Expert Investor: Ben Gisz – Building a Portfolio in Today’s Market Conditions | TDM Growth Partners

HOSTS Alec Renehan & Bryce Leske|29 April, 2021

Brought to you by TDM Growth Partners

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.

In this episode, Alec and Bryce chat to Ben Gisz, who’s the co-founder of TDM Growth Partners. Ben, along with co-founders Hamish Corlette and Tom Cowan, has grown TDM’s assets under management from $1 million to over $1 billion. Ben is also a non-executive director in Pacific Smiles (ASX: PSQ), one of TDM’s portfolio companies. In this conversation Ben talks about his unusual first investment, TDM’s ‘bottom up’ investment research process, and talks about some of the key things to be aware of in today’s market environment.

Expert Investor: Ben Gisz – Building a Portfolio in Today’s Market Conditions | TDM Growth Partners


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BRYCE LESKE: [00:00:40] 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 mate, Ren. How are you going? [00:00:55][14.5]

ALEC RENEHAN: [00:00:55] I'm very good, Bryce, very excited for this episode. I think one of the real privileges of getting to do this show for the last few years is meeting some pretty incredible investors and some pretty incredible funds. And I think we can safely say we've developed a bit of a man crush on the guys at Tedham Growth Partners. We've interviewed Ed Cowan, Tom Cowan, Hamish Collett, and now we've got the the the big four. Ben is joining us today. [00:01:24][29.6]

BEN GISZ: [00:01:25] Morning, guys. Thank you very much for having me. It's great to be here. Thanks very much. [00:01:29][3.7]

BRYCE LESKE: [00:01:29] So Ben joined TDM Growth Partners when they had 70 million under management and along with Hamish Collett and Tom Cowan, has grown TDM assets under management to over one point five dollars billion. Ben is a non-executive director at Pacific Smile's, which is one of Tatums portfolio companies. But then we were going to call you co-founder of TDM. And I think for the first time ever on this podcast, someone has said they don't want that as a title. What is the story? [00:01:58][29.4]

BEN GISZ: [00:01:59] Yes, a lot of people do refer to me as the co-founder, but often like to use the opportunity to tell a bit of a story about the history. Founders have a very special spot in most businesses. And for us to of the take on that was that think about a business being formed on someone's living room floor, surrounded in annual reports, waist-deep, probably raising a lot of them in the board shorts or your undies, whatever you like, and really doing that sort of hard grunt work. In the early days, Tom and Hamish gave me a tap on the shoulder a short time later. A lot of hard work had been done by that phase. We got to 70 million of funds and it's been a massive and very enjoyable journey since. [00:02:40][40.5]

BRYCE LESKE: [00:02:41] I mean, still, you've taken it from 70 to 1.5. So you've been part of that journey for a very long time. [00:02:46][5.2]

BEN GISZ: [00:02:46] And the power of the teams, the thing that's always really driven our success and the combination of people and not just the three of us, but the quality of person we've been able to hire since and allow them to buy into the dream as well. [00:02:59][12.9]

ALEC RENEHAN: [00:03:01] So, Ben, now for the rest of this interview, I'm just going to be imagining Tom Cowan in his undies surrounded by annual reports. So thanks for that mental image a bit. Look, we do like to start these interviews by hearing about people's first investments. We find those generally a good story or some good lessons that come out of that that investment. So to kick us off today, can you tell us the story of your first investment? Sure, I'd love to. [00:03:27][25.9]

BEN GISZ: [00:03:27] And it's a bit of an odd one. You know, I think for most people that probably talk about the first stock they bought for me, I grew up in the country and it wasn't a proper farm. So no offense to the real farmers out there. But I did grow up in a small property and my first investment was a flock of merino sheep. So I'd always been interested in this price value difference and what you could buy and sell at a differential to make a return. And I looked at ostriches and I looked at alpacas. And eventually, my parents thought, you know, in order to get this guy to give up, we've just got to support him to buy a few sheep. And so that was the first investment I made. And in among other things, you know, I'd look at a bunch of Specky stocks and pretend I owned them and things. But the first real money I put to work was in sheep. [00:04:08][40.7]

BRYCE LESKE: [00:04:09] Roger Montgomery was a goat. [00:04:10][1.0]

BEN GISZ: [00:04:13] I did want to go once again. I just wasn't allowed to get one. [00:04:16][2.2]

ALEC RENEHAN: [00:04:17] So how did the investment turn out? [00:04:18][1.2]

Speaker 3: [00:04:19] It went alright, actually. Now, I don't know whether this is one of those situations where your parents secretly underwrite an outcome to make sure you don't lose interest in investing. But certainly, from my perspective, it was a good investment. And I haven't invested in a flock of sheep since, however, recently of bought 15 cows. So maybe this is the time to revisit that trade. [00:04:39][19.8]

BRYCE LESKE: [00:04:39] In your time at TDF, have you developed a personal investing philosophy? [00:04:46][6.4]

