Expert: Eleanor Swanson – Small caps, big returns

Bryce: [00:00:14] 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'm joined by my equity buddy Ren. How are you going?

Alec: [00:00:30] I'm very good. Bryce I am pumped for this episode. It is the third fund manager that we've had who's presenting at the Hearts and Minds Conference in now, just a week away. Yeah, the last two episodes have been absolute crackers and I'm sure this one will be as well, so I'm very excited to get started. 

Bryce: [00:00:49] Absolutely. Ren. I actually think that this one is going live a day before the conference kicks off. 

Alec: [00:00:55] Not too late to buy tickets, 

Bryce: [00:00:57] not too late to buy tickets. And if you have just joined Equity Mates for the first time, welcome. A recap on what the Sohn Hearts and Minds Investment Conference is because it's an absolute cracker, you'll hear from 12 local and international fund managers all pitching their highest conviction stock ideas. It's an amazing opportunity to hear from some of the best in the business. There'll be a keynote speech from Charlie Munger from Berkshire Hathaway. Not often you get to see him speak and also MIT Institute Professor Robert Langer, who co-founded Moderna, will be giving a keynote as well. So if you're interested? Head over and check out their hearts and minds. Investment Ltd. listed investment company HM1 is the ticker. All Management fees go towards medical research here in Australia, so it's a phenomenal cause. Head to Sohn hearts and minds dot com dot au. For more info and use the code Equity Mates to get 20 percent off your tickets if you want to join what is going to be an amazing conference. But without further ado, we are joined, as you said, Ren by a fund manager who will be giving a high conviction stock pitch. And that is Eleanor Swanson. Welcome. 

Eleanor Swanson: [00:02:07] Thanks, guys. Very excited to be on the show and very excited for Sohn to go live. 

Bryce: [00:02:13] Yes. So Eleanor is founding partner at Firetrail, a boutique investment manager specialising in high conviction equity investing. And she's primarily responsible for managing the Fire Trail Australian Small Companies Fund. So we're going to be unpacking all things small cap health and biotech will be touching on and then hearing what it takes to pick a stock with a massive catalyst for the next 12 months. So let's kick it off. 

Alec: [00:02:40] Ren. Yeah, Eleanor, before we unpack all of that, we'd love to learn a little bit about you and we always like to start at the very beginning of hearing the story of someone's first investment. We generally find there's a good story or some good lessons that come out of it. So to kick us off today? Can you tell us the story of your first investment? 

Eleanor Swanson: [00:03:01] Yeah, sure. So my first big stock call with some actual money behind it was baby bunting. So you're probably familiar with it. If you live in Australia, it's especially baby goods retailer, and they're the largest player in what is quite a fragmented market. So at the time we invested, they had about a 10 per cent share of a $2.5 billion market. And at the time, there was actually a real issue within that part of the retail sector, the baby goods sector, because there was a real war for market share. So baby goods retailers were aggressively discounting trying to win customers. And as a result, some of these players were actually going into administration. So around that time, about four of baby buntings competitors had actually gone under. And as a result, liquidators were brought in and to try and recoup cash to pay suppliers and staff. They were holding fire sales and these fire sales a super aggressive, you know, discounts of up to 80 90 per cent. They just want to get the cash. And so all the other retailers who are selling the same products are just in a world of pain, and it starts this vicious cycle of discounting. So that was the environment at the time we actually invested after the last major competitor went into administration, and that was Toys R US. And I actually remember going with Blake, who's the portfolio manager of the Fire Trail High Conviction Fund, and we actually went to Toys R US during one of these clearance sales, and it was pretty manic in there. And we then went to baby bunting and had a chat to some of the attendants on the floor in the store. And they told us that the overlap between Toys R US, the inventory and products and what baby bunting sells actually wasn't that great. Toys R US is kind of more pitched it, I guess, children between the ages of two and six, whereas baby bunting is more babies. And so that kind of gave us the confidence to invest, and the opportunity we were really interested in was more medium term because these four large players had gone into administration. There was a massive market share opportunity for baby bunting if they could just get through this tough period. And so we invested it about a dollar when the share. Bryce was about a dollar 80, and the market was just max bearish like margins were crunched, profits were crunched. It was horrible. Sure enough, the earnings for baby bunting that half weren't as bad as the market was expecting, and there was this massive relief rally is all of a sudden sentiment on the stock changed and people went from focussing on, you know, earnings being crunched and margins being crunched to suddenly realising that, you know, there was this huge, you know, medium to long term opportunity for baby bunting to be the largest player in the two and a half billion dollar market where there are significant benefits of scale. So yeah, it was a great first experience. And I mean, some of the learnings, I guess, is just the sentiment on a stock can turn really quickly. So timing is important. You want to be in that stock before the sentiment turns and then and be learning out of it was that, you know, real world insights actually can make a massive difference when you're investing. So getting out into the real world, talking to people in that industry and then finally taking a longer term view is really important when investing, you know, you don't get caught up in short term volatility in a little earnings miss. It's all about that kind of three to five year view. 

