Expert Investor: Tim Samway – 25 years searching for disruptive businesses

HOSTS Alec Renehan & Bryce Leske|23 June, 2021

Meet your hosts

  • Alec Renehan

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

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

Tim is the Executive Chairman of Hyperion Asset Management, a $10 billion Australian fund manager investing in the highest quality companies at reasonable valuations. Tim has worked at Hyperion for over 25 years, including as Managing Director from 2012 to 2019. Hyperion has recently won two Fund Manager of the Year awards and the Hyperion Global Growth Companies (Managed Fund) (now listed, ASX: HYGG) has returned 23.2% since inception in 2014, outperforming the benchmark by almost 10% p.a. 

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Alec Renehan: [00:00:00] Bryce, on the show, we often talk about how crypto curious, here we are. Oh, we are interested to watch this asset class develop, despite the fact that a lot of heat has come out of the market. Ailun stopped buying. Well, he hasn't stopped tweeting. He he had a Baby Doe's song tweet earlier this week, so he's still toiling away. But look, there's, there's so many platforms out there. There's so much choice out there. We've had a look at a number of them. And we and when I say we, I mean equity mates, users, swift x when we want to buy crypto for our company, Treasury. [00:00:42][42.4]

Bryce Leske: [00:00:43] That's right, Ren. We have snuck a little bit of crypto onto our balance sheet here. It actually makes 3using swift x, Australia's fastest growing crypto trading platform with over two hundred and twenty different crypto assets. So plenty to choose from. They have tiny spreads, low fees and allow you to deposit via bank transfer, credit card or PayPal and Ren. The best news is, as you said, with markets a little bit lower than they have previously been. If you're looking to deputize into the water, Swift are offering 15 points of Bitcoin to every person who signs up by heading to Swiftx.com that you equity mates that swiftx.com/equitymates for fifteen dollars of Bitcoin. [00:01:22][38.9]

Bryce Leske: [00:01:38] Welcome to another episode of Equity Markets, 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 the barriers to your investing journey from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy Ren. How are you going? [00:01:55][16.3]

Alec Renehan: [00:01:55] I'm very good, Bryce. Very excited for this episode. We've recently come off the ASX week on the podcast where we spoke to five of the hosts from the ASX Investor Day. We loved it so much. We've we've got a sixth with us today. [00:02:11][15.6]

Bryce Leske: [00:02:11] We have. It is our pleasure to welcome Tim Samway to the studio. Tim, welcome. [00:02:14][2.8]

Tim Samway: [00:02:14] Thank you. Thank you for the opportunity. [00:02:16][1.1]

Bryce Leske: [00:02:16] Tim is the executive chairman of Hyperion Asset Management, a ten billion dollar Australian fund manager investing in high quality companies at reasonable valuations. Tim has worked at Hyperion for over 25 years, including ACMD from 2012 to 2019. Hyperion has recently won to Fund Manager of the Year Awards and the Hyperion Global Growth Companies Managed Fund. Now listed on the ASX. The ticker is H. Why GE has returned twenty three point two per cent since its inception in 2014, which is outperforming the benchmark by almost 10 per cent. It doesn't. It does. [00:02:53][36.9]

Alec Renehan: [00:02:54] Well, you say it like that. [00:02:55][1.0]

Bryce Leske: [00:02:57] Yeah, I mean, pretty impressive CV there, Tim. So we're going to crack into a bit of an intro, as always, and have a chat around global markets and then a bit of a deep dove on square one of your companies that you pitch to the ASX Day. So let's kick it off with the game. [00:03:10][13.3]

Alec Renehan: [00:03:11] Let's do it. So Tim are overrated or underrated? We'll throw some themes out there. You tell us your thoughts on them. Right. We'll start at home with our major index here, the ASX 200 over overrated. [00:03:23][12.5]

Tim Samway: [00:03:24] So why our index is full of old-world companies. And, you know, we just think all well companies are going to struggle in the next ten years. It's a world of innovation and businesses that aren't reinvesting in intrinsic growth and actually delivering innovation. They're going to struggle. So businesses that rely on underlying GDP growth, I think are going to find it pretty hard over the next 10 years, because in spite of the fact we're in a short term rotation, looking good, bit of a bit of short term growth, the long term is still looking pretty average. [00:03:53][28.9]

Bryce Leske: [00:03:54] Mm. Overrated or underrated. The Nasdaq 100 [00:03:56][2.6]

Tim Samway: [00:03:57] pretty much the same story. Global markets are full of global businesses. That's how they got there. So, yeah, I'll just repeat the same story globally as domestically. Yeah. [00:04:07][9.8]

Alec Renehan: [00:04:08] Well, if we go from the Old World to the New World, overrated or underrated Bitcoin and cryptocurrency. [00:04:12][4.7]

Tim Samway: [00:04:13] And so I still haven't worked it out. I mean, I actually do own some crypto myself. I own some stellar and some bitcoin. And I my son wants me to buy Dogecoin. I can't quite do that. I've own file coin. I'm just doing it to watch it. I think it's still I think it's still in speculation stage. I think it's it's still a solution. Waiting for a problem. [00:04:42][28.4]

Bryce Leske: [00:04:43] Mm mm. Overrated or underrated. The idea of full service brokers. [00:04:47][4.9]