BEN GISZ: [00:04:47] Yes, I have. Rightly or wrongly, I think everyone's personal investing philosophy relates to their personality traits. One of my personality traits is I'm a bargain hunter. I have been spotted from time to time rummaging around in the turmoil in the reject shop, for example. So I love a bargain. Even back at school, I was creating a secondhand market for school uniforms. So you can tell I like to hunt a bargain. I get excited by that. But over time my style's transitioned a bit. TDM style is more great companies at a reasonable price and I think that's the right way to invest in terms of other factors. Simplicity is something I value a lot. So this ability to take a complex investment and summarize it on a page, I think is something that's really, really important. Some people refer to that as the grandma test. I think that's very offensive to grandma. I think how I consider it is more a layperson's test, you should be able to explain an idea on the page, not just your grandma, but anyone, and really articulate it in a simple way. And if that can't be done, I'd question whether it's a good investment. And the final thing is, just from a temperament point of view, I feel I operate better when times are tough and people are panicking. And, you know, you have to make hard decisions when there's a lot of Ren on the screen. And I think that's a temperament aspect. And I feel like I like to play under that sort of situation more than a bull market. [00:06:12][85.1]

ALEC RENEHAN: [00:06:14] So that temperament piece is a really interesting one. And I think something that a lot of our listeners probably haven't experienced. You know, we've seen a lot of listeners and broad more broadly in Australia. A lot of people have started investing after the covid drop. Is that temperament something that you can build or what advice would you have for retail investors who haven't lived through a period where there's a lot of red on the screen? [00:06:37][22.9]

BEN GISZ: [00:06:37] I think you can build it to have the right temperament, the right time. I think you do need to have a view of what happens after whatever blip you're going through. So if you don't have a solid view of a company in the first place, it is easy to panic. But assuming you do have a solid view of a company, you've just got to take your mind out of the short term into the long term. And your view has to be I'm down on paper 50 per cent, which might be a lot of money to you personally. But do I have confidence this company is going to make it through and is going to realize its value over time? And if the answer to that is yes, then you just really focus on the short term, the long term, it's human nature to gravitate to the short term when you're in a panic mode. [00:07:19][41.5]

BRYCE LESKE: [00:07:19] So we recently came across a blog post that Tedham wrote on current market conditions, which was pretty fascinating for us because you guys aren't really known for often commentating on market conditions. You take that very long term approach and try and remove yourself from the noise. So when we did say it, we thought it was worth unpacking, which is what we want to start with. In fact, you've only commented, I think, four times in the last six years on market conditions. So what is it about the current environment that has caused you guys to give some public opinion? [00:07:52][32.4]

BEN GISZ: [00:07:53] Yeah, the way we think about it is we don't think anyone's an expert to say the All Ordinaries, S&P, what, 200 is going to end up at, you know, X amount in a year's time. And the return will be why? You know, we just don't think that's realistic. We view the world as bottom up investors. So we're constantly looking to find stocks bottom up. Occasionally we detect that the market environment is at an extreme point. So in the middle of the GFC, I would say that was an extreme point. And, you know, after a very, very long bull market, now we feel as though it's quite an extreme point. But most of the time it's in the middle. So where we have an opinion, it tends to be on either end of the spectrum when things are really dire and when things feel quite optimistic to us. So this is not some mathematical equation. This is us linking together, you know, a number of indicators, if you like, financial and non-financial to get a feel for where the market is at generally. [00:08:49][56.1]

ALEC RENEHAN: [00:08:49] So, Ben, in this blog post, you spoke about how the market's overheated. What are some of the key market indicators or just more, I guess, societal indicators that point to the market being overheated? [00:09:02][12.3]

BEN GISZ: [00:09:02] Yeah, that's a great question and something that we have thought a lot about recently. First thing I want to say is that you've got to think about different markets differently. And a lot of our comments around the market being overheated do relate more to the growth part of the market, because that's the part that's really been supercharged. And within that, we talked a lot about the software space, which is an area we've invested a lot in. Some of the indicators we referred to in a blog post include IPOs, particularly tech IPOs, doubling day one or week one. You know, that's a routine thing that's happening. That's just not normal. Trading volumes, both equities and options are up 50 to 100 per cent year on year margin. Lending is at the highest level it's been since 2008. And equity inflows are off the charts, you know, at a time also when valuations are high. So they're the metric based indicators and not just that one or two as something to worry about, but where all these things start happening. It's kind of like the canary in the coal mine. The other bit is what I call the anecdotal test, which is that if you hear every taxi driver, shopkeeper, friend, whoever you speak to in the street who previously had relatively little knowledge on investing, talking about how much money they've made and how hard it is to lose money, then generally you've got a problem. [00:10:22][79.9]

ALEC RENEHAN: [00:10:23] Mm hmm. You never like to hear the words highest since 2008 or higher since 2000. That's always a red flag. And, you know, yeah, we're definitely seeing it in, you know, everything from stays to the amount of stupid. Currencies that are being made to Pokemon cards and baseball cards trading at all-time highs, there's so much money in the system and it's just desperate to find places to go. [00:10:46][23.0]

BEN GISZ: [00:10:46] Absolutely. [00:10:46][0.0]

ALEC RENEHAN: [00:10:47] So markets are overvalued, hot, whatever you want to say. But as you said, you're a bottom-up investor. So I guess the simplest way to ask this question is, why does that matter? [00:10:59][12.1]

