Stig Brodersen (11:55)

I guess the, the question is always the valuation for these things. I think it's been, I think it's been more expensive than this. Right. So it's off quite a bit from its peak in 22 when. Or 21 when we had all that silliness going on. So they've probably, they've worked off some of that overvaluation. But 22 times sales, there's not a lot of like a lot has to go Right. For you to get paid, which is not to say that a lot's not going to go right. What's the competitive landscape like for these guys given the valuation that you're sort of, you're paying for these things, Are they going to win?

Tobias Carlisle (12:31)

Yeah, I think that's the point. But we, like I was, the way I was trying to justify the 23 times sales valuation is if they're growing like 30 plus percent year over year in the next five years, it'll be around eight times it. So they're still more quite expensive even after growing 25, 30% a year for the next three to five years. So that's the reason I found it. It's a solid business, but that is priced into the stock.

Hari Ramachandra (13:02)

It's really difficult for me to value these type of companies. I think it's all there for us to see how great a company that it is. You briefly mentioned bitcoin there. Not that we talk too much about here on the show. We have Preston show for anyone who's interested in bitcoin. Just to your point, perhaps it would just be a pure play just to hold the coins yourself. But whenever I'm looking at something like this and I'm trying to figure out, okay, so what is the competitive landscape and who has a competitive advantage, which I'm the first to say, I don't necessarily think I would do a good job of. So I'm looking at how do they behave and what do I mean by that? So let's compare this to Visa and MasterCard which I should say for the record, they don't compete with. They're sort of like more on top of their rails if you want, for example, for Eddie. And so that is a very interesting almost duopoly. You can include union pay if you want to, but they don't compete in the same market. But for your payments outside of China, you more or less, you have visa, you have MasterCard. And then there are some very specific countries like for example, Brazil, where they're doing their own thing, but you have those two and they don't really compete with each other on price, which is probably not what you want to see as a customer, but it's 100% what you want to see if you're an investor. And so whenever you have an oligopoly type of competition, which is just a fancy way of saying there are only a few players, I'm sort of trying to figure out, especially whenever you have high margins, how rational they are. Rational from a shareholder perspective. And One of the things that I can't help but notice is that they're going head to head with Stripe. And Stripe, being US based traditionally had a focus on the US and Etienne focus on Europe being based in the Netherlands. And so they're starting more and more to compete with each other. And one of the problems is that they're to some extent trying to compete on price, which is generally not what you want to see. Whenever you see a tech company and it's trading at 23 times sales, the value investor NAS or the cheapskate NAS are like, no, no, no, that's just way too expensive. But then there are different things you sort of have to break down. One of them is how fast can this grow? And like we've seen multiple times, you know, there's a lot of operating leverage. In other words, like every dollar that comes in more or less drops to the bottom line. So you have that and then you have the opportunity for explosive growth. But you also need to be able to fend off that competitive pressure because all of a sudden like if you, if you have 80% margins, you're like, oh my God, this is amazing. Perhaps you can justify 23 times earnings. Then if you start competing on price, all of a sudden those 80% margins might come down to 40% or 20% and the equation completely changes. And so I don't really know how to best value this. That's a long way of saying I don't know. But it's also like whenever you had the big tech companies back in the day, and I don't even know whenever we should make the call off point, whenever I say back in the day, let's say a decade ago or whatnot, the big tech companies to a large extent were competing in different verticals. And then they became so big that to continue to grow the amazing pace that they are, they had to sort of start to compete with each other to some extent in some of the same business lines. And you sort of like, and I know you pitch both stocks, but you sort of like see some of that happening with Block too. Where, you know, Block has traditional been, you know, smaller companies plug and play and you didn't need any kind of developers, anything like that. It just worked out of the gates and they're going more and more upmarket, upmarket in sense of your enterprise size. Whereas Adyen sort of like doing the other way and where you're like, oh, okay, so what does it mean? And are there room for all of them? And of course, if you look at a company like Amazon, who start whenever they started cloud and then you have Microsoft coming in and Google. So you can say that there is room enough for them, but it also sort of depends on how the actors engage with each other. So I don't really know. It's a tough one. And I think you can probably come up with different kind of arguments, like the whole fraud protection and why that's important and there's sort of like a first move advantage and you build up more and more data and that data is being harvested and it's being very useful. But I don't know, let me throw it back over to you, Toby, or you, Hari.

Stig Brodersen (17:37)

Hari, how do you feel about that? I know that the argument for MasterCard and for Visa historically has been that they have their own Rails, they have their own system, and it's just hard to replicate that. You got to build that out globally. It's not going to be easy to do. I was in Shanghai a month ago for a week and Alipay and the one that I used, which is just escaping me now, the other one, there are two payment systems that they have there and basically every vendor, every taxi driver, everybody has a little QR code basically and that's what you use to pay. So they don't need a rail system because they've built it over the Internet. And so it's like a sticker and everybody has one of these things and you can give anybody money. And the providers for the vendors are the same as the provider for the customer. And so they don't even need to charge very much money. They charge basis points to do this stuff. And so it's a totally different system to the one that we're used to. And I get that it's a little bit of a closed garden, so it's probably not the final solution either. But I worry a little bit about, and I think that payments is a difficult problem. Clearly there's lots of different systems, you're in lots of different countries. It's a hard problem to solve. And so anybody who solves it is going to do very well for a long period of time. But it feels to me like there's the system is a little bit of flux and maybe someone like Adyen, maybe these guys do quite well if the flux, if the system changes and MasterCard and Visa don't do so well. But I just, I feel like this whole payment system is changing and I don't know how well, I don't know what it looks like on the other side. It's not necessarily a criticism of Adyen. Adyen may be the ones who benefit from a system but is in flux because they've got so many different ways of processing payment. But have you thought through that? Like what do you think about payments globally, payments generally? Like, what are you. How do they deal with this sort of. I think what is going to be a revolution in payments over the next five to 10 years?

Tobias Carlisle (19:44)

Actually that's a very good point, Robin. And that poses a pretty big risk. Like these payment systems are more like public good the way China or India are positioning it. In India they call it the India stack. In China, I think Union K was another one. And then basically the way they are approaching it is they are going to make the rails a public good so nobody can monopolize it. So that's one of the challenges Even Visa and MasterCard has in India because I'm not that familiar with the Chinese payment system. But in India at least the UPI as they call it is a public infrastructure. It serves around like, you know, billions of transactions per day. But then there is Google Pay or any other payment app can sit on top of it. That disenfranchises all these rails makers, whether it's Miza and Asuka or Adyen or Block. And definitely that is a risk. If these payment system can start talking with each other. Right now they're all walled gardens. That's where Adyen brings in value because now they smoothen the payment system across multiple geographies for these businesses and that's where their rails are now. In future, if we have a situation where there is an open protocol that these walled gardens can talk and they can do payments internally but they can talk with each other. That's where add in and block business model. I think it's a very good point you brought. That's a big risk. Basically they're out of business at that point of time. In a way, Even Visa and MasterCard to a great extent these payment system pose a big threat impact. Visa and MasterCard lobby heavily in India, I heard not to open up UPI the way they did because that would impact their business. But I think in India they anywhere went ahead and did that. And I can see when I visit India now like nobody uses cash. Everybody has a phone, everybody has a QR code, including like street vendors and even beggars. So they have a QR code, not cache. So and that's a big risk for. And not just for Adyen and Block, but also for Visa and MasterCard. If everybody is Using cash apps, I think Google will benefit out of it, I guess. So that's something that we need to definitely keep in mind that if these walled gardens can start talking to each other, the business model of Adyen and Block are definitely under threat at the park.

Stig Brodersen (22:35)

But it's also possible they're the ones that facilitate that conversation. So they may be the beneficiaries of it.

Tobias Carlisle (22:40)

Yeah, that's kind of. So this is where like, you know, it's very hard to figure out how the next five years will shape and that's where ADN as you said, like, you know, price to perfection is the risk because it's not as certain as we think it is. Whereas Block I think is not priced for certainty, it's priced for uncertainty. And that's where like I'm slightly, if at all, I'm picking, leaning towards Block because it has optionality and it is priced for uncertainty. Because they have the consumer cash app, they're not just dependent on only the payment systems. They have the consumer cash app. They can easily participate in this QR code UPI kind of a thing where cash app is like Google pay, basically they can participate in bitcoin, they can participate in the Rails for small business, the payment rails. So they have their tentacles in multiple things. Whichever words, they can kind of adapt and grow and their stock might not be priced for that optionality. Rather I think the investors are focusing on the ROIC and also the low margins and the recent disappointments because I think they're trying a lot of things. I think the way they're approaching is almost like how Amazon used to be in its earlier days where they're putting a lot of money back into the business rather than focusing on margin and they're throwing a lot on the wall and see what sticks. So that's the reason their ROIC is also low. But it might pay dividend. It's almost like a venture bet at the bottom. But Toby, that was a good point. That's a big risk actually and it might not be just risk for these two companies. Many fintech companies, including big ones like Visa and MasterCard might go through destruction.

Hari Ramachandra (24:41)

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Hari Ramachandra (28:28)

All right, back to the show. All right, well, thank you, Hari, for bringing those two companies to the group. I kind of feel like my pick here is a little boring. I don't think you can call it a hidden gem. Whenever it's like $3 trillion market cap, it's not really in the gem territory, is it? Well, it's Microsoft stock, Tigger. Msft. At the time of recording, Microsoft is the public company with the highest market cap in the world. So are we late to the party? Perhaps we are. I've never invested in Microsoft and yet I feel like it's been hiding in plain sight. I don't remember ever using a computer and not using Microsoft products. And I've never looked at it as an investment before, but it just, it always seemed to be such a big company that was just like, you're too late to the party. So I forced myself this time to take a closer look at it. I want to share that with you guys. And typically whenever we're presenting a stock, we talk a bit about the history. I don't know, I kind of feel like the history of Microsoft has just been told so many times. I don't want to spend too much time on that. But it was founded in 1975. And there's this wonderful story of how Bill Gates and Paul Allen, how they set up shop in Albuquerque, New Mexico. And the reason why was because that was where the only customer was, by the way. And there's like all these myths now. I don't think it was a myth, though. I think it was quite factual that Bill Gates couldn't, whenever he took out clients, he couldn't order alcohol because he wasn't old enough whenever he was visiting clients, whenever they had more than one client, actually had to go to different States he couldn't rent a car because he wasn't old enough. So anyways, Preston and I actually covered Paul Allen's wonderful book Idea man back in 2016. I'll make sure to link to that. And then I want to recommend Bill Gates new book, Source Code. I mean, amazing title. It's the first of three books. And the first book sort of like talks about his childhood and then the very, very early inning of Microsoft. So anyways, I'm going to highly recommend that. But talking about Microsoft, the easiest just to break it into three segments. And of course, with a massive company like that, it's almost too simplistic. But here we go. So the first one is called Productivity and business processes. That is 37% of operating income. Think Office 365, LinkedIn Dynamics, again, a lot more, but just for simplicity. Then they have the next one called Intelligent Cloud. You can think about Azire here, which I'm pretty sure I mispronounce. And I've checked out multiple YouTube videos and they all say different things. And then the last one is called more personal computing. 18% think Windows Gaming, search, news, advertising. So that is an oversimplification, I should say. But they sort of like to give you an idea of where we are and if we talk about competitive advantage and the landscape. So it probably doesn't surprise anyone whenever I say that switching costs are just a massive mode around the business. And I've been using Microsoft Office my entire life. I have no idea if anyone makes better spreadsheets than Microsoft Excel. I don't really care if they do. Perhaps they do, but I've been using it for so long and I kind of feel, probably just because I'm lazy, that if someone comes up with a better way of creating a spreadsheet, Microsoft does what Microsoft have been doing for such a long time. They're going to come into the game a few months later and then implement it. And then they have a platform advantage there. So I guess that's the way to illustrate the switching cost. I actually tried for the longest time. So back in the day, it used to be so you would pay for a license, so you would have Microsoft Office, whatever. And then they changed it because they were very smart at business. So they changed it to the whole office365. And I tried fighting that for the longest time because I really didn't want to have any kind of subscription service. But it's just like, at least me, I just lost. At some point in time, you're like, okay, I have to convert to this and I don't want to pay for it every single month, but otherwise I can't really use it. It's the way it is. And there is a price for everything, of course, but it's just one of those paths of least resistant type of thing. It's like I topped up here my notes. Fighting Microsoft is like fighting the Fed. Don't do it. I don't know, it was a bit of a nerdy joke here, but I kind of feel like talking about the switching cost. I know that I'm going to come up with a bit of an ironic example because here on tip, we actually use Google Cloud. And I should also say, full disclosure, I'm long Alphabet. And so you might be thinking, why do you want to talk about Google Cloud now? That we should be talking about Microsoft Cloud, like, what gives? So I want to talk a bit about the decision process that we had, which wasn't that sophisticated, to be completely frank, at least not on my end. So we moved to the cloud in 2019, and the way it happened was that I spoke with our CEO who happened to have a degree in computer science. So I kind of thought she would probably know which cloud to choose from. And I don't speak IT language. I call it IT language already. I'm like, you can tell I'm a rookie. So what happens whenever I speak with an IT person is that I'm going to ask a question such as, which cloud should we move to? And then in this case, she said something for a really long time that I didn't understand. And that's typically the time when I would smile and nod for a long time. And then at the end I would ask the question, so, what do you recommend? And then if it's not too expensive, I'm going just to pay for whatever she would recommend because I don't really understand how it works. And so obviously that's a very, very bad way of doing business decisions. But I kind of feel like I think this story is telling not just of my own ignorance, but of how a lot of decisions are being made where I don't know what it would require for us to move away from Google Cloud. It is certainly an expense, but it's not a major expense that we have. And as long as everything works and keep in mind, we're like 20 people working full time on tip, so the entire team has been trained on Google Cloud. If Google came in and hiked the prices with 40%, I don't think they would care. But if you call them and they listen to this podcast like, oh, this sucker. Let's hike the price like 40% for TP, I would not change anything because I would have to train the entire team and myself. An expense that percentage wise would go up, but doesn't really make a big difference to us. And I just, I just don't want to do that. And so let's go back. Let's talk about Microsoft here as a stock pick. What I found interesting is that if you look at the three big players in the cloud business, Amazon, Microsoft and Google, to some extent the market share has been set there by historical reasons of who entered the market and when they did. And there has certainly been movements in the market share of the three big ones. But it's not as dramatic as you might be thinking in something like cloud. So I think I wanted to talk a bit more about some of the risks because I made it sound like, oh, my God, this is amazing. It's so sticky. How's that not going to be perfect? Well, now that we're talking about Microsoft, there's this famous discussion that Bill Gates had with China Munger. And Munger talks about how, or actually Gates talks about how it's difficult to do something different. He was specifically talking about Microsoft here, but he was talking about the innovator's dilemma. You've done something for a long time and you're supposed to just disrupt yourself, and it's just really, really difficult to start disrupting yourself. That's just not the way that we are wired. And of course, all businesses eventually get disrupted, even mighty Microsoft, they miss the boat on smartphones to Apple Search to Google. But then at least to some extent, whenever you have the networking effects that Microsoft have, you have a chance to catch up. And whenever you have a company like Microsoft that's in tech, yes, but it's 50 years old. I do think that there is an element of the Lindy effect, meaning something that's been there for a long time has a bigger chance of a high probability of staying there for a long time. And I think that's very much the case for Microsoft, where it's not just entrenched in tech, it's entrenched in just the way we live our lives. And I do think that there is a certain risk in terms of valuation, opportunity, cost. I'll get to that later. But I probably would say here at this point in time, famously, Microsoft, that seems to been making new highs forever, the past, I don't know how many years they actually had close to 17 years before they made a new all time high. From 1999 until 2016 I had to look it up multiple times. Ironically I looked it up on ChatGPT very much Microsoft indirect product and it's like is it really true it took almost 17 years to make a new all time high? Yes, because whenever you have various threats, multiples and the market is sort of like turn negative on the sentiment, that is actually how long it's going to take. But anyways, I actually want to throw it over to Hari and I, I see some risk out there, I don't think necessarily in the near future. But again that's why I want to ask you Hari, you know a lot more about this than I do. I need to figure out because cloud is such a big part of Microsoft's profits, how do you look at their competitive position? I don't think I have the capability to say oh this is better than Amazon's cloud for example. And how much is AI? AI a tailwind. I think a lot of people talk about making AI your tailwind, but on the other hand there's also a lot of headwind from them spending so much money on all those data centers and we haven't really seen the profits from that yet compared to the level of investment. So I don't really know what my exact question was there Hari, but I want to throw those thoughts over to you.