Tim Samway: [00:04:48] Oh well I think it's still a real need for full service brokers. You know, like a lot of people want to go online and just do it themselves. But, you know, I, I actually started my career. I mean, I'm a chartered accountant for the first nine years, but I did nine future further years after that, starting in in 1987 with a full service broker. And I just know we made a lot of money for a lot of people over that time. So, you know. Yeah. [00:05:15][26.4]

Alec Renehan: [00:05:16] Furcal not underrated. And then final one, overrated or underrated Australian residential property. [00:05:22][6.1]

Tim Samway: [00:05:22] Oh, man. Well, that's a touchy subject. I mean, if you're 50 and over, completely underrated. Fantastic. And if you're 50 and under and trying to get further into that, so overrated. It's not funny. We all need a roof over our heads. We've got to fix that problem. Yeah. [00:05:39][17.0]

Bryce Leske: [00:05:41] So, Tim, we always like to start at the beginning with our guests, and that is to understand the story of their first investment as there's likely a lesson that. So can you think back and tell us the story of your first investor? [00:05:54][13.4]

Tim Samway: [00:05:54] Well, okay. So my first investment was to wait for this. 1974, I bought 300 Brambles Industries. My my father's business partner was a director of Brambles. His name was Tom Price. And he said to me, young fella, I mean, I was fourteen, born in nineteen sixty. He said to me, yes, it'd be a great investment for you and I'd saved up some money doing a paper run. And I instructed my father's broker, who I worked for all those years later I went got a job with him all those years later and I bought 300 Brambles shares. I held them. I just can't remember how long they. Them, but I think I bought my first car with the proceeds of those those shares. So there you go. That's my first year. And Brambles are still in the Australian equity portfolio of Hyperion. It's probably been our longest term holding. I think it is. Yes. We held it for 25 years ago. [00:06:55][60.3]

Alec Renehan: [00:06:55] That's impressive. That is long term investing. [00:06:57][1.7]

Tim Samway: [00:06:58] Yeah, but I've been thinking about investing since 1974. Not every day in those early days. [00:07:04][5.7]

Alec Renehan: [00:07:05] So you've been thinking about investing since 1974. You've worked at Hyperion for over 25 years. You would have seen plenty of changes in the markets in that time, but a lot, I assume, has also stayed the same. So are there any lessons or rules of thumb that are just as true today as they were when you started at Hyperion or when you started watching markets? [00:07:29][23.5]

Tim Samway: [00:07:29] Yeah, I mean, wow, compound growth of earnings is how you make money. So and that's the hardest lesson for most young investors, is that it's patience that that wins. So, you know, buying low and selling high, can be exciting. But actually buying a business that that can grow internally. So high ROIC and actually and actually delivers internal growth over long periods of time and compounds. And you just let it happen, you know, wonder of the world. It just it's just the winning solution every time. [00:08:01][32.1]

Alec Renehan: [00:08:02] Yeah. Yeah. [00:08:02][0.3]

Bryce Leske: [00:08:03] So Tim at Hyperion, have you developed an investing philosophy or what is your personal investing philosophy? [00:08:11][7.3]

Tim Samway: [00:08:11] Well, it's hard not to be influenced by Hyperion, the investing philosophy, which has been built up over 25 years. But I have to say, look, we started with the idea that we'd invest in quality businesses that were innovative, that could grow earnings over long periods of time, businesses with competitive advantages, great products, great services, market-leading ones that could actually steal market share from older world businesses. And we stuck to that for 25 years. I don't think we've changed very much. I mean, we've refined at the edges. We've learned what worked and what hasn't. We've made a few mistakes along the way. But we've been willing to back innovation in the long term because time and time again, it's a winner. [00:08:50][39.0]

Alec Renehan: [00:08:51] Hmm. Now, Tim, we really want to, I guess, touch on two key things in this conversation. First of all, what's happening in global markets generally. Get your view on that and then we want to do a bit of a deep dove on the square. But before we do, we're going to take a quick break to hear from our sponsors. Bryce, you're a man that moves to the beat of his own drum, actually literally moved to the beat of his own drum when you studied drumming back at uni. [00:09:17][26.1]

Bryce Leske: [00:09:18] Yes, it's true. Got booted out. Yes. [00:09:20][2.0]

Alec Renehan: [00:09:21] And after you study drumming, you had a short-lived but highly successful career as a Canberra nightclub deejay. So you're all about moving to your own date. And that's great because our sponsor to kick off today's episode is all about banking to your own beat. And that is Virgin Money. [00:09:39][18.5]

Bryce Leske: [00:09:40] That's right. Ren banking with Virgin money has never been more rewarding. You can earn rewards on your everyday spending and pay zero monthly fees with the Virgin Money Go transaction account [00:09:50][10.6]

Alec Renehan: [00:09:51] and with points, perks, and epic experiences tailored to you. You can manage your money easily on the go, smash your savings goals, get money fit, and be rewarded for it. So, Bryce, are you ready to bank to your own beat? [00:10:05][13.9]

Bryce Leske: [00:10:06] I'm ready to go back to my own beat Ren bank to your own beat Virgin Money terms [00:10:11][5.2]