Bryce: [00:06:20] Well, RevPAR of a first investment getting in at a dollar 80, I think it's trading at about 580 now or something like that. So. Awesome result. I remember we were speaking about it on the show back then, but we just didn't put any money in so. Missed opportunity. That's the major lesson. So prior to Fire Trail, you worked with a lot of the team at Macquarie. And then since, as you mentioned, there started Fire Trail with Blake and Patrick and the team, so. So what have been some of your key learnings working at Macquarie? 

Eleanor Swanson: [00:06:57] The first key thing I learnt working at Macquarie and in funds management was that you need to focus on what matters. And as a young analyst, you're just bombarded with information and you don't know how to cut through all the noise. You know you've got brokers calling you, you've got media articles, investor presentations, people giving you their opinions on stocks, and you just don't know how to filter it all out. So a key part of our investment process is actually delving into a stock, figuring out what the two or three things that matters or drivers of this share price performance is going to be over the next three to five years. And a great example was Blake, who was actually my manager when I first started at Macquarie. He presented a bi pitch on Flight Centre, and at the time flight sent its share price had halved and he picked up on something that the market was missing. And that is that Flight Centre's sales commissions are calculated as a percentage of the airline ticket. And during that period, oil prices had absolutely tanked, and so the airlines were passing these savings in the cost of oil onto consumers. But what was happening is that Flight Centre's margins were being really hurt. And so Bleich cut through the noise focussed on the fact that if there was a rebound in the oil price, we would also see a rebound in Flight Centre's earnings. And we invested literally at the trough, and the oil price rebounded and the thesis played out perfectly. Flight Centre flights and its earnings rebound of the share price rebounded, and it just goes to show you if you do find an edge, you do the work and you focus on what actually matters to the share price, which generally comes down to the drivers of earnings. You can generate massive returns. So that was that was a really key learning for Macquarie. 

Alec: [00:08:48] So Eleanor, listening to you speak and having done some research on you before this interview, I'm noticing a theme which is that you and the team at Firetrail take companies that a lot of people are very familiar with and have some additional insight or have some different perspective that can. I guess you can say something that others can't. You know you the stories of you pounding the table about Afterpay when it was very early in its journey. Similarly, with Adore Beauty, you've spoken about baby bunting again, a company that everyone is familiar with. We spoke to Kyle from Fire Trail earlier this year, and he spoke about Qantas again, incredibly well known, incredibly well, Covid company. So it's a really clear example of the fact that you don't have to find the unknown small cap that has no analyst coverage and no one knows about to make money in the stock market. You can make money from companies that are all around you and that you're very familiar with. How do you know when your you've actually got a different insight in the market and how how do you actually build the skill of cutting through the noise and finding what's important? Is there anything that you've sort of learnt over your time to to really look at these well-known names and look at them differently, 

Eleanor Swanson: [00:10:04] like we always model the companies that we own and our fund? So, you know, I find that really helps because if you're building a model, you have to put forecasts. Into your model, and that forces you to think what's driving this growth? No, what's driving this margin? No. And so then when you sit down with the management teams at these companies, you have a really structured approach to what you want to find out what you believe is going to be the key numbers and key points that are going to drive the earnings numbers for that company because another part of our philosophy is share prices follow earnings. You know, if a company is downgrading and missing the market expectations in terms of earnings, the share price is not going to perform well. So we're wanting to sit down with management teams and ask them questions that are going to tease out what the drivers of their earnings look like over the next few years, what they can do to improve margins and so on. And then we'll put that into our models. And if we're getting an earnings number that's above the market's expectations, that's probably indicative of a good potential investment opportunity. So I guess understanding the drivers of a company's earnings and revenue really, really helps figure out if you do have an edge. 

Bryce: [00:11:18] So Eleanor, you mentioned there that part of your investment philosophy is that share price follows earnings. What else makes up your investment philosophy? 

Eleanor Swanson: [00:11:26] Yeah, great question. So we've kind of touched on the the what matters approach to cutting through the noise and also taking a bit more of a longer term view. The other key part of our investment approach is that every company has a price. So bringing it back to that valuation pace, you know, if you're going out to buy a house, it might be the most beautiful house right on the coast. Stunning views but if you pay a billion dollars for that house, it's going to be a bad investment. So, you know, the fire trail view is that even if a company is outstanding and you know, it's ticking all these boxes, if it's super expensive relative to its history or relative to peers in the same industry, we can't justify buying it. We have to figure out what the value of that company is, and then we can make a judgement call as to whether it's going to be a good investment for our clients or not. 

Alec: [00:12:20] That's a really important thing to note. And, you know, especially in 2021, when we look at some of the share prices that we're saying so for great companies. But the work of valuation and figuring out what the right value is is incredibly important. But look, Eleanor, as Bryce said at the start of this conversation, there's too, I guess, big topics we want to cover. We want to talk about small caps and we want to talk about health and biotech. Let's start with small caps because fire trails small companies fund has had a pretty incredible 12 months returned fifty six and a half percent in the 12 months to October. Twenty one more than doubled the benchmark I think's so pretty good results. So we're really going to unpack, I guess, how you achieve that and one, you know, take what we can learn from that. But let's start at the very beginning why small caps of all the different parts of the market to invest in, why? Why do you and the team focus on small caps? 

Eleanor Swanson: [00:13:20] Yeah, I absolutely love investing in small companies. I think it's such an exciting part of the market. And if you think about the potential upside on offer in small caps relative to large companies is is significantly higher. So if we use the Commonwealth Bank as an example, you know, an investor would be absolutely stoked with a 30 percent return over the next 12 months. And Commonwealth Bank, where is an investor in Afterpay, which you mentioned earlier, you know, that yielded investors, you know, 10x return on their capital. So that's something I find really exciting. You know, looking at companies in the small cap index trying to find that next success story because at the end of the day, all those companies in the large cap index who won once upon a time small companies. So that's what I love. Getting out of bed and doing is finding that next big success story. And the other thing I love about working in the small cap part of the market is you often find that the management teams are actually the founders of the business. And as a result, they've been with the company, you know, all the way along the journey, you know, it's their blood, sweat and tears that's gone into creating this business. They know it inside out. They're so passionate and they're just awesome people to work with. You can learn so much from them and you know that they're going to do everything in their power to get the best outcomes for the business. But by the time the companies, you know, reach the large cap part of the index, you know, generally by that point, the founders probably stepped back. They might still be involved in some capacity, but they're unlikely to be at the helm. Managing the company. Although there are some fantastic CEOs out there, it's really hard to find someone as passionate as a founder managing a business. So they're the two kind of key characteristics of small caps that you know, gets us really excited and the reason we love investing in this part of the market. 

Bryce: [00:15:07] I'd be interested to get your thoughts on the Aussie SmallCap landscape, you know, are there any sort of particular sectors or industries that we're overweight in, you know, how does it compare to the performance or the makeup of other countries around the world? What are you saying? 

Eleanor Swanson: [00:15:23] Yeah. So I guess when we think about the small cap index, we break it down into four broad buckets of opportunity. So the first bucket and the biggest bucket is domestic industrial, so that a company, those are companies that their performance is very much tied to the performance of the Australian economy. So, you know, I think companies like Auto Sports, which is a local auto dealer or or media, which is a local advertising company, it's a big part of the index. You know, small companies here tend to be local, so I guess that's not surprising. The next bucket of opportunity is the global industrials. That's about 20 percent of the index. But they might have a presence in Australia, but they also generally tend to have a big portion of their revenue or earnings offshore. So, you know, a good example would be Préval, you know, that makes appliances. A large portion of that growth is now being driven by sales into Europe Corporate Travel Group, massive sales into the US. So that's another key bucket in the index. Another component and then something I'll look at a lot is the tech and biotech part of the index. There's a lot of alpha to be generated in this part of the index, certainly over the last 18 months, and that's about 15 percent of the index. But I think to your point around to how the Australian small cap index is different to other markets, that the key area that we're different in is resources. So twenty five per cent of the Australian small ords benchmark is in racehorses, which is enormous a quarter of the index. And that's just a reflection of the fact that Australia is a very resource rich country. We have a lot of miners. We therefore have a lot of mining services companies, and the share prices of these companies is very much going to be driven by commodity prices. We're very fortunate in the future of Small Companies Fund that our portfolio manager, Matt faced his background. He actually worked as a geoscientist at BHP on a lot of their mining projects, so he's just fantastic at picking resource stocks. He knows what to look for. He really understands the actual mechanics, the operations, as well as the drivers of those commodity prices. So yeah, we love looking at all parts of the market. And I feel like as a team, you know, we're able to play in all of those four buckets. 

Bryce: [00:17:41] Aussies love a mining spec, that's for sure. 

Alec: [00:17:48] So Eleanor, would love to get specific with a couple of companies that are on your watchlist or in the portfolio at the moment. If we could step through maybe a company or two, and if you tell us what they do and why you like them, that would be great. 

