C (8:53)

Well, I'd say the first thing that I notice would be when looking at any sort of educational stuff in the United Kingdom, it reminds me, it makes me think of Harry Potter and it feels like all this stuff should be some sort of entrance to Hogwarts. But on a serious note, when you look at what he has done or just where he worked previously at a private equity firm and then a hedge fund and then taking how those businesses run, looking at the industry, I almost think he set up an anti hedge fund in the public markets with minimal, minimal turnover and then also using what he knows about private equity where they might be buying not the best businesses in the world but doing it. Obviously that sector's returns have been quite phenomenal. But understanding where a lot of the demand in public markets and investing and all that are going and trying to be on the opposite end of that buffet like patient buy and hold buying the best businesses in the world and being a bit idiosyncratic in looking at competitive advantages. All right, should we get into TCI Fund or do you have anything else for us, Ryan, on his background?

A (10:08)

Not necessarily on his background but I think you said it there for the most part and there have been, he has deviated away from this occasionally. He is sort of a by the book buy and hold fine quality, hold it as long as you can type investor.

C (10:26)

Exactly. And when looking at the, at the fund and looking at all the other investors that we've studied, it may seem repetitive but when you look at all the things that he's looking at compared to all the other super investors and seeing their returns over the long term might make you think, all right, well this might be the way to do it. This might be a way to actually get some alpha out there, a proven strategy and there might be some, some pattern matching investors can do. But let's look at TCI Fund. It was began in 2003 as the Children's Investment Fund by Chris Hone. He is still the portfolio manager and leader of the fund to this day. Why did he start it. Well, as he describes it, when he was working at that hedge fund and he was working in the industry, he received $10 million bonus. I'm sure this was in the late 90s or early 2000s and apparently he said he didn't need it. He doesn't have a, what is it, high, high spend rate lifestyle. So he just gave it to charity or he wanted I think his fund to give it to charity for him. After getting this money he realized he didn't really need any more. He had all the money in the world that he's ever going to need and therefore he decided to start his own firm with the goal of using the profits sent to the firm to donate to charity. Hence the Children's Investment Fund. We're not going to go through all the details of what they're, what they're giving away today, but with a rumored AUM of around $70 billion, give or take, we don't know exactly what it is because if you're looking at say the 13F on fiscal AI that's not going to include all the international investments. So there's a bit of a mystery there. But the rumor is about $70 billion probably depending on where the markets are trading. And he takes a lot of the earnings as the owner of this hedge fund or there are a lot of earnings but they are kind of, they're just deemed that they're going to be donating to various charities around the world. I don't have the exact details and they've done it. He's considered I guess the most generous person in all of Britain. I'm not sure if that was just a journal article, but they've donated billions of dollars to charity in the 21st century. But if we want to get back to how hone invests, it's concentrated, it's quality and it's acting as an owner. If we just go to their website we can look at their marketing quote and it says quote TCI is a value oriented fundamental investor which invests globally in strong businesses with sustainable competitive advantages. Using a private equity approach, TCI conducts deep fundamental research, constructively engages with management and adopts a long term time horizon. TCI is an opportunistic investor investing from time to time in corporate transformations and special situations. TCI will drive outcomes by using activism when appropriate. The TCI Master Fund is highly concentrated to maximize alpha. Okay, you probably stop listening there but let's summarize. 1. Strong and competitively advantaged businesses 2. Making sure management is aligned with shareholders. 3. Adopting a long term time horizon and 4 highly concentrated to maximize alpha. I think that sounds very familiar to a lot of the other investors we've looked at before I get into the returns. Ryan, anything on his philosophy?

A (14:01)

No. It almost might sound boring to some people because he's not reinventing the wheel here but but his approach to finding businesses that are essentially anti competition like he really wants monopolies or duopolies and you actually see that in his portfolio we're going to get into it but the vast majority of his portfolio is invested in basically duopolies or local monopolies and it ends up being pretty high quality businesses. The other thing that I really like about it is this might partly be by the just due to the fact that he has $70 billion in assets under management so he can't invest in that many small caps. So it kind of skews him in this area. But he says no to a lot of stuff. He says no to a ton of industries. Like if something doesn't meet his criteria, he doesn't try to make exceptions. From what I've seen in an interview he did, he basically was like I don't invest in banks, I don't invest in alternative asset managers, I don't invest in trying to think of all the other industries he said but he's like if it's competitive I just avoid it. Retail. Yep.

