Semiconductors beyond Nvidia, Book club is back & introducing: Pimp my Portfolio

Bryce: [00:00:14] Welcome to Equity Bites Investing, the podcast where we explore what's possible in the world of investing. If you've joined us for the first time, welcome! My name is Bryce, and today we're kicking off with some market headlines and Nvidia's earnings. We're launching a brand new segment called Pimp My Portfolio, and we're bringing back Book Club discussing The Millionaires Factory to chat through it all as always, I'm joined by my equity buddy, Wren. How are you? 

Alec: [00:00:37] I'm very good, Bryce, and I'm excited for this episode. But I'm sad for you. 

Bryce: [00:00:42] How is that? 

Alec: [00:00:43] Because you're, you know, they say in life, don't make it heroes. Because it can only lead to heartbreak. And you not only had the chance to meet your hero, but for a few years you've worked for your hero. And no, I'm not talking about me. I'm talking about your former boss at Woolworths, Brad Banducci. Now, last week on the podcast, there was a question in the Equity Mate's Facebook discussion group about what you thought of the ABC interview. And maybe less than 24 hours after we recorded that episode. Your hero falls on his sword. 

Bryce: [00:01:22] So if you're wondering why Ren is, like, pumping this guy, and my relationship with him. Yes. I worked at Woolworths for a moment of time. And look I'm not I did I do still have a lot of respect for Brad Banducci. 

Alec: [00:01:38] He was one of the best CEOs in the world, I think has been Bandied around. 

Bryce: [00:01:45] Don't say what I say behind closed doors. Yeah. Look, I, it was sad. It was more shocking than you. 

Alec: [00:01:53] So for people who don't watch business news as closely as us. He quit. 

Bryce: [00:01:58] He resigned? Yes. He put in his resignation the Wednesday after the Four Corners report on ABC. That was pretty damning into, I guess, alleged price gouging from both the major retailers. Reading between the lines while knowing, still knowing a few people at Woolworths and the commentary that's coming from Woolworths, it was just bad timing in terms of the announcement of the resignation. He had planned to resign this year anyway. He's been leading the company for, I think, about eight years, and they already had a successor in place ready to rock and roll. So you could say poor timing. From a public perception point of view. And what he's getting raked over the Coles at the moment is he's just rage quit. So, unfortunate for him to end this way because in my view, he was an incredible leader to work underneath. So, I have a lot of respect for him. If you're listening, Brad, I think I've asked you ten times to come onto the show. Please. We'd love to have you on. When, when the dust settles. 

Alec: [00:03:00] Yeah, it would be great. And everyone's saying it's, you know, terrible for his legacy, blah, blah, blah. That was being bandied around the office yesterday. And then I asked the question, name the Woolworths CEO before him. Like corporate CEOs, unless you like Steve Jobs or Jamie Diamond, you don't have a legacy. People forget you. 

Bryce: [00:03:23] Will have much more of a legacy than the CEO before. And let's put it that way. 

Alec: [00:03:27] I thought you were about to say Jamie Diamond. 

Bryce: [00:03:28] No no no no no no no. 

Alec: [00:03:31] All right, well, let's get into what's making news in markets, I guess, aside from the Woolworths news. And really the front and centre has been Nvidia's earnings before we talk about some of these company results and what we, watching, we've got to remind everyone.

Bryce: [00:03:49] This is none know this, but I mentioned this before. 

Bryce: [00:03:56] That's right. Any information on this show is for education and entertainment purposes. Any advice is general. And Ren, I'm now finding myself humming this at home. 

Alec: [00:04:04] Oh, really?

Bryce: [00:04:04] And Harriet was like, what the hell are you singing? Wait till we drop the Not Financial advice caps that are coming. 

Alec: [00:04:12] True. The Stings are doing so well that they're getting their own money. Yes. All right, well, let's talk about semiconductors. Let's start with Nvidia. But then I have been looking at the semiconductor world beyond Nvidia. And I want to close it out with my best way to invest in the sector. And it's not Nvidia. 

Bryce: [00:04:34] And it's not semi the ETF. 

Alec: [00:04:36] It is not. But let's start with Nvidia because it seemed like the whole investing world was waiting. I saw that CNBC had a countdown like a New Year's Eve style countdown. And it was like 21 hours, 50 minutes, 49 seconds until it, report. Yeah. Like come on. [

Alec: [00:04:57] So what did we learn? What did we learn?

Bryce: [00:04:59] Well, I shut the lights out again, again. Like we've learnt, as we said last week, trends in investing continue a lot longer than you expect. So hit us with some of the numbers. 