Eleanor Swanson: [00:18:03] Yeah, sure. OK, so I've decided to go with two companies that have a little bit of a reopening thematic, but I do feel like the market is maybe overestimating how much of their earnings and growth at the moment is being driven by the reopening versus what's actually structural. So I think over the next 12 months, we'll actually say what the true underlying growth of these two businesses is. They're both very different. So the first one is silk laser clinics actually listed at the end of last year, and they operate beauty clinics around Australia. So they had 60 clinics. They've recently gone and bought a business called Australian Skin Clinics that have doubled their footprint. Then I have 120 beauty clinics across Australia, and that means that they're the second largest player just after laser clinics Australia. And it's a really interesting market. The beauty market, I mean, there's been a big trend glow globally around premiumization. Your people spending more. They want to look good, they want to feel good. The pandemic's been really hot over the last 18 months and actually a key part of their products. A staple is they they do injectables, and the injectable market at the moment is growing 25 percent per annum and it's forecast to continue to grow at that Kaga over the next three years. So incredible growth that makes up 40 percent of their sales. So they're in a very much a growth market. They also do skin treatments and body contouring, and they're taking share. I mean, they're now the second largest player. And I think a key thing that the market is missing is that there is significant scale benefits in operating multiple clinics. I mean, firstly, you have buying power. So when you're negotiating with some of the suppliers, for example, Galadima and Allegan who supply Botox into the Australian market, you can negotiate a lot better terms and get better margins than your peers. The other thing is the regulatory landscape. So I mean, you know, injectables does require a nurse as to skin treatments. So you do want a really good framing, a framework to train your nurses and staff. And if you don't have scale, it's very hard to. Operate a good training programme, so yeah, we think silk laser clinics over the next 12 months will prove to the market that that growth is structural. And then we also think they're going to deliver some really good synergies from that Australian skin clinics acquisition and beat market expectations there. The other stock we're excited about in the fund at the moment, and it was our top pick at the August reporting season results and we actually think it's still got a long way to go. That stock is ardent leisure. I think Australians generally associate this stock with Dreamworld. But actually, 90 per cent of the value of ardent leisure sits in their main event business in the US, and main event has forty five entertainment centres. So think bowling alleys, arcades, quick service restaurants, all in one big box format. And what really got the market excited was that generally we'll actually back in 2019, these centres were delivering revenue of about $7 million per annum, and the company has undergone a strategic review and they've started to print revenue per centre of 10 million. So, you know, like a 40 per cent increase, absolutely massive. And this is burse pre-pandemic levels. So this isn't some sort of catch up growth. This is actual massive outperformance versus before all this kind of stuff was going on. And so I think the market's you know, and rightly so thinking that that's partly a bit of catch up, you know, people are excited to see their families, you know, they want to go out and spend time with people, have fun and so ardent leisure is benefiting from that. But I think what the market's missing is an audience about three years into this structural race shift, you know, they've reformatted their stores, they've reinvigorated their offering. They're really targeting that family part of the market. And so we believe that this is quite sustainable. We think, you know, revenue of eight and a half million, nine million is quite easy for them to maintain. And as a result, our earnings are well above the market. The other really exciting thing about Audin is they've just started rolling out more centres. They've got forty five at the moment. We think they can easily double the number of centres they've got in the US. If you look at Valero, one of their listed consoles, recently got listed for a SPAC. They've got about 300 bowling alleys across the US, so there's massive upside potential for Ardern to roll out more centres. And it actually still looks really cheap, you know, and I know it's trading at about six times if I twenty three a bit darker and that's versus its peers at tried Stone about 10 times. So we think there's a long way to go in that stock. 

Bryce: [00:22:53] Well, I love it. Well, thanks for sharing, Eleanor. I'm sure our community of frantically writing down some notes there so much appreciated before we move on to chatting about health and biotech. I just have a question for those that are sort of beginning their investing journey, and they're really excited about the opportunity of small caps because everyone we speak to in the small cap sort of the side of investing always sells the, you know, exciting side of it, and there's no doubt that it provides plenty of great opportunities. And of course, you're sort of in active management, have the time to sit down and research all this. So how would you or what sort of advice would you give to a beginner who is looking to get access and start investing in this part of the market? Like, is there anything wrong with taking the index approach or should it? Yeah. What sort of approach would you suggest? 

Eleanor Swanson: [00:23:43] I mean, from a risk standpoint, the index obviously provides a lot of diversification, which isn't a bad thing because as you mentioned, whilst the upside is elevated in small caps, it works the flip flip way as well. So the downside is also elevated. I guess some of my tips would be you can't. I feel like back in companies where management is, the founder of the business is always a great way to go. Kind of gives you confidence that they're going to be working as hard as they possibly can to get the best outcome for investors. It's also great idea if you want to flick through the annual reports just to see whether management is well aligned with shareholders. What are the short term incentives? What are their long term incentives? And then I guess in terms of, you know, trying to pick stocks. I feel like if you if you're looking at a transcript of the company's earnings results or a presentation and you see something in there that you feel people aren't really talking about or maybe the market hasn't cottoned onto, that can be a great way to get an angle. And then if you can research that try and talk to people in the industry to sort of flesh out your thesis, yeah, that's the best way. I think to get really good returns is to find an angle on a stock and do everything in your power to explore that angle and get confidence in it. 