BEN GISZ: [00:11:00] Yeah, it's a great question and something that, you know, a lot of clients ask us and we debate a lot internally as well. So you're very right. We are bottom up investors. So what that means is that we're looking at individual stocks and trying to form a view on whether they can deliver our returns now, which we're trying to target 20 per cent plus per annum, twenty five per cent plus per annum. So that's always a TrueNorth. The reason it matters for us, the market environment is that it goes to the opportunity set. So if we're at one end of the extreme or the other, like I've mentioned, the super optimistic or super pessimistic, you get your opportunity set. So, for example, software companies, you know, in 2010 or 11, you could have thrown a dart at a dartboard and any one of those was going to deliver you a 20 percent return at that point in time. Now, that's different to say, you know, when should I have invested in the market timing and so forth. But the environment very target-rich nowadays. I feel like we have to work a lot harder to find those gems. And so the reason it matters for us is the rate at which you need to work to find those two or three ideas to deliver our required returns. And we're fortunate we only need to find two or three ideas a year. We only own 10 to 15 stocks and we're not out there trying to find 50 companies that need to deliver our returns. So we've got an unfair advantage in that respect. [00:12:17][76.6]

BRYCE LESKE: [00:12:17] Yeah, yeah. So what are some of the key, I think things that our listeners should be aware of in today's market environment. Obviously, we don't have the, you know, research capabilities that you guys do. But just as a retail investor, how should we be thinking about it? [00:12:33][15.1]

BEN GISZ: [00:12:33] Yeah, I think it's one of the trickiest times ever to invest. And when I say forty three, so I don't necessarily say ever, ever, but, you know, certainly in my investing lifetime and the reason for that is back to this interest rate dilemma. You know, this environment encourages people to take their money out of the bank and do other things with it. So, you know, I can understand why people say cash is trash. You earn nothing from interest in the bank. So that gives investors a real dilemma. The older you are, the bigger the dilemma it creates. Because, you know, if you're in a position where you need to start harvesting cash on a two to three of you, then it's very hard to take your money out of cash and do other things because you need to have at least a three to five year view with equities. So it's very much a case of people aren't earning a return in the bank. Therefore, they are encouraged to make an investment in equities. You just need to be fearful when others are greedy. So our version of that is you hold more cash than you would normally hold and you don't get caught up in this belief that you can't lose those two things. The second bit of it is how do you invest as a retail investor and what would your strategy be? We don't really get too much in the business of advising people what to do there, because, you know, I guess a little selfishly, we believe what we're doing is what we need to focus on. We think it's the right way of doing it. We don't think everyone can do the same thing. Not everyone has access to the same people, resources and dedication to 15 companies that we do so often struggle to give retail investors advice. But what I often say is, if you really don't really know what you're doing, you know, you do go wider and you do own an ETF or some sort of broader index holding because, you know, you're less likely to trip up and fail on one company being a dad. But if you do genuinely have an interest in business and you do genuinely think you can have a crack at understanding the fundamental value of a business, maybe it's a business that you're very close to. You've got a family interest in it. You grow up around a retail business, something like that. Then I do think there's an avenue to pick individual stocks and take a view on them. I just always caution people to say we would never buy stock, that we didn't very clearly have a view on the fundamental value of. And that's because our whole business is to buy at a price which is below that fundamental value and understand when it's reached that fundamental value. And if you don't know that equation, then I would argue it's closer to punting. Yeah, yeah. [00:14:55][141.5]

ALEC RENEHAN: [00:14:56] So that's the sort of context in the market we're in. And we thought this was good, I guess, context to talk about portfolio construction, because, you know, when markets are hot and as you know, as you said, it's a difficult time to invest. That's when portfolio construction, I guess, is critical. Before we move that, I want to ask one more question about market conditions. You said you're a bit of a value guy or more of a value guy than Tom and Hamish maybe. And we've been reading a bunch of investor letters for Q1 and there's a lot of talk about, you know, will values finally start to outperform growth again after a long period of growth outperforming? How do you think about growth value in the coming years? [00:15:38][42.0]

BEN GISZ: [00:15:39] It's a great question. It's not something that we specifically try and forecast because we're not trying to, you know, form a strategy around that question. Just before I go on, you know, I would say between Tom Hammond and myself, we would agree on 95 percent of the ultimate view on price value and how we proceed. It's normally my investment sentimentality normally informs how that debate goes. So you always need in the room someone really driving that, you know, that passion for what the future could hold. And you also need a few people saying, hey, what about this? You know, you know, and I think we've got the balance in the turn between the two seems to work well. So on your question of value and growth, always sensitive to is that in a zero interest rate environment, what do people want to own? Okay, of course, you want to own structural growth businesses that are going to grow for 10 or 20 years above GDP and they're going to take market share from the incumbents. What a great spot to invest. I mean, that's why software companies are highly valued. That's why we love software companies and other structural growth businesses. But that pendulum always has an endpoint and whatever's great tends to become too highly prized at some point in time. And so all we're saying is that we're getting towards one end of that spectrum. And therefore, I would infer that at some point in time that value growth equation would swing around. We still think we can perform well at that moment because we only need to find a small handful out of four thousand companies of high-quality growth businesses. Mm-hmm. So I think I think naturally, inevitably, that that equation swings around. Yeah. [00:17:13][94.9]