Tobias Carlisle (38:48)

No, very interesting cake sting and also a bold one because it's such a big company now that it's bigger than many countries in terms of the comparing to gdp. I think it's bigger than Canada, bigger than Russia, bigger than many other countries actually. So in terms of the way I look at it is Microsoft is not in the negative way but in a positive way, the IBM of today. Because there was a famous saying in the industry that nobody got fired for buying IBM products. That means like a lot of these IT managers and CIOs who are making the decision. I think Microsoft is a proven player, they are full stack. So they have established themselves and I think under Satya's leadership as you said, like you know the language for a long time because they couldn't adapt to the change in the industry that was happening, especially with mobile, with cloud. They were laid to both parties. They missed one which is mobile, completely cloud. I think miraculously they came in late but they're now firmly the second player. Last I saw, AWS is still the leading player with 30% plus market share, closely followed by Azure, but around like 2022% market share. But now there is another disruption coming, which is AI, and we will have to see how they navigate this cycle. And that's the uncertainty, because I feel right now it's not clear who will win, who will lose, who will be disrupted, whose business model will be impacted. That part is not very clear. Of course they have partnership with OpenAI, they have products in AI like Copilot, but none of them have proven themselves in the market. So that is the uncertainty. It doesn't mean to say negative, but at the same time it's for the price that they're selling it. It's baked in that they're going to navigate it successfully. So if we have enough confidence that they're going to be successful in navigating this, then I think maybe it's worth paying this price. But what I'm thinking is what will be the return for you as an investor script, like when you invest in this? Right now they're selling at 35 pe, I think one of the highest in their history as well in terms of their valuation. So do we have more room for multiple expansion? They're growing at around 19% to 20% in terms of their EPS growth revenue, like 1412, 1415. I think you might know better in terms of their annual growth rate of revenue. So what will change for multiple expansion or will their growth rate change for us to see an upside from here, that's what I'm looking at. Maybe the downside is not that much, because if they continue doing what they're doing, we will continue to have the same multiple, hopefully. And that's the other risk. If the market itself reprises multiples, will it impact Microsoft Share? So it's a very good pick from that perspective as like, it's almost like the Adyen kind of consistent grower has navigated multiple trends or cycles. How will they fare in this latest disruption? The AI trend, that's the one that we need to look at. In fact, in one of the podcasts, Sadhya himself said, hey, with AI coming in, a lot of software might be completely disrupted with AI agents and whatnot. If the paradigm itself is shifting now, what would it mean for Microsoft though? Because they are heavily into. You talked about spreadsheets. What if I can just ask questions and not use spreadsheet to analyze my data? So will I even need Excel at that point of time? So there are a lot of such questions that are being asked at the pace with which models are making progress, they're becoming more intelligent. It will be hard and maybe Microsoft can take advantage, but so can somebody else too. And Google has its own model too. And we cannot discount Google in this basically. And they're the close third in the public cloud race and so is aws. So Microsoft didn't have these formidable competitors in enterprise phase before, before 2015, 2016, it was mainly Microsoft and then maybe IBM. Neither AWS, I mean Amazon or Google were a formidable players in the enterprise. So it's no longer that Microsoft is the leading player in the it. Google and Amazon are making good progress in that and sometimes eating Microsoft's lunch. So it will be the battle between these three and in that how much Microsoft can afford to grow and keep up its growth rate. That's number one. Number two, what's the investor's appetite for a high B multiple? But if you go by the thumb rule, as they call it, like, you know, price to earning ratio is equal to growth margin plus EPS growth rate or profit margin plus EPS growth rate, they're healthily within the range because their profit margin is 35%, their growth rate is around 19%. So they're, you can say it is justified at this point of time, but that depends upon the investors continuing to afford this multiple of 35 plus. So I think for me, definitely business is not at risk. It's a stable business. It has lot of diversification built into it, but the risk is growth.

Hari Ramachandra (45:08)

Yeah. Hari, thank you for your feedback. Someone out there is probably tuning in and they're like, oh, is this like a value investing podcast? Like the first guy, he pitched something 23 times sales. The next one is 35 times earnings. What's going on? So there are quite a few things I wanted to point to here. The first one is about the multiple. I think you're absolutely right. And that is a risk. You're not going to see a lot of multiple expansion. I would be greatly surprised, at least at this level. At the time of recording, Microsoft is trading at what, 450. But just after the tariff announcement, it was almost touching 350. So that was probably the time that you should have made your move. And which is also why we talk about stocks here in the Mastermind episodes. And then we put different things on a watch list so whenever something like that would happen, we can build our positions. So one of the many mistakes I've made, and I remember talking about Amazon so many times on this show and we started in 2014 and I always had this idea that Amazon was just too big. It was just, how can you make money out on a Big company. And for whatever weird reason, I took a position in Alphabet back in 2018 and I remember feeling sick to my stomach and yet I still did that because I had this idea that, hey, you have to invest in small companies because if you don't do that, how can they continue to grow? And so I missed the boat on so many of the big tech companies because the multiples just seemed outrageous. And I was always thinking, there's no way they can continue to grow at that pace. Now whenever I'm looking at the past decade for Microsoft, highest markup company in the world, we talk about 16% CAGR in operating income. Like it's amazing. We're dealing with a company want 20% return on capital employed. Now how long can they continue doing that? That's going to be the question. And whenever you're going to sell, what is the exit multiple going to be? I'm definitely not going to recommend anyone buying anything into 35 times earnings. That's not so much my point. I think your entry point has to be a different. But I think I've been amazed to see and there's probably something mental, you know, in terms of whenever the first company started hitting the 1 trillion dollar market cap, like, oh, like this is, this is just a new ceiling. And then it just kept on going on. So, you know, what is it that Yoga Berry said? Something along the lines of if it can't go on forever, it will stop. That's probably also the case here. What would say is that I am very bullish on their cloud computing division. We're probably looking at something that is around just short of a trillion dollars for the entire industry, not just for Microsoft. And that's probably growing with 20% CAGR right now and for the foreseeable future, perhaps a decade, perhaps longer. It's vast. And whenever you go through the earnings call and the same with Alphabet, they talk about how they're constrained by capacity and sort of like a bit to your point, Hari, about Adyen, there is this, yes, they do get new users on, but it's also about the customer's just getting bigger. They grow so much from that. And it's not too different because with a company like Microsoft with their cloud services, then they need more cloud computing. So I found that to be quite interesting. Now, I'm not sure what to make of commercial365. That has been a massive tailwind for the longest time and for obvious reasons that growth has started to taper off just because there's only so many people that you can convert from one system to another or from a license to recurring revenue and there's only so many people out there. And I think you brought up a very good point, Hari, about do we even need spreadsheets in the future? I kind of feel that's probably a bit above my pay grade to answer that. I think you have a great point about software just general being disrupted and whether it leaves Microsoft. Are there going to be the very infrastructure of handling everything and how they're still going to capitalize on that? I don't really know. I very much like your analogy, Hari. Whenever you said it's the new IBM, let's hope that they look into a different destiny though if you're long in terms of. I think you also asked Hari about valuation. I'd probably say this valuation, single digits, high single digits, I'll imagine at 350. I did the modeling and there's a ton of assumptions that doesn't go well into doing a podcast. You can then model. But I would say that 350 you'd probably see a low double digit, but probably not at this level.

Stig Brodersen (49:55)

Toby, you got a little bit unlucky, Stig, with it running up so quickly. I'm sure you were preparing for it at much lower prices. I think you make a good point. You make two good points. One is that you shouldn't ignore the very big companies just by virtue of the fact that they are very big and are very successful. I remember looking at Microsoft in the 1990s and thinking it was all over because it had run so far and so it's only up a few thousand percent, 10,000 or 20,000% since then. So clearly that's not the right thing. And the other thing is that at 35 times earnings or 20 times sales, that these things are expensive. It's not necessarily the case. It may be that they are very, very good businesses. It just becomes increasingly less likely. Although for Microsoft it certainly proved it over a very long period of time. I think your worst case scenario with Microsoft here is you just get below market returns because you're slightly overpaying. But I don't even know if that's true because it's clearly growing at a well above market rate. And maybe it's a little bit overvalued here, but like maybe 20% or something like that. And so you still going to get, as you say, high single digit returns without knowing. And I don't think anybody's switching anytime soon from Word or Excel or anything like that. I think the challenge is, as you point out, the AI if people just start interfacing directly through an AI chatbot and the chatbot is able to put together those spreadsheets more efficiently, you know, pull the data now put together a table the way that I want to see it rather than you having to do it, maybe a table too back end into something that's a different kind of spreadsheet developer. Maybe you can do it itself but I think that's sort of more of a, it's a little bit more abstract that risk and it's harder to handicap how likely that is. I think behavior changes really slowly. So I don't think it's happening anytime in the near term. I think there are folks who are early adopters of that, of the AI. I think everybody is using probably a little AI chatbot to some extent, but it's a long way from really having that become the dominant. I certainly still use, I use Google spreadsheets more than I use Excel. But if I have a thing that I need to use, it can only be Excel. And I prefer, I actually I write in Google, Google's version of Word too. But I, I think that if you're going to produce something for production then you have to use Word because it just has more functionality. I think it's, it's a, it's a very safe pick and I think it probably delivers so slightly lower returns because it's so safe. But I don't think that you can go wrong with something like Microsoft and I think you're probably likely to be ahead in five or 10 years time. So I think it's a good safe pick.

