#8 - Rajiv Jain: Stocks, GQG, Adaptability

26:00It's hard, but it's very doable. In fact, even today, I would say that we are far into our ability to sort of replicate a lot of different things in terms of how we build out the portfolio, the PM team, the analyst pool, the investigative journalist, the quantitative part of it to help us be more repetitive, the adaptability in the quantitative screens. So that's just part of it. And I feel if you look at the last three, four years, particularly since COVID, there were a lot of cycles in a four-year period. You had a bull market in tech and a bear market in tech and a bull market in tech. The bull market bear market energy, I mean, oil was negative in summer of 2020, not that long ago, and then a massive bull market.

26:43So, we would not have been able to sort of navigate reasonably well without some structure put in place. I don't think I would have been able to do it alone. So, I feel pretty good in terms of where the team is and how we sort of navigate various parts of cycles. And a lot of it is also instilling a culture, right? The culture of being adaptable and independent thinking and being unconventional. And that takes time, but it takes repetition. It takes processes, systems in place and so on. So would you just talk at a high level, your approach to stock picking? I know there's a big macro influence?

27:23Would you walk us through just the framework? We have multiple screens. And I know everybody talks about screens, but in my experience, vast majority of folks are not disciplined enough to look at the screens because screens force you to find what areas are attractive. Basically tells you which pause to go fishing in. We start with that. We allocate names to multiple people. First one individual, if that analyst likes it, then we have somebody else look at it. If generally a positive opinion, in the meantime, we keep discussing, by the way, we also operate a fairly small team. If you look at the size of assets we manage, we probably the most amount of assets per analyst.

28:00The number of names we own today has not changed, by the way, in the last seven, eight years, which is fascinating. So, we're not buying more and more names to accommodate because we always operate large cap space. There's a lot of accountability at every analyst level. So, it's hard to hide. Everybody's numbers are tracked, their thinking is tracked to the extent possible. So that's how the core process, how it works. And obviously, nuance and differences, sometimes deals happen because on a shorter notice, but we keep working on them. So sometimes you execute faster and then keep working on them.

28:32But over time, the repetitive nature of what we do can be very helpful because vast majority of large-scale names, we probably have an opinion on. It may not be fresh, but you have an opinion on. So refreshing those is faster. That, by the way, is an important part of the game, in my opinion, that you need to have what I call big inventory of names, names you looked at, but by a small group of people. When you have 50, 60, 70 analysts and 20 PMs, the decision-making gets very, very difficult and complicated. Then you have director research in between, right? Yeah, it sounds nice that we have super special looking at Korean PNC insurance, right?

29:15It can be that level of specialization. But how do you integrate all that information? In fact, one of the problems in China, in my opinion, was for folks investing in China, in the last few years, there were a lot of special looking at China. Guess what? They always want something attractive in China. But the answer was sell. That was simple, right? Reduce. But if you're super specialist, it becomes very hard. Now, there will be time in China that's attractive, and I'm sure there will be a time, but it should be relative to other things because as I said, everything is relative. So having super specialists is counterproductive.

29:50Second thing is you want to promote risk-taking. We are in the business of taking risk. Buying Microsoft today is not risky. Just like buying Exxon in 1980 was not risky, was conventional wisdom. Buying Microsoft in 2000 was risky, but everybody thought is least risky at 60 times earnings. So I think whatever has worked for you, the shop, doing things opposite of that is considered risky. But if you're not willing to do that, you won't survive. So how do you push the boundaries while taking calibrated risk? That is a cultural aspect which we feel particularly good about GQG, that we want folks to say a suggest name that we never want before, rather than going back to financials and again, going back to European financials or tech, we only do hyper growth.

30:46Okay, that's wonderful. But that's basically saying you always drive 75 miles an hour. A lot of growth shops, we've never looked at any cyclical, no commodities. Well, if you always drive at 70 miles an hour, you know the outcome. Not going to end well. Don't know when, but won't end well. So I think that's part of the culture. Push the boundaries a little bit in terms of the names, sectors, countries. Today, for example, we have little more in what they call MENA markets, Middle East, North Africa, than China in emerging market fund. Never had that before. It's a small exposure because China is also small.