BRYCE LESKE: [00:17:14] So before we jump into portfolio construction, we'll take a quick break for our sponsors. So, Ben, before we overlay current market conditions with how you're thinking about constructing a portfolio, let's just talk about some of the basics of what you're doing at TDM. Do you have any rules for which you apply to your portfolio construction? Yes. [00:17:35][20.4]

Speaker 3: [00:17:35] So the way we think about portfolio construction is first and foremost, we are believers in concentration. You know, and again, this is different to a retail investors perspective, but our fundamental belief is not that many great investments out there. And our chances of delivering superior turns comes down to our ability to hold a small number of very good businesses that can deliver great returns. And it's a constant battle to find those great businesses. [00:18:02][27.2]

BRYCE LESKE: [00:18:03] How many are we talking about? What is the concentration for you? [00:18:05][2.1]

BRYCE LESKE: [00:18:06] So our version of that is 10 to 15 businesses. But realistically, it's even more concentrated than that because within that mix, I can talk about the composition a bit more, but there'll be some quite large positions and then a tale of smaller positions [00:18:18][11.8]

ALEC RENEHAN: [00:18:19] and then tedium invests in both private markets and public markets. Do you have any rules around that aspect of four for your portfolios? [00:18:27][8.0]

BEN GISZ: [00:18:28] Yes, I'll give you an idea of how we think about it. So I just, I guess going back a step. So we've got about one and a half billion dollars, which we try to invest globally. We try and find the best 10 to 15 companies. We want to own businesses and help businesses that we're proud of. That's our mission. We are looking for businesses that have structural growth at a higher rate, outstanding people and culture and excellent, sustainable competitive advantage. So those three dimensions. So we're finding bottom up stocks that meet that criteria and that can deliver 25 percent per annum return. Then we say, okay, how do we factor those into the portfolio? As I said, 10 to 15 stocks. But our view of how much of those stocks you should own is roughly done like this. A small position for us might be around three per cent of the portfolio. A large position would be about 15 per cent. So you could say, well, if you've got your best company, why not make that 35 per cent or 50 per cent? Because you'll get high returns. Right? And if your highest return or is 50 per cent, but, you know, however, you know, solid, we think our investment record is there's always a margin of error and you can get things wrong. And in any given year, the company that we think going to do the best doesn't always do the best, for example. And so there is a limit, we think, from a risk point of view to how much you should have in one stock. So we have a small positions, large positions, and then we scale everything in between depending on their risk-adjusted returns and how confident we are in the future for those businesses. [00:19:56][88.3]

BRYCE LESKE: [00:19:58] And how do you think about, like cycling out businesses from that concentration, like you've put all this work in to find 15 of the best stocks? If you then find a company that is going to be generating two or three per cent extra in return than what's already in there. Do you rebalance? Cycle it through? How does that process work? [00:20:13][15.3]

BEN GISZ: [00:20:13] Yeah, we are pretty methodical about how we do that. So what we do is we've always got this equation, if you like, between what we think the fair value of a business is and where the business is trading. So from time to time, and particularly in this environment, you can get that gap close up. And when that gap close up, naturally, we want a smaller position. So the way we said we will gradually sell down or sometimes at speed settle down and increase the position depending on that differential between market price and whether what our impression of intrinsic value is. [00:20:46][33.0]

BRYCE LESKE: [00:20:47] Yeah, right. And then in terms of portfolio is something that we are all sort of debating at the moment as well, is cash and the waiting to cash. How do you think about cash waiting? [00:20:57][10.3]

BEN GISZ: [00:20:58] Yeah, I think this is quite different to many investors. So we have held about 20 per cent of our portfolio in cash across the cycle, you know, across our 16 years in business. And that is an unusual position when you think about it, because, you know, I think most people would agree that generally speaking, you're not in a bear market. Bear markets are occasional. And so therefore, shouldn't you be mostly fully invested, particularly if you've got all these great ideas, you know, that you can invest in and make a 20 percent return? What we've come to realize over time and well from day one actually is that the option value of having a reasonable cash holding is extremely valuable and is underestimated by most people. Again, you can fall into this trap. Hang on. Interest rates are zero. That's just dead money. But, you know, we are able to and have done in the past deploy 15 to 20 percent of our portfolio in a matter of weeks into dirt cheap companies, which we rarely get the opportunity to buy. And so that has allowed us, I think, to improve our returns over time. I think the one shift we've made in the last couple of years is to recognize that as we invest in bigger and better quality businesses, over time, you get management teams to just continue to produce magic. And, you know, the intrinsic value keeps growing faster than you think. And so, therefore, you may look back and regret having sold something that doesn't meet that differential between value and. Price criteria on the day. So I think we've become a bit more relaxed about holding ultra high-quality businesses but still maintaining a discipline around adjusting position size for valuation. Some investors, of course, including Buffett, will say you just hold the companies that you love and just never let go of them. And so we've got a different twist on that. We think valuation always plays a role. Hmm. [00:22:42][104.1]

