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Algy's Investment Podcast
William de Gale: Investing in Tech, Making 300% Returns & His Top Stock Pick for 2026 | #23 Part 2
00:34:04
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- [00:00]
Interviewer
And I'd like to move on to your blue box global technology fund specifically and ask you some questions about how that is positioned and how that's getting on. But before I do so, the overriding, the obvious question to ask is what is unique about your investment strategy?
- [00:19]
Darren
So I really think that it boils
- [00:22]
William
down to understanding that the tech sector is exactly the same as all the other sectors. So there's a belief that technology investors have to behave differently. And there are historic reasons why this happened essentially back in the 90s, really. But there's a belief that if you're a tech investor, you have to behave differently. So you're always turning a portfolio over because you're chasing the latest story. Less excitement. You're obsessed with disruptions and disruptor because these are the exciting companies that are using technology in a new way to change the world. You absolutely love ultra high revenue growth.
- [00:50]
Darren
Very exciting.
- [00:50]
William
This company is just exploding into the market. You're not particularly interested in profitability because profitability is something you deal with later. You want to dominate the market first and then think about how to make money later. And also the market as a whole is very, very concentrated in tech. So there's some extremely successful, very, very big companies which increasingly have overwhelmed the rest of the industry in terms of scale. So the market's becoming more and more concentrated. At least the investable universe is becoming more and more concentrated in a few absolutely gigantic companies. And so in general, most tech investors or institutional tech investors are also seeing their portfolios get bigger and bigger weights in these companies because they're huge benchmark constituents. And I think all five of those are wrong, personally. So the first one, turning over your portfolio the whole time, multiple hundred percent a year in order to keep up with what's going on, that's just such an enormous handicap performance. So I'd much rather keep our turnover low. So we basically buy stocks and then just watch them go up for 15, 20 years, hopefully. So our turnover is much lower, typically around 30% a year. And we don't know how long we hold stocks for because we haven't found out yet, because we still got them. In terms of disruptors, disruptors are exciting, but excitement in general is not how you make money. Excitement is what you spend money on, whether it's horses or disruptors. You don't make money out of it. That's how you spend the money you've already earned. The people who are making the money out of disruption are the companies that are making disruption possible.
- [02:17]
Darren
And those are the enablers and we'd
- [02:18]
William
much rather focus on those possibly slightly more boring companies.
- [02:22]
Darren
But there are still amazing businesses, and they are in general, extremely profitable. But even more, those profits are outgrowing the market as a whole. You know, you're getting high teens, 20% growth over, you know, decades for these businesses. And that in the end translates into very, very strong stock performance. But revenue growth is a negative indicator. High, very high revenue growth is an
- [02:45]
William
appalling indicator for future stock performance because
- [02:47]
Darren
the chances are it's going to slow down, and the market absolutely hates that. Even if you get margin expansion, the market will still send the stock down when revenue growth slows. So we're not interested in ultra high revenue growth. On the other side, believing that profits are not important is simply misunderstanding how investment works. So in the end, profits are the only thing that makes a business of any value whatsoever. And it's got to be GAAP profitability.
- [03:07]
William
What proportion of the business, of the
- [03:10]
Darren
value that business is creating is going to outside shareholders. That's essentially what GAAP earnings per share or GAAP net earnings is estimating. And it's not going to be precise. There's all sorts of flaws in all sorts of circumstances, but it's the best estimate we have. And if those gap earnings per share grow in the high teens for many, many years to come, then the stock will outperform because the stock price will follow that over time. It won't in any given quarter, possibly in any given year, but over any given five years, it jolly well does. So we're interested in profitability and gap profitability. And then on the size side, really, if you're focusing on the mega caps, even if you're only focusing in order not to get left behind by your benchmark, you're just missing the most exciting bit of the industry. The sweet spot, in my view, is the $10 billion to $250 billion market cap range. These are enormous companies, but they have the capability of getting even more enormous. You're a $10 billion company, it's large cap, all the liquidity you could ever want, all the information you could ever want. But if it gets it right, it turns into a mega cap. And my view of a mega cap, it's. It's 1% of the S&P 500, and that's around $500 billion. So that's 50 times upside. And if you're already megcap, you can't do that because you've done it already. You can't do it again. So this 10 to 250 billion range, in my view, is a sweet spot because you have the advantage of large cap investing, but you have the potential for vast changes in value surprisingly fast in the sector, if they get it right.
