Moderator 0:01
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge the prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. Guets were not compensated for their appearancce, nor were they supplied payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed. Listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E. Baker,
Nathaniel E. Baker 0:35
your investing strategy effectively is on a global basis. You buy stocks, public equities, in companies where there is a severe dislocation. So why don’t you start off by telling our listeners a little bit about that. And then let’s talk a little bit about specific opportunities now.
Philip Reade 0:58
Sure, thanks. for having me. It’s a pleasure to be talking to you and you and your listeners. What we do is is we understand it’s not very unusual right? But we think it’s very effective in the sense that you know, in value investing, right, everyone is just trying to buy obviously good assets at big discounts. Frankly, in what we call normal conditional investing in the States, for example, just try to buy a deeply discounted company, for example,. Or a stock,. Two things almost invariably must happen: either the company’s going through some sort of problem, or there is a perception of the company going through some sort of problem.
What we do is we buy great businesses at enormous discounts: 70, 80, 90% discount, right, not because of anything that is happening. Or is perceived as happening with the business but simply because these good businesses that we buy which are large underleveraged, liquid capital generating, they happen to be in a, in a bad neighborhood. We basically find these really out of favor countries, right? To define great businesses and there is a very important nuance, which is companies go out of business, right? If you buy a 90% discounted stock in the United States, the odds are the company’s not going to turn around, you know, turn around, sell them. Whereas, you know, we basically realized that countries don’t go out of business and countries don’t write countries don’t disappear. Of course, you have, you know, once in a blue moon, something like Venezuela or Cuba or Syria taking place, but you know, these are not, not just very, very rare events but also very easy to avoid events. So, okay, basically will, you know, we rely on the fact that countries will stick around good good businesses in these countries, you know, there will be a much more dependable reversion to the me. Right? Okay. So very important nuance, and that’s is that, you know, we’re interested in capturing these very, very specific parts of the psychological cycle, so to speak, you know, we’re trying to invest, for example, in Greece, or in Turkey, or in Argentina, but let’s say Greece, when Greece is is absolutely out of favor, right. And people hate Greece for many reasons. And then we’re trying to capture this shift in perception. Right, when Greece goes from everyone hates Greece, to a point that you know, people still think very, very, you know, unfading Greece where they they can sort of live with Greece. So that’s why we call it you know, this shift this delta in perception, a psychological arbitrage because this shift in perception is what drives these massive post crises, post crisis rallies, right that actually have nothing to do with with the with the economic cycle. It doesn’t have anything to do with the economy picking up, they actually happen two or three years before the economy starts picking up and they’re basically psychology driven. And And finally, what’s interesting about those moments is the fact that, you know, the local dedicated managers normally tend to do very poorly very badly in those instances, right. I mean, the industry is structured in a way that local managers specialized with you know, large teams to cover to cover one specific market, they tend to do well, you know, he called normal conditionally family call it 98% of the days of the year. But in the 2% of, you know, of the days of the in which we invest, which are crises days, they are just too close to the action, they are normally fully invested. They take big hits, and they’re psychologically impaired. So you know, just look at the numbers, you know, don’t take my word for it. And, you know, you see managers that are dedicated to specific markets doing really poorly and really badly during crisis. We’re not like these local managers that actually have an informational edge. These are the these are in normal conditions, but in crises, they tend to be handicap
Nathaniel E. Baker 5:35
How do you identify the turnaround point where you will invest, okay? Because you say that it’s two or three years before the actual economy turns, what kind of signals data or other indicators Do you guys look for in determining whether you’re going to pull the trigger and go in and buy in a certain market?