Alec: [00:05:10] Well, I think for context, between 2022 and 2023, Nvidia's revenue was flat. $27 billion in both years. So. It's not like this. The on like a long. Hockey sticks grow up like that. It's been an incredible story for a number of years but flat revenue and then this 2023 it just the hockey stick inverted. They went from 27 billion to 60 billion in revenue. So they more than doubled their revenue in a year. So that's up 126% quarterly. So just looking at the last three months they made revenue of 22.1 billion, up 22% from the three months before that, but amazingly up 265% from the same time last year. Now, when we spoke to Kieran Moore, from Monroe for the Summer Series, he spoke about Nvidia, and he said the key part of their thesis and why they thought Nvidia had more growth was data centres. That was the Nvidia breakout of their revenue and the data centre line was the line that they were watching. So with Kieran's I guess, thesis ringing in my ears, I had a look at Nvidia's data centre revenue. How is this for the quarter 18.4 billion in revenue, up 27% from the quarter before, but up 409% from the same time last year. Kieran probably was. 

Bryce: [00:06:40] I think we should give him a call. Maybe next week we'll give him a call or get him. 

Bryce: [00:06:44] He wouldn't answer tonight. He's celebrating. Yeah. True.

Alec: [00:06:50] So obviously an incredible result from Nvidia. I think the really important thing as investors is that expectations were sky high for this stock. And so if you're buying Nvidia today it wasn't so much about how the company's going, but it's more about what the expectations were already built into the price because investors were expecting a massive result. From what I've read so far, these numbers surpassed expectations. 

Bryce: [00:07:15] Yeah. Well, the after hours stock movement also suggests that I think it jumped about 8%, a few hours after market close. So what happens when the market opens again overnight, but definitely beats expectations.

Alec: [00:07:29] Now semiconductors obviously front of mind because of AI and Nvidia. Yeah. But I wanted to have a little bit of a conversation around semiconductors beyond Nvidia because Nvidia isn't the only stock making moves in the space. The best performing US stock above $1 billion in value this year is a semiconductor stock. It's not Nvidia. It's a Supermicro computer. Have you heard of it? No, I hadn't really either up 177% year to date. 

Bryce: [00:08:01] Year to date. What? 

Alec: [00:08:05] I know, I know, it's one of the largest producers of high performance and high efficiency servers. It has manufacturing operations in the Netherlands, Silicon Valley and Taiwan. So, no idea about the company. As I said, I hadn't heard about it, but it's worth having it on your radar, because whatever it's doing, it's shooting the lights out this year. 

Bryce: [00:08:25] It's founded in 1993. Imagine the story of if the founder still owns this and is involved in this company for 20 years, I don't know how it's performed, actually over the last 20 years. It's a big oversaturation here, but could just be like plodding along, doing well. But in the last two years your business has just. 

Bryce: [00:08:44] Yeah, gone nuts. 

Alec: [00:08:46] Let me tell you about another company that was founded in 1993, Nvidia. There you go. That's when it was founded and it was doing like, GPUs for gaming. I'm saying it's a gaming store, like it did very well. 

Bryce: [00:08:58] Oh man. No doubt it's.

Alec: [00:08:59] I'm sure this one as well. 

Bryce: [00:09:00] But they've just like woken up one day and gone, oh my God. 

Alec: [00:09:05] I am Multi multi.

Bryce: [00:09:06] Billionaire. Yeah.

Alec: [00:09:08] Another one that has performed really well in this space is ALM 

Bryce: [00:09:12] Yeah IPOd last year. Yeah. another semiconductor maker. 80% 

Alec: [00:09:18] More for mobiles. Power lot of the mobile operating system and mobile hardware around the world. Bit of a short squeeze for memory. 

Bryce: [00:09:27] Yeah, well, they're up 80% year to date.

Alec: [00:09:29] Yeah, I think the float isn't massive. There's a lot of people short it, and they're getting squeezed a little bit. But just another story of, like, why you would short this. 

Bryce: [00:09:38] I know, I Know, yeah. 

Alec: [00:09:41] But I think the craziest story in the semiconductor space is, Sam Altman, the CEO and co-founder of OpenAI and makers of ChatGPT and Dall-E, and now Sora, he has a side hustle, a little side project that he's working on to reshape the global semiconductor business. He is apparently asking for between 5 and $7 trillion. That is not a typo. 

Bryce: [00:10:07] Trillion. 

