The Importance of Durability in Cycling Performance | 4min snip from The Roadman Cycling Podcast

Speaker 2
So in Europe, there are a lot of cheap stocks. There are a lot of very high quality, cheap companies throughout Europe. What do you think about that? Would you buy any of those? Or do you think that because of your macro view on Europe that you wouldn't even touch that?
Speaker 1
No, I would buy them. I'm a businessman. The macro view is the macro view. And market agnosticism is also an interesting concept. And that concept says that you can invest in business and earn returns by ignoring the macro view. Now, some would say, now, what do you mean by this, Philo? What I mean is, if you buy a business that is so robust and so high quality, almost whatever happens, you can make money. So yes, there are businesses which will not perish or decline, because if something bad happens to Europe, then they will adjust. Let's say something extreme, France exits the EU or Germany exits the EU. Okay, then trade will continue. Trade will exist. Maybe it's going to be a different currency or different laws, but if a company creates value over time, then it will probably continue to create value. Last year, I wrote about a company trading in the London Stock Exchange called Avon Protection, which is the global leader in helmets and respiratory equipment and stuff like that. And it was going through a rough patch because it had overblown footprint, logistics, manufacturing, and it started to cut costs, rationalize production, close factories, merge factories together, and while at the same time increasing the top line. So I think it's up 60, 70% in a year and many other names. If you're a business owner, you don't care whether it's in the EU or the US. However, passive flows, S&P 500 constituents, the NASDAQ 100, big tech, all that sexiness is in the US, isn't it?
Speaker 2
Right. Interesting. So are there any particular stocks in Europe that you think are attractive right now? I
Speaker 1
have a big chunk of my portfolio in the US. I own Avon Protection in London. I still own Jumbo, which is the Greek specialty retailer with operations in a few other countries as well. And it's a specialty retailer like a Five Below with awesome gross margins, great bottom line, very strong competitive position, growing stores every year, paying back dividends and repurchasing shares. That's a long-term shareholding of mine. I've written about it on PhiloInvestor a few times as well. And Fevertree, which is also listed on the London Stock Exchange. It's a British founded company, which is the leader in premium mixers like Ponix, sodas, ginger ale. And it's a global leader in this segment. I mean, I'm sure you know it. It's growing in the U.S. as well. It recently announced a partnership with the Coors company. They would become the exclusive distributors in the U.S. But anyway, not to blabber on it's it went through a rough patch as well with the costs of uh freight and glass but they're fixing all this now they've done a lot of work on that i've written a piece about them a few months ago so i think they're going to create a lot of value going forward. They're paying a dividend and growing globally. Interesting.
Speaker 2
Yeah. Fevertree is a major, is a long of another person I've had on this podcast, Alex Morris, The Science of Hitting. I talked to him about it and yeah, it's a very exciting company. It was attractively valued and it's growing very quickly. And yeah, the thesis makes a lot of sense. And you're right. They also just recently announced that partnership with Molson Core. So yeah, that's a very interesting position. The
Speaker 1
best time to buy these companies is when the thesis kind of breaks when the revenue growth rates really pause, and all of a sudden you see an 80% decline. It's no longer hot. People no longer want it. And if you want to get a good price, that's a time when you should be digging in. So I think it's cheap now. Yeah. Awesome. Okay.
Speaker 2
So another big macro thesis that you've written about is China. Based on what I've seen from your writings, it seems like you're very bearish on China. So is that the case? Am I interpreting that correctly? And what do you think are some of the best ways for an investor to play that? Yeah.
Speaker 1
I think what I would say is that I'm not really long-term bearish on China, but I was bearish in that I was fading the stimulus. I was fading the excitement and the bullishness of the stimulus packages announced in October of 24. And I wrote that piece to explain that I think there are deeper, more fundamental problems in China that the announcements by the CCP would not cover. And I explained historically the story of Xi Jinping, what his incentives are, motivations with China, and how, for example, I mentioned the overly aggressive crackdown during COVID. And I touched upon the crackdown of people like Jack Ma and strong tech entrepreneurs in China. And I think the incentives of the Chinese was to kind of control these strong business people, you know, limit their sway and influence. But the consequence was that they created fear in investors and markets that they would crack down even further. For example, nationalize Alibaba or intervene too much in innovation. And all that, COVID and the tech crackdown, sold off all these names. And now the Chinese realize in the beginning, they thought that the Chinese stock market was different, was something else from the Chinese economy as long as the latter did well. But I think later they realized that they may not be the same thing, markets and the economy, however they are connected. So they tried to pull a US move and stimulate the stock market, but the markets call their bluff and it's sold back down.
Speaker 2
Interesting. So yeah, China has been very confusing to me because from my perspective, they achieved remarkable success by embracing capitalism from the 80s through 10-ish. And then it's always confused me because it seemed like in the last 10 years, they've been trying to go back and become more communist. And I've never really understood that. When you experience that kind of prosperity for 30 years, what would motivