Expert Investor: Ed Cowan Talks Unconstrained Investing | TDM Growth Partners

HOSTS Alec Renehan & Bryce Leske|1 June, 2020

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.

You may have heard of Ed Cowan due to his success as a professional cricketer. However, what you probably didn’t know is that he has a passion for investing and high-performing cultures, and is part of the successful investment team at TDM Growth Partners.

TDM Growth Partners are a global investment firm, who invests in fast-growing companies. What was of interest to us is their unique mandate – unconstrained investing. For Ed and the team at TDM, they look for opportunities across the world, and they have very long-term time horizons.

In the conversation, you will learn:

  • How Ed pursued a passion for cricket and finance
  • The story of Ed’s side-hustle, Tripod Coffee
  • The story of how TDM started
  • How TDM took $1m to over $1bn in assets under management
  • TDM investment philosophy and approach, and what makes them unique
  • Examples of some of the companies TDM invest in

As you will hear in the show, Ed is also the founder of Tripod Coffee – Australia’s most sustainable coffee pod. Check it out here.


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Bryce: [00:00:57] Hello, Equity Mates, this is just a quick note to say that we recorded this interview with Ed on the 18th of February 2020. We just wanted to give you some context as to the recording date is a lot that's happened in finance in the markets around the world since then. We hope you enjoy the interview. Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:27][30.3]

Alec: [00:01:27] Right. I'm very good. Bryce very excited for this episode, as always. [00:01:31][3.4]

Speaker 3: [00:01:32] Exciting. [00:01:32][0.0]

Bryce: [00:01:32] Yeah, so am I. Ren we are. We're continuing our theme of the expert investor, as we always do once a week now. And this one is expert investor, crosschecks, professional athlete, which is always very exciting for us because we love delving into how that can come about. So without further ado, I'd like to introduce Ed Cowan to the show. [00:01:50][17.5]

Ed: [00:01:50] Thank you, gents. Thank you for having me. I think there needs to be a little bit of an asterisks. Definitely not an expert, just an interested investor. And lucky to be working for a great company. But this is a big moment for me because this is me ticking off the trifecta of millennial podcasts. Equity Mates is the last tick on the list. Obviously, the great cricketer shout out to my mates there and the Betoota Advocate. So, you know, this is it for me. Well, I'm [00:02:18][27.9]

Bryce: [00:02:18] glad we come in the top three. [00:02:19][1.1]

Ed: [00:02:22] Not not ranking them, but [00:02:24][1.1]

Speaker 3: [00:02:25] but if you get a ranking of the best of luck, I'll tell you and I'll tell you. [00:02:28][3.2]

Bryce: [00:02:29] And obviously we will find out throughout this interview that I'm sure you are an expert in what we're talking about for many ways, which we will discover. But for those that who are unsure about who Ed is, he's a former Australian cricketer, played 13 tests for Australia, scored over a thousand, runs [00:02:44][15.1]

Ed: [00:02:44] eighteen, eighteen, [00:02:45][0.8]

Speaker 3: [00:02:46] eighteen to contact for surprise Bryce challenge. It's my climb to find that. So that's all I'm good for. And literally, we're not here to talk more about your maths. We're not experts. That's the whole thing. [00:03:01][15.0]

Bryce: [00:03:02] Eighteen tests for Australia. Apologise. You're a non-executive director of Cricket New South Wales, co-founder of Tripod Coffee, which is Australia's most sustainable coffee pod and has been pitched to Coles and soon to be Woolworths, potentially. [00:03:16][14.8]

Speaker 3: [00:03:18] Watch this space. Watch this rise. And you have a [00:03:20][2.3]

Ed: [00:03:20] website on that, actually on what? One troubled coffee. Do you want to go. [00:03:23][3.1]

Speaker 3: [00:03:23] Oh, sorry, I about it. [00:03:25][1.2]

Ed: [00:03:26] W w w make sure you get that bit in tripod coffee dotcom. Com a deliciously responsible coffee. [00:03:33][7.3]

Speaker 3: [00:03:33] Go you [00:03:34][0.9]

Bryce: [00:03:34] go. And more importantly, though, it is part of the investment team at TEDMED Growth Partners, which is a phenomenal investment company, which we're about to delve into so very much. Looking forward to that. [00:03:45][10.8]

Alec: [00:03:45] Ed, do want to give the plug for Tatum at the front as well [00:03:48][2.6]

Speaker 3: [00:03:48] as the black and white [00:03:49][1.1]

Alec: [00:03:51] tripods where the the real magic happens. [00:03:53][1.9]

Ed: [00:03:53] Exactly. Itanium is is such a great story. I think we need to dedicate, you know, a good chunk of time there. [00:03:58][5.1]

Alec: [00:03:59] Absolutely No. One. Well, before we get into the stories and I'm sure there'll be a lot of them, we like to start these interviews with a game, a game of overrated or underrated love games. So if you're up for playing, we'll get stuck into it. [00:04:10][11.8]

Ed: [00:04:11] Yeah, I'm good for it. Just for clarity. Is it, like, overrated? I don't like it or overrated. I'm a it like what's the underrated undervalued. What's the the parameters here anyway. [00:04:25][14.1]

Speaker 3: [00:04:25] I try to take it as it comes [00:04:26][1.2]

Alec: [00:04:27] up for interpretation. Yeah. Overvalued. Undervalued is probably where we're going but take it whichever way you like. It's you know, this is your interview. [00:04:35][8.3]

Bryce: [00:04:35] This is just no neutral answers. [00:04:38][2.4]

Speaker 3: [00:04:39] I'm not a fan. You'll learn [00:04:40][1.4]

Ed: [00:04:41] quickly. I'm not a fence sitter. You don't get on the Betoota Advocate podcast caused by being offensive. [00:04:46][4.9]

Speaker 3: [00:04:46] We wouldn't know, but that's true. [00:04:49][2.7]

Alec: [00:04:50] OK, so overrated. Underrated, overvalued, undervalued. However you want to take it. The ASX 200. [00:04:55][5.4]