31:28But if the data points prove that we are on the rise path, we probably will increase. But if the data says, you know what, the earnings are not coming through, value is too expensive, or something else, we'll start cutting back. But that's like driving. You don't predict what speed you will go the next day. Nobody says, oh, today I'm going to drive 20 miles an hour, don't care what. But I feel that's how most of the managers behave. We'll only buy this. We only buy low multiple. You know what? that stopped working 20 years ago. And the shops which have underperformed SNP, for example, the US for 20 plus years.

32:03And it's not because they don't have the talent. It's simply the rigidity. You know, Alex, there's a fine line between stability and stagnation. Most managers, as you mentioned, stick to a certain style. And one of the, I think, aspects of your approach and just your mindset is this idea of being adaptable and flexible. would you maybe talk a little bit more about that notion and then also why you think it's not more common? Because it sounds obvious when I'm talking to you right now. Well, because I think it's hard to undo what we have learned. That's human nature. We are creatures of habit, right?

32:46Something that has worked well for 10, 20, 30 years. I mean, look at us, right? I mean, my view is that adaptability matters. So that has worked. So I'm sticking to that. Now, adaptability itself means change. But I think it's basically fighting human nature of accepting, acknowledging our inner weaknesses, that world is inherently temporary. There's no permanence in this world. There's no absolutes either. I mean, for example, conventional wisdom would say democracies are better for investors. Look at the evidence. Not true. Korea, Taiwan, Chile did far better when their autocratic leadership than democracy.

33:26But there's some autocratic leadership that completely kill the markets. But the data is very clear that it isn't obvious. But if you ask vast maturity, if you read financial publications, people think autocratic leadership is always bad. So not true. So I think being open-minded to new data is a little bit harder than you would have thought. And I think that's a human nature issue that folks would basically eliminate candidates in an interview process who say something contrary to what our beliefs are. And we've tried to sort of inculcate in our hiring process everywhere that we actually don't want similarities.

34:05If somebody pitches exactly our names or the same thesis of behavior, chances are we have zero interest in that. Tell us why we're wrong. So we try to seek a disagreement. And by the way, it's not easy. But the more we do that, more I think the system will become kind of like anti-fragile to use Nassim Talib's phrase. It's not easy to do. And I'm not saying we're there yet, but this constant effort to sort of find the uncomfortable other, which is diversity, by the way. That's what diversity is, right? Find the uncomfortable other. Yeah, there's real insight there because I think part of what's happening is the investment world is a unique universe.

34:45If you go to the rest of the world, it doesn't change as quickly. You can kind of do the same thing. If you're a doctor and you're doing a good job, you can keep doing the same thing for your whole career. The investment world, because it's so competitive, because the players set the price and the players are constantly learning and evolving. You have computers coming in and competing. You have specialists competing. You have to continue to evolve. And also, you have a long time frame where it's hard to distinguish between luck and skill. And maybe you underperform for a while, but maybe that's just unlucky.

35:18And so you can go through these long stretches. And so it is a very different investment world. So I think that it's a different world in terms of the way things work. The laws of the universe in this space are different. So I think the real insight is appreciating that. And I think that's what leads you to recognizing you have to be adaptable. As you rightly said, in medicine, for example, if somebody has learned surgery for 20 plus years, they're not going to say, oh, we're going to do something completely different. But the problem is in investing, people will learn and that won't work as well.

35:47So you got to change. And as you rightly said, that is the biggest part of the problem that it doesn't guarantee success, but I think the odds of survival go up. And that's all we're talking about. How do you improve odds of survival? So speaking of that, one of the challenges in investing is, as I mentioned, it's hard to distinguish between luck and skill. So you could underperform for a stretch and feel like you're investing correctly, but the market isn't rewarding that and you're underperforming. And so how can you distinguish whether that's luck or skill? And are you losing your edge? Or is it just the market is irrational and it's going to correct at some point?

36:23How do you think about that tension? So that's a question I think about internally all the time with the team, right? And I think the way we think about it is look at why they were making the decisions, what they were doing, and why the market isn't responding. Because markets can be off tangent for a long time. I mean, you saw crazy valuation in tech and some of these names in 2021, right? And there was a full-blown mania on. But you saw that fundamentals were not tracking that. The cash flow wasn't coming through. Yes, some business is going to be Amazon, but not going to have hundreds of companies be next to Amazons.