Philip Reade 6:03
we look at this right, we say that, you know, there’s, there’s obviously two sins, right? In the in the asset management industry. One is losing money. The other one is dead money, right? So it’s no good buying something just because something’s really cheap and having to wait out, you know, two or three years, right? That wouldn’t, that wouldn’t necessarily obviously generate anything in install returns. So, what do we do? We won, we completely separate our our deep fundamental analysis to the actual risk management and capital allocation. So, you know, I tell the fundamental analysis, we basically follow three steps we look at, we look at markets that have, you know, gone down at least 50% in dollars, five, zero, right? And that basically means that, you know, we look in, you know, good, large liquid companies that, you know, have gone down 7080 90% So, that’s one of one that is very easy to do, anybody, anybody that, you know, the But capital can do that. Secondly, and that is the more better and more difficult bit. You know, we look at what we say it we look for a narrative of change, and it’s a narrative of change in perception, right? So basically, why is Greece or turkey Argentina going to go from being completely hated, totally out of favor, to 80% out of favor, because that’s what’s going to drive the rally right and that is, this, this narrative of changing perception is normally associated to, you know, to a situation in which you know, a country has been so mismanaged for so long, that whoever is in power or whoever comes into power, will be forced to do a few good things for the economy. And these few good things will be enough to you know, to to drastically you know, to to actually create this change in perception, right. I can use many different examples that despite the leader incharge you know, you can take Argentina doesn’t 13 right when Christina kishna, who was, you know, obviously a very, very questionable, you know, leader, right, tried to change the constitution to allow for a third mandate. And she lost that. Right. And she lost that in Congress, she couldn’t change the constitution. And the market interpreted that, as that was the bottom of the market rather, you know, the market sort of concluded that whoever came along to replace Christina was going to be forced, was going to have to do a few good things. And that’s exactly what happened right? In the market rally, a lot of the names in Argentina went up 1015 times some of the utilities, even though Christina was still in power for another year and a half before market came along. Right. Because the you know, the example in Greece, Greece is you know, Alex sleep at us, you know, comes along in January 15 with the plan of getting grease out of the office. The Euro, right going back to the drachma, the market, obviously, you know, gets terrified. In nine months, you know, the country hits the wall in sipa, despite being who he is, right, ie a very, you know, very strong. So Left, left ideology. He’s forced in the bail out program. He’s forced, you know, to become Three years later, the biggest liberal reformers in the history of modern Europe, right, he actually had to implement 452 reforms, because there was the, those were the terms of the bailout they had with Germany and the European Union, basically. So, okay, that’s the narrative, right? We look for a narrative that is compelling enough, that tells us that because of circumstances, there will be some good things happening and that will change perception. And the thing is, is, you know, one of the assets that we buy, and that is basically, you know, that basically leverages are, you know, over two and a half decades of experience of looking at And we basically, you know, instead of trying to do what most of the industry does in 90% of the days, which is, you know, I need to find the next Google or I’m going to try to find the next Facebook, we don’t need to do that all we do is start with the most liquid largest companies in a certain country, right, because liquidity matters, forest management, and we basically, you know, exclude companies that are commodities, or commodity related, because we want to be exposed to the EEOC krag story of the country, we normally get rid of companies that have, you know, too much leverage or a poor balance sheet. You don’t want to have a poor balance sheet in the middle of a crisis, because you’re probably not going to be able to refinance that. And we normally also exclude businesses that, you know, because of the nature of the business, they also need to raise capital on an ongoing basis, such as real estate development or infrastructure development. By the time we’ve done that, we’ve apply those three filters Normally 20 large companies in a country, they come down to about six or eight. And they are normally, you know, consumer retail power telecom and banks. And then we go to these countries, you know, I’ve been to Greece, you know, about eight times in the last two years, you know, we normally have two or three local brokers and we do a lot of boots on the ground, a lot of due diligence locally, in those six to eight companies, and we tend to buy a basket of those, you know, six to eight companies. So, so that is what we call our Fender fundamental work. Once we’ve done that, and we conclude, let’s say, you know, I want to be involved in Turkey. And these are the five companies that you know, that I want to buy. We literally put that away, and then we put our risk management job, our hats and because then once again, right, when to buy, we’re not at all trying to pick the bottom right? On the country. We know that in the markets in which we we vest, right? Draw downs can be 90% down, not. Now you’re not talking about 9% down or 10% down, which is what people encounter. Normally, in normal conditional investor, we’re talking about massive, massive drawdown. So once again, a very much sentiment driven, right. So you do that, you know, just trying to buy on the way down and pick the bottom, which you know, a lot of vilely investors tend to do and can be successfully doing a normal conditional investing. We don’t do so basically, we do we do two things
Nathaniel E. Baker 12:34
before you get into all that. But I want to go back here to the to the the entry points and choosing the entry points and the change in perception that you talked about. Yeah, and the two examples you mentioned Argentina and Greece. It sounds like a lot of this has to do with changes in political leadership. Is that correct?