Alec: [00:10:07] Well, that is how much he thinks he's going to need to do what he wants to do. And so people are speculating about what he wants to do. It probably will involve so to build. A foundry like a semiconductor. A place where you make semiconductors. It's about $30 billion. So maybe he wants to massively increase the number of foundries out there. There's also speculation that the number of data centres that are going to be needed, and the energy requirements is just going to be astronomical to power the AI revolution. And so maybe it's something in that space. But yeah, apparently he's asked the UAE Investment Corporation to start tipping in some money. 

Bryce: [00:10:47] 7 trillion. 

Alec: [00:10:49] To put 7 trillion in perspective, that is 14 times larger than the global semiconductor industry. Yeah, which did 527 billion in sales last year. It's five times all corporate debt issued in the US last year, 1.44 trillion. It is equivalent to the value of Apple, Alphabet and Microsoft combined is more than the GDP of all countries on Earth, aside from China and the US. Put another way, it's equivalent to the combined GDP of India and the UK, or one third the GDP of the US. So, Bryce, my question for you 

Bryce: [00:11:27] Imagine the pitch that you'd made for $7 trillion. I mean, if there's a guy that could do it and understands where all this is heading it. Sam Altman so, where this plays out, you know, with the whole board issues that we saw last year with ChatGPT and whatnot, I don't know if this is a side project. It seems like a massive side project. So, interested to say who tipped money into this? 

Alec: [00:11:54] Yeah. Now. And for context, like China's invested about 150 billion in their semiconductor domestic semiconductor manufacturing efforts and hasn't really made a dent globally. So, you know, if Sam Altman's ambition is to reshape the global semiconductor industry, he'll need to invest more than China already has. Now, I said I was going to close out with my best way to play the semiconductor theme. ASML, I still think is the best way to play it. For people unfamiliar, they are the only maker of advanced lithography machines that are critical in the production of semiconductors. I think, you know, there's so many people designing semiconductors. Obviously, TSMC and Samsung are making a lot of them. But ASML is a real bottleneck, a real monopoly in that supply chain. And so whatever happens around them, they're going to be critical. So I haven't looked at the financials or what they're trading at recently. But I think if you're interested in this space you're getting caught up in the hype. A company to add to your watch list is the Dutch lithography company ASML. 

Bryce: [00:12:58] We're very excited for this. It's the first ever Pimp My Portfolio. So let's get started.

Bryce: [00:13:04] This is it. My portfolio. 

Bryce: [00:13:09] Yes. Firstly, welcome to core, the first equity markets community member to submit his portfolio and join us on the show. Corey, welcome.

Corey: [00:13:17] Ahoy, gentlemen.

Bryce: [00:13:19] What did you think of our opener? 

Bryce: [00:13:20] Yeah. Let me get to things this year. 

Corey: [00:13:23] Yeah, yeah. No, it's, it fits the timing so good. 

Alec: [00:13:27] Nice, nice. So now for people who are hearing, this pimp my portfolio for the first time, this is a new segment we're kicking off this year where we are getting experts in the studio to have a look at, the portfolios of the equity mates community and, give some general advice on, what they are saying, what they think, they might ask some probing questions about what they're discovering in there, but it's a chance for us all to have a professional class and I over what we've been by.

Bryce: [00:13:57] Yes. So joining us in the studio, we have Luke Larry from Seneca Luke. Welcome. 

Luke: [00:14:01] Bryce, Alec.

Bryce: [00:14:03] I like looks. 

Alec: [00:14:04] Like good work side of it. For the segment. 

Bryce: [00:14:06] Yes. 

Bryce: [00:14:07] Very good. Yeah. 

Luke: [00:14:07] Forward to it. 

Bryce: [00:14:08] Yeah. Now Luke is going to be the expert going through this. A word of warning, as always, that this is general advice only. 

Alec: [00:14:15] So and we should be clear in this context, Luke doesn't know Corey from Adam like he does know nothing about Corey's personal circumstances. All we've got is the list of holdings and portfolio weightings. 

Luke: [00:14:28] So yeah, I don't know anything about Corey's personal circumstances. And obviously that's probably the most important thing about giving advice to people is they need not just general advice, but advice to a person, which is why, you know, I'm an advisor and I believe in the value of advice. But hopefully we can provide some general sort of thoughts. 

Bryce: [00:14:44] And yeah, yeah, some strategies. Yeah.

Alec: [00:14:47] Some ideas for Corey to go away with and for us old to reflect on. But Corey yeah massive thank you for sharing your portfolio. Now we're going to start by explaining what we're saying. And then Luke, he's got some thoughts and he's got a nickname for it as well. So Bryce's 

Luke: [00:15:02] Everyone is going to get a nickname. 

Alec: [00:15:03] So Bryce, tell us what he's in Corey's portfolio. 