Alec Renehan: [00:10:11] and conditions and monthly criteria apply. Now let's get into the show. So, Tim, there's so much noise in the markets at the moment, everything from inflation fears to all these alternative assets hitting all time highs, crypto, everything, it just it feels like there's so much going on at the moment. And we want to learn from your experience and get you to help us separate the signal from the noise. What what are you watching in markets at the moment? What what are you and what is Hyperion things important at the moment? [00:10:42][30.1]

Tim Samway: [00:10:42] Yes. So clearly we are in a cyclical recovery that's just like that's smacking you between the eyes. It was bad last year and it's getting better this year as we come out of the covid disaster. But I think the lesson I've learned over so many years of investing and watching other clever people invest as well is that you need to frame your decisions with very long term horizons. And so we sort of forget that the period after the war was this incredible period where governments spent a lot of money. The population expanded rapidly with the baby boom, the participation rate of women doubled and more in the US, for example, 30 per cent to 70 per cent. And people felt that, you know, investors and businesses felt they could use fossil fuel in an unlimited way forever. And so they built massive machines in an extractive industries to build more and grow faster. And we had this huge period of GDP growth and that was an anomaly. That's that period was the anomaly. But we learned a lot about investing through that time. That is, average businesses exposed to GDP growth was the way to make money. And then for the last 30 years, it's been going backwards. And everything that was a tailwind in those years is now a headwind. Fossil fuels. We're going to run out of them if we don't stop using them. But the reality is we're going to poison our earth if we keep using them at the same rate. So they're going to be constrained. We're in the opposite of a baby boom. We've got an aging population and population growth is what makes GDP grow. And we've got governments that are drowning in debt who are going to have to deleverage at some point in time. So there's a whole lot of things moving against long term GDP growth. So all those worries about inflation and and thus interest rate rises, we think actually are very short term. We think over the next 10 to 20 years, inflation won't happen for all the reasons I've just said. Plus, innovation and disruption are making products cheaper. Renewable energy is a technology. It gets cheaper. There'll be a point in time where energy is the marginal cost of energy will be free. Yeah, so and and and in the past, inflation has been caused by things like wage rise pressure. Well, the middle class who have been able to apply all that pressure in the past have been gutted around the world, Western economies. The middle class has been sent, their jobs have been sent offshore. They've been outsourced. They've been sent to the gig economy. And now they're being replaced by artificial intelligence. So, you know, we just don't see taking the longer-term frame that the next twenty years looks anything other than GDP growth low. And that's why you've got to buy innovative businesses that can grow their earnings at above the rest of the market. It's why I made that comment about you asked me about those indices. They're going to struggle for the next 20 years. You've got to be much more careful in your stock picking. Hmm. [00:13:36][173.7]

Bryce Leske: [00:13:37] So speaking of stock picking, we talk about the importance of building a thesis here at equity markets. And in your ASX presentation, you spoke about how to go about building an investment thesis. So are you able to share, you know, what you discussed and how how do you actually build a thesis for a company? Sure. [00:13:54][16.9]

Tim Samway: [00:13:54] Well, I mean, what I did say at the ASX is that there's a lot of work and 25 years of experience. [00:14:00][5.3]

Alec Renehan: [00:14:01] So let's that's compressing that into the three minute [00:14:06][4.6]

Tim Samway: [00:14:07] three-minute grab is pretty hard. But but, you know, like your questions that you've got to ask yourself is, are you prepared to buy a business that's just going to grow because the underlying economy grows? Yeah. Or are you going to buy a great business that can grow faster than the economy? Are you going to buy a business that's in a headwind or are you going to buy one in a tailwind? So like the best business in coal and oil at the moment, it's actually going to struggle in the future. You can just see that. Yeah, okay. But businesses are exposed to really strong tailwinds like the move from cash to cards and digital payments. You know, cloud computing, e-commerce, those ones are in tailwinds. And so you buy a good business in a tailwind and it's going to get a lot easier. And then that final point is innovation. We back innovation because the innovators time and time again just managed to surprise on the upside. You know, like they come up with some clever idea. And Heigh-Ho, it's worth money. Amazon is a classic example of that great business. But actually US was inside it, you know, generating tons of cash. [00:15:10][62.8]

Alec Renehan: [00:15:11] Now, you've mentioned innovation and disruption a few times, and Hyperion is very focused. On those companies, I think some of the biggest holdings in your global fund are Tesla Square, Amazon, PayPal, Spotify, very disruptive, very innovative companies, but it feels like every company days, days want to use machine learning, i.e. innovation, disruption in their media releases. You know that every company wants to be seen as that. So what's your process for figuring out, you know, distinguishing the wheat from the chaff? What companies are truly innovative and which ones are just doing it in their presence? [00:15:46][34.6]

Tim Samway: [00:15:46] You've got to measure it at the potential sales line. That is. Is this an innovative product that is going to drive long term revenue growth for this business? And will it be a product or service? They can steal massive market share and ideally grow the total addressable market as well. So there's a whole lot of things where the product comes in, it grows the whole pie because it suddenly becomes an area that everybody goes, well, we should have been doing that. And then because they're the first mover, they actually grab the largest slice of that pie, and then they go on to keep increasing their slice of an ever growing pie. So cloud computing is a classic example of that. And so is e-commerce. [00:16:25][39.2]

