does a DIY.
50:57
SPEAKER_02: They got they had a bunch of little stores and strip malls all over the place, all over the country, a lot of them in Florida and the Sun Belt, and they were selling to consumers directly.
51:06
SPEAKER_02: They would test your water for free, you bring your water to the store, test it, and they tell you, hey, here's the products that we sell that you should buy.
51:14
SPEAKER_02: And that was what they were doing.
51:15
SPEAKER_02: And all was well and good until they IPO'd in 2020 and tried to compete B2B with Pool Corp.
51:22
SPEAKER_02: And maybe you just before I say anything, this will probably say more, maybe just quickly look up the stock price history of Leslie's Incorporated.
51:28
SPEAKER_02: That's what happens when you compete with Pool Corp.
51:31
SPEAKER_00: Oh, yeah.
51:33
SPEAKER_00: That ain't pretty.
51:35
SPEAKER_00: Yeah.
51:36
SPEAKER_00: 99.6% down.
51:39
SPEAKER_02: 99.6, yeah.
51:40
SPEAKER_02: And they didn't have junk credit rating.
51:43
SPEAKER_02: I wouldn't say chapter 11 is imminent, but it's very much on the table.
51:48
SPEAKER_02: So what happened was this company that I don't know you know how great their economics were before, it was probably not that amazing a business selling pool supplies D to C, but they made a lot of missteps.
52:00
SPEAKER_02: And the main thing that they did was they tried to, you know, if you think about it from the perspective of a pool guy, if you have a pool business and there's this company out there trying to get all your customers to do their pool shit themselves, and then they want to sell you products too.
52:15
SPEAKER_02: You might go, screw you.
52:17
SPEAKER_02: You're the main thing that I'm competing with here.
52:20
SPEAKER_02: And there's actually a term on Reddit in like R slash pools.
52:25
SPEAKER_02: It's called Leslie's bitch.
52:26
SPEAKER_02: And it's used to describe pool guys who started to buy stuff from Leslie's.
52:31
SPEAKER_02: The other thing that happened was Leslie's didn't stock enough of a particular type of the most common type of chlorine that we use in the US.
52:38
SPEAKER_02: And this was like during 2022.
52:41
SPEAKER_02: A bunch of people were locked down, all they could do was use their pools.
52:43
SPEAKER_02: And guess what?
52:44
SPEAKER_02: The supply chain totally sucked all of that chlorine off the market.
52:49
SPEAKER_02: There were, we weren't able to get all that chlorine.
52:51
SPEAKER_02: Pool corp had it stocked, and Leslie's started charging like a hundred and it used to cost like maybe 80 bucks, you know, for a certain amount of tablets.
52:59
SPEAKER_02: And Leslie's was charging 170.
53:01
SPEAKER_02: People were furious, they didn't have enough in stock.
53:04
SPEAKER_02: And all of a sudden you have all these people, they're stuck at home with their families, nothing to do.
53:07
SPEAKER_02: And freaking Leslie's doesn't have the chlorine, so they can't swim in the pool.
53:11
SPEAKER_02: And guess who had the chlorine?
53:12
SPEAKER_02: The pool guy, you know, who bought it from Pool Corp.
53:14
SPEAKER_02: So Pool Corp might be down a little bit, but if you look at what happened to their competition from something like$450 a share to a what, a buck 80?
53:22
SPEAKER_02: I know share price doesn't tell you everything.
53:24
SPEAKER_02: $600.
53:26
SPEAKER_02: From$600 to a buck eighty.
53:28
SPEAKER_01: Yeah, that's what happens when you compete with Pool Corp.
53:31
SPEAKER_00: Well, that's a strong thesis.
53:34
SPEAKER_00: Yeah.
53:34
SPEAKER_00: I'm pretty interested in this company.
53:37
SPEAKER_00: I might have to do a deep dive on this one.
53:39
SPEAKER_00: And I would love if you could accompany me on uh recording the deep dive.
53:44
SPEAKER_02: Oh, I would happily do that.
53:46
SPEAKER_02: I have a deep dive on it on my sub stack.
53:48
SPEAKER_02: I can't remember if it's a free one or not.
53:50
SPEAKER_02: But yeah, and the only other thing I'll mention is they do, you know, they do buybacks, a lot of buybacks, dividends.
53:56
SPEAKER_02: I think right now the yield on the dividend is something like 1.5%.
53:59
SPEAKER_02: Don't quote me on that exactly.