Bryce: [00:15:06] All right. So, Corey, I'm saying in your portfolio there, a couple of ETFs, one that tracks the Nasdaq in there. And then there are a couple of thematic in cybersecurity, robotics and semiconductors as well as uranium. And then there are a bunch of individual stocks, mostly listed here in Australia. Some include Aussie Broadband, Hit IQ, Weebit Nano and Qantas. So an interesting range there. 

Alec: [00:15:32] Yeah the split is about 42% in the ETFs and then about 58% in individual stocks. So with that said, kick us off. 

Luke: [00:15:44] All right Corey. Thanks for doing this mate. This is what I've called the all punt, no process portfolio. 

Bryce: [00:15:53] How do you respond to that Corey? 

Corey: [00:15:58] Not sure yet. 

Luke: [00:16:00] Sorry I'm trying to be you 

Corey: [00:16:02] But on a work like this. 

Bryce: [00:16:04] So just to be clear here, all I know is what you've called Corey's portfolio. So give us a bit of a reasoning why that is. 

Luke: [00:16:12] Yeah. Look, I think we got to find a little bit about how Corey actually bought those stocks and come to doing that in a minute, but it's just a disparate mix of stuff that's kind of weighted a little bit strangely, from my perspective. And, you know, there's definitely I can see some ideas that he's trying to sort of, you know, capture in the way of these investing. But by the same token, not necessarily doing that in a way where it's going to have impact for him and then kind of like, you know, rounding off and I'll lock that stock and lock that stock and then putting kind of the wrong amount of money in those kind of ideas for the quality of those kind of ideas, if that makes sense.

Bryce: [00:16:42] Yeah. Awesome. All right. Well, a bit to unpack there, but let's start with the process. 

Luke: [00:16:46] Yeah. So I'll start with the stocks because it's for me the easiest bit. So we've got a lot of story stocks in here Corey. And you know what I'd call story stocks. You know Weebit Nano,Hit IQ. Tell us a little bit about how you've chosen those stocks. And you know why you like them so much. 

Corey: [00:17:04] Yeah. So there's a couple of stocks in there that would be driven by. Certainly listen to other podcasts like equity mates or equity mates itself. Yeah, those two are the ones certainly that are there. But I think out of all the stocks, none of the others were based on any of that. They were all decisions I made. In terms of the heavier weighted ones, I guess they in particular, I tend to go heavier on stocks that are cheaper just due to I try and put 500 to $1000 in either stock rather than investing. As a general rule. 

Luke: [00:17:39] When you say, what do you mean by cheap price? 

Corey: [00:17:42] Yeah. So an average shape of price. But because I'm starting out as well, I understand that the dollar averaging, you know, trawling different products, but what you bet was probably something that because I'm working on IT, a, I writing code a fair bit and I believe that there has to be some change in that, that top of memory. That's why I'm also interested in semiconductors and robotics with the AI trend. I think it goes hand in hand with that. You know, IQ is probably. Yeah, that definitely matches that oh point no process one I guess. That would probably be more one that on the On the Equity Mates podcast. And I looked into a bit more in Blade Science. 

Luke: [00:18:22] Inside my head. All right. The two boys, I'm gonna give them a stern talking.

Bryce: [00:18:26] So I think.

Corey: [00:18:27] Yeah, I'm good that that was again I didn't just buy it. I did look into it. And I think I bought that recently when they made an announcement that I agreed with. Particularly, as I said after the AFL. So that's what I've put into that. I think the business has room to grow. And I think it's something that in terms of like, for instance, with the AFL, what you see in professional sport, yes, will usually go filtered down to a more community sport in that.

Luke: [00:18:53] So I understand that I don't know the business like I understand it. I just suppose it's good just to get a flavour for, for where are you going? But I've sort of looked at this stuff on the basis you've been holding these stocks for, you know, 12 months at least they some of these new purchases or

Corey: [00:19:06] Everything on there would have been in the last 5 to 6 months max. I only started in like August. I think, Aussie Broadband might have been the first one. And they're not only just growing from their mix of yeah, ETFs, you know, to try and balance that. And then other individuals as well. I think I do have one on the US stock market. I do think that because I find a way to learn is to, I guess, you know, kick the drop, punt as you, try to nickname and see where it goes. And that's something I learn by trial. 

Luke: [00:19:38] I am a big believer in that and big believer in that. 

Corey: [00:19:39] Yeah. As much as you can rate on the after type of dip. 