C (15:19)

Okay, let's get back to the script. Looking at his returns. TCI's returns have been estimated to be at 18% a year which crushes the index averages even in a raging bull. And you might ask well 70 billion in AUM really long term fund. It's been around for 20 plus years. What is the size of their investment team? It is only seven or eight people according to a HONE interview. There's others in the back office, compliance, accounting, what have you. But the actual investment team is only seven or eight people which I thought was funny listening to him, that eighth person on the team might go well what. What's up with me? Am I not including the 7 or 8? I'm pretty sure the guy can count but still less than 10 people for $70 billion in AUM. I think that is quite impressive and a lean operation that is much different than a lot of giant institutions out there. And what is hone's specialty? I think above all else he tends to focus on infrastructure as a specialty. While you'll we will be getting into a case study with ge, Aerospace and Safran but one area he does focus on is Airports, which I was delighted to see since those are stocks that and companies we are fans of as well. I think it's an indication that Ryan and I are crawling up the right tree when searching for good companies and looking at these airports. I have a quote here, maybe I'll read. Let me. Reinhardt talked about it. This is part of the quote of, you know, he was a poor person or middle class and he wanted to get his capital back. He likes tangible book value, physical assets, undervalued assets. And I'll start the quote here. That's something forgotten in economic textbooks as a metric, but replacement value as an example. Maybe 10 years ago the Spanish government approached us about taking an anchor position in an IPO of their airport. Aena Airport was basically brand new, huge under capacity and 75% of the value was in unregulated shops and car parks. A complete monopoly. Unregulated and huge growth potential. And they sold it at a 15% free cash flow yield. And what we could see is that you can never replace these assets. Madrid Airport, Barcelona Airport. They're irreplaceable and they sold at the right price. Valuation matters. They sold it at a 15% free cash flow yield. I was listening to that and thinking must be nice to get in on that deal. But I guess someone could have bought at the same time as the IPO as well. And as Hone said simply in an interview, you are never building another airport in Madrid. It is an irreplaceable asset. If you have a reasonable management team and a reasonably business friendly government, then these can be wonderful businesses to own, hold for the long term and get a lot of earnings back to you as a shareholder. If you're a regular listener to chitchat stocks, then you know that we love investing in international stocks. And no brokerage compares to Interactive Brokers, otherwise known as ibkr. When it comes to international trading, you can easily trade assets worldwide using a multi currency IBKR account in 160 markets, 36 countries and 28 currencies with low fees. Compare that to your existing brokerage and its limited trading ability and high fees on foreign exchange. There truly is no comparison. Trade stocks, options, futures, currencies and bonds globally with IBKR's unified brokerage platform. I wouldn't use any other brokerage for my investing needs. Switch to IBKR and level up your international trading game today. If you're interested in checking them out for yourself, head on over to IBKR.com Interactive Brokers is a member of SIPC.

A (19:17)

Yeah, a couple things There. So first off, on the team size, I've always thought this made the most sense, especially for a asset manager with $70 billion in AUM. You're not spanning the whole universe of equities. I think he said basically there are 200 companies that qualify into his criteria in the entire universe of equities. So let's say the average analyst covers, I don't know, 20 stocks. You don't need a team of 50 analysts. It really doesn't make that much sense. So I've always thought like, does it really help to have a massive analyst team when the decisions are made by just a few individuals and ultimately the limited partners are pairing their capital with Chris Home for the most part. So I. It's nice to see someone kind of put their money with them, put their money where their mouth is and actually run the team lean and make the investment decisions themselves. As for the part about the infrastructure assets there, this is what I mean by he's such a clear communicator and clear thinker is he just boils it down to Madrid Airport, Barcelona Airport are monopolies, they're geographic monopolies, local monopolies, I should say. Makes sense. These shops are unregulated. Just meaning that the government is not saying, here's the prices you have to charge, here's your cap and he's able to get an attractive price. It was really that simple. And I instantly thought as soon as he talked about this, I was like, I'm going to look into Aena, I'm going to look into this airport business. Because he articulated his thesis in like three sentence. It's a monopoly, 15% free cash flow, yield unregulated. That's I guess all you need to know.

