Rask - Qiao Ma: finding killer companies, surviving the GFC & why founders win
The conversation highlights the strategy of investing in small and midcap companies that are often overlooked but have significant growth potential due to structural tailwinds. The fund, launched by Monro Partners, aims to capitalize on these opportunities by focusing on companies with strong growth prospects and founder-led management. The discussion emphasizes the importance of identifying companies with a 'killer product' and ensuring alignment between management and shareholders. The use of stop-loss strategies to manage risk and the focus on earnings growth as a driver of stock price are key components of the investment approach. The conversation also touches on the importance of being comfortable with one's identity and the value of financial planning.
Key Points:
- Invest in small and midcap companies with strong growth potential and structural tailwinds.
- Focus on founder-led companies for better alignment and long-term vision.
- Use stop-loss strategies to manage risk and maintain portfolio integrity.
- Prioritize companies with a 'killer product' that customers love.
- Emphasize earnings growth as the primary driver of stock price appreciation.
Details:
1. 📢 Welcome & Financial Disclaimer
1.1. 📢 Welcome Message
1.2. 📢 Financial Disclaimer
2. 🎤 Introducing CH & Her Presentation Skills
- CH is consistently praised for her excellent presentation skills, leaving audiences impressed.
- Her presentations involve significant preparation and effective use of visual aids like slides, which enhance audience engagement.
- CH's approach includes structuring content logically and utilizing storytelling techniques, making complex information accessible.
- Her ability to connect with the audience and deliver clear, concise messages is a key factor in her success.
- There is a potential opportunity to learn from CH's approach to improve presentation skills, particularly in areas of preparation and audience engagement.
3. 📈 Exploring Fund Performance & Growth Strategy
- The fund targets growth sectors that benefit from strong tailwinds, aligning its strategy to capitalize on emerging market opportunities.
- Although it has not yet reached the three-year mark, which is often used as a performance benchmark, the fund's performance is considered exceptional.
- Performance metrics such as annualized returns, sector-specific growth, and comparative benchmarks could provide deeper insights.
- A closer examination of the fund's risk management strategy and how it adapts to market volatility would be beneficial.
- Incorporating a breakdown of the fund's asset allocation and its impact on overall performance could offer a more comprehensive view.
4. 🤝 The Genesis of the Fund & Initial Challenges
4.1. Genesis and Initial Focus
4.2. Initial Challenges and Strategies
5. 💡 Launching Amidst Market Turmoil & Strategic Considerations
- The fund launch was strategically timed to capitalize on the small cap space being the cheapest in a decade, offering a significant investment opportunity relative to the big cap space.
- By October 2023, the small to midcap space was at its lowest valuation in 20 years, enhancing the attractiveness for launching the fund.
- The increasing valuation gap between small/midcap and big cap stocks provided a compelling reason to launch the fund, emphasizing the strategic advantage of entering the market at this point.
6. 📉 Lessons Learned from Lehman Brothers Collapse
- The market experienced a significant drop of 400 basis points in October 2023, underscoring the environment's volatility.
- The fund prioritized triple-checking research and calculations, reinforcing the importance of thorough due diligence and risk management.
- A strategic approach was adopted by launching with 25 well-researched, high-conviction ideas, focusing on promising valuation levels.
- Despite market instability, the fund identified and capitalized on undervalued opportunities, with valuation gaps remaining unaddressed into 2024.
- Specific measures included reallocating investments towards sectors with historically resilient performance, and leveraging quantitative analysis to assess risk-reward ratios of potential investments.
7. 🌍 Opportunities in Global Small and Midcap Markets
7.1. Investment Opportunities in Small and Midcap Markets
7.2. Historical Context and Professional Development
8. 🏦 Starting a Career at Lehman Brothers
- The speaker joined Lehman Brothers directly after college, taking on a role in the financial institutions group, where they specialized in analyzing financial sector firms, notably excluding Lehman Brothers itself from their analyses.
- Over a two-year period, despite having the expertise and access to public financial data, the financial institutions group at Lehman Brothers did not scrutinize the financial health of their own firm, which was a critical oversight given the eventual collapse of the company.
- This experience underscored an important lesson: intense focus on granular details can lead to a failure to recognize significant systemic risks, a situation that became evident when Lehman Brothers' collapse shocked insiders but was anticipated by external short sellers and hedge fund managers.
- A striking 40% of Lehman Brothers' stock was owned by its employees, yet there was a surprising lack of concern or action among them regarding the firm's stability prior to the collapse, highlighting a significant disconnect between internal perceptions and external realities.
- The situation at Lehman Brothers provides broader implications for the financial industry, emphasizing the need for internal teams to critically analyze their own institutions and maintain awareness of external market signals to avoid similar oversights.
9. 💻 Focusing on Tech Companies: A Deliberate Choice?
- Investors often risk getting lost in minor details, missing broader market trends.
- 40% of professionals face career and retirement risks due to company failures.
- Employees of failed companies like Lehman Brothers often become victims themselves.
- Portfolio includes a diverse range of tech-related companies, not just software or platform firms.