Ed: [00:04:56] Oh, good. You've gone straight to the big gun. You know, it's not overrated in a sense that it's obviously provided some incredible returns for many, many years. But when it comes to froth and frothiness in the market, holy smokes, it's like that poorly pulled B that you get at that dodgy pub. Valuations are the all time high. What does that fifteen record days in twenty seller so overvalued. [00:05:21][25.1]

Bryce: [00:05:22] Overvalued fair call. Yeah. I'm assuming that sentiment will flow into the S&P 500. Ditto. [00:05:27][5.7]

Speaker 3: [00:05:28] Yes. It's a it's a [00:05:30][2.1]

Ed: [00:05:30] little bit different in the States I guess in that you know, we're seeing some crazy metrics, particularly the technology companies, you know, businesses that are growing. You know, we saw Microsoft, you know, grow at fifty percent off a massive number and they obviously trading in a massive forward revenue multiple. But you can kind of see that playing out for a little bit longer, I think. But generally, the S&P 500, you'd have to put in the same bucket of. Start collecting the cash and waiting for a downturn to allocate some capital. I call that Christmas. [00:06:01][31.0]

Bryce: [00:06:03] How long would you wait, though? [00:06:04][0.9]

Ed: [00:06:04] As long as it takes. Who's in a rush and rush? [00:06:07][2.9]

Alec: [00:06:08] Bryce has been calling the crash for about three years now. [00:06:11][3.3]

Speaker 3: [00:06:13] You know, I [00:06:13][0.4]

Ed: [00:06:14] like in good investing to opening the batting. You just got to just let the bulls shone the shine off the ball. Just leave a couple and then eventually the bulls get tired and you can cash in. Nice. [00:06:25][11.2]

Speaker 3: [00:06:25] I like it. I like it. So your first career [00:06:28][2.8]

Alec: [00:06:29] prepared you for your second [00:06:29][0.7]

Speaker 3: [00:06:30] career? Absolutely. Well, and truly, [00:06:31][1.5]

Alec: [00:06:32] we'll get to that. But before we do. Speaking of potential froth, in a market overrated or underrated, the Australian residential property [00:06:39][7.5]

Speaker 3: [00:06:39] market, [00:06:39][0.0]

Ed: [00:06:41] this is a favourite topic of mine, overrated and overvalued. My commitment for the new decade was to not on any property, not throughout the decade long. I held myself to that by selling my house in the first eight days of the New Year. And I've never felt better. Wow, I never felt better. I don't think I'll ever invest in property ever again. [00:07:01][20.1]

Alec: [00:07:01] Nine and three quarter years to go, indeed. [00:07:03][2.1]

Ed: [00:07:04] Oh, I'm not much on the on the asset class generally. Never again. Probably never. Like I say, home ownership is an emotional decision. It's a bloody poor investment decision. But, you know, for a minute, from an investing point of view, I don't like it at all [00:07:18][13.5]

Bryce: [00:07:18] because you can do better with your money elsewhere. Absolutely. I love that. I think there's only two people on the show, you being the second Ed, that have answered that question that the Australian property has overrated and followed up by saying and I don't own any problem. Yeah, yeah, yeah. The other one was Paul from Bahadoor. [00:07:34][15.4]

Ed: [00:07:34] Paul Wilson. Yeah. Good person. Yeah. [00:07:36][1.6]

Alec: [00:07:37] You got the courage of your convictions. [00:07:38][1.5]

Speaker 3: [00:07:39] They were good. [00:07:39][0.3]

Bryce: [00:07:40] So you just renting. [00:07:40][0.6]

Speaker 3: [00:07:41] Yeah. Love it. [00:07:42][0.9]

Ed: [00:07:42] Absolutely. Love it. Full credit. [00:07:44][1.3]

Bryce: [00:07:44] Here you go. Love it. So overrated or underrated. The Australian Vaisse environment. [00:07:50][6.1]

Ed: [00:07:51] No I'm, I'm a buyer and the Australian Vaizey environment. Look, private market valuations are toppy, there's no doubt about that. But the joy of varices they're getting first look at a thriving Australian technology scene. And these technology companies that are being built in Australia have these massive growth profiles with these huge addressable markets. And we've seen you know, we've seen the case study of Atlassian and everyone loves pointing to that. There could be five or ten more or less Atlassian in the next ten years and then can run on the same trajectory and the bases of the first to be able to invest in these business and then follow on and follow on and deploy, you know, big chunks of capital into these businesses. And they only need, let's say, five to pay off and they make a lot of money. [00:08:41][49.7]

Bryce: [00:08:41] So VCs are out there with a bit of cash to burn. [00:08:43][1.7]

Ed: [00:08:44] Well, I don't like the term cash to burn. They've got money. They've got capital to allocate and money to deploy. There's no shortage of inflow into these funds, but I don't think there's any shortage of great businesses to allocate the capital. So I'm happy with the Vaizey environment in Australia. I think with thriving and the Australian economy will be a net benefit of that. [00:09:06][22.2]

Alec: [00:09:06] So last question in the game. Not so much an asset class, but you were a former Australian cricketer, so overrated or underrated day night tests. [00:09:15][8.7]

Ed: [00:09:16] Now I'm a buyer. I'm a huge buyer of day night Test cricket. That is the future. I think the caveat, it being that it is a different form of the game. It's not Test cricket as we know it. And so we've got to be careful to to provide a balance throughout the summer. But not cricket is absolutely fantastic. Imagine going to a four day night tests, you know, total down after work. Well, a long way from Bellavista. [00:09:41][25.2]

Speaker 3: [00:09:42] In your mind, you might not make a football star, just need a full night testing. That's exactly right. But not I [00:09:47][5.2]

Ed: [00:09:48] think it's a great wife to not only access new markets, but also very different context. [00:09:54][6.7]

Alec: [00:09:55] And if you were opening in the night session facing the new ball, you wouldn't have any dramas without [00:10:00][4.8]