Alec Renehan: [00:16:26] Yeah, yeah. That growing the total addressable market, what Airbnb and Uber did is just phenomenal. Yeah. Next, the market owner. [00:16:34][8.0]

Tim Samway: [00:16:34] Yeah. And look. And then there's the execution risk. And so there's a lot of businesses who try and do that and never make a profit. So I will add the second half of that is we need the line between that increase in sales and eventual earnings, which is what we're there for. And so businesses like Uber, we wonder whether they'll ever. Yeah, yeah. Where is businesses like Spotify? They've gone from lost, but they're moving very rapidly into profit. Hmm. [00:17:00][25.5]

Bryce Leske: [00:17:01] So Tesla has been the largest holding in the global growth and still is and still is. Okay, so given that its market cap is larger than the rest of the auto industry combined. Yes. What is the thesis for Tesla going forward, particularly as we now have Volkswagen coming in and you're saying [00:17:19][18.7]

Tim Samway: [00:17:20] it's market leadership? I mean, it's the same story. It's years ahead of its competitors. Okay, so if you just look at a car and a car, okay, so they both look like cars. But actually, as you start pulling it aside, pulling it apart, and looking at the customer experience, I own a Tesla. I mean, seriously, it accelerates like a 600000 dollar Ferrari. I still feel like a boy. [00:17:43][23.6]

Bryce Leske: [00:17:44] We should take it out after this. Yeah, well, [00:17:45][1.3]

Alec Renehan: [00:17:45] we also got a 600000 dollar Ferrari to compare. Yeah, well, that's right. That's right. [00:17:50][4.6]

Tim Samway: [00:17:50] Well, I've driven both. And I can tell you the Tesla is more fun to drive, but it's also the way that it just continuously updates. I mean, you know, I've had a couple of German cars over the years and I've had one car where, you know, three or four years after I bought it, I said, hey, there's all of these new roads in Sydney and my GPS. Can I get the update? Oh, no, we don't have an update for that. I was like, hang on, you've just made a whole part of my car, which I use all the time, completely worthless. Well, the Tesla just updates overnight, all that sort of stuff. You know like that's just clever thinking. But it's more than that. It's the way they've designed every part of the car and then every part of the software and then every part of the distribution system. So, you know, like dealers don't want to sell EVs, traditional dealers. Why? Because there's no servicing and that's where they make their money. So traditional automakers have got lots of problems in getting to the stage where they're really competing against Tesla. And that's why it's worth so much because we think they can maintain that market share over a long period of time while the total addressable market really expands quickly. And if they can keep that market share as the total market expands, you know, the uptake of EVs increases, the profits will flow. [00:19:02][72.2]

Bryce Leske: [00:19:03] So how do you think about companies like Volkswagen who are trying to, I guess, internally, just themselves and quickly start competing with Vogues? [00:19:10][7.0]

Tim Samway: [00:19:11] Well, they have to. They've been left behind and, you know, they've been left flat-footed and they have no choice to do this because their vehicles will be completely redundant in 10 years time. So they have no choice to do so. But they're losing money on cars they sell that are EVs. They're going to have to discount them to really get them out the door. But we think it's great they're doing it because it validates the whole thesis that the whole world is going to turn to EVs. So we're not against, you know, like good on VW, on BMW, got on all these cards, you know, car manufacturers get on with it because we need that total addressable market to expand quite substantially. [00:19:46][35.8]

Bryce Leske: [00:19:47] How do you think about Elon Musk buying a billion dollars of Bitcoin? [00:19:50][2.5]

Tim Samway: [00:19:52] I think it was a billion and a half. And look, it's a rounding error on their balance sheet. And it's great PR. Yeah. Would I have done it in the same circumstance? You've heard my comment about Bitcoin? Probably not, but yeah. Like he's doing ninety-nine percent of the stuff that we'd like to see really well. So the execution is amazing. Virtually nobody that's taken a. The company from where it is to the quality of the build that they produce now in that time and innovate so, so quickly, so rapidly [00:20:24][32.4]

Bryce Leske: [00:20:25] and started a space company. [00:20:27][1.2]

Tim Samway: [00:20:28] Yes. And the solar panels and, you know, and batteries and everything else. You have time to think about Mars [00:20:34][6.0]

Alec Renehan: [00:20:35] a lot for me. And Tesla is just the classic example of signal and noise. Like there is so much noise around Elon smoking weed on podcasts, you know, tweeting things, moving to Texas, all this random stuff, covid conspiracy's, whatever it is. But then the signal underneath it all is executing on two incredible businesses. [00:20:53][18.7]

Tim Samway: [00:20:54] Yeah, absolutely. Like, seriously, he's landing he's landing's space vehicles back and reusing. [00:20:59][5.8]

Alec Renehan: [00:21:00] Yeah. Yeah. I mean, I [00:21:02][2.1]

Tim Samway: [00:21:02] read something the other day. I mean, you know, it's like a jet that flies from Sydney to Los Angeles and you just dispose of it after it gets there. I mean, seriously, that that's the sort of dynamic change. That's how they used to think. [00:21:15][13.0]

