Opto Sessions – Invest in the Next Big Idea

Quality Investing: What Makes a Great Stock?

• Haydn Brain & Ed Gotham

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This week on OPTO Sessions, Compounding Quality’s founder, Pieter, shares his insights on quality investing. His newsletter, read by LeBron James and Bill Ackman, focuses on investing in the world's best companies. In this episode, he discusses his shift from value to quality investing, defines quality stocks, and outlines key selection criteria. We also explore valuation techniques, significance of investment time horizons, and the current market environment’s impact on quality investing.

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Welcome to the show. So we've got compounding quality on today. How are things? Doing well, thanks for having me, it's another to be here. Yeah, really looking forward to the discussion. So we'll jump straight into the questions and maybe you can give us some kind of background and context about who you are and what you do along the way. But if we get started with, I think your investment philosophy, or at least the strategy that you tend to operate with, I believe you started off as a professional investor with kind of a deeper focus on value investing, or at least that's what I read. So tell me if I'm wrong. How did your approach evolve towards this quality style investing and what drove that shift? Yeah, it's fully correct. So now, James, I'm operating under compounding qualities. So sums it up quite well, think. Compounding, magic of compound interest, and then quality by investing in quality stocks. But what I'm about to tell probably will sound familiar to a lot of investors. Well, I started out as a very classic value investor because you're reading books of Benjamin Graham and so on. So I prefer to buy stocks which are cheap. based on a P-E ratio, price to book ratio and so on. And honest confession, well, when I was young, I also suffered from quite some home biases. So almost my entire portfolio was invested in Belgian stocks as I'm from Belgium, which is in hindsight quite dumb because in Belgium you have maybe 120 listed companies. A lot of them are very illiquid and Most of them aren't quality by any means. But basically how I evolved from value investing to quality investing is probably more by luck. Meaning, well, I used to work in the industry, asset management industry, and in the local version of an MBA, financial management at the university in Belgium. Well, after graduation, I signed my contract. contract at the Antwerpen asset manager and there was one thing in the contract. Well, you are not allowed to own any Belgian stocks. The reason for that is they are very small, very illiquid. So what you could do in theory is buy the stock for yourself, then buy it for the fund. Well, the stock will be up 3 % and then you're taking advantage of that. That's illegal. It's called front running, but it was also prohibited by my employer basically. So that caused me to sell my entire investment portfolio, which was really painful at that point in time. But in hindsight, it was one of the best decisions ever because I sold everything, needed to rethink my entire strategy. And that's when I started diving into quality investing by reading books like Lawrence Cunningham's book, Quality Investing, Only the Best Will Do, How to Be Quality Shares, Investing for Growth by Terry Smith and so on. And it's funny because last year I published a book about quality investing myself with a friend. And I would say the most important thing there when I first heard about the strategy, it immediately stuck with me. I think it's a perfectly valid strategy to invest in the best companies in the world. It's a strategy that has outperformed the market in the past. Thank And I think it's really important to highlight here that every investor is unique. For someone, value investing can work. For another one, growth investing can work. For me, it's quality investing. So there are multiple roads that lead to Rome or multiple roads that lead to heaven. But pick a strategy that suits you because that's the only way that you can stick to it when it matters most. And when it matters most is when things are probably getting Difficult, so I've been using this strategy rigorously for for Yes since 2020 right now and so far it has been great Yeah, fantastic. That's a really good overview and gives us some nice context. I mean, it's a really interesting point about kind of picking the strategy that resonates with you most and just suits your style. Because often actually the most important part, as you well know, is just sticking to that strategy. And if you're picking something that doesn't intrinsically suit who you are and how you like to do things, you're never going to stick to it. So I think that's a really important point. We've mentioned quality investing as a term a couple of times now. So just to give us that extra bit of context, how do you personally go about defining what quality investing is? What is a quality stock to you? Yeah, sure. So when you ask 10 people definition for quality investing, you will probably get 10 different answers. So first and foremost, I think it's important to highlight that it's somewhat subjective. Well, when you ask me what is quality investing, well, quality investing is all