EM Chat with Nick Griffin: Why did he divest from Facebook?

HOSTS Alec Renehan & Bryce Leske|28 February, 2021

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

It’s *the* story of the moment: what’s going on with Facebook, and their battle with news? Alec and Bryce recap what has happened to date with the Facebook saga, and investigate the business side of the dispute, as well as the precedent it sets for the rest of the world. We then chat to Nick Griffin, who’s Chief Investment Officer at Munro Partners about their decision to recently divest from Facebook.


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Bryce Leske: [00:00:56] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I am joined by my Equity Mates friend. How's it going? [00:01:12][15.7]

Alec Renehan: [00:01:12] I'm very good Bryce. I am excited for this episode as always. Yes. We're going to be talking about the, I guess, the biggest story in Australia or one of the biggest stories, which is the Facebook and Google fight with the Australian government and News Corp and the nine newspapers. Yeah, we're not going to talk about the politics. Although, I might slip a comment also in. [00:01:42][29.9]

Bryce Leske: [00:01:44] If you do want to hear a more detailed conversation, head over to comedian and the economist with the boys have been. I've been unpacking it a bit more, so I head over there and check it out. [00:01:55][10.6]

Alec Renehan: [00:01:55] Honestly, those Adam and Thomas are firing on all cylinders, firing, producing some great content. To say killing it in the charts. [00:02:06][10.2]

Bryce Leske: [00:02:10] Anyway, it's worth going to to listen to. [00:02:11][1.5]

Alec Renehan: [00:02:11] So look, if you're not listening you should be listening. Oh look at the site. [00:02:16][4.3]

Bryce Leske: [00:02:16] But in this episode, when you're right, we're going to touch on the Facebook saga and then going to bring back on one of our favorite guests, which was Nick Griffin from Monroe Partners will be joining us in the second half of this conversation because he also has some big news around Facebook. And also he made. [00:02:34][17.6]

Alec Renehan: [00:02:35] Yeah, which we we might be claiming some copyright. Yes. [00:02:39][3.8]

Bryce Leske: [00:02:40] But yeah, no, I started for that comment. [00:02:42][1.4]

Alec Renehan: [00:02:42] I mean, we don't have to keep it in suspense. I think. So people know what we're going to be talking to them about this recently. So they invested in Facebook at Facebook's IPO in 2012 and they've recently sold their whole position in Facebook. So we unpack why Nick's done that, what he thinks, the reasons why, you know, there are better opportunities out there, and also what would make him what would have to change for him to buy back into Facebook. Yeah, but let's let's talk about this whole saga. So the business side. Yeah. The biggest business impact where you go on Facebook [00:03:20][38.2]

Bryce Leske: [00:03:21] and Twitter, post any links. Look, I'm I'm glad that we obviously big enough in the eyes of Facebook to cut our media presence. Yeah, yeah, yeah, yeah. Are taking it up to the likes of Murdoch and Kerry. But yeah, look, we were banned at a time of recording. We are still banned. But there has also been news that Facebook are going to soften their approach after signing some sort of agreement with the [00:03:43][21.5]

Alec Renehan: [00:03:43] government and let us back on. So. Well, I was I was looking at the web big enough, I'm pretty sure, to negotiate with Facebook and Google like we're above the threshold. Really? Yeah. I'm pretty sure that Zach on the phone, I'm pretty sure it's a hundred and fifty K turnover in Australia. OK, and so does that mean where you get to go and negotiate with them? [00:04:06][23.3]

Bryce Leske: [00:04:07] I have no I will be driving [00:04:07][0.8]

Alec Renehan: [00:04:08] a hard bargain [00:04:08][0.7]

Bryce Leske: [00:04:10] and a hard bargain with Zuckerberg, as Josh Frydenberg told him. Anyway, let's keep moving. [00:04:16][6.5]

Alec Renehan: [00:04:17] So the business side of this, obviously, Facebook and Google both threaten to pull out. Google has backed down from that threat. Facebook has come to an arrangement that I wanted to start this conversation by putting some putting some numbers to it, because at first glance, from a business perspective, if you put your Sheryl Sandberg Facebook s hat on, the decision may come across as quite strange that you're willing to do this. So Facebook ad revenue in Australia in twenty nineteen six hundred and seventy four dollars million payments? Well, yes, compared to Google, Google's search ad revenue in Australia in twenty nineteen four point three billion dollars. Wow. And I'm pretty sure under the code, the Australian media bargaining code, the penalty for not engaging in negotiations was ten million dollars. I think the estimates thrown around that, you know, they'd be paying News Corp on the nine newspapers in the double digit millions, you know, like the thirty million dollar mark or something, something along those lines. Why would let's say your Sheryl Sandberg, why would you sacrifice six hundred and seventy four million dollars in ad revenue? Because the government is making you pay Colet thirty million dollars to Australian publishers [00:05:41][84.1]

