Comparing the Dotcom Crash to Today (with Tom Cowan from TDM)

26:19When you talk about having an influential position in companies, what are the positions that you're taking? So the positions can range from a couple of percent to a larger position today in terms of ownership of companies, about 40%. We've always been a minority shareholder and regardless of whether that is a few percent or 40 % of a business, we always behave the same way. We're there to support management. We're there to back management and we're there to do whatever they would like us to to help them get better, but we're certainly not there to tell them what to do. So our position size in terms of ownership really doesn't change our behaviour.

26:59And how early do you think you can determine that a business is one you'd like to be a part of? Early in terms of size of business or early in terms of relationship? Oh, actually, both questions. In terms of size, we do invest across all industries. So we're not just software businesses. We see ourselves as growth investors. In terms of where we spend our time, we do invest across consumer, software and healthcare in particular, being the three largest markets that we think can be disrupted. So it is different by area, if we just focus on software. I'd say generally speaking 50 to 100 million of revenue, we're certainly not in that product market fit stage.

27:44So I'd call us later stage growth investors. For consumer, that's probably 200 or 250 million of revenue just to put in perspective. It does change with industries. In terms of relationship, the longer the better. It's probably the simple view because you really get to understand people over time and the longer the relationship, the better often in certainly public markets and private. We've known people and followed people and watched people for many years, probably investing. That's our ideal setup. But at the same time, if we love a business and we do feel alone with that management team, it can be months.

28:22So it does change, but I'd say ideally longer the better. Yeah, it's funny. Your time skills are not at all like a venture capitalist who often needs to make a decision in days, maybe weeks, definitely not months, except in this market. Sometimes you can let it go months now of diligence. It's more like a limited partner, to be honest. It's that year plus relationship of making a very slow but very large commitment. Yeah, ideally. I have to say we did not on the private side, because we do invest in public and private. On the private side, we did not enjoy 2021 or 22. The idea of quick deals is not in our view the right thing either actually for the company or for the investor.

29:07We actually see these things as a marriage. So every founder that we ever speak to, we say the same thing. We do say this is a marriage. Let's get to know each other rather than rushing and trying to do a deal in weeks. We always thought that was great. VCs have been saying that for decades, but like the context is different. It's like, oh, let's not rush. Let's take a few weeks. You know, I'm actually really curious on the public side of the, I won't say courtship process. That's not really what you're doing here, but the relationship building process, the proposition here of, you know, if you become investors, you're going to have a large stake in a public company.

29:48You might be probably are in many cases the largest shareholder with a very, very, very, well, most infinitely long -term horizon relative to other public shareholders. Our CEOs, even aware that like something like this exists out there. How do you go about talking to them? Then I'd say normally very surprised on a few fronts in terms of how we approach it. One is the time horizon. So, you know, we really upfront when I say we want to be owners of this business for the next five to 10 years, ideally even longer. When we're having our conversation, we want to talk with that time frame in mind. We actually don't care about next quarter.

30:27You know, you sort of see this pressure release and they're so relieved that there's someone out there that actually doesn't want to talk about next quarter. I think the other thing that often comes up in that conversation is that we want to talk about people and culture and our views around ultimately when you are investing in a business five, 10, 20 years, the people you're backing is so important. The culture of the organisation is so important and we would argue the most important. It's a longevity and our focus on people and culture that really catches CEOs off guard. Just kind of mechanically for a public company too, you're taking a huge portion of their float off the market.

31:08For certain size companies, that's definitely case because we can own 10 or 20 % of a public company. That's definitely a consideration, but we could also just be a few percent of a much larger business. Some of our businesses are 20, 30, 40 billion dollars in market cap. So, obviously in that situation we're a smaller proportion and that's not really a topic that comes up. It's more we love to have long term owners. We love to have someone who doesn't want to talk where next quarter and we'd love to spend time with you so you can understand the business better. So, three questions for you that are all sort of related to ground some of what we're talking about for listeners who are sort of wondering what's going on.

31:48One, are you willing to give us sort of an assets under management size so people can understand the scale at which you're operating? Two, what was that 18 years ago to try to understand how that's changed over time? And frankly, the incredible performance you guys have been able to get. And three, are you okay talking about some of the businesses that you're involved with today? Sure. So, maybe the first one today we have about two billion dollars of funds, but we have not raised a lot of money. So, we actually started with a few million dollars or to be specific, a million dollars back 18 years ago.