Tobias Carlisle (52:38)

Yeah, I think that's a. Thank you Toby and Stig. This is a very interesting big. Stig, I am also curious what's your expected return that we are looking for for the next five years at this price, current price.

Hari Ramachandra (52:53)

Oh, that's probably high. Single digits, call it 8%, something like that. It's not too interesting. And on that note, I would also say that the average volatility of Microsoft is 33% compared to 18% for the S&P 500. And of course that would change depending on the time period. But to Toby's point, yes, this was not the right time to pitch it. There were a different time where it was perhaps a bit more appealing. But whenever you look up the volatility of a stock and especially if it's significantly higher than the market, you can also sit on your hands and wait. It's not like Microsoft underlying business model is going to change that fast. And just revisiting this point here, you said about spreadsheets, and this is probably my lack of imagination. We talked actually about Gemini here just before we started recording. I find right now ChatGPT to be a better option. Who knows? And I kind of feel like considering Microsoft investment that what's going to happen. That's definitely above my pay grade. Again, my lack of imagination. I've tried working with spreadsheet and because I would typically speak with ChatGPT about a lot of financial stuff, spreadsheet functionality right now is absolutely terrible. And this might be a bit of anecdotal, but whenever I look at other people's Excel sheets, like really smart people's Excel sheets, I have a really hard time understanding what they're doing. And to them it's like the easiest thing ever. And we're not talking about complex problems, just my ignorance. But I guess that everyone who's seen everyone else's Excel spreadsheets, explaining what you want to do and how you want to do it and what you have imagined, explaining that to Chatbot, it's just, I don't know. Again, my lack of imagination or I find that to be disruptive. Relatively late. But whenever I grew up, we didn't have Internet, which makes me sound super, super old. What I found myself. Even Whenever I use ChatGPT, I would use it and then I would include whatever kind of write up and then I would put it into a Microsoft Word document and then I'll sit and edit it afterwards. That's probably not how young people do it today, but that's how I do it. So a few more anecdotes here to Microsoft. If I can try to be my own devil's advocate, perhaps I read way too much into it. I really like to read the CEO's letters to shareholders and I really like to see if I can feel the founder, or in this case, not the founder, but the CEO. I can really feel their soul. For the lack of better words, whenever I read Sadia's letter, it sounds very investor relations. I don't feel I know who I'm speaking to. And I probably have way too high standards from reading Buffett's letters and. But it feels like it's been gone through 10 IR people and it's been beaten up. And it's like we make the world a better place and everything should be sustainable. And I'm not against making the world a better place. It's just like I'm inclined to say it feels like one of those AI write ups from ChatGPT where you're like, oh, that sounds nice, but no one talks like that. It sounds so AI. And so I don't know how many people are going to offend when I'm going to say this, but to me that's a bit. And again, the result speaks for itself. So I'm probably overanalyzing the letter, but there's something about that where I'm like, we need more soul whenever the CEO communicates with the stakeholders. On the flip side, I like how of course we all want strong balance sheet companies. I also like that Microsoft doesn't have $100 billion on the balance sheet, of course, spend a lot of money. They made the activation blister acquisition, $75 billion, most of that in cash. And you can see that on the balance sheet, how they just exploded the goodwill. But I think it's good, especially companies of this size, they actually do apply that capital. Also because they're not Berkshire Hathaway, they're not trained to allocate capital. It needs to be put into work in their own expertise. And of course, the jury is still out in terms of how good the acquisition was. Let's see. But I just want to note that and if everyone's looking at their cash holdings and what's been going on. So anyways, Jens, thanks for the feedback. All right, Toby, you're up.

Stig Brodersen (57:19)

Thanks, Stig. So I'm going to pick something that's totally different to what the other two gents have picked. Mine is Devon Energy. It's an oil and gas producer. And I want to talk a little bit about my process for picking this, the stock itself and then the oil and gas more generally. So I, you know, I run two deep value funds, one focused on small and micro stocks in the US and one focused on mid and large. What has happened with my mid and large cap stocks is that they've all got so small that that fund is actually now categorized as a small cap fund as well. And my small and micro have fallen off the bottom of the Morningstar chart. So they're super, super small and they're as small as they can get and they are as deep value as they can get. And I think that that's because the market has sort of done this thing where it's separated into the very, very biggest. And you heard a pitch from Microsoft, which was the very biggest of the very biggest, and it's left behind a lot of the rest of the stocks in the market. One concentration of stocks that have really been left behind is oil and gas. And the reason is very simple. The oil and gas price, WTI West Texas Intermediate topped out in 22, around 120 bucks. And it's been falling pretty consistently. Now it's around $60. So it's halved over the course of the last four or five years. Folks might remember in 2020, in the COVID lockdowns, oil and gas went, or the oil price went negative briefly because there wasn't enough storage for oil and then bounced out the other side and it's fallen back. And that's been driven twofold. One is that there's been a little bit more supply comes online when prices go up as high as that. And it also destroys a little bit of demand, which creates that downward pressure. And so that's how we find ourselves where we are now. The short term outlook for oil and gas is for those prices to keep on falling. And so sentiment in the oil and gas patch is very negative at the moment. Some of these companies are. So there's different types of producers and they have different costs of oil and gas. The higher cost producers when prices get down like this. And so I should say there's a global picture and there's a U.S. picture. The U.S. picture is U.S. costs are a little bit higher total cost and also marginal cost. The marginal cost for oil in the States for the most part is somewhere between 40 to $50, which is expensive. The global cheapest are China and Saudi Arabia and they're at like 20 bucks. So they're not destroying supply at this level. They're pumping as much as they can. They're making money at 60 bucks. But domestic producers, there are some higher cost producers and there are some lower cost producers. The higher cost producers suffer really badly when the oil prices are down like this. And they're the ones that look ugliest. They are also the ones that come back the strongest when the oil price picks up. But you have a little bit of a gamble as to whether they make it or not. Nobody knows how long oil prices will stay low. And so the safer pick would be something that is producing profitably even with oil prices at 60 bucks. But then the other side of having a more safe pick is, is that it won't respond as well when the oil price recovers. And so Devon is one of the safer producers. Devon Energy, their cost to produce oil and gas is about 30 to $40. So they are profitable at this level and cash flow positive. All of their acreage is in the U.S. so they're concentrated in the biggest shale in the U.S. two thirds of their production comes from the Permian. They've also got some other holdings in Anadarko, Eagle Ford and Bakken. They've got 2.2 billion barrels of oil proved, net proved, and production is 848,000 barrels of oil equivalent per day. They're producing 73% oil, 27% natural gas, which is not an unusual mix. They've been very good at, they've been very efficient. They're able to engineer some cost savings as they go along, sell some higher cost acreage, focus on the lower cost acreage. And so they are cash flow positive and profitable at these levels. For the most part, they've been buying back stock. PE is currently a little bit over 7 times EV. EBIT, what I call the acquirer's multiple is a little bit over seven times as well, which means that they're producing about $3 billion in earnings and about $4 billion in EBIT. Cash flow is about the same. One of the risks for oil and gas is that you guys might recall Buffett's got a holding in Oxy. He took a slide from Vicky Golub, who's the CEO of Oxy, from her presentation showed that they were going to be returning capital to shareholders. And that's been a criticism of many of the commodity companies and oil and gas companies as well, that they take whatever earnings they get, they put it back into the ground and there's no real return for shareholders. So over the last five or 10 years, they've all got religion about this and they've all started returning capital. And Oxy has been retaining lots of capital, which is why Berkshire, I think, has taken the position. So I like the oil and gas companies that return capital selfishly, that's what I prefer. But for the industry as a whole, it's not necessarily a good thing because it means that there's this sort of spent, this slight underinvestment in oil and gas infrastructure for an extended period of time now. And there are multiple reasons for that. But requiring a return on capital, which isn't unreasonable is one of those reasons. But what that means is that this sort of level of oil and gas price, $60 and looking like it's trending lower, destroys supply, doesn't bring as many new oil wells online. There are reasons why they're not investing as much. Oil's getting increasingly hard to find to sort of make many of these new wells offshore and deep and more expensive as a result, or they're sort of these shale supplies which don't return as easily as the old hole as you drop to the bottom of the. You just drilled a big hole and then it gushed oil forever and ever. They have a shorter half life these, the shale oil. So all of that destruction and pessimism in that sector, I think you are speculating a little bit here. We don't know what happens to the oil and gas price. The oil and gas price for any commodity, the best guess what the price will be in a year is the price where it currently trades. And that's just to minimize your, your error because it could be lower and it could be higher. No one knows. The only time where that sort of becomes less true is when we get down to. We arrive at one of the extremes, either the extreme high or extreme low. I'm not saying that this is an extreme low. I'm just saying that this is a much lower price and a supply destroying price. And there's a lot of geopolitical tension in the world, more so than there has been for a long time between some of the bigger players. If we have any disruption, we will see probably a spike in the oil and gas price. The only, well, not the only, but the risk to that is that it's also an input into the economy. As the economy slows and weakens, the oil price also tends to fall alongside with it. So I like Devon Energy here because I think that it's reasonably safe. Where the current oil prices are, it's unlikely to lose money. They're doing all the right things. Reducing the share count, buying back stock, trying to reduce the cost of rationalize their operations as they currently exist and return capital to shareholders through buybacks. In the event that the oil price does spike, they'll be a beneficiary of it. They should do quite well. There'll be other higher cost producers that will. The share price will move more. But I like oil and gas as, as an industry at these prices and I think Devon Energy is a reasonably safe way to supply it. So I'm interested in what you guys think.