Bryce Leske: [00:05:42] where you wouldn't if I had the hat on. [00:05:43][1.5]

Alec Renehan: [00:05:44] Really? Yeah. So then what. But then why did why did they do it. [00:05:47][2.8]

Bryce Leske: [00:05:47] Because they think they're the kings in the playground. [00:05:49][2.1]

Alec Renehan: [00:05:50] Are you reckon this is just a game of Brinkman's. [00:05:51][1.4]

Bryce Leske: [00:05:52] Yeah, I think they've probably for so long been able to get what they want from government manipulate. I mean, you know, they've been so they've been so unregulated for so long and probably many aspects of their business that this is just another example of them trying to force others hands. But in this instance, Zuckerberg got socked by Freudenberg. [00:06:16][24.0]

Alec Renehan: [00:06:19] Yeah, well, I think the only answer that I can come to is, well, there's two answers. The first is the precedent for the rest of the world. So, you know, if they're having to pay COLET five percent of their advertising revenue to news publishers in Australia, 30 million of six hundred million, then it's like the other definitely other jurisdictions are taking note and they're probably worried about the precedent. And so from a business perspective, you say, well, we're not going to we're not going to let it happen anyway. The the second the second thing and look, Facebook is in a very sympathetic company and I don't have a lot of sympathy for a lot of what they do, but I kind of do have some sympathy for them here, a little bit different to Google. So let's talk about Facebook first. Like Facebook's whole thing is they amplify reach of all these organizations that are not taking these content, transposing it, posting it on their site, and not driving traffic to these news publishers. The whole thing is they they increase the reach of these news publishers. And it's like, why are you now charging us to increase your reach? It's like double dipping. [00:07:28][69.1]

Bryce Leske: [00:07:29] Yeah, but we know where it's coming from. And this is going to turn into a political debate. So let's not go there. But yeah, you're right. But look, if the obviously the government think that they can make a bit of money from it but have been pressured to do so, the government [00:07:43][14.7]

Alec Renehan: [00:07:44] won't make any money. [00:07:45][0.8]

Bryce Leske: [00:07:45] Yeah, the news agencies themselves will. But anyway, it is what it is. [00:07:51][6.0]

Alec Renehan: [00:07:51] Yeah. Yeah. And the whole and this is going to be my one political point for the thing. And I don't think it's a popularity, it's a business point. Still, the whole thing around Facebook and Google have killed the news business like it's true that they are in the digital marketing space. But the news business is business model was classifieds like classifieds were the rivers of gold that just, you know, you you sold ads and you attached a paper to it, like the paper was there to increase circulation. And then you made your money from classifieds. Yeah, Facebook and Google didn't kill the classifieds business. It was real estate, dotcom. Today, you carsales.com gumtree like they they came for the classifieds well before Google and Facebook dominated that. So that's that's my my my one point point. [00:08:38][46.8]

Bryce Leske: [00:08:38] Still valid point. [00:08:39][0.7]

Alec Renehan: [00:08:40] Um, it's a little bit different when it comes to Google, like Google extract text from publishers and you know how they get that answer in the search. Yeah, it's a little bit different there. It's like they're actually taking someone else's work, putting it on the site, not driving the car. Thoros And so I can kind of understand that it feels like there's a nuance that's a little a little bit missed when Facebook and Google are lumped together in that space. And now I'm going to get you to put Rupert Murdoch's hat on. Yes. Stokoe you now run the world. Yeah. Um, News Corp's global newspaper revenue in twenty twenty two point eight dollars billion. And so that's like their all their newspapers, like Wall Street Journal and stuff included 2.8 billion dollars, down 18 percent from the previous year. Um, if you're Rupert Murdoch, you saying your newspaper business slowly withering on the vine. You can understand why you are banging on the government's door and trying to find a sympathetic ear. [00:09:44][64.2]

Bryce Leske: [00:09:45] Absolutely, yeah. I mean, with his hat on, I'm not I'm not relenting. I've wanted this for years. I've found a politician who's going to back me. And you know what? What is he going to make from it? 40 or 50 million from potentially the deals that he strikes? It's not it's not going to be the 18 percent that he felt [00:10:04][19.8]

Alec Renehan: [00:10:05] like that's the thing. Yeah. Yeah. This isn't going to save his life. [00:10:08][3.1]

Bryce Leske: [00:10:08] He's clawing back at at at pennies. Really. Yeah. Compared to what he's making. But again, probably a power play just as much from from him than anything and. Yeah. Sorry Rupert, but I don't think it's going to to save for the decline if it continues in this way. [00:10:26][17.3]