ALEC RENEHAN: [00:22:42] I mean, that's the incredible thing that even, you know, when we started learning about investing, you know, everyone reads you know, the security analysis and the Buffett letters. And there's this real concept of mean reversion that comes through in there where, you know, companies go above their fair value, and then they'll come back to their fair value. But what we've seen with companies like Apple and Microsoft is that they just keep on pounding away and yet incredible rates of returns for decades. [00:23:07][24.8]

BEN GISZ: [00:23:08] Yeah, yeah. Phenomenal. And their two great examples and our ideal investment is a type of investment that does that that continues to surprise you with magic and will can come on to people and culture and a bit, no doubt. But people and culture is typically the key ingredient. Make that magic happen. [00:23:24][15.6]

ALEC RENEHAN: [00:23:24] Mm hmm. So you've said that some of these rules are portfolio construction don't apply for retail investors. But I think the thing that really comes through is that one, you have pretty clear rules that you all understand and you will stick to. And two, price plays an incredibly important role in how you sort of apply those rules and how you think about it. And I guess the third one is that, you know, your company's incredibly well. And I think those three things definitely apply to any investor. [00:23:52][27.8]

BEN GISZ: [00:23:53] Yeah. And I've got some friends, for example, who are knowledgeable about property. And they asked me so what they should buy. And I agree that they should spread the wealth around a little bit. But my natural instinct to say you're all over this property game, you're not back to front, I'd be super concentrating on what you're doing and I keep hammering that away. You've got an unfair advantage. And so flip that around. I have the same view of stocks, [00:24:13][20.5]

ALEC RENEHAN: [00:24:14] I guess how is picked up at the 20 percent cash weighting through the cycle that as you said, that's unusual for a retail investor. You know, having cash on the sideline is important. But, you know, you often get an itchy finger and you're saying all these companies run and you're saying Krypto run and you're saying buy now let it run. And at the same time, you know, price, I think for four years when we started the show, was predicting a bear market and was holding cash. And it never really came. Well, it came in 20, 20 eventually. So I think that decision about when should you have cash, how much cash you should hold as a retail investor is difficult. Obviously, it's not a one size fits all thing. But how would you think about the cash waiting as a retail investor? [00:24:59][45.5]

BEN GISZ: [00:25:00] Yeah, I think everyone's got to have their own version of playing offense and defense. And that's what we talked about in our blog post. You know, what is your version of aggressive and conservative and matched that to the environment that you're in? So, for example, our version of that being quite defensive, a little defensive right now in our case, 15 to 20 percent cash. We've been up as high as 50 percent cash before and aggressively moved our cash, waiting to zero when the opportunity sets massive. And so I think if I'm a retail investor, I think, well, what's my version of that that does come down your risk appetite and other things. But I would find it very hard to understand a retail investor at this point in the cycle not having, you know, 10 to 20 percent cash somewhere ready to deploy when things are less rosy. And I particularly say that because not just equities that are enjoying significant inflation. You know, there's a you know, some could argue this is a bubble of everything that's been going on and there will be opportunities in the future. [00:25:59][58.2]

ALEC RENEHAN: [00:26:01] It is actually everything like not just traditional assets, but like sneakers and everything, [00:26:06][5.0]

BEN GISZ: [00:26:06] cows to as it turns out, really. [00:26:08][1.3]

ALEC RENEHAN: [00:26:10] we need to get on the livestock more shoes. So I think that their sort of the rules of portfolio construction that you guys have would love to now overlay current market conditions and understand how you're thinking about portfolio construction at the moment. So, yeah, I guess you know how those rules holding up. Are you still finding opportunities? Do you have to reduce that 10 to 15? No, because everything's quite hot. Yeah. Yeah. How's how those rules holding up at the moment. [00:26:41][31.3]

BEN GISZ: [00:26:42] So we're lucky. I think we've still got an unfair advantage, which I think is a point I want to keep making. You know, as we point out at the start, we can invest in public and private businesses anywhere in the world. We've probably got an opportunity set at four thousand plus companies. And so and we're only trying to find two or three a year. And so within that, we might find one private company to public companies or the other way around. And within that, you know, we might find that we have one sort of tens of billions market cap, a public company and one that sort of a billion in the growth phase. So we've got all those opportunities. And I think that strategy's working really well right now because we've got certain. Companies in the portfolio that are just making massive gains in their intrinsic value. You know, I just think about a classic Aussie success story, Gozman Gomez. It's it's just shooting the lights out and is going to be, if it's not already a great Aussie success story and hopefully one day global success story. So that's ticking away in the background, growing intrinsic value really fast. It gives us the luxury on the public side to be really choosy about when we buy new companies. So we are able to generate those returns across the cycle by having that mix of public and private investments and not being forced to. You know, I guess if you look at one strategy, if we're all private equity, we need four deals a year and private companies or if we're public only, we need to hold 100 per cent of our funds in public companies. We're able to dip in and out where the best companies and teams of people reside. [00:28:11][89.6]