Bryce: [00:25:07] Well, we are going to take a very quick break, and when we come back, we're going to dive into the. Health and biotech conversation, so stick with us, we'll just hear from our sponsors. So, Eleanor, one of the most exciting areas for the Equity Mates community, but also one that we're conscious is often outside of our circle of competence is the health and biotech space. But you have studied science at uni, majoring in immunology, so I'm sure you know plenty more than we do. So we're going to unpack that now. What do you wish more retail investors understood about investing in biotech and life sciences? 

Eleanor Swanson: [00:25:48] Great question. So I think maybe to start off, it's useful to think about what are the drivers evaluation for a biotech stock because obviously a lot of these early stage companies don't have revenue or earnings yet, so it's kind of hard to form a view on valuation. So the first component is actually the stage they're at in terms of their clinical trials. So, you know, a stock can be at a phase one trial that's super early. There's very low probability, you know, if you're at a phase one that you can make it all the way to commercialisation, you're really starting at the beginning, very high risk, very volatile and about 60 percent of companies that are at that phase one trial phase move to a Phase two trial. A Phase one trial is really looking at safety data. You know, is the drug safe? Can we use it in humans? Moving into a phase two is where you're actually trying to test for whether that drug is increasing the survival of that patient population. You know, is it improving patient outcomes relative to what current treatments are in the market at the moment? So that race in phase two, there's a much lower probability that they move into a phase three. So about 30 percent of phase two trials actually make it to phase three. And we generally like to invest in in biotech stocks where we've actually already seen some phase two data whilst we might be missing some of that early upside. We just like to take that risk off the table. We like to know that, you know, they are generating meaningful, statistically meaningful data in patients already and then moving into a phase three once year to phase three. The probability of getting to that commercial stage is actually higher. You've probably got about 50 percent of drugs make it through to commercial stage once they're in a phase three. So we would expect that the valuation of these biotechs to kind of track those phases. So we'd be expecting a much higher valuation for a company that's heading into a phase three trial. And then the final hurdle is generally most biotech and medical stocks are wanting to get approval in the US. Market is the biggest market. They've got the best reimbursement environment. So then you're up against the FDA and you want to get approved by the FDA. And just because you've got awesome clinical trial data doesn't mean you'll necessarily get approved by the FDA because they're looking at multiple things. And one of the key things they look at is actually your manufacturing processes. So if you thought all this great work on your clinical trials, but you haven't actually fleshed out the manufacturing process and how you're going to present that to the FDA, you can actually pull over at that last hurdle. So really, I think useful tip for investors is when you're investing in biotech stocks, it's very important that the management team and the medical advisory board has a real depth of knowledge in terms of actually getting these drugs through from that early phase one stage all the way through to commercialisation. Because it's a big process, it can take 15 years and you really need that experience and bench strength to be able to tick all the boxes. The other thing I'd flag is when you're looking at these biotechs, you want the data to be meaningful, but you also want it to be quality data. So when you're looking at these companies, look for companies that are running double blinded, randomised controlled trials. That is the gold standard. If you've got a company that's data mining or trying to manipulate the data, that's a red flag. The FDA and any drug authorisation body is not going to have a bar of that data. So that's kind of the two key things I'd flag. The final thing is have patients, you know, if the company is generating good data, stick with it because that's that's a real value. If they're if they're improving patients lives, that's what you want to say. There's going to be a bit of volatility. There seems to be a lot of trading around catalysts in these stocks, but stick with it if you can see that the benefits of the drug are there. 

Alec: [00:29:55] Well, Eleanor, it may be outside of our circle of competence, but it definitely doesn't stop us getting excited about some of the the new technologies that we're writing about, and it sounds like they're coming down the pike. You know, we've mapped the genome. We're seeing CRISPR and gene editing now remain and are and a new vaccines as a whole bunch of really exciting things that seem to be coming. To the market in the biotech space. What are some of the new technologies or new companies or new ways of doing things? I guess the really exciting new at the moment in the space. 