Alec Renehan: [00:10:26] Yeah. The story is that I think the first time Murdoch brought this up with Zuckerberg was 2013. It's like he has wanted this for years and he's just finally found a government that either is sympathetic enough to him or ideologically agrees. Let's not let's not lie to too deep in those waters. But, yeah, eight years of lobbying. Finally, finally. So I want to ask you from an investment perspective, what does this change like if Google and Facebook have to pay? How do you and let's let's assume that the other jurisdictions follow suit. How does this make you think about let's just talk about the three companies, Facebook, Google, News Corp. Does it make you think about any of them differently? Does it change your investment case for any of them? [00:11:14][47.6]

Bryce Leske: [00:11:15] It doesn't for News Corp, for me. I don't think you [00:11:19][4.0]

Alec Renehan: [00:11:19] being a big shareholder [00:11:20][0.5]

Bryce Leske: [00:11:20] already for not being a shareholder at all. I don't think it changes anything for me in terms of of News Corp, unless somehow all governments around the world start implementing this. And it really does start driving serious revenue back to News Corp. But again, that's a very long play, I would imagine, in terms of of Google. You know, you look at the revenue that they're making here in Australia alone versus what they have agreed to pay. It's, again, just a tiny percentage of total revenue. And and given all the other fingers in pies that Google have or Alphabet have beyond just their ad revenue, business doesn't really change the thesis for me. Facebook, I am not invested in and I don't intend to. Does it really change the way I think about it? You know, potentially, but for more reasons than just this. I think the platform itself, I think, you know, is becoming more unloved for for not just this reason so that there's bigger things at play for me with Facebook. [00:12:26][65.5]

Alec Renehan: [00:12:26] Yeah, yeah, yeah. I agree. Like Google is Google. Google is a scary company. Yeah. Just Yeah. Scary good or scared bad depending on what business you're in. Yeah. Um yeah. Facebook. For me the interesting thing is like let's say you can use the first like that they make people pay for news. Sorry, they make Facebook pay for news or other like other content creators who have the content shared. Are they like, you know, like big influences or like I don't know, big YouTube or something and I like. Will you choose different because you still get ads if you watch it through Facebook. But I don't know. It's like if Facebook have to pay for content, their business model is shot. Yeah. And and there's a bunch of other content that shared on Facebook that. Who knows, like maybe we say there's an intrinsic value in some of this other content being created and yeah, Facebook, the one is the one for me. I understand why they took the stance I did. [00:13:25][58.8]

Bryce Leske: [00:13:26] If you're a YouTube video, you probably don't have the same political power as Murdoch. [00:13:29][3.5]

Alec Renehan: [00:13:30] So I don't know yet. Cutie pie might not be the lobbying that Murdoch does. [00:13:36][6.2]

Bryce Leske: [00:13:36] Maybe we start a union of all online influencers and push that way. [00:13:40][4.0]

Alec Renehan: [00:13:40] Who knows? Who knows? Who knows? Um, yeah. I think for me, none of the none of the investment cases really change like News Corp is. As a newspaper, the newspaper business is dying. When's the last time you bought a newspaper? [00:13:55][14.3]

Bryce Leske: [00:13:56] Yeah, a while ago. I can't remember. [00:13:58][2.1]

Alec Renehan: [00:14:00] Yeah, that really says it all. I mean, I don't think there's a lot more to be said. You know, my whole stance on the news business itself, the news business isn't dying, the newspaper business dying. And there are some media organizations around the world that have realized that. And building a business model that will last at this stage, it doesn't feel like News Corp is one of them. No. [00:14:24][23.9]

Bryce Leske: [00:14:25] Well, that is our two cents on the whole situation. As we said at the start of the show, we are going to hear from Nick Griffin, who's the chief investment officer at Monroe Partners, on his thoughts on Facebook. And we also dove into a couple of other interesting stocks. Quote, One of them is the most important company in the world that no one has ever heard of. [00:14:46][20.5]

Alec Renehan: [00:14:46] So I Equity Mates [00:14:47][1.0]

Bryce Leske: [00:14:47] we will we will jump into that straight after this break. We will hear from our sponsors. When you are all about getting fit, you've bought the Garmin, you bought the golf membership, you bought the gym membership, and you're on the mind MasterChef. And even in lock down last year, you bought those resistance bands of Instagram that from memory didn't even come. [00:15:07][19.1]

Alec Renehan: [00:15:08] No, look, they didn't come. But all of that effort really was canceled out by the numerous menu log orders that were a real staple of my lockdown experience. [00:15:17][9.5]

Bryce Leske: [00:15:18] Well, we've just entered into a new financial year, so I think it's time you get money fit with Virgin Money, our latest sponsor. [00:15:25][7.0]

Alec Renehan: [00:15:26] That's right, Bryce. With a high interest savings account bundled with a seriously rewarding everyday transaction account, you can manage your money easily on the go smash your savings goals and be rewarded for it. [00:15:38][12.0]