BRYCE LESKE: [00:28:13] There's no doubt that markets can remain pretty irrational for quite extended periods of time. And you've recognized that we're a reasonably frothy, overvalued point in the market. But if that were just to continue for year on year and you know, what we're seeing just pushes further, how do you adjust or do you adjust any of your rules? And particularly for the retail investor, if you are sitting in cash, it's pretty hard to stay there and watch the market continue. So how do you kind of think through that? [00:28:44][31.1]

BEN GISZ: [00:28:45] Yeah, I think that's an interesting dilemma I'm in because of this other dimension to our business and having companies that are not yet in the public domain and that are growing in the background, we do have the luxury to hold cash. And by that time, I think it's a realistic scenario that in a market environment like this, valuations still keep going up. It just comes down to probability and timing is when a potential correction happens. So I think I think where we're well positioned for that, obviously, if you look back in three years time in the bull markets extended, we would have been better off having that 15, 20 per cent cash in the market. And that's something we won't know until the time. But what we're saying is we can generate our returns with that cash on. [00:29:25][39.8]

ALEC RENEHAN: [00:29:25] Do you? So there was an investor we spoke to I can't remember when, but there was sort of like rules. He had rules around. You know, if a stock dropped 10 per cent, he would deploy 10 percent of his cash into the market. And he had a rules-based approach for a market downturn. Do you guys have a similar approach? And maybe like if we talk about a specific example, Spotify, a company that you guys have invested in for a while, has come off a little bit like with that, do you have a rules-based approach where it's like, oh, we're going to put some more in and some more and if it keeps dropping or is it? [00:29:57][32.1]

BEN GISZ: [00:29:58] Yes, Spotify is a great example. I mean, great companies, as we've discussed, tend to grow their intrinsic value over time. Less great companies are either flat in terms of what their fundamental intrinsic value is or down. So Spotify is a great example of a company that continues to grow its competitive advantage and its intrinsic value. So the way that translates into our decision making is we're constantly researching the business, understand the industry better, and comparing it to other opportunities, I guess, but really coming up with what our view of fundamental value is. And as that ratchets up over time, we factor that into a holding of the business and relate that back to the share price. So it may be that the share price goes up, but the intrinsic value keeps going up faster. And that's an ideal scenario for us. So if you think about it, it's hard to draw a graph on audio. But if you think of a graph with a valuation on the vertical axis and time on the horizontal axis, you think of intrinsic value being a straight line up and to the right and share price a squiggly line below that. Our ideal company looks like that because you can continue to hold it for many years to come, even though the share price is going up. Mm hmm. So obviously, as a share price goes down and Spotify is no different, if the share price is falling, we are in the market buying shares to recognize the growing difference between intrinsic value and where the share price sits. [00:31:23][85.2]

BRYCE LESKE: [00:31:23] On that point, how did you guys approach the world's fastest crash in March 2020? [00:31:29][6.0]

BEN GISZ: [00:31:31] Yeah, interesting. So we were investing heavily in that scenario. Prior to that, we were worried about valuations, had harvested a fair bit of cash and valuations were high. They happened to be higher now. But going into that, we were deploying money fast. I think what we got wrong in inverted commas is we were probably too cautious and then started to reduce some of those positions as we came out the other side because we're really worried about where the world was at. And in fact, looking back, it's hard to fathom how well asset prices performed when the world was in a massive malaise. And I still can't really fathom that, to be honest. My rationale is that interest rates are so low and back to this thing that all assets go up in that scenario. But yeah, so. So we would have we. Fantastic returns the last 12 months, but I would have been better, even better if we'd hold on to some of those positions a bit longer because obviously the market's been much stronger than anyone had thought. [00:32:29][58.3]

ALEC RENEHAN: [00:32:31] A lot of retail investors will just buy that because they're told by the dip, even though and take no consideration into the price. You're saying you're deploying cash on March 20 really quickly. Was it all driven, though, by the underlying stock price, or were you just like me as an opportunity? Let's get it in there. Yeah. [00:32:49][18.1]

BEN GISZ: [00:32:49] So we have a watch list. Yeah, 50 plus companies. Some of those we know better than others, but the ones we know well, we will have a very specific buy price attached to it and we will adjust that by price as new facts come to light and that buy price will be independent of what's going on in the market around us. Now, of course, it becomes tempting to change some of your assumptions. You know, when you say that all the comps to a company are trading at a certain level, but we really do try and be disciplined about looking through the cycle. Yes, it's quite a methodical approach when it comes to what the buy price should be. [00:33:25][35.9]

ALEC RENEHAN: [00:33:26] I find that 20, 20 periods interesting because, you know, on one hand, you're looking at your assumptions about the intrinsic value of a company and the future prospects of a company. And you're saying, well, this is a good price that the market's giving us. But on the other hand, there's so much uncertainty for some of the businesses that you own about what the future actually does hold. You know, a company like Spotify all online, not as affected by covid, but, you know, another company that you own, Pacifics, Miles, is all physical locations. And, you know, if the economy shuts down, the future becomes incredibly uncertain. So how do you build models and make assumptions about some of those companies at a time like the static over? [00:34:04][38.5]

