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SIMON BROWN: I’m chatting with Craig Antonie, CIO at AnBro Capital Investments. Craig, appreciate the time today. After the bear market in 2022 on the Nasdaq, this year the Nasdaq 100 returns really reminded us that bear markets don’t last long – even if they feel really crushing at the time.
CRAIG ANTONIE: Hi, Simon, and hi to the listeners. Thanks again for having me. Yes, it’s a point well made, and I’ll just add that for clients and investors, and I guess even sort of passive-market onlookers, there are several truths in investing that are always worth remembering and worth reminding ourselves of.
The first is that markets generally rise between 70% and 75% of the time. So the trend over the long run is certainly up. Over shorter timeframes it can get quite hairy, like we saw last year and on many occasions before that.
But this leads to the second point, which is because the trend is up one should never really sell when things are down. Invariably, because things do recover, most money is made in down markets, not in the up markets.
Those who are disciplined and keep adding and investing during the down years set themselves up for great returns going forward.
And maybe the last point I’d make on that is just that it’s always worth remembering that, I guess, in the very short term the price is always determined by things like emotion – what we see in the press, what we hear on the radio, when reading the paper, etc. But over the long term ultimately share prices are determined by how companies are doing, and whether they are delivering value for customers and shareholders and stakeholders in general.
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SIMON BROWN: Yes, it comes back to whether they are quality; but I take your point that in the short-term craziness can prevail.
Tech has largely been the Magnificent Seven this year, and that has been AI. It is just over a year that ChatGPT launched. Google has just launched its Gemini response to ChatGPT. AI really is a game-changer. And in time it’s going to be everywhere and tech’s going to be that underpin to it.
CRAIG ANTONIE: Definitely. And I think one of the important things about technology and why we find the space so interesting and so attractive is that one of the reasons why we invest in technology is to use it for lowering costs and improving efficiency – that sort of thing. And AI really fits right into that wheelhouse if you think about it. Companies are going to be using this technology to hopefully make things better for their businesses, for their customers, and again for stakeholders in general.
Now, of course there have been many ways to play this. The most obvious and largest beneficiaries so far in this early sort of rocketing theme, if you like, has been the semiconductor space. Nvidia in particular has been the clear market leader there.
At this point I suppose we’re still waiting to see how this is going to reach out into various other parts of the economy and sectors, etc. But I can be sure that there’ll be lots of opportunity to profit from this theme over the years, and I think it’s probably going to be a very, very big and long-lasting trend.
SIMON BROWN: I’ve almost got the view – and I want to run it past you, because maybe I’m crazy and you can shoot me down – that if we go all the way back, the sort of first big step was computers, the personal computer where suddenly private individuals could get a computer. Back in the seventies, eighties, even nineties, they weren’t cheap and we couldn’t all get them. But now most of us have a computer in our pocket.
The internet came along in the nineties, it sort of matured in the early 2000s and now is just ubiquitous in our lives. Is AI sort of the next internet in a sense in the early days, as we sit here now and we can’t quite see it? But in 10 years’ time, is it just going to be sort of everywhere, much like computers and internet?
CRAIG ANTONIE: I think it likely is, Simon. It’s going to be one of those things where you might not always see it obviously in action, but it’s always going to be happening in the background – whether in ways to improve your life, [etc]. People are already using it, for example, to help them best plan a holiday. What’s the best way to travel from A to B and see everything in between? AI steps in and helps with that.
But also it very much helps people understand things in ways which are not easily understandable. So if we view someone that’s trying to learn about an industry or a skill that you’re not immediately familiar with, putting your question into something like ChatGPT and getting an answer in a way which helps you understand it, is going to help considerably.
So the important thing, I guess, is to just realise where the money is to be made here. I think that’s the difference.
Companies like, say, Microsoft and Google and Amazon and all these big businesses are spending fortunes of money on developing AI products and platforms.
The question is how they monetise it, and how they make money out of this – or is it going to be something like an investment you have to make, and something you have to have in order to remain relevant? So in that case, where’s the money made? And that’s why I think people are looking at like the pick-and-shovel types of businesses at the moment, like Nvidia and the other semis [semiconductors].
But certainly, I think this is going to become, to your point, just something we use all the time, whether we know it or not. And it’s really changing the face of investing, the world, and then how we interact in it.
SIMON BROWN: I remember about a decade ago it was whether Facebook could make money on mobile? The jury was out – and, well, the answer is they absolutely could.
I want to change tack slightly. Microsoft’s [CEO] Satya Nadella has turned around a sleeping giant in his nine years as CEO. You talk a lot about the importance of CEOs, often founders. In this case he wasn’t the founder. But the right person at the top of a business, any business – tech in this case – really matters.
CRAIG ANTONIE: Certainly. I think the right leader is vital in any endeavour, Simon, as you know. And especially in investing because as shareholders you’re entrusting your savings with the people who manage these companies.
Now Microsoft was a business with enormous opportunity, but not necessarily being run to its full potential. Although [Nadella] wasn’t the founder of Microsoft I think since becoming the CEO he’s almost entrenched a thinking in Microsoft that we very often see with founders.
Microsoft has become far more entrepreneurial, far more growth-orientated. Although it’s like a massive behemoth business, it’s sort of ‘floating like a butterfly and stinging like a bee’, to take that old quote.
What really has changed the face of Microsoft is they’ve had this massive business that generates an enormous amount of cashflow, and now they’ve been able to use that cashflow to look at other verticals to grow. And I think since Nadella has taken control Microsoft’s share price has gone up over 1100%. That’s an incredible feat, and that’s just showing you how the right person at the helm can make such a difference. He certainly has been the right person.
SIMON BROWN: Yes, and I think of [former CEO] Steve Ballmer – not to diss him, but just to give the comparison – the share price probably did close to nothing.
A quick last question. AI’s all the hype, we’ve been talking about it today, it’s the Magnificent Seven, but there’s actually a lot else happening in the tech space, and tech broadly as a sector continues to boom and continues to offer huge opportunity for investors.
CRAIG ANTONIE: Definitely. I think, [among] the themes that, we look for as an investor in the technology space is clearly the sorts of businesses that are going out there and solving problems for people. Invariably a lot of that solution comes with a technology underpin. Once you solve a problem and you solve a headache for a customer or a client or a consumer, that sort of customer, consumer or client is likely to stick with you for a long time if you if you’re meeting their needs. And tech falls into that space.
I think there’s been a very big change this year – after the very hard past year that tech companies have had. There has been a shift in the way investors have thought about the space. There’s been a lot more money sent to companies that have spent time in taking a hard look at their business, making sure they’ve made the tough choices when it comes to cut costs and waste, and improving operating metrics and that sort of thing.
With interest rates where they are, obviously investors can be far more discerning now, and they’re looking for what are probably higher quality and more visible winners in this space. So there’ve been a lot of positives this year, but there’ve also been a few negatives.
Solar companies, solar clean-energy technology, for example, has battled this year. Another space that’s battled ironically has been Chinese tech. That has been under the cosh this year in a very big way. The equivalent of the Mag Seven in China is actually down almost 20% this year, and in some cases some of the names there are off over 50%. So there has definitely been a focus on quality and size this year.
But to your point you made a second or so ago, it’s just that the opportunity is immense and we’re quite excited looking forward because we think there’s a vast amount still out there to take advantage of.
SIMON BROWN: We’ll leave it there. Craig Antonie, CIO at AnBro Capital Investment, I always appreciate the insights.
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