Alec Renehan: [00:21:16] Yeah, it's crazy. Bill Gates a couple of years ago said you wouldn't mistake Elon Musk for Steve Jobs. And I think when all is said and done, I might go down as better. [00:21:25][9.1]

Tim Samway: [00:21:26] Yeah, yeah, yeah. [00:21:27][1.1]

Alec Renehan: [00:21:27] Well, that gets us to Mars. Yeah, yeah, [00:21:29][2.4]

Tim Samway: [00:21:31] yeah, yeah. [00:21:32][0.8]

Alec Renehan: [00:21:32] We want to do a deep dove on square, but you mentioned Spotify there and Spotify is an interesting company that would just touch on quickly. Yeah. Square. We're both big fans of Spotify. Obviously they're big supporters of the podcast game. So we have to be fans, but they haven't had a great year from a share price perspective and great. [00:21:53][20.8]

Tim Samway: [00:21:53] We buy cheaper. Yeah. Yeah. So because they're well they're dominating. So, you know, like they're rapidly approaching 400 million users, monthly active users, you know, the number of subscribers is is really increasing. I think that they have you know, the Hyperion view is that they've won the war of demand and it's because of their algorithm or their electorial, I think they call it, which is sort of serving you the music that you want to hear, as opposed to Apple, who says, like, here's 60000 new tracks today. Go find. Yeah. And that's just like that's impossible. Whereas Spotify creates the sort of soundtracks that, you know, like, I know what you like. I'm watching what you're listening to. That's a bit creepy. But but actually, here's something you might like. And time and time again, I mean, I listen to Spotify almost exclusively now. My only problem is my 12 year old son gets in the car every now and then because Spotify runs natively in on a Tesla and he listens to Russian hard bass. And so every now and then, Spotify offers me some really weird stuff. But it's clever. Like it's clever and, you know, like it's just what I was saying before is that we want a great product that we think can actually increase the total market. And there is a shift like that's a thematic shift that Hyperion is following, the move away from linear radio and television to on-demand. And so we own Roku and we own and we own Spotify in the portfolio. [00:23:21][87.3]

Alec Renehan: [00:23:22] So on the Spotify story, like it's it's obviously growing topline revenue incredibly quickly, taking market share. How do you think about these companies and when do you want? Are you happy just to wait and have them reinvest for growth and lose money year after year or it's not forever? Yeah. [00:23:38][16.9]

Tim Samway: [00:23:39] Yeah, we have a ten years. We take a ten year view. Okay, so that's where I think we're different from most fund managers. We're prepared to take a ten year view and there's not many businesses out there you can really take a ten year view on. It needs to be a business that looks like it's to us that it's going to dominate whatever segment it's in. It's going to be the winner takes most. I mean, they're called power law relationships. They're the sort of, you know, why do the top ten sportsmen earn, you know, 100 times more than the next ten? Yeah, it's that sort of thing. We think people or relationships actually exist in businesses as well. And increasingly, these businesses become winner takes all or winner takes most in their particular market. So we're looking particularly for winner takes most type businesses. And that's why we think we can look ten years forward. There's more probability about the earnings. [00:24:25][46.5]

Bryce Leske: [00:24:26] What's you know, we've spoken to Alex Pollock about Roku. What is your thesis? Very same. [00:24:34][7.3]

Tim Samway: [00:24:34] I've listened to Alex talk about Roku is the same. [00:24:37][2.5]

Bryce Leske: [00:24:37] Yeah, it's interesting. [00:24:38][1.1]

Alec Renehan: [00:24:39] It is. It is. It's one I don't [00:24:40][1.0]

Bryce Leske: [00:24:40] know if I'm sold on it, to be honest. [00:24:41][0.9]

Alec Renehan: [00:24:41] I really do want to have it out. [00:24:42][1.3]

Tim Samway: [00:24:44] You need to use it, though, seriously. I mean, what's special about a lot of the businesses that we own? They're not capital heavy. They're capital. But you can test most of them from your home or your desk. And that's increasingly becoming the sort of product that consumers use, the ones that they can use from their phone, their desk there. I mean, we've gone from, you know, I mean, when I started work, I just want to put this in perspective. In 1978, as a young trainee chartered accountant, my job included things like going down to the post office and getting the yellow pages of a city. That wasn't where we were living so that the senior partner could look up a business and perhaps recommend to a client a business they could use in Melbourne, for example, because nobody kept the Yellow Pages for Melbourne or Perth or Adelaide. Can you even imagine that these days? Like, no, you've got a super computer in your hand. You just got a bit like that. And Amazon does it for you. Like if you're looking for a product, you just want the cheapest one. You don't care where it comes from. Yeah, yeah. And logistics have changed. So you can get something delivered from Perth at the same time as you can get something from China or Los Angeles. So I think things have changed. [00:25:49][65.1]

Bryce Leske: [00:25:50] Yeah, absolutely. I am a fan of the faces behind Spotify though, so I let that mean I could double down on them recently. So before we move on to a deep dove on the square. [00:26:01][10.7]

Bryce Leske: [00:27:12] So, Tim, at the ASX Investor Day, you pitched Square, that is the second largest holding for Hyperion. [00:27:18][6.1]

Tim Samway: [00:27:18] Yeah, it might switch around with PayPal from time to time in the last month or so, payments [00:27:24][5.4]