Hari Ramachandra (65:49)

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Hari Ramachandra (69:31)

Alright, back to the show. So I'm happy that someone finally brought in a real value pick so they get seven times earnings. What's not to like? I think this is an interesting pick and there is something to be said about whenever the world is just turned against you, that's whenever you need to start paying attention. With the oil price dropping like you mentioned, also with the tariffs and now equipment for drilling and casings are going up. So we're talking about seal here. And so a lot of the raw inputs that they need to use and they're already not low on the cost curve. There's just so much pain right now for shale producers. But one of the wonderful things about investing is that whenever the market feels that there is pain, they typically sell out. And so sometimes you can still find something really good, at least compared to the price. So I will be the first to say I love the price. With that being said, here comes all the negative things and some of that Toby already alluded to. I'm always worried whenever I enter a commodity type business and you're investing in something where you're not the lowest cost producer. Of course, like you mentioned, Toby, you're well aware of that. I know I'm not telling you anything new and that's just the way it is. If you're not based in Saudi Arabia, you're probably not the lowest cost. But USGL is just higher up on the cost curve and you can blame geology, that's just the way it is. And so it's difficult to make money at certain times and one of them is right now. So you have a higher downside or at least you have to figure out can they sustain themselves, would they be issuing equity at stupid times and where you would get diluted if this long period of oil prices being low, if that extends. So you sort of have to figure that out as a part of the investment thesis. And so you want to make sure that you invest in companies that can withstand the winter. But if you are right, you typically also get a much bigger bounce up than compared to the ExxonMobils of the chains of the world. And so Toby mentioned before that he might be holding them in a basket approach. And I kind of feel that it's a little bit different whenever you have it in a basket. Generally I'm quite bullish, especially at the current multiples with the oil and gas sector. But there are a lot of things not to like for the company like Devon, where one of the things that they put on in their investor presentation is that you put in their credit ratings like oh, we are like Baa2. And you're like, is that good? It's not. And so that's the Moody's rating. And so they're not borrowing at the same low rates as the competitors. They say that they have a low net debt to EBITDAX ratio. And you're like, did you stick to ebitdax? Didn't you mean ebitda? So EBITDAX is the axis before exploration. So sort of like it's not like crazy that they would use something like that. Especially if you're upstream, it's something that you would include. But even so 1.0, I still want to say it's sort of like on the higher side. So even though that they are relatively efficient, it's something I'm a bit worried about. You have to be good at figuring out where you are in the cycle. And the cycle is by and large, well, it's controlled by the oil price and it's really difficult to figure out what that is, even though you might make a somewhat reasonable estimate. So just before recording here, Saudi Arabia came out and they said that they want to punish some of the people who don't follow agreements in opec. And there's always a reason not to follow what they agreed on. And so they're overproducing themselves and they precious the oil price. So you're sort of like you're dealing with this was just one anecdote, but you're dealing with so many different factors where you just have no control over. And if you also then don't have a good credit rating, you're like this is tough, you have to borrow. And so whenever you look at the share count, I kind of felt it was interesting to go back over the past 10 years. And so whenever you go back end of 2015 you had 411 million shares. Then you went up to 524 the year after I won't go through all the numbers, but then in 2020 it was down at 383. And then the following year it almost doubled to 677. And since then it's sort of like gone. It's been a bit like a roller coaster going to Toby's point. Yes, it's definitely true that they return money to the shareholders, like roughly one third in dividend, two thirds in share buybacks, but also know that they're issuing shares to continue to make investments. And because it's shale, it's a little bit different than, let's call it a normal oil well, whether you have like what, 5, 10%, like you have that initial declining rate, whereas for something like shale, you have like the first year is like boom, 60 plus percent. It was very, very fast. It's tight oil. And so again, you could just blame geology if you want to, but it's tricky. And so whenever you look at, for example, they made like a $5 billion investment here in September 2024, Grayson Mills, 3.25 was in cash and 1.75 was in stock. And so it is part of the business model. I'm not saying it's a bad business model. I'm just saying it's part of the business model. And so it is something that gives me a little pause. But coming from the guy who pitched something at 35 times earnings, I very much like that the market has turned sour on Devon and I can easily see the stock price explode if, when the oil price goes the other way. So with that said, I'm going to throw it back over to the group.

Tobias Carlisle (75:31)

Yeah, I think it's an interesting pick, Toby. I think I see a couple of things here. Number one is it's attractively priced, as you said, low cost producer with a stable dividend now at almost 3% dividend yield. So you get paid to sit and wait to see how things play out and you're reasonably confident that their balance sheet is strong and their overall productions are not impacted. So because everything is in us, so there are less risk of any geopolitical instability. So a lot going for them. It's like you would just sit and collect a 3% dividend if nothing else happens, if there is no catalyst and you are reasonably valued at this point of time. So that's what I like about it. It's like almost buying a bond with an option. Couple of things in terms of changes that are coming in. Number one, with Trump administration being pro drill baby drill, that means there'll be less regulation within us for them to increase production. So that's number one. So that can be negative or positive because it can increase supply. But at the same time they might be also more open to more acquisitions in terms of regulations. So there might be less regulatory hurdle for say they want to acquire more reserves or oil fields or gas fields. So that can be expansion. And we have to take it with a grain of salt because they already kind of paid 5 billion for one of the latest acquisition on Grayson. So we don't want them to overpay anything. So that's the other aspect I see as change coming in from a regulatory perspective. The third thing is in terms of headwinds. If the Ukraine Russia conflict is resolved, you have another producer coming onto the market. What will it do for the oil prices? Will it further push it down? So that's the other concern or uncertainty we have. Same with Iran nuclear deal. If that happens Now Iran also comes into the market. So now suddenly oil is cheaper, much cheaper and then it gets closer to their breakeven price of 35. It's highly unlikely. But I think that's one other possibility. But I think where I am also seeing a optionality for them is we were just discussing about AI and EOS really wants to compete. It has to build a lot more capacity in terms of compute and that means it needs a lot of energy. And there were like Eric Schnit podcast was saying we probably need 90 gigawatts more which is like 1 gigawatt power is almost one city. And then gas, natural gas. 30% of the reserves is natural gas. And that's where there'll be a lot more demand because I don't think we can get all that energy from nuclear. Like you know, we might have to build like 50, 60, 70 nuclear plants. I don't think that's happening in the, in the short term, medium term hydroelectric. I think we don't have much there as well. Now solar and wind cannot pull the weight, so it's natural gas. And coal is not the best option. So that might be a tailwind for them because suddenly the demand for natural gas will soar. It's almost like 90 Las or 90 San Francisco coming up online suddenly. So that demand for natural gas can help them and can be a tailwind. And that's the positive. The negative is more demand, the more supply coming in because of Ukraine Russia conflict being resolved or Iran nuclear deal. So that's the headwind. So these are the two. But the way I look at it is you get paid to it. So worst case, you will still collect your 3% coupon.