Bryce Leske: [00:15:38] And with the Virgin Money Go transaction account, you can earn rewards on your everyday spending with zero monthly fees. Sounds like just what you need. [00:15:47][9.0]

Alec Renehan: [00:15:48] Yeah, the FBI twenty one get ran didn't quite work, but if my twenty to get rent money it might be to go [00:15:57][8.4]

Bryce Leske: [00:15:57] back to your own bait. Virgin money terms and conditions and monthly criteria apply. Now let's get back to the show. [00:16:03][5.8]

Alec Renehan: [00:16:05] So Equity Mates, we're now joined by Nick Griffin, the chief investment officer at Monroe Partners. We had Nick on the show last year. Yeah, we loved it so much that we've brought him back. And Nick, first of all, thanks for joining us now. [00:16:21][16.0]

Nick Griffin: [00:16:21] Thanks for having us, guys. Always good to be here. [00:16:23][1.6]

Alec Renehan: [00:16:23] Now, Nick, the we've just spoken a little bit about the, you know, the media bargaining code and the Facebook and the Google policy response and how that's all playing out. And the reason we've got you on the line is you've recently made a move around Facebook in your fund. Can you can you tell us what you've done? Yeah. [00:16:47][23.2]

Nick Griffin: [00:16:47] So, look, we've been investors in Facebook since the IPO, so 10 years out. And it's been a really bumpy ride. And, you know, so so had been a big holding and a medium holding and even a non holding briefly but generally been a big investor. But it really wasn't around the specific issue. It's where we we we bought Facebook because we saw it as a big beneficiary of mobile advertising back in 2012. And at the time, digital advertising was very small. Digital advertising is now very big. So you're basically more than 50 percent of all advertising is now digital. Facebook and Google controlled the lion's share of that. And so this structural shift from traditional advertising to digital advertising is is eventually going to come to an end. And so from that point of view, while we still like Facebook a lot and the mess still adds up and we think they'll pivot into a comment. So we think they'll pivot into messaging. We just think that, you know, most of the upside has been had. And from that point of view, it's gone up nearly 10 times since its IPO and we just found a better use for the cash elsewhere. The last thing we just said, Facebook, is obviously the skirmish they're finding here in Australia is similar to skirmishes. They're fighting all over the world. And from our point of view, we just felt that we felt that that would weigh on the stock price in the next 12 months. So, you know, 12 months time, you know, a lot of these skirmishes sort of finish. You could easily see us come back at some point. But for now, we have we have moved on. [00:18:14][86.7]

Alec Renehan: [00:18:14] Yeah. So on that point about the multiple skirmishes, I think you wrote recently that this battle over the Australian media code is just the tip of the iceberg for people who may not be familiar with the depth of the iceberg. Can you can you explain what you mean by that and some of these other skirmishes that that Facebook of fighting that had you worried? [00:18:37][23.1]

Nick Griffin: [00:18:38] Yeah. So just to be clear, I didn't actually come up with a tip of the iceberg. The channel I really pointed out there having a lot of skirmishes. But I mean, I think the big problem Facebook has and I think I mean, Mark Zuckerberg summed it up best himself. You know, he only really invented this business 15 years ago. And it was designed to connect friends and family around the world and keep people updated that that's what we all joined Facebook for. But it's evolved into this thing that influences election, that promotes to a certain extent, allows people to promote hate speech and fake news. And and so it's become this problem in the in the world, particularly for the political establishment. And so from that point of view, you don't get politicians to agree on much, but they all agree that Facebook is an issue. And so we're going to see this continue trying to move Facebook more to be more traditional media company, more to being liable for what's on their platform. And as they do that, it becomes potentially a less useful platform for for people and advertisers out there. And so from that point of view, they need to sort of solve that issue. And it's a very complicated one to solve [00:19:44][66.6]

Bryce Leske: [00:19:45] the political and regulatory concerns for Facebook. You know, this isn't the first time that this has been happening. The heat's been on them since sort of 2016. And I remember a pretty significant drop in the share price around that time or perhaps 2013. But since then, the share price has sort of shot up one hundred and fifty per cent or thereabouts. What is different in now? Twenty, twenty one compared to that sort of twenty sixteen stage. [00:20:14][29.6]

