Maggie: [00:00:07] Welcome back to the Hearts of Minds podcast. I'm Maggie O'Neill, head of Marketing Operations. Thank you for joining us today. So why don't we start a podcast? Well, every day we are privileged to engage in meaningful conversations that stretch our understanding of the world and the impact that we're making. And we wanted to invite you on these conversations to hear from the brilliant minds that are part of the Hearts and Minds ecosystem. Today, it's my pleasure to be joined by our Chief Investment officer, Charlie Lanchester. Hey, Charlie. 

Charlie: [00:00:32] Hi, Maggie. 

Maggie: [00:00:32] How are you doing today? 

Charlie: [00:00:33] I'm very excited to be part of another terrific conversation. 

Maggie: [00:00:36] Yes, I'm loving this series. It's a great insight into the managers that we work with and hear more about their personal styles, too, as well as their investment styles. So who will be speaking to you today? 

Charlie: [00:00:45] Yeah, look, one of the great privileges of this job is just meeting some of the core managers and spending time with them. So today we have Nick Griffin, founding partner and CIO of Munro Partners, one of our core managers now. He's been managing global longshore equity mandates for over 15 years and has also been selected as a Sohn Hearts and Minds conference fund manager for five years in a row. And I think that's probably something of a record. Maggie, you would know better than me, but not only has he done it five years in a row, but his stock picks have actually been probably one of the best of all the conference fund managers and one of the reasons he's now been selected as a core manager within the portfolio. 

Maggie: [00:01:17] Yes, certainly. And not only does Nick manage to pick outstanding stocks each year, but he's a master storyteller, so I've had the privilege of working with him and his team ahead of the conferences each year and just the work that goes in behind the scenes to nail that eight minute pitch is just incredible. It's not an easy task at all to distil your investment thesis and often explain quite a complex story in such a short amount of time. And yet he knows it every time.

Charlie: [00:01:39] Yeah. Look, I don't envy those fund managers. I have to get up in front of 600 people this year at the Opera House in front of their peers and clients. It's a pretty tough gig, but clearly I've seen Nick do one of his presentations in the past. He's a natural and I think this year we've got one of his offsider, Kieran, that's coming along, but he will be equally good.

Maggie: [00:01:56] I'm sure of it. So in this conversation we talk about a lot of things and I particularly loved hearing how Nick approaches and picks his winning stocks and navigates the unpredictable world of investments, including, though somewhat unexpected outcomes, which I suppose you come to expect in the world of investing. You also talked at length about his perspective on public first private markets, which I know is a topic of interest for you and the structural growth changes that are driven by e.i. climate change, the retail sector, those really big secular trends that we're facing at the moment. It was certainly a fascinating conversation to be privy to.

Charlie: [00:02:27] It was a wide ranging conversation, that's for sure. And look, I really enjoyed meeting Nick and the team at Munro Partners. Recently we went down to Melbourne and talked about the stocks that they recommended in the portfolio and their detailed analysis and the presentation they gave to us was incredibly thorough. So they are wonderful core manager. And yeah, look, it was a pleasure to speak to Nick today and I think everyone will enjoy the conversation. 

Maggie: [00:02:47] Yeah, well let's get into it.

Charlie: [00:02:53] Welcome. Nick Griffin of Munro Partners to the Hearts and Minds Podcast series. It's great to have you here, Nick. 

Nick: [00:03:00] Yeah, thanks for having me, Charlie. 

Charlie: [00:03:01] Wonderful. Well, look, maybe as an opening question, we could discuss the Munro Partners name. I know that it comes from the name of a series of mountains in Scotland, maybe. Why did you choose that name?

Nick: [00:03:15] Yes, it's elegance. It's a long story, but I'll give you the show. So? So I spent a lot of my career living and working in Edinburgh, Scotland. I was there very early on as an oil and gas analyst, and I met my wife there. And I've been going back for many years, and I even went back for a period after we moved back here for a number years of then that sort of ten years all up in living and working in Edinburgh. And yeah, we really I've got to meet a lot of the great Edinburgh fund managers of what a lot of people don't realise about Edinburgh is they run, you know, sort of more money than all of Australia has in superannuation, so more than $1,000,000,000,000 in assets under management. But you know, the city's like the same size as Geelong or Newcastle. And some of the fund managers are, you know, in some cases over 100 years old. So they sit in this faraway place and they take really long term views of the world. And so when I came back to Australia in 2016 and set up Munro Partners, the word Munro is just a bit of a homage to those great Edinburgh fund managers that I'd got to look at and got to know over all those years and got to understand. And you know, we wanted to we like the way they do things and we wanted to do things this way that they do. Munro is just to finally finish that thing is, you know, they are mountains in Scotland, over 3000 feet. There are 282 of them. They were surveyed in the early 1900s. And your goal if you live and work in Edinburgh, is to go climb them also. So it's called bagging Munros. And I say a female actually just broke the record of climbing all of them in 31 days. 

Charlie: [00:04:41] Wow.

Nick: [00:04:41] Which is incredibly hard to do. But she did and she does break the record that's been around for a while. But that's that, that's sort of where the story, where the name come from. 