Stig Brodersen (79:35)

Thanks for your thoughts, gents. I think the one, the one other thing I didn't point out was that oil inventories are close to a five year low. Now that might be folks planning ahead seeing that there is going to be an end to the Ukraine conflict, which brings Russian oil back online and a few other things like that. So maybe that's an indication that folks aren't worried about the future. It's also possible they've just been letting their oil and gas run down. But I think that when oil inventories get low like this, any change in the supply or demand picture is pretty quickly reflected in the market price because they have to go to the market to absorb that. So I'm guessing, I think that the move is, or hoping that the move is up and hoping that the valuations are sensitive to that move where they are. But it's a speculation rather than a real long term investment. So I think that. Thank you for. I agree with all of your perspectives on it. There's a lot to dislike about oil at these levels and I think that. But the one thing that I think I have on my side is that the pessimism in the industry is so bad that folks are positioned that way so that the asymmetric move is to the upside if something unexpected happens. And I like those kind of positions where probably we're getting positively carried to hold a position where the asymmetric move is with us. And so I like those sort of positions and that's the sort of stuff that I try to put in the funds. But I agree that there are, it's not a guarantee. There are certain things that have to occur for it to work out.

Tobias Carlisle (81:14)

Yeah. And I think I just wanted to clarify, Toby, were you referring to the strategic reserves when you said oil inventory of five year low? The US Strategic reserves?

Stig Brodersen (81:23)

Inventories.

Tobias Carlisle (81:24)

Oh, inventories in general. Yeah. Even the US Strategic reserve I remember was depleted. I don't know whether it, it's back up to the original levels.

Stig Brodersen (81:35)

Yeah, I haven't heard either. He would be a good place to do it though. Better than any time over the last five years.

Tobias Carlisle (81:40)

Yeah, you're right.

Hari Ramachandra (81:42)

So long term, I'm certainly very bullish on the sector. There's no way to escape oil and gas as much as we probably want to. But whenever we're talking about different investments and some people would probably say, oh, if you're really bullish on the oil price over a certain amount of time, you can go in and buy a derivatives contract or whatever. And there are certain ways to go about it. I'd probably say that if you want to cap your downside and you still agree with the oil thesis, perhaps you can go with some of the oil majors. If think the Chevrons and the Exxons of the world. First of all they consolidated more of the shell market and of course they do much more than just Yelp and also own their supply chain. So it's stacked a little bit different where you get a lower downside but then also a different upside. I think you would be just fine investing in a company like Chevron and then hold it for the next 10 or 20 years from a stock investing perspective. Whereas you can make a lot more money if you time it the right way with company like Devon. But you can also on the flip side if you don't get out at the right time. So Toby, any concluding remarks here on Devon?

Stig Brodersen (82:57)

No, just that it's one that I own as part of a basket. I do like the oil and gas industry here. This is one I own as a basket and I like reasonably efficient sort of businesses. I think this is one of the more efficient oil and gas companies. They are making pretty good money at these levels on the money that they've got invested in the ground and they are sensitive to the upside here. So I think it's an asymmetric bet without knowing that you get the upside. But if you get the upside, then you get pretty good performance out of this sort of position. So that's why I like these sort of positions.

Hari Ramachandra (83:33)

Fantastic, Jens, as always, it's always fun to have these quarterly calls. Anything you guys want to chat about here before we end this segment of the show?

Tobias Carlisle (83:43)

No, I think it was great conversations, Jake and Toby, and also I think interesting picks and interesting markets as well. We didn't get time to talk about markets much this time around, but a lot of food for thought to think about.

Hari Ramachandra (83:57)

So thank you and thank you, Toby, once again for being the value investor we aspire to be. I kind of feel like, I feel bad about. I can see this progression I've had with the different stocks. A pitch where it used to be single digits and all of a sudden I find myself pitching all of those terrible valuation stocks like, oh, just put it on my wait list, then I'll see what happens. So I kind of feel like it's good, Toby, that you would bring that to the group. And Hari, thank you so much for teaching us about tech and all the nuance. So just thank you for taking the time.

Stig Brodersen (84:29)

As always, it's been a tough run for value. I had a look the other day just looking on various metrics, on various simple price ratios, the cheapest versus the most expensive. And since 2011 it's been a pretty consistent underperformance for depending on how you measure those, those price metrics, which is, which is unusual. It's been pretty good outperformance over the full data set going back to 1926 or 1963 to however you measure it. So I don't know. I don't know when or if it turns around, but I just don't feel like there's a lot of very deep value guys left. I think that everybody's sort of gone up the scale towards a little bit more growth because that's where the returns have been. It's completely understandable. So I think that if we do get a turnaround, then Deep Value, I think it'll do fairly well because it's so underinvested, but remains to be seen. Even as I said, my mid cap large cap fund is now a small cap fund because it's just so hard to find mid and large opportunities that are undervalued.

Hari Ramachandra (85:30)

I wouldn't be surprised at all, Toby, if you have the last laugh.

Stig Brodersen (85:34)

I hope so. I just hope I'm not 90 when it happens.

Hari Ramachandra (85:38)

Well said, well said. All right, Jens, again, thank you so much for making time. Toby Hari, where can the audience learn more about you?

Stig Brodersen (85:47)

I'm on Twitter Greenback G R E E N B A C K D. I have a website called Acquirers Multiple which has free stock picks on it. Free deep value stock picks on it, which is about what they're worth these days. No, I'm kidding. And there are two funds, Zig, which is my mid and large cap now small cap, Domestic US Deep value and Deep, which is small and micro. And they really are very, very small companies. And they really are very, very undervalued. If there's ever any interest that returns to that sector, I think they'll do fairly well. I've been surprised at the quality of the companies that have fallen into small and micro land. It's very tough for those smaller companies to catch a bid in this market, but I've got a collection of them if anybody ever wants one. They're in my bargain bin.

Hari Ramachandra (86:33)

I love it, Toby. I don't think you have to wait until you're 90 at all. It has to turn. And I know we said that for the longest time, but that doesn't make it less true.

Stig Brodersen (86:42)

How long have I been on this podcast, stig? Since like 2015 or so.

Hari Ramachandra (86:46)

Since 2015? Yeah. It's a decade and I kind of feel like we have this discussion like Deep Values decade ago right just around the corner. Fantastic, Hari.

Tobias Carlisle (86:56)

Yeah, I guess Mohat's Gas Stockpile is on your side, Toby. So hopefully soon. So. Well, thank you both of you. And you can find me on X or Twitter. My handle is Hari Rama. I hang out there. So happy to catch up and engage in any conversations. Looking forward.

Hari Ramachandra (87:16)

Thank you so much for your time once again, Jens. I look forward to next quarter.

Tobias Carlisle (87:19)

Thank you.

Stig Brodersen (87:20)

Thanks, Stig. Thanks, Harry. See you guys.

Hari Ramachandra (87:23)

So in this second part of the Mastermind discussion, I'm joined by my co host, Clay Fink. How are you today, Clay?

Sponsor (87:30)

Doing great.

Hari Ramachandra (87:31)

I wanted to have this second segment here of today's episode because I wanted to talk a bit more about a Mastermind community. We just had a Mastermind discussion and we sort of borrowed that name, tweaked it a little for a group of up to 150 members that we call our Mastermind Community. So this is a community. We talk about stock investing, portfolio management, and increasingly there is also a life component to it. And a thing that we talked about on that note is really this idea of meaningful relationships. And a part of me feels that it's a little ironic because our community, our Mastermind community, as you say, started very much as talking about value investing and talking about different stocks we're looking at. And we still do that, I should say. That's still the very core. But something that has happened quite organically is that I guess Buffett and Mongo set the scene for us where we, or at least I can talk for myself. Where I found Buffett to learn about value investing, then I learned a ton. But then I sort of felt I was sticking around to learn more about the life lessons. And I kind of feel like I can't help but say that I see some of the same thing happening in our Mastermind Community.

Sponsor (88:48)

Yeah, definitely. One of the best things that just the value investing community overall has brought me is just several meaningful relationships in various shapes and forms. And those number of relationships has definitely increased drastically ever since we launched our TIP Mastermind Community a couple of years ago. And I've just had this great chance to connect with so many thoughtful, high quality people both online and in person. And I've been pleasantly surprised by some of the people I've connected with and realized just how much I could learn from Them that has nothing to do with investing. It's just a phenomenal place to surround myself with people who really are able to help me in many aspects of life and just serve as a sounding board at times. And meaningful relationships, it's one of those things that can be hard to define since each relationship is different, but it's one of those things where you really know it when you see it. What does a meaningful relationship look like to you? Stigma.

