ANDREW BROWN | Invest like the mega rich

· Podcast Episodes
Dynasties to Dividends: Investing with the World's Richest Families. Andrew Brown from East 72 Holdings
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How do the world's richest families manage and grow their wealth? In this episode I'm joined by Andrew Brown, executive chair of East 72 Holdings, to discuss the unique characteristics and advantages of investing in companies controlled by wealthy dynasties. With over 40 years of experience in equity markets, Brown sheds light on why these companies exhibit prudent financial management, avoid wasteful expenditures, and foster long-term growth.

Check out this X post about a couple of these super-rich-cats that we talk about in the interview.

Andrew explains that these old, large and tightly held companies often do not suffer as severely during market downturns. They may not skyrocket during booms, but their steady compounding over time leads to significant outperformance.

The conversation also delves into the structure of these companies, highlighting examples like Berkshire Hathaway, Walmart, Alphabet, and Meta. Brown points out the unique share structures that enable families to maintain control with fewer economic interests, a practice more common in Europe but less so in Australia due to stock exchange regulations.

The episode isn't just about the mechanics of family-controlled firms; it's a journey through the fascinating world of luxury goods and investments. From the music industry, where companies like Universal Music Group own a significant portion of the world's recorded music, to luxury hotels and the real estate market in Monaco. Andrew highlights businesses that cater to the ultra-rich who are largely immune to economic downturns.

"In a world where the rich are getting richer, the demand for these things got an 18 month waiting list."

Andres emphasises that investing in shares should be approached with the same rigor as buying property, urging listeners to research thoroughly and develop a clear rationale for their investments.

For those looking to expand their investment horizons and learn from the success of the world's wealthiest families, this podcast episode is a must-listen. So, if you're curious about the intersection of wealth, investment, and family legacy, tune in and think like the rich and invest with a vision for the future.

By the way it turns out that Andrew I are both Led Zeppelin tragics. Here's a link to the story about how it ended up being approved for use in the trailer and the credits. Here's the credits from the Big Short that uses one of Andrew's favourite Led Zep songs:

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Chloe: Shares for beginners. Phil Muscatello and Finpods are authorised reps of money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Andrew Brown: I try to suggest to people, particularly newer investors, think about buying a share the same way you would think about buying a property, whether it's your prime residence or an investment property. You do a lot of research into the street, you do a lot of research into the history of the house, you know what renovations have been done, this, that and the other. You do all kinds of cross checks and you create a thesis, particularly if it's an investment property, of why you think that's going to be a good investment for you.

Phil: G'day and welcome back to shares for beginners. I'm Phil Muscatello. Who are the richest families in the world and how can you invest alongside them? Joining me today to explain is Andrew Brown, executive chair of East 72 72 holdings. G'day, Andrew.

Andrew Brown: G'day, Phil, how are you?

Phil: Good, good. Thanks for getting on the bus and coming over to Belle. Main problem, Andrew has more than 40 years experience in equity markets. As an analyst and professional investor. He served on 14 listed public company boards, done most things, corporate backdoor listings, takeovers, strategic stakes, and compiled public company accounts for 19 years. But we're going to be talking about families because, well, tell us about e 72 and the Dynasty trust and the kind of methodology that you use, which I'm finding quite an interesting thing.

Andrew Brown: What I found over 40 years of investing is that where a company is controlled by a family, it generally exhibits certain types of characteristics. The companies don't usually waste money, they usually don't make silly acquisitions, which management led companies often do, because they find some strategic reason to buy a company at uh, way over what it's worth. They tend to engender a high degree of loyalty in their senior employees and senior management. So they pay them well. They tend to stick with the businesses that they're in for the very, very long term. And so what that does, depending obviously on the business, is by and large enables these companies to compound. In other words, just by reinvesting the cash flow back into these really, really good businesses and getting the benefit of compounding. So that's what I found and what that does. And there's some empirical evidence to show this, and in particular, that evidence is very strong in Canada, where there are numerous family control companies. Is that over the long term? And I do stress that these companies tend to outperform the stock market and they do so because they don't do as badly when the stock market has a downturn. They may not do quite as well if the stock market rockets ahead, but on average, over a long period of time, they tend to do much better than the average company.

Phil: And these are not just average families, are they? We're talking some of the biggest, richest families in the world, aren't we?