Nick Griffin: [00:20:16] You will firstly, the share price is much higher, so this is not true, true valuation is very important here. And while the stock may look cheap, you know, it's obviously much bigger. So it's much further along. That is a kind of digital advertising, adoption. Facebook still doing lots of things. Right. Okay, so it's a champion of small business. It is helping them move into e-commerce. It's pivoting to e-commerce, et cetera. So all these things it's doing is still doing right. We still expect earnings and revenue to grow into the future. But big advertisers don't want to advertise on the platform because of this issue around what the content is on the platform and users are slowly getting to the end of the platform. And so this is sort of this dead end street they're going down that they sort of need to solve somehow to to to make the platform viable or, you know, relevant into the future. And so they need to solve that problem. And I think when they do and the big advertisers come back and the usage numbers start coming back, then then we'll be much interested in the stock. And if they don't, then then we just think it's interesting what we could call dead money for a little while where the money is probably better used elsewhere. [00:21:27][71.0]

Alec Renehan: [00:21:28] Yeah, it's an interesting one. It's something that I often well, I guess struggle with or try to figure out when I'm thinking about, you know, investing for the long term and stuff like that is what's like short term news and then what's like, well, short term noise and what's long term signal in a lot of these things. And, you know, you're right, there's so many skirmishes, Facebook and fighting at the moment, the the antitrust threats in the US, media bargaining codes in Australia. You know, the European regulators are looking at them the same. They seem to be stretched. I imagine it's not fun being a Facebook executive right now, but at the same at the same time, you know, you started this conversation talking about the ad duopoly that Google and Facebook have. Do you think that at the end of the day, if all if Facebook loses some of these skirmishes, that affects that that structural advantage that Google and Facebook will, in this case, Facebook has in the ad market, or do you think that whatever happens, that dominance will remain? [00:22:32][63.8]

Nick Griffin: [00:22:33] I think there'll always be a need for Facebook, particularly for small businesses, because its ability to target, you know, local areas is incredibly good. So you might have noticed, like in the recent council elections, you got the councilors advertising to you on Facebook because they can target the suburb you live in. So there will always be a need for it. It'll always be around, I suppose, from our point of view. I'll give you an example. And so I'm not going to say wait right here. We sold all our apple back in 2016 because we were of the view that they would never sell any more iPhones. And we were right when I did that. But the reality is I started selling lots of other stuff and businesses, etc. So there's no reason to believe that Facebook won't be able to solve this piece of it. But we do think the traditional advertising on their platform will slow. They're going to try and pivot to messaging and e-commerce. But as I said, you know, when we sold our apple, we were looking at new things coming along. And I just think in this case, there are you know, if you look at some of the emerging social advertising platforms, whether it's Pinterest or even Snapp's making a good comeback or even some of these short form video businesses in China, you know, there's a there's other companies that are now taking share from the guys that took all the share. So so they're the ones that are going to grow faster. And so they're the ones we're probably the more interested in right now. [00:23:50][76.9]

Alec Renehan: [00:23:50] Yeah. Bryce did a bit of a deep dove on Tick Tock advertising engine and just spoke glowingly about the way that it worked and the way that you could get you could target specific influencers and stuff like that. So they're obviously making a big play in that space and obviously trying to challenge, you know, some of these other social platforms, dominance [00:24:12][21.9]

Bryce Leske: [00:24:13] and what Facebook is also, you know, the recent shutdown of all media outlets as inclusive. Yeah, you got where you got shut down. It's just highlighted, I think, to a lot of small businesses how important it is from a business strategy not to build your business entirely around a Facebook platform because should they make a snap decision again, then your business is gone. So, yeah, we're certainly the only reason we're on Facebook is because of Equity Mates. I mean, yeah. [00:24:41][28.0]

Nick Griffin: [00:24:41] Anyway, don't forget, they still go to Instagram and WhatsApp or a lot of tricks up their sleeve. Yeah, that's what I'm calling time on Facebook. We're just saying we've found better uses for the money. [00:24:53][11.7]

Bryce Leske: [00:24:53] Yeah. OK, well you've probably just answered the next question, which was around the dominance of Instagram, WhatsApp. You know, they still have growth in the VR and space e-commerce. So, you know, you've obviously thought about balancing those competing growth profiles with Facebook more broadly and. Yeah. What are your thoughts on that? [00:25:14][20.8]

Nick Griffin: [00:25:16] Yeah, I mean, again, I just, you know, as a growth investor, you're trying to find things at the start of the adoption curve, not at the end or in the middle and end. Waitstill, as I said, we still think that Facebook has a lot of levers it can pull. It just has this problem that they feel like they don't want to be the arbiter of truth on their platform, and that's making their platforms less and less attractive to people at the time. And if they do become the arbiter of truth, then they become just like any other media company. And so then that will create competition. So whichever way they train here, they've got a problem. And that, from our point of view, is something we'd like to we're not sure. I'm not sure how they solve it, but I'm sure they will. They're thinking about it really hard because they're smart guys. And if they do, and then we'll come back. [00:26:05][48.4]