Eleanor Swanson: [00:30:29] A new area that gets us really excited at the moment is it's a bit of a mouthful molecular targeted radiation and it's really going to be a next generation of medical imaging. So if we think about what we're using at the moment to image tumours, it's called FHA Pet and you're basically injecting radioactive sugar into patients. And then what happens is the cancer or tumour is very metabolic, so it'll consume that sugar much faster than other cells in the body. And as a result, it's absorbing that radioactive isotope and lining up the scan so you can see where the tumour is. But it's not perfect because all the other cells in your body are also metabolising sugar. The image is not clear. So what if a couple of companies that are listed on the ASX are doing so? You've got to pharmaceuticals, Claroty Pharmaceuticals and another one's coming to market soon. Radio Farm, they're actually developing these molecular targeted radiations, so they've actually binding a specific antibody or molecule to a radioactive isotope, and that antibody specifically binds to a protein on the tumour. So what that means is all the radioactive activity is being very concentrated wherever there's a cancer in the patient, so you can see a big tumour, but you can also stay metastases around the body, which is incredibly useful to a doctor who's wanting to make sure he's clearing all the cancer out of your system. But what's really exciting is the next step after imaging is actually therapeutics, so you can deliver what's called a radioactive payload to the tumour that's so powerful that it kills the tumour. So instead of chemotherapy, which is, you know, kind of blasting everything and killing everything in its sight, what these radioactive targeted therapies do is actually kill off specifically the cancer and hopefully improves the quality of life of some of these patients. So that's an area we really like. And the other one is immunotherapies, and that's basically just using, you know, your natural immune system to fight off diseases. It makes a lot of sense to try and reignite what's already in our bodies and use that to fight disease and infections and tumours. So that kind of two areas we really like at the moment molecular targeted radiation and immunotherapies. 

Bryce: [00:32:53] So Eleanor, there's probably no sort of better known company in the Equity Mates community for getting us really excited and then failing clinical trials and burning us, which is Mesoblast. And and so that's like a classic example for us of, you know, getting excited about the wind up to a phase two trial and then poorly timing the entry to the stock and then getting burnt when it doesn't pass the trial. You mentioned like the quality of data is an important sort of metric to be looking at when assessing. But what what other sort of things should we be considering how to enter exit these positions when it comes to these companies that are constantly going through sort of experimental clinical trials? 

Eleanor Swanson: [00:33:37] I feel like massive loss is actually quite unique because they're very much a pioneer in what they're doing globally. No one's really managed to commercialise stem cells in a meaningful way, so I feel like they've fallen and failed. The FDA has hurdles and haven't been so close to getting approval and then haven't got it. And I think it's partly because the FDA is very nervous because stem cells, you know, living cells. So it's quite complex. It's not like you're injecting a simple protein and you can clearly associate the action of that protein with, you know, improved patient outcome. But that's what we call the mechanism of action. And that was the FDA's clear concern with massive loss is that they just could not clearly make that link because the cells are so complicated. So I guess a kind of learning or something that would be useful is to invest in biotech stocks to take some of the risk out that using technologies that are a bit more proven out. So a stock I really like that we can touch on is EMU Tap, and they've actually just had their immune checkpoint that they're focussed on proven out in a Phase three trial by Bristol-Myers Squibb. You know, it's got its PDUFA date coming up and the fact that they've been successful in a phase three, they've validated this Checkpoint D risks in UTEP somewhat because you can see that there's a competitor that's taking it to market. So I feel like it's quite good going into parts of the market that it de-risk. For example, to Alex Lantheus in the US has commercialised their radiopharmaceutical product. So I feel like going into. Edgy pioneer parts of the market like stem cells, while the upside on offer is enormous. There's so much risk because it's really uncharted territory. 

Alec: [00:35:29] Well, Eleanor, you've given us a number of names of companies that I know well beyond my understanding. And I think that's important. As a retail investor, there's plenty of opportunity out there and knowing what's beyond your understanding is is an important skill. But in saying that, I love to hear the stories of some of these companies. So are there any others that are getting you particularly excited at the moment in the portfolio or just ones that you're watching because of the, you know, the technology that they're trying to commercialise or, you know, whatever they're trying to do in the space? 

Eleanor Swanson: [00:36:03] Okay, I've got to give you one that's actually commercialised, but it's still classified as a biotech and that companies Aroa Biosurgery. Yeah, I'm not sure if you come across it before, but they're actually based in New Zealand. Very cool company. They're using sheep stomach to basically develop these wound care products. And if you think about it is sheep stomach shapes ingesting quite rough material so, you know, sticks and rocks whilst it's munching on its grass. And as a result, the sheep stomach actually has to be super engineered regenerative to be able to grow back from that damage. And so it really makes a great material for wound care. And so what we see is this basically scaffolds you put over a patient's wound, and it allows the patient's skin cells and blood vessels to grow into these scaffolds, and they close a lot quicker than traditional wound care products. And they also you don't get recurrence rates where the wound reopens. So the products are fantastic. But what's really, I guess, a kind of catalyst for a ROA is that not only if they got a Nasdaq listed sales force could tell a buyer, but they've also just raised a lot of capital to start building out their own sales force. And one of their competitors is in a bit of a weakened position at the moment over in the US. So we think this massive potential for a robot to really start penetrating its addressable market. Awesome product, big sales team, Big Market. It's a $2.5 billion market, the wound care market in the US. So that's a stock we're really excited about if we look forward over the next 12 to 18 months. 