BEN GISZ: [00:34:04] But the key is to have a go at looking through that event, whatever it is, and try and come up with some view. So we're always trying to look five years out. It's not to say that covid doesn't have some form of disruption on that five year view, but we look five years out. So as you mentioned, I'm involved with Pacific smiles and on the board there, if you just take that as a case study of how that played out in market prices in the middle of COVA, that stock was trading at 80 cents. Why? Because I guess people inferred dental services can't be delivered. You know, it's going to be a difficult environment. You know, maybe you're going to make some losses for a bit, whatever the case might be. If you take a Ford look, five years from that point in time, you say, okay, a dental service is still going to be delivered in the way that they were pre covered. Who's going to be delivering them? Who are the market winners? And therefore, what's the earnings power, the business that point in time, if you Ren that equation, the valuation wouldn't change for the business. So you had a situation where the stock price was 80 cents, now trading, you know, to seventy-five ish. And for those willing to say red on the screen and to deal with uncertainty in the short term, provided you know what that endpoint is, I have a view on that endpoint. That's the way you make returns. [00:35:17][72.7]

ALEC RENEHAN: [00:35:18] Yeah. And I guess the other thing at the time was do they have, like, the balance sheet to get through that period as well? [00:35:24][6.7]

BEN GISZ: [00:35:25] Absolutely. And we're massive believers at medium balance sheet flexibility basically across our portfolio or in net cash positions for all our businesses. And, you know, and I've heard a lot of companies say, well, why don't we just borrow more money? You know, it's so cheap. What happens, you know, if you can't pay that interest bill for a month, a covenant's branch, you have to do an emergency capital raise. It's all about that optionality, pace, and flexibility. And you look at the companies that have done really well through covid. It's ones that have been out of stick to their strategy or enhance it when their competitors are floundering and really double down and invest. And those are the ones with stronger balance sheets. [00:36:02][37.2]

BRYCE LESKE: [00:36:02] Um, so many of the equity markets communities take a dollar-cost, average approach. And just to kind of close out the conversation around market conditions, how do you think about dollar-cost averaging at a time like this? [00:36:15][12.9]

BEN GISZ: [00:36:17] So I don't mind the idea of spreading a buy decision over a period of time. I mean, we do essentially do that as well. I also think the less you know about a particular company or your particular situation, you're putting all your money into one stock on a particular day, if you don't know much about it, is probably a bad strategy. Yeah. So intuitively, I don't mind it for retail investors. [00:36:38][20.8]

BRYCE LESKE: [00:36:38] Yeah, nice. [00:36:38][0.3]

ALEC RENEHAN: [00:36:39] So then we want to thank you for joining us today. This has been a fascinating conversation, definitely given us and the equity markets community a lot to think about. Aside from going out and reading the TDM blog post on current market conditions, do you have any sort of final thoughts or final words for the retail investing community? Sure. [00:36:59][19.8]

BEN GISZ: [00:36:59] And I've really enjoyed this. I know I've given a bit of advice around. Basically, if you don't really know everything about the companies you're investing in, take a wide strategy and be quite passive. And if you know a lot about the companies you're investing in big concentrate and hold onto the things you know. Well, the other thing I'd mention, strategies like TDM strategies are hard to. Get involved in hard-to-access, but one method of getting something similar is to invest in hearts and minds investments. There is actually one that is an investment company that is built to help the community and specifically help medical research. So there's a bunch of managers involved in picking the stocks for that company, and we're one of them. The managers don't make fees, but that fee is effectively paid towards those charitable endeavors in health research, health and medical research. So that would be one way of doing it. [00:37:52][52.8]

ALEC RENEHAN: [00:37:52] Well, we've had a bit of a chat about H1N1 on the show and interviewed some of the managers. And it's rare that you know, you guys at TTM, Hamish Douglass, and some of the other best investors in Australia come together and it's for a good cause. So, yeah, we're big fans of what they're doing over there. [00:38:08][15.4]

BEN GISZ: [00:38:08] Fantastic. Thanks. [00:38:09][0.6]

ALEC RENEHAN: [00:38:09] So, Ben, we're almost out of time. We do have a final three questions. We end every interview with. But before we do, if the equity markets community wants to find out more about yourself or TDM, where should they be going? [00:38:20][11.3]

BEN GISZ: [00:38:22] Well, as everyone will joke among my colleagues at TDM, they'll say I'll hide in the shadows. It's very hard to find me except I respond on the occasional LinkedIn piece. But in terms of discovering more about TDM websites, a great resource for that. There's, I believe, heaps of good content there. If you look at when we started out, you know, there's no content that Tedham produced and now we are really trying to change the way the investment community works for the better. And we really think it's our duty and service to help the finance community do better than what they've done in the past. And we want to be driving that. [00:38:56][34.1]

ALEC RENEHAN: [00:38:57] Well, I can say between yourself, Himesh, Tom, and Ed, you've definitely helped our community, so we appreciate it. And yeah, people should go and check out the TDM website. Now, we'll get into the final three questions. First one, do you have any books that you consider must-read? [00:39:15][18.4]