Luke: [00:19:43] So yeah my for sure. Look let me give you some stuff I think that you can think about that's sort of a little bit more actionable. So with your uranium exposure that you've got there, you're paying 69 basis points for that particular product. And then they take 15% of your money and hand it to another essentially ETF provider in Sprott, who charges you a further 72% on the three of the top ten holdings of that, particular ETF, have outperformed the physical underlying uranium, which is that Sprott Trust that they buy. And you can go and buy that. Sprott trust yourself. So if you're just looking to get exposure to the uranium sector you know more broadly. And uranium prices more broadly. The way to sort of avoid that, what we'd call non systematic risk, the, you know, the risk that is associated with each individual company, you can kind of avoid all that, pay less fees and kind of still do pretty well, and still apply that uranium theme. So I think that's something you could definitely consider or think about if you want to own the stocks and, you know, you like Cameco and the Kazakhstan uranium Co and all that kind of stuff, fine. Like I get it. And maybe, you know, that's not the right thing, for what you want to do. But that was just something that stood out to me. If I'm going to play the gold sector or I'm going to play the uranium sector, I'm always looking for a sort of pure play commodity because that's a macro thing I'm trying to play, not the micro thing at the companies. If I like Cameco for whatever reason, which might include a positive thesis on uranium and something about their, you know, mine process or the corporate play or whatever, I'll buy the stock. But I don't really see the point in owning, you know, the diversified stocks, if that makes sense, like the find the do the work on the companies and get down to the nitty gritty and own whatever or and or just buy the physical. Does that make sense?

Corey: [00:21:27] Yeah, it does. And with the uranium in particular I, I was on 5050 on that. Like do I think I was looking into I think it was malachite in boss energy. Obviously when I was kind of you have that look and you go, oh I don't know which one to invest in. And you have to really dig deep. I saw the ETF as, oh, well, we'll use that as well to cover them all. Well I think the three that I looked at were in the top three or top, top five holdings at the time of that ETF. So that was kind of where I looked at it from that point. 

Luke: [00:21:58] Yeah. And I just have to consider it doesn't have to be you know, it's not a, must be one way must be the other. It's just, you know, some thoughts for you, I suppose. The other thing I think you need to have a look at is like overall portfolio construction. So, you know, if you're going to buy, you know, diversified ETFs, whether they're sector ETFs or, you know, broad based market geographic type ETFs, you know, that's where you want to put the bulk of your money, particularly when you're getting started out investing. I think you want to be diversified things. You want to benefit from, you know, people starting companies in aggregate and trying to grow them, you know, make more profit every year and kind of betting on human capital going up, for lack of a better word. And then, you know, put the smaller weights in the stuff that you want to have a part with and you want to, you know, you need to do some work on your own. If you're going to run a high conviction stock portfolio, you know, you'll be running kind of up to 10% maybe in a single company. But if you were, you know, trying to do some sort of core satellite, you might be sort of 5 to 10% in companies and then, you know, maybe 80% of the money in some more core sort of type stuff. I would treat the sector ETF like non-core as well as kind of like a stock, if you know what I mean, and then focus, try and get some more broad based exposure to markets more broadly.

Alec: [00:23:12] So Luke, on any particular names or funds that you think are good ones to start your research on if you're looking for broad based market exposure? 

Luke: [00:23:21] Yeah, I think if you're looking for broad based global equities, you can obviously choose any of the sort of Blackrock Vanguard type stuff that do MSCI or world benchmarked, or you could, you know, put together a basic thing or just buy like the high growth, you know, sort of, multi-asset stuff. But there's lots of good active managers as well. You know, whether it's, you know, a JCG, we're using our in our model at the moment who do a sort of broad based global equities portfolio or someone who has a high conviction portfolio like a Steven Arnold, who's a really good manager and, you know, really good at what he does, too. So, he's also in our global equity portfolio.

Bryce: [00:23:58] So Luke, like just to close out here, Corey, your portfolio reminds me somewhat of my portfolio when I first started, which was, no punt, no process, kind of similar to how I run it at the moment as well. But. 

Luke: [00:24:12] Bryce will be on next week.

Bryce: [00:24:13] Bryce, that's my price.

Alec: [00:24:15] But he's a guy that puts 80% of his money into, like market tracking. 

Bryce: [00:24:20] Yes. So Corey here has a couple of stocks that are very overweight compared to other positions in the portfolio. And so generally speaking, going from here to kind of rectify the portfolio construction, what the I guess the the general advice is, is to start building up the positions in the more broader exposure ETFs.