36:59Problem was, everybody thought that, oh, if Amazon did well, despite losing money, there are a lot more Amazon. Guess what? The world doesn't work that way. You do need to cash flow and earnings to pay the bills. So we try to see the separation, appreciate the difference between the process of decision-making, is it correct or not? And sometimes that is rewarded, sometimes that is not rewarded, which we have to make sure we accommodate that for. Otherwise, you become kind of a momentum shop that it should be working here and now. And that can be only possible in relatively small teams. Larger teams, it becomes impossible because you can't track everything because there's a lot of qualitative thinking.

37:41It's not one of those businesses where you can throw more people at it. And because oftentimes what happens is you have 30 people looking at a problem and that leads to mediocrity as opposed to one really insightful person looking at the same thing. And that one person could outperform the 30 more consistently. Yes. So there are folks from time to time who have no names in the portfolio. Probably fine. Because I would rather have folks say, look, there's nothing in Asia. Not just nothing in China or Korea or India or nothing in tech in Asia. There's nothing in Asia, but I love Latin America. I love U.S.

38:17tech because there's so many names, but I have nothing in emerging markets. Oh, that's wonderful, right? Because you know that somebody's sticking their neck out. They probably thought through, but you need to have a conversation. And I think being a broad set of opportunities. So one of the challenges always is that are you looking widely? Do you have the breadth of names? So I always find amusing when people say nothing to invest. I said, there are tens of thousands of names. Are you saying there's nothing to invest? They got something to do. And we feel that the breadth helps. Like in 2021, if it did not have sort of, if it didn't cover energy and commodities, so on and so forth, tech was very expensive.

38:57And so were actually a lot of other higher quality businesses, what I call backward looking high quality, by the way. because Exxon is a very high-quality business over the long run. The fact is Exxon has survived in fairly good shape for almost 140 years plus years. It tells you it's not a bad business, right? Businesses don't survive a century plus. I don't know too many tech companies that have survived 100 years. So I think that is the aspect that we need to think about in terms of, is the thought process rational? Does it make sense? And markets may or may not reward. But if you have a breadth, then you'll find other names because at the end of the day, it's a relative ranking.

39:33It's like sports team. Not everybody has to be playing perfect all the time, but maybe somebody is playing better today. But next, because the industry is in sweet spot, but no industry is going to sweet spot forever. Would Microsoft be great forever? No, right? It's hard to predict. But that relative ranking forces refreshing of ideas. Public markets are very challenging. It's relatively efficient. And so generating performance consistently in public markets is incredibly difficult. I'm curious what you feel gives rise to the inefficiencies that you seek to exploit and take advantage of. So by the way, I think private markets are pretty competitive these days too, because somebody had asked me, would you do private markets too?

40:20I said, look, I think I've not exhausted all the ways I can lose money in public markets. Let me exhaust all the ways I found ways of losing money in public markets before you focus on private markets. And guess what? In last few years, we found out they were actually pretty damn efficient. Just because you're not marketing to market daily, it doesn't mean they are inefficient. And in fact, it's more problematic with too much capital is going in and the valuation is crazy. I mean, we've seen like complex tribe go to 100 plus billion valuation, and I don't know, it's down to like 20, 25 billion.

40:48Well, what happened? So we feel that there are two aspects to your question. One is see the disconnect between what the stocks are pricing in and what the reality seems to be. I mean, energy names a few years ago, the business was generating a lot of free cash, but the stocks were sort of not discounting anything at all because the prior decade had been a disaster. And the second part of that is that you do need to be able to make higher conviction bets, i.e. size them aggressively. If you don't size aggressively, the disconnected areas, even if you're right, you won't make money. And that's the paradox, that some of the areas where you feel there's a bigger disconnect, you have to size aggressively.

41:31But then those are the problematic areas too, because you could be dead wrong, right? The narrative is not always wrong. But that's where you feel you need to put cut losses too. So as you can see, the paradox is you do need to make sizable bets. However, when you're wrong, you cut back. So there's a mechanism of risk management. Because if you don't have that, then these large bets would kill you. Vast majority of concentrated managers who have low turnover don't survive. Now, that is not conventional wisdom. Everybody knows that Buffett has very low turnover and very concentrated portfolio. But my problem is that there aren't too many Buffetts around.

42:09So it's futile to say Buffett did this, Buffett did that. Yeah, but that's an unusual skill set. So we feel that we need to manage risk better by cutting losses from time to time, particularly if it's a large bet. But if you don't take risky bets or riskier bets, you won't survive either because the rest is arbitraged away. I mean, if you say every name has to have 15 % ROE for the last decade, guess what? It's almost a given you will not outperform the S &P. Same thing in China. Same thing in Europe. If you feel that everything has to be sort of pristine everything, stocks will discount vast majority of that and any sort of hiccup because direction of travel matters.