Philip Reade 12:52
Well, yes or no Right. I mean, in the sense that in Argentina, you know the market bottom in rallied with Christina kisner still being power, right, she only have at the end of 14 and the market bottom, you know, in November 13. So the market rallied for another year and a half, she was doing power, right, the only thing that actually changed was the perception that she wasn’t going to stay on forever, she was eventually going to have to leave. And whoever came along was going to be forced to do a few things, you know, cheaper, as, you know, the same thing when he actually came into power and 15. Right, that basically meant that, you know, the market, you know, sold off dramatically, right, because, you know, he is who he is. And he came along with a, with a very market and friendly speech, and only after he hit a wall, you know, nine months later, and he had to be bailed out by the European Union and comply to the European Union’s demands, you know, the market once again, stop reacting well, so ironically, none of those instances there was actually a changing leadership. Gambia changing leadership, but but it’s more forces of circumstances that, you know, create this, you know, basically conditions for better policy, better policy to be implemented bit from the current government or from a new government.
Nathaniel E. Baker 14:16
Got it. Okay, cool. But okay, going back to Greece, then at what point did you find that it was safe? To start looking a little bit more seriously and investing?
Philip Reade 14:26
I’ll go back to you know, I wants to know, two questions at the same time, because, you know, we’ve done our fundamental work in Greece, everything, check the boxes, right. You know, the market was incredibly cheap. The narrative was there several years, it’s now 2015. No, no, there was, you know, we got involved in 18 and 19.
Nathaniel E. Baker 14:43
Okay, so much. Okay. Wow.
Philip Reade 14:44
Okay. Go ahead. Quite a bit later. Yeah. I’ll tell you the story about about about, you know, Greece, but we didn’t get involved in too much later. And the reason being right, we’ve done a fundamental work resource super cheap, which was, you know, the narrative was that we knew the assets that we want To buy in the mostly the banks but not only, you know, some other assets, but you know, we wait for prices to confirm that our fundamental thesis is, you know, has some confirmation from market right once again, it doesn’t matter how good we think our investment thesis is and how thorough and deep our due diligence work is, unless we receive confirmation in the form of price action, not again, we do not get involved. So, you know, back to your point, when you decide to buy we decide to buy when we see price breakouts on the way we see price going up through certain predefined breakouts, and then we get it we start getting involved, we build our positions in several different tranches normally four or five trenches. You know, as the market goes up, we keep adding to them, we raise our stop losses that is very important. We keep building up we raise our stop losses, so at one point in time We’re not going to tolerate more than a certain metric of volatility, but call it about eight to 12% call it 10% just for all intensive purposes here. So, there is a maximum drawdown that we will tolerate for each one of our investments, right? That is obviously assets specific so we only buy on strength, because once again, we’re trying to avoid dead money. I don’t want to arriving in Turkey a year before I need to. So I will do my fundamental work I put that away. And then I look at I look at basically price action guide me on building my position. And I use stop losses and price also to get out of positions when when I need to.
Nathaniel E. Baker 16:46
That’s an important distinction between you and the traditional contrarian investing style or what we would consider or think of the to be the contrary investing style, which is for First of all, like you said, you don’t try to pick bottoms. So when everybody hates something, you are okay with that with also hating it and not investing. You wait and for the story to change, and more importantly, wait for the prices to change. And you give up some of the potential upside, because you don’t buy the dips. You buy on the on the way up. How do you? So I imagine there’s some complicated math involved there with figuring out when something is actually trending upwards, and it’s safe for you guys to buy versus sell.