about investing in the best companies in the world. So many of listeners or people who are viewing this will know Warren Buffett. Well, Warren Buffett said it's far better to buy a wonderful company at a fair price instead of a fair company at a wonderful price. And that's exactly what you're trying to do here. How can you do this into practice? Well, once again, it's based on Warren Buffett and also on Terry Smith from Fundsmith. One, you try to find wonderful companies. So great companies that are very profitable, have a high return on invested capital, meaning that they are great in capital allocation. low capital intensity and so on. So you want to buy wonderful companies. Second point and often misunderstood by investors, I think is you want to also invest. You want to have those wonderful companies that are led by great managers. Well, show me the incentive and I'll show you the outcome. So for me personally, for example, on compounding quality, people can follow my portfolio. and 70 % of the portfolio is invested in owner-operator stocks. What do I mean by owner-operator stocks? Those are companies that are still led by their founder or where the founding family still has a significant stake. Why do you think that's important? Well, incentives. When the CEO, when management are still invested the majority of their wealth in the company, you're dramatically increase your chances that incentives are aligned. And it doesn't mean that by definition, those kinds of companies will perform well, but it guarantees that the manager, the CEO, the founder, he will never intentionally make a decision that will harm share the creation of shareholder value. So the goal is always to create shareholder value. And study from Harvard Business Review, for example, has concluded that five of the lead companies are performed by three 4 % per year on average, which is amazing if you zoom out a bit, which is amazing if you think about it because 90 % of all investors underperform the market and by very naively just buying only the family led businesses or the final led businesses, you would do 3 to 4 % per year on average better apparently. And when you would succeed in doing that for 10 years, for example, for a decade, You will probably do better than 98 % of all investors, which is quite funny if you think about it. And that's also how I think about investing to just keep things simple, use criteria that have worked in the past and combine them to try and form a winning investment formula. So we've talked about invest, excuse me, buy one of our companies. led by outstanding managers. And then obviously the market often recognizes that those businesses are great. So they trade at rich or lofty valuation levels. And then it's the skill or the art to try and buy them at fair valuation levels. And I think when you can achieve that, well, beautiful things can happen on the market because the market often tends to... underestimated how long those great companies can keep compounding at very attractive levels. Just take for example, Seas candies, which Buffett bought in 1972. That's over 50 years ago. Well, he bought it or Berkshire bought it for somewhere around 25 million. And they were on the verge of walking away if the acquisition target would have asked 100,000 more. they would have walked and today, well, Seas Candies has returned over 2 billion for Berkshire Hathaway at an acquisition price of 25 million. So it just shows well, the power of compounding and also the fact that those great companies, if they can keep creating shareholder value for you, that's a beautiful thing. Yeah, absolutely. I think we touched on a few interesting points there. So it's probably worth digging into those before we move on to things like valuation, which I know is obviously really important if you are looking at these businesses that tend to be priced relatively highly. Let's break down if we can the characteristics, both quantitative and qualitative, that make up a quality company. So you've referenced a few offhand. But if you could give us a list of the quantitative metrics and then the qualitative factors, that would be great. Sure, basically I think today investing is all about saying no as soon as possible. Why? Just because you have so many opportunities, so much information is available. So I have a community at Compound Equality for example. What I try to do when someone asks me what do you think about company X or company Y is I try to find a reason to say no within 90 seconds. And the funny thing is within... In 98 % of all the cases, you find a reason within those 90 seconds, which is beautiful. And I also like to look at investing like a funnel, meaning you start on top and you have 60,000 listed businesses. I think we can all agree that nobody can analyze 60,000 businesses. So what we try to do is first, we are going to use quantitative criteria. to trim down that list and I'll dig a bit deeper into that in a few minutes. Bringing that list down from 60,000 businesses to 200, 250 companies. Then we are adding an extra layer only looking for the founder led businesses or the owner operators, founder led businesses or family led businesses. And what you see in that case is that usually 100 companies remain. And this watch list, this pontiff of... stocks or the investable universe you are going to use to try and find great