- [04:33]
Interviewer
Wow. What a great answer. Can we just move on to the team? Yeah, because it's really important to mention the team. Who's on the team, who are the golden nuggets in the team and how do you work?
- [04:45]
William
Yes. So the investment team is very small. It's just myself and Rupert Duborgroff and we've been running the fund together almost since the beginning, since October 2019. And Rupert is absolutely vital to the process. I suspect he probably comes up with more than half of the good ideas and I probably come up with more than half the bad ideas. So Rupe and I very much run this together jointly. And as the portfolio managers, we don't have any analysts, it's just the two of us as the portfolio managers. If we get it wrong for a sustained period, then the business will dwindle, but it would take multiple years. It's generally a pretty sticky business unless we do something absolutely horrific. So we can be a drag on the business for many, many years and hold it back if we get it wrong. We have a sales team led by Yannick Haskamp, who's based in Luxembourg. He is out there ensuring that our current investors are happy. They have information they need to continue to make their decisions. Hopefully that leads them to stay with us, but that's their decision to make. So we just them the information they need, keep them fully informed and find new potential investors. And so if Yannick gets his job wrong and the sales team don't service the existing customers and don't find there's any new ones, then that again, the business would go downhill faster than if I make bad investment decisions. Maybe in a year he would gut the business there. Hopefully that's not going to happen. But the most dangerous of all is from operations. So our operations team is absolutely vital. Bob, Sasha, Luke, Arnaud are ensuring that the business doesn't fall over in the short run. Because operations, if you get it wrong, can kill your business in days. It's not years, it's not even months, it's potentially days. So they got to make sure that the business continues moving forward, that we don't make silly mistakes, that everything ends up in the right box, the right category, all the regulators are happy. So actually, on a day to day business, I think that's probably the most important bit and may well actually be the Hardest bit too.
- [06:49]
Interviewer
I completely understand that. And so often actually, fund managers forget about how important everybody else is behind.
- [06:57]
William
And I think in a big company it's very easy because in my years at BlackRock, fund managers are treated as almost the gods of the business. And we just assume that everything else is easy. And actually it's the everything else. Having started a business from scratch is the everything else is difficult. It's the fund management. It's pretty straightforward in terms of the investment decisions. It's creating a business, growing it, and keeping the ability to deal with that growth as fast as the money is coming in. When you have a growth spurt, that's a real challenge, and that's operations, and that's really important.
- [07:29]
Interviewer
How many stocks do you own in the fund?
- [07:31]
Darren
30 to 35.
- [07:32]
William
And I think at the moment we are at 35.
- [07:34]
Interviewer
And then how many more on the sort of potential investment bench?
- [07:41]
William
So I think there's probably about 50, 60 companies which we could in theory own that would meet, at least on
- [07:49]
Darren
the first site, would meet our constraints,
- [07:52]
William
but probably not a lot more than that. So we own most of the companies we could own. We probably have owned at some point almost all of them, but at the moment we own maybe half, a little bit more than half of them.
- [08:02]
Interviewer
What percentage of the fund is currently invested in chip manufacturers?
- [08:06]
William
40% or semiconductors and semiconductor equipment? So the companies that make machines, that make the chips.
- [08:10]
Interviewer
And how does that compare with history?
- [08:13]
William
So we stay within the range of 30 to 40% and we're normally up at 30, 40%. So that's the target weight. So each individual stock has a target weight. They may go over that if they're doing well. So it may go over 40% in the actual holdings, but then we'll take it back down to 40%. So 40% has been the target weight almost the entire time. But occasionally we realize that the market is getting seriously worried about something, at which point we'll pull that weight down a bit and the market will have pulled it weight for us as well, because chips will lead the market down when people worry. And we'll say we'll take it down, let's say into the low 30s, but we'll be very quick to put that weight back in and go back to 40%.
- [08:50]
Interviewer
Is that quite unique for an active technology fund manager?
- [08:54]
William
I think that's unusual. So certainly it was very unusual five years ago. We were way more invested in semiconductors than others. I think with AI there's been more realization that the picks and shovels manufacturers in particular Nvidia. It's just so obvious with Nvidia are the way or one of the ways to play it. And so semiconductor weight has increased for a lot of our competitors as well and has increased within the benchmark. But I'd say we're still at the high end of our peers.