C (21:09)

I think looking at his investment size, I would look at something smaller. Maybe ones we've talked about before, Latin America, Asia, stuff like that. I think that can be quite helpful or maybe an interesting opportunity giving to where those stocks tend to trade. Anything else, Ryan, before we get into the GE Aerospace and Saffron case studies.

A (21:33)

No, I just say that $70 billion is in assets is a lot of money. Like it's hard if you have $70 billion in A and you don't want to take more than a 5% position or I can't remember what the cutoff is before you have to like consider yourself an activist or whatever it is. Like you have to file the paperwork. You are not really looking at anything less than, I'd say probably $5 billion in market cap because it's just not going to influence your P and L. Even if the position doubles, it's probably not going to be meaningful to your returns.

C (22:09)

I agree. All right, let's talk GE Aerospace and Saffron. TCI's largest investment right now, at least according to its 13F is General Electric or GE Aerospace. It is worth a whopping $14.2 billion as of this writing, which TCI began buying at the beginning of 2023 before the split into the three GE companies that we with the narrative on GE at an all time low after the. I think we could say now there was some fraud at the time, the fraudulent years and the fallout after juicing earnings per share, the stuff going on in the great financial crisis. It was kind of a multi decade downfall for ge. The stock traded at a cheap price with a hidden quality asset in GE Aerospace. What exactly is GE Aerospace? It operates a duopoly, sell jet engines to commercial airliners and hone likes the market and also owns a Chuck and Saffron which is one of the competitors in this duopoly because of the high barriers to entry. Here's a quote from an interview. Another space we like is aerospace. Things like aircraft engines and manufacturers like GE Aerospace and Safran. We like that space because the barriers to entry are extremely high in terms of intellectual property property. It's so complicated to make this product that there have been no new entrants for 50 years. So no new entrants is a sign of the barriers to entry. It's one of the criteria you can look at. And why is that? Not only is it very complicated, but you make the money in the spare parts. So once you've got this installed base, the new engines are only a small percentage and the airframers only want one or two engines. It's too complicated. Otherwise there isn't room for multiple competitors. Excuse me. And then for various reasons it's very difficult for competitors to enter the replacement parts. So that's another space where very intellectual property can be a barrier. So I like that where you have the combination of okay, this is an extremely hard business to get into. But not only that, from the existing customers. They're going to stick with you and it makes sense. You have your fleet of airlines, you have your A330s, you have your Boeing 737s. They're going to have the engines fit for that. You're not going to switch to someone else just because they come up with something and sell it at a slightly discounted price. And since GE spun out Its Vernova and Healthcare businesses. It can be difficult to tell what multiple of earnings TCI was buying at the time. I think someone actually when I put something out on Twitter did some math for me. I'm not going to do all the math here. It's kind of obvious how cheap it was. But luckily we can use our friends and the handy KPI segments at fiscal AI and we can merge the pre 2023 KPI's they had and the post 2023 KPI's they have with aerospace operating income and we can look at the profitability that they were buying in Q1 of 2023. So at the end of 2022 GE had a market cap of $57 billion. By the end of 2023 Aerospace operating income was drumroll $6 billion. So you're at 10 times earnings. You're still a little deflated from COVID and it has since grown to $9 billion in quote commercial engines and services operating income. Pre Covid you could look and see that the business was generating $6.8 billion in operating earnings or less than 10x the current market value. And then what about the rest of the business? Well, GE was in the process of spinning out these segments Healthcare and Vernova, which is the power business. Healthcare is now valid at $36 billion and Vernova at $162 billion benefited by the AI data center boom. And since they bought since the beginning of 2023 GE has a total return of 472% and TCI has barely trimmed the position. In fact it looks like they kept buying on the way up. Here's my discussion question. Was this not an opportunity to buy an ASML like asset at 10 times earnings that us and the rest of the market missed?