Hari Ramachandra (89:48)

It's a very tricky question. I don't know. I should probably look it up and someone could define it better. And so, as you can tell, I'm trying to buy some time here. But it's more like, William would say, something along the lines of, it has its own frequency. And I think that's a good way of looking at it, but it's a bit like quality. Right. Whereas you know it when you see it to your point. And so I think if you put me on the spot, I would say that you have to both benefit from the relationship. I don't have a very scientific approach to this, but you should both leave the conversation that you have with a feeling of being heard, valued and respected. And I think it starts with shared values. And I should also say that it doesn't mean at all that you have to agree on everything, but you still need to feel like you're heard and you're respected. And so another way I would look at this is to say that a meaningful relationship is whenever you feel comfortable being authentic, really, you have to be congruent. And the test I'm sort of giving myself whenever I'm evaluating some of my own relationships is that I'm asking myself, can I ask why? And asking the word why, it can be such a loaded question. Because whenever you ask someone why or someone asks that to you, you feel like you need to justify certain things and you might feel judged. And so one way to talk about meaningful relationships is really this idea that you can explore certain or all topics together with your gut down. And to some extent, I would say that there's also an element of being in the same place, place in life and struggling with some of the same problems. And I also kind of feel like that's probably not the best example because you can have a meaningful relationship with your child or with your parents. And by definition, you're not the same place in your life with a child or with your parents. So if you allow me to digress a bit here, I have this. At least I'm going to say wonderful calls. I don't know if anyone else feels that they're wonderful. To me, they're wonderful because once a quarter, I have these episodes together with William. And the next one is coming out here the weekend after this one is going out. And it was quite interesting. So after the last one came out, I got quite a few people who asked me, so what do you talk about after the episode? Which I kind of find to be quite an interesting question. I've never gotten that question before. And for whatever reason, I got multiple people asking me for the first time ever. So what actually happens after you stop recording? And I hope this doesn't come across the wrong way, but we actually talk about what we just talked about. And we do that with a different level of transparency because. And I can't speak for William at all whenever I'm saying this, but I feel that whenever. Not because it's William. If anything, William really gets me talking about a bunch of wonderful things. But I feel like because it's being recorded, I am holding different things back. And perhaps it's just because I'm too self conscious. Perhaps because I'm worried about being judged. I don't really know. And so we actually talk about what we just talked about. Then we sort of feel like. I would then say to William, oh, you know, this person I talked about here, there was actually this specific person. So anyways. But I would also say that the things I struggle with today are just different than what I used to. And I guess some of it is just a reflection of being older. Some of it is also being in a slightly different financial situation. And I feel like. And now we're coming back to the whole subconscious thing here. I feel like I can come off as such a jerk whenever I talk about some of my problems. And that's sort of like one of the things we talk about on those quarterly episodes. Because for the longest time, my goal has been to do what I want to do with whoever I want for as long as I want, which is a concept I talked about a few times here on the show. And so I once thought that that was a destination. Once you get to that destination, you're in nirvana. You don't have any problems. Everything is amazing. And so the world just isn't that kind. And so there's sort of like that component where you almost still want to talk about some of the struggles, but perhaps you just sort of want to do it in a different format, I guess. And so before I paint myself too much into a corner, I think I need to transition to another thing here, talking from a purely business perspective, Another thing where I really enjoyed being a part of the Mastermind community is. And continue talking about these meaningful relationships is that we can talk about these niche topics that only very few would have an expert knowledge in. So one example I'll come up with is that I've been looking to acquiring private companies, and I don't know what I'm doing. I like to think I know a thing or two about public equities, but I certainly don't know anything about acquiring private businesses. And that's sort of like. That's a tricky situation to be in. I work with lawyers, I work with consultants. And for whatever reason, it seems like I actually do know the reason, because it seems like the main thing they would say that I need is that I need more billable hours. I need more consulting. Apparently that is what I need to be doing. And so I feel like with the Mastermind community, I can be very blunt and I can be like, hey, guys, you sort of know what I know, but then you actually know a lot more than me. You actually know the game. So it's almost like having a support group. And I think it comes easy to us. Even though in a way we don't know each other, it feels like we do know each other because we share so many of the same values. So it's sort of like you start from scratch, but then you also don't start from scratch at all. And I feel like the advice I can give, especially because I'm such a rookie, is just more genuine in a way, because it's not like the Mastermind community members are not lawyers wanting to give me billable hours. They're probably like one step, two step, or three steps ahead of me in terms of acquiring businesses. So we have a different type of conversation about that. Anyways, there was a long rant and I covered way too much there. But meaningful relationship is a lot of different things. I guess that's what I'm trying to say.

Sponsor (96:36)

Yeah. It's funny you mentioned talking about a private business. We just had a call the other week with a member who outlined a private transaction he did. It was a $2 million deal and he just totally transparent, walking through all the details. And that happened to be one of our most popular recent calls. So it's funny you say that, and I really liked how you mentioned that. A meaningful relationship is one where you feel seen, you feel heard, and you feel respected and you can really just be your authentic self. And I often catch myself Telling others outside of TIP that, yeah, Stig's my boss. And it's kind of weird for me to say that because internally I don't really view it or approach it quite like how I would approach my relationships with my previous bosses, because I feel like I can just be myself around you and I don't have to act like I'm someone I'm not. And I think that's a sign that there is a real meaningful relationship there. And you nailed it. That each phase of life brings its own set of challenges. Each stage is different and still challenging in its own way. And it can be difficult to find people who can resonate with the challenges that you're facing. So one of the things I've learned since day one of launching the community is that just so many people have similar challenges, but they don't have others to bounce those challenges off of others. And many in our group have already experienced some of the things that people are going through. So I. I found it to be quite valuable for me personally. And another challenge I have with my friendships is that I like to meet people in person if I can, which is one reason why I love hosting our events in Omaha and New York City. But there's many more months in the year to potentially get together with others. For example, one member invited me to go skiing with him in Park City, Utah, which I felt having that time together has no doubt improved our friendship and helped me get a better understanding of who he is. So I'm curious to hear, being all the way in Denmark, how important is an in person component to you in a meaningful relationship?

Hari Ramachandra (98:53)

Yeah, I think it's very important. Even for an introvert like me who tends to be a bit of a hermit at times and not go out as much as I probably should. I was on a call with one of our members, and she said that online is kind of like what happens after you meet in person. And I think everyone's different, but I think for me, it's sort of like the opposite. And I think virtual meetings are great, but I also think that there is, like, there's almost like a different state of mind. You know, it could even be as simple as the time of the day, you know, so we're speaking morning for you, your central time, your seven hours behind me. So it's almost like. And in other times, if you're speaking with someone from the west coast, it's nine hours. It's almost like, hey, I just got up and I'm like, oh, I'm just about to have dinner. And so I think you bring up a good question. And if I can continue on this idea of state of mind whenever I'm on a zoom call or a teams call, whatever it might be, very often those calls are scheduled for 45 minutes or 60 minutes, and I would have a new call coming up at the top of the hour. So I think part of it is just like, you're just restricted for time. There's just some things where you're like, oh, I'd really like to explore that, but I have 22 minutes left. And then there's another call. So I think that's probably a part of it. But anyways, I tried something new this year. So far, it's been a lot of fun. I don't know if I'm going to do it next year, but what I've done this year is that I've made an open invitation to our Mastermind community to come here and visit me in Aus, Denmark, where I'm based. And so quite a few people, the first time I've said it, they actually thought I was joking. And joke not in the sense that I didn't want to see them, but just more because, hey, dude, I'm in another continent issue. What do you mean? What do you mean? Like, I would ever be around? So, like, super nice people, like, don't get me wrong, but I can see that. And then there are other people. They're like, oh, that's cool. How about this date? And you're like, okay. So I think it's also because we have quite a few members of our community. They travel all the time. And so for them to swing by, which of course is a little bit easier if you're based in Europe than you're based in North America. But. So, for example, this year, I don't know how many I'm going to be hosting, but I'm going to have probably 10 people, perhaps even more, from three different continents, which is absolutely amazing. And so it's sort of like a way of trying out this new thing where I want to see if I can bring the world to Aarhus. Even though as digital as the world has become, nothing really beats meeting up in person. And even had a friend and community member who just swung by for lunch and then he flew back and that was only to lunch. But even so, I'm like, wow, you weren't even here for two hours. That was really cool. Please, this is not my way of saying, come visit me and don't see me for more than two hours. I was just like, wow, that's a first. That was pretty cool. But anyways, let me throw it back over to you, Clay.