Bryce: [00:37:41] Awesome. We were fortunate enough to speak with Brian Ward. I can't remember if I was earlier this year or late last year to get a bit of insight into that, the product that he's making with the shape. So if anyone in our community would like to get a bit more insight into what they're doing at Arrowhead, then make sure you go and check out that interview. Eleanor, let's turn to hearts and minds. It's an amazing conference, as we said at the top of the show, with a really good cause and the opportunity for to hear from some of the best in the business, including yourself. So why is participating in the Hearts and Minds conference important to you? 

Eleanor Swanson: [00:38:16] Yeah, I think it's such a great way for the funds management industry to give back. I mean, we have a skill set and we have tools at our disposal that allows us to generate great returns for clients, and it makes so much sense for us to then go out and raise money for charity. And so it's been a fantastic vehicle to do that. They've raised, I think, over $30 million now for medical research. But on a personal level, I really like the fact that so and supporting a charity called the Shake It Up Foundation, which is actually doing research into Parkinson's, which is a horrible disease, it's a degenerative disease. We don't know a lot about it. There's a lot of speculation as to whether it's caused by a virus or, you know, potentially drugs. People just don't know what causes it. And I've got two grandparents who suffer from Parkinson's disease, and it's horrible to watch them suffer. So I'm really excited that some of the Dollars raised from the Sohn conference is going to go towards the Shake It Up foundation and hopefully solving Parkinson's disease. 

Alec: [00:39:20] It's a great cause, and the more you look at some of the the organisations that they're supporting and you know, the I guess, the diseases and the, you know, the big problems that they're working on, it is it's something that's really fantastic. So you should be commended everyone who's giving their knowledge and their their stock picks should be commended for participating on the topic of stock picks. It is a real challenge. You know, a lot of the people we speak to, a long term investors and you're put in this situation where very publicly you have to pick a stock that is not only a great company, but is going to do well in a 12 month time period. So how do you go about factoring that, you know, 12 month timeframe into your analysis and finding a company?

Eleanor Swanson: [00:40:06] Yeah, yes. I guess I'll bring it back to our investment process, which is finding the two or three things that are the key drivers of the share price of the company. So the what matters? And I guess to help us identify a good stock pick, we're going to look at those three things that matter and find something that's got a catalyst within that 12 month window. So something that's going to prove out that what matters is that part of our investment thesis and really put it on display for the market. So, you know, if we feel like we've got an edge and it's going to get proven out, that's that's a great way to kind of identify something that will perform well over a bit of a shorter time horizon. So that's certainly what we've done with our pick. We're super excited about it. I think it's got huge number of catalysts over the next 12 months. So yeah, we're hoping we factor. We're not. 

Bryce: [00:40:57] Well, that is really exciting. We've spoken to a number of fund managers who are pitching at the conference, and they're all incredibly confident in their stock. So I can't I can't wait to see it play out. A reminder for the Equity Mates community that the conference kicks off tomorrow, 3rd of December, and there's no better opportunity to see Charlie Munger speak. So make sure you grab some tickets sown hearts and minds dot com Diedhiou is the website. Equity Mates is the code to use to get 20 percent of your tickets. There are only a few left for the Equity Mates community, so if you would like to see Eleanor, Charlie and a number of other amazing local and international fund managers pitch their high conviction stocks, then absolutely jump on and do that and support this amazing cause. And a reminder that the associated listed investment company Hearts and Minds Investment Limited one is the ticker actually invests in a portfolio of high conviction stocks, including those that are pitched at the conference. So if you love what you're hearing and you want to get involved and access a portfolio of stocks, then you can do so through one and reminder again that the fees for that are donated to Australian medical research each year. So well, Eleanor, that brings us to the end. We have a final three questions that we always ask So Ren, you want to kick it off? 

Alec: [00:42:23] Yeah, we have a final three and a fourth bonus one for all the hearts and minds speakers, so we'll get stuck into that. The first question is, do you have any books that you consider a must read or write? 

Eleanor Swanson: [00:42:36] Yes, I do. Do not be put off by the title because it sounds super boring, but I promise it's not. The book's called Factfulnesss, and it's written by Hans Rosling, and he has spent his life working in medical research and as a doctor working around the world, and he's basically written this book that debunks the 10 biggest preconceptions the majority of people have. And you'll be amazed he gets you to do a quiz at the beginning of the book, and you'll be amazed at how many you get wrong. And then he goes through and delivers facts, research data to debunk these myths. And it's actually really uplifting because the media is so negative. And I feel like with the pandemic and with global warming, you know, we're all feeling a bit down in the dumps at the moment. But if you read this book, you really, I guess, feel a bit uplifted that, you know, humans have achieved a lot of amazing things over the span of our existence. And the other reason I'm recommending this book is it's actually got some great tips. And as an analyst like little things that people do wrong, little brain mistakes that we make and a great example is extrapolating trends, you know, you just naturally assume that because something's happened for the last 10 years, it's going to keep on going. Why population growth? You just assume that world population will never end and will be, you know, 30 billion one day 50 debunks all these. All these, I guess preconceptions is really interesting. Highly recommend. It's it's changed my view on the world. 