Luke: [00:24:43] Yeah. Sort of oh look I'm not I'm not big on these slow transitions. Right. I like the beauty of being in listed markets and not but you know if you began by warehouse what you do something else with your money. You don't have the option just to switch and change and buy next door's warehouse instead of yours. And, you know, whereas here you can like, you can exit every single one of these positions and buy, you know, whatever you want. Perfect portfolio for you today. So my my view is, is figure out what your first, I'll figure out what your perfect portfolio is. And then the second thing is buy it, you know, and then then you I've got your portfolio that that's set. And you're investing every day how you would ideally for, you know, the future from that point forward. So and you know, that's kind of my view is there is really no hold in investing is only, you know, sell. I don't want to own this investment anymore or rebuy at today's market prices. You know, if you own a stock ABC it's trading at a dollar to go tomorrow goes to $2. Well your decision not to sell is just a really a redecision to re-buy that stock sort of ex of tax and that two bucks again today because the alternative is to sell it. So there is really no hold. It's a continual decision to rebuy these stocks at today's prices or to sell. 

Bryce: [00:25:56] Nice. Well Corey that sort of brings us to the end of our first Pimp my portfolio. A couple of decisions there, I guess, for you to think about, which is, I specifically around the uranium exposure, but be, thinking about how you, going to Ray white, some of the, exposure that you have there with Aussie Broadband Hit IQ, and Weebit Nano, and Ray white some of that back into the more diversified ETFs and, and then go from there. So certainly hope that Luke has been able to, to provide a bit of, general advice there for you. And thank you so much for being the first cam off the rank. If you do that, you're. Yeah, very, very much appreciate it. I hope you got it. I hope you got something out of that. 

Corey: [00:26:38] Yeah, there's a couple of points there. And, like, you touched on the point of, you got a sell over a buy. I've already done that a couple of times. And that's like, for instance, all the broadband, which is heavily weighted. I've done that twice already. I've always wanted to work. But yeah, there's a couple of tactics there and such that I'm already looking at or can take on board, knowing that I'm in the right direction there. At least I'll look more into it. 

Alec: [00:27:01] Nice one. Well, I mean, you're only a few months into your investing journey and it is really a lifelong journey. So a massive congratulations for getting started and for withstanding Luke's barrel. But hopefully, hopefully it's, giving you some thoughts on where you can go next on the journey. And good luck with it. 

Corey: [00:27:21] Appreciate it guys.

Bryce: [00:27:22] Now, if you would like Luke to, review your portfolio, you can book a time with him. He'll have a look at it, discuss broader markets with you, or help with your financial goals. Head to Equitymates.com/advice and select Luke's name in the contact form. And we'll make sure that, you go straight through to be able to book an appointment with Luke at Seneca. But Luke, thank you.

Luke: [00:27:44] Pleasure gentleman. 

Bryce: [00:27:45] All right. We're going to take a very quick break. And then on the other side, we're bringing back another segment for 2024. And that is Book Club. Welcome back to Equity Mates Investing. Just like we've got new stings this year, Ren. we're bringing back segments that, we're dusting off from the early years of equity markets. So let's hit it. Yes, that sting is legit. But that's all right. 

Alec: [00:28:13] That sting is acknowledging, I guess, the reality, the reality that killed book club last time around.

Bryce: [00:28:19] What was that?

Alec: [00:28:21] You start reading your books. I still remember it. It was the J.D. Rockefeller book you chose that. And it was this big, thick monster. 

Bryce: [00:28:31] 700 pages.

Alec: [00:28:31] I read it all through summer. Get back in the studio after some. You haven't read it? 

Bryce: [00:28:39] So funny. So at least we're true to ourselves. And acknowledging what this segment will be. Look, there will be times where I'll bring a book in, and in fact, today's. Yeah, I've read some of. Not knowing that this would be a book club segment. But you've read the full book. So firstly, before we kick off, if you have a book you'd like us to read or you want to come and tell us about, business or, any sort of biography or whatever it may be that you're writing somewhat related to money and markets. 

Alec: [00:29:06] No, I'm going to it's going to be quite a broadBook, okay. I think. 

Bryce: [00:29:09] Right. Well, there you go. 

Bryce: [00:29:10] It'll all be non-fiction. 

Alec: [00:29:12] But I think it all counts as investors. Yeah. Right. 

Bryce: [00:29:15] Well, yeah. Let us know. Equitymates.com/contact but Ren today. We've got the millionaires factory.

Alec: [00:29:22] Yes. 

Bryce: [00:29:22] The inside. Look at Macquarie Bank.

Alec: [00:29:25] Yeah. A fascinating look at the millionaires factory as it is known. Macquarie Bank for people, unfamiliar. They started as an Australian arm of a London investment bank and then really have just expanded beyond that. They are now massive players in infrastructure, big players in funds management. They have a retail banking arm here in Australia, and have fingers in so many different pies like infrastructure in the broadest definition of infrastructure like data centres and energy and everything. Yeah, it is it's a fascinating company and it is a fascinating story because it's quite a unique culture and I guess, growth story. 