Charlie: [00:04:48] It's quite hard to come up with a name for a management firm with significance. I do like that. So you started your career. You were on the sell side. I think at that point in time. What was it that attracted you to funds management and to to make that cross? And how did it come about initially? 

Nick: [00:05:07] Yeah, that's actually actually well, I'm not I'm not have listed obviously that I did set out on the buy side but originally but it was a long time back I started actually in Sydney with Commonwealth Financial Services that then became part of Colonial and then went into Commonwealth Bank and then and then came out again. So I was there on a graduate program for three years covering Australian equities and then I did what any good Australian did at the time is I gave up a perfectly good job with a perfectly good career path, working for perfectly nice people to put a backpack on and travel the world and ended up in London like a lot of my peers did around that time in the mid 90s. You know, it was $3 to the pound at the time. And you know, that's how you saw the world was to go get a job in London.

Charlie: [00:05:47] I came the other way at the same time. 

Nick: [00:05:50] Yeah. And yeah, I lived and worked in London and then, and then obviously got the job up in Edinburgh working for the Deutsche Bank oil and gas team. On the sell side, where we were the number one ranked oil and gas team in the world of Deutsche Bank owned Wood Mackenzie went to some very smart people there. We covered oil and gas and I did that for about five years before obviously coming back here and then switching to the buy side again at K2 Asset Management. And then and then ultimately starting my role after that.

Charlie: [00:06:16] Yeah. And talk to me through I think it's very interesting. And I listen to your podcast actually, where you talked about this, you earning two to manage a fund and to be making all those decisions yourself. I think, you know, every fund manager strives for the day when they're making the decisions. They're not the analyst. There's no one telling them what to do. Do you remember that first day and how did it come about?

Nick: [00:06:36] Okay. So yeah, I mean, everyone is attracted to fund managers, funds management. I think it is pretty much attracted to the one thing, which is that unlike a lot of industries in the world, this is an industry where you are judged, you know, by your performance. It's fairly black and white and you know, it's a fairly black and white outcome. And so you're clearly attracted to, you know, the yearning or I suppose, the desire to be able to prove yourself, to prove that you're smarter or better at this than the other guy. That, I suppose, goes without saying and then wanting to be able to do it yourself as is just merely to say, Look, we think we've got a way of solving this performance problem. We think we can do it ourselves. And so that's, you know, we built up a track record for a long period of time at our previous firm and, you know, compounded in double digits for more than ten years. And we felt they had the problem solved. And so we wanted to bring that to the market and bring that to other people. And so that's why we launched the business. But that's, I suppose, where the earning comes from. And that's why we got the track record, we built it up all the way, you know, over a ten year period. And so it was time to launch it as its own fund and thankfully it has been successful.

Charlie: [00:07:39] Well, congratulations on that move. Maybe then let's pivot back towards your investment process, back to those years in Scotland dealing with some of those Edinburgh fund managers. What was it that you took from their style of investing that you brought to your firm? 

Nick: [00:07:53] The good thing about the Edinburgh fund managers is and this is, you know, something that I learned over the years as well, not just from them, but definitely something I noticed from them specifically is, you know, so if you start a fund management firm in Australia, particularly doing global equities, everyone goes, Oh, how could you? How can you possibly do it from Australia? You know, these companies are so far away and you don't have the information. And why wouldn't we go with a fund manager in New York or London, etc. and, and Edinburgh fund managers and sort of bucked this trend for for not just a couple of years, like 100 years. They backed it by realising that funds management, you know, isn't a game of being over or underweight sectors or being over underweight countries. It's the equity markets, a game of very few winners and lots of losers. And your job is to find those very few winners. And then at the end of the day, it's things like culture and relationships and management teams that move that create these few winners. Everyone knows that, you know, smartphones when they came along with big, you know, there was like 11 different companies or 20 different companies making smartphones. But Apple ended up being the biggest and the best. And I don't think it's because they got lucky. I think it's because they had the culture and the ownership profile to do it. And so it's not just about analysing the numbers, it's about the relationships that you make in your journey through this industry, the management teams you meet and the people that you want to back, and the Edinburgh fund managers that work this out. And obviously a lot of other people have worked it out as well. But when you're stuck in these big cities, you can get stuck in this sort of underweight can. And yes, so from our point of view, that's what we saw and what we liked and that's what we were doing as well at our previous firm. And, you know, we just continue to refine it over the years. And that's basically the basis of Munro. 

Charlie: [00:09:34] Yeah, look, I think that approach obviously fits incredibly well with the Hearts and Minds approach in that we're looking for high conviction managers that, you know, investing in stocks that will often be in the portfolio, particularly our core managers, which you are now one, you know, hopefully for for many, many years. So how do you think about those things? How do you pivot when something doesn't work out quite as you expected it? I mean, obviously we're looking for those winners, but how do you keep challenging that thesis? Because obviously they're not all going to be successful. 