42:55You go from 7 to 8, it's profitable from on a scale of 1 to 10, right? 10 being the best business. But if you go from 4 to 6, that's far more profitable than going from 7 to 9. 8 to 10, there's nothing like 10. But if you believe that, you may not make any money. but if it goes from nine to eight, oh, that could be a disaster. So I think the direction of travel is the important part of it, but you have to have conviction to make it sizable so that it moves the needle. And then when you move up that scale from one to 10 and you're at the eight and nines, those are love companies. And oftentimes they're expected to continue and essentially could be overpriced.

43:38And so there's more risk of downside as opposed to companies that go from a two to a five that nobody loves. And accordingly, the price doesn't reflect that. Yeah. And Adobe went from 20 times earnings to 50 times earnings and back to 20 times earnings. But 50 times earnings, I'm not saying we sold at 50, by the way, but a slight deterioration. So funny thing is, if you look at some of these software companies, they did not miss their earnings. They didn't slow down dramatically. They missed earnings, but they did not slow down dramatically. But the expectation was sky high. And you lost 60%, 75%.

44:10I mean, meta or Facebook, as it was called then, you lost 75 % matter of 18 months, 75%. So why do you criticize steel companies, by the way? One of the statistics that I've heard from seasoned managers is a hit rate of 52 % to 55 % is really good because the market's relatively efficient. I'm curious what you feel like your hit rate is both on stock selection and also on big macro calls, because I know you focus on both, and is one easier than the other? So first of all, macro calls, we don't buy good macro, but we do use macro as a risk management tool. So we're not saying, oh, China is going to grow or US is going to grow, so let's look at this.

44:53But if there's a macro deterioration, then we do react. You want to avoid the tsunamis. Yeah, so Russia, we couldn't avoid the tsunami. We did cut back quite a bit going into the war. We thought Putin would not invade Ukraine and most of the experts thought the same way. But we were wrong. But we did cut back quite a bit into going into that. So we try to reduce or manage our own risk. Now, from a bottom-up perspective, I think the key aspect of sort of the bottom-up investing, we feel, is if you look at the data points, how they're evolving, and the macro environment is favorable, then you can size up aggressively and then cut back aggressively on the side if the data turns.

45:34And that, by the way, is sort of as simple as it gets in terms of doing both. But macro is an important tool in the toolkit, not just bottom-up investing. And is your sense that those calls are generally easier to make relative to what's discounted? Yeah, you talked about the hit rate. So the hit rate, by the way, is overrated. We have had very good years sometimes when the hit rate was below 50. And we have very mediocre years when the hit rate was 80, 75, 80 in some years, right? In some portfolios. The question is how much you make when you're right and how much you lose when you're wrong. So that, by the way, is far more important.

46:10Because if you make every time you're going to make 10%, 15%, 20 % because of your price target, stock gets to price, can you sell? Okay, good luck now replacing that with another great business or great valuation or something. We talk about large liquid names here. On the other side, let's see a 40 % hit rate, but you're really doing very well when you're right and you cut losses constantly. You probably could have very decent returns. So I used to think the hit rate matters, and my hit rate actually has gone down, by the way, versus if I look at 15 years ago. That was part of the lesson. Because if you want, you can have a high hit rate.

46:44If you have a longer checklist, you'll probably have a higher hit rate. But guess what? Your returns might be worse. But again, as I said, that comes down to, are you willing to explore or push the boundaries of what's comfortable, what's uncomfortable? If you're not a little bit uncomfortable with your decision, chances are it's not going to be as profitable. Most very comfortable decisions actually don't make you money. There has to be some level of discomfort. Could be valuations. Could be the stock has done well. Maybe the stock has collapsed. Something has to be out of line because I'm consensus too, right?