Ed: [00:10:00] a best seller. [00:10:01][0.4]

Speaker 3: [00:10:03] But I made a film finish. I'm just a mere spectator. [00:10:05][2.4]

Ed: [00:10:06] I'm here for the entertainment of the contest is just periphery stuff. [00:10:10][3.9]

Alec: [00:10:10] Yeah, yeah. That's on. So before we get stuck into the journey that you've been on into financial markets, we always like to start with the same question. We find it normally has a good story or there's some good lessons in it. So we'll start with this question. Can you tell us the story of your first investment? [00:10:27][17.3]

Ed: [00:10:28] Can actually know. It was a while ago now, but I was lucky enough to grow up in a pretty business minded family and the newspaper would get delivered every day and there'd be a bit of a scramble over the sports section. And, you know, obviously on the back of the Sydney Morning Herald is the business section. And so we used a I've got two older brothers would write the business in the sport together. And so it's what I knew growing up. And I think it was ninety. Three or 94, Fairfax listed on the on the ASX and I think 12 and the offer came through. This is back in the day when you could sign your dog out literally for IPO allocations. Wasn't the crosschecks that go on these days. So as a 12 year old, I was like, I want some of this, you know, read the paper every day. It's got to be I haven't seen any other papers in this house. Something something must be going wrong with this business. So it was a great lesson of investing in what you knew. And so a good little allocation with my pocket money in the in the Fairfax IPO in 1994 was my first investment. [00:11:32][63.6]

Bryce: [00:11:33] Now, how long did you hold for can you remember? [00:11:34][1.8]

Ed: [00:11:35] I think there were a couple, you know, small divvy checks in there. But I think by the time I learnt how to drink [00:11:40][5.4]

Speaker 3: [00:11:42] and I [00:11:42][0.2]

Ed: [00:11:43] needed to access a little bit more cash for my Saturday nights, I think that was out the door pretty quickly. [00:11:49][5.5]

Bryce: [00:11:50] Is there a lesson that you learnt from that initial investment that is kind of stuck with you today? [00:11:53][3.8]

Ed: [00:11:54] It's kind of right out of the the buffet book of, oh, even Peter Lynch, I guess, investing in what you know you know, you have a core competency in a circle of competence and competency and sticking to it. And I guess that was a great example. It was a product I knew intimately from from reading it every day and something that I enjoyed and thought other people must enjoy as well. [00:12:14][20.3]

Alec: [00:12:15] We've touched on a couple of times. You started your career as a cricketer. You played for New South Wales and then Tasmania. Yeah, but also played 18 tests for Australia. Don't get me wrong again. And scored over a thousand runs. So I guess, you know, you started your investing career at 12, as you've just told us. How was your interest in finance while you were playing cricket? Was there a lot of stock chart in the locker room? [00:12:37][22.4]

Ed: [00:12:37] Plenty of Specky stock chat. And in the locker room, cricketers are always after a quick buck. So they always added a commerce degree at Sydney Uni and played cricket for university and then worked in an investment bank for a little bit and then ended up doing a massive finance while my cricket was going on. So in the change room, I think people saw that as a bit of a flag of if I need any kind of financial advice, I'm going to go to Ed, which usually was when they come and say, I'm thinking about buying off the plan apartment in Blacktown, what do you reckon? And I'll be like, Who told you that you should be doing this? I am. My manager told me this book, you know, the manager's getting a kickback here and, you know, knows that the developer that I'm like, this is the single worst idea you've ever had. Say these things called ETFs. Go check every single dollar that you have in one of those and and watch it grow over the next ten years. And don't touch it. [00:13:29][52.1]

Alec: [00:13:30] No one should have offered to manage their money for them. [00:13:32][2.3]

Bryce: [00:13:35] So while you were still playing cricket, you co-founded the business Tripod Coffee, as we mentioned at the start of the show. Can you tell us a bit about that business? And also, I mean, what it was like starting this entrepreneurial journey? [00:13:47][12.0]

Ed: [00:13:48] Yeah, well, it was as I said, business was kind of in my blood. And I always had this inkling that I wanted to do something for myself. And cricket provides a great opportunity in many senses. If you're not playing, you're trying for a couple of hours a day, you have a little bit of disposable income. Why wouldn't you kind of invest in yourself? And whether you're studying or, you know, starting a business, I felt like a bit of a real life MBA to prepare me for the real world, so to speak. So I just took a bit of a punt with the guy I was opening the batting with. Steve Castellino, [00:14:18][30.1]

Ed: [00:15:42] We both love drinking coffee. We hated the sustainability issues that Nespresso was creating at the time. We thought, you know, let's get into this. And it's one of the great decisions I ever made. I've learnt so much about the business world that one thing is learning about it at university, doing a bit of accounting here, bit of spreadsheet work over there. But when it's your own money and it's your own business, you're deep in strategy, accounting, marketing. You're doing it all literally right through to customer service. You get a great education in the ways of the world. [00:16:18][36.0]

Bryce: [00:16:19] What do you think is your sort of weakest aspect that you mentioned? Strategy, accounting, marketing, and how do you sort of think about that? [00:16:26][7.1]

Ed: [00:16:27] Yeah, so I think we're lucky now. We've got a great team where everyone's skills complement each other, so and you find that you outsource a lot. So the guy that drew our packaging, for instance, was a designer that we found online on designs who lived in Slovenia. You know, you have a three that dispatches, you know, so you just kind of call on the best of all breeds to try and pacy business together. I think we're now in a really good place that we have some some great experts around the business. And the you know, the great thing that I've loved about the business is how we have continually innovated to try and create a competitive advantage. And, you know, we're a great place at the moment. We've got the only certified compostable capsule in Australia. We can turn those capsules into electricity and organic fertiliser. They can go and grain council bins. Coffee's amazing. So from where it was born from, which was let's try and get a product that is environmentally sustainable. People enjoy drinking. It's taken of five, almost six years to get to this point. And it's a great lesson that things don't happen overnight. And when you are trying to build a business and the same principle goes for these businesses that I'm investing, well, you know, helping think about it at TDM and TDMA or investing in or you invest in the side that you've got to think like that business owner and and to build businesses takes a long time. And that's why you need to be investing for the long term. [00:17:52][85.6]

Alec: [00:17:53] Now, you mentioned TDM and we're keen to get into it, but we said we'd let you plug the coffee. So if people are interested in picking up some tripod coffee, where where can they go? [00:18:03][10.3]

Ed: [00:18:03] Well, obviously, you've probably done a Deep Dive in direct to consumer brands. We have a [00:18:08][4.3]

Speaker 3: [00:18:08] high functioning website, top of the list, tripod, [00:18:11][2.4]

Ed: [00:18:11] coffee, dotcom that I you you know, we'll ship it to the next day and then hopefully you're happy. Don't forget to get your reply paid, Leibel, so that you can turn your capsules into into fertiliser, like I said. But if you live in Sydney and you have a Harris farm nearby, you can pop into one of those layers, find food in Melbourne or Hill Street, grocers in Hobart, some of the five star hotels around the country, actually US [00:18:36][25.3]

Alec: [00:18:37] Bryce and I are looking forward to our free samples after this interview [00:18:40][2.3]

Speaker 3: [00:18:40] for a lifetime supply. [00:18:42][1.8]

Alec: [00:18:44] So you touched on today and was saying before this podcast that stadium seems to be the classic example of all the lessons that we've picked up in doing this podcast. So to start the discussion of TEDMED, can you explain their investment philosophy? [00:19:00][15.6]

Ed: [00:19:00] Yeah, sure. Let's get into this, because this is interesting stuff, and I think you and your listeners will appreciate this. So Tedham was founded on a deep belief that if you own a share in a business, whether it be one or a million or ten million shares, you are an owner of that business. It's not a piece of paper. It is a piece of ownership of a business. And you need to think like a business owner. And so with that in mind, they set a fund up Himesh, Tom and Ben with no restrictions. So to find the best companies around the world, run by the best management teams, but most importantly, with no time horizon locking them into how long you could invest. So it's an evergreen pull of capital that we have been allocated by 20 families. And so that pool of capital can be allocated over a very long time horizons with the mentality of being a business owner, which means two things. It means that you can ride the ups and downs. It means you can when things go badly, you can actually allocate money into the business, which is just a great time to be buying and also means if prices are outrageous, you can manage your portfolio as well. You're not being marked on these quarterly, you know, mark to market the institutional funds are. And so you can take really long term views. You can invest in private companies, you can invest in public companies. You can transition a company from the private markets to the public markets and still hold them for a very long period of time and the public markets. And you can help create the value over that period of time. And so it's this really beautiful model that is exactly how investing should be done. No restrictions over a very, very long period of time. [00:20:49][108.6]

Bryce: [00:20:50] The story of how TTN started is is an interesting one. We. Editing in a Forbes article started by your brother. Yeah, it was, yeah, yeah. So can you give us a bit of a background of how that happened and the growth story since then? Because you started with a million bucks and now you've got a billion. [00:21:07][17.8]

Speaker 3: [00:21:10] It sounds ridiculous. So crazy, right? Yeah. [00:21:12][2.3]

Ed: [00:21:13] So Tom Amadei, our brother, who I shared a bedroom with up until, was sort of 18. He was working at Investec. The investment bank had always been a passionate investor and his best mate, Himesh, who went to school with since he was four, you know, been a passionate investor, I'd grown up with this thirst for it. And Tom actually got a chronic back issue and he had to leave work. And he thought, well, it was 25 at the time. It's like I've always wanted to start my own funds management business. Maybe now's the time. So he started in a flat in in Sydney. It was just him at that point in time. And Himesh came across pretty soon after, but he was lying on his back. You'd go over there, broker reports up to the roof and it was just him allocating money. And the you know, there was one client and then there was two and then there was three. And it's really been the same clients all the way through the tedium journey. And the key to being able to allocate money over long periods of time is this evergreen pull capital. So these families and the trust that they have put in Tom, Hamish and Ben and now the great team of 20 to do this is remarkable. And so, as you say, it started with a million dollars and it should have been a few inflows, but not many. But it shows you the power of compounding. So the funds grown at 25 per cent a year for the last 15 years. And now, you know, I think last week cracked a billion dollars [00:22:42][88.7]

Alec: [00:22:43] for a good time to be speaking to you just after you cracked a billion. [00:22:46][3.5]

Ed: [00:22:47] And even the little things that they had a belief that the the industry could do things better. Little things that there's there's no management fee. It's performance only. So 100 percent incentives are aligned. If Tedham clients don't make money, no one in the business makes money. And so people are hustling every single day. And it's that same mentality. Every employee is thinking like they're an owner of TDM. And conversely, every time they're making capital allocation decisions, they're thinking through that ownership lens as well. [00:23:18][31.5]

Bryce: [00:23:19] And so what's the process of letting, I guess, these families or investors come into the business and give you capital? [00:23:26][6.7]

Ed: [00:23:26] Yeah. So it's now closed to a degree that have been what you'd call probably strategic assets in terms of the client, people that can either sit on a board on our behalf or act on advisory committee, really add value to the network. Interestingly, of the 20 clients, maybe half a billion sort of billion dollar businesses themselves. So they understand the longevity required to build great businesses and the importance of investing for the long term. So that's a very different mindset. And I think they've probably allocated money on an intergenerational basis. There haven't been any redemptions in 15 years. Wow. During the GFC there were only inflows. So, you know, very sophisticated people that understand the value of allocating money at the right time. It's just a very, very different model. It is unique. [00:24:15][48.7]

Alec: [00:24:16] I think that is pretty phenomenal. And there probably wouldn't be many funds in Australia or potentially the world that could claim that that they haven't lost an investor. It's a testament to the performance. [00:24:26][10.3]