Bryce Leske: [00:27:24] of theme [00:27:24][0.1]

Tim Samway: [00:27:25] payments to the theme. [00:27:25][0.5]

Bryce Leske: [00:27:26] So for those that are not familiar with the company, can you tell us a bit about it? [00:27:30][4.6]

Tim Samway: [00:27:31] Yeah. So so most of you would would have come across those little white boxes that sit on merchants' desks, you know, that. And they suddenly became very popular, you know, in March last year when everybody realized that nobody wanted to handle dirty, you know, covid infected cash and a lot of merchants ran out. And, you know, you can go up to Officeworks and buy one for 400 something bucks and you can be operating that afternoon accepting credit cards. So that whole Sellery ecosystem comes with a whole lot of other benefits. So it has a point of sale system which whether you're a restaurant or a retailer, it's different. You know, it's particular to those types of merchants. And they do payroll and they do appointments. And it comes with the ability to borrow because Square can see your sales and your cash flow. And actually, it gives you a pretty good idea. And lots of small businesses really struggle to get short-term finance from banks. But if that were the only story, we probably wouldn't own it. The second part of the story is something that doesn't exist here in Australia yet with where is the cash app? And it's the ability of young people who are relatively unbanked. So, you know, we think there are 60 million Americans who are underbanked, don't have credit ratings. A huge proportion of those under 30 doesn't have credit cards. My daughter's 17. She has a credit card. She said I'm not going to do that. You know, I don't want to have I don't want run up a balance that I can't pay at the end of the month. So isn't it funny that millennials are actually clever? They're getting very clever, but what they'd like is because they're using their phones for everything is an ability to do it all online. And so the cash app allows you to get your weekly pay paid into the app. Any largesse that comes from the government, any stimulus can be paid into the app. You can pay your friends, your family directly P2P, but you can also tap and go. You can buy stocks, you can buy Bitcoin, you can make term deposits. It's becoming a super app. It'll do everything. Eventually they'll just keep adding bits and pieces to it. People say to me, you can buy Bitcoin on it. And I said, Well, yeah, I'm not quite sure how much this is. Last year we were buying it in March, April last year. We'd been watching it for a while and we realized that that thematic was going to get very strong in the middle of covid like the movement from to cards and digital payments, and especially as e-commerce took off. And I've just been watching the amount of Bitcoin turnover that's going through the square. I mean, it's ridiculous. It's gone from sort of one billion. I think there last quarter it was three point six dollars billion for US dollars worth of turnover. I mean, they only take a clip on it, but still, that's innovation. Can you imagine Australian bank actually responding to the demand and having a product like out that that in short order? [00:30:28][177.3]

Bryce Leske: [00:30:29] So it's akin to confirm it's not actually linked to a bank account. It is acting as effectively. [00:30:36][7.1]

Tim Samway: [00:30:36] Yes, you're right. I mean, lots of things now link to a bank account. That is you can take money to and from it. I mean, that that that app I use for that for, you know, for my thousand dollars worth of Bitcoin because I'm testing it. Yeah. That's just a link. So I can press a button and wax a thousand dollars out of my bank account. It's not so much a bank account. It's credit cards that the young are finding it hard because they can't access credit. Credit ratings and credit ratings are very important in the US. It's why we think businesses like after pay, you know, by now pay later will continue to grow because that's a whole demographic that use it regularly. [00:31:13][36.8]

Bryce Leske: [00:31:14] I saw PayPal launched a credit card yesterday. They did, yeah. So yeah, I don't know any details about them. [00:31:20][6.1]

Tim Samway: [00:31:21] Yeah, no early days. I mean, we don't see the death of the traditional credit card companies. They are the rails on which a lot of this stuff works. But you know then Venmo is the PayPal version. It's aimed of the square at the square cash up. It's aimed at a higher socioeconomic level, you know, well, more affluent consumer. So, you know, like each have got its own it's got its own level. And that's why we think there's room for two players in that market and that's why we're backing both. [00:31:50][29.3]

Alec Renehan: [00:31:51] Yeah. Square is a fascinating business. Full disclosure, I've been a long term shareholder. I don't think, you know, maybe we'll will be after this episode, maybe [00:31:59][8.5]

Bryce Leske: [00:32:00] buying right now through the cash out. [00:32:03][3.1]

Alec Renehan: [00:32:04] A lot of people probably wouldn't be familiar with the fact that Jack Dorsey has ways to. It is day to day life, so the CEO of Twitter and the CEO of Square. How do you think about a CEO wearing two pretty big hats? [00:32:22][17.1]

Tim Samway: [00:32:22] Yeah, well, look, it's it's a great question and it's one that we have had to address it on a bunch of companies we own. So Jeff Bezos. Elon Musk. Yes. So we'd actually prefer that it's all in the execution if they're executing well, like tech. You know, we're aware that there are potential problems and we'd obviously be aware of the potential conflicts of interest. But, hey, these guys are very driven to succeed in everything they touch. And we love founders that are ridiculously engaged in the execution. I mean, I've heard Elon Musk interviewed a number of times. Now, listen to that Sandy Munro podcast. Sensational. He knows everything about every part of the car. He understands the metals and how they work together and the power that you get out of a motor and how, you know, like like right down to the tiniest little detail he's been across. And he's done the same thing at SpaceX. Well, that's the same with Dorsey here. You know, he's right in the weeds on this stuff. [00:33:25][63.4]