- [09:19]
Interviewer
Okay, and then exposure to software manufacturers. What's that?
- [09:23]
William
So we've probably got about 30% of
- [09:27]
Darren
the fund in software.
- [09:29]
William
I would have thought possibly a little bit more. And there's one or two exciting ones in there, but in general those are quite big, old, very reliable software platforms, cloud software in general, which are seen as the losers from AI. And so with a number of our stocks, they've been doing in the software, they've been doing relatively badly the last couple of years. But I think there's a misunderstanding by the market as to who actually is going to make the money out of AI. And I think it's going to be them in the long run.
- [09:58]
Darren
So we stick with them for now.
- [09:59]
Interviewer
And how many stocks in your fund do you think have got the potential to double over the next three years?
- [10:06]
William
Well, I hope all of them have. So the fund as a whole has
- [10:09]
Darren
doubled over the last three years. So on average they have. We're looking for companies which have got GAAP EPS growth in the high teens. That's generally what we're looking for and in many cases well into the 20s or higher. So if you've got 20% EPS growth, you would expect over time the share price to go up by 20% a year as well. So you know, it takes three years and you're almost doubled on that basis.
- [10:33]
Interviewer
And then moving on to people, give me three of the most outstanding chief executives that are in your portfolio today.
- [10:42]
William
Right.
- [10:42]
Darren
So I'm only going to mention, but not kind, as one of them is Jensen Huang at Nvidia, because lots of people talk about him. So I'm just going to ignore that for a minute. So the other ones I would pick would be Satya Nadella at Microsoft, Lisa Su at AMD Advanced Micro Devices and Marco Scalper in at Mercado Libre. And I'd say no one is perfect. And Satya Nadella may well be making mistakes with AI OpenAI and generative AI. Don't know, we'll find out. But the way that he saved Microsoft from an almost obsessive avoidance of a cloud to a complete embracement embracing of cloud computing was quite striking and gave Microsoft a second go in the top of the industry, which it didn't deserve from the previous management. So that turn every now and again an individual can completely turn a huge company around and that's one of them. So wherever it is from now, I think he's already earned a place at the table, as it were. Lisa Su at AMD likewise, she took a company which is in a really difficult position as the underdog, perpetual underdog from intel and worked out a route to get it into a competitive position and in fact effectively overtake in many respects. And she made this pretty clear what she was going to do back in probably about 2013, 2014 when she took over. I've heard these stories a lot before. I didn't believe it at the time, but I wish I had. I would have done even better. And she stuck with it. And the company has demonstrated its versatility and capabilities and has basically taken the fight to intel and beyond and is now, you know, far ahead of it in the AI side. So I think the team there, led by Dr. Sue has been very, very effective. And then Marcus Galperin is probably less well known. So he is the founding CEO of Mercado Libre, which is effectively the Amazon of Latin America. And this business was founded in the late 90s, it's Argentinian, it survived the dot com bust, it acquired its nearest
- [12:57]
William
competitor and it has basically just in
- [13:02]
Darren
my view, not really put a foot wrong since. So this has been a stock I've owned since 2008. It IPO'd, I think in late 2007. So it wasn't quite that at the beginning but fairly soon after it. And it's a very, very well run business. And my definition of a well run business is not just that it creates value, that it grows, that it dominates its market, that it has sensible responses to competitive threats and when it see opportunities, but also that it's run in the interests of outside shareholders. And one of the big problems with the E commerce industry and a lot of the tech industry as a whole is that they lose sight of who the business is being run for. And they're also they find that the scarce resource is not the investors, me and my like, and our clients, but often the software engineers or the management or the salesman and those individuals end up receiving most or all or more than all the values created by the business, usually in the form of stock compensation of one sort of another, which the market, particularly the tech sector, just loves to look through. But it absolutely the dilution that can result from excessive stock compensation can destroy the long term returns of the stock, even if the Business continues to grow very strongly and it's notable that Mercado Libre have never used dot com, and they still have essentially the same share count as they did after the secondary they did very shortly after the ipo. So they've almost never issued any more shares at all. So employees are compensated partly on the basis of stock performance and my understanding, but it's always in cash. It's very straightforward. It's a cash conversation. So there's no stock dilution going on. This business is being run in the interest of outside shareholders as well as in the interest of the other stakeholders, in particular the consumers. So it's doing wonders for the standard of living and the freedom and choice available to consumers in Latin America. But it's been growing profits for its shareholders for a very, very long time.