Nick: [00:10:05] No, they're definitely not. Yes, I see. Coming back to your point, you know, there's two constants that you have to accept when you invest. Okay? One is that there's going to be very few winners and lots of losers. A guy that's the that's the statistical facts of the stock market. You know, people on this call might not realise, but in the United States over the last 90 years, there's been 25,300 companies listed. Yet, you know, the top 50 make up nearly 50% of the entire value created over that time horizon. Okay. So this is statistically a very hard game and it's a game with very few winners, a lot to lose. So you need to think about that when you're investing, you know, what is actually your best idea? What is actually the best idea? Who has the best culture to get through this? Who's going to solve this problem for the longest period of time? And the second point you made was, which is incredibly important, which is, you know, concentration. You know, statistically, you can pick up a thousand papers that will all tell you the same thing. If you want to outperform for long periods of time, your profile is three concentrated. You can have, you know, anything over 50 stocks. You sort of getting too far. So those are your two constants when it comes to investing. So how do you make mistakes? How do you so, you know, those are logistical facts and then how do you fix your mistakes? Okay. So from our point of view, we use price. So we have a sort of a stop loss rule. It was one that I didn't invent. It came from my previous family. And, you know, my previous boss came out with this and I thought it was really clever, which was, you know, the company falls 20% from pay from cost. You don't have to sell it, but you should review it. You should review it straight away, you know, So you've invested in smart phones. You know, at the time you probably bought BlackBerry and well, we did buy BlackBerry, HTC and Apple. Two of them went to zero and one of them went up 16 times. Right. So your job is to recognise when you've made a mistake. And so we find if any company falls 20% from payco from cost is subject to review. We're not forced to sell it, but we're forced to review it refers to look at it and decide has the investment case changed? And even if we decide to keep it, we'll keep it for like, say, 30 days and in 30 days time, if it's still full and 20% from take your review to go in 30 days time, you review it again. 30 days time, you review it again, eventually you realise that, you know, I guess what, we don't really know what's going on in China at the moment, so why do we still own shares in Tencent or, you know, we don't, we are worried that Paypal might be getting disintermediate by Apple Pay here or that the touch screen a.k.a it's not the one or that eBay is not the e-commerce winner. And so this happens time and time again and we find this process is very useful. And I'd just put it to anyone listening that anyone is a private investor and I can assure you that I was for a long period of time has a stock that's fallen 90% and bought it and fallen 90%. It's currently sitting in the bottom drawer and they can't bring themselves to look at it. And so from our point of view, we just forced ourselves to look at it a lot earlier than say, other people would. And that's how we try to avoid mistakes. 

Charlie: [00:12:49] And what's your view on private versus public markets? I do think the public markets are increasingly run by machines to some extent, and which has increased volatility around quarterly earnings. And, you know, is it a failure or is it a miss? There are the quant funds, IT index funds, and I think some high quality businesses are staying private longer. What's your view on one versus the other? 

Nick: [00:13:11] Yes. So I think for both industries, there's one constant that's still the same, which is that if companies make more money every year, they're generally worth more over time. And, you know, so both big industries, if they can if the companies continue to grow, then the value of those companies continues to go up. You know, one does it in you know, in the private markets whereby, you know, there's no mark to market every day and the other one is mark to market every day. And so I'd agree the market is definitely got more volatile in the last few years because of some of the things you talked about. But the underlying core of what we're trying to do hasn't changed. And as long as we stay true to that, then we can, you know, you can you can find your way through these markets, if that makes sense. And I haven't seen anything to suggest that's changed. And then the second thing is just really, you know, investor preferences. You know, one provides you with liquidity daily, you know, with our funds. You know, if you buy them today, you know, our fans are quoted on the stock exchange and and or you fill in a form and you buy them. Now you wake up tomorrow and you own 20 to 40 of the best growth companies on the planet. But we think and the day you don't like us anymore, you just sell it and you get your money back. So that liquidity is very useful for people. Private markets, you know, you're effectively stuck there for six or seven years, but, you know, you generally probably get better returns for that, for that for that time horizon. And so this is really down to investor preferences. But the the constant is the same. If the companies can grow their earnings over long periods of time, then their valuable grow over time. And that's essentially what we're looking for. But I can completely see why people would would mix and match between the two.

Charlie: [00:14:42] And you mentioned those structural growth themes that you look for quite to hear what those structural themes are right now. 