Ed: [00:24:26] If you start underperforming, I think they start asking questions, but I think it actually runs into the trust that they have in the business and how that trust battery really been built out over many, many years. And also for them, having most of them built business themselves, as I said, understand the ups and downs. And so as opposed to if you're an institutional fund allocating money and you have a bad quarter, everyone's pulling out, everyone's redeeming, which is probably the wrong time to redeem anyway, because if the market's down, you should be putting money in. But anyway, the world's upside down. And so without that, people are very happy to take long term views. Yeah. [00:25:05][39.0]

Alec: [00:25:06] So I guess if we get out of the abstract, because I'm sure there's a lot of people listening, thinking you've hit 25 percent compounded growth for 15 years. That's the best of the best level if you can keep it up. Yeah. What are some of the companies and what are some of the investments that have allowed for this incredible growth story? [00:25:23][16.6]

Ed: [00:25:23] Great question. So without any restrictions where we invest in Australia, we we can invest around the world. So I'll start in Australia and and probably with a few businesses that than most of your listeners or some of your listeners would have heard of. Baby Bunting is a great TDM case study and you guys probably haven't shopped there yet. [00:25:41][18.2]

Alec: [00:25:42] That was that was Bryce stock of the year last year. He's been crowing about it for a while, so. [00:25:46][4.3]

Speaker 3: [00:25:46] Well, there they go. [00:25:47][0.9]

Ed: [00:25:48] So we're owners of that business for just under ten years. Four years and in the. I'm sure I'll get some timings wrong here, but for years in the private markets and almost when those five and a half in the public markets, so I was able to I think six stores when we invested initially went in, helped really scale that business from a process point of view and help that growth story play out, reinvigorated the board. There's a fantastic CEO in Matt Spencer who an absolute 12 out of 10 great CFO really built that team out and helped shape that. Tom went on the board, listed the business, and then held it for a long period in the public market. So I think over the course of that 10 years, I think we probably did maybe 10 times our money. So, you know, supernormal returns. So that's provided a big chunk of our returns. Most recently, Tyro, which was the second biggest technology listing ever on the ASX. You were the second largest shareholder with Mike Cannon-Brookes and Tiger Global again invested four years ago in the private space, helped build that business, really scale the processes. So, you know, that business saw a few sort of hiccups. Himesh went on the board and he and the rest of the board members and Robbie Cooke phenomenal say a list of the business. And now it's it's racing away in the public market. So that's another great case study. But so consumer business, technology, fintech software business. So, again, no restrictions as to what we can invest in other businesses that we've been investing in for a very long period of time. Mineral resources. I think Stadion bought shares in the IPO 15 years ago, 90 cents currently trading at nineteen dollars. Well, and we think and can be a much bigger business run by a super entrepreneurial high calibre executive in Chris Ellison. So the investment philosophy that comes out more than anything is we are investing in people to allocate capital on our behalf. So when you own the business, you are backing the CEO, you're backing the board, and you're back in the senior executives to grow these businesses over long periods of time. And getting the people right is just such a key tenet of what we believe. So there are three business Gruzman Gomez, I hope. Yeah. [00:28:11][143.4]

Speaker 3: [00:28:11] Oh yeah, yeah, yeah. It burrito's we're the [00:28:15][3.2]

Ed: [00:28:15] largest shareholder in that business and that's just an absolute freight train as well. And then in the states, software businesses like Mind Body LMI, which you may or may not have heard of, and Spotify. [00:28:27][11.7]

Bryce: [00:28:28] So Eddie said at the start of the show that understanding your circle of competence is important. One of the lessons you learnt early on, if you have a philosophy of no restriction, anything you can invest in, what is the process that you guys go through to ensure that you're you're still investing, I guess, within your boundaries and understanding? [00:28:46][18.8]

Ed: [00:28:47] Great question. So I think over the 15 years, while we have invested in a whole range of industry software and online, probably the majority of work, probably consumer and probably health care of you to kind of swallow them, we would say that we have a strong circle of competence or degree of competency in those industries, but that hasn't stopped us investing in great businesses run by great people with great growth opportunities, with a large margin of safety at great prices that we can say can have great outcomes over a long period of time. So it's a question of really getting to know the business. And I think over the course of 15 years, we've probably only made 58 investment decisions. So it shows you that there aren't many companies that have invested in and when we like the look of something and it passes that initial sniff test, everyone will run at it, you know, so you have ten, ten members of the team trying to get their heads across absolutely every detail of this business. So it might be outside what we would probably describe as a circle of competency. But by the time ten people run at something for, you know, for three months or four months, you can get a pretty good idea of the industry. [00:30:06][78.7]

Bryce: [00:30:07] So it's just as simple as someone in the team has come across a business that they think might be worthwhile. And then you just attack it at once and say what happened? [00:30:14][7.8]

Ed: [00:30:15] Absolutely nice. [00:30:15][0.7]

Alec: [00:30:16] Can you tell us what that looks like? What is ten people running at an idea for three or four months? Look what we [00:30:22][6.5]

Speaker 3: [00:30:22] can go out there and try [00:30:23][0.5]

Alec: [00:30:25] eating a lot of goodwill. [00:30:26][0.7]

Ed: [00:30:26] And that I mean, there's a whole spectrum of information that gets gathered, but obviously there's all the public market information. If it's a listed business that is easy to gather and you build a model and the usual kind of stuff, but then you're calling customers, you're doing reference checks on all the executives. You're trying to meet the executives if you can. There's a whole range of work that goes in, particularly around that people in culture, space, because that's the hardest to diagnose. The rest you can kind of piece together pretty quickly, but spending time with management is a massive part of any part of our due diligence programme. [00:31:02][36.2]

Alec: [00:31:03] So I think one thing that I noticed when you were talking about those stories is that you guys take large stakes in businesses. Baby bunting was over 40 percent and you were the largest shareholder in Gozman and Gomez. Yeah, it seems like when you're convinced of something you are hard at it. Is that is that part of the philosophy? Well, it's a [00:31:22][18.7]