Alec Renehan: [00:26:05] It's clear in this conversation you haven't completely written Facebook off. You said a couple of times that you know, there would be circumstances under which you added Facebook to the portfolio. So I'm interested to know what your process and what the team at Monroes process is to watch a stock like this going forward. Is there any sort of key indicators or key skirmishes? You're watching what's the process to keep an eye on? And maybe what are some of the conditions under which you would consider putting it back in the portfolio? [00:26:36][31.2]

Nick Griffin: [00:26:38] Yeah. So we had a conversation sort of before we started about the retail investing that's come into the marketplace and how, you know, ultimately, this is a great thing. It's great that retail investors are coming in and, you know, saying this stock is going to win over the stock looks good, et cetera. The only thing we're doing on top of what a lot of your listeners we're doing is we're just doing a very detailed valuation work. So we're doing a very detailed valuation on, for instance, in this case, the total advertising market. So if he knew the total advertising market in the world is roughly six hundred billion dollars and you knew that 50 percent of it had gone digital, then it can only go 100 percent digital. Right. So eventually, you know, the penetration of advertising markets is going to slow. So that would be priced into our model. But then they might pick up e-commerce and other stuff. So that would be priced into our bottom line. So what was actually come up with is an earnings forecast. We'll come up with a multiple that we think it should trade at and then we'll come up with a risk-reward as to whether we think we should buy it here or not. But knowing full well that Facebook eventually, eventually will just be a GDP growing company, because eventually it just gets so big it has to be. And so then it's a case of, okay, well, look, this is eventually going to be a GDP growing company. Why don't we then move on and try and find something closer to the stock? Because that's where you're more likely to find that that valuation whereby people are just not prepared to put those numbers in their model and to realize what a company could actually be worth in the long run. And so those opportunities, when we talk about things like how fresh or when we talk about things like PayPal or when we talk about things like Netflix, even that are still actually close to the start of Spotify than the end. And so we just see a slightly better opportunity there versus what the share price is trading at in the market. [00:28:22][104.3]

Alec Renehan: [00:28:23] It's funny you mention that GDP growing company comment. The thing that it feels like is becoming more and more apparent with some of these tech companies is the biggest ones, you know, the Microsoft, the Apples and stuff like that just build tremendous operating leverage into the Internet businesses, more Microsoft than Apple. But they just use that cash to then build or acquire the next stage of growth. And, you know, Microsoft has been Microsoft and Apple have been around for 30 plus years, and yet they're still putting incredible growth rates on the board. Like, is there something different about these tech companies compared to, you know, the giants of yesteryear, the Wal-Mart's in the exons and stuff like that, where because it's tech and because tech is different, they just somehow resist the idea that they'll ever be GDP growing companies? [00:29:12][48.8]

Nick Griffin: [00:29:13] Yes, it's a great question. And so so what? So let's go back to the Apple example. What did we get wrong when we sold it? We would like it's a physical company selling hardware and we know that they won't sell any more iPhones. About two hundred billion years, the most you can sell. Twenty percent share of the market. And that's what happened. But what they did is they broke out of the attempt, so to speak. So they broke out of that total addressable market and they moved into payments. They made it into wearables, they moved into the app store revenues, etc. And so and when we sold it, it's since put on another hundred percent. But we did make nearly seven times that money on it. So we still have to with that. But it could have been fourteen. Right. So what these tech companies are doing that a physical company can do, and the fact that Apple example is because their businesses are digital, they can grow outside their tent if that makes sense. So it's a Microsoft used to be a piece of software that someone would come and install on your computer now and every second or third window. Skip it now it's in the cloud. It updates every week as far as my computer does and you know, the price rise is growing and you don't even notice you get an email at two o'clock in the morning saying your product is better. And that's a pretty good business model. And so so what that means is they grow without borders because they're digital. So they grow beyond that, beyond their tab. And not only that, they move into all these new areas or as you point out, they buy new areas. That makes sense. And so a digital company can do this, but a physical company can't because a physical company has to keep building new stores or it has to keep selling more cars or it has to keep going to last places the last way. We always try to point this out. This is why people got excited by digital companies that we do, too. But it's not the only thing we do. But the last best example of this in the last few years is, you know, six years ago, Netflix in Australia didn't exist. Now, more than 50 percent of households have a Netflix subscription. Yet I challenge anybody anywhere to ever actually ever met anyone from Netflix who came and sold them the Netflix subscription. Like, you know, the guy didn't come and knock on your door. You didn't go to the shop. That's what a digital business can do, that a physical business down. And that's why not only can dominate their big areas, but they can move into other areas by using the data that they have from the existing areas, et cetera. And Facebook's no different to the rest of them. They're all doing the same thing. Facebook just has this unique problem where not very many people like them at the moment. And that's making their business model a bit more difficult. [00:31:47][154.6]

