YouSaid · the spoken record

Manny Stotz

lines on the record: 66
first: 2020-04-21
most recent: 2020-04-21
sittings or episodes: 1
sources: podcast

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“Secondly, my wife, I guess, to say yes when I ask to the Marami, and she's now doing the heavy lift on our kids. And that's again something that I think needs to be mentioned. And then lastly, again, I would point to if I think back on my life, there's been many positive influences and mentors and help, but the fact I got the scholarship has been, I think, pretty life-changing and I'm sure would have been fine in Germany, but I would never had the opportunities professionally or personally that I have now. So my wife and I've given a dozen scholarships to the LSE. And starting on a small way to give back ourselves, and Kingsway, the name of the firm is actually after the street that LSE is on. So I own a lot to scholarship donor and to the school at large. And so I'm starting in very small ways to, I haven't forgotten about the other goal.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I'm a young parent and two little daughters, one on the way, and combining with the travel and all that, and I take parenting very seriously, it's been taxing, so I would argue the first one is my parents that have put me on this earth and then looked after me during times when I was probably not always nice to them. I think that's clearly a big sacrifice. I think themselves kind of understand.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. I think this is a good time to launch a fund. We're happy to be helpful. Like, again, selfishly because, again, we're the only ones left and we need more, we need at some point foreign money to come back to these markets. That would be good. And I think it will be a very good outcome for the size of the price is very large. And that was kind of sort of the key reasons why I went down this road. I had other options in life, why far frowing the towel quite the opposite, where actually you just get getting going. And so I think you can either, of course, set up the fund and invest in these markets directly yourself, or you can even, in some markets, you can access them with the sort of prime brokers or something like that. So happy to, again, be helpful and point people in the right direction how you can settle and trade stocks in Bangladesh. And of course, for those who are far too big for this can own this through, I guess, whether it's global consumer goods companies, Nestle's and all these markets or people like that, or all the global internet companies, frankly, I mean, Google and Facebook are hovering money out of my markets. And so, of course, that's probably portfolios. It's an exciting time.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, companies with questionable corporate governance or low quality business models and getting weird MSCI, weird countries in there that have very different things going on. I would say we need all the help we can get in a sense that, again, it feels to me like we're the last man standing, which is one of the reasons I want to do this podcast, because someone wanted to, if you close your eyes and say, where can I see 20 plus IRS for 30 plus years, which is kind of 10x in 10 years, 100x in 20 years, and inshallah, you know, 1,000x in 30, it sounds absolutely crazy, but that's what happened. Anyone young aspiring investor on there out there who is not afraid of these countries and wants to sort of”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“First of all, thank you for the kind words. I would say, first of all, you can't do this with a huge amount of capital. And of course, we've been blessed with having LPs and especially family offices and individuals, as well as a handful of endowments and foundations, but mostly the smaller ones given the sheer constraints on capacity there, that it's quite limited. We have called it $1 billion on a management, so that works at over a dozen or so countries and stocks. And we've been pretty aggressive in playing offense in this part of the cycle. So, yeah, I would say, I mean, we, of course, have to give existing investors preference. We don't want to manage a lot more money than we do today. I would definitely stay away from the indices because that's, yeah, I mean, full of...”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. Payments is, I think, the Holy Grail in these markets. And we've seen what's happened in China. I think the payment volume in China is like 200% of GDP every year. So that's a staggering number. And it came out of nowhere. And the reason it's bigger than GDP is that the transactional economy, of course, is bigger than the producing economy because the velocity of that. And so I want to learn that as we invested in a small way in one payment company in Egypt that's just gone public. But there's loads of others there. And FinTech, I think, is a bit complicated because everyone's getting involved. The banks are getting involved, the telecoms are getting involved, the regulators getting involved, the Chinese are getting involved, and Facebook's getting involved potentially. Yeah, the big thing.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“So definitely we're trying to learn at least one new business model in sort of a year. I definitely want to spend a lot more time on digital businesses. I mean, I've only followed peripherally what's been going on in the US with software and things, and I understand consumer internet businesses, I would argue well, because I'm a consumer and user of those. But what's happened in SaaS, for instance, has been pretty crazy and it's perhaps not quite as relevant for us. But there are software companies in our markets. Although you could argue that's going to become a more global game at the same time, let's see what happens with China, US, the sort of bifurcation. Most of our countries arguably will end up somewhat in the Chinese orbit. They are the biggest one belt, one road countries, and that might come with strings attached. And I would speculate one of them could be that they're going to use less US software, but more their own or Chinese software. And so I want to learn a bit more about that, what makes these businesses great and how think about those. FinTech especially as well.