A (26:31)

Yeah, I think part of it is that people just hear GE and they are they get the investing ick. Like it seems like either dead company been around for too long dinosaur of a business that used to fudge the numbers. But yeah, I think you're right the like you lay the numbers out here it was be right before an earnings inflection trading at less than 10 times earnings. Very durable. And you think about it from the airframe perspective, like GE's customers, you're limited in who you can buy from and you're not going to go with the startup for many reasons but one of them being that you're probably not allowed to and there's I imagine a whole bunch of regulatory clearance required to even be a supplier in this industry. So it makes sense that there hasn't really been much disruption for the last 50 years. And yeah, I admire the people that looked at this before the spinoffs and were able to realize the opportunity that was there.

C (27:39)

I agree. Okay, let's get to your case study. Alphabet, Google, one that everyone knows about now, but Hone and TCI have had an interesting journey with, especially with their conversations with management that went a bit public and what they're deciding to do with their position in 2025.

A (28:04)

Yeah, you could maybe call this a low light in his portfolio, even though it's probably resulted in really good returns for him because he actually has owned Alphabet since 2017. But up until Q4 of 2022, it was more than 15% of all his US investments. So he probably got great returns from there. And actually calling this a low light is doing a disservice to him because that's five years of solid returns. But after 2022, he reduced his stake and today it accounts for a much smaller chunk of his portfolio at about 3 1/2% of his US holdings. The reason I wanted to look at this one though is because he became very vocal about the company in 2022. So let's think back to the timing here. All the big tech companies coming out of COVID saw this surge in demand. Apple, Amazon, maybe not Apple, Amazon, Google, Meta, Microsoft too. There was a surge in cloud demand. There was more advertising revenue. Amazon was seeing a lot of e commerce benefits. So big tech in general was seeing really strong numbers and they were hiring a lot of people to match the strong numbers. However, 2022, if people recall their recent market history, was a rough year for all of them. So saw slowdowns in cloud revenue growth. People were starting to talk about like, is cloud close to saturation? Remarkably. But since it's recovered, Google was seeing slowdowns in advertising revenue growth and all the stocks were getting hit. So Google from highs, which I think was sort of the end of 2021, beginning of 2022 was sort of the stock highs at that time. Shares had dropped by about 30%. And all the big tech companies by this point had determined that they needed to reduce their headcount. Google up until that point had held out. They were kind of the last domino to fall in terms of big tech layoffs. So Chris Hone wrote a letter. I guess I'll just read a couple of pieces to it. It was, I think, four pages, but it's a good letter. It's worth a read. He says, Dear Sundar, TCI has been a significant shareholder of Alphabet since 2017. We currently own shares valued at more than $6 billion, reflecting our strong conviction in Alphabet's future. We are writing to express our view that the cost base of Alphabet is too high and that management needs to take aggressive action. The company has too many employees and the cost per employee is too high. So management should publicly disclose an EBIT margin target, substantially reduce losses in other bets and increase share buybacks. He made essentially two claims here, so or two arguments. Said, number one, headcount is too high. That was pretty straightforward. And on this, he said Alphabet's headcount has increased at an annual rate of 20% since 2017. It has more than doubled since 2017. This growth is excessive, both in relation to historic headcount growth and what the business requires. So I think in the span of like three years, they went from I think it was like 80,000 employees to 180,000. It was really, maybe it was five years, but a surge in employee count. The second one here, and I didn't actually realize this. He says their compensation per employee is too high. And here's a quote from the letter. He says Alphabet pays some of the highest salaries in Silicon Valley. And as detailed In Alphabet's Schedule 14A filing, median compensation totaled $295,000 in 2021. An analysis by S and P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the U.S. now, I have heard the Alphabet pays well, but I did not realize that they paid so much more than some of