Nick: [00:14:49] So from my point of view, you know, at the end of the day, okay, so let's go back to, you know, trying to solve the problem. The problem is there's going to be a few winners and lots of losers. You know, if you plot those 50 companies I told you about in the United States that have created nearly half the value, you know, if you look at them, not one of them was created by macroeconomics. So it's a macroeconomics does not create the world's great companies. You know, it's always a structural change. And then usually, you know, some great leaders within those industries that managed to execute from that structural change. And so you go back over time, you know, this is can be as simple as things like big box retailing. A lot of us are old enough to remember where the shops were like down the road and, you know, the hardware store was tiny. Now the hardware store is a big box outside of town. And that's how you created Home Depot, That's how you create it. And Walmart came out of that. This can be as simple as, you know, software moving to the cloud, you know, effectively made software ten times more useful to Microsoft from a big company into a giant digital advertising came along and created Google and Facebook. And so it's always a big structural change that creates them. And these are the big winners from my point of view. The big structural changes today are very much around. I mean, we're going to talk a little bit about this today that. But, you know, the you are in effectively the fourth tectonic shift of computing. And so we're going to shifting from, you know, mainframe PC to mobile to AI. You know, you just get exponential semiconductor demand as you connect everything to the Internet and then that data has to be processed. So semiconductors are a big area for us. So we call it iPhones computing. Cloud computing continues to grow dramatically, probably only in its second or third innings is another great area. And interestingly, you know, you still you know, as much as we just had the public private conversation, you know, Google's been listed since 2005 and it's still growing its earnings at 15% per annum since then and its revenue at double digits since then. And so that's like 18 years later. So even things like, you know, Google and Netflix in Internet disruptions still have runway in front of them despite the fact that, you know, they've been listed for quite some time. And beyond that, the only other big areas that we think are really interesting that are not tech related is very much around climate change or decarbonisation. You know, it's pretty clear that we've reached a tipping point decarbonisation that we think a lot of winners are going to come out of that and particularly ones that you know, much smaller than say, some of these tech companies. So we think this is, you know, for us this is a really exciting area because you get to find really small companies that potentially, you know, can go up five or ten times in value and, you know, be pitched one of them a couple of years ago. So on being on semiconductor, which has continued to power on since then. And the last big area is just retail, retail, a consumer, you know, there's always great companies doing great things in consumer. And definitely the athleisure industry is going through a great structural growth trend, post-COVID, as we basically all give up on suits and there's no time jacket on here, Charlie, you know, the world has moved on. Yes. And from our point of view, you know, trainers, it's athleisure is a great structure growth here. And there's some really good companies in that space that we like at the moment.

Charlie: [00:17:46] Very good. Very good. So maybe just looking back, obviously trying to find these companies, if you do for. Find them. They compound incredibly over many years, but they will always be tied to the net. The market just says we're going in a different direction. You know, as a family, you never outperform every year. There are tough times. And so I presume, given your style of investing, that 2022 was quite tough, even though a lot of those companies continued to perform incredibly well. The valuations the market was prepared to pay came back as interest rates increased and they probably increased a lot more than either you or I would have predicted at the time. How did you feel through that process? How do you cope with it and how did the team fail? Just maybe orchestrate. 

Nick: [00:18:27] From our point of view. I mean, you know, one in every five years you get to get made look really stupid in this industry. And definitely 2022 is that year for us. I think what you just had to realise and we did thankfully realised very early on in January was that interest rates were going to go up a lot. So from our point of view, you know, there's two things you're trying to work out here, which is do companies grow over long periods of time? And you know, that bit compounding is, is as we talk, we're going to spend a lot of time talking about. And then the second segment is the valuation. You pay for that. To be fair, if you get the compounding debt right, it actually doesn't matter what valuation you pay over a very long period of time, but over a short period of time, it does. It does. And 2022 came in set up where rates were very low, multiples were very high. And if rates went from zero and fives and multiples were going to go down, why don't you work that bit out, which we did in January. We raised a lot of cash. We raised roughly 40% cash in our main funds. That's not most process I talk to you about earlier came in very handy on some of the high multiple growth stocks or definitely some of the smaller caps where we sort of lost confidence that they would be able to continue to grow or acquire customers in this environment. So that came in very handy. We raised a lot of cash, but also maybe throughout the year we just recognised that, you know, nothing's really changed here. Rates are just going to go from 0 to 5 and we needed the rates to stop going up. Now admittedly at the start of the year we're probably going to 0 to 2 was there to three. We didn't think I'd go with that five. And so that pressure stayed on all year until rates peaked in October. And as soon as rates peaked in October, you know, stocks just did what they do best, which is go back to following earnings. And so from that point of view over any sort of medium term view, you know, the shift to AI, the shift to the decarbonisation of the planet, the consumer companies that we talked about who are executing well, they're just going to keep winning. And so you just had to diverge from the right pressure, which is now over. And then secondly, you had to work out whether the right pressure was going to equal earnings pressure. And what we've seen more clearly, particularly in the last six, four months, is these companies are just so much more powerful in terms of earnings growth than even we thought. And I think we massively, we constantly underestimate in this industry that we always try to say put the economy and apply it to the stock market. And the S&P 500 is not really the stock market. It hasn't been for a long time. And you try to apply that outlook on rates and the economy to Google. And then Google sort of just cuts costs and finds its way out of this. And so does matter. And, you know, Microsoft launches into AI and suddenly everyone wants these products. And so we sort of underplay human ingenuity and overplay the economy. And and what generally works out is human ingenuity comes out and wins. And I think that's what we're seeing again so far this year. So from our point of view, nothing really changed. We just had to manage the volatility and more importantly, you know, just get to the other side of what was, you know, probably once in ten or once in 15 year adjustment. 

Charlie: [00:21:18] Yeah, Yeah. Like to say, you know, congratulations, you've been, I think, probably our best performing conference fund stock picker and we've now welcomed you as one of our core managers, which is fantastic. What is it that resonates with you about Hearts and Minds Mission? 