Andrew Brown: We are indeed. That. You know, Berkshire Hathaway is effectively a family controlled company. Most obviously, Walmart is a family controlled company in the US. Funnily enough, you may find this strange, but Alphabet, which is of course, Google, Amazon, Meta, which is Facebook, they're effectively family controlled. And in each of those cases, they're family controlled because the founders, some of whom have retired from the business now, but the founders, when they structured the shares, they got shares which maybe had 50 votes per share, as opposed to you and I buying shares that have one vote per share. And of course, they're loaded up with the high voting shares and that's how they control the company, with maybe only an economic interest of ten to 15% to 20% of the overall economics of the company. That's very prevalent in Europe as well. Some of the major families in Europe that control publicly listed companies and invite, very much invite and look after minority shareholders. That's done by split voting shares. So, uh, voting shares and non voting shares, perhaps is the more usual thing that you find in Europe. You don't find that in Australia. If you're wondering why not, the australian stock Exchange does not allow non voting shares. You might remember, if you've got a long memory, the Farrago with News Corporation, which had voting and non voting shares. And that's obviously so that the murdochs can retain their voting control of News corp with around about a sort of 20% to 30% economic interest in the business. There have been others in the past. Village Roadshow, for example, that was the same. Now, of course it's been delisted, but that's why you don't see it so much in Australia. And we don't see so many wealthy families in Australia that control a publicly listed company and positively encourage minority shareholders like mums and dads. The two most obvious ones that have got some longevity are, ah, seven group holdings, which is Kerry Stokes Company, which, whilst they own 40% of the tv station, vast majority of the business's wealth is in things like Boral, which they bought, and a whole bunch of construction related things, particularly the caterpillar franchises. And the other one is Reece which is the plumbing business, where the Wilson family are, uh, uh, the long, long, long standing shareholders in that.

Phil: Why do these companies in Europe encourage minority shareholders and using the vehicle of non voting shares?

Andrew Brown: In some cases, it's just because they've been around a very, very long time as publicly listed companies. Some of the companies we have in Italy, particularly good examples of that. In France, it's a similar situation. They've been publicly listed companies for a long time, and they've not really made a move to get rid of the minority shareholders in the main company. They have in some sort of subsidiary companies they've had a very good example of. That is a company many of the listeners may not have heard of, which is called Bollore Uh, there's 14 listed companies in their universe, and it's controlled by a gentleman called Vincent Bollore who's 72 years old. And it's been a magnificent acquirer, uh, share trader. It's just sold two logistics businesses for €11 billion. And it is the major shareholder of Universal Music Group. And Universal Music Group owns one third of the planet's recorded music. So it doesn't own Taylor Swift's actual cuts, but it does distribute Taylor Swift's work. On the other hand, you know, it does own people like the Rolling Stones. So Bollore control that. But back in the 1970s and the 1980s, it picked up a group called Revo, which had a whole lot of listed companies itself. It got rid of one or two of those, but it hasn't got round to the others yet. So they're quite happy to encourage minority shareholders alongside them. They believe it obviously helps them. It helps their visibility. That's why they retain it. And there's no way that a minority can take control of these companies. They're very much tied up either with split voting structures or, in the case of bolleraise, actually owns itself through a 70% shareholding by a company it owns 35% of. So a bit like Soul Pats and Brickworks, if you will.

Phil: I, uh, love the idea of the music royalty business, you know, because they are just rivers of gold that last for a long, long time. And we've seen so many artists who have sold their catalogues. And I think Bruce Springsteen sold his for 500 million.

Andrew Brown: Bob Dylan, I know, but I was.

Phil: Shocked that he only got 300 million. Maybe he wasn't negotiating. Maybe he thought it was enough.

Andrew Brown: Don't forget there's two bits of music royalties. There's, uh, what universal Music group, they do own both, but by far and away, the biggest component of them is they actually own the recorded track.

Phil: Oh, so they've got mechanical copyright, isn't it?

Andrew Brown: Correct. And so when you hear that track on the radio, then you know that tiny royalty is actually not going to the artist, it's actually going to universal music. Now, they obviously have an arrangement with the artist, unless they've bought the entire back catalogue of the artist. The other bit of music publishing is actually the publishing of the music. In other words, the sheet music and universal do own components of that. But in many cases, you get a situation where the sheet music is still owned by the artist, but the actual recorded track is owned by one of really three companies, which is Universal Music group. They're the biggest. Then there's Warner Music, they own my favorites, which is Led Zeppelin. And then. And there's, uh, Sony Music as well. They're the big three. They control well over 90% of the world's recorded music.