- [14:58]
Interviewer
Do any of your holdings in your fund buy back their own shares?
- [15:02]
William
Yes, I think they probably all. Almost all do, I would have thought. Yes.
- [15:05]
Interviewer
Which again is another very healthy sign. As long as they're not doing it at escalated prices.
- [15:09]
William
Yes, I think buybacks are a good way to get rid of cash that you don't have a way to get an ability, an above normal return on an above cost capital return. And it's a sort of sign of confidence and it's more flexible than dividends. But to me, I think I'm not as focused on buybacks as many investors are, and I certainly don't see it as a way of reversing dilution, apart from in an entirely literal sense. So if your dilution is caused by stock comp, the fact you then buy back those shares with your cash flow doesn't reduce the cost of the outside shareholders of that stock comp. It's still dilution, which you then had to use chunks of your free cash flow to reverse with stock. So it's a sign and it's a sort of healthy sign in many cases. But if the business can find ways to invest at a very high rate of returns, then I'd rather do that than return the cash to me.
- [16:03]
Interviewer
And just while we're talking about share buybacks and chief executives, of all the chief executives that you've met and many of whom are in your portfolio right now, who would be the one you would think would be the most fascinating for me to interview on this podcast,
- [16:18]
William
Well, I would have thought if you could get either Marcus Galperin or Lisa Su, it would be. That would be a really interesting conversation. So. And they're probably less well known than many of the tech CEOs who are already everywhere.
- [16:34]
Interviewer
And do you get any. Do you get much exposure to the CEOs yourself as an investor?
- [16:38]
Darren
So no.
- [16:38]
William
So I've only met those two once and a long time ago once each. So my exposure now at BlackRock, it was more often with CEOs and CFOs now I would tend to get the CFO or the investor relations team, but that's fine. They're very good in many cases. And also I'm not as interested on one on one meetings as I would have been back in blackrock, because it's interesting to me to hear what all the other investors are interested in and often they have better questions than I do. So let's listen to what their questions are and what the response to those are rather than just create all the questions. Myself,
- [17:12]
Interviewer
I completely get that. Going back to the portfolio for a second, what percentage do the top five companies make up in your fund?
- [17:21]
William
So at the moment just over 20%, so it's probably between about 19 and 25%, but I think at the moment it's 21, so very well spread.
- [17:31]
Interviewer
Which brings me on to my next question, which is about passive investments and exchange traded funds. If I was to buy a global technology etf, what would be the top five stocks in that ETF and what percentage of the fund would they represent?
- [17:50]
William
So the top five would almost certainly be Nvidia, Microsoft, Apple, Broadcom and Taiwan Semiconductor, all of which are fine companies and create huge value for investors. And you can see why they're as big as they are. But the problem is the indices have become very, very concentrated. So just those top three are around 45% of a global tech index, even if it's got emerging markets in it. And the top five will be typically something like 55% of industry benchmarks. And those ETFs that are following those industry benchmarks in a pure form will therefore effectively be equally as concentrated. Many of them though have realized that that is not properly diversified. And so they may well cap the investment in any one company to let's say 10% or 12% or something. So then it will be slightly less concentrated, but they will still trying to chase the benchmark's performance. They'll just have to think of other ways to do it. So if the benchmark that's very concentrated goes down because a stock that's 17% of it halves, then you would expect the ETF to have to follow that down.
- [18:53]
Darren
Even if it doesn't own 17% in
- [18:55]
William
one of those stocks, it will have replicated that exposure in some way because the creator of the ETF is not being paid to outperform, they're being paid to perform in line with that benchmark. But these are the challenges of ETFs, even passive ETFs, let alone active ones.
- [19:12]
Interviewer
And then within your fund, you mentioned that you had analyzed turnover approximately 30% per annum. Is that by name or is that by.
- [19:20]
William
That's total turnover. Turnover, including inflows and outflows.
- [19:23]
Interviewer
But you do some adding and trimming within the portfolio, so your real turnover is probably a bit lower.
- [19:31]
William
So our names, in terms of buying a new name and selling an old one completely, that's probably three or four a year, roughly one a quarter. In terms of adjustments to the weights, we will tend to do most of that when we need to adjust the portfolio anyway because we've got a cash flow in or cash flow out. So we have flows every day, but they build up. So when I need to trade to raise money or to invest money, then we'll take everyone back to target weight. Sometimes we'll trade without a cash flow
- [20:01]
Darren
and that's creating turnover.
- [20:04]
William
But most of our turnover is as a result of the flows of the fund.
- [20:07]
Interviewer
And in recent decades, how much of The S&P's earnings has been driven by technology?
- [20:12]
William
Almost all of them. So if you use a strict definition of the technology sector, so you just follow the sector definition, then the whole of global equity markets, excluding technology, has seen effectively no growth in profits since around 2007. It's flat, I mean, far less than the rate of inflation. There might be a token increase over that period. And in contrast, the US technology sector
- [20:38]
Darren
has seen massive growth, around nine, tenfold,
- [20:41]
William
something of that over that period. So around 14% a year over that period. So the world ex tech has seen
- [20:48]
Darren
no profit growth for 18 years.
- [20:50]
William
All the growth in equity market profits can be attributed to the tech sector.
- [20:54]
Darren
I mean, of course there are exceptions, there are bits of those other sectors that have grown, but there are some that have shrunk and they net out at zero.
- [20:59]
William
So I'm afraid that the pure tech
- [21:00]
Darren
companies have stolen all the profit growth from the rest of the market. And the rest of the market can include some amazingly good companies. So those non tech companies include businesses like, you know, Meta and Alphabet and Amazon and Visa and MasterCard and Tencent and Alibaba. Because none of those are technology companies. They don't sell technology. They buy technology, they sell something else. You know, even Alphabet, you know, we think of Alphabet, Google as being a tech company. But it essentially buys technology.
- [21:27]
William
It sells advertising, which is why it's
- [21:29]
Darren
not classified as a tech company. It's in the communication sector, as a media company, so it's in the everything else bucket. And it's seen massive profit growth since 2007, but that's been at the expense of the newspaper industry and the TV industry and all the other industries. So that's a zero sum game for profit. So all the other sectors have seen a reallocation of their profits between disruptors and incumbents, the insurgents and the defenders. It's just a reallocation of an existing profit pool. And all the upside has gone to the technology companies and that's new. So you can go back and look at leg chart log charts of profitability for tech and non tech right back to the 80s. And that hasn't happened before. So this has only happened in the last 20 years. And in my view there are reasons for that. Lots of people would disagree with that, but I have my own sort of pet prop theory for that one.
- [22:21]
Interviewer
What has your fund generated in terms of return over the past year?
- [22:26]
William
So a typical institutional class would have generated around 24% after fees.
- [22:30]
Interviewer
Okay, so what have your top five holdings contributed to that return over the past year?
- [22:38]
William
So the biggest single contributor I think was Palantir, which contributed about 3%. Another two big names would be Lam Research, which I think contributed about 2.3%. And I'm trying to think what the number three was. Oh, Arista Networks. And that again was around 2%, maybe 1.8%. So those three were quite big contributors over that 12 month period, but not the majority. So it's quite a flat portfolio. So there's plenty of other contributions.
- [23:12]
Interviewer
So there's top five contributors. Top contributors.
- [23:15]
William
Top five would probably be another 5, 6, 7, 8, 9, 10. Probably about 10% less than half of the overall upside.
- [23:24]
Interviewer
And now for the killer question. How much have the bottom five detracted from performance? Your worst performing stocks over the last year.
- [23:37]
William
The bottom five, I know our worst performer took about a bit more than 2% off. That would be Adobe. Then there's a few around the 2, sort of 1.4 to 1.8. So let's say 1.6 for the other 4, 6.4. So that's about, about 9% probably between them. So not that dissimilar to the top five.
- [23:59]
Interviewer
Yes, but in the opposite direction, but actually no real torpedoes. I mean Darren, two, two. It's going to happen, isn't it? Because you've got a, you're in the technology sector.
- [24:07]
William
Well also if everything's going up at the same rate, then I have no ability to add value by from moving money from temporary outperformance to temporary underperformers, which we do very gently in the background, you know, once a month as the cash flows determine and we can add value like that. So I actually quite like having a stock that's doing relatively badly as long as I don't think it's going to do that forever.