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Countries like Bangladesh, where we can be really big. So we've got just under a third of our fund in Bangladesh in two of the best companies there. And that's kind of almost like a buying hold for as long as the eye can see. Or you have these more cyclical countries which have less good of a business model and that includes, I mean, yeah, if I have to contrast Bangladesh for me is, in my mind, the macro is better than India, though I'm very bullish in India and we don't invest there, largely because of valuation reasons and so forth. But I think the macro is better there.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Which financing your fiscal deficit. So you basically don't need to borrow, especially in dollars, which would be the Achilles seal for any of these countries to pile up US dollar debt that they can't print, and then the currency will be under pressure. So that's not the case in Bangladesh. Then it's secondly, it's a very democratic source of wealth creation. It's literally millions and millions and millions of factory workers going from $1 to $2 to $3 to $4 a day. That's trickling down to consumption. It's very inclusive growth. And that's different to, let's say, Nigeria, which has a business model arguably that it will be described as 3.5 million barrels of oil a day. And that's not such a good business model in my mind because A, it's cyclical, both in prices, of course, but also in volume because all the oil is in the south where a bit of insurgency going on. And there's literally a dozen, 12 rather than 12 million people who make all that money and they spend it in London, not in Lagos. It manifests itself in crazy ways. I mean, there's more private planes in Nigeria than there's commercial planes. So there's huge inequality. And so basically, we either want to be invested in structurally strong...”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“The best profit pools, even if the headlines are bad, the bottom lines can be very good. Now, it's probably different for companies or industries where either God or government sets the price, God being commodity related to companies or government being anything highly regulated. But for branding consumer goods companies, that's definitely a pattern. And so this is a long way of saying it's basically that there's a framework that we have developed to understand what makes countries succeed and fail. And the key question for me is what is the business model of the country? I wouldn't argue that you absolutely need one, but it is helpful if you do. And Bangladesh turns out to have really strong business model, which I think has got a sustainable competitive advantage and will be sort of a development miracle in the making. And what's the business model? Well, as I said earlier, it's basically the most competitive locust labor force on the planet. Again, quarter of Chinese and half of Vietnamese wages. As a result of that, you have its manufacturing and export focused. You've got a current account surplus from X.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Some of our LPs are some of the biggest brand consumer goods families who have been, of course, in this business for not only decades but generations. And they've seen everything happen to them from, I mean, they have owned these businesses through World War II. They owned them through nationalizations and XYZ emerger market and currencies and so forth. So an interesting insight, like one of families who is in a beer business said the most profitable market in the world is Papua New Guinea. I didn't see that coming. I thought it was surprising to me. Papua New Guinea. What do you know about Papua New Guinea? Cannibalism. So yeah, but here I laid out for you. You got big enough population, not even that big, but it's young population hot climate, which is good for beer. But here it comes as one brewer. 60-odd percent margins or so. Now I'm from Germany. We drink 120 liters for every man, woman, and child. Present company included. There's 82 million of us. We're pretty rich and it's a safe place to business, but no one makes money in beer. There's 5,500 brewers every village has one. So the point is like it's not the largest market, but it's the least competitive and still larger market that has”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Other hand, it's not a good model basically and hasn't worked. You don't need democracy, which is a controversial thing to say, but look at Singapore, look at China arguably, right? So you can have a lot of development and wealth creation without democracy as long as you've got property rights and courts that protect those. What we're benefiting a lot from in our universe is the fact that most of those countries are former British colonies. So they're part of the Commonwealth. The British left the imprint of English law, English court system and legal system protected property rights. So that's true for basically Bangladesh, Pakistan, that's true for big parts of the Middle East, that's true for much of Africa. That's a good situation and a good setup. Now, of course, are there problems? There are lots of problems. I mean, especially headlines, politics and riots and terrorist attacks and so forth. But we find generally the gap between perception reality being kind of bad headlines and good bottom lines. That's pretty, I think, an interesting theme. Again, the stocks are cheap because the headlines are bad, but you're not buying the headlines. You're buying the bottom lines.