32:20You know, we were 26 years of age. We had no track record and so we were just happy to take a small amount of money and go do what we love and see how we went. So, we started with a very small amount of money. We've raised, I don't have the exact number, but it's probably in the order of about a hundred million dollars in terms of the capital we've raised from our families. And as I've said today, we manage about two billion dollars. So, some examples of companies we're investing, some you will know and some you won't know. So, maybe an example of a company we invest in historically that you would know we actually pitched slack at Sony a couple of years ago prior to the Salesforce.

32:57To sound conference, of course. Yeah. Oh, sorry, the Sony conference. There's an Australian version. So, that was the Australian version. So, that's an example of a company in the tens of billions of dollars or size. So, another one that you most likely would have heard of is a late stage private company called Cold Tramp. It's an engagement software tool that is continuing to build out its platform and is super successful. It's an Australian founded business, but now global business. And then there are a number of companies that you would most likely not know what I'm talking about. And so, maybe a couple of examples there.

33:32I'm on the board of a company called Rocked. It's Australian founder, but now New York based. That business is in marketing software is super successful. Rough numbers, you know, does North of 300 million US revenue growing super fast. And in Australia and consumer, another one you probably wouldn't have heard of is one of Australia's largest QSR businesses. Guzman Gomez. That's a quick serve restaurant. It is. It is super successful, growing super fast and disrupting the fast food industry here in Australia. It is growing businesses across a ton of different sectors. I'm chuckling over here because lots of listeners will recognize Cold Tramp if they've listened to any of the acquired backlog recently.

34:15We're obviously big fans over here too. I want to ask you a question, which is why do you write these memos? That's a great question. Especially if you're not bringing on new LPs. Let's go back a few steps. We really don't like thinking about anything but our company. So I would say we spend 99 % of our time just thinking about our 10 to 15 companies. That other 1 % is thinking about more macro items. But there are periods of extreme volatility. Early in setting up TDM, we obviously had the GFC hit us. At that point in time, we really wanted to get clarity of thought around how we're thinking about deploying capital in these extremely volatile markets.

34:57We found it super helpful. It was super helpful for us to get clarity of thought. And then it was super helpful sharing amongst ourselves in terms of internally. And then what we found it was super helpful in sharing our thoughts with our clients to make sure they're aligned with our approach. And ideally, get as excited about deploying capital in those volatile times as we are. So that's where it started. Roll forward, COVID, same thing. You know, really didn't know what was going on to be frank. It wasn't something that we'd seen before. So we started writing these memos again for exactly the same purpose.

35:33It was just this time we released them publicly. Helpful. It's sort of alignment between all the different stakeholders you have, but also just clarifying your thinking. Basically, they're really the two key reasons why we like to put pen to paper. It's really in the periods of extreme volatility. We started talking about this particular memo. What have the other ones recently been about? Yeah, interesting. You should ask. We wrote one back in February 21. At the time, we put forward an argument that really the valuations were crazy and therefore, as a result, the expectations for growth were unrealistic.

36:14And so we said about going through the day to explain why we thought that. And the way we did that one was similarly, we looked at the best merindex and we looked at the group of companies and looked at the median company. What did that company look like? At the time, the median best summer company had $500 million of revenue. It was trading about 15 times revenue at the time. We said to ourselves, well, as an investor, we want a 20 % return. So what does that company need to achieve for us to achieve that 20 % return? And effectively, you can go through all the details and the memo in terms of how we went about that.

36:51But, effectively, what we said is that company has to grow at 30 % a year for 10 years to achieve that return. And so the power of compounding really plays out. You're going to take revenue from 500 million to 7 .5 billion. There's some very large numbers when you really think about that. And then you look around and say, well, who else has achieved that? Well, the base rate is extremely low. In fact, there's only two companies, two software companies that have achieved that that's Microsoft and Salesforce. I should note, there are three others that are there or thereabouts. In fact, I would say service now will most likely achieve that this year in their 10th year and work down in Palo Alto networks are there or thereabouts, but probably won't achieve it in their 10th year, which is also this year.