- Examples include Nvidia and TSMC, highlighting the importance of tech infrastructure.
- Machine-to-machine communication on the internet now surpasses human communication, indicating a shift in internet usage patterns.
- The shift to machine communication underscores the need for investment in tech infrastructure.
- A diverse tech portfolio mitigates risks associated with company-specific failures.
10. 📊 Becoming a Tech Investor & Transition to Coto
- The speaker's entry into tech investing was serendipitous, facilitated by a job offer from a tech hedge fund.
- They joined CTO Management, a prestigious tech hedge fund known for its global acclaim, guided by the esteemed investor Philippe Laffont.
- Philippe Laffont's mentorship played a critical role in shaping the speaker's understanding and approach to tech investing.
- The speaker's involvement at CTO Management provided valuable exposure to high-stakes investment strategies and decision-making processes.
- This experience highlighted the importance of mentorship and strategic networking in navigating the tech investment landscape.
11. 📈 AI's Growing Potential vs. Smartphones
- Investors should identify strategies that align with their personality as there are multiple ways to profit in the stock market.
- The ability to perceive and act on long-term change is crucial for tech investors.
- The human brain struggles with compounded math, leading to an underestimation of long-term technological impacts.
- Historically, near-term technological capabilities are often overestimated, while long-term impacts are underestimated, as seen with mobile phone adoption.
- AI's potential mirrors the mobile revolution, offering numerous opportunities during its adoption journey.
- Investors can learn from the mobile revolution to identify early signs of AI breakthroughs and invest accordingly.
- Specific strategies include focusing on AI-driven sectors poised for growth, such as healthcare and autonomous vehicles.
- Case studies of successful tech investments during the mobile revolution can provide insights into AI investment strategies.
12. 🔍 Investment Process: The Role of Stop Losses
12.1. AI's Impact on Data Generation
12.2. Role of Stop Losses in Investment Strategies
13. 📜 Core Investment Philosophy & Strategy
13.1. Investment Risk Management and Decision-Making Process
13.2. Investment Philosophy: Risk Control over Individual Accuracy
14. 🚀 Identifying Growth Companies & Structural Tailwinds
14.1. Philosophy and Approach to Stock Market Investing
14.2. Characteristics of Winning Companies
15. 🎯 Finding & Investing in Killer Products
- Invest in industries with structural tailwinds like high performance computing and climate technology, which enable growth over multiple years.
- Identify companies with a 'killer product' that creates a positive emotional response from customers, as indicated by customer satisfaction or brand reputation.
- Use simple tests to evaluate a product's impact, such as customer reactions or personal endorsements.
- Example: Shark Ninja, a company making kitchen and cleaning appliances, demonstrated strong customer loyalty and satisfaction, leading to investment despite initial skepticism.
- The definition of a 'killer product' is one where customers readily vouch for its quality and effectiveness, as seen with Shark Ninja's products.
16. 👟 The Power of Founder-Led Companies
16.1. Massive Growth through Innovation
16.2. Control and Alignment in Founder-Led Companies
16.3. Strategic Flexibility and Pivoting
16.4. Case Study: Nike's Leadership Transition
16.5. Case Study: On Running's Success
17. 📋 Portfolio Management & Diversification Strategies
17.1. Long-term Investment Strategy
17.2. Portfolio Construction Approach
17.3. Diversification Strategy
17.4. Growth Assessment and Criteria
18. 📊 Prioritizing Earnings Growth in Investment Decisions
- Earnings growth is a primary driver of stock price increases, making it crucial for both companies and investors.
- Companies should aim to grow revenue at least twice the pace of GDP, targeting high single-digit revenue growth. For instance, if GDP is growing at 3%, a company should aim for a 6% or higher revenue growth rate.
- The goal for earnings per share (EPS) is to achieve double-digit growth, which aligns with the aim for double-digit portfolio returns, illustrating a clear strategy for investors seeking substantial gains.
- Investors are encouraged to focus on long-term potential and emerging trends rather than short-term market fluctuations, ensuring sustained growth and profitability.
- The case of Facebook/Meta exemplifies the significance of a founder-led vision and adaptability in securing long-term growth, demonstrating how strategic leadership and innovation drive earnings growth.
19. 🤔 Navigating Founder Influence & Maintaining Conviction
19.1. Strategic Investment in Small Midcap Companies
19.2. Investment Strategy and Portfolio Construction
19.3. Personal Growth and Confidence
19.4. Financial Planning Advice
20. 💡 Advice for Young Investors: Personal Growth & Financial Planning
- Investing early in personal wealth is crucial to ensure your money works for you over the long term.
- Self-doubt is a significant barrier in personal growth, and addressing it can lead to better decision-making in investing.
- Developing a clear financial plan with specific goals can optimize your investment strategy.
- Utilizing tools like compound interest and diversified portfolios can enhance financial security.
- Engage in continuous learning and self-improvement to build confidence and knowledge in financial planning.
- Seek mentorship or professional advice to refine your investment approach and gain insights from experienced investors.