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“As I said, so we're stock pickers, not country pickers. Ideally, a frontier market doesn't stay a frontier market, but develops. And so we spend a lot of time thinking about and reading all the literature on the question, what is it that makes countries succeed and fail and what happen if they do? And there's tons of literature on this. I mean, starting from guns germs and steel, Vajara diamond or Neil Ferguson's The West and the rest. Bess probably is this Darren Aglu book about One Nations Fail. But I think the common thread on all of those is that you have, it's really It's not about geography, it's not about religion or ethnicity. It's about effectively institutions. The quality of institutions, especially property rights and the courts that protect those. And if you've got bad institutions, I mean, the way to understand it, I guess, is pretty obvious. If you're an entrepreneur, an investor, or a salary man, if you can't be sure to keep the fruits of your investment entrepreneurship or work, whether it's arbitrary dictatorship on one hand or communism on the other.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Digitally enabled businesses. It turns out that it's much easier to move bits than to move atoms. Marginal cost of production is zero for software. You got distribution through mobile phones, and those have arrived in our markets with the vengeance. I mean, even before the smartphone came along, you had pretty high mobile penetration, which happened pretty rapidly. And now the smartphone penetration has caught up. I mean, Pakistan went from zero smartphones to 60 million in the last couple years. We've been doing this only. So it's been pretty astronomical. And so we're looking increasingly for the best digitally enabled businesses there. I don't think you'll see a Tensor-Non Alibaban Sea coming out of our markets, but you definitely see some interesting local champions. Anything you find the odd, quirky market that will produce some pretty big businesses.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Although best example of that would probably be Iran, which is sanctioned, but that's exactly like China firewall and so forth. And there's the internet activity there is out of control. But of course, we can't invest there unless you have a new president or new policy to that extent. But there's definitely other internet-related businesses that are being built, whether it's in payments, whether it's in sort of online classifieds, especially both horizontal and some verticals like property or other areas, which I think are going to be very fertile hunting grounds for long-term investors like us. And the leap of faith there, right? It's actually not different in my mind because, again, as I said earlier, the best businesses for me, we're not a consumer staple investor. We like quality for reasons I explained, and whether you have high margins and low cap intensity and a high return on capital that's sustained by brand or distribution or network effects, we can make that leap of faith pretty easily. And I would argue some of the world's best businesses today, especially in the United States.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Something like that. And Kuwait is a country which has, of course, oil wealth, and as a result, GDP per capita higher than the United States. And so that's not really what we're after. We're looking, Bangladesh is a real frontier market where people live on two or three dollars a day and there's half the US population, so 170 million people. The country's the size of New York State, it's super dense, and people literally going from two to three to four to five dollars a day. And Kuwait is very, very different.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“I fully agree. I mean, I don't know what's going on at MSCI, but they clearly have very different ideas of what makes a frontier market like Kuwait, for instance, would be, I think, one of the biggest index weights in the frontier market.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“So they're both in Nigeria. So, if Nigeria kind of flows up, which happened, you have a drawdown in both, but you've got a bigger drawdown than the lesser one. If Nigeria recovers or does well, you make less. So basically the idea is to buy the best, not the rest. The first best may be if the difference is close, the first and the second best in each country, and then do it over a lot of countries where you diversify the single country risk without diversifying or diluting the quality of your portfolio.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Quite concentrated. I mean, I'm sure there's more constraint funds than us, but we definitely can look in the mirror and say we're living true to the idea of punch card investing, basically. So our biggest position is around a quarter of the fund. Our second position is 20-odd percent. So the top three are basically over 60%. So we own call at 10 or a dozen stocks, depending we've got a small, like some foothold positions in some names for reasons I can go into. But basically I call it dozen stocks. And this is informed by the idea of quality again. If you believe what I said earlier about the benefits of quality being so important, then it must be true that the outcome for the long term in the very first best business is going to be way superior than the investment outcome of the fifth best. And then you couple that idea with the fact that our single biggest sources of risk is country risk. I would argue within country risk FX, then why on earth would I buy, I don't know, the fifth best business in Nigeria if I can have the first best?”