Bryce: [00:30:14] I think the, the cultural part from what I have read is the biggest, one of the biggest takeaways from this and wave and know from the experiences we've had of meeting ex Macquarie, employees and, and also just understanding, how they operate at the moment, like the way that they develop culture and a culture of high performance and rewarding high performance so that, you know, your best people stay around. And also, I guess, keeping everything as internal as possible. You look at the ladies of the bank, and I think they've had the four or 5. 

Alec: [00:30:49] 5 or 6 CEOs, all of them from internal. 

Bryce: [00:30:53] Yeah. So they've worked their way up through the ranks. 

Alec: [00:30:55] But it's not even that they have this exco, which is like the executive committee below the CEO. And it's very rare for anyone to be hired directly into the Exco. Like there was one guy who was brought in from Westpac to really drive their retail banking strategy. And that was so unusual that he was straight into the Exco. So it's like there are very much like a bottom up hive from within, organisation. 

Bryce: [00:31:19] Where you're also rewarded by staying there. 

Alec: [00:31:21] Yeah. What ten, ten year vesting period is. And if you quit you lose that.

Bryce: [00:31:26] Yeah. Well it's like for example, their highest earner, economist Nico, Nico Kane, who just quit. Yeah. He would be leaving a lot on the table. 

Alec: [00:31:36] Yeah. So that context is really interesting. So he was known as, like, that big earner, that big deal maker. He really made his bones. Macquarie has a massive energy trading business. And, he, along with some of his colleagues really drove that growth, like post JFK. And he came back to Australia and that was saying he was seen as a potential successor to Shimano. And when he came back to Australia, that was seen as the next step in the succession plan. And so, you know, I was writing about that and then you flick on the news and he's quit. It's like, oh that's interesting. Something has obviously changed there, yeah. Anyway, I've got five key takeaways. So I don't want to dilly dally too much. And I think these are takeaways that are somewhat applicable to Macquarie. But I think they were good general investing takeaways okay. So the first one Macquarie has grown by its theory of adjacencies. And so that is where they start in a business. And they're just constantly looking for the next angle to make more money or to the next opportunity adjacent to where they are or where they have expertise. And this is best illustrated in the infrastructure growth. So they started just as a corporate advisor on deals. But then adjacency after adjacency, they found and they exploited to the point where and not as much anymore. A bit more arm's length, in some of this, but at one point they were earning fees on advising the seller of an infrastructure asset, arranging the financing, underwriting that financing, and then the management fee on the fund that buys the asset, performance fee on that fund as well, and then fees on selling the asset. So now we're involved in, like, every part of the transaction. Peter Costello, the former Australian treasurer, he had a quote that I pulled out, quote, I never found, Macquarie argued after the event. It was these are the rules of the game. We exploited them to the full. If you want to change the rules will abide by whatever the new rules are. And he knew that that would exploit the new rules to the fullest as well. And it's just like that was Macquarie. Just like get into industry, figure out where the opportunity is and just go just find that next little way to exploit it. And if the rules change, then they change what they did. But that is the growth story of Macquarie in the US, in Europe, in Canada, in Australia and all these different arms. It's just really smart people being given license to go. And that really leads me to my second takeaway, which was a real bottom up culture of Macquarie. And it really had hallmarks of Sam Walton's, Made in America. Was that what is called the Walmart CEO, where he was so focussed on devolving power from head office to his stores, giving his stores, treating them like business owners, the store managers like business owners, essentially giving them no responsibility for that store. That's the same as Macquarie. Like these smart people are given responsibility to build businesses. Essentially, Macquarie will pay for your desk in a lot of these, like new markets or new industries, and then you gotta do what you do. And like a lot of times you fail and that's okay. There was a story in here about Nicholas Moore before he was CEO, holding a big seminar about all the failures at Macquarie and like celebrating all these people that had tried things and failed things and like that was the culture give things a crack. You if you have an idea. It's like things aren't top down. It's not like here's what else. Yeah. What we're going to do. Risk management is top down. Yeah. But the ideas and the growth of bottom up. So that's the second one that I thought was really interesting. Third, risk management. Really strong risk management gives the ability to be countercyclical investors. So Macquarie famously haven't blown themselves up like so many other big peers have. Big investment banks have. They've really taken advantage of opportunities to invest through the cycle. So after the 1987 crash and the subsequent recession, they bought Security Pacific Australia. After the Russian financial crisis, they bought BT. After the GFC, they bought Constellation Energy in Houston. Like these periods where a lot of their peers were like risk off, batten down the hatches. Let's go through these financial shocks. Macquarie was out there and bought them. Which I think then.