Nick: [00:21:34] Okay, so, so here at Munro Partners, we do run a foundation, for instance, and, and, you know, a percentage of our revenue goes to the Mantra Foundation and we like you, you know, donate that to causes that we care about. And for Hearts and Minds, obviously, that's what this fund is doing. Also, you know, it's a certain portion of, you know, management fees, etc., go to the things that Hearts and Minds is interested in, which also, you know, align with our goals. But I think for me, the big thing that I like about it is that you can apply your skill set to solve problems not just for your clients, but for other things that need solved in the world. And so being able to use your skill set to to improve the outcomes with Hearts and Minds, you know, ultimately hopefully allows the fund to grow. And the more the fund grows, the more fees that you can allocate to the things that lots of minds cares about. And so it's really just being able to, you know, rather than just giving money to to apply your skills to leverage that a bit more. And so that's the thing that resonates the most with us.

Charlie: [00:22:32] It's a wonderful organisation which I think helps everyone sort of win, win, win. So thank you for being part of it now.

Nick: [00:22:38] Thank you. I think that. 

Maggie: [00:22:43] Well, to think we're only at the halfway mark. Certainly lots to unpack. This conversation's just been so wide ranging. I think one of the big things that resonated to me was, you know, particularly around that notion of picking winners in those big structural changes. That's obviously a really big part of the investment process at Munro Partners. But this time it was interesting to catch that. It's about the importance of people and culture and management, and that is obviously something that we hear a lot from our managers. But when you've got these big trends, you've got lots of comedy sort of trying to ride that tailwind and it's hard to pick or know who's going to come out as the winner. And so Nick tends to look to those management teams and the culture at those organisations to try and pick the winner.

Charlie: [00:23:20] Yeah, look, absolutely. And as with all fund managers, there's an art and science as well involved in the investment process. But look, Munro Partners sure do look for the big winners and they're not afraid to let them compound over many years, which you know is how a really good growth manager operates. But equally, I've been very impressed by the fact they're very quick to challenge every position and not afraid to change course quite decisively if needed. 

Maggie: [00:23:44] Yeah, which is certainly important. It's easy to get anchored to a position when you're such a high conviction manager and really love the stocks and the companies that are invested in . It's hard to sort of question that sometimes. 

Charlie: [00:23:53] Yeah, look, and I think today's discussion I think listeners will be really interested to hear more about Amazon and Nvidia, which is really a topical company.

Maggie: [00:24:03] Absolutely. 

Charlie: [00:24:04] AI Transition. So I think today's conversation diving deep into those stocks have listeners are going to find incredibly interesting.

Maggie: [00:24:11] Yeah, absolutely. I certainly found it fascinating. Well, let's not hold back. Let's dive in. 

Charlie: [00:24:17] Welcome back, Nick. We're now going to dive into two of the stocks that are within the Hearts and Minds high conviction portfolio that you guys have recommended. Firstly, NVIDIA, which actually has a relatively new position, but it's certainly been in the headlines recently. And perhaps you can start by setting the scene a little as to why semiconductors, which is ultimately what Nvidia produces, are so important for artificial intelligence, which is obviously all the rage at the moment. 

Nick: [00:24:44] Yeah. So the first thing I should do is put my hand up here and apologise that we didn't put this in a bit earlier. We did you know, so, so what, what's sort of happening we've always liked NVIDIA, I'd like to believe for a very long period of time I think we've owned the stock sort of nearly seven years now. It was a very difficult stock to own last year and 2022, I think I got up on a different podcast at the start of 2022 and said, Nvidia is going to be the biggest company in the world and it fell 61% and has since rallied like 300%. So it's a very difficult stock to hold. It's very volatile, but it is, you know, we think genuinely a chance of being the biggest company in the world. And let me just explain why. So semiconductors, you know, AI sort of went from semiconductors, went from sort of the most hated sector in the market last year because we were going through an economic slowdown. And, you know, PC demands weak, smartphone demands weak, cloud compute demand was weak. And, you know, it was tough all year and it wasn't looking great for 2023, to be honest. And then in December, along came this little app called ChatGPT and ChatGPT you know, everyone thought it was pretty cool. You could write a poem about your dad, which is what my kids did. And, you know, I read that at Christmas, so that was quite funny. Did rap songs, you know, that's interesting. But then ultimately it really exploded for us in February when Microsoft integrated Open AI into into their new Bing and said they were going to launch their co-pilot products, which is their co-pilot products across all of their software suite. And they also increased their CapEx on the cloud dramatically. That increased by 50% for the year. So they're going to spend $50 billion on datacentre infrastructure in 2023. And that basically laid down the gauntlet to every other big tech company on the planet to go down, we need to follow. So Google started investing, Amazon started investing, and every single corporate on the planet sat down and just went, What am I going to do with these AI products? How do we invest? And so we would argue that ChatGPT when you look back will be sort of the iPhone moment for AI. This is what Jensen won says in Nvidia. This would be the iPhone moment where basically people AI has been around for a long time. You know, it's been you know, it predicts what Netflix shows you want to watch or it helps your car park or helps to the lane change in your car, etc.. But now people can say that generative AI will work on everything. It'll work on for companies, it'll work in how you create pictures. It works on how you create music in a work for banks and how you do credit. And so we think this is the big forth tectonic shift. And when this happens, as it happened with mobile before and as it happened with PC before that, there's always a big couple of winners that take all that share and and we think NVIDIA was that company. 