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, a source of mode because of this idea, let's say again, sticking with biscuits in Bangladesh, you've got these million mom and pop stores. So Mondalis is not in Bangladesh for a couple reasons. I mean, there's import duties, but even beyond that, their products are not made for their price points. So it's a chicken neck problem for them. If they came to Bangladesh, they would need to first build the distribution, but they don't have the brand yet and they don't have manufacturing yet. If they're manufacturing the brand first, they don't have distribution yet. Kind of you got to have both at the same time, which is chicken egg. If you have it already, it's a huge advantage. And you can push more products over time through distribution. I mean, in a biscuit company's case, it's the first just most basic biscuits, then it's peanut butter biscuits, it's Oreo type sandwich cookies, it's candy. One day will be chocolate. And then the savory, there's instant noodles. So you can branch out into adjacent categories and push them through the same distribution. And of course, that's going to be a very long runway for growth.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, first, you ask for how many number of outlets you reach, right? In let's say Bangladesh, there's probably a million five max outlets in the entire country. That's already a lot. And so how much do they reach? So the percentage of coverage, whether they do this directly or indirectly via wholesalers, how does this rank against the competition? How much is there still to do in terms of getting coverage higher? Then how does the working capital work, basically? Do they give credit? Do they get paid cash? As I said earlier, like the vast majority of our companies are paid cash by their customers. And of course they have got 30, 60 or 90 days on their own payables. So that can lead to negative working capital. And of course some distribution margin they're giving away and there's a trade-off there between margins and working capital and how much turnover there is in the sales force, how many salespeople they have. So there's a lot of quantitative, I would say, metrics that you can look at. And on the qualitative side, it's just that they realize the distribution is not a kind of nice to have, but it's...”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Visa free countries in the world, and you show up there. If I was American blonde, female, I mean, I would have a much more difficult time. Three quarters of these countries are Muslim countries. You need to be able to have, I don't know, grow a beard, sacrifice your liver once in a while with these tycoons. And Pakistan is a good example, where not even Indians get a visa because they don't get along. Americans watch homeland, so there's no interest in going to Pakistan. None of my Jewish friends would ever set a foot in the place either. So who's going to do it? Some of the best investors I've ever met were either or a combination of American, Jewish Indian. You're shutting out a lot of smart people. So no one goes, basically. That's, I think, definitely easier to have a large and sustainable edge in my markets, but it's a sacrifice you have to travel a lot.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Edge is, I would say, what I said earlier. So I would say we have a slightly more sophisticated investment philosophy and process, although that would be a commodity in this part in the US, but it's not a commodity there. We have a longer time horizon. We've got a sourcing edge. We got information advantage. There's no database for transcripts. There's no quality cell site research at all. So it's very old school. You get the annual reports from the stock exchange, from the companies, sometimes dust them off from certain archives, and then you then build a model. Now, having then all the data, which is hard to get, and we've built a library of transcripts and so forth, which is proprietary, once you have the data to make a judgment called these are good businesses, that's again, I don't think, I wish there was my USP, but anyone has solid financial sort of fundamental investing training can do that. But then buying the shares is difficult and being able to hold or even to add on weakness. And it's taxing. These countries don't look pretty scary to some people and other source of competitive advantage is my German passport. I always joked that it's pretty neutral. We've got the most.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I would say it's a fair point. I think it's very important to know what your edge is. I mean, the most important advice I got when I started Kingsway was from, I hope you don't mind me saying this, our biggest day one investor, who is how it marks the founder of Oak Tree Capital, who's, of course, been terrific and effectively become a philosopher. So he told me, many, if you want to win any game, whether it's sports or investing, you have to be a good athlete and you're a great athlete here, but there's so many others. And the difference between best and the second best and the third best is very, very small. So more importantly than that, you have to choose a game that's stacked in your favor. Seek inefficient markets, basically, for them it was junk bonds in the 70s or 80s when Moody's came out and said there's no price, not even one cent on the dollar you should ever pay for non-investment grade security, which we know is a whole lot of rubbish. And the same vein you could look at frontier markets as people out there, I'm sure, are saying there's no price, not even whatever. One-time earnings and 90% dividend yield that you should own for pay for Pakistani stock, which I would argue will be a whole lot of rubbish. Yeah, so basically our...”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's our capital so dear that we'll find bargains from local sellers that are meeting our cost of capital because they can do even more interesting things. We will never do real estate in Kampala. So you find things like that.