Ed: [00:31:22] high conviction game investing at any one point in time. The portfolio only has 10 to 15 businesses in it. So if you're allocating a big amount of money now, in the case of trying to allocate a billion dollars, particularly in Australia, there aren't many businesses that can absorb that. And sometimes you get yourself in a situation in a listed sense that you might own 25 percent. That's quite a liquid for you in a private sense, obviously very illiquid. And so it doesn't really matter how much you own because maybe at the IPO you might slow down a little bit. You might, in fact, like we did in TIRO, add to our position so it can get tricky when you're dealing at scale. But you're right, particularly in a private sense. We're what we call sort of chunky. Minority investors will never control investors like a private equity fund is that you can always have that lever of control to pull if something's going wrong. And we're trying to actually work with management hand in hand without ever having that, we own 55 percent. So you'll do what what we tell you to do. [00:32:24][62.1]

Bryce: [00:32:25] We know a company that's looking for some cash. It's called Equity Mates Media. So if you're looking to allocate that billion [00:32:30][4.7]

Speaker 3: [00:32:30] dollars further, we could do a [00:32:33][3.2]

Ed: [00:32:33] little horse trading, a little tripod [00:32:35][1.6]

Speaker 3: [00:32:36] coffee on the show. [00:32:36][0.5]

Bryce: [00:32:37] And I'm really interested in the people part because we speak to a lot of small cap fund managers as well, and they heavily rely on going out and meeting executives and speaking with the team. To to your point, you can understand the financials pretty well, but it's the people part that makes a big difference other than being good capital allocators. What are some key characteristics that are important to you to tell them? [00:33:00][22.4]

Ed: [00:33:00] Great question. Again, it depends. We invested a lot of founder led businesses, and so you'd say one of the key attributes that probably most of them exhibited is just this grit and this hustle. And it's it's almost innate in them to this vision to build a big business. And they will do anything to do that. And that shared value, they want to do it the right way. They're not interested in growing too fast. If it blows up the systems that they they know that over the long term, they need to build a really durable business with great competitive advantage. And that's going to take time. So that's probably in the private market. In the public market, I think, you know. It's kind of odd that you find yourself assessing people when you're not an expert in assessing people, but, you know, basic traits like a shared belief system, empathy, modesty, you know, a massive red flag is a CEO that uses the word eye and, you know, isn't a team player or doesn't isn't perceived to be a team by way. You know, sometimes if we make a bad decision on a business, it's because of the people every time. And, you know, while we have compounded money at high rates, we have made mistakes. But often those mistakes, a buffet out by a nice margin of safety on entry Bryce. So it is certainly our judgement on the people in the business is probably the biggest decision that we make [00:34:34][93.4]

Alec: [00:34:35] without throwing any company or anyone under the bus. Can you tell us the story of one of the mistakes and what you learnt from it? [00:34:43][8.0]

Ed: [00:34:44] I'll probably probably I won't get the sack. You know, it's like mentioning the word Voldemort, but there was a business that was listed in the state's tea business. I'd give you the name, [00:35:02][18.7]

Alec: [00:35:03] not a coffee business. [00:35:04][0.6]

Ed: [00:35:05] And the the guy who was running the business was founder of Tik-tok, you know, really turned on the charm. An alderman, you know, for all intents and purposes, just seemed like a fantastic person. But when push came to shove, he didn't at all act in the best interests of shareholders. And so business was was a little bit of a basket case. But I think a thing I could be wrong. We've lost money on three occasions and that was one of them. [00:35:34][29.3]

Alec: [00:35:35] That's it. In 15 years. [00:35:36][1.1]

Speaker 3: [00:35:36] Well, that's pretty good track record. I've done more than that this year. I don't I say that on the side. [00:35:42][5.9]

Alec: [00:35:44] I'm interested. You said 10 to 15 stocks that are 10 to 15 positions, not not all stocks if they're private. I imagine if you're holding for the long term, you get very close to the founders. You get very close to the management and the board, and it becomes a very difficult decision to then manage that portfolio and decide to sell one position. And because you found a better a better option. Yeah. What's the process there and how do you manage that? [00:36:09][24.5]

Ed: [00:36:09] That's probably one of the most asked questions that if we made a sale, a family, they ask that question as well. And I guess the best way to answer it is to give the baby bunting case study. So 10 years invest in a fantastic business, still a great business, still will continue to grow and eventually be a mature retailer. But I guess if you're trying to compound money at 20 percent and your businesses don't have any debt, you need to be growing topline revenue at 20 percent or more. And so those businesses that way have been invested in for a long period of time, have been on the board maybe, as you say, worked hand in hand with these CEOs. It is a very hard decision, but eventually it becomes a very easy decision because you can say, well, is this business going to keep growing at 20 percent or more in the foreseeable future? And baby buntings case, they kind of made the decision that they weren't going to go internationally and so they were eventually going to become a mature retailer. And then it's a question of, well, at what point in time? Ideally, you want to leave something on the table for the person that is buying the shares off you. When you own a large portion of the business, you don't want to be tapping out and buying known as the business that when you're selling is the time to be running. So when we sold Baby Bunting, the people that bought our shares, whether mum and dad investors or institutional investors, probably [00:37:35][86.1]

Alec: [00:37:35] Bryce [00:37:35][0.0]

Speaker 3: [00:37:36] Bryce you still would have made, was that one hundred million positions? [00:37:39][3.3]

Ed: [00:37:41] You have still done well and will continue to do well, but probably just not at the rights that we are looking to to compound our money. So it's still a fantastic business. We're still very close to the management team and it's a long term relationship, but it is hard [00:37:56][14.7]

Bryce: [00:37:57] with an interesting environment in the public markets at the moment. But some still, I guess, great areas of opportunity. What sort of sectors at the moment are exciting you? [00:38:10][13.0]

Speaker 3: [00:38:10] Yeah, aside, if [00:38:15][4.7]