47:18We see, read, same data points. I mean, I always find amusing when anybody says they have an, quote, unquote, information edge. I don't understand how anybody would have any information edge in Mercedes or Microsoft or Toyota. It's hard. There's plenty of public information around insiders are probably trading on their own accounts and so on and so forth. These are very efficient markets. You talk large liquid names. So you can't have information edge. But maybe you can have insightful edge. you maybe you can have better risk management to allow you to sort of manage risk better and so on and so forth so i think those things can help you navigate and compound one of the things you've talked about is following the fundamentals when the fundamentals start to deteriorate don't wait because you don't know how you know how deep the trough is i'm curious how you relate that to price oftentimes price moves in advance of fundamentals markets always looking forward So how do you know when there's a dip in the price that you're not selling it at the lows because markets can also be cyclical?

48:27There's no perfect or right answer for that. I think it really depends on sometimes type of businesses, what part of cycle you're in. If you're an early part of cycle, then you can be a little more benign, sort of relaxed about things. If you're a late part of cycle, keep a tighter leash. If the value shows are high, then keep a tighter leash, so on and so forth. So I think there are a lot of things. For example, in late 2020, 2021, we thought this was very late in the tech cycle. So we were running a much tighter leash, right? We were much more ruthless in sort of saying, oh, this is not as bad.

48:58It's fine. Worse than let's say today, we still feel the early part of tech cycle. You're not late. It seems like it. I think there are multiple factors of sort of saying either you buy the dip or sell the dip. Because sometimes that may be the best thing you do is sell the dip. I'm curious, what are some of the big calls you've made in your career? both the good ones and the bad ones? And what lessons did you learn from the bad ones? Look, you don't really learn from good calls. You only learn from bad calls. Right. Everybody, including me, feels, oh, that's such a great call. And that's, you move on, right?

49:29You remember how wonderful it was. And it's hard to learn. But I'll give you one of the worst calls that I made. We exited financials in most of the developed market products by early 2007. Okay. There were plenty of signs. Lehman blew up in September 2008, with a plenty sign before that. However, we also long energy in a big way. Summer 2007, we had almost like 20 % plus in energy.

49:59And I still annoyed the fact that I did not connect the dots between the broad economies teetering, which it was, the plenty of data then, not just now. And we exited financial, by the way. So very nervous with banks. Now, if you go back to 2003, 2004, at almost like 25, in fact, some products, 30, 35 % financials. Big bull on financials in that era. And we exited completely. I mean, that's a big change from 35 % to zero over a three-year period, right? But didn't connect the dots to energy. Why? Because I thought energy just didn't do fine. Why? And the reason was because I thought I knew a lot and that sort of made me complacent.

50:37The most, the biggest losses come, where do you feel you know? And the problem is, actually don't know. There's inherent unknowability in the world. So you're too convinced of yourself. If you're not convinced, you would sell. But when you're convinced, you start ignoring data points. And the data points were there. That led to much worse 2008 than I would like to admit. Russia, another big one. Although the process was not as bad, but could you have done better risk management? in hindsight was obvious. Should we have entered Russia? We think so, because the fundamentals are very strong of the companies that we own.

51:20And by the way, the interesting fact is that these companies that we basically had to mark down to zero are still doing fine. They're minting money. They've pretty much recovered everything. But there were sanctions came in and 50 other things happened, but we wouldn't have predicted. So maybe we could have sized differently. But the process to enter, I still believe the process was a right process because we thought the fundamentals were very attractive. Some of them were 15, 20, 25 % dividend yield businesses. Some of the lowest cost produced various commodities, and the world will use those commodities.

51:50So I think those are the two big ones. There's a laundry list on every crisis. There's some lessons to be learned. But the common theme is, by the way, if I have to sort of summarize, what are the most common themes amongst thousands of mistakes that I made over my career? Because say, what are the biggest mistakes? I said, tell me the year and the country. I'll tell you the biggest mistake. It's not one or two huge mistakes. I just gave you a few, but those are some. I think a common mistake always is being too comfortable about what we know or what I knew about that and then slow to react to reduce the risk.

52:26That is the common theme in the biggest mistakes. It's less about entering into riskier areas. because a lot of times, if you don't do that, you would not outperform. I mean, why would you outperform if it's just the most comfortable thing? The index is pretty darn good. But it's on the other side, exiting when data points begin to change, that is almost always the root cause. And did we recognize what are the signals? What was the data that we ignored? I mean, Snapchat went from 75 to 7 over a year and a half period. What were the signals? I'm not saying we weren't all through and through, by the way, but what were the signals?