37:38But if we were to be generous, there are five companies. So the base rate is very low. So if you're investing at 15x revenue in a high growth technology company, you got to believe that this is a, you know, two to five times in a decade, like a very, very special company in order to generate a 20 % annualized return. Yeah, that's what the mass is. So it's tough going. And when we think about that period, I think companies were growing at very fast rates of that period and say, very easy to extrapolate sort of near term revenue growth, the business growing 50, 67 % and you start extrapolating that.

38:16But you've got to then look at what that looks like over 10 years and you get some very large numbers. Because in the near term, you're not bumping into the total addressable market. You're not bumping into capital getting more expensive. Therefore, marketing getting more expensive, therefore a need for slower growth because you have less marketing dollars. There's all sorts of like natural forces of business physics that can strain when you actually are looking at a 10 -year horizon. There is no doubt about that. And I think it's easily forgotten when you are in that, that's called bullish or more frothy markets, very easily forgotten.

38:51Okay, so this begs the question, what do you do? Do you just sit on your hands and not invest? And like, is that okay? The way you're set up? So we actually talk about in the memo in terms of the way we see our role from a portfolio management perspective. These are the times where we need to think about it. Do we want to be offensive? Or do we want to be defensive? And how it marks talks about this quite a bit. We argue at the time it's time to be defensive. Things were a little out of hand. Those growth rates or the growth expectations were unrealistic. So how do we behave? The way we solve that is hold lots of cash.

39:28We've set ourselves up as I mentioned with no mandate restrictions. So we can very easily have 20, 30, 40, 50 % cash in those times where it's really hard to fund opportunities at the right price. If you're comfortable sharing, who else does that besides Berkshire? In terms of holding cash? I mean, holding gigantic near majority positions of your portfolio and cash for extended periods of time and that being completely okay. The important point there is and so it goes back to the context of why we set up TDM the way we did. Our view like Buffett's view is you need that flexibility. And so most fund managers, certainly on the listed front, most fund managers have constraints.

40:13They can only have a maximum of 10 % cash or 90 % invested. And on the private side, same thing. They've raised a fund with a time frame. There's a fund life. And so there's pressure to invest in a certain period of time. We don't have that pressure. That really goes to the heart of actually why we set ourselves up the way we have. This is sort of the natural effect of the phenomena that's been studied in tons of academic research about how individual investors always outperform institutional investors. You've sort of brought the flexibility of the individual investor to an institution. 100%. Forgive me for doing the commercial here.

40:51I think why not? I don't know what else to say. Okay, so this is the 2021 memo we're talking about where everything's trading at these crazy valuations. And so illustrating how hard it is to get a return worthy of the hurdle rate that you're sort of targeting on capital. So you're holding a low cash. What did you write in 2022 in the winter to springtime as markets were starting to fall apart? That's a great question. So we did write another memo because markets were starting to fall apart. And at that point in time, we actually wrote one in February 22. And the best merendex at that point in time at fallen 36 % and 40 % of the Nasdaq index had fallen more than 50%.

41:32So you'd certainly started to see, I'd say in this high -growth areas, a major correction. And we came out and said basically that multiples had returned to normal or long -term averages and that it's now time to be selective and start moving to a more offensive position. Now, I should say, obviously we're a little bit early in that call. No doubt about it. Things got worse. The best remand index kept falling. And then for the moment, the low back in November, 22, we're at fallen 65 % of it. Obviously macro continued to get worse. Inflation remained high. Interest rates kept rising. So that uncertainty effectively meant that things continued to get worse.

42:22What is your psychological disposition at that moment in history where you get excited about buying opportunities starting in as early as February? It's only down 30 something percent. It would get down to 65%. How does May, June, July, August feel for you as an investor? Well, this really goes to a really important part that we strongly believe in, which is you're not going to pick the bottom. We'd love to say you're going to pick the bottom in terms of where that market ends, but it doesn't work that way. We remain really focused on, have we found great businesses? Do we love management? And there's a trade -in attractive prices where we expect to get our returns?

43:03And as long as that's the case, we slowly methodically start deploying capital. So we don't deploy it all at once. We over many months start to deploy that capital. And so we were deploying capital back in May, June, July. We were also deploying capital back in November last year. And so obviously we got some prices better than others, but overall, we're delighted with what we've been able to purchase in terms of business quality and the price we're over what she'd. Yeah. Dollar cost averaging is a heck of a thing to manage your disposition. One of our learnings, particularly in the GFC, was it allows us to manage our emotional stability.

43:43Like it's hard when your share prices are going down 5 % a day. Well, that's the way it feels. It's hard. And so the way we like to manage through that is methodically and slowly deploying capital, knowing that maybe tomorrow we get a better price. Or maybe we don't, but it's okay if it's who's starting to point capital. I've been doing a lot less public market investing over the past year. David's become Mr. Index fund. I've become Mr. Index fund. Well, one of the reasons is just the emotional aspect of it. You know, I've been was a full -time venture, professional venture capitalist for a decade.

44:18And now I'm a part -time professional venture capitalist for another, you know, five or so called 15 years. My mindset is just you know, in the private markets, there is no dollar cost averaging. I think I was one of my big lessons from the past couple years in the public market. So like I didn't really take that approach because it just wasn't how I thought as an investor. It's like, Oh, great. Do you have convection? Do you want to buy you buy or sell? Yes, that's a discipline that I certainly could have used a lot more of. I think the other thing, the difference is you can't say the share price every day.

44:49And so yes, you only get to deploy capital once at a particular point in time as a private investor. But you also don't turn around the next day and see that the price is down 10%. You don't build that muscle of really understanding that the prices do go up and down. But ultimately the business value hasn't changed between yesterday and today. When we talk to our clients, we often say, you know, when you walk into your house, is there a big sign on the door that has a value? And are you thinking about that value every day? No, you're not. In terms of the businesses you're investing in the same thing, the value of a business does not change on a daily basis.

45:31It's purely a market mechanism. I think about kindergarten ventures by, you know, Angel is fun that I run with. My friend, now, if I think about, if somehow you had marked to market the kindergarten portfolio over the past 12 months, it would have fluctuated wildly in value. And yet for, you know, certainly not all, but many of the businesses that we invested in call it in a, you know, headier times would have been marked down a lot. And now I look at them and like, given their growth rate and how they're like, well, actually like, you know, I'm really glad we didn't sell those businesses. And there was no option to in the private markets.

46:09Illiquidity can be a feature to keep you from panicking. Totally. Well, and because we do public and private, we get to see that. And what we certainly say to the team here, we want to behave in the public setting exactly the way we do in private. And so in our private businesses, all we're thinking about is how that business is performing. How can we help that business? We're not thinking about the value of that business every day. And in fact, if you were to walk into our office, there's only one person in the office that has any idea really what's happening on the market on the given day. And that's a wonderful trader, Anna, but everyone else does not have a screen in front of them.

46:49So that flashing green and red screen is not a good thing in our view. Yeah. There's a few more insights from this 2023 memo that I want to ask you about. First is how did you get the idea that it was time to write on this particular topic and compare to the GFC and dot com bubble? It really started with as we're going through this cycle, really trying to understand what does this look like? And have we experienced something similar? And certainly as we were, we have been going through the last 18 months, we were certainly starting to think that this is more like the dot com bust period around the GFC where obviously everyone was doubting the financial system as we know it.

47:39And everything was impacted immediately and falling rapidly immediately. We just wanted to really go back in time and reflect on that and see what that looked like. Yeah. And so that sort of supposition about it being more like the dot com bubble, did that narrative play out? Yes, is a simple answer. But if I was to dive into that and maybe give some reflection, the dot com boom was crazy. And we'd love to hop into some anecdotes there. I mentioned not real companies before. I really want to get there. But just quickly before I get there, this growth index that we created, it was up four times, four times in the two years prior to the bust.

48:23And the NASDAQ was three times in the two years. That is some crazy sort of share price action. Like that's not one company. That's a whole basket of companies. That's an index up four acts in two years. It's quite mind blowing when you think about that, the bubble part. The bust was as good as the bubble. But you mentioned those not real companies. I use this story in one of the memories, but I can't help but tell it where it was actually the period where I started my career. I started in February 2000. I was bright eyed, bushy tailed, thought I knew a little bit about valuations. And I walk into the office, I'm doing M &A at the time.

49:05And the first thing I get put on is a merger of two businesses. And I was super excited looking at these businesses. And there's no revenue. And I'm like, I don't know what to do. How do you value a business with no revenue? So I go up to my manager at the time. So I don't quite understand this. We've got two businesses combined, you know, billions of dollars of value. And there's no revenue. How are we going to value it? And he turned around and said, what do you mean? And this is easy. We're going to value it on the number of clicks. Excuse me? The number of clicks. Yeah, the number of visitors to a website.

49:44And how often they click on the website. And then we'll split the pie based on that. I'm like, this is crazy. Whoa. Your stories like this, but this actually played out. 100%. So we used to do comps tables, comps tables. So not enterprise value to revenue or enterprise value to eBITDA or PE ratios. These were comps tables based on number of clicks. Enterprise value to a number of clicks. No, whatever. Wow. Wow. Yeah. So I don't think we ever quite reached that in this burst recent bubble. Why me through that DCF? What is the multiple on clicks?

50:27So it was pretty crazy. But the other thing you saw very often was you'd have IPOs and they'd come on 100, 200, 400 % premiums as in a premium to the night before to the the IPO price. And so with everyone wanted to be part of an IPO, it did not matter what that business did. And so everyone had prospectuses out and trying to work out how they get allocations. And there was one investment I made. It's a loose term investment on call its speculation. I invest in the IPO of a company called Open Communications. It was an asexless business that all of a sudden was worth many billions of dollars that went up 400 % 400 % day one.

51:08It was sold four years later for seven million dollars. Seven million. And it was worth seven million. Not billion. Seven million. Wow. It was an extraordinary period and maybe moving to the US when you do look at the larger or when we looked at the larger companies in the US at the same time, yeah, they looked at the top 10 NASDAQ companies. And they were on average 20, 27 times revenue. So these are the top 10 largest technology business on the NASDAQ that I tried in 27 times revenue. And you had things like Microsoft that was trading 20 times revenue. It then had to grow revenue fourfold before it and over a 15 year period to get its share price back to the 2000 period.

51:55So it's pretty, pretty crazy. I want to ask a naive finance question. And this is something I've always wondered. So discount rates are heavily related to the current interest rates of the macro environment that you're in. Basically the Fed has a lot to do with the discount rate that you put into a model. I don't get the sense that that's what was happening in 1999. I think the DCFs you bill were basically not discounting cash flows 10, 20, 30 years out. But we had real interest rates. So can you help me square that circle and understand like why with high interest rates, you wouldn't have a material discount rate?

52:38So interest rates back then were I think from memory around 6 ,000 I can't remember exactly that's higher than today. It was yeah, which is 6 % higher than in 2020. I would love to be able to answer that question. But I have no idea. It wasn't a period where anyone was sinking straight. It was cool. I that people were drinking that just I don't think there's an answer that question. Yeah, we were all drinking cool lead to the allergic stand two, but interest rates were zero. So you had this kind of forcing function of like this giant like wishing sound of cash that needed to be deployed somewhere because interest rates were zero.

53:17It was literally cheap. No matter what anyone's opinions were, there was going to be a crap ton of cash from the interest rate. It's like you just didn't require anyone to be drinking cool lead in order for capital to be free at least in 99 it required cool. I think that's a very important call out. There's a big difference there, but the explanation I'm not sure I can answer that. We'll leave that to the behavioral psychologist. Yeah. All right. So let's finish up on .com. So when you're looking at the data, what happened from peak to trough? Yeah. So as I mentioned, peak to trough took about two and a half years.

53:52Interestingly, this synthetic index that we created for that period fell 65 % during that time, which is exactly what the best summer index has fallen this time around in terms of peak to trough. Oh, wow. But obviously, 18 months. That took two and a half years and this only took one and a half years so far. It depends where you think we are in the start. So it was actually about a year from peak to trough if the trough is in fact that 65 % we've obviously moved on six months and we're above the trough. So I'm a little bit nervous making any call exactly where the trough is, but I'm going to say so far.

54:27So far. So I want to ask you the same question about 2008, but first while we're in .com land, what did that recovery look like for your sort of constructed synthetic .com index? Yeah. So the recovery was much quicker for that index than the broader indexes. So one year after that trough point, the synthetic index was up 140 % than Nasdaq was up 70 % and the S &P 500 was up only 30%. So much faster rebound further. Much faster, much faster in terms of the first 12 months. I think the most important part is that our performance continued. And so that synthetic index was actually back to its peak in January 2004.

55:14It took the Nasdaq 15 years, one five 15 years to get back to its peak. Wow. Yeah. That's really kind of counter to the historical narrative of like you think, oh, the .com crash happened and it took 15 years for Microsoft to get back to its share price. But you're saying if you take the highest growth index, it was actually only three or four years before it was back to its peak. Correct. So when you go to the situation where obviously the Nasdaq is market cap weighted, the largest companies have a very large impact on the outcome. So people might be wondering, wait, so for some specific set of companies, it only took three to four years to get all the way back to January 2000 level valuations for these high growth tech companies.

56:02What were the companies? What were some of the standouts in that index that we actually have the list up in front of me, I have the appendix from the memo. It's pretty interesting to see what these companies are. So let's see, we've got Oracle. Apple is actually in here in the index. We talked about Microsoft taking forever. Apple recovered. Apple is already 25 years old. Yeah. Western digital. Intuit is in here. Adobe, Paychecks, NetApp. Yeah, David, it's interesting. I guess I'm still kind of in the place of if I was trying to apply that lesson of making sure I stay in the high growth companies through this period of time, trying to sort of equate it to what it is today.

56:43And maybe Tom, is the Bessamer Cloud Index exhibiting some of these same signs of the fastest to recover? It does look like history. He's repeating itself again. You've got the fast growing index or the BVP index is up around 35%, which compares to the Nasdaq up 30 % and the S &P 500, which is up only 20%. But I would say that there's still a long way to go, exactly how this plays out is still uncertain and would still argue right now, the best value is in that group of companies rather than the broader indexes. When you think about that fairly rapid recovery in the .com era, do you think that's because of perception of the companies like that they were overbought and then oversold and then kind of overbought again in the recovery or do you think it's more about the intrinsic characteristics where those companies just kept growing fast even though the macro shifted?

57:47So we would argue it's fundamentally driven. Ultimately, when we sit back and look at the data, it's a fundamentals win. If we were to talk about the financial crisis period, the same thing plays out. So we think over that time frame, when we reflect on it, the fundamentals are faster period. Businesses growing faster and have much larger opportunities to grow into and that ultimately wins it. I mean, I'm looking at some of the companies that are in the Bessamer Index right now. It's companies like Confluent, Zoom Info, Twilio, Octa, GetLab. You have whatever opinion you want on these companies, but a lot of people use their products.

58:29That's official. It's interesting, Tom. I want to just call something out for the audience here. Most of the time when you see some hedge fund manager on CNBC and they're saying it's the best time ever for these companies and it's unlike any other time in history because so many people use technology companies and the intrinsic value is so strong. We're so excited about the future of technology. It's like, yeah, but you kind of have to be because your entire business says you need to mostly be investing in these companies and you've really built a reputation on doing that and you can't really keep holding cash.

59:00But with you saying this, you don't have to be saying this. You are not necessarily talking your book to be saying, hey, we think these companies are really strong and we're excited to be investing right now because you could do anything. I think also importantly, we're not looking for more clients. I think those two things, we're just sharing our view. We're really sharing our perspective and hopefully over time, you know, that will prove out, but there's really no other reason for it. I think we've hit a lot of the comparison to 2008, but I know you have a particular example in 2008 that's sort of an interesting key study on all this.

59:38It's quite a painful one, I should say, Ben, it's one of those ones where you know, get a little bit of a shiver down the spine when I think about it, but it was a big mess from us. It really does speak to this particular issue. So the example is Salesforce. We did a bucket loader work on Salesforce from 2006 to 2008 and really tried to understand the business, the share price doubled over that period. The business was performing exceptionally well. Revenue was going, you know, 50%, it was trading on a revenue multiple at a time, about six and a half. It peaked in July 2008. Obviously, Lehman went bust in September and the share price then fell 70%.

1:00:18That period was very quick and rapid, but for those investors that did have the courage and unfortunately we weren't one of them. For those investors that had the courage at that point, roll forward less than three years and the share price was up sevenfold. Yeah, it's those types of moments that really and those mistakes that we reflect on that really impact the way we invest today and really a burnt into our memory should I say. And as you reflect back on that, you made the decision not to invest. Was that a lack of conviction or was that, hey, we've identified something structural where we actually think this is a bad investment.

1:01:01We don't think this company will continue to compound capital. What happens in those extremely volatile times is certainly what we do. We start looking internally at what we already own and we start deploying capital in those businesses that we've really got to know over a long period of time that we're already invested in rather than deploying capital into new ideas. Obviously in hindsight, if we had our time again, in that instance it was a mistake, it would have been much better investing Salesforce at the time. So I don't think it was a particular call in terms of Salesforce specifically. There's more a call.

1:01:38What businesses do we know better? What businesses do we understand really well? Let's focus on the existing portfolio. Well, we've talked a lot about buying and buying opportunities. And I think that most people who talk about investing spend a lot of their time talking about buying. And what's just as important is selling. And in moments where businesses are trading that you own at 15X or 20X or north of 20X revenue, and there's head times and free capital everywhere, how do you think about that? Do you start trimming down the positions? Or do you say, you know what? We just know that the market price is not the correct price, but we're just going to hold all the way through the peak and the trough and then ride it out for another 10 years.

1:02:22So that's a great question for us as you may have gathered at the top of the show, valuation does matter. And it's something that we really think about a lot. And it's really one of the few things potentially, the only thing that we actually have disagreed with Buffett over the years. I mean, he's obviously always said that when you own a great business, you should own a forever. And you know, the foundation of how we think is based on many of his principles, but that one we have disagree with. And so we do believe that earning businesses at crazy brasses is not the right thing to do. And so we are always looking at our expected returns from those brasses.

1:03:07We always point to one of his most famous investments as an example of that, which is Coca -Cola. You know, for the first 10 years, he did exceptionally well. He compounded his capital 25 % a year, was making 10 times his money, but roll forward to year 30, he's only compounded his capital around 10%. And so those last two decades from an opportunity cost perspective, we're actually very costly. It's fascinating. You're sort of zooming in on even though the blended IRR over the entire period was good. It could have been great if he just recognized that it was way overvalued by what year seven or year 10 or something like that.

1:03:44Yeah, ultimately for him, it's a mountain capital that he has to deploy. So I don't think it's a fair comparison. We have two billion dollars of funds. He has a much larger pool of capital and has for a long period of time had a much larger pool of capital. So he's trying to achieve something different, but for us, we ask more than we are more nimble. We do believe that, unfortunately, at times we do need to sell our businesses. Well, let's bring it all together. So you wrote this big memo. I felt like you were winking and nudging the whole time of like implying, hey, maybe here's what people should think or should do in this environment.

1:04:23If you're willing to make it a little bit more explicit, what should investors do at this moment in time? And how should they think about the moment that we're in here in June of 2023? The way we think about it is as long as you have a five to 10 -year time horizon, now as a wonderful time to invest. It's the tough times that is the best time to deploy capital. It's not the frothy times and the boom times, actually the tough times. And that's really what ends up differentiating investors in our mind. We touch on before, but it's had emotional stability to where the volatility and really in these tough times focus on can I buy some great businesses at a wonderful price and close my eyes and have that five to 10 -year time horizon.

1:05:12We have no idea where this market is going on a six month view, on a 12 month view, on a two year view. Our degree of confidence really comes in from a five to 10 year view. We will get through this. One thing I can say is we will get through it. These are the times where we really feel that we can set up our portfolio for the next five to 10 years. There's another topic that you guys are obsessed with, which has always been a little curious to me. It's front and center on your website. You have a big annual event every year that is literally called this and that topic is people and culture. I don't know, it feels a little touchy -feely for public market investors to be so obsessed with this and use it as a North Star.

1:05:52I'm curious where that conviction comes from for you. I think you know Ben or you've seen firsthand where you can't really interview Ed Kappmall for us at our People and Culture Conference last year that we do care really deeply about this topic and that's something we're very passionate about. I would agree with you, the vast majority of investors do think it's too touchy -feely. I think that comes out when we meet our CEOs. And we met those CEOs for the first time and often that first meeting can go for an hour or two when we're just talking about people and culture. And the CEO turns around at the end of the main says, I've never had a meeting like that or I've met hundreds of investors and no one's ever asked me about people and culture.

1:06:35So I think we're pretty confident that the vast majority of investors would definitely align with your thinking there. In terms of our key learnings, I think there's been a couple of key things or a couple of key reasons why we've really become quite passionate about this. The first one is when we started going on boards, we actually really started to see this up close and personal. And so you get to see this team of people with a certain leader that maybe isn't fulfilling that leadership role correctly and you replace that leader and you put a great leader in and that same team significantly improved their performance just based on that one change.

1:07:16I think the other thing is really as we've reflected on the mistakes and we've made many over the years on those investments which haven't gone right, what mistake have we made and 9 out of 10 times it's been around the people. That's certainly the areas that has brought this to light from our perspective. So I suppose funny story, I was actually listening to one of your old episodes the other day and I almost fell off my chair when I heard, you know, culture, there was a culture and ad which is as I mentioned before one of our late stage growth portfolio companies. It's one of those things which where they've gone to the data that they collect which is a lot of that's around the engagement scores of the companies and the software that they they use collects that data.

1:08:06And what they've done is gone and look back from 2017 to 23 for the 500 listed companies and what did those companies with high engagement scores? How did they perform and for those that have listened to the back catalog they would know that those companies outperformed by about 6 .7%. And outperformed in share price like they literally investors are more excited about like literally the stock performed better. Correct. We're actually also trying to think about how we can put some data around this and is there a way to actually prove this out from a data perspective? Hopefully we might be able to share that in future months but I suppose most of our learnings while supported by the data and so the culture and data is really the what we've seen up close in person as we've sort of invested last 18 years or so.

1:08:56I mean you can imagine this is probably hard if not impossible to do for regulatory reasons in public companies but you could imagine indiligence on private companies for you know VCEs or for you all you know cross over investors wanting to see like hey I want to see your culture and data like as I'm trying to evaluate you as an investor. Yeah it's actually one of our first question interestingly some companies have started to disclose it publicly. If you go to as an example wise which is it's a listed company in the UK but they actually have full page in their annual report talking about their culture and data so we love that we love that additional disclosure.

1:09:36There are other ways that are probably worth mentioning in terms of how we look to diagnosis from a data perspective as a public company investor when when they don't ideally they do disclose it but if they don't disclose it is glass door and blind obviously gives you some insight you've got to be a little bit careful with it but there is some ways of gathering data I'd say probably the best way or the most value we get is actually spending customers. So X employees yes but customers is a wonderful way which I think surprises people actually. What do you think about businesses because they totally exist that are unbelievably profitable but the whole ecosystem hates them they feel locked in it's not a great place to work there's not strong people in culture I'm always curious about these companies where they seem to be maximally value extractive over the ecosystem around them and they have so much power that they just sort of endure and stay super profitable.

1:10:37So well then not for us that's probably the simple answer to that we only have to invest in 10 to 15 businesses and we want to be proud of those businesses that we invest in we want to be proud to own them we want to be proud the way they behave in simple terms that those businesses are not for us in time though I would say our view is that will unwind and so they may have a very powerful position today that allows them to do that it allows to treat their people in that way but ultimately we would argue over a long period of time those businesses regardless of their power so to speak will most likely be disrupted.

1:11:17It's hard to be durable when you're correct very hard to be durable if you treat your key asset which pretty much in every single business is your people. Well I think this is a great place to leave it we will put the link in the show notes if you're interested in checking out the full memo and Tom I'm curious for you any other parting thoughts to leave folks with as we settle in here. Well I think my parting thought is investing's hard and I think when you live this every day it's not easy and I've said it a number of times but the thing that you know we focus on a lot and certainly would advise anyone we speak to around investing to focus on is that emotional stability front you have to be able to wear the volatility to get wonderful returns over long term and from an investor's perspective that's probably the key thing to think about as we think about these tough times.

1:12:14Well Tom that is a great great great place to leave it where can people find you or TDM on the internet. So where can you find me I'm not on Twitter good for your sanity. Indeed the best place to find any of our content is on the TDM growth website TDM is on Twitter so there's lots of great content there. Awesome well thank you so much. Thank you so much love to have any jet next time. Awesome listeners we'll see you next time. We'll see you next time.