Latest / The Dutch Investors / #109 | Is ASML too Complex to Own?

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#109 | Is ASML too Complex to Own? · The Dutch Investors

• 0:00
  SPEAKER_00: Welcome back everybody to the Dutch Investors Podcast.
• 0:03
  SPEAKER_00: Let me start this episode with a quick question.
• 0:07
  SPEAKER_00: How many parts do you think sit inside an ASML machine?
• 0:11
  SPEAKER_00: A thousand?
• 0:13
  SPEAKER_00: Ten thousand?
• 0:15
  SPEAKER_00: A hundred thousand?
• 0:18
  SPEAKER_00: The answer is over two hundred thousand parts.
• 0:23
  SPEAKER_00: Yes, that's right.
• 0:24
  SPEAKER_00: Two hundred thousand parts, many of them smaller than a grain of sand.
• 0:30
  SPEAKER_00: No single person, not even the CEO or top engineers at ASML can explain every piece of how these machines work.
• 0:39
  SPEAKER_00: And yet these machines are the backbone of the global economy.
• 0:44
  SPEAKER_00: Without them, there is no AI, no chips.
• 0:49
  SPEAKER_00: And without chips, there are no iPhones, no Teslas, no cloud computing, no AI.
• 0:56
  SPEAKER_00: So here's a puzzle.
• 0:58
  SPEAKER_00: If a business is this complicated, can anyone really invest in it?
• 1:03
  SPEAKER_00: You've always been taught the circle of competence.
• 1:06
  SPEAKER_00: This is definitely not in our circle of competence and definitely not in yours, if not even the CEO and top engineers can explain it.
• 1:14
  SPEAKER_00: And if you can't fully understand it, shouldn't we just put it in the too hard pile and move on?
• 1:20
  SPEAKER_00: That are more in today's episode.
• 1:36
  SPEAKER_00: Two of our three analysts here at the Dutch Investors used to own ASML, and at the right price, all three of us would love to own ASML again.
• 1:46
  SPEAKER_00: But people often ask us: do you actually understand what those machines do?
• 1:53
  SPEAKER_00: Even after doing two full deep dives, over three hours of podcasts, and dozens of hours of research and even visiting an ASML factory, we still don't know how the machine works.
• 2:08
  SPEAKER_00: So the honest answer is no.
• 2:10
  SPEAKER_00: No, we don't.
• 2:12
  SPEAKER_00: Not fully at least.
• 2:14
  SPEAKER_00: But to be honest, we don't think that's a problem.
• 2:17
  SPEAKER_00: In fact, it's part of the mode.
• 2:20
  SPEAKER_00: Because if the people building the machines can't fully grasp the entire system, then no competitor can just copy it.
• 2:28
  SPEAKER_00: And if customers wanted to switch suppliers, it wouldn't be like swapping one printer for another.
• 2:35
  SPEAKER_00: It would be like replacing a heart.
• 2:38
  SPEAKER_00: It's risky, it's expensive, and very, very hard, if not impossible.
• 2:44
  SPEAKER_00: But that's the key.
• 2:46
  SPEAKER_00: You don't need to understand every mirror, every lens inside an EUV machine.
• 2:52
  SPEAKER_00: But what matters is knowing that nobody else can build one.
• 2:56
  SPEAKER_00: That's what protects ASML, at least for now.
• 3:00
  SPEAKER_00: It brings us to Charlie Munger's famous idea, the circle of competence.
• 3:06
  SPEAKER_00: But most investors actually misunderstand this.
• 3:10
  SPEAKER_00: It's not about staying forever in your comfort zone, in your circle of competence.
• 3:16
  SPEAKER_00: It's also about knowing where the edges of your knowledge are, and being brutally honest when you've hit them.
• 3:23
  SPEAKER_00: We live in a world that rewards confidence.
• 3:27
  SPEAKER_00: Everyone wants to sound certain.
• 3:29
  SPEAKER_00: Price targets, hot takes, bold predictions, these are famous.
• 3:35
  SPEAKER_00: They work well and they spread fast.
• 3:38
  SPEAKER_00: But the truth is, certainty is an illusion.
• 3:42
  SPEAKER_00: The real advantage is admitting when you don't know something.
• 3:46
  SPEAKER_00: But people don't like this.
• 3:48
  SPEAKER_00: But the honesty keeps you from making the mistakes that come from overconfidence.
• 3:54
  SPEAKER_00: Now usually, when it's outside your circle of competence, you stay away.
• 3:58
  SPEAKER_00: That's fine.
• 3:59
  SPEAKER_00: But other times you push the edges of your circle just a little further.
• 4:05
  SPEAKER_00: That's what we did recently with LAM research.
• 4:09
  SPEAKER_00: Bauke, one of our analysts, went extremely deep into the company.
• 4:14
  SPEAKER_00: He read several books, including Chip War.
• 4:16
  SPEAKER_00: He studied more than 20 papers on etching, deposition, and cleaning.
• 4:22
  SPEAKER_00: He built a full semiconductor industry report for our members.
• 4:27
  SPEAKER_00: And after all that, he still had to admit, I couldn't pin down the exact technology gap between LAM and its competitors.
• 4:36
  SPEAKER_00: But that's also the lesson.
• 4:39
  SPEAKER_00: The process itself was worth it, and along the way we learned about the industry cycles, customer behavior, and where the real risks lie.
• 4:48
  SPEAKER_00: Sometimes trying to understand the too hard pile teaches you more than the easy wins ever will.
• 4:56
  SPEAKER_00: So here's something most people don't like to hear.
• 4:58
  SPEAKER_00: The too hard pal is not just a graveyard of missed opportunities.
• 5:04
  SPEAKER_00: It's also where you'll sometimes find your best investments.
• 5:07
  SPEAKER_00: Not because you suddenly understand everything, but because you realize nobody else does either.
• 5:14
  SPEAKER_00: That's also part of a moat.
• 5:17
  SPEAKER_00: It's also part of your edge.
• 5:19
  SPEAKER_00: And as investors, our job isn't to know everything.
• 5:23
  SPEAKER_00: It's impossible to know everything.
• 5:25
  SPEAKER_00: It's to know what matters.
• 5:27
  SPEAKER_00: And what matters with ASML, what matters at this moment, is quite simple.
• 5:32
  SPEAKER_00: These machines cannot be replicated for now.
• 5:35
  SPEAKER_00: And customers have no way of switching.
• 5:39
  SPEAKER_00: Will this be the case 10, 20, 50 years from now?
• 5:44
  SPEAKER_00: Maybe, maybe not.
• 5:46
  SPEAKER_00: But for now that's enough.
• 5:49
  SPEAKER_00: So the next time you run into a business that feels far too complex, don't instantly just walk away.
• 5:57
  SPEAKER_00: Perhaps take a second and ask, what's the one thing, maybe two, that I really need to know?
• 6:04
  SPEAKER_00: And if the answer is strong enough, simple enough, even just a little outside your circle of competence, it might be all you need.
• 6:14
  SPEAKER_00: If you enjoy learning, researching, and having a workspace for everything you need related to investing, check out the TDI terminal.
• 6:24
  SPEAKER_00: It's completely free to sign up and use.
• 6:26
  SPEAKER_00: And if you're ready to upgrade, we would love to welcome you.
• 6:30
  SPEAKER_00: You can find the link in the show notes.
• 6:33
  SPEAKER_00: That's it for today.
• 6:35
  SPEAKER_00: Until next time, and as always, stay curious, keep learning, and happy investing.