the other big tech companies. So lo and behold, two months after this letter sent, Google announced that they were laying off 12,000 people, or about 6% of their workforce. But HONE was not satisfied. So he sent another one page letter to Sundar Pichai. And by sending the letter, I mean publicly releasing it on his website and also sending the letter, I imagine where he basically says that these layoffs did not go far enough. And to his credit, he makes a few fair points. He says, I argued in my previous letter that Alphabet's headcount has grown beyond what is required operationally over the last five years, Alphabet more than doubled its headcount, adding over 100,000 employees, of which over 30,000 were added in the first nine months of 2022 alone. The decision to cut 12,000 jobs is a step in the right direction, but it does not even reverse the very strong headcount growth of 2022. So what he's saying here is you've added 100,000 jobs in the last five years, doubling your workforce. It's already one of the largest tech companies in the world by that point. And this feels like just appeasing shareholders, a bit like a 6% workforce reduction. When you started 2022 with a lower employee base, like I guess basically Hone wasn't satisfied. Now, Google did not continue to do layoffs. That was the last big one announced. They've had a few like specific division, division specific layoffs. But to their credit they have performed really well since and increased their margins over that timeframe. So shares since that point are up about, I think it's 256% and operating margins have gone from 25% roughly to 32%. So they did see some margin expansion. Now here's why I say Chris Home kind of got it wrong. He cut his position significantly after Q4, 2022, right before the stock went on quite a good run. And what I find bizarre is that he has said publicly that he does not focus a ton on valuation. And in fact he usually lets his winners run. And we see that in his portfolio right now. He owns Microsoft, he owns Visa. I mean these are companies that have had multiple expansions. When we look out over five or ten years and he's, he's willing to continue holding them. But he sold Google here and it feels like he kind of sold Google because management didn't do what he wanted to, which, you know, I'm okay with that. If you're going to go activist, you want to tell management what to do, they're not going to respond in the way you want. You sell it. But he didn't sell all of it, which I thought was a little bizarre. So they still owns three and a half percent. And now in an interview in May, which keep in mind, May was pretty close to sort of the. It was definitely the yearly lows, but it was a low in terms of sentiment around Alphabet. Like everyone thought search is dead, AI is going to destroy them, kind of. That was the narrative at the time he called it. He said Alphabet is the riskiest company we own. So which kind of funny timing considering that the stock has done. It's doubled in the span of like 6 months, 7 months. So I guess my discussion question here is if we ignore the stock performance over the last few years, do you think Chris Hone was wrong to trim his position or I guess cut it by like three, three fourths and then are there any Lessons that you take away from him selling this. Either lessons like in that it was the wrong decision or lessons that maybe he was, he had the right state of mind. The result just didn't turn out the way he wanted to.

C (36:07)

I think using his framework, what he cares a lot about is durable terminal value predictability. He wants something that is going to be around 10, 20, 30 years from now and he'll have high confidence in that. And when looking at Alphabet through that framework, especially earlier this year, I'd still say today you could go, hey, well there is a lot of disruption risk. One thing he does talk about in the few interviews that he has done is not just competition risk, but replacement risk. Where he looked at he used to invest in the US cable and telecom industry and the fact that Charter Communications had the fixed wireless and what is the other one, fiber and satellite Internet, I think were the big competitive threats there to potentially replace cable. That is what he calls replacement risk where you're not just, you might have an 80% market share of your within your existing competitors, but if something comes along to totally replace your industry, which can happen, he's probably worried about that happening with AI at the moment. And even if Alphabet is putting up a good fight here, there is still major uncertainty with the industry and that's probably why he would sell under his framework. And that would be the lesson that I take away.

A (37:38)

Yeah, it's kind of weird to say Google. It's weird to hear that Google, Alphabet, one of the largest companies in the world, is the riskiest investment in a portfolio. But when we look at his portfolio, which I'll go through sort of his largest holdings here in a second, I don't know if I would disagree like in terms of like if we looked out 20, 30 years, what is which of these businesses could potentially have replacement risk. Google somehow might be the highest on that list. So let me just go through his 13F real quick. And this is just his US listed holdings as a reminder. So he doesn't include Aena, it doesn't include any of any international investments which he does have a lot of. So number one, his largest US investment is ge, as Brett just talked about his case study there. Second largest is Visa, third largest, Microsoft, fourth, Moody's fifth S P Global sixth Canadian Pacific, the Railroad seventh Google, three and a half percent eighth. I think it's Canadian national cni, another one of the railroads, the Canadian railroads and then the ninth tier. I actually don't even know what this company is, but the ticker is fer. So maybe I can. Oh, I believe it's Ferguson. It's the commercial H Vac company, if I'm not mistaken. I'll double check that, but I'll let you chime in here, Brett.

C (39:11)

If I look at fer, that might be ferovial, do not know what that company exactly does, but when we look at his portfolio, it's 80% made up of GE, Visa, Microsoft, Moody's, S and P Global, and the railroad operators. Yes, there are going to be some other international players in there, but I'm not exactly sure how much of a percentage that makes up. And if you look up his US portfolio, it has to make up a good sizable percent. Just because of his portfolio is not $500 billion. I think it's closer to under a hundred billion dollars. You look at that and you come back to what he's talked about before, which is concentration. If you're going to have high conviction in an investment. Excuse me, in an investment, you don't want to have it at 1% of your portfolio. You want it at 10%, 15%, maybe 15% is pushing it at cost, but you want it at least to be a sizable position at cost. Because who cares if you have 1% of your position in something that is your best idea, it's not going to affect your overall portfolio. And that's why when you look at this GE investment, the fact that it is now 27% of his US portfolio, that's the trifecta of finding something cheap, competitively advantaged and sizing it up aggressively when you feel that you have that high conviction. Ryan, what did you take away from his current portfolio?

A (40:52)

All right, folks, before we move on, we need to tell you where we get our data. Fiscal AI. Fiscal AI is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts in our podcast, you'll see it in our newsletter. This is our one stop shop for stock research. They've got up to 20 years of financial data on all companies globally, including the largest company specific segment and KPI data set on the Internet. That includes metrics like Duolingo's daily Active Users, Oracle's backlog, Rocket Labs, revenue per launch, and literally millions more data points. They've also got earnings call transcripts, ownership data, equity research reports, and much, much more. If you want complete financial data at your fingertips, you need to check out Fiscal AI. And if you use our link Fiscal AI Chitchat, you will automatically get two weeks of Fiscal Pro for free. No card required. If you want to upgrade our link will also get you 15% off. Again, that's fiscal AI chitchat. The link will be in our show notes. No, pretty much all the same things. And quick correction for myself here. I said ticker fer. I assumed that was Ferguson. I was wrong. The company is ferrovial. I believe it's based in Spain. Can you guess what Ferrovial does, Brett?

C (42:13)

Something in infrastructure. Toll roads.

A (42:16)

Yeah, nailed it. They own highways, airports and various energy businesses, so wind farms, but let's see if there's any notable ones here. Frovial invests and operates in airports, has operated several airports in the UK including he for a period and recently reached an agreement to acquire a stake in Daloman International Airport in Turkey. And then they own several toll roads and highways in both North America and Europe. Actually a few in Texas as well. So maybe I've paid them a few. Paid them a few bucks in revenue there. Interesting one. No, I guess my question for you, Brett, is he says that Google is his riskiest investment. When looking at that list of holdings, would you agree with him? And I'm talking replacement risk.

C (43:13)

I might put Microsoft replacement. I might put Microsoft slightly higher. That's the only one that comes close. But when I look at the railroads, infrastructure stuff, Visa, the ratings agencies, the both of them, S and P Global and Moody's, ge. I guess I'm forgetting GE there. The only ones that look somewhat risky from a replacement risk level would be Microsoft and Alphabet.