Bryce Leske: [00:31:48] So you've mentioned putting your money to better use, which was one of the reasons for getting out of Facebook, which kind of leads nicely into the conversation around the Monroe Global Growth Fund ETF, which is ticker is mate. And I think last time we spoke, Nick, in November to just launch or was about to launch. Yeah, yeah. So let's just sort of recap why the move to an ETF sort of from a private fund. [00:32:19][30.3]

Nick Griffin: [00:32:21] Yes, so so from my point of view, it was built to be a global growth investor in case that we'd spent most of the last podcast on the last one talking about how do you find that concentrated portfolio of great growth stocks? OK, so we know that equities is a game of very few winners and thousands of losers. We just discussed a few minutes, but remember, along the way, they steamrolled a whole bunch of losers. You can't grow at the rates they're growing at. If the whole world's only growing at three percent, someone has to be losing. And so from that point of view at Montanez, we want to be a global growth fund. So we're building very concentrated portfolio of 30 to 50 ideas all around the world that we think have the potential to be great growth companies or are already great growth companies that are still executing on their own, on their opportunities. And so we'll make it is effectively a feeder fund to the fund that we're running privately. So the beauty of what Mike does or NIH does is that anybody listening to this podcast can turn around to buy it on the Australian Stock Exchange today and tomorrow, they're going to wake up exposed to South Korean factory makers, Taiwanese semiconductor foundries, Dutch lithography companies, American software companies, South American e-commerce companies. You know, those are some of the names that are in the fund today because we think they're the best ideas and all that valuation work, etc. We've done it. And so it just becomes effective it will track the fund and then you could all wake up and you own them. And then and then in maybe six months or years time, if you don't want to end any more, you can just sell it on the exchange and get your money back. And so it's just a very transat easy way to get access to our top ideas in the world today. [00:34:03][102.1]

Alec Renehan: [00:34:04] So speaking of some of your top ideas in the world, would love to know some of the companies that you're most excited about, maybe some that we wouldn't be so familiar with. [00:34:14][10.0]

Bryce Leske: [00:34:14] Well, the Dutch with whatever they want, [00:34:16][1.6]

Alec Renehan: [00:34:17] but we actually Equity Mates sent us a video yesterday of you talking about PayPal. And I believe your quote was PayPal is the number one fintech in the world. So maybe if you can talk a bit about why you love PayPal and then maybe tell us some of the other stocks that you're particularly excited about. [00:34:35][18.2]

Nick Griffin: [00:34:36] Yeah, OK. Some PayPal. I think most people will be familiar with it, but probably got a PayPal account or they've got an offer to pay accountable. That got a zip by account. There are lots of fanatics in the world and they're all doing the same thing, which is just intermediating banks. And so banks have this huge pool of revenue where they effectively overcharge for lots of things, whether it's foreign currency transactions, whether it's merchant acquiring, whether it's home loans, whether it's deposits and all the film takes to take that away. And the beauty of what the critics do, as opposed to what I said earlier, is banks basically rely on a physical presence. So there was a lot of branch and they rely on their country of origin. And that was really helpful when you used to go to bank branches or you used to walk around with cash. But now that that's gone because cash is gone and now you don't attend a bank branch anymore, then there's really no reason why you have to bank with an Australian bank. And so what PayPal's opportunity is as a very big fintech, mainly in e-commerce at the moment and payday lending et so small stuff once cash disappears completely and it will open up all these opportunities for them. Obviously, the digital currency like Bitcoin is transactions is one of the big areas that people are focused on, but it also allows them to be able to lending and all these other digital finance initiatives. And so then and you just do the simple math and go, well, PayPal is a really big company today. That's three hundred billion dollars. But that's tiny when you compare it to the opportunity set that they have. And they've already come out just a few weeks ago and said they expect their revenues to double in the next five years. And we think that's we think that's conservative. And so when you think about PayPal, that three hundred billion versus Facebook at eight hundred or APLA two trillion, there's just a really good opportunity, a really good runway in front of this company for it to basically join that trillion dollar club over time. And that's why we like it. [00:36:32][116.6]

Bryce Leske: [00:36:33] Speaking of Bitcoin, can't finish an interview without sort of getting your thoughts on what is going on in that space or crypto more broadly. Is it something that you guys are looking at? Are you going to do an Elon Musk and put some on the balance sheet? what are your views on what's going on in the market at the moment? [00:36:50][17.3]