BEN GISZ: [00:39:17] Yeah, and this reflects my own personal style as well. You and I think one Up on Wall Street by Peter Lynch is a classic and it really plays to this view. I have that if you can understand a business as a layperson, then that's a great start. If you're going to pick individual stocks, that's almost a must-have. So it's just an intuitive, common-sense book, which I think every budding investor should read and would be a really useful resource. [00:39:40][22.9]

ALEC RENEHAN: [00:39:43] In 60 seconds or less. What's the best company you've ever come across? [00:39:47][3.5]

BEN GISZ: [00:39:48] This is a super hard question because the best company, you know, I could we've never owned Apple. But I could say, you know, Apple's one of the world's best companies because of what they've achieved. And they've shown people that, you know, who thought our hardware business and, you know, wouldn't grow as fast as I had, that actually there is a must-have software-hardware combination that's going to be here forever. And there's always going to continue to outstrip expectations. When I look at it from our point of view, what is perfect? It's a company like Mineral Resources, which we own here in Australia. And the reason I've picked mineral resources for this answer is first, what are mineral resources? It's a mining services infrastructure company which listed, you know, six years ago, basically when we started. We've owned it since that time, with about 100 million market cap at that point in time. And now it's eight and a half billion. Now you think of a mining company in the mining services industry and you think, you know, perhaps not as innovative, you know, slower growth, susceptible to the vicissitudes of the cycle and so forth. The mineral resource is one of the most innovative forward-thinking businesses that we've ever seen, and that has allowed them to continuously exceed expectations and do things that others weren't able to do. So back to my earlier point about maintaining that gap between intrinsic value and share price and being able to own something for a long period of time, their intrinsic value has continued to grow very, very fast and the share price has also grown. And that's what's allowed us to be long-term partners with them and invest in the company. [00:41:25][97.1]

ALEC RENEHAN: [00:41:26] Yeah, it's a crazy company. It is the definition of bottom left to top right in terms of share price growth. So final question. If you think back to your younger self, you know, when you're buying that first flock of sheep, what advice would you give to your younger self? [00:41:41][15.5]

BEN GISZ: [00:41:43] I think a few things I don't or don't become susceptible to overconfidence, you know, I think, you know, know your limitations and invest in your circle of competence. That's number one. Number two, you know, be around the best people that you can be around and people who are complementary to your skill set. I think one of the key ways that teams become successful is the combination of people. One plus one equals five or 10 or whatever it is. And I've learned that on boards. I've learned that in the investment sphere. And I've learned that, I guess, in social communities. And that just is something that I keep coming back to. Finalizing relates to, I guess people and culture is always the thing that delivers that ultimate positive surprise in the long term. And even now, I continue to appreciate how powerful that is. And, you know, we obviously have spreadsheets and we have research and we have all sorts of fundamental discovery tools. But ultimately, that team of people who continues to surprise and innovate and develop is what's ultimately going to be a sustainable competitive advantage. [00:42:47][63.3]

BRYCE LESKE: [00:42:49] Well, Ben, it has been, as always, an absolute pleasure speaking with you and everyone from TDM. You always provide such great value for our audience. And, you know, they certainly do appreciate what you guys are doing. So I would reiterate that if you are listening and want to know more, definitely head to the stadium website has been said. Plenty of great resources there. And you get a really good insight into how you guys are thinking so very much. Appreciate your time. And we hope to connect again at some point. [00:43:16][27.2]

BEN GISZ: [00:43:17] Thanks very much. And it's absolute pleasure to be a part of this from Tatum's perspective. We love what you guys do and we're really, really happy to support it. Thanks very much. [00:43:25][8.2]

BRYCE LESKE: [00:43:25] Thank you. Thank you. [00:43:26][0.7]

DISCLAIMER: [00:43:27] Everybody makes investing. Podcast is a product of equity, makes media. All information in this podcast is for education and entertainment purposes only. [00:43:35][7.3]

ALEC RENEHAN: [00:44:27] Bryce, with three policies here at equity markets, what's number one, we hate fees and we love brands that are finding ways to reduce fees for everyday customers. And that's why we're here today to talk about after pay, who in 2020 saved Australian customers. One hundred and ten million dollars in consumer fees and interests by using after pay rather than traditional credit cards. [00:44:53][25.3]

BRYCE LESKE: [00:44:53] That is right, Ren. It's been a great investment for me. And after pay is changing the way we pay for the better by helping us all manage our money and to take back control. [00:45:03][9.6]

ALEC RENEHAN: [00:45:03] You just had to slip the investment thing in. [00:45:05][1.5]

BRYCE LESKE: [00:45:06] Everyone knows I love afterpay. [00:45:07][0.8]

ALEC RENEHAN: [00:45:08] Yeah, well, look, you may not be able to love afterpay as much as Bryce, but you may love afterpay because you can use it online or in store and it's really easy to get started. Just head to to sign up or download the app to pay up from your app store or pay better choose after pay. [00:45:27][19.3]

BRYCE LESKE: [00:45:27] late fees, transaction limits, and eligibility criteria apply.Visit for more details. [00:45:27][0.0]


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