Phil: Oh, it's great to meet a fellow led Zeppelin aficionado.

Andrew Brown: Absolutely right.

Phil: In our previous discussion, when we first met on the phone, you were also mentioning the Agnelli family, who own, um, fiat. And over the weekend, I watched that movie Ferrari, the pic about Enzo Ferrari, and he's on the phone to Gianni Agnelli. And I think Agnelli's son runs the company.

Andrew Brown: Grandson.

Phil: Grandson runs the company now.

Andrew Brown: Yeah, yeah. No, the situation with Ferrari, if you've seen the movie in the negotiation, basically, Enzo Ferrari struggled and struggled and struggled. The company was actually a public company. They had a takeover offer from Ford in 1965, but in 1969, they agreed a deal whereby Gianni Agnelli bought 50% of Ferrari. And the Agnelli family had a whole heap of public companies in Italy. They were very keen to take part in Italy's growing industrialization in the 1960s, which, of course, ran aground on the strikes of the 1970s. And eventually they put everything together into. They merged the companies into one company, which is called Exor. Exor. Uh, and they jumped to generation. And John Elkan, who's Johnny's grandson, he basically took over the running of the company on the 1 March 2009. And I can tell you the share price at the time was €5.12 and the net asset value was just over €12. So it traded at well over a 50% discount to net asset value. Now, the main holdings they had by far and away the biggest holding was Fiat. But Fiat was a conglomerate. You know, it made eveco trucks, it made CNH tractors, it obviously had Fiat itself, but Fiat itself had different brands within it. And of course, within Fiat, the, by then 90% shareholding in Ferrari, because they bought Enzo out when he died, his son Piero kept 10%. Smart boy.

Phil: Um, and he still runs their Ferrari, doesn't he?

Andrew Brown: No, he doesn't. He's still a major. He's still a big shareholder in it. He's still involved in it, yes. What's fascinating is that, uh, since March 1, 2009, the net asset value has gone from about €12 to €168. Is this share, this is Exor, which is the company everything went into. And the share price has gone from five and a bit to, uh, it's €100. At the moment, we have a shareholding, and it is an absolute core shareholding to us. Why is that? Because Fiat's been broken up into its constituent parts. And one of the best things you will ever see was in late 2015, Fiat. By then, Fiat Chrysler span out Ferrari to the shareholders of Fiat Chrysler. I, uh, was one of the shareholders of Fiat Chrysler, so I got my Ferrari shares at about €42. They've recently touched the highest €430. Why? Why is that? Well, uh, it's pretty simple. They make 13,000 cars a year. As Enzo Ferrari said, never make one more car than there is demand for. They can charge what they want. In a world where the rich are getting richer, which is incontrovertible than the demand for these things, they got an 18 month waiting list. They continue to technologically shift Ferrari on. And so it's just the epitome of a brilliant company, a company that can charge what it wants for a quality good, where the buyers are basically not economically stressed. You know, if you or I think about buying a Ferrari, if times get a bit tougher, we're not going to buy one. By and large, the people that buy them, times don't get tough for them. They're the ultra rich. And it's quite interesting, a lot of my, quite a few of my portfolio holdings focus on things that are done by the ultra rich. So one of the interesting things about the ultra rich is that, you know, by and large, they don't suffer recession. So I've got quite a few shareholdings where, you know, not an entire portfolio, obviously, but quite a few shareholdings which cater for them. So, for example, I have shareholdings in two companies which run hotels of some sort. One is a more conventional hotels group, which is the Hong Kong and Shanghai Hotels Limited. They run a chain of twelve hotels called the Peninsula. So if you've been to Hong Kong, the Peninsula, Hong Kong, is a very, very famous hotel there. But they've just built London's first billion pound hotel and they put 24 apartments on the top of it and they sold one of them for $100 million to the gentleman that runs Citadel, the hedge fund group. So, you know, if you want to stay at the peninsula in London, that's fine, it's not a problem. You can get a cheap room there. It's 1800 australian dollars a night. That's one of the cheap rooms. But they've got peninsulas in New York. In Chicago, they only own 20% of the one. In Paris they've got Tokyo, which you can imagine absolutely booming at the moment, Bangkok, and as I say, Beijing and also Hong Kong. So we quite like that because the room rates are high and they're recovering from very low occupancies down in the sort of fifties percent. And remember, a hotel is just an airline and it's bolted to the ground. And so the two key things that matter are, um, how many of the seats or rooms you sell and what price can you sell them at? And the good news for this chain is that the room rates are starting to accelerate quite sharply and the occupancy is starting to move up as well. So you've got a double whammy. And they still employ as many people as they did at their peak in about 2018, before COVID and before some of the issues to do with Hong Kong. So we rather like those. And to give you an idea, they trade at a, uh, 75% discount to net asset value. And we think it's a great business. There are other luxury hotel chains, but they're very sought after, they're very much in demand. It is a control company. The Kaduri family in Hong Kong control it, so we don't think it'll be sold, but if they wanted to sell bits of it off, there'd be a queue around the block of arab sovereign wealth funds to buy the other one we own, which is really unique, which is controlled by the Grimaldi family. You might have heard that name before, because of course it's the royal family of Monaco. And their assets are based in a publicly listed company called Saussite des Bain de Mer, Etranger de Monaco And Sauchet de Bain de Mer owns the casino in Monaco. It owns the vaunted Hotel de Paris, which is across Casino Square from the casino. It owns three other hotels, but most importantly, it owns blocks and blocks of apartments. And these apartments rent out for things like €150,000 a month.

Phil: Is that during the Formula one or, um, that's just generally a surge rate.

Andrew Brown: And then there'd be surge rates if you wanted one week only for the Monaco Grand Prix. So, you know, even bigger than Sydney rents. So we think that, you know, they're pretty much recession proof. They weren't COVID proof, quite clearly, because a lot of the people that live in Monaco are tax exiles. They've made their money elsewhere. There's obviously a lot of emigre Russians living in, uh, Monaco, and, you know, a lot of ex racing drivers, people like that. So we think there's an ongoing demand there, and people don't look at the stock a lot because the Grimaldi's own 61% of it it. And then there's another 15% owned, uh, by three other parties.

Phil: So is this a problem with some of these family owned companies? Because they can have such a large shareholding, there's not a lot left for the rest of the market.

Andrew Brown: It's a problem if you're a large institution like, you know, a Fidelity or a Blackrock, but it's not a problem if you're Andrew Brown or Joe Smith, you know, where you only want a handful of shares. And whilst the shares are, uh, not very liquid, they're certainly not so illiquid that it would deter someone like a retail investor from getting involved in them using one of the standard overseas brokers here, commsec or interactive brokers. So it's not a problem for the retail investor? No.

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Phil: Is there something particularly european about the idea of the families that. Really careful with money. I mean, I'll just give you an anecdote. A friend of mine works for a food production company. It's unlisted here in Australia, and they're a greek family. And for example, he's told me that they don't turn the air conditioning on until someone actually asks for the air conditioning to be on. And the boss, who's got the security cameras everywhere, if he sees anyone put a jumper on in the air conditioning, straight away he's turning it off. There seems to be something about that level of penny pinching particular to certain european cultures.

Andrew Brown: There are, Phil, but I find generally there are two types of companies that are controlled by families. There are ones that were founded by someone, usually in the 20th century, not necessarily very recently, but maybe going back and in particular in America, you find that type of behaviour that the founder and his or her, uh, family are still involved and they know where everybody staple and every bit of sticky tape is and turn the lights off and all that. There's a company very well known in America. It's absolutely ubiquitous because it just dominates its industry. Its industry is basically the one way trailer hire industry and it's called U Haul. And what I mean by one way is that you can pick up one of their trailers or vans in Los Angeles. If you're moving out of there and you're moving to Phoenix, pick it up in LA, dump it in Phoenix. Not many other people let you do that, but they do because they've got depots everywhere. The guys that run that company, it's family controlled. The two major, uh, executives are both from the controlling family and you know that they know where every penny in the business is, but they're actually not averse to using debt, funnily enough. And they've built out a brilliant set of self storage businesses across America as well, which, as you can imagine, linked well with trailers. So that is the one type I've been lucky enough to have worked for, the Rothschild. Now, you know, I'm not saying the Rothschilds are profligate with money. They're not, you know, despite the fact they own, obviously, some of the world's greatest vineyards and hence wine labels. But clearly there are some extremely affluent families in Europe that if you went to visit them, you really would be treading on antiques and, uh, looking at millions and millions of dollars worth of antiquities in, in and around their office. But that doesn't mean they actually throw money away. What it does mean is that they invest money very, very carefully. And those are the kind of companies who actually understand, for example, what luxury goods are all about. And don't forget, if you get invested in luxury goods, that part of the market, I have some investments there, but I'm very careful not to have too many because they do impact sort of middle class, a bit of the middle class, turn down. All of those luxury goods companies, by and large, uh, have controlling shareholders, virtually every single one of them, because you need a domineering, dominating personality, either on the design side or on the selling and distribution side, to make sure that the brand remains intact. And of course, the world's largest luxury company, by some way, with its 75 Maison houses, we're not allowed to call them brands, is LVMH, Louis Vuitton, Moet Hennessy, which is controlled by the guy who keeps flitting between the number one and number two spot of world's rich, which is Bernard Arno, the Frenchman.