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“But yeah, sourcing. So, because these markets are small and of course illiquid, but I would point out that the liquidity is just different. So it's all blocks. So you have to find owners of stock that are willing to entertain the idea of working with you and the conversation is typically we are large investors in your country, love to do more. We've got, I think your country holds a lot of prospects, but we struggle with liquidity. And if you phrase it that way, then, oh, here's a cup of tea. Here's a biscuit. Let's talk about it. Okay, well, how can we help? That's worked for us. hustling i went to kampala uganda bought 8 of bat uganda at like five times earnings and i was the only guys i walked into the office of that guy and asked politely whether there's a transaction to be done and there are no fools he sold this for basically a 20 dividend yield to me not because he doesn't think it's gonna be a good return but he is building a real estate project over there that has 18 months paybacks and so forth and so because the cost of capital is so high in these countries”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. So India in the year 2000 was $80 billion. Today it's $2.5 trillion and it hasn't gone up 30x because there's been some issues, but it's been a good performing market. But the kind of businesses that we're talking about are the best brand and consumer businesses, whether that's Gotridge or Britannia or Dabor or Mario and these sort of companies or ITC and even Nestler. So they have to kind of been 50 to 100 baggers or some instance 200 baggers over that period. So in Bangladesh today it's 35 billion. That's similar to Nigeria, Egypt, Pakistan will be slightly bigger, like not more than 40, 50 each. Kenya has 20, Tanzania has 5 billion, all of it, right? So it's literally staggering.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's a matter of then having that relationship, and we are one of the biggest investors in Bangladesh. We own, I think, something like one and a half, even up to 2% of the entire stock market there. By the way, these markets are tiny. I'll go into that if you want, but I think it's fascinating just to look at the absolute dollar market cap of these countries. Bangladesh will be kind of $35 billion all of it.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Suppliers, he does mystery shopping and things like that, and maybe meet the advertisers. And then you also meet with a five or ten biggest holders of some of these shares. And those are either government related pension funds. These are local asset managers or banks, insurance companies, or individuals or families. So Bangladesh, there's a group called ICB, which is investment corporation of Bangladesh. They own half the market. And they got these shares for free. And every June 30th, they need to raise capital to fund their commitments. And they don't care whether they sell the telcote, the cement company, the bank, or the biscuit company.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“That you got to have a real capability that we've built. Which basically slows a challenge, but also an opportunity. It can be a source of edge. And I would argue we've built a sourcing edge, and that's a lasting competitive advantage for us as a firm. We think a lot about what is our own competitive advantage and how do we grow that. And it's the same vein. I mean, our competitive advantage is intangible assets. Like our relationships on both sides of the balance sheet, we've got terrific LPs, got terrific portfolio companies. We want to be their go-to shareholder for anything strategic. Of course, we're long-term, which has been, which can't be said for most people in these markets. We have a lot of domain expertise and so forth. And we're sometimes actively helping our companies to execute and grow the Crow value. And then we have a sourcing edge. And so on that. So basically, as I said, 90% in the block market. So what you have to do, you have to, of course, travel to these countries. So I go once to the moon area, equivalent distance traveled, and there's a handful of us. And then you meet with those portfolio companies, their competitors.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Markets trade very differently than yes, let's say the US equity market. So you can't put an order and go to lunch and expect to get filled. So first you need to solve a problem of trading, settling, and custody. So that's already not trivial. So when I was a Goldman getting pregnant with this idea, I tried to buy myself some shares PA in some of these markets. And turns out Goldman can't do it. And that's a cotel because most money center banks won't be able to do that given these markets are so small and irrelevant, frankly, for Western money center banks. And so the vast majority of capital world doesn't even get the physical access. We need to get that plumbing right. And once you got that, the next problem is how do you find the shares? There's, of course, the daily liquidity, but it's really the wrong metric because 10% of what any of these stocks trade will be sort of what you would call liquidity, where basically ADTV, but 90% is in the block market. So these are basically almost like OTC blocks of stock that you need to find, both in the buying side and you need to find block buyers on the selling side.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Bank of India than covering JP Morgan at equity. And as a result, I guess especially large caps in India have pretty highly valued, especially the highest quality businesses, including consumer businesses that we own. So they're trading sort of between 40 and 60 times earnings. We started out, we were like kind of in the low 20s, basically PE and now we're kind of half of that, basically like low teens. And so we think that's very attractive on an absolute basis. But I would agree with your observation that even on a relative basis, it's even more attractive than I had other options in life. And the reason I'm very excited about our 2020s because where can you find really high quality businesses that are secularly growing, that have very high returns on capital, very strong modes, and where can you find those that attract valuations for reasons that you understand and are comfortable with?”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“17 was a bit of a respite, and the markets came back nicely. We thought that was the end when we felt pretty good at ourselves having loaded the boat in 15 and 16 with more stock at pretty attractive prices and then Trump starts to trade war, everything is down again 20 plus percent again. Now earnings are up every year, in some cases are accelerating like Bangladesh case, Trump is, I guess, bad news for emerging markets as a whole with China and stuff, but Bangladesh is accelerating. I can tell you that much. And so we're a situation where multiples have kind of halved or even more than halved in some cases sort of 70% derating across the board, probably closer to 50%. We started out these businesses were kind of half of Indian valuations. India, of course, has, it's kind of the market we study the most in terms of the bigger emerging markets given has the most similar profile in terms of the conditions on the ground and so forth. The big difference is the Indian equity market, I would argue, is much more efficient. You've got more analysts covering, I don't know, state.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Risk and currency is the biggest piece of that. And then the other big issue, I guess, has been that how QE has kind of worked, basically has sucked a lot of liquidity out of rest of the world back into the dollar. That has been definitely a big driver. But the real biggest problem for me or for these markets has been the structure of markets and how other market participants were setting up affairs, which was basically with daily liquidity funds. So the vast majority of frontier market are Africa funds and so forth will be used daily liquidity. And those were the biggest. They raised a bunch of money in the sort of aftermath of the financial crisis. So Templeton allegedly had $13 billion in frontier markets, which is now down to something like a couple hundred. So it's been literally not 50 or 70, but 80, 90% decline in terms of flows. And it's pretty much across the board.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“We're up sort of twice that. It was relatively calm. And then really starting in late 2014, big cracks started to appear in this kind of bear market started in earnest where people were worried about China hard lending, number one. Number two, the commodity price collapsed and frontier and emerging markets in aggregate might be seen as a commodity play, which might or might not be true, but we're doing it very different. Our companies turn commodities into brands. We're effectively short commodities and long stomachs. They use fuel for distribution. And you can see that in the earnings numbers, earnings numbers were not all impacted by, if anything, like low commodity prices led to an instead of expansion in margins. The top line was slightly soft because of low inflation, but that's okay. And so that was the second problem. The third problem is then these many emerging market currencies became very weak or devalued and the dollar has been super strong. And I think the dollar is actually one of the most important macro variables in this, with stock pickers, not macro or country pickers, but we have to worry about single currency.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. So let me kind of try to explain that a little bit. So basically, after the glow financial crisis, in which was a similar drawdown to what had India S&P, and now I'm talking about the MSCI Frontier Index, which is not a great index at all. We don't pay much attention to it other than it's sort of a measure of popularity for the asset class. I think that's fair to say. And so we're now still roughly 50% below the pre-crisis highs of 2007-8 and just hovering above 09 lows 2009. This is 11 years ago. So we have 50% lower than we were 12 years ago and sort of just above 09 lows. So it's kind of 800 on the S&P. So their diversions has been spectacular. When we started the firm just over six years ago, it was already pretty wide discrepancy there. And the first 18 months were actually pretty smooth. There were modest inflows into these markets. I guess people realized that there's already big diversions ongoing. The markets were up, something like 20% in the first 18 months of us doing this.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's been a tough period for these markets and for us investors. Although I think it's a huge opportunity. And basically what happened was this is a relatively nascent asset class. I mean, although you're talking about 40% of global population, you talk and 15% of global GDP, both fast is growing again, you're only talking about 50 basis points or so of global equity market cap. And again, I would bet that those will be much bigger numbers. What has happened basically is that So frontier markets started really to be on investors' radar just before, I guess, the global financial crisis in the mid-late 2000s. And of course, we had this large crash, which was Western-induced financial crisis that, of course, also led to a drawdown in these markets. But these markets have never recovered from that, and they have never received a single dollar of QE money, quite the opposite.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“I would stress that we're not wedded to this idea it's not about consumption, consumption, consumption for us, about quality, quality, quality. We just want to own the best, not the rest, both in terms of businesses and people who run those. And we find opportunities increasingly in healthcare, in education, and perhaps most excitingly in internet-enabled businesses.