stocks. Now obviously a question that arises to you is how are you trimming down your investable universe for 60,000 listed companies to 200, 250 or 100 after the owner let the criteria is brought in. Well, I usually when I look for quality companies I use or look for six criteria. First one And that's very important for quality investors is the moat or the competitive advantage. So you only want to invest in companies with a strong competitive advantage, a company that does something unique. So I think it's a very strong sign when a company, for example, has been the market leader 20 years ago, is still the market leader today. And why you think that they can continue to do so in 20 years from now, it's also what Buffett said I have no clue how the market for AI or for cybersecurity will look like in a decade from now, but I know that in 10 years from now, everyone will still be brushing their teeth, drinking coke, drinking coffee. So some of you will know the code as well. Well, if you gave me 100 billion and said, take away the market leadership of Coca-Cola, I would give it back to you and say, it can be done. That's a very strong sign. How are we going to... Measure the moat. Well, personally, I want to return on invested capital higher than 15%, meaning that the company allocates its capital quite well and also gross margin higher than 40%. And this would mean that, yeah, it's also a strong indication that the business has pricing power and pricing power is very important, especially when you are in an inflationary environment. So the first criteria is the moat, competitive advantage. What's also or might also be important to highlight here is that companies with a moat outperform on average with 3 to 4 % per year on average. So what we are going to do with those six criteria is we are going to combine criteria that on their own already tend to outperform the market and based on that, you're going to create your watch list and on that watch list, you're going to build your portfolio. So first pillar is the moat. Second one already briefly touched upon that skin in the game. So you want management to be invested in the business itself. Same story here, founder led businesses, it's a study from Harvard Business Review, outperformed by 3.9 % per year on average. I think it's a very strong sign when a business, for example, has been outperforming the markets, the S &P 500, over the past 10 and 20 years. And the same CEO has been leading that business. It shows that at least he has been doing something well. Maybe for people who want to learn a bit more, think the book, Outsiders from William Thorndike is an excellent book, which tells you everything you need to know about that subject. So we have the moats, we have the skin in the game. Third pillar is capital intensity. Very straightforward, I guess. Well, if you... The less capital a company needs, the better because it can use more capital to invest for growth, to do maybe some M&A pay down its debt and so on and so on. Here I'm repeating myself, but once again, when you would take the S &P 500 and you split it in a bucket that requires almost no capital to operate and another bucket that is very capital intensive, you will see that the bucket that requires almost no capital to operate. outperforms those who do by a very significant rate. So that's the third pillar. We have the moat skin in the game, capital intensity. Fourth one is capital allocation. And capital allocation together with the moat is probably the most important thing for quality investors. So capital allocation is all about the decisions the business makes about what to do with the capital they generate. And what is very important to highlight is when you have a large business, a large listed company, more often someone becomes a CEO, but he has no experience in capital allocation at all. He becomes a CEO because he's the best salesperson within the business, the best marketing officer, the best product knowledge and so on. And then all of a sudden they become the CEO and they need to make capital allocation decisions. but they have no experience. And I'm not sure how experienced the audience is here, but for example, have Constellation Software from Mark Leonhardt from Constellation Software, a great serial acquirer, great business. Well, he said when you have two identical companies, and so same business, same profitability, same balance sheet and so on, but they make two different capital allocation decisions. Well, the results will be completely different. So capital allocation is very important. And the most, the easiest metric to look at is as a quality investor is probably by looking at the return on invested capital, which I want to be higher than 15%. So that's very important. Fifth point, also very straightforward, guess, high profitability, the higher the profitability, the better. So you want the high profit margin. meaning that a lot of revenue is translated into net income after taxes. But what's also important, you also want that most net income is translated into free cash flow because well, cash flow is king. Earnings are an opinion, cash flow is a fact. That's really important. And what we also see, and it's from stocks from the long run from Jeremy Seigel, companies that translate the most earnings into free cash flow. the 10 % companies that translate the