Charlie: [00:27:27] So what is it about Nvidia that you think has that long term competitive advantage? But you know what is the IP that they have that others can't catch up. 

Nick: [00:27:35] Yeah so this is a little bit complicated, but I'll try and explain it quickly. So we've been meeting the company for a long period of time and they're effectively. They always said the same thing the whole way. What India video specialises in this thing called accelerated compute. And so what they realised a very long time ago was that Moore's Law would eventually run out and it's currently forecast to run out, you know, just beyond 2030. But if anything, it's beginning to slow down. And so what they said is that, you know, a CPU, which is a, you know, the standard thing that an intel would make that goes in your on your PC should be combined with the GPU in your graphics processing unit and the graphics processing unit and the CPU you go together to create accelerated computing. And so NVIDIA has always been in the lead in these in these GPUs or graphics processing units and people would know them from video games. Right? So so essentially a CPU has sort of eight cores in it and a GPU has thousands. You use them in video games because they help make graphics, they help make lots of little decisions really quickly so the graphics can move the whole time across a video screen. But in the end that's been very useful for AI because AI is exactly the same. You know, how do you make lots of what you ask, Charlie, ChatGPT is different to what I ask, and you know, every AI instance is different. And so what we now know is accelerated computing, which is growing sort of slowly to about 10% of all servers now will probably go to 100% all servers. And and to be fair, Jensen and Nvidia have been saying this since day one, but it's just had that moment and so now everyone realises AI is going to be big. We need to build AI data centres, A.I. data centres have to be accelerated. To do that, you have to combine GPUs and CPUs and you have to do it with software to get these things to work. And Nvidia just has a massive lead here. So they've got roughly an 85% market share in GPUs in accelerated compute. And they also have the dominant software that you need to program on this. And so and maybe if that was all a bit confusing, I'll just go back to what I said earlier, which hopefully lays out the picture in every compute cycle. There's always just a couple of big winners. And so if you think about it, you know, when the PC came along, I, we went from mainframe to PC because computers go fast enough to do that. PCs was dominated by Intel, Intel and there was also two operating systems, which was Windows and Mac. When we shift to mobile and mobile computing came along, that was dominated by Apple. And Apple took 85% of the profits and the whole supply chain, you know, Qualcomm and everything inside it. And now we're it got to AI right. So this is the big shift. We connect everything on the planet to the Internet and we process that data and data centres really, really quickly. And all those data centres again have to be accelerated. NVIDIA is set up to be the big AI when I think it's the apple of AI, the hardware software model, yes, they'll be competitors, but you probably won't go more than one or two operating systems and the competitors are a long way behind. So as those dollars are spent today, they're all going to NVIDIA. 

Charlie: [00:30:28] And I have to ask you, I guess last we're talking about AI, how does it make you feel? Are you excited? And I expect that that's probably is the case or scared as other people are, of the ramifications.

Nick: [00:30:39] Look, I can see why people are scared. You know, I can say that, you know, these are healthy conversations to have, but not actually incredibly excited. As I said before, you know, I was actually in Microsoft's office, you know, so this is, you know, a couple of months ago. So June 2023 went into timestamp this. And, you know, we had this whole conversation about AI and they were just excited and we were excited. And at the end of the meeting, I just thanked them by saying, thank God you've come up with these products, because otherwise we would have had to talk about the macro for a dollar and that would have just been really boring. And then we went down to see Nvidia and they showed us all this stuff as well. And you know, we're literally just at the start and this is going to run for 3 to 5 years minimum. Yes, the stocks will get ahead of themselves. And so, you know, Nvidia is a little bit hot here because, you know, we are obviously a little bit late, but we definitely don't think it's too late based on the numbers that we can run and happily running through them.

Charlie: [00:31:31] And they've got they had a blow-out quarter in the last quarter, which was what really got the stock moving. Do they have the capacity to keep that growth moving forward over the next few quarters?

Nick: [00:31:39] Well, yes, and that's the good news. And that's just I don't know. So they capacity constrained and as capacity keeps going up, they'll keep growing. So maybe just to give people a just a step back a bit on the quarter. So as I said, when Microsoft announced these products, we're like, wow, this is a big deal. Like they're going all in on this. And then Google announced all this and I went all in and then Amazon asked all those that went all in and we're like, Well, this all leads to Nvidia. And so we invested, you know, we lifted our weight quite dramatically and, and we should have bought Hearts and Minds before the quarter that, you know, we bought it internally, so we bought more internally. We already owned it. But then when that result came out, I mean it really blew people away. And just to give you an idea, you know, you know, a consensus had to lift their numbers by 80% for the year 80, not 8, 80. And there's 26 people to cover this. And it's a top ten company on the planet and added 250 billion in market cap in one day and it hasn't given it back And it was cheaper after results than it was before the results. 