Philip Reade 17:43
Yeah, no, i think i think i think you know, you, you absolutely nailed it. Right. I think frankly, you know, the math, the mathematics around it, you know, it’s actually not that complicated. What’s much more complicated is is our psychological disciplined, implemented and not overrule our system. Right and that comes from a very strong conviction and past experience that there’s no way around it right I mean, we are being contrarian simply by going to the places that we go to remember when we go to Greece we go to Turk we go to Brazil, we go to Argentina, we go to Nigeria, go to Qatar, nobody is there people have left, right, a year, two years, you know, prior no one is willing to touch those markets zero nobody, right. So that is contrarian enough. Of course, what any other fundamental analyst or investor will do we do thorough work, but we combine that with our risk management process, which you know, once again, maybe normal conditional investing, you bonus you might not need as much you can get away without it in our, in our in our environments. It is probably more important than anything else, you know. We do wait for prices to give us confirmation. We buy it on the We up, we, you know, we get out, you know, when when we need to get out. And that’s really and that’s really, you know, what what’s protected as last year, for example, have a few, you know, examples, right. I mean, Argentina and Turkey were incredibly volatile markets. They didn’t they didn’t necessarily follow a an upward trend the same way that Greece for example did. Right. So we had to get in and out of the markets in Argentina and in Turkey several times before making money. Right. So, you know, we had done a fundamental work, but, you know, we basically try to be humble to you know, if we don’t get the confirmation that we, you know, that we need, we don’t try to be heroes, you know, we get out and then we, you know, we humble enough to get back on again, because we’ve done the work, right. And that and that, you know, we think that more more than not, you know, he pays off and remember, because we go into these these places, right? And that I think is the more contrarian part of what we do. Yeah. buying things who Literally at, you know, 90 95% discount, right? We bought, we bought banks in Greece from five 6% value, it doesn’t matter if you like 50% right front of the bottom, right, still, it’s still the cheapest asset in the world to buy and frankly, considering that there is a 345 times upside or somewhat some of those investments, you know, we think that is, you know, that is the that is the that is the battle proven that a risk with dumping to do
Nathaniel E. Baker 20:30
you have exit points, just like you have entry points, right, when you’re when you will, like we did last year in Argentina and Turkey, sell these positions off entirely, right.
Philip Reade 20:41
Yeah. But But the interesting thing is, right, I mean, once again, just going back to, you know, humility is very important for us, right, especially, because, you know, these these markets can be so, you know, so so volatize so assertive, right that the same way that we don’t second guess the market on the way down many would never going to try to pick the bottom right, because the bottom line might be 90% down, we cannot afford to keep going to keep buying on the way down. We also don’t second guess the market on the way up, you know, the market on the way up, you know, a lot of times goes up more than five times, right? We have, you know, one Greek bank last year, they went up five and a half times, right. So we don’t we know that the markets in these sentiment driven environments, they overshoot on the way down they overshoot on the way up so you know to avoid second guessing the market on the way up. We never sell our positions on strength as a typical value investor will do. We totally we wait for our stop loss limits to be hit in we get stopped out or the game collide. So we can’t stop gain or you know, whatever you want to call it. But the idea is, you know, we refrain from second guessing the market is How we let our profits run, we’re trying to generate what we call positive kurtosis. Right? Whereas we like to have gains on larger amounts of capital and, and, and losses on smaller amounts of capital.
Nathaniel E. Baker 22:15
Right. So won’t be like put you you won’t put in a limit order that okay, when this reaches 50% 50% gain or whatever, we’re out?
Philip Reade 22:22
No, because in a lot of instances, you know, you know, things are fun hundred percent up. Yeah, to go another 500%. So, once again, right, I mean, we’ve done everything that we could have done in terms of fundamental work from the app from bet on, you know, we once again you know, we let prices be absolutely the drivers of our decision. And we have, you know, protection on way down, it will have leeway on the way up.