most earnings into free cash flow, outperform the 10% companies that translate the least earnings into free cash flow by 18 % per year. So that's tremendous. And it's just because when a company doesn't translate its earnings into free cash flow, under the assumption that they are not investing heavily for growth here, it can be an indication that it's a very weak business that they are using some. financial engineering to make up the numbers and so on. And then last but not least, well, you want obviously also I would say attractive growth. So you want to invest in companies that are active in an attractively growing end markets. think about examples like digital payments, obesity like Eli Lilly and Novo Nordisk for example, urbanization like Colne and Otis, which are elevator companies and so on. Why would you want that? Well, in the long term, stock prices always follow the evolution of the intrinsic value. And when you know that the most important thing for the evolution of the intrinsic value is the free cashflow per share growth and the earnings per share growth, in that case, it makes complete sense that companies that are active in a growing end markets, It's way easier for them to grow at attractive rates themselves. And as a result, it's also way easier for them for the stock price to increase. So maybe to recap here, there are six criteria used, the moat first and foremost, second point, skin in the game, low capital intensity, high capital allocation, a high profitability, and then last but not least, the attractive growth. And you're trying to combine those metrics and based on that, build an investable universe, which is 149 companies for company quality, which you think they could already do quite well. And based on that, you're going to build your portfolio over time. Yeah, that's fantastic. There's a really practical kind of framework that listeners can can use and kind of follow. And I suppose then the next step once you've got that initial universe, the 149 companies that you mentioned, is to consider price, suppose consider volatility or risk potentially talk to me about the next layer of analysis that you do. Yeah, sure. So obviously when you have 149 companies left, it's already way easier to dig into them than compared to 60,000 companies. So that's where indeed you are going to do your own homework and looking into those companies, reading the 10Ks, the earnings results and so on. And you make a perfectly valid point already. Well, even the best company in the world can be a horrible investment when you overpay. So for example, take Walmart for example, in the beginning of 2000, when you bought it back then, well, you wouldn't have earned anything for the next 15 years, while the intrinsic value, the value of the business doubled. And that's purely because of the re-rating or the multiple compression because the stock was way too expensive. So what we are trying to do here, buying wonderful companies at a fair price. So we're also looking at the valuation. Usually, or I use three valuation models to value a business. The first one is very straightforward, very naive. It's just comparing the forward PE with the historical average of the business. It's very naive because it doesn't tell you anything, everything. You also need to look at what's currently going on in the business. the current outlook and so on. But it allows you in 30 seconds to just look at how the valuation looks like compared to its historical average of the business itself. But it's naive, which is why we are also using two other models, which are the earnings growth model and the reverse DCF. Earnings growth model, I don't think anyone else is using it. So I create a model, but in theory, It's really easy to calculate your expected return as an investor. Your expected return is always equal to the EPS growth, earnings per share growth, plus the dividend yield, plus or minus the change in valuation. I will repeat that one because it's really important. Your return as an investor is always equal to the EPS growth, plus the dividend yields, plus or minus the change in valuation. That's how we are trying to figure everything out and let's say we take the company LVMH as an example the French luxury conglomerate well In my model, I expect that LVMH should grow its EPS by 10 to 11 percent per year. I Should look it up, but I guess just to do the easy math right now I think the the dividend yield should be somewhere around 1 % And then we have the question of the valuation. Well, today LVMH trades at the forward PE of 22 times earnings. And that's more or less in line with how it used to be in the past. So let's say that it can remain flat. Then we do the definition. You're expected to turn to the EPS growth plus the dividend yields plus or minus the change in valuation. Well, that's 10 % new EPS growth. plus 1 % your dividend yield and no change in valuation, then your expected return is 11 % per year. And then the question is up to you. Well, would you be happy with an expected return of 11 %? And the answer is yes, you could consider investing in LVMH. If not, well, you should look for other opportunities. And for me personally, I always want the earnings gold model to definitely be over 10 % per year and an ideal world over 12 % per year so that you expect to have a return of at least 12%. And the last model is the reverse DCF. It's a bit harder to explain while talking, but many of us will know a classic DCF, a classic discounted cashflow. But the problem with that is that you are making a lot of assumptions about the growth rate, the perpetuity growth rate and so on. And as Charlie Munger said, well, invert, always invert, turn the problem upside down. With the reverse DCF, you are not making assumptions, but what you do is you look at the current valuation of the business and you look at which implied growth rate the market right now has. So which expectations investors have about the business right now. And when you use a template, well, it's really easy to do a reverse DCF. It takes you less than a minute and it gives you an indication. For example, for LVMH, I have my hat, when you would do a reverse DCF right now, you will see that the company needs to grow its free cashflow by more or less 10 % per year in order to return 10 % per year for you as a shareholder. Is it realistic? Well, I think it is. Why? Because during one of the latest earnings calls, Bernard Arnault said that LVMH should be able to grow in line with its historical average. And over the past decade, well, LVMH has grown its free cashflow by roughly 12%. So this means that the market is expecting a growth of 10 % per year. And the CEO is expecting 12 % per year. So that's higher. So that's a great sign. You can also turn it the other way around when you would do the exercise for Co-part, for example, it's a US junkyard company. they, they buy total loss cars and they sell it or they buy it from assures and try to sell parts or the entire car and so on. When you would do a reverse DCF or Co-part, well, Co-part should grow its free cashflow by 18 % per year to return 10 % per year to shareholders. That's already a different story. And that's how I'm trying to look at valuation. And I don't think it makes sense to try an estimated intrinsic value of a company to two decimal spaces, but you prefer to use rule of thumb formulas because if an investment isn't a buy based on the back of the napkin calculation, well, it's probably not good enough. That's how I'm trying to look at it. Yeah, yeah, absolutely. So that's a really useful kind of second layer. So now we've into our overall decision making process we've taken into account valuation. The last point I suppose I had on my mind was time horizon. So and I guess this speaks to the other half of your moniker, you know, compounding. How long or how do you assess how long to hold a company? if it ticks all of the criteria that we've spoken about and the valuation is as you want it to be, and how do you assess its ability to compound over that given time horizon? How long do you want to own a company? Well, as long as possible. The beauty about quality investing, think, is as long as your investment thesis is correct, intact, you shouldn't sell. So the best time to sell a great business is almost never. I also think, and it's a very common question, should you sell based on valuation levels? I think that's a very tricky thing to do. Just look at the situation where we are in it today with the markets. Markets are expensive. Some companies that have been expensive, like Constellation Software, for example. Well, I would love to own Constellation Software, for example, but I think it's too expensive, but I've been waiting for 10 years and I wish I bought it 10 years ago when I thought it was expensive. So winners tend to keep on winner. winning, losers tend to keep on losing. I think that's a very important one. And what is a valid strategy or a valid reason to sell a stock, if you ask me, just when your investment thesis, your initial investment thesis is no longer intact. When for example, the competitive advantage of the company is deteriorating, things are coming down because The dangerous thing about quality investing is those are great businesses. They are often trading at quite rich valuation levels. And that also means when something happens in the market, when disruption takes place, for example, well, the growth of the intrinsic value comes down, but also the valuation comes down and that's a double-edged sword. So I would say disruption is definitely the largest enemy of a quality investor. Just imagine that you bought Kodak for example, or Nokia. Well, that would be really, really harmful for you. And I can also give you an example. Well, with compounding quality so far, I've sold only one stock since we launched in October, 2023. Which stock did we sell? Well, Text-A-Zay, which probably won't ring a bell with you, it? Yeah, I can imagine it's a small Polish company and the former name of Text-A-Zay was Live Chat, which already tells you a bit more. Yeah. you are on a website and you have some kind of problem, some kind of live chat appears on pop-up and you can ask your question there with a robot. Well, that's what they did. So the company was cheap. The founders still had the business. They had a profit margin of 50%. So every $100 in revenue will generate $50 in pure profit. But I probably misunderstood or... or underestimated the risk of AI. When I made the case and bought a company, thought AI would be helpful for a company like LiveChat, but in hindsight, well, it wasn't and it's more a risk than it is a help. Usually or hopefully on average, the companies in the portfolio will