A (43:44)

Yeah, it's almost like it feels wrong to say that there's replacement risk for those two businesses, being that they're the largest in the world. But if you, I think listeners should go, this is sort of a shameless plug here. Go to Fiscal AI, look at his portfolio and look at the list of companies and ask yourself what do you think has a higher likelihood of being around in 20 years? I'm not talking about being a bigger business because, you know Google or Alphabet, Microsoft could grow faster. But what has a higher likelihood of being in business and 30 years the railroads are Google, I would argue the railroads. I mean it's impossible to disrupt ratings agencies or Google, probably the ratings agencies. So I don't think he's necessarily wrong to call it the riskiest investment. Let's talk takeaways here though, as we're kind of running up running up on time. What were your overall takeaways from Chris Own? Where would you rank him in the super investors that we've studied?

C (44:48)

Ranking? Well, I think if you're going to rank someone, you have to just use their returns. That's all that matters. At the end of the day, a lot of people can talk all willy nilly about oh well, we're investing in the highest quality businesses and it's a more robust strategy. But at the end of the day what matters is your returns. 18% that would put him maybe if we're going to tear it out, he's not up there with Druckenmiller, Buffett, who are the other ones that are the top Soros, stuff like that. But he's maybe in that second tier, which is two decades plus of close to 20% returns. 15 to 20%. I think those are quite good. And I think when you look at hone, that is a reminder. And this is perhaps difficult in a raging bull market. But you want to buy high quality assets at a reasonable price and hold them for the long term. When you look at high quality assets, I think what he talks about is the two risks that can hurt your durability of earnings and earnings growth. And that are is substitution risks and competition risk. If you have assets like technology assets, Internet assets, however you want to define them, they are a category that can have low competition but high substitution risks because of potential innovation. We talked about the trimming of Alphabet that Ryan mentioned. We had the whole discussion on that. But when you look at the railroads in North America, can they be replaced? No. Every time I look at the BNSF railroad in my hometown, I think this is an irreplaceable asset. It's not going to be duplicated. It would be impossible. Has there been another railroad entrant in the last hundred years? No. Well, that should tell you something. Has there been another jet engine maker as we talked about earlier? No. That should tell you something about the industry. In his average holding period is eight years. He wants to buy and hold forever. I'll finish up my part with a quote here. Quote. So we look at more simpler tests sometimes. Will the business be around? Will we still fly airplanes in 30 years? And will we want to airline travel? Will there be demand for it? And once you and I think that valuation is just approximate. But we can just say in truth, with confidence, we have a good or great business. And as I'm saying, only a small subset of businesses can be predicted which are the most powerful ones. But exactly how they grow and unexpected events. You're right, there's no certainty. So maybe trying to project that growth can be difficult or exactly what the growth is. But if you have that durability of low competition and low substitution risk. You can be very confident that the business, as long as the industry is still going to be around, the business is going to be there and generating earnings 10, 20, 30 years into the future.

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Cut the camera. They see us.

A (48:44)