Bryce Leske: [00:33:27] So when you think about the competitive landscape, obviously with a lot of these companies in the disruptive space, it's moving pretty quickly and particularly in payments at the moment. Where does Square sit in, I guess, the domestic landscape in America and globally? [00:33:43][15.7]

Tim Samway: [00:33:43] Well, its penetration is only about three per cent. So it's very early days, you know, like they might have tens of millions of users, but we think they've got their only three per cent penetrated. So, you know, it's the addressable market, the total addressable market, 145 billion. And they're only just a small way along the way. So we actually think, you know, lots of upside. And and to your point, though, we are constantly scanning the horizon for potential disruptors of disruptors, because that's really what can go wrong. Yeah. So we spend our lives thinking about what can go wrong with a thesis and who's going to disrupt this one if it's so good. The Crows land like when you see a business with return on equity above 25 per cent. Everybody else in the markets looking at it, thinking I could do that too. [00:34:31][47.8]

Bryce Leske: [00:34:32] Yeah, this is a question that Alec and I were discussing after a recent interview. You know, a lot of fund managers come on and say we're investing in disruptive businesses and more frequently they're just all becoming the same businesses that everyone's investing in. So at what point do you draw the line and say this is the norm now and we need to look for? As you [00:34:52][19.9]

Alec Renehan: [00:34:52] said, there are [00:34:53][0.8]

Tim Samway: [00:34:53] there are plenty of disruptive businesses, no doubt about it. Like simply must be thousands and thousands. We're looking for those few where the winner will take most. Yeah. And we hold them in our portfolio at a pretty large waiting, like, you know, Tesla's in there at 12 per cent square and people are around eight per cent holdings. We think the worst mistake a fund manager can make after doing all the work and really holding high conviction is to hold something in your portfolio at two per cent, because if it doubles, you've only added 200 basis points of performance. True, that's a disaster. We've had stocks in our portfolio like Ariah. It's 100 Bagger. Yeah, well, and I've had other fund managers when the stock was nineteen dollars, say to me it's just a website. I'm shorting it. Yeah. Yeah. [00:35:40][46.6]

Alec Renehan: [00:35:40] Rookie's 100 baggers. That would be nice. One day we'll get 100 baggers. [00:35:44][3.8]

Bryce Leske: [00:35:45] So you don't have any mandates then on your own position sizing [00:35:47][2.6]

Tim Samway: [00:35:49] maximum 13, we would've normally stopped it cold. OK, but 13 max. [00:35:54][5.4]

Alec Renehan: [00:35:55] OK, so one thing about Square is that it's an incredibly difficult regulatory environment to navigate for them as they try and expand globally. I saw Jack Dorsey in a video like an all hands meeting. Someone asked him why they're not moving faster and turn that into. This is why Bitcoin is so good, because it's like a global protocol that would allow them to roll out a lot quicker. But that's not the world as they might be the world he wants, but it's not the world as it is. And Square has it has to go country by country and navigate regulatory approvals. I think you mentioned Australia [00:36:30][35.3]

Tim Samway: [00:36:30] specifically, second-largest market for them. Yeah, but it's a challenge like our regulatory, you know, like we can't get a cash out like that. [00:36:38][8.2]

Alec Renehan: [00:36:39] Yeah. And he was saying that the banks have a lot of power here and that they are in a lot of different parts of the financial world. That isn't the same in other countries. I think he was talking about the payments processing. Yeah. So how did that how do you think about. Well, that's [00:36:53][14.3]

Tim Samway: [00:36:53] why, as I said earlier, the rails that that exist with the MasterCard's the visa's in the banks are going to exist. But increasingly, banks are just going to become back-office processes. You know, they'll lose the relationship with the customer and they'll become utilities. And that's how we look. When we look 20 years forward, is that the banks are really going to struggle to to maintain that relationship because let's face it, they're just not producing the services that customers want. I mean, that's where Square really is doing a wonderful job. It actually says, what would a customer want and delivers it to the customer. [00:37:29][35.6]

Alec Renehan: [00:37:30] So but in terms of the regulatory environment, like, do you have to really temper yours. Of course. Of how quickly, of course. And stuff like that. Of course. And then in terms of projecting, like is everywhere you look at every country, of course, differently, I feel that would be a lot more analytically difficult than looking at Spotify. Of course. [00:37:49][19.0]

Tim Samway: [00:37:50] Yeah, well, yeah. But Spotify is in. Just forget how many countries it's in now, but it's a ridiculous number. I did know the number. I just can't remember it off the top of my head. And there are challenges in every country. You go to cultural challenges and currencies and you know, and tax. And so it's not easy. But actually that's why one of the things we see with a lot of businesses we think there and the ones we like is that they are transferable to other countries, but not every country. I mean, look at how Facebook tried to get into China. Yeah. You know, and just [00:38:21][31.5]

Alec Renehan: [00:38:23] trying to get into [00:38:24][0.7]

Tim Samway: [00:38:24] China. But I mean, Facebook or Facebook's big opportunity was to take it to the Web chats of this world and it just never got there. [00:38:30][6.0]