Alec: [00:44:07] Yeah, that that is a cracking book. Bill Gates, I think, called it the most important book is read and bought it for every college student graduating in 2018 or something like that. Do your own research on that story. But yeah, it's it is a great book.

Eleanor Swanson: [00:44:23] Definitely a good suggestion. I'm recommending that Bill Gates is recommending it. That's good. 

Alec: [00:44:28] Yeah, but the two most important endorsements. So, Eleanor, the second question we like to ask is what's the best company you've ever come across? Forget valuation or anything like that, just purely looking at the company best one you've come across? 

Eleanor Swanson: [00:44:45] Yeah, OK. It's an Australian company. It's a company I know well, but I just think it's incredible. Xero. It's the company, the accounting platform provider, and I think it's amazing because it's just got so many positive trends going for it. So, you know, the digitisation of the world like receipts, getting digitised invoices, tax systems like the world is just moving to a digital landscape. We're getting rid of documents and that just plays perfectly into zeros sweet spot. The other thing is is. Super sticky, like once you start using an accounting platform, you don't want to go and set up all your accounts and payments and receivables on a different system so that customers are super sticky, and then they've got this amazing ability to add on new products like they've got their core accounting platform. Now they can go start adding payments and project management and helping businesses with anything that takes away that administrative burden and allows these small businesses to go and focus on actually running their business and generating revenue. So I just think it's one of those companies that you could put in your portfolio and just leave it there for 20 years. And I guarantee. Well, I shouldn't guarantee anything, but it's just one of those stocks that I think has so much potential potential to continue to grow and add value to its customers. Yeah, I think it's an amazing business. 

Alec: [00:46:10] It is a great business. You did say it was an Australian business, and I'm sure our New Zealand listeners will be getting from 

Eleanor Swanson: [00:46:19] Australia New Zealand company.

Alec: [00:46:23] I was going to say, just like Russell Crowe, regardless of where it started here in Australia, will climb them 

Eleanor Swanson: [00:46:29] just like over.

Alec: [00:46:30] Yeah. But Eleanor, if you think back to your younger self doing the research on baby bunting walking into Toys R US and Babies R US while they were still around. What advice would you give your younger self? 

Eleanor Swanson: [00:46:46] Yeah, this is a hard one, because I feel like when you're younger, it's so you're, I guess, lacking in confidence and experience, and so it's hard to do this. But I guess what I'd say to myself is back yourself, if you've done the work and you formed an investment thesis and you know, you I guess tied all the little knots and plug to the holes and it's rock solid. Go for it. Like bang the table, let people in on the story because I feel that there's so many opinions out there in the market and often people haven't done nearly as much work as you have. And so I just yet be more confident in the work I've done and push harder and make sure that we're taking big bets on on stocks that really, truly have the potential to go, OK, that that's the advice I'd give my younger self. 

Alec: [00:47:36] Nice one. I think that's great advice. I think the key part of that advice is also doing the work. Do what you think. Yeah. And Eleanor, a final question that we're asking all of the hearts and minds speakers. As Bryce mentioned earlier, Charlie Munger is giving a keynote speech, and if you had five minutes to speak to Charlie and ask him anything, what would you like to ask Charlie? 

Eleanor Swanson: [00:48:06] Yeah, I guess the thing that really stands out about Charlie Munger is that you always talk about him in a sentence with Warren Buffett, like they're just such a partnership. It's been such a successful partnership probably will go down in history as one of the most successful partnerships, so I'd love to hear from Charlie. What it is about his relationship with Warren that's made them so successful as a pair, like how do they bring out the best in each other? Because it feels like, you know, if you're Charlie Munger and you find your Warren Buffett like, that's the key to success. Like, you've just got to find that person that brings out the best in you. So, yeah, I'd love to hear about more about their relationship and why that's allowed them to get to where they are.

Bryce: [00:48:49] Well, awesome way to finish, Eleanor. We certainly appreciate you coming on the show and sharing your time, your insights and thoughts on all things small caps and biotech and everything that's incredibly interesting to the Equity Mates community. So all the best with the stock picks, we can't wait to tune in, see how it goes, and can't wait to see how it plays out over the next 12 months as well. Thank you very much. 

Eleanor Swanson: [00:49:11] Thanks so much for having me on the show. Guys really appreciate it. 

Bryce: [00:49:15] Hey, thanks for listening to this episode of Equity Mates. We love hearing from you, so drop us a line at contact@equitymates.com. Or even better, go to your podcast player and leave a five star review. Also, a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group where on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. That's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.