Ed: [00:38:15] you've got any areas of opportunity, I'm happy to hear them because I feel particularly in Australia, it feels very full. Mm. I think the opportunity and you know, the ASX loves probably overvaluing technology business more than any other, more than any other exchange in the world. But you can't have and it's not my idea, but every business is becoming a software business and the great companies of the world are going to be technology businesses moving forward. And so if you find a great technology business at a fab. Ross Garnaut. Yeah, but it's very hard to find those fair prices in Australia, you look at the great technology business and that they're trading at some crazy numbers. [00:38:55][39.9]

Alec: [00:38:56] I'm interested in how you think about that, because you're in this situation where it seems like everything is overvalued. You know, public markets are overvalued, Vaizey seems overvalued, private equity seems overvalued. You guys have built this track record of twenty five percent year on year returns. You've got more money than you ever need to manage before. It's like you've made this impossible bed that now you're going to sleep in. So how do you think about that? [00:39:21][25.0]

Ed: [00:39:21] It is going to be hard to compound that scale and it's something that we talk about. But I think there are two ways. One is to be very strategic with when you allocate capital and the joy of not having any life of fun is you can hold cash for very long periods of time. And we have in the past and even if we're compounding money at 20 percent, as we have in some years, we've held like up to 50 percent cash. So to be able to deploy that cash when the market is off 30 percent in four days in the states, you know, software like at the end of twenty eighteen, every technology businesses are 40 percent in a week, like happy days. This is absolutely brilliant for us. Cash, you're in and you can you can make your returns very quickly so you can actually find opportunity if you're patient and if you're not always fully invested and you're managing your portfolio accordingly. And then the other side of the coin is investing in these private businesses where the price doesn't move. If you if you can find great businesses and develop relationships at a good price, at a fair price, and you're taking a long term view, that price doesn't change for four or five years notionally until it lists. And so you can you can make great returns that way as well. So that makes sense. [00:40:40][78.8]

Alec: [00:40:40] Yeah, definitely. Yeah, yeah, yeah, yeah. So you mentioned the PayPal side of it and it seems like you've created something on the side that really complements your exploration of finding good people and finding good managers, which is you've joined the ranks of finance podcast hosts and you're interviewing some of Australia's biggest CEOs with your podcast scaling up. So can you tell us about it? And can you tell us some of the lessons you've learnt from speaking to these managers? [00:41:07][26.6]

Ed: [00:41:08] Yeah, so it's been a fun project. So we we did a first series and just about to record a second. But the idea was to interview these great CEOs or founders or, you know, executives that have, you know, in Gaza's case, turned around business the size of Kmart because there's so many nuggets of gold that people who have lived through these experiences can provide. And each one has a different story that scaling businesses is about. Sure. Scaling processes, finding a great growth opportunity in a big market. But more than anything, and this is what I think comes through, is scaling the people in culture space, because going from five people to five hundred people to five thousand people, it sounds almost mind bogglingly impossible if you're not a great people person, a great leader of people, because so much can get lost in in the darkness of that exponential growth. And so I guess the crossover where I found was I felt like I'm almost not an expert, but I lived in high performance teams for almost 20 years in professional sport. And so there was kind of this natural crossover to entertain these conversations with these people around how they've built their teams and then, you know, throw into the mix Tatums deepest belief, which is at the end of the day, people and culture is, you know, probably the greatest competitive advantage you can have. It's kind of made for a nice podcast series to really explore particularly those kind of issues and then other lessons to learn from these people. Again, you touched on before, but the grit and the hustle required to start your own business and grow it from zero to 100 million or zero to a billion dollars. Is so inspiring, and I interviewed Kate Morris, who had a great story, she just sold, I think, 60 percent of her business to Quadron private equity firm for a very big number. But for the first 10 years of her business and it's been going almost 20 years adorability, no sales like people saying, what are you doing, Kate? This is this is crazy. This online beauty thing isn't a thing. And, you know, twenty thousand dollars with sales, one year, 50, the next hundred hundreds not making a living who had a mortgage, invested everything she had. Next minute she was just ahead of her time. The Internet blows up basically when it comes to consumer behaviour and shopping habits. And next minute she's got a hundred million dollar business. So nothing gives me more inspiration than hearing that stories. [00:43:45][157.8]

Alec: [00:43:46] You mentioned that you were in high performance times in state and national cricket. So I guess my question is, what can businesses learn from the high performing sports teams that you've been a part of? And similarly, what should the Australian cricket team learn from companies that you're investing in now? [00:44:03][16.7]

Ed: [00:44:04] That is a good question. I think for many, many years, business always look to sport to see what they were doing, particularly around, you know, culture, culture, business, culture wasn't really a thing, but sport, culture was a thing. You know, it was team spirit or whatever. And in sport, there was always this idea that the sum of the parts, you know, could be completely greater than any individual hole. And so business learnt that, I think. And you'd always have the sports coaches going in and the kind of lessons that they would, you know, be expanding a pretty basic around hard work, perseverance, having a shared set of beliefs, people putting the team before the individual, which is really common, particularly in cricket. That's very important. People doing their job, buying deeply into their role. You know, the halfback job isn't to pack the scrum or score in the corner. It's to pass the ball. Those kind of sporting analogies were thrown around the business world almost a bit too loosely. I think the tables have almost turned in that businesses have caught up in a sense that they've understood, particularly those businesses have grown really quickly and they've had to scale their their teams really quickly. They are actually now the latest in how to do this and sports now catching up to them and great entrepreneurs who have built great technology businesses are now the voice on how to build great cultures. And so, you know, yeah, look, I further than the Australian cricket team and the drama they went through in South Africa and then rebuilding that culture was at the heart of everything they did, but they certainly took lessons from a whole range of people. [00:45:47][103.1]

Alec: [00:45:47] Fascinating lesson for businesses. Don't use sandpaper [00:45:51][3.4]

Speaker 3: [00:45:53] unless you have money. [00:45:53][0.6]