be in the portfolio for over 10 years, but I sold Text-to-A-Z already after four months. Just because when I think when you see your mistake, well, you should act as soon as possible. I think we bought it for 110 Polish Sloty, I sold it for 90 Polish Sloty and then now we are somewhere around 60 PLN Polish Sloty. So the only reason I think is when your investment thesis is not intact anymore, when the disruption is taking place. And for compounding quality, I also sometimes interview great investors like Chris Mayer, Gotham Bates, Fittali Katzenelsson, and so on. And I always ask the same question, what is your biggest investment mistake ever? And you should keep in mind that those investors are one of the best investors in the industry. And the answer in 99 % of the cases is always selling my winners too soon. For example, Francois Rousseau who sold Starbucks 25 years ago, Motorola 30 years ago and so on. And obviously those mistakes are very harmful and you only need one company like Starbucks or an Amazon or an Apple in your portfolio during a lifetime and keep it, which is the hardest thing. But then it will offset all your bad investments probably. Same for Warren Buffett when you would take away the 10 best investments of Berkshire Hathaway. Nobody would have heard about him, which is a fun thing if you think Yeah, absolutely. I'm glad we touched on the downside because in theory, obviously, this sounds almost to be good to be true or a foolproof strategy. But of course, those downside factors or mitigating factors do need to be taken into account. mean, you talked about some kind of life examples there. I had some questions around kind of what today's current market environment means for this quality investment strategy. Other people have talked about market compensators have talked about the market almost operating dynamically differently to how it has done in the past. AI potentially has exacerbated that trend. Is the quality investment strategy well suited to this new market environment or have you found it more difficult to find these quality investments? Yeah, sure. So obviously one point I might want to make first is based on what you said, well, it's too good to be true. What I think is really important to understand in investing is quality investing is a strategy just like value investing and growth investing is a strategy. And it's really important to highlight that every active investment strategy will underperform from time to time. And definitely something similar will be for quality investing. And once again, that's why it's so important that you use a strategy that suits you because it was Napoleon Hill who said, well, the excellent man, the excellent investor is the man who can do the average while everyone around him is losing its hat. And that's exactly true. To answer concretely your question right now, well, the market environment and quality investing. Short answer and to put it bluntly, don't know, don't care. I have no clue what the market will do. And I just, are a bottom up stock picker and you try to find great businesses. I don't care what the market will do. I don't care what the economy will do. I even don't care whether it takes in the US, Australia or Belgium. You just try to find those great companies. What I think in general, obviously, is to me personally, I'm quite skeptical about the performance of Big Tech nowadays. And there are the huge overperformance. Last year, so 2024, Nvidia on its own accounted for 20 % of all the capital gains of the S&P 500, which is just amazing. And what you see is over the past five years, Many, many active investors have underperformed the market. If you didn't own big tech, it was really hard to outperform. But I also think that there's some reversion to the mean will take place someday and that there will come a day that all those big tech companies will underperform and some small cap companies will outperform. For example, once again, also there over the past 100 years, small cap stocks outperform. large cap stocks by 3 to 4 % per year on average. Well, this definitely hasn't been the case recently just because of the performance of big tech. And when we look at the valuation levels of companies like Amazon, Apple and so on, you see that the expectations implied in the current stock price are quite lofty. And don't get me wrong, it doesn't mean that it's gonna be possible that It could be possible that Apple keeps growing at 10, 11, 12 % per year. Definitely possible. But when they don't, well, then you have your double-edged sword, growth coming down and your valuation coming down. So that's also, and that's something I also took away from working in the industry. I was involved in a rather small equity fund, 200 million in assets and management. Even us, we are peanuts in the Wall Street context, but we didn't invest in companies. with a market cap under 10 billion. Also meaning that all institutional investors are looking at the large caps. I was the Berkshire AGM last year and the general meeting and, or actually two years ago when Charlie Munger was also still there. And he said, well, when I would have 1 million today, I would have no problem to generate a return of 50 % per year. And Charlie then said, well, I think you agree. And how would you do that? Well, If you want to outperform the market, go where competition