53:09Facebook went down 75 % plus. It has recovered. What if it hadn't recovered? So the fact that it recovered doesn't tell me anything, frankly, because a lot of businesses simply don't recover. So there's no point taking victory laps. Amazon in 1999, 2000, versus what Amazon became 16, 17 years later, is a completely different animal. The only common theme is Jeff Bezos. But the business model changed. I personally, and I lived through that cycle, I doubt anybody would have predicted that Amazon will be the winner. If you bet on Jeff Bezos, turn out a winner, that's wonderful. But I know that we didn't have the ability.

53:52I did not have the ability to predict that. I know for sure. As said, I shorted Amazon. I mean, let's talk about long-term ability to predict. How about zero? Won't happen, right? But I think the common theme, and by the way, Amazon did decline 95 % in 2000, 2002. Not many people can stomach that loss. I know I can't. So the common theme always is, are you willing to reduce the bets or the risks from time to time? And I know there's a narrative that some great investors can hold forever, including Buffett. But look, the fact that I was shorting Amazon should tell you what is my ability to predict long-term, zero.

54:28Yeah, there's a couple of really insightful things that you just shared. So I remember 25 years ago, Amazon and Barnes & Noble were neck and neck. And Amazon was able to adapt and Barnes & Noble was not. And you can see where those two ended up. I think that's a key insight. The other thing that you said that I think is really interesting is it goes back to, it circles back to what we talked about with the hit rate and the bet size and getting out. So if you're really confident that you've got the next big winner, you're more likely than not to have a blind spot. You're more likely than not to overweight it.

55:02You're more likely than not to hold on on the downturn. And as a result, some of your highest conviction bets could also be your biggest losers because of those dynamics. And so that kind of goes back to your key lesson from your experiences. You got to be a little bit uncomfortable. You got to be humble about being wrong. All those things feed into avoiding those big losses. Yeah. So people talk of a hall of, you know, sort of hall of shame or whatever losses. I said, we have had so many losses over the years. A wall is not enough. I mean, so what we do is if anybody has a different opinion of, you know, any analyst is different of a PM different opinion, it is required to document it then send an email so that we know that okay you said it and we can learn something that otherwise always convenient afterwards right so we like disagreement we seek disagreement and make sure to document so we try to document every time people has you know what we feel a large position will is will not work or he does or she doesn't like it please document Send an email, not to me, but it's captured in our system.

56:13So we know that so-and-so folk, and the question is why? Explain why, because that's where the lesson is going to be from. And if you look at the big shifts in markets, I mean, 90s, if you didn't own tech, you wouldn't have done well. In early 2007, 2008 years, if you don't financial, somebody non-tech, you wouldn't have done well, right? And then in last seven, eight years, if you didn't own tech again, and energy last three years, if you don't own any energy exposure, it'll be very tough to do. So these cycles happen. Even if you don't capture from, let's say, 1 to 9 of us, let's say the cycle goes from 0 to 10, you don't have to buy at the bottom level and then sell at 9 or 10.

56:51Even if you capture from 3 to 7 or 4 to 6, that may be good enough. But make sure you exit because the pain from 9 to 4, those kill records. I mean, a lot of growth measures, you know, into 2022 has basically shattered 15, 20 records. I mean, you've gone from outperforming 3, 400 base point index to underperforming, and because it lost 45, 50%. A lot of quarter-runs are quality managers, right? What they forgot was that valuation, if you pay high enough multiples, a high-quality name becomes low-quality. There's nothing absolute about high-quality. There's no business which is absolutely great.

57:31I don't know of any. It changed perceptions dramatically. And more broadly, valuations can itself make a business very dangerous to own. That's right. You can take a great business and give it a bad price, and it's not a good investment. Yeah. I mean, Microsoft declined by almost three quarters. It was a monopoly in 2000, and it was a monopoly in 2010. Knowing you and following you for a long time, one of the aspects of your approach that really stands out is your ability to take in the information that the market presents, the data, as you described, and reach a reasonable conclusion about the likely trend that is to emerge in the future.

58:11And more often than not, it's the right call. And I'm curious, do you feel that the market is slow to respond to those things that, to me, I feel like it's obvious, not just in hindsight, but as you're describing it, kind of following you for a long time, do you just feel like the market is just slow to catch on to these trends until they've actually emerged? I think you're overstating the reality because we have been right a lot of times, but we've been wronged more. What has helped us is that once we saw the data be wrong, we cut our losses. Because I said, you don't have to write all the time.