54:01
SPEAKER_02: But for a company that's also historically bought back a good deal of shares, that's pretty good and grows organically, you know, through opening up new warehouses and also through acquisition.
54:11
SPEAKER_00: So, how much more growth do you think is left for a company like this?
54:14
SPEAKER_00: Is it mostly the United States, or do you think they can go to certain other countries internationally that are have a similar like swimming pool pattern?
54:24
SPEAKER_02: So there's a few different sort of, I guess you'd call it a macro tailwind, or growth opportunities.
54:29
SPEAKER_02: One is, you know, a country like Australia.
54:31
SPEAKER_02: They're expanding into a few different countries, some in southern Europe and Europe in general.
54:34
SPEAKER_02: But the one I think is most analogous to the US is Australia because it's hot, they got a lot of land and a lot of space, and they love to hang out in the backyard and drink.
54:43
SPEAKER_02: You know what I mean?
54:44
SPEAKER_02: Just like Americans.
54:45
SPEAKER_02: So it's it makes a lot of sense to me that Australians would have a lot of pools, and you know, it's a good market for pool corp to enter into.
54:54
SPEAKER_02: I'm not sure how it'll all go, but but it strikes me as analogous.
54:57
SPEAKER_02: Now, beyond that, there's a lot of pools in America, but as a percentage of households, I think it's something like somewhere like six to ten percent of households have a pool.
55:10
SPEAKER_02: But there's a lot of homes that don't have pools.
55:13
SPEAKER_00: There's room for growth, definitely.
55:15
SPEAKER_02: There's room for growth there, and then it's also the installed base of pools is aging in America as well.
55:19
SPEAKER_02: There's a lot of pools that were built in the 80s and 90s that are they seriously need repairs and maintenance.
55:25
SPEAKER_02: And then beyond that, it's just we're underbuilt, we're about 10 million units, housing units short in the US.
55:31
SPEAKER_02: We need to build more houses.
55:33
SPEAKER_02: When we will, I don't know.
55:34
SPEAKER_02: A lot of people have been betting on that for longer than me and have been wrong.
55:39
SPEAKER_02: And so we'll see when that happens, but it has to happen eventually.
55:43
SPEAKER_02: And when that happens, pools will be built and chlorinated forever and ever.
55:48
SPEAKER_00: It's endless.
55:50
SPEAKER_00: Endless.
55:50
SPEAKER_00: So I really like doing this.
55:53
SPEAKER_00: I think we could maybe do something like this again because this also opens up more and new ideas for me personally.
56:00
SPEAKER_00: I'm always struggling to find new ideas.
56:02
SPEAKER_00: And if you can hear someone give their thesis and convince you somewhat and be interested, that just gives you like a foot in the door to start doing your own research.
56:13
SPEAKER_02: Yeah.
56:14
SPEAKER_00: Yeah.
56:15
SPEAKER_02: I loved it.
56:16
SPEAKER_02: And I had researched Pool Corp a while ago, and I had a position in it.
56:21
SPEAKER_02: And doing this, I refreshed my mind on the whole thesis, and I kind of went, Oh my god.
56:27
SPEAKER_00: I always have a rule that when you are this excited, you should wait 14 days before deciding.
56:33
SPEAKER_00: Yeah.
56:33
SPEAKER_00: Yeah.
56:34
SPEAKER_00: There is like this analysis rush after you do research or you talk about the company, you get excited, but you need to make it yeah.
56:41
SPEAKER_00: You need to make a decision where you're calm and you don't have any emotion attached to it.
56:45
SPEAKER_02: This I agree with.
56:46
SPEAKER_02: I mean, I'm down.
56:46
SPEAKER_02: It's my the worst performing position in my portfolio right now is Pool Corp.
56:51
SPEAKER_02: So happens.
56:52
SPEAKER_02: This is just an idea.
56:53
SPEAKER_02: I'll float it, but we could do a sort of uh occasional series called like Tell Me I'm Crazy.
56:59
SPEAKER_02: Yeah, exactly.
56:59
SPEAKER_00: Yeah, just every couple months.
57:01
SPEAKER_00: Yeah, something like that.
57:02
SPEAKER_00: I would love it.
57:03
SPEAKER_00: Yeah.
57:03
SPEAKER_00: I think that's a question to our listeners.
57:06
SPEAKER_00: If they do want that, just let us know, whether through the DMs, email, whatever it may be.
57:12
SPEAKER_00: Yeah.
57:12
SPEAKER_00: I mean, if enough people like it, we can also do with just the two of us.
57:17
SPEAKER_00: Yeah.