Phil: Are there any indices or ETF's or managed funds, apart from East 72, of course, that reflect these kind of holdings?

Andrew Brown: No, that's the stunning thing, there aren't. There's a company in London called Avi Global Trust which used to invest exclusively in these type of companies. It now invests in those, plus other companies that trade at a large discount to asset value. So there's quite a few common shareholdings between the e Ah 72 dynasty trust and Avi Global. For example, you see the ads night after night after night on your television here in Australia of, uh, 0000. Brian, that'll be edited out because I can't sing.

Phil: No, we'll put a guitar. Your Led zip guitar reference.

Andrew Brown: Exactly. Jimmy Page is just downstairs waiting. So O'Brien is actually part of a global company called Belron. Belron owns the vehicle. Glass repair and replacement businesses are the leading businesses in that area in about 15 countries around the world, including America, Germany, France and Australia. And they got different brand names in each country. It's called safelight in America, auto glass in the UK, etcetera. And the only way you can invest in Bellron is through, believe it or not, a belgian company listed only in Belgium. And that's controlled by a family called the dieterin family. D apostrophe I e t e r, uh, e N. And there. Belgium's distributor for Volkswagen and Porsche and various other high end cars. And they've got a few other very niche businesses in what M, I might call auto related industries. And it's been a phenomenal business. Absolutely phenomenal business. The D trains have got three and a half billion euros in dividends out of it in about the last ten years. So it's pretty phenomenal. And they're the kind of things that Avi, their latest monthly, they actually wrote about deterrent, where they've increased their exposure. And funnily enough, in my latest quarterly issue for the end of March, I wrote a very lengthy piece about deterrent to explain the effective entry price you were getting into Belron, at, which I thought was obviously attractive. And it's one of our top five shareholdings in the dynasty trust. So, you know, just when you see those O'Brien ads, just remember all your money's going to Belgium and some us, uh, private equity funds, too.

Phil: And interestingly, glass seems to be a pretty basic kind of industry, but it's become much more high tech, hasn't it?

Andrew Brown: It has indeed. I mean, you'd all be aware if you bought a new car, really, at any time in the last five years. A lot of the instrumentation is projected onto the windscreen, as well as maybe being illustrated on a dial, but there's a lot of projection onto the windscreen. The windscreen itself has got many more components to it in terms of it, you know, the whole windscreen's not shaded. There are certain parts of it that are very darkly shaded, and then on the parts that are not. So, you know, unfortunately, if some hooligan puts a brick through your windscreen, you know, it's no longer a sort of, you know, quick $150 job. It's a much more sophisticated sort of $400 plus job. And the windscreen's got to be calibrated. And not so much in Australia, but in Europe, as you would expect. There are more and more regulations in Europe about basically automated displays and the fact that for safety reasons, the authorities in Europe want you to have automated displays. So the windscreen now is a real piece of technology in itself, and that's been highly beneficial to the people who are market leaders, not just manufacturing the windscreen, but it's the people that can actually install them at the roadside or at your house when something's gone awry. And that's, as I say, the leading player for that is Belron, which is half owned by deterrent under those different brand names.

Phil: We should point out for listeners now that the dynasty fund is not for everybody. It's for wholesale investors only. Can you just explain that? And the kind of people who are clients of the fund.

Andrew Brown: It's for wholesale investors only, which means that you must meet the. What we tend to refer to as the section 708 test in the Corpse act, which relates to your income and or your wealth.

Phil: I like the way he said that, the corpse act. So my dead body.

Andrew Brown: Yeah. So what it means is that if you meet those tests, and usually people have an accountant verifies the fact that you meet those tests, then the minimum investment in the trust is $50,000. If you have an investment, you want to add to it, the minimum addition is 25. And so, I mean, there's more and more people, quite clearly, who certainly meet those kinds of tests. The way we look at the dynasty trust is, number one, it's unique. Number two, by and large, we believe that most of the businesses we invest in that are controlled by these families and other people are very good businesses in themselves. In other words, they've got a competitive advantage in their industry. They're either a market leader or they've got pricing power. The families themselves, the way they manage capital, in other words, they let the returns in those businesses compound. They're not frightened to sell them if there are strategic buyers for them that are prepared to pay over the odds. I'll give you an example in a moment of that. And so what we try to do with the dynasty trust is we don't borrow, so we have no debt in the trust. We don't short sell, we don't hedge the currency so that you get the return in the foreign currency. So if the Aussie dollar is weak, you get a little extra return. Of course, if it's strong, it does take away from our, uh, return a little bit. So we do nothing that stops us aligning our, uh, ethos of being a long term investor with that of the investee companies and their ultimate shareholders. It's very, very much aligned like that. The benefit we have and why we do it, as we said, we believe that these companies outperform in the long term. Not everybody can do it. If I gave you the bollore annual report and said, have a look at that, you'd give up after five minutes with a very big headache. It's a really complex company. So what we're doing is we're saying in many cases, you can understand what a good business is. You will understand why certain things are very, very good businesses. But what you may not be able to do is to actually say, well, what's that business worth? Okay, it's a great business, but am I paying too much for it? Like, people maybe in the past have paid too much for CSL in Australia, you know, when the share price was at record highs, they paid a little bit too much for it, even though it's a fabulous business. So clearly what we try to do is we try to buy these businesses at a sensible discount to what they're really worth. We don't try to be too penny picking, you know, because otherwise you miss out and you never invest or you'd be selling very quickly, which obviously we don't want to do. And so we've got very low turnover in this portfolio. So it's the sort of trust that's a real long term investment for people, I think more so than the average equity trust, which we know you should keep your money in for a minimum of five years. You know, treat it like a house, a piece of property. Just to give you an idea of these families that do sell. One of the most secretive families is based in Holland. It's the van DER Vorm family. Never heard of them because they're really secret. They signed Holland America line, the cruise line, which was sold to Carnival Cruise lines, and they took the money, reinvested it in a variety of industrial things. And over a period of years, from 1996 onwards, they built up Europe's largest optical retail chain called Grand Vision. They had two companies put them together, and then, of course, the most rapacious player in optical is a company called Essolor Luxottica. They make spectacle frames, uh, for a wide variety of brands. Their most famous brand is Ray ban. So Essel Exotica wanted to buy that chain. And so the van DER Worms, they owned 76% of it. They'd floated a little bit of it a few years earlier, and in 2022, they finally agreed to a deal with Esselor Luxottica, which took a year to go through the european competition landscape, not surprisingly. Yeah. And they built that up and, you know, basically took, in effect, they took about €4 billion off the table. So very secret family. All you get from them is an annual report, a half year report, and an announcement to tell you there'll be a dividend. And don't look for any analyst presentations. And don't look for any capital markets days. And don't ring the company off and say, hey, can I ask a few questions? Because the phone will go dead.

Phil: And, of course, presumably, the family are very secretive about everything they do as well, and most probably not flashing around in their ferraris.

Andrew Brown: Yeah, they're actually very secretive because the second largest shareholder in the company actually died in November last year, a dutch guy called Hans Melcher's. And one of the reasons they're very secretive is Hans Meltzer's daughter got kidnapped a few years ago. She did get returned after two days, so there is good news at the end of that. But they're really secretive about, as are, uh, many families in Holland, about their wealth. There's both a cultural issue about it, but there's also, uh, a real practical reason why you might remember some members of the Heineken family have been kidnapped in the past as well. So that's why they're really, really secretive about it. But that doesn't mean they're bad business people. They're really smart, actually. But you've got to have a real long term view, and you've got to know how to dissect the company. It's not the easiest thing to pull to pieces, but if you know how to do it. Then you're onto something.