Charlie: [00:32:37] And must be the biggest market cap move in history. 

Nick: [00:32:41] It is. And so. From my point of view. Like, I just I suppose I would just stress to people the reason why we're doing this is because A is just started and B this is a really, really big deal. Like, we're not talking about microchips here. We're talking about some of the biggest companies in the world lifting their earnings by 80%. Microsoft just launched their co-pilot products. Their co-pilot products are going to be charged down at $30 a user. There's 400 million people in the world using max of products. If 20% of them take it up, that's a 12% earnings upgrade for Microsoft. If 100% of them take up, it's a 50% earnings upgrade from Microsoft and it's the second biggest company on the planet. So these are big earnings upgrades for big companies as the biggest companies in the world go effectively all in on AI. And this has just started. Now, yes, this will get priced in quite quickly, in some cases in the stocks to get ahead of themselves. But this will run for a number of years. And so the risk here, if you want another, it's the big risk is that no one uses these products, is that we all get them and they don't work. And that's definitely a medium term risk. But I don't think that's a risk in the next 18 months to two years, because every company in the world is basically petrified, as you point out, from what these products might do to their business. And so they're investing in front of it. And I think you're right to point out the fear, because the fear is, you know, is it going to kill us all one day? Well, maybe it does, but I think it's highly unlikely. I think the bigger fear is like, are you going to get disintermediated by this? And we should look at this and invest in it quite heavily. And that's what everyone's got to do. 

Charlie: [00:34:12] Absolutely. It does feel very early days. So maybe switching on to a second stock and I think this is one you've owned for a very long time, and that is Amazon. I was guilty of owning some e-commerce stocks through the pandemic, which did extremely well. And then I think everyone thought that this was a shift online that was here to stay. And I personally think that online still has a long way to go in terms of penetration. I personally hate shopping, so I do all of my shopping online and penetration is still relatively low, but there's no question that there was a snapback post-COVID. So what are your current thoughts on Amazon and how they're positioned? 

Nick: [00:34:55] Yes, from my point of view, Amazon obviously, we put in I think in December for you guys and it was actually look, look, Amazon, you know, is definitely not the exciting stock it once was. You know, when we bought it all the way back in 2014, you know, back then, you know, e-commerce was new. I was I was, as I said, living in Edinburgh at the time and doing all my shopping on Amazon and just going, this is the greatest thing I've ever seen. You know, they'll deliver fishhooks to me within a day. And Australians probably at that time didn't really realise what Amazon was. And in 2014 it was, you know, it's an incredibly exciting stock and you know, we've made more than ten times our money on it since then. Obviously COVID was great for that and, and, and now we would look at Amazon sort of as a turnaround story, to be honest, because they really did execute quite badly through the COVID period. Like a lot of these e-commerce companies, they thought that the inflection in e-commerce was permanent and that, you know, it would accelerate from here, but it really was just a one off. They massively overinvested in distribution capabilities and warehouses. In fact, they doubled their warehouse footprint in the space of two years. And as they got to the other side of COVID, you know, they've they've overinvested. They've got too much capacity. They got too many people. You know, the retail business has not made any money now for eight quarters. So think about that. The second largest retailer in the world has lost money for eight quarters in a row and we just don't think that's sustainable. And so in this case, the share price was very low, the lowest valuation we've ever had to pay for Amazon over the ten years we've owned it. And, you know, we think people have mis modelled this. We think, you know, it's actually quite easy for Amazon to fix these problems, not not within a quarter or two, but on any sort of 12 or 18 month time horizon. You know, this is fixable. You should be able to run your retail business for a profit if you choose to. And they are saying they changed it. So this is really about just balancing the retail business out whereby the warehouse footprint matches the demand. We're not saying demand's going to explode again, but e-commerce should grow still fast and the retail sales are high single digits and Amazon can return that business to profitability. And if it did, if it did, I mean, this is the amazing bit, you know, like, you know, the entire Amazon business, even with cloud at running at a 30% margin only runs it sort of a five or 6% margin. So so you can easily get the earnings to sort of double and triple from here just by fixing up the retail business. And that's sort of the bet we're making on Amazon. And the timing was very good. So that's why we put it in your fund in December. 

Charlie: [00:37:24] Excellent and yeah when out of interest so when you go and look at Amazon do you get to meet the management as that way?