Sponsor (102:14)

Yeah, I mean there's certainly a totally different element when you're hopping on a one on one call versus getting together in person. We just got back from our our events in Omaha and people just tend to let their guard down. Many people tend to let their guard down when they get together in person. And just about every time we get together in person, one of my big takeaways is just how many wonderful people we have in our community. There's one gal who came to Omaha and I think the big reason she goes to Omaha is just to surround herself with wonderful people. She's not going to be here. You're not going to find her talking about some individual stock with another person, most likely, if I had to guess. But yeah, I think a lot of people go to Omaha and are a part of our community because they want to surround themselves with people that have shared values. And when I hop on calls with new members of our community, I'm often asked where I want the community to be longer term. And it's such a shockingly simple yet difficult question to answer. I've really come to realize that I really want the Mastermind community to be an outlet for just wonderful people in the value investing community to connect with others. Perhaps it's a place to talk stocks and share investment ideas or perhaps it's a place to reach out to a fellow member to chat about challenge you're currently experiencing in your business. As a host of we study billionaires like you, I've found it challenging to build meaningful relationships with others in our just the overall community. Since, you know, everyone's busy, you don't want to feel like you're bothering anyone. So you know, we, we really put this group together as a tool to be used for networking with like minded people. And we've actually limited the group to 150 members in line with the Dunbar framework. And for those in the audience who perhaps don't want to commit to, you know, recurring group where we're getting together each year, we're doing calls all the time. We actually put together our summit event where a small group of us are getting together in the mountains of Big Sky, Montana for a weekend in September. And selfishly, it's another way for me to just surround myself with more wonderful people. So I've been toying with this framework of trying to maximize the number of tasks where I'm just around people and doing Things that give me energy instead of drain me of energy. And the Mastermind community and the summit have been excellent avenues for me to help solve for that problem.

Hari Ramachandra (104:49)

Yeah. And Clay, I love that you bring up this point about selflessly wanting to attract high quality people into your life. I mean, I couldn't have said it any better myself. And it really goes back to this point about meaningful relationships. There was something to be said about high quality people having high quality interactions and you're just left with this positive energy. And it's something I've considered quite a bit because I'm sure so many others listening to the show. I want to make sure I have sufficient time for friends and family. But I also feel I owe a great debt to the value investing community and making sure to pay back for everything that I received. I used to think that one thing came at the expense of another every time I worked on something with tip and I couldn't be with family and friends. And sure, there is an element of truth to that. I'm not saying that everything is play and that's not at all where I'm trying to get. But I still think that I'm by no means very good at this, but I tried to blur the lines a bit and that's been a very good experience. Where you find friendships within the value investing community that just comes with it's just on its own frequency and it's not like they are competing with your other friendships you have in life. It's not because they're better, it's not because they're just different. And I think a part of it is that there are so many things between the lines, so many values that you have in common. But I also think that there's something to be said about, or at least I can only speak for myself, but you know, it's. And perhaps again I'm going to pull all men down to my level here, which is probably not fair at all. But I think it's quite difficult for many men, the older they get to make new friends. It's not like whenever you're running around in the playground, you're like, hey, do you want to be my friend? Great, awesome, let's go on the swings or whatever. So we're busy with family, we're busy with work. And so it's sort of like tricky to find friends. And I think one of the wonderful things about the value investing community at large is that it's almost like you've been friends for years whenever you meet someone because you read the same books and you listen to the same podcast or whatever it might be. So at least for me, that means something. And it's a bit like whenever you're flying and the flight attendants talks about, hey, you have to put on your own arm oxygen mask first if something happens. That's sort of like a bit how I feel about this, where you need to make sure there's room for you. And whenever you are in a good state, that's whenever you can help more people. And I just see that to be such a thing for so many people in the value investing community. The other thing I want to mention, which is going to sound ridiculous, but I'm going to say it anyway, that has never stopped me before, as listeners of this podcast would know. Anyways, I think that there is something to be said about creating friction. And it sounds negative because friction is sort of like a negative word, but I think you can make it positive if it's done the right way. And so I have a very good friend. We travel to many different countries together across four continents. And yes, it's definitely been wonderful to see a lot of different sites, but I've always met up with him and he's someone I became friends with as being an adult. It's always been for the conversations and having multiple days. We would typically travel for a week at a time and continue on the same conversation. And so it's almost that friction because it's kind of painful to go to another continent with all the hassle, all of that. It almost there are certain friendships where you can cross the ocean and so if I sort of translate some of that and I don't know how this is going to come across. So my apologies if I sound too much too full of myself what's going to come next year. But I would imagine similar to you, Clay, I have a lot of people who are asking, hey, can we jump on the call and talk about a stock or whatever it might be? And all that is good, I often find myself saying no, I should say there's just not enough hours in the day. And at the same time my calendar is generally completely open. So it's sort of like a chicken and egg thing, right? Because like how can it be open? Well, it's open because I say no to so many things so I can say yes to other things. And I want to tie that into this idea about friction because it's sort of like a zoom call is very non committing and sometimes it can just be a time suck, to be frank. And so I've sort of tried turning the tables and I've said to a bunch of people like, hey, can we meet up for lunch? But here's the catch. Can we meet up in August, Denmark? And I know this is probably again, two groups of people. One group is like, there must be a joke. And the other one's like, oh, that's great. How about next Tuesday? So that's absolutely wonderful. And so it's really a question of, you know, between 12 and 5. That's whenever I would typically have meetings and I would typically walk for two hours if I can. And I'm gonna have lunch anyway. So I'm like, can I put all of that into the same thing? Have lunch with a wonderful person and talk in depth and have a five hour long conversation. And so the thing is, and we're going back to this point here about friction. No one stops by Aarhus, Denmark unless they have a purpose. You would know this because you visited me here late. The connections are terrible. The weather is even worse, the cuisine subpar. An hour's drive to the airport will set you back a few hundred dollars. And the car that's going to take you here is not even nice because you have 180% tax on cars. So Aarhus is my paradise. I don't make any illusions that it's a paradise for anyone else. I guess this is my very clumsy way of saying that I'm sort of like creating this friction with our community where if they want to meet me, I would absolutely love to meet them. And of course there are hits and misses with everything else in life, but you sort of like let serendivity happen on a blank canvas. And what's been really interesting here, trying it this year. And I have the next one coming in here next week. I got a message from another community member yesterday and so he's visiting me too. And so like a bunch of stuff. Like what has been an interesting twist to this because it used to be so that I would say, hey, anyone, just send me a message. I'm bored out of my mind, I don't go out, so please just hook me up. So I tried saying, if they're clay approved, they're approved because you're that everyone in the community. I was like, this is the best. This is the best possible filter one could get. And I mean that the best possible way. So this is something I'm trying and it's been a lot of fun. I kind of feel like I am all over the place here in this conversation. But I hope this doesn't come across as too much. It's probably too late, but like me being a jerk for creating friction for other people, but it's really like creating a sort of friction to forge wonderful relationships. And so we have this summit here we're doing for our listeners, not our mastermind community, but for our listeners where it's Big Sky, Montana. And so we call the tip summit. I don't know how many downloads we have in big sky month. 10, I want to say around zero. That's my best guess. So you have to be very intentional about going there. But then once you arrive, it's for a small group. There are 20, 25 people. All of them are like, you vetted them, Clay. And so you're sort of like you're forcing those thoughtful conversations to happen. And so I guess the best way I can probably put this is that if you went on Twitter and you did ask me anything, you would get all kinds of low quality questions and network with some low quality people. I know there's also some high quality people on Twitter, but part of it is because there's no friction. There's no barrier of asking those questions. And so I've sort of made 2025 the year where I'm sort of trying to flip that and I don't know, I keep you posted. Perhaps it's a terrible way of doing things, but I try to create friction in my life and see what's going to happen. Clay, I'm going to throw it back over to you.

Sponsor (113:34)

Yeah, I mean, creating friction is an excellent way to frame it and I think it's an excellent filter to try and attract high quality people. There's just no friction to clicking send on an email asking someone for 15 minutes of your time or sending a LinkedIn message or, you know, as many of those as we get. So, yeah, friction is, is an excellent filter and, you know, it's why we have the application process for the community. And, you know, if you're not going to take 10 minutes to answer these questions, then why should I give you, you know, any, any of our time? So for those in the audience who are interested in checking the community out, we actually just opened it back up. We have around 125 members and we're again, we're capping it at 150. We're in no rush to get there. So, yeah, we're just looking to attract just wonderful people into our circle. And yeah, I think you'll find other wonderful people alongside us, hopefully who are much better than Stig and I. And yeah, you can check it out on our website. We have a wait list to join. It's at theinvestorspodcast.com mastermind for those that are interested in checking it out.

Hari Ramachandra (114:42)

Wonderful. Thank you so much everyone for tuning in to this lengthy episode. And thank you for staying with us all the way to the end. Thank you.

Stig Brodersen (114:50)

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Hari Ramachandra (114:57)

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Stig Brodersen (115:01)

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Sponsor (115:05)

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Stig Brodersen (115:07)

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