58:50Just make sure you write the winners and cut the losses. I do agree that the markets are very slow to react because they need more more and more data. And the best decision I made when you're, let's say, on a scale of 1 to 10 on information scale at probably 6, 7, not 8, 9. 8, 9 is too late, and 3, 4 may be too early, but 3, 4 will be way more profitable than 6, 7. So the question is, what is your comfort? And what I found is that if you wait for 8, and I used to, by the way, the hit rate was much higher, but returns were much lower. So you want to improve your hit rate, you have to go lower. But the lower you go, the hit rate will drop dramatically.

59:31And that's a stomach lining issue then, right? Can you accept a lot of losses, small losses to get big winners? So we feel that 6-7 is a pretty good number. If you go to 7-8, you're too late. If you go to 4-5, and there's no precision to that. This is obviously kind of hypothetical. So the trends generally, folks, are slow. However, you do need to sort of explore trends which are maybe more nascent. but size it accordingly. Don't oversize it. And if the data proves you right, then increase exposure. But a lot of these trends last a long time. Trends rarely are over two years because that's a capital allocation issue, right?

1:00:08If energy, for example, capital into energy has been cut in half, demand is still a record high and increasing every year, global oil demand. But the cap is cut in half. So it'll take a long time before capital comes in, supply comes in, and so on and so forth, right? You will get mini cycles in between. So good news, these cycles can last long enough. And you just need to get some of these big calls in some more reasonable manner right. It doesn't have to be, you don't have to get everything perfectly right. But that's where I feel that you need an inventory of names. Because chances are you'll catch the inflection point if you sort of covered it somewhat or invested it somewhat.

1:00:54So in fact, some of the better names that we've owned in the last few years were the names we lost money actually a few years ago. But we knew the names better because we lost money. And we said, you know what? Somewhere down the line, we can capitalize that better. So if you use that as sort of a lesson, I call it tuition. If you keep paying these tuitions over time, you'll also cash those. And it could be completely different areas. Could be steel. Could be US software. It could be China Steel, by the way. One of more profitable names last year was a Korean steel company and a Turkish refiner.

1:01:29Who would have predicted that? And the worst names were some of the most commonly owned names, the Chinese tech names, and everybody loved them, right? Nobody knew. Where are you finding opportunities now, just kind of the general areas? We're actually very bullish on the US, believe it or not. I mean, we feel that US has a lot of things going forward. and since early last year, there's a reshoring boom or onshoring. There's a gas advantage, energy cost advantage US has, the tech advantage US has. So there are a lot of good things going on. Broadly speaking, the world is in pretty good shape. We are not gloom and doom at all.

1:02:04Inflation, we feel, is pretty well-behaved. But we quite like things happening in Latin America, in Brazil, in Mexico, not so much in Argentina, because Argentina, I think the direction, if they can pull this off, it'll be fantastic. But it's not easy. The changes that the new president is trying to make will be tough. I hope he succeeds, but it'll be tough. Very bullish on India. Sorry, Indonesia. Instrumentally, very bullish on Turkey, but also Middle East. We feel a lot of good things happening in Middle East. They really do want to make the transition from oil to other areas. A lot of openness to welcome foreign capital.

1:02:41We're still pretty cautious on some of the East Asian or North Asian markets, especially China. And also, it's a relative call, right? I mean, there are the better opportunities. So that's one area we're a little bit cautious on. One of the things that I always keep an eye on is the cyclicality of markets. And you just look at the different countries. And U.S. has been the place to be the last decade plus. But people forget the decade before, during the 2000s, that was one of the worst countries to be invested in. And you mentioned having a lot of interest in U.S. right now. What's your longer-term perspective on U.S.

1:03:16given high valuations and a lot of capital is already in the U.S.? Yeah, I mean, at the end of the day, corporate earnings matter. So why is U.S. done well? Because corporate earnings are strong. And I think from that picture, it seems reasonable. I mean, I don't like to make these long 10-20 predictions because who knows? and the valuation, by the way, it seems expensive, but you have to also recognize that the construction of the indices in the US looks very different. A lot of cyclical indices, industrials, energy were much bigger component of the index 25, 30 years ago. So it does really matter.

1:03:52Why should we compare what happened in 1980 today? The business is a lot less cyclical, which a large component of the index, right? So I think it's a little bit dangerous to compare the valuation 50, 100 years because 100 years ago, it was a much more cyclical index. And hence, I would argue, it deserved a lower multiple. So there's a structural reason. But as sitting here and now, I think there are a lot of good things happening, particularly on inflation front and so on and so forth. Obviously, we do have to watch the deficits. There seem to be rather alarming comfort with higher deficits, like booming economy running in massive deficits.

1:04:27What gives? It can continue in the long run, right? So that, I would say, should make people nervous. But I mean, Europe and Japan aren't exactly behaving that much better. Actually, emerging markets are behaving much more responsibly from a deficit perspective. But I would say that data will cross the bridge when you get to the bridge. Again, let's keep reacting to data points. And so far, I think it seems perfectly reasonable. But a lot of other things look attractive, too. There are a lot of interesting opportunities in Europe and Asia. So if you look at China and Japan, maybe two large markets where we are not finding much.

1:05:00But again, a very bottom-up story. So the macro cross turns we feel are actually much more benign. The inflation picture is getting better, not worse. Yes, could it spike up again? Well, again, we'll cross the bridge when we get to the bridge. So far, the data is pointing south, not north on inflation. Are there other large trends that you're seeing? Maybe AI or energy or financials with an inverted yield curve. Are there other big things that you're looking at? Yeah, look, I think AI is very early, early innings. So there'll be some winners or some losers and our job is to find out who the winner is going to be.

1:05:38But again, it's very, very early in the cycle. We own a bunch of those names. We feel this is real. It'll change a lot of different things. There's obviously some frothiness from time to time, but a little frothiness is not a bad sign because people are bullish for a good reason. Just because they're frothy doesn't mean you take the opposite. it. My view is contrarian is the deer that gets hunted first and leaves the pack. That's a contrarian deer, right? Gets hunted first. So be careful of contrarians. There's no benefit being contrarian for the sake of being contrarian. I mean, European banks, well, they were very bad for a long time.

1:06:12Maybe they look a little bit better now and they were cheap for the longest time. So I think all the trends that you mentioned are generally positive. Financials, some, you've got to be very selective in terms of more than some of the other areas. Certain countries are in good shape, but the loan growth is there, the valuations are okay, and the tailwinds are there, but the other areas may not be so. But AI, energy, we feel are structural longer-term trends, which unless the narrative changes in some big way or there's massive auto capital coming in, I think it's a little more durable. Rajiv, you've been very generous with your time.

1:06:49I wanted to close with one topic that I asked the guests at the end, which is you've shared a lot of insights already, but is there one insight that stands out that you feel like most investors may not have thought about or heard elsewhere? Oh, boy, that's hard. I mean, as I said, there's nothing new under the sun. So I can't tell you something which nobody has heard of. I rely on one simple principle is that admit your mistakes and then adapt, adapt again. Because who knows where the world is going to be? It's simply impossible. These long-term predictions are pointless because the world discounts a lot of different things.

1:07:24In this day and age, information does spread disseminated very equally across the world. I always find why folks may seem like discipline, but it all will sound rigidity. There's a fine line between rigidity and discipline. Most of the shops go disappear because of bad performance, which is because they're rigid, not disciplined. You can hide under the, oh, we're being disciplined. Man, is it disciplined or being rigid? That's the challenge in this business, by the way. In no other business, folks, no CEO in any company will get away with the fact that I've changed nothing and trust me, it'll turn around.

1:08:00Have you ever heard of a coach in any sport who said, oh, the performance sucks, but the team is very stable. Don't worry. I don't know how long will that last, right? But in this business, we hear it all the time. But the funny thing is this is the most, the area where things will get arbitraged the fastest, less so in sports, but in this business, it will. Yeah, and a lot of this is counterintuitive. So I appreciate you sharing your insights, giving us the time and continue to track you and spend time with you and learn from you. So I appreciate it, Rajeev. Thanks, Alex. It was a great conversation.

1:08:36Hopefully, we'll do it sometime again. Thank you. Absolutely. Thanks for listening. We hope you enjoyed this episode. Please visit our website at insightfulinvestor.org to access past shows and learn more about our podcast. If you have questions, feel free to email us at info at insightfulinvestor.org. And if you enjoyed the discussion, please subscribe to this podcast to ensure you don't miss future episodes. And don't forget to forward today's conversation to others you think would enjoy listening. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice.

1:09:15All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of Evoque Advisors, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. and listeners are reminded that securities trading, commodity trading, and alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.