Nick: [00:37:31] That is a great question. I got ten years of owning Amazon today. You know, we'd probably have to 2 to $300 million worth of stock in Seattle. In the Microsoft Office. I can see the Amazon office won't take a meeting. Will not take a meeting. Ten years of us. So we talk to the IR occasionally in a group meeting, but physically, yeah, they are very, very, very reluctant to take meetings that have been for a very long time. And again, you know, this is hopefully something they change under Andy Jassy, you know, like it's also important to flag that Amazon's gone through a, you know, so as I said, we talk to I but if anyone's read the Amazon earnings call, you know they don't say anything. They just take six questions and move on. And there's sort of this arrogance that they've had for a long period of time. And I think I think they need to move away from that because they, as I said, they did miss execute. And, you know, this also happened at the time that Bezos was leaving and Andy Jassy was taking over. So he has this chance to put his footprint on this company and sort of do a bit of a Tim Cook like Tim Cook did at Apple. And I think at the price we pay for it. That was a good bet. I think it's a good bet that he will he will eventually. And, you know, we get to speak to lots of people, you know, within the company. And we have our relationships, you know, within people in Amazon Web services. That means retail who tell us what's going on, etc.. But everyone who covers Amazon, by the way, is treated the same way. No one gets to no one gets in there. And like, that's fair. That's one way they do it. But that but from our point of view, all signs point to the fact that Jassy has been working on this for about eighteen months and we expect it to bear fruit, honestly, starting this quarter and hopefully throughout the rest of the year. 

Charlie: [00:39:06] Yeah, look, it's a big ship to turn, I guess, but but retail is all about scale. So, you know, I think long term it. 

Nick: [00:39:13] Is a big deal to them. But remember, you know, it's been eight quarters. You know, we actually thought this would turn three quarters ago and it still hasn't. So it's going to it shouldn't be too hard to turn, but they should be able to turn it. 

Charlie: [00:39:23] Excellent. Well, look, thanks very much for those two insightful comments around Amazon and Nvidia to finish up the podcast. I think one of the common themes of our partners, both investors and scientists, is a real sense of innate curiosity. So right now, I know you listen to a lot of podcasts around various things. Is there, you know, something maybe obviously apart from AI, which is a topic we've already discussed, but there is something out there that's really piqued your interest lately. 

Nick: [00:39:55] Okay. So yeah, like, I mean, most of the time we spend is spent thinking about the cultures and the ownership structures that create great businesses. That's what I'm spending most of my time on this. I so we didn't mention this at the start, but Munro Partners, we set it up as a partnership. Okay? So, so a partnership is, is whereby, you know, most of the people here at Munro, you know, and again, looking at our Edinburgh peers, you know, we sort of give them equity in the business over time, they earn equity in the business and that equals profit share and they get profit share. And then when, when they leave, they give it back, may give it to the next person. And what that does is it aligns everybody on the goals of the business, if that makes sense. So in my opinion, the biggest mistake you can make as a fund managers to IPO your business because it's, you know, you let all the talent walk out the door and make it very hard to attract new talent. And so from our point of view, you know, we've tried to solve for that and we've looked at some of the best fund managers in the world, and they're all partnerships. That's how you last 100 years, right? And so the podcasts I listen to, all the stuff that I'm interested in is just looking at these great businesses, looking at their ownership structures, looking at how they're aligned. Okay. So we just talked about Nvidia. You know Jensen Huang still owns 3% of Nvidia. The vision that they've got today was the same four guys when they started it. It's literally the same vision. They have been working towards this accelerated compute thing for 20 years. They thought there's a better way to solve this problem. Amazon is obviously going through a transition, but most of the success was created by, you know, Jeff Bezos and his and his, you know, unwavering pursuit of keeping customers happy. That's what he did. And he probably tried to keep them over happy throughout the COVID period. But, you know, and so it's these I think when you get down to it and the thing that I find curious when we're looking at things is it is every great business and maybe I'll finish where I started. Every great business is normally created around the simplicity of solving a simple problem, and then there's simplicity. And that needs to be attached with the simplicity of the ownership structure that aligns everybody internally towards solving that problem. And the guys who get it right get that right and everyone else gets that wrong along the way. They get distracted. They try to solve too many other problems or their ownership structure doesn't align them enough and end up, you know, bickering along the way. I always joke, you know, somewhere in a bar in California or the guys from our states and they look at each other having a couple of drinks going, you know, we missed it by that much. You know, Google's like the biggest search engine in the world and our state is nothing. But that's the stakes you're playing for. And that's the stakes. We're playing for Munro, too. So that's the stuff we think about quite a lot. And how do we align ourselves and our goals and how do we invest in people who are correctly aligned along their goals? And if you do that right, then everything else is just time. And so from our point of view, that's the stuff we get most curious about. Or at least I get less curious about

Charlie: [00:42:48] Fantastic. Look, congratulations on building Munro Partners. It's a wonderful business and thank you very much for being part of Hearts and Minds here today. Thanks, Nick. 

Nick: [00:42:56] Thanks so much for having me, Charlie. Thanks again. And thanks for all the good work you guys are doing weekly. We really enjoyed being a part of it. 

Maggie: [00:43:03] Thank you for listening to today's episode. What a fantastic conversation with Nick Griffin, the founding partner and CIO of Munro Partners. I hope you found this episode as insightful as we did. A huge thanks to Nick for his time today and his ongoing support and commitment to Hearts and Minds. We'll be back next week with another episode to enjoy you and never miss a conversation. Please subscribe wherever you are listening to this podcast right now, and better yet, send it on to a friend or colleague you think will enjoy this discussion. Your support is much appreciated. Until next time, stay curious.