Bryce: [00:35:52] Which Isn't so much risk on. It's just they have a risk management framework. 

Alec: [00:35:55] That allows. 

Bryce: [00:35:56] Allows them to make those. 

Alec: [00:35:57] Mean it allows them to take risk when no one else is, allows them to take advantage of undervalued assets, which I think is a good lesson for us as we look for investments, what companies are managing risk well and being sensible about risk and not getting caught up in the cycle. But it also is a lesson for us as personal investors. Let's not get too caught up. Let's make sure we've got powder dry so we can invest when everyone else is not investing.

Bryce: [00:36:23] Running away. 

Alec: [00:36:24] IE 2023.

Bryce: [00:36:25] Yeah, yeah. 

Alec: [00:36:26] So that's three takeaways. My fourth one. Even the best investments have bad times. and you say this time and time again with like the great stocks over a long period of time, you know, like the Monster Energy's or the Domino's pizzas or a Games workshop over in London, like, these absolute star performers have had massive periods of underperformance where everyone fell out of love with them and their share price fell. Macquarie is no different. Between September 2001 and August 2002, share price fell from $41 to $25 in about a year. That was around the time they bought Sydney Airport and then tried to privatise Qantas, and they tried to do a whole bunch of stuff, and people fell out of love with them. Richard Branson very publicly was attacking them. Fascinating stories worth writing the book, but that fall had nothing compared to their full during the GFC. They fell 80% in like a year and a half.

Bryce: [00:37:23] I remember I was at high school, JFC hit, I think it was year 9 or 10. Wow. Yeah, would have been around then and there was this guy in my class, Fabian, and he just kept saying, Buy Macquarie buy Maquarie, Macquarie is this card. So looking it out and he just absolutely nailed it. Well yeah.

Alec: [00:37:43] If if you bull Macquarie the depths of the JSA when they were like 1920 bucks you would have almost ten bad debt. Yeah. So shout out to Fabian wherever you are. If only Bryce listen to you. Then my final takeaway to bring it home. This company just purely relies on brilliant people. Yeah. And for me, that's risky. As I was writing this book, the Warren Buffett quote just kept ringing in my ears. We look for businesses. Even a fool could run because one day one will. And it's like if a fool ran this business. Like if the risk management framework is off, if they don't see something coming around the corner, if, you know, whatever it is 

Bryce: [00:38:28] It is a good point.

Alec: [00:38:28] Yeah. Like it is a business. And all of these exploiting opportunities like time after time in this book, it's a story of like an individual person being empowered, but then doing what a lot of their peers couldn't do. Like convincing American state governments to privatise infrastructure or convincing Canadian pension funds to back this little known Australian bank. It's like.

Bryce: [00:38:53] I guess they just back themselves to keep producing. 

Alec: [00:38:56] Well, I mean, you face this reality, you face this around Macquarie has to be like they get the pick of the talent here in Australia and globally. And then they have an incredibly strong training program and you know like that. Yeah. But that's risky. It's not like if you ask Macquarie what their mode is, you'd say, oh they've got like the entrenched advantages in a lot of markets and they've got brilliant people. But yeah, it's not like. 

[00:39:23] I don't it requires. It requires a lot of human input. 

Alec: [00:39:28] Put it this way to, to go full circle in this episode. It's not like Woolworths where there's like a really clear moat in like this massive store network and, you know, great positions and you know, all the stuff that you need to. You know, like a fool could run Woolworth's and not do a great job. That not blown up? Yeah. If a fool ran Macquarie, the could blow it up. So that's a risk. 

Bryce: [00:39:51] Nice. Well, that's the first episode of, book club for 2024. It's written by two guys from the AFR, from memory. Is that right? Two journalists? Yes. That was the millionaires factory. An inside look into Macquarie Bank. I think that's the by-line or an inside story of how Macquarie Bank became a global giant. So check it out. If you'd like us to review a book, or if you'd like Ren to review the book and make a pseudo read of it. Hit us up at Equitymates.com/contact. Also, you can leave us a question there. You can submit a portfolio for Pimp my portfolio, where you can connect you with some financial advisors if you're looking for professional help as well. So, hit us up at equity mates.com/contacts. But Ren, as always, is a pleasure to chat stocks. And tomorrow Adam Kelly will be back or buy or sell. 

Alec: [00:40:39] Yeah. It's back by popular demand. So look out for that. We'll be back in your feed on Thursday. So speak soon.