Nick Griffin: [00:36:51] Yes, I think so. So the concept of a digital currency to me or to us makes perfect sense because so so inevitably, if you think about what I just said, if cash disappears and currency becomes digital, then you just waving your phone wherever you go in the world, if that makes sense. And so this concept of having Australian dollars, New Zealand dollars, Japanese yen doesn't make a ton of sense because, you know, you can have a digital currency that dominates the whole. I don't have a problem with it, all right, now, Bitcoin has these issues around the wallet, it's not very usable, et cetera, et cetera, that I'm sure a lot of people on the call understand, but they've conquered for themselves. But I'm pretty sure they're not waving their phone and buying a cup of coffee with Bitcoin. Yeah, but the reality is, is technology can solve that over time because we know computers get faster. And that's what the lithography company and all of that is, by the way, computers and how it helps computers get faster. But that's what Moore's Law does. It accelerates compute power so we know computers get faster. So we know that this gets old. So there will be a digital currency of some description at some point. I don't know which one it is. It's probably going to be Bitcoin. And old people are doing is buying that today because they see that it has a use in the future. I completely get that. It's not something we've done in the fund, mainly because of these custody wallet issues, et cetera. I can see why people would put a small portion of their wealth in it, but I would treat it like, you know, same as gold. You know, if you have a small portion of your wealth and gold, you could have a small portion of the Bitcoin. That would make sense to me because it's reasonably clear that something like this is going to happen over the next couple of decades and it will be doing and Bitcoin is picking. That is the digital currency. It might be one of the other ones. [00:38:35][103.6]

Alec Renehan: [00:38:35] Now, Nick, we've mentioned well, you've mentioned Dutch lithography company a couple of times. I feel like we've got to ask for the name of the company. [00:38:41][5.8]

Nick Griffin: [00:38:44] I can say this. You've got a few minutes left so we might know a few things here, but basically every semiconductor in the world over the last. The reason why all of this is happening around digitization is because semiconductors get better, computers get faster. Okay, so we've all lived through this. So so in 1970, you invent the first microchip. It has roughly two thousand transistors on it. Today, Invidia has one hundred. It's the fastest microchip in the world, or it's actually a graphics processor in the world that has fifty four billion transistors on it again. And so what happens is every two years they manage to double the number of transistors on a chip and half the price. And that's what's called Moore's Law effectively. And so so you and I, we will live through that. So so I can remember when the Internet came along, it could only do one thing. It could send an email. That was all I could do. And I was in a backpack is in South America in 1996 saying, send me more money, please. That's all. That's all it could do. But as computers get faster, the Internet gets faster. As the Internet gets faster, it does little things. So eventually does search. That takes away the Yellow Pages. Eventually, you can share pictures on it. That creates Facebook. Eventually you can stream movies, that creates Netflix. Eventually it does software that that reignites Microsoft and Amazon in the cloud. It does e-commerce, it does video games. It's now doing software finally where at peer to peer. Right. So I can order a cab or an Uber pulls up. I say it's there. I get in, I drive somewhere, I get out. The payment all happens without me touching anything. But that's all happening because computers get faster. Okay. Now, eventually the shrink stops. Eventually, you can't fit any more transistors on the semiconductor and it's a really, really hard to do. And so you've got to the point now where there's actually only one company in the world that can build the stencil that allows the shrink to continue. And it's called ASML and it's in Holland and we call it the most important company in the world that no one's ever heard of. And they build a machine called the EUV machine. And the machine costs roughly, what, a triple seven costs. So it's around one hundred fifty million euros. And they sell these to companies like TSMC in Taiwan or Samsung in Korea, who are the foundries that make these semiconductors. And so what you can work out quite quickly is that all human progress from here relies on just these handful of companies who can continue to shrink around. Accelerating compute power will find a way to stack it. And what's amazing is it's got so hard and so expensive that these companies are now effectively monopolies. And so that's why you want to understand Taiwan Semiconductor and you want to own some asshole in Holland. And they've been big positions in our fund since day one because we just see them as the ultimate weapons manufacturers in the war, that that is likely to continue, which is this war around digitalization that we just spent half an hour talking about. [00:41:37][173.8]

Bryce Leske: [00:41:38] That is why I love this podcast and investing because we've just heard about the most important company in the world that no one ever love about. Love that. So, Nick, unfortunately, we have run out of time. But, you know, we've covered a fair bit of ground in the last sort of twenty-five minutes or so. As always, very much appreciate your time. And as the year progresses, I'm sure we will touch base again to get your thoughts on if you're back in Facebook or not and be where the other important companies that we're not hearing about are. So just a reminder as well that Nick and Monroe partners have the Monroe Global Growth Fund ETF, which is ameet to. What did I say to you? Sorry, am I allowed to [00:42:24][45.7]

Nick Griffin: [00:42:26] maximize my age is the way to get exposure to that's Slavocracy and everything else in between. [00:42:32][5.8]

Bryce Leske: [00:42:32] There we go. So, Nick, I thank you very much. It's been an absolute pleasure. [00:42:35][2.6]

Nick Griffin: [00:42:36] Thanks, guys. Really appreciate your time. [00:42:37][1.1]

Alec Renehan: [00:42:37] Thanks, Nick. [00:42:37][0.0]


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