Bryce Leske: [00:38:31] So, Tim, before we move to the final three questions, just want to remind the equity markets community that if they've enjoyed listening to what you have had to say, their Hyperion Global Growth Companies Fund is listed on the ASX. And this is why GE. So if you'd like to back what Tim and the team are doing and I guess get access to the fund that they're building had over and have a look at that, which is the ticker. [00:38:57][26.0]

Alec Renehan: [00:38:57] There's also an Australian fund that is listed as well? [00:39:01][3.4]

Tim Samway: [00:39:01] Not listed. No, it's on M fund. But I mean, the ETF is the choice. Yeah. It's just so simple. You get right in it navy. It just trades like a normal stock. Yeah. And that that portfolio, that one that has got one point four billion in it. So it's not a start up. It's actually been running seven years now. It's very slow, it's just another door. The ETF is just another door to that fund that's been running as a managed fund. All that. [00:39:27][25.6]

Bryce Leske: [00:39:28] Yes, it is a managed fund set up here in global growth companies. But as I said, Tim always finish with the final three. So we've got stuck in. [00:39:36][8.2]

Alec Renehan: [00:39:36] Yeah. So the first question that we like to finish with is do you have any books that you consider must read. [00:39:42][6.2]

Tim Samway: [00:39:43] Oh, man. So, you know, like at Hyperion, everybody reads a lot. And I have to say the investment team, if I if I look through them, have just like they've got books and books and books and they're all investment books. I'm a little different. So that's a great question. [00:39:59][15.6]

Bryce Leske: [00:39:59] Must-reads it doesn't have to be investing, right? No, no, no. [00:39:59][0.0]

Tim Samway: [00:40:02] Well, I mean, there's a clearly a bunch of big investment books that you just have to read. And I'm not going to go through those because I think you can work out who they are. Books that I read when I was young that I remembered and I feel I still can feel how I felt when I read them. So my my cousin Stephen was killed in the Vietnam War. And when I read Joseph Heller's Catch 22, it really struck me about the futility of war. I mean, I think that consolidated my views about war and personalize them. Catcher in the Rye, J.D. Salinger, just I read that as an eighteen year old, I actually I remember laughing so hard in that book. I still remember the feeling of laughing that hard reading and what else I reading books to children. I never read Roald Dahl as a child. And I we was on a holiday when my daughter was about six and I read her Danny, the champion of the world. And if you know that book, it's a story about a father and a son and their exploits. And I won't go into all the detail. And it's written from the position of Danny the Boy. And but Roald Dahl does a very clever thing in the last page of the book, and he's narrating his conversation with his father. And then he subtly switches it to communication directly to you with the reader and you don't see it coming. And he says something to the effect that. So what I've been trying to tell you is quite simply that my father was the most amazing and exciting man that any boy would be lucky enough to have. And I still feel it now. I remember because you're reading to a six year old, you read too fast and you're reading ahead. And of course, I actually as I read that paragraph, my throat just closed. I'd lost my father the year before. And and and I just couldn't say another word. I just handed the book to my wife and said, finish the last paragraph. And I just think reading is one of the most important things you can do in your life. Yeah. Yeah. Agreed. Yeah. And I say go on the last question because I think that leads into the last question. [00:42:07][124.9]

Alec Renehan: [00:42:08] Okay. All right. Well, before we get there, we. I have a second last question, which is in 60 seconds or less, what's the best company you've ever? [00:42:17][9.2]

Tim Samway: [00:42:17] All right. Oh, Amazon. I was just cracking business. I mean, we bought it in 2014. It's a monster. It's it's changed the way everything works. I mean, really. And then, you know, us really set the scene in cloud computing. Whether or not you like Jeff Bezos is kind of irrelevant, really. There's lots to not like about him and lots to love about him. But but the fact is that Amazon really has changed the world from what I knew prior to the prior to the Internet, really coming on the scene prior to 1995. Like, I can just see chalk and cheese. Yeah. [00:42:53][36.4]

Alec Renehan: [00:42:54] And then final question, if you think back to your younger self, you know, buying those first Bramall shares in 1974, what advice would you give your younger self? [00:43:03][9.1]

Tim Samway: [00:43:04] Yeah, so read and read and read and learn. Learning never stops. I am still learning. I'm sixty, you know, and I'm still building businesses. So, you know, I'm building another funds management business, you know, in cattle and carbon sequestration and soil regeneration and another business that's doing carbon, that's doing carbon rating of public companies. And you know, it's like just never stop growing to learn and thinking about what you can build in the future. [00:43:34][29.8]

Alec Renehan: [00:43:35] I feel there's a whole other interview we could do at some point on that business that you'd be like that sounds really interesting to do that. [00:43:41][6.2]

Bryce Leske: [00:43:41] The team will have to get you back for interview 2.0, but it's been a really enjoyable conversation. Thank you for joining us this morning. And I know that a lot of our audience would have taken a lot of value from that. A lot of the stocks, you know, we're all very interested in. So a reminder to check it out on the ASX, but very much appreciate your time. [00:43:59][17.4]

Tim Samway: [00:43:59] Thank you very much. Thank you. [00:43:59][0.0]

[2465.5]

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