Only pay for what you need@libertymutual.com Liberty Liberty Liberty Savings Ferry unwritten by Liberty Mutual Insurance Company and affiliates excludes Massachusetts. Yeah, I like his preference for infrastructure assets. It sounds, and it's, it's kind of funny because it's not the way I invest at all. Like, if I look at my portfolio, it's very different than his portfolio. But I can appreciate what he's doing and his intense focus on quality. And Brett was talking about the replacement risk for the railroads. And I think that's a really good example. If you, and you said, like, you see it in your hometown, you think every time it's gotta be impossible to replace. Just the illustration I'd like to give is, like, if you underestimate the disruption, the undisruptible nature of a railroad, just walk near a railroad for like, I don't know, a few miles, see what it looks like and think, hmm, could someone build this all over again all the way across the country when the entire country is now developed? For the most part, it would be very difficult to do. And it seems like, honestly, it might be one of the hardest to disrupt businesses in the world. And I guess credit to him, he's got it in his portfolio. But kind of on a tangent there, what really stood out to me was he has narrowed his universe of companies to choose from and he's strict on monopolies, duopolies, and maybe oligopolies. So let's just go through the portfolio. GE I think you could say that's maybe a duopoly, oligopoly. But there's no new entrants in the last 50 years visa duopoly with MasterCard Microsoft massive incumbent. So not really a monopoly, but that's actually something he also talked about a lot, which is incumbency and how much he values it, especially in tech. He used the example of Microsoft versus Zoom. Zoom had spent so much time building up this business and carving out market share for this, their video solution, Covid hits. And the incumbent in this case Microsoft is able to. They've got all this distribution, they're able to bundle in a free video service into all their other offerings and they've basically replicated a Zoom in a year. And he talks about how people underappreciate how much of an advantage a lot of incumbents have. So it's either monopolies, duopolies or massive incumbents. I'll keep going through the list here. Moody's duopoly with S and P Global. S and P Global duopoly with Moody's Canadian Pacific Geographic monopoly in many areas, all the railroads, geographic monopolies. It is. He sticks to it. And he doesn't really seem, and maybe this is just the last 13F that I was looking at, he doesn't seem to stray away from those types of investments. The only thing I'll say here, it's not really a critique, but if I were extremely wealthy, this is pretty much the exact type of portfolio that I would want. All these businesses are so, so durable. They're not going anywhere. However, they are not exactly the type of businesses that I tend to look for, honestly, because I tend to prefer companies. And this is kind of a shameless plug for the newsletter. Brett writes that are in the emerging moat bucket where the potential earnings growth is much higher, but it's also at higher risk. And these are much more in the massive developed moat that that'll likely stay the same. But it's not a quickly expanding moat, is that fair to say?

C (52:40)

I think it is. And I appreciate the shout out for first, it's two ways to skin the cat. Is it a little bit riskier to buy companies with quote unquote, emerging moats or ones that maybe don't have a very wide competitive advantage or in a more competitive space, but you're making a earlier bet on the business? Yes, it is riskier, but you can have higher upside. And I think that's the balance here where he wants established modes, certainty, irreplaceability. That's one way to invest. And it's clearly led to fantastic returns for TCI over the long term.

A (53:20)

All right, I think that's going to do it. I think that covers the all the bases for Chris Hone. I will say I liked studying him. He seems to care a lot about philanthropy too, which we didn't discuss too much on this, this episode. But I recommend listening to interviews with them, reading about him. He's a thoughtful investor and he, we try to do credit to his portfolio, his investment approach and everything today, but it's sometimes better to just hear it directly from him. So I recommend going and listening to those interviews. They're all over Spotify, Apple, everywhere else. And I think that's going to do it. Unless. Brett, you've got anything else?

C (54:00)

Nothing else on my end. I say thank you to the listeners. We had some technical difficulties on this episode, so we're going to try to keep fixing that. We've hit some sort of curse, I think, the last two weeks and I, I just hope it's just a string of bad luck using our DIY setups here. But hopefully that bad luck runs out on Chris Hone. Yeah, great investor, someone to definitely look at and I enjoyed studying him. And I think if I'm taking away personally for any listener when looking at infrastructure investments during a bull market, focus not really on that. Even though it's specific AI infrastructure at some points, but airports, toll roads, stuff like that, it gave me validation that these are the sectors that I should be looking at and I quite enjoyed it.

A (54:58)

Yeah. The last thing I'll say before we sign off here, there aren't a lot of investors that I actually follow their 13 Fs where I like, look every quarter and see what they bought. Chris Hone is one I'm going to add to the list because sometimes 13 Fs, sometimes there isn't a ton of value like Stan Druckenmiller, he's kind of moving in and out of positions really quickly. You never really have a sense of why he owns it. Same with Michael Burry. Same with a lot of these investors. 13F is kind of just a snapshot in time with Chris Hone. You know why he owns a business? He owns it because he likes it. He has that private equity approach to public markets where he wants to own it forever. So it's worth keeping an eye on his investments. That is going to do it, though. Thank you everyone for tuning in. We want to remind you that Brett and I are not financial advisors. Anything we say or discuss here on this podcast is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. Thank you again for tuning in. And we'll see you next time, Sam.