Phil: And of course, listeners can follow your thoughts as well. You've got blogs and reports, absolutely. That are freely available.

Andrew Brown: I have, uh, a website, e seven dot au. And on the left hand bit of the website, there's got dynasty trust. And we make public all of our quarterly reports. We do a quarterly report. It's different to most other people's quarterly reports. The last one in March was 26 pages. And it just discussed three stocks, which were Dieter and Hong Kong, Shanghai Hotels, and Fairfax, India, which has a brilliant asset in Bangalore airport. It owns 60% of that. And we write, you know, it's usually 20 plus pages about either just one stock. So you can understand in detail why we think the company's interesting. And obviously, you get a grip as to how we think about businesses and how we analyze them, or just, you know, two or three. And so it's pretty good reading for you to understand how we think about an investment. And so from that standpoint, I think it's actually really good reading material for retail investors. I hope it shows how a, uh, professional investor thinks in depth about maybe just one or two companies. There aren't very many fund managers do that. You know, they'll tell you the market went up or it went down and us interest rates are going up or down, and there's a million of those and they're boring. By and large, you know, you might find one or two of interest to you, but as the great Peter lynch says, you know, basically, look at the company you're investing in. You know, by and large, economics doesn't matter. Over the long term, it doesn't matter at all. Has it mattered to LVMH? No, not at all. What's mattered has been its acquisition policy, its positioning in its industry, and the way it's run its business. That's what matters. And if you're investing in individual securities, don't get worried out of them because you think interest rates are going up or some talking head economist on tv thinks things are bad. Worry about what's going on in the company. That's what you've got to focus on, nothing else. And of course, what that means is if you're investing in individual companies, you've got to have a reason why you're investing in them. What's the thesis behind why you've got a shareholding in whatever it is? Why do you own shares in BHP? Because it is the world's preeminent iron ore miner. Uh, it's one of the world's preeminent copper miners and it's run damn well by a really good group of executives at the moment. By and large, it actually has been for about the last 20 odd years. Prior to 1996 or thereabouts, I wouldn't have been able to quite make these comments, but it's understanding, uh, what's the basis of you thinking that this will be a good investment? Yeah. It's not just because the next door neighbour told you somebody whispered in his ear it was going up. That's not a thesis. The thesis is that it's a really good business. It can maintain its margins, it may have growth arenas that it can expand into, and, you know, the management is really, really good if it is a, uh, non controlled company. So if you look at Australia, there's great example, the best examples in Australia, you can get worried alive by retail sales and, you know, this month or that month, but by and large, they're a handful only of retail businesses in Australia have done spectacularly well for 20 years. And the two that stand out to me, and they're at very different ends of the spectrum, JB, hi fi and Lavisa. Okay? If you don't know what La Visa is, go find your teenage daughter or granddaughter and she'll tell you.

Phil: And have a look at that.

Andrew Brown: Cheap jewellery. Absolutely. It's costume jewellery, okay? And very different ways of running the businesses because, you know, retailing electronics is way different to retailing costume jewellery. The margins in costume jewellery are unbelievable. They're huge, okay? And it turns over a bit more than normal jewelry, where the margins are really huge, but you don't turn the stock over very much. And so when you look at those two, they're the two that have really kicked on over the last 20 years outside, obviously, of the supermarket group. So in discretionary retail, they're really the two. Look at those and understand why they're so good and you start to get the gist of what a thesis would be for you to invest in one or the other. La Visa is expanding overseas, particularly into Europe. JB is sticking to its home ground because it's really good at it and it's got the beneficial advantage of all. But one of JB's competitors are usually pretty hopeless.

Phil: You touched on the idea that you've got to understand a company. If you're going to buy an individual company, let's call them companies, not shares or stocks or anything, they are companies, living, breathing companies. And more and more, I've realised that that's the thesis of this podcast is that most investors can buy an ETF and not have to think about it anymore or put their money into a managed fund. But what you're saying is that you actually have to understand the company, develop a thesis, have a reason for holding it, and have a reason for holding it for the long term. I could go on and on about this, but I did notice that you brought a copy of beating the street by Peter lynch. So you're obviously a fan of Peter Lynch's.