Bryce: [00:45:55] So we've approached the final three questions that we always ask our guests at the end of the show to close it out. But just want to say a massive thank you for your time. It's been a fascinating conversation. Love talking about this side of the markets. It's not something that we often get to talk about. And it is very inspiring, something that obviously I like and I would love to get into. So if you're looking for someone [00:46:17][21.9]

Speaker 3: [00:46:18] looks like you. [00:46:20][1.1]

Bryce: [00:46:21] So the first of the final three is do you have any must read books, investing or otherwise? [00:46:27][6.1]

Ed: [00:46:29] That's a deep question. I think from an investing point of view, there are there are a couple of must reads just from a pure building blocks foundational point of view. And that's anything that Buffett has written. Yeah. Graham, pretty good starting point. Peter Lynch, you know, these guys are what you'd call foundational books to really build your knowledge on. And once you kind of got the idea, if you coming in completely cold, I think interesting books that I think it kind of must read from a business owners viewpoint. If someone like a Jim Collins Good to Great is a phenomenal book around business strategy and understanding. Now what makes great businesses? And then when you kind of move through the pyramid, if you if you're looking at it like that, if that's kind of the middle block, then you get to the pointy end. And that's the really kind of nice things around psychology. Danny Kahneman thinking fast and slow. And I think that Gladwell writes that might challenge your own biases and, you know, so and your own decision making framework and your mental models and these kind of things, I think are a really interesting. But if you're a keen investor and is only one thing you never read is probably why [00:47:40][71.0]

Alec: [00:47:40] didn't you write a couple of books? [00:47:41][1.2]

Ed: [00:47:42] I've written a book, yes. [00:47:43][0.8]

Speaker 3: [00:47:43] Yeah, yeah. [00:47:45][1.8]

Ed: [00:47:46] That's I don't think that books for everyone. That was my own personal diary of a cricket season. There's some psychology in that. Let me. That was a. Doc doxies and I couldn't hit the ball off the square, but I think this day and age, look, I think we live in an age where it's never been easier to teach yourself anything with the joy of podcasting, whether it's this one or, you know, invest like the best, which is just a phenomenal cracking podcast, phenomenal podcast. You can basically teach yourself about anything really quickly to top speed. You can get information super quick and move on. So whether that's in an audio book or a podcast. So, you know, I think you just encourage people to open their eyes and their ears and their minds and you can, I think, gain a bloody good level of knowledge pretty quickly. Absolutely. [00:48:37][50.5]

Alec: [00:48:38] So the second question we like to ask is, what's your go to source for investing information? [00:48:43][5.0]

Ed: [00:48:43] That's a good question. Again, I think go to a source has to be the earnings calls, you know, the quarterly earnings calls or the earnings reports that companies are putting out. Because if you are having any of your judgement clouded by broker reports and analyst reports, then you're not doing your own work. And so you need to be making up your mind, your mind, not what the market's thinking. I mean, there are two very separate answers. And so you need to come to your own conclusions. And the best way of doing that is, is getting the source information yourself and working through it. [00:49:17][33.4]

Bryce: [00:49:17] Yes, separating the noise is is sometimes the often very [00:49:20][2.9]

Ed: [00:49:20] difficult that's the game. [00:49:21][1.0]

Bryce: [00:49:22] So to close it out and thinking back to when you made that first investment in Fairfax, [00:49:26][3.9]

Ed: [00:49:28] what did Jack Cowin, the Jack Russell he grew up [00:49:31][3.2]

Speaker 3: [00:49:32] in, still holding, still holding? [00:49:36][4.4]

Bryce: [00:49:38] What advice would you give your younger self thinking back to that period of time? [00:49:41][3.5]

Ed: [00:49:43] I'm a big believer in financial literacy and the power of understanding the basics, whether it is, you know, understanding how much you have to repay on your home loan on a post-tax basis, little things like the what is the if I was to rent, what is the post tax return I need to achieve where I'm better off, you know, basic little sort of maths that you can apply to your life to make sure that you are in a better financial situation. And so not when I was 12, that would have been a bit complex, [00:50:13][30.0]

Speaker 3: [00:50:14] but I would have [00:50:15][0.9]

Ed: [00:50:15] probably tried to tell myself about the power of saving the very powerful power of compounding. [00:50:22][6.8]

Speaker 3: [00:50:23] Mm hmm. [00:50:23][0.3]

Bryce: [00:50:24] Absolutely. Great advice is the eighth greatest wonder of the world. [00:50:27][3.5]

Speaker 3: [00:50:28] And I was wondering. [00:50:31][3.0]

Alec: [00:50:31] Well, so, Ed, thanks for taking the time today. If people are interested in learning more about yourself or titanium or tripod coffee, where can they go? [00:50:42][10.7]

Ed: [00:50:42] The tripod coffee website, troubled coffee dotcom. Today, you you can bring me a note on LinkedIn. You can check scaling up out on Spotify or Apple podcasts. You can leave a review there. I'm pretty good at getting back to people and TTM for people that are interested in investing, sign up to the newsletter that is absolutely full of phenomenal content. And so I would definitely, definitely check out Tedham Growth Partners Dotcom. [00:51:08][25.6]

Bryce: [00:51:09] Now as well, as we said, an absolutely fascinating conversation, thank you for joining us on the show and looking forward to catching up. And it was time to say when you hit the peak, to be at current growth rates could be next week. [00:51:24][14.2]

Ed: [00:51:25] Well, I'll be buying you guys a studio. [00:51:27][1.7]

Speaker 3: [00:51:28] Well, right now I feel awful, [00:51:32][4.4]

Bryce: [00:51:33] but a massive thank you. I really appreciate your time [00:51:35][1.9]

Ed: [00:51:35] because I absolutely loved it. Thanks for having me. [00:51:37][1.6]

Speaker 5: [00:51:38] Thanks for listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything you hear in Equity Mates investment podcast is general advice on the content has been prepared, not knowing your personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment Podcast, May 19 positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:51:38][0.0]

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