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of course, these markets are cheap and these stocks are cheap, and I think that's, of course, an opportunity. These are the most inefficient equity markets in the world, I would argue. And of course, the runway is very long. And I would argue that these businesses that we invest in are there's still a little bit more expensive, let's say, than the average market multiple or something like that, or whatever the telco might trade it or something. But I don't think that people appreciate having the local investors we compete against show that many, they will always know more about their home country, but they will, I think, I would argue know slightly less about the long-term sort of compounding trajectory of these and the strength of these modes, of these high quality branding consumer businesses.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“And wave that sort of these businesses are benefiting from. And yeah, and so the other good thing, of course, is that the problems that brand and consumer goods companies have in the developed world, where they have, whether it's Walmart as a customer, which squeezes you both on margins and work on capital terms, or now Amazon, similar, I guess, and of course can do private label and stuff like that. That doesn't exist in these markets. There's not even supermarkets yet. So the formal retail penetration will be something like 5%, which means you've got not only higher margins, but you've got also lower capital intensity because you got either lower or sometimes even negative working capital for branded consumer goods companies. And bigger modes, because you can't just show up and plug into Walmart. You have to literally build distribution to a million points of sale. Mom and pop shops. They pay you cash. They have no bargaining power against you. So secondly, we are, of course, not at all affected by this better for you venture funded sort of whatever almutition.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“A general rule of thumb don't shoot the messenger, but that's clearly the human psyche, I guess, has a tendency to start with these categories very early. Makeup starts a little bit later, but then has longer runway. But yeah, there's definitely sort of tobacco alcohol, biscuits, snacks, confectionery, and other food and beverage categories are sort of starting earlier, and then sort of cosmetics and consumer healthcare and things like that can start a bit later. So basically you got demographic driver, you got the GDP per capita driver, you got the bottom of the S-curve. So putting this all together, you get this very strong structural tailwind. The other way to describe it, I guess, is what's the greatest force in the universe? I would argue it's sort of apart from compound interest perhaps, it's the kind of willingness and desire of every single human being to have a better life for themselves and kids and their family. This is what Bill, after all, the United States as well. And you shouldn't bet against that even if the government's not helpful, which it typically isn't. There's three billion people waking up every morning with that idea. And so that's just this powerful force.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly on lower savings rate, so it frees up discretionary spend. Now you basically have got a clear hierarchy of needs. First, anything to eat, to drink, to wash yourself with, unbranded, you're in the informal sector, then you buy the mobile phone, and then you buy brands. And that happens really between three to five bucks a day, depending on the category, some of the SIN categories start earlier, but then tail off also earlier.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Does GDP per capita growth translate into the growth in brand and consumer goods consumption? And that's a non linear relationship. Some people call it the S-curve. Nestl has this framework, calls it the hot zone. Basically, the idea is that at a dollar a day, you're not a customer yet. And for two reasons. One, the dollar amount is too small, but secondly, the savings rates are quite high because of irregularity of income. It's not like a dollar, dollar, dollar a day. It's nothing for, I don't know, two weeks. And suddenly 14 bucks because of some random one-off construction or rickshaw job or whatever temp work it might be. And so the small dollar amounts and up to 50% savings rates of that. But then what happens? You go from one to two to three.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Are sort of my people. And we're going to go from seven and a half to nine and a half billion in next sort of over my investing career. And all the extra $2 billion will come from my markets, one extra billion from Africa alone. So the demographics are pretty staggering and scary, actually. So the average number of kids per mother in Nigeria is like six. That's the average. And the average age of these populations is around the 19 or 20 mark. So it's like this pyramid. So by far the fastest growing populations, then there are the fastest growing economies. Bangladesh is sort of growing real GDP over 8%. It's the fastest growing economy in all of Asia. Probably the biggest beneficiary of the US-China trade spat, given they have a strong advantage in labor cost, it's roughly a quarter of Chinese and half of Vietnamese wages. They've already taken share in the last few years, but that's accelerating now given, of course, tariffs on China. And so the next point is, so apart from demographics and GDP per capita growth is the question,”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“And there are high valuations on big profitability numbers. So while that is not over, I think it's hard to see another 10, let alone 100 or 200x from there, which is what happened the last 20, 30 years. So that led me to look at frontier markets. And again, I mentioned the kind of countries earlier. So of course, it's no surprise to kind of look at the things like demographics and economic growth, but let me like put some high-level numbers on that. So basically the countries that I'm sort of focused on are home to roughly 3 billion people. We know which is bigger than India and China combined today. So it's a very large part of the global population, roughly 40%. So if you look at the world, if I look at the world, where I look at the world today, there's 1.3 billion people in the developed world, so-called, North America, Western Europe, Australia, Asia, Japan. There's another called a 3 billion people or so in the BRIC emerging markets, and I don't necessarily like that definition, but let's just use that as a sort of helpful categorization. So most of them, of course, are India and China. And then there's another 3 billion people.