is weak. Where is the competition significantly weaker? That's in the small and mid cap space because not too many people are following them. And I try to use that approach as well. And why do you try to use a quality investing approach in the small and mid cap space? You will often see that you will end up with great small companies that are the market leader in a certain niche markets. So a very small market where they are very powerful and the large institutional investors can buy them because it's too small for them. When someone wants to invest 100 million in that business, it would influence the stock price too much. that's the beauty or the big advantage, I think, of smaller investors. We can invest in them and they keep compounding at very attractive rates. Yeah, got it. I hadn't appreciated whether you put kind of a cap in terms of market cap on the potential portfolio constituents. Another question then, I suppose you mentioned the outperformance of big tech. A lot of the performance there has been fueled by AI. We talked about AI's impact on kind of fundamental market dynamics, but to what extent do you think AI has the potential to actually help quality businesses, for example, to enhance competitive advantages to deepen moats. Do you think about that at all? Yeah, sure. obviously AI is, well, I'm using ChatGPT every single day myself. And I recently bought the paid version and just the ChatGPT trainer is, it's amazing, but it's also scary what it can do and how much possibilities it has. So I think two things regarding quality investing. are a lot of companies who will benefit and use AI. For example, take Domino's Pizza, the pizza company. I think it's a beautiful business. You can say a lot about a pizza and the quality of the pizza, but I think it's a great business. And they, for example, are using AI in large cities like London, like New York, just to predict during the peak hours, how many pizzas, how many pizza margaritas will be ordered, how many pizza prosecutors and so on. And two, they are actually already. creating or baking the pizzas before someone has ordered them and they're using AI to do that. So that's an example of taking advantage of AI. But on the other hand, it's also a risk like the text-to-say for example, but AI and everything around technology causes that everything is changing way more rapidly. And that's great for the economy. Why? Because economic growth is mainly driven by growth of the working population plus productivity growth. The growth of the working population is decreasing while productivity growth, AI will play a major role in the productivity growth for the next years and decades for our economy. So the upside there is huge, but everything is changing way more rapidly, which also means that a mode of a company competitive advantage of a business is changing more rapidly. And it's very important to understand that the mode is never constant. Every single day, a company's competitive advantage is widening or shrinking. In that case, for me personally, I tend to invest even more in boring, quote unquote boring businesses because they are way more predictable. Look at the market for AI, for example, I think a business like Arista Networks is a beautiful business. And video obviously also is a beautiful business, but everything there is evolving so rapidly that it's very hard to. Yeah. Take an educated guess about who will be the winners in AI. Same for cybersecurity. For example, you have two excellent businesses in the U S Fortinet and Palo Alto. They are great. I've always, I've been looking at Fortinet for a long time and I want to own them. But one valuation is quite expensive. And also how will the market for cybersecurity look like in 10 years, given everything that is going on with AI. Recently you've had DeepSeek example, and I don't think, for example, chat GPT is a, our chat GPT should be scared by DeepSeek, but it shows that Once again, AI is gaining importance, which is no secret and everyone knows that, but we will, my expectations would be that in the next few months and the next few years, we will see more and more and more of DeepSeek stories. And that just shows that makes it also more difficult for example, will everyone use chat GPT in the five years from now? I don't know when another version is made available and it's for free. for example, and it works even better, maybe everyone will change. So AI is definitely a great help. It's great for an economy, but I would also watch out for the risk of disruption, which once again is the biggest risk for quality investors. So you really want to invest in predictable businesses. Yeah, I think that's a really important insight to end on and interesting to get your kind of take and forecast for how AI might disrupt potential industries moving forward. I think we'll leave it there. I think for any more kind of information or more analysis akin to what you've heard today, go and check out Compounding quality on Substack. We'll put a link in the description. OPTO have also collaborated with Compounding quality on a piece on one quality stock that we that we chose together a quality business in the investment industry. So we'll also link that in the episode description. But that just leaves me to say thank you very much for joining us on the podcast. It's been a real pleasure. Thanks very much.