- [24:30]
Interviewer
Have you ever owned a company that's gone bust?
- [24:32]
William
Not when it's gone bust. I've owned it before it went bust and sold it beforehand. And that's sort of the secret really. Yeah, owning a company that goes bust is very embarrassing.
- [24:40]
Interviewer
Yeah, that's a very honest answer. What has been your best decision this year?
- [24:44]
William
So from an investment point of view, I think probably it was doing absolutely nothing. When Mr. Trump first came out with his extraordinary tariff, first sort of tariff broadside to the world and resisting the urge to do anything was the secret to very strong performance in the first half in my view. In terms of non investment decisions then I think as a business the decision to add operations could be capability ahead of inflows is absolutely vital because otherwise you can't cope with success when it arrives.
- [25:24]
Interviewer
And the other side of the coin, the worst decision.
- [25:27]
William
So in the story so far, the worst decision would probably be buying a position in Sea Limited an E commerce business, in October, but we've only owned it for about six weeks, so it's probably, probably September actually, so we don't know what the long term result of that will be. And we bought it and it probably went down about 15% so that has hurt. It'd be nice if we bought it either earlier or later, but I think in the long run it'll work out. So I'm not too worried by that one.
- [25:56]
Interviewer
And where do you see mispriced valuations in tech at the moment?
- [25:59]
William
So in my view it's the big software platforms, the cloud companies such as Adobe in particular, which are perceived as being the biggest losers from AI because there's a fear that agentic AI in particular will both reduce the number of seats that people need, they'll make their customers much more efficient, they won't need as many people to do the same job and also partly as a result reduce pricing. So not only do would Adobe lose volume in terms of the number of users it has, but also will be able to charge each user less or at least not be able to push
- [26:30]
Darren
the price up anymore.
- [26:31]
William
And that's clearly a risk and it's probably more at risk than it's been
- [26:34]
Darren
for a very long time.
- [26:35]
William
So we did take down our overall long term target rate for the stock,
- [26:39]
Darren
but personally I don't think that's how
- [26:40]
William
it's going to work out. At the moment there are almost no
- [26:43]
Darren
companies that have made money out of the use of generative AI. All the money that's been made has been out of the creation, the training, essentially buying lots of Nvidia chips, building data centers. No one's making money out of using it.
- [26:55]
William
And in my view, the use of
- [26:56]
Darren
AI will probably be monetized at scale first by these big software platforms that people are regarding as the biggest losers. But they're the easiest place to deploy AI profitably at scale, rather than taking your existing complicated and very stressed IT system and plumbing some new exciting point product in. That's amazing, but it's from a little company that may not be there in a couple of years and you've got
- [27:19]
William
to effectively wire it in and all
- [27:21]
Darren
the risks and expense and time that requires or you just tick the box
- [27:25]
William
on the dashboard of the platform.
- [27:26]
Darren
You're already, whether that's Salesforce or Adobe or ServiceNow or whatever into it, just tick the box and you might get
- [27:33]
William
that actual point product.
- [27:35]
Darren
Because for example, Adobe has got a third party platform now and it will allow you access the best products off its platform but within Adobe and it's
- [27:41]
William
dealt with all the integration and stuff in advance.
- [27:44]
Darren
Or the Adobe product itself may be almost as good and it's a tick box, an extra dollar a month without all the risk and time and expense of integrating. So these companies have got the customers, they've got the application, they've got the data. I think it's easier for them to make money out of AI than anybody else.
- [28:01]
Interviewer
That's a really interesting answer. What time horizon do you think a new investor who's going to invest in your fund tomorrow take when going into your fund to ensure they get an inflation busting return over the long term?