57:17
SPEAKER_00: That that works.
57:18
SPEAKER_00: But uh so anyway, Peter, what's next for you in 2026?
57:21
SPEAKER_00: What are your plans business-wise?
57:24
SPEAKER_02: Well, besides praying for the housing market to come back, you know, when you say business-wise, you mean investing-wise or substack wise?
57:30
SPEAKER_00: Yeah, and substack-wise for your portfolio, certain companies you're looking at, things that uh you're looking forward to in the next year?
57:38
SPEAKER_02: Well, the main thing I'm looking forward to is the secret position in my portfolio, which is that it's like a sub-50 million dollar market cap, and there's a lot of catalysts for it coming up.
57:48
SPEAKER_02: I don't really like the word catalyst.
57:49
SPEAKER_02: This term is getting a little overused, but you know, there's some big decisions happening there.
57:54
SPEAKER_02: So it's my biggest bet, my most, my highest conviction.
57:58
SPEAKER_02: And I make it secret for the record, I make it secret because I don't want to ever be accused of like pumping uh small cap stock.
58:05
SPEAKER_02: I think a lot of people do that on Substack.
58:07
SPEAKER_02: Won't go there.
58:08
SPEAKER_02: Anyway, that's big with Substack.
58:11
SPEAKER_02: I'm just I'm really excited to have conversations like this.
58:14
SPEAKER_02: I think there's some really cool people on Substack, yourself included, Seam, and all you guys.
58:19
SPEAKER_02: Uh and you guys just do a great job.
58:22
SPEAKER_02: And my whole hope with getting on the podcast and everything is to bring a little more color and FaceTime to some of the folks who are you know doing the research who I think are clear-eyed about investing and not just you know hyping stuff on Substack notes and making me crazy.
58:40
SPEAKER_02: So I don't know if that's a good answer to your question, but what about you?
58:43
SPEAKER_00: I think we're just going to do a little more of the same.
58:46
SPEAKER_00: We'll dive into 26 new companies next year.
58:49
SPEAKER_00: So that's pretty exciting.
58:51
SPEAKER_00: Very cool.
58:51
SPEAKER_00: I would love to double my followers and listeners on on Spotify and Apple Podcasts, which that will be amazing.
59:00
SPEAKER_00: I'm going to get married, which is uh so that's pretty big, but that's more on a personal note.
59:06
SPEAKER_00: I would like to for 2026, I would like to put my phone away more often.
59:11
SPEAKER_00: I uh that's totally off topic, but you know, that thing drives me crazy sometimes, and I just always see myself grabbing that thing when you're not doing anything.
59:21
SPEAKER_00: I want to put it away more often and grab a book or just sit in silence.
59:24
SPEAKER_00: So that is 2026 for me.
59:26
SPEAKER_02: I like it.
59:27
SPEAKER_02: I've been thinking about investing in a printer so that I can print out well Me too, actually.
59:32
SPEAKER_01: Yeah, print the annual reports and just read it instead of you know my fiancé is very skeptical that I'll actually use it, which is understandable.
59:41
SPEAKER_00: Peter, we're going to do it.
59:44
SPEAKER_00: Let's do it, and we're going to prove it to our followers by sending in a picture.
59:49
SPEAKER_01: Yes, I love it.
59:50
SPEAKER_01: I like this.
59:51
SPEAKER_01: I like this.
59:51
SPEAKER_01: I want to tell her I'm gonna be like, well, take it up as Team Baby.
59:54
SPEAKER_00: Uh no, but uh that's basically it.
59:59
SPEAKER_00: This was exciting, Peter.
1:00:00
SPEAKER_00: I hope we can do this again.
1:00:01
SPEAKER_00: I would love to, and thank you so much for just taking the time to do this with me as well.
1:00:07
SPEAKER_00: And uh thank you.
1:00:08
SPEAKER_00: Definitely for those listening on the Dutch Investors podcast, check out Margin of Sanity, and for those that don't know who I am, check out the Dutch investors.
1:00:17
SPEAKER_00: Yeah, either the website or the podcast.
1:00:20
SPEAKER_00: It's all good, beautiful.
1:00:21
SPEAKER_00: Thanks, man.
1:00:22
SPEAKER_02: It's great talking to you.
1:00:24
SPEAKER_00: What's great, and hopefully we'll see you in the next one.
1:00:26
SPEAKER_02: Yeah, perfect.
1:00:28
SPEAKER_00: Bye everybody.
1:00:28
SPEAKER_00: Bye bye.