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and maybe I'll weave that into my personal journey. So I sit at Goldman Sachs at this very high powered investment team and really get pregnant with two big ideas. Instead of being an acrobat to be a long-term owner of the very, very best businesses and again, the brand and consumer goods industry, which is by far not the only industry that has great quality franchises, but of course there's an unusual, rich amount of them. They've delivered me teens forever, the global best sort of brand consumer companies. Meatens forever isn't bad, of course. There's no shame in getting rich slowly at all. The most important thing is to get and stay rich. And these businesses have been caused widely successful at that. But I guess I was a young man in a hurry looking for 20s, and I found 20s in emerging market consumer. That's whether it's India, Brazil, or Indonesia. So you could have had 20 plus IRAs for 30 plus years, basically. The challenge with that then was in the rearview mirror, of course, these were already been compounding for a very, very long time. They've become very large absolute dollar market cap.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“combination of lower risk of permanent loss and superior long-term return is sort of the magic trick. And then the third one is what I kind of touched on a bit earlier, is defined if you believe one and two, but how on earth what's the best business 10 years from now? And the answer is I don't know that, but I have a high degree of conviction and data that suggests that the best businesses, if well invested, if the management team looks after their brands and redeploys access profits into growing the mode of the business and growing the business, the best businesses tend to stay the best businesses or even get better. And that's due to this flywheel I mentioned earlier.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's per my definition. So, next year you got 120. Now, if you then can sustain the 20% return on capital, then you can reinvest the 120 to 20%. You've got 144 the year after. So whatever the market pays for this today or tomorrow, whether it's public or private, it shouldn't matter either. It must be true that in 10 years from now, you've got a much bigger pile of money as an owner of that business than as an owner of a business that can generate and sustain 10% a year. Even if you pay a little more for that. So that's kind of the first point. The second point is not as obvious perhaps, but just as important is the lower probability of loss, a lower risk of impairment of capital. That's basically due to the fact that, again, these businesses sell products that people buy out of loyalty habit. There, say, addiction, the wallet shrinks the stomach doesn't. It's very defensive in terms of volumes, even if there's a recession or some sort of contraction in economic growth or consumption. These are gently impacted typically. And they've got pricing power that can pass on money cost inflation. They've got no debt, so they can't go bust.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“That's more than half of the other guys top line. So for them to ever match your dollar for dollar, it's virtually impossible unless they want to be gross margin negative. And even if they did, you could raise from 10 to 12% and make a little less money, but still be widely profitable. And you can sort of buy the pot, which is kind of why there's sort of this equilibrium once you're sort of two to three X, the next competitor, it's almost game over if you're well invested. And I think that's an important insight. I mean, there's a lot of talk about the end of brands and so forth in these branded consumer goods companies in the Western world. My own view on that. It's not a day-to-day worry for me given Bangladesh, we're very far away from that. But it's definitely true in my mind that these high quality businesses have, I think, very strong advantages for long-term investors. And I would point to three of them. Number one, I would argue there's a superior long-term return to be had as an owner of a higher quality business, even if you pay a little more. Let me lay it out to you mathematically. If you've got a business that has, say, hundred of capital and 20% return on capital and can sustain.”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source
“Alcoholic beverages in that category Function for under coffee is pretty clear you want to of course kind of become more awake and present function of alcoholic beverages again you want to kind of descend together typically with others into like a slightly different state of mind so you need of course very clever advertising and ideally that's basically sticking in people's brains and then you want to keep doing that basically you want to basically the flywheel of these businesses is when you reinvest a portion of your top line into advertising promotion or other intangible assets like distribution so basically let's say you spend 10 percentage points of your revenue into intangibles and let's say you've got we've got a situation in tanzania where we've got a brewer that has something like 85 market share and so let's say the competitors got 15 so let's say this company spends for using round numbers 10 percentage points of their revenue into reinvesting into brand distribution other intangible assets now that's eight and a half points that entire market”
2020-04-21 · Invest Like the Best · Manny Stotz - Frontier Markets Investing - [Invest Like the Best, EP.169] · IDENTIFIED FROM THE TRANSCRIPT · source