Andrew Brown: Absolutely. It's absolutely one of my favourite books. I should refer it to its predecessor, one off on Wall street, which is a bit dated. I find I've got the problem with both the books is that, uh, I think, I'm sure one of them's got reference to m newspapers in it. Yeah, because at the time it was written, at the time, newspapers were amazing businesses.

Phil: Rivers of gold.

Andrew Brown: Rivers of gold, absolutely. And of course now they're not dying as quickly as tele. I mean, you would have thought television was an amazing business. Television is dying before your eyes at the moment. I always think people overestimate what I call the fade rates on, um, businesses. And one of the great businesses where the fade rate's been really slow and you've made heaps of money out them until recently is tobacco, if you didn't have an ethical dilemma with that. But tv is really dying very quickly in Australia and you know, it's really quite bad. What I really stress is I try to suggest to people, particularly newer investors, think about buying a share the same way you would think about buying a property, whether it's your prime residence or an investment property. You do a lot of research into the streets, you do a lot of research into the history of the house, you know, what, what renovations have been done, this, that and the other. You do all kinds of cross checks and you create a thesis, particularly if it's an investment property, of uh, why you think that's going to be a good investment for you.

Phil: Okay?

Andrew Brown: Because it's in a good location, you think it's going to develop. There might be some new transport links coming. You think some of the streets around may be developed because somebody has a great area, it's close to the city, say, and the houses are a bit ramshackle. So people are going to move in and they're going to do them up, whatever. You will create a thesis about why you're going to own that particular investment property and why it will create a nice income stream and a capital gain for you and then so many people do not do that. When they think about shares.

Phil: They listen to a tip of the pub.

Andrew Brown: They listen to a tip of the pub. Exactly. They don't think about, you know, why is it a good idea to own shares in a particular company? Now, if you own shares, for example, in a Woolworths or a Coles, I mean, I think the thesis there is pretty obvious, okay? You know, they're dominant players in the industry. If you don't believe they're going to get regulated out of existence, they're going to basically reflect the economy pretty well. They've got strong cash flows, they've got great technology to run supply chains across this ridiculously large country. And so they're always, if they're properly run, and they haven't always been properly run, by the way, they're going to generate, you know, pretty respectable dividends for you and you'll get a good reflection on the country. But if you look at smaller companies, you've really got to develop an idea and a thesis as to why you believe that company's going to grow and their product is better than others, or it's a unique product or whatever. And I hasten to add the thesis of, oh, they can take it to America is a guaranteed loser, uh, 90% of the time.

Phil: So many companies have tried and failed, haven't they?

Andrew Brown: Absolutely, they have failed. And that's not a thesis, but it's about as well. You know, there are some brilliant australian management as well as some bad ones. But, you know, a lot of it is about understanding what the management are driving the company to do.

Phil: Andrew, one final question. Favourite Led Zeppelin song?

Andrew Brown: Oh, uh, my favourite Led Zeppelin song is it's either cashmere simply because of John Bonham's drums as much as anything else. But probably my favorite that gets worn out more than any other, is not the obvious. It's when the levee breaks. And of course, the best story, or one of the great stories you'll hear about music in a film. If you're interested in finance, the likelihood is you've seen the big short. The music at the end of the big short is Led Zeppelin's when the levee breaks. To get Led Zeppelin to agree to have their music used in a film is virtually impossible.

Phil: Like School of Rock, where they had to beg.

Andrew Brown: Absolutely. The director of big Short managed to chase down John Bonham's family. So Jason Bonham, effectively Robert plant and John Paul Jones. And they agreed. And they could not find Jimmy Page because Jimmy Page had a new lady in his life. And Jimmy was enjoying himself with his new young lady. And he was eventually traced to a pub somewhere in south west England. And they had a chat with him and he said, yes, you can use it on one condition. And the condition was that you had to use the entire song, not carve it up. And so if you watch the end of the film, you will see that the song starts when the film's still rolling, okay, until you get to the slightly louder parts of the song when the credits start. So there's a great story about that. You can find it on the Internet. Just Google the big shark short when the levee breaks.

Phil: Andrew Brown, thanks very much for joining me today.

Andrew Brown: Thank you indeed, Phil. Thanks for the opportunity and good investing, everyone.

Chloe: Thanks for listening to shares for beginners. You can find if you enjoy listening, please take a moment to rate a review in your podcast player or tell a friend who might want to learn more about investing for their future.

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