- [28:15]
William
Yes. So you really need to be taking a two year view. So if you look at the track record of this fund and previous funds that I've run in tech, or you look at the tech sector as a whole, it's very unusual to have lost money over more than two years. So there are a few exceptions with the financial crisis you would had to wait another year in the tech sector, but generally within two years you will have made money and most of the time you'll have made money within months because you've got a very strong underlying trend. If you believe in that trend, then you have to sit back and enjoy the volatility because it is volatile. So in my view there's a confusion in the mind of the market between risk and volatility. And risk is bad, but it's one off, it's almost unmeasurable. And volatility is a natural fluctuation over time. You can measure that, but it's not bad. But people measure it as a proxy for risk, which is completely wrong. The tech sector is not particularly risky in my view. I think it's pretty clear the world is going to go on spending more and more money on technology for a very long time to come and the companies cycle through. But there are underlying group that just go on making money. So they're not particularly risky, but they are volatile. So in tech you see down 30s quite, you know, every couple of years. So you've got to be down 30%. So you've got to look through a down 30%, enjoy it and trust people like me to be making more money out of that volatility. Because we should be, we should be reducing. When we realize everyone's beginning to panic a bit. We need to take a little bit of cyclicality off if there's still time. But then we need to be brave enough to add it back on when everybody's panic is really high and no one wants to buy. At which point you make your fund as cyclical as you can and you. So then we can make more money on the upswing than we did on the downturn. So we enjoy the volatility and we outperform partly as a result of it. It as long as our investors stick with us and understand this. So it's very clear you have to have a tolerance for volatility because you
- [30:10]
Darren
believe in the strength of the long term story. And if you do, then you just stick with it and just let us
- [30:15]
William
get on with the job.
- [30:16]
Interviewer
And do you think the odds of being able to outperform the S and P without the tech sector? Incredibly low in comparison to embracing the tech sector as a must have sector to own?
- [30:28]
William
I'd say it's not impossible, but very, very difficult because as I suggested earlier on, if the whole of the market, both the US or the global market, has seen effectively zero growth in profits over the last 18 years or so so back into 2007, then you've got to outperform an industry which has grown profits, all of which can be attributed to the tech sector without owning the tech sector. So then you've got to make some absolutely brilliant calls on competitive strength and timing because you're playing a zero sum game. It's much easier to just buy some tech because that's where the profit growth has been historically. And then you don't have to time it. You're on a strong long term trend. And I'm a lazy investor. I much rather buy a long term trend than have to buy and sell and buy and sell and buy and sell and get all those turning points right? Because no one does. If someone tells you they always buy at the low and sell at the top, they're a liar because no one does.
- [31:20]
Interviewer
Just to finish off this fabulous conversation, I've got to remind you that this time last year you stood up at a charity foundation's stock tipping conference. It was actually the Sohn foundation. And you were asked to explain what was your best tip over the next 12 months and why would you recommend that stock. And that stock was Lam Research. And many congratulations because the stock was up over 100% over the next 12 months. Listening to what you said to me today, if you were at that same conference last week, what would have been your stock tip for the next 12 months?
- [32:03]
William
Yes, and I was at the conference but I wasn't speaking so I was just listening to everybody else. And I think it probably would be Adobe for the reasons I gave just now that it's a stock that I think still has a very strong long term trend, but the market pretty strongly disagrees with me now. And even though almost everybody is bearish on it, there are some very good analysts who have gotten their cells on it. And even they though if you look at their estimates for future revenue, future earnings per share, they still imply this company is growing. Revenue around 9% a year and profits around 18% a year. And it's trading on 14 times next year's earnings. So I don't have to have margin or PE expansion. It can stay on 14 times earnings as long as it likes. But if it keeps growing its profits at 18% plus and that's the most bearish estimate at 18% plus, then it's going to outperform the market. So I think that's just the right place to be. You know, I could easily be wrong, but that's the one I would pick at the moment. It would be tempting to pick Lam Research again. So you know, I was quite lucky with the same conference. It happened to come when the stock was having a bit of a short term dip and it's had a big run since then but in the long run it remains a very very strong investment position as well or investment case as well in my view. And if you're looking for multiple hundred percents then you know, up 100% in the last year. Well it's nice to have enjoyed it but there's still quite a long way to go.
- [33:22]
Interviewer
William Absolutely fascinating. Thank you very much indeed. It's been great fun having you today and very best of luck for the next year.
- [33:30]
Darren
It's a pleasure.
- [33:31]
Interviewer
Thanks Algy all content on the Algies Investment Podcast is for your general information and use only and is not intended to address your particular requirements. In particular, the content does not constitute any form of advice, recommendation, representation, endorsement or arrangement and is not intended to be relied upon by users in making or refraining from making any specific investment or other decisions. Guests and presenters may have positions in any of the investments discussed.