Nathaniel E. Baker 22:48
Mm hmm. Okay, a lot of really interesting stuff there. Philip read. I want to come back and I want to ask you about what’s going on in today’s markets and where you might potentially see opportunities, but I first want to ask you more about your background. But before before we do any of that I want to take a short break starting now.
Moderator 23:10
You’re listening to the Contrarian Investor Podcast. You’re on iTunes, Spotify, Stitcher, and other platforms where podcasts are found. Subscribe and supply and almost rating you on social media search for Contrarian Investor Podcast on Twitter, and Instagram. You can find us on LinkedIn as well go to linkedin.com forward slash Contrarian podcast. We want to hear from our listeners, email your thoughts to feedback at constrain pod.com a repository of all podcast episodes and materials is available on our website Contrarian pode.com. Now back to the program. Here’s Mr. Baker.
Nathaniel E. Baker 23:52
Okay, welcome back. We are back. Philip Reed. This is the portion of the podcast where we get into the guests origin story as an engineer Vester you’ve been doing this for a while. You set up Helm Investment Partners a little bit more recently, but why don’t you tell our listeners about your background and how you got involved with investing?
Philip Reade 24:10
Sure. Well, you know, I’m half English and half Brazilian, I, you know, I live in the UK, I live in the States, but mostly I was brought up in Brazil. And I think that is very much part of the DNA of my investment philosophy. Right, by, you know, by being Brazilian, basically, you know, I got used and I was, I was, you know, basically I grew up and I was brought up, you know, through or in volatility, right. I you know, in Brazil, you know, as a kid even before start work, you know, we saw presidents being ousted, we saw currencies being replaced maybe three times in a year. moratoriums, defaults, right, there was very much part of our of our, you know, upbringing, part of our culture hyperinflation in the 80s, you know, so and I stopped My career out of college and is that is at this bank that was called bank got an idea. It was actually founded by the founder of 3g capital, you know, the sherea Brazilian trio that actually consolidator the beer market in the world, Mr. George Apollo lemon, who was presented Swiss. So he basically, you know, made his money at the outset, you know, in this bank, and that was a very active, emerging market, basically, investor, right. So, I got to see as a very junior, you know, analyst, right out of college, but I got to see the bank making very successful investments in all these, you know, the Latin American crisis of the 90s in Mexico, in Brazil, Venezuela and Argentina. You know, I got I got the bank getting involved in the South Asian crisis in of Korea and Thailand and out of seven, Russia 98. So, that was obviously you know, a very much part of part of You know, of the seat of our investment philosophy. I then went on to McKinsey and Company, which was a great, you know, great, great learning to really read it. And I think really helped me understand companies from the inside and bottoms up, ended up going to Stanford, Business School, and then eventually to Goldman Sachs math on asset management, I, you know, I ran their, their Brazilian operations here and then and then I spent many years at one of Brazil and leading, try to invest in companies called tarpon in some power. And then, you know, I decided to leave about and set up Helm about about three and a half years ago in June, July 16. Because, you know, once again, right, throughout my career in a lot of the companies that I I worked at, and, you know, I was part of, I saw these opportunities in many different markets bit in Brazil or in Argentina or in Greece. And frankly, you know, those opportunities were not part of it. mandate or the strategy. So, you know, I decided that you know, just, you know, show me how to do exclusively that on no men a lot of sense right in, in a very convinced because not only for the reasons I’ve described in terms of, you know, the investment philosophy and then there was management but but also because that you know, there isn’t actually any institutional investor doing that, right. We actually, we look, right we look, we look for people that do what we do in a way to learn and exchange ideas and frankly, so far, we have found some families around the world actually do that are their own capital, people that came to Brazil in the 90s and bought you know, the telcos and the power companies, people that went to, you know, to Russia in 94. But we know we haven’t really been able to find funds that Do exclusively that in equities, right, folks that do some of that sometimes in debt. But by No, you know, not very many in equities. And you know, we like to think that having a exclusive fully dedicated focus to do what we do. You know, also also helps us being be being disciplined in the way that we approach things.
Nathaniel E. Baker 28:24
Interesting. English and Brazilian is an interesting background, I have to ask who you support in soccer based on that.
Philip Reade 28:31
Man, you know, you want to be right or you want to be happy, as well. That’s Yeah, that’s
Nathaniel E. Baker 28:35
my question. Do
you know,
Philip Reade 28:38
I’ve seen better days but I mean, obviously, by being being you know, wanting to be happy, I definitely support Brazil.
Nathaniel E. Baker 28:44
Okay, which is Yeah, which has not been very good recently, but okay. It’s not
Philip Reade 28:47
it has not but it gave me gave me damn happiness throughout the years.
Nathaniel E. Baker 28:51
I do love the Indeed, indeed. Yes, true. Whereas England has of course, had to wait since 1966. As we all know, yeah. Anyway, back on topic. You touched on it before you guys buy equities only now when you do that do you buy the local locally traded shares or the ad ours or
Philip Reade 29:10
both? We buy wherever there’s you know, there’s there’s most liquidity because it’s paramount for what we do in terms of risk management choose the most liquid market and that actually varies right i mean you have Greece for example there’s more liquidity locally so a trade in euros in Turkey there’s more liquidity locally so in trading leader in Argentina, there’s more liquidity in the US in ADR so that’s what we do. In Brazil, it doesn’t really matter have a very liquid market. You know, both both both locally and in us. So you know, and go for liquidity every and every night.
Nathaniel E. Baker 29:49
Will you have any of your positions at all?
Philip Reade 29:51
We never do it because we know wedding if we get our our our equity seizes, right I definition you’re going By the equities in local currencies very, very cheaply, the currency is going to be very, very depreciated as well. So it ends up being a double double whammy, you actually you know, you actually have returns on both ends and the FX knows a big contributor of that as well.
Nathaniel E. Baker 30:15
Yeah, that’s actually pretty refreshing take I can’t tell you how many people I speak to on this podcast and elsewhere who claim that they had everything and everything is hedged. Which is frankly not even possible and if it were you’d probably be getting exactly zero percent but anyway, okay, let’s talk now about these current situations. The world is obviously an interesting places as you know, better than probably just about anybody and coronavirus. Maybe we can talk about that in a little bit. But where are you right now seeing opportunities to buy equities.
Philip Reade 30:48
So, you know, maybe I’ll tell you about our portfolio first, you know, we’re not about you know, 45 50% in Greece still, I still that the narrative is Tremendous, the new the new the new Prime Minister, Mr. kannapolis Mitsotakis, who we actually met last year couple times is is, is, you know, really means business. Western educated Harvard, Stanford, McKinsey, you know, has been accelerating privatization, reducing the size of the state, cleaning up, you know, helping the banks clean up the balance sheets, very rational, reasonable, market friendly person and a very, very good team really getting things done already. And in in Greece, we have, you know, have the banks we have, we have a large position in the, in the power monopoly, cloud public park cooperation with you know, we think it’s a it’s a great story. It’s a great turn around story. The company had been used by the private government as a, you know, in a way a public policy company, employment generation so so far, and it’s now being being turned into a you know, Normal value creating company and is in this tremendous upside the company has about 70% of market share in the power market in Greece, we have about 25% of the portfolio in Turkey. Turkey in multiple terms. It’s still one of the cheapest markets in the world tonight. 6.3 6.4 times price to earnings. thousand 20. That is a you know, it’s a it’s a it’s a much deeper diversified market visa v. Greece. We own we own telcos, your airlines, we own retail companies. So you know, banks. Right, this is there’s an interesting, interesting market, you know, albeit more volatile, right? The the narrative is not as necessarily as linear. And Turkey, you know, oftentimes finds itself involved in a lot of geopolitical conflicts. And, you know, it’s the case now in Syria. Right, you know, and doggone and putting has been, you know, having sort of, you know, weekly dialogues around bad so so No, there’s a little bit more, more volatility but once again we think that, you know, rates came down tremendously a little bit a little bit too much and too quickly and that actually, you know scared everyone but I think because inflation has been surprising to the downside and the economy has been picking up in a way investors have been willing to willing to ride the market and that’s create really, really, really positive momentum in the in the Turkish market as well. We’re excited about Chile, okay, is a it’s about 10% of our portfolio right now. Chile is a one of a kind in, in in Latin America, right? It’s significantly more solid institutions. Much more organized country doesn’t have a lot of the vulnerabilities that the other countries have in terms of balance of payments. And pensions and so forth. So, you know, it is a it is an OECD country that, you know, went through a, you know, sort of confidence, social unrest driven crisis in October, the market sold off significantly, you know, we believe that there, you know, there is, you know, the, the actual economic crisis is not really going to be to be very significant. Okay. You know, there has been a dent in confidence, and that will show up in the numbers but not in the magnitude that are reflected in evaluations, in our opinion.
And I think there’s a path, you know, the country is going to hold a referendum in April, to decide how enough to, you know, to rewrite a constitution to address some of the some of the social concerns that that a population has right now. It You know, there’s also it’s also a market that is, you know, you have quite a bit of liquidity in some of the names as well. You know, we have a brewery company that We have a lithium company there as well. And banks, we have we have a smaller part of our of our portfolio about five and a half 6%. In Pakistan. Okay. Pakistan has done, you know, dozens of IMF programs in the last 50 years. It’s been, you know, it’s been in, you know, in the IMF program since 2018. Right things are things are potentially happening there. Right. There’s been basically the country’s trying to address a current account deficit problem or more specifically a trade balance problems. So there’s been a lot of initiatives around boosting exports and textiles and tech technology. so on so forth, and restricting somewhat imports, right, the government increase interest rates to slow down the economy as a way to also decrease imports. So far, it’s been successful the market bottom the last August after going down 75 percent in two years, and I’m talking about the the the the US listed. P AK, right? Yeah. Yeah. Right, they went down 70% 75%. So massive. So right up our alley. You know, that is a that is a smaller, a smaller part of our portfolio. So, you know, there’s, there’s plenty of interesting opportunities. And frankly, you know, that without any potential adjustment, right there might might definitely take place given where the, you know, US equities market is trading right now. Right, right. So if something were to happen, we like to think that we would suddenly be stopped out of men of opposition, but we will be liquid. And we have, you know, potentially very interesting opportunities to try to capture
Nathaniel E. Baker 36:48
Yeah, with cheela aren’t a big supplier of commodities to China, copper and lithium and etc.
Philip Reade 36:58
Yes, the ID, the ID and then And,
Nathaniel E. Baker 37:01
in fact, I think the markets sold off a little bit like over the last couple of last couple weeks due to the coronavirus fear. So
Philip Reade 37:09
yeah, no, absolutely, I think I think, you know, if you look at you know, two or three years of the time horizon, you see that because copper have been going down right for a long time. The Chilean market, you know, has also been selling off for a long time even even before the October crisis, right. And since then, obviously, you know, the, the sell off has been has been amplified. And then even though copper, IB, IB proving, you know, the market still kept selling off, right. So that’s why we think there’s you know, even taking the copper in coronavirus trajectory into account that the the Chilean market is is cheaper than it should be, you know, that that that that has been volatility, you know, brought about by China and by the commodity cycle in general.
Nathaniel E. Baker 37:57
Yes. Which is all this of course begs a question that with China specifically, have you looked at that at all over the last couple of weeks? Because the, you know, they are too There’s been quite a bit of selling.
Philip Reade 38:09
You know, and if any of you know this once again, right, I mean, in, you know, this this, I could spend a lot of time trying to understand what’s taking place in the corners of China. I am not qualified the least to get any any reasonable conclusion instead, and that goes for everything that we do, you know, instead of trying to predict new crises or trying to short a market that should be going down but it’s not we didn’t do anything of that. For prices to tell us what to do if the coronavirus is, you know, happens to be a problem that is not priced in or is bigger than what people anticipate. We’re going to we’re going to hit our stops and we’re going to have a fun that is 95% cash. I think that is the beauty of it. Because you know once again Right. Even if that were to happen in some on Stein, there will be there will be a bounce back because it’s happened for the last 2000 years. And then we would, you know, keep our fundamental work current, we would be traveling to these places would keep speaking to management teams. And when time is ripe, we will get back on the different investment thesis and the narrative children.
Nathaniel E. Baker 39:25
Okay, what about potential future areas? Are there any places that you’re watching maybe where there’s an election and interesting election this year? or other
Philip Reade 39:34
areas with besides you know, we’re going to visit Pakistan in March and we also going to, you know, we are We also going to visit Egypt, okay. The same, you know, in the same trip, right, it, you know, can definitely be, you know, an area of interest for us as well. You know, we’re looking at we’re looking at Mexico, Mexico is is not nearly as cheap. I think the narrative is It’s not great in the sense that, you know, we speak to a lot of people in Mexico for a long time and I think people are starting to become pretty concerned about about about President Obama other sort of measures and outlook. But still once again, you know, that hasn’t been reflected in prices. Yeah, right. Right. Right. resue is always always an interesting place but but once again, right a thing you know, we feel pretty constructive in terms of the narrative in Brazil, which you know, means that the market should you know, should keep go up, you know, should keep going up. So, it’s not cheap, but you know, it’s always on the radar. Argentina is definitely a place that we span still quite a bit of time looking at right. I personally go to Argentina three or four times a year. You know, it’s been historically a you know, great, a great crisis market to to, even though a very volatile Taiwan and I think once again, our risk management process is crucial. Argentina, Argentina, you know, we think that the jury is out. The narrative and the government’s sort of speech hasn’t been very market friendly, the last few weeks, and, and the market has been selling off, I think some of the Argentina banks are about, you know, five to 8% down today. So, you know, at some point in time, it can be, it can be cheap enough, and eventually, once again, the country might be forced to do a few good things. And when it happens, you know, prices will, will, will will, you know, we’ll have that as a reflection and eventually it’s time to get back on again. But I mean, we don’t see, once again, we don’t see that happening yet. And we’re not in the business of predicting any of that God guy happened to react, leave, eventually a significant amount of money on the table on the way up and capture what in our opinion is a much better risk return profile.
Nathaniel E. Baker 41:58
You mentioned Greece and your portfolio 50% is increase. How much of those are legacy positions? And how much of it is stuff that you added over the last say year?
Philip Reade 42:09
Oh, you know, we’ve had pretty much every single position for the last year. Oh,
Nathaniel E. Baker 42:13
really? So it was it’s all recent trades.
Philip Reade 42:15
It’s Yeah, it’s been, you know, it’s been it’s been, you know, it’s been working out pretty well. Right. It’s been, it’s been a textbook solution in terms of in terms of fundamental fundamentals, and prices, you know, have been having, you know, reflecting that fppc you know, the public power company is a little bit a little bit younger as a position. Okay. But not dramatically.
Nathaniel E. Baker 42:42
You still see upside in Greece.
Philip Reade 42:44
I see. We see tremendous upside in Greece. Tremendous upside in Greece, we see. You know, the banks in Greece are trading between 2020 and 33% book value, right a thing we think prices can easily you know, go up, you know, 50 to 100% Doesn’t it? It doesn’t excuse. You know, we see PPC, as you know, more than doubling in thousand and 20 as well, just because fundamentals, there’s a company, he should be going from 300 million in thousand in 19 to about eight to 900 million in 20. So, three times as much abida in a year. Right. You know, 40% of that is simply because the government decided to increase our electricity tariffs by 70%. Right. So we have a very clear, big move, leave us. Welcome to the company. So yeah, we see we see a lot of upside in Greece. And frankly, the current leadership, you know, is that is a big part of why there’s some
Nathaniel E. Baker 43:46
pretty remarkable we’re having this conversation about Greece considering where the country was, you know, eight years ago, I did not think that it would turn around in my lifetime, but there you go. That’s okay. Wonderful. Well, feel free. Thank you so much for joining us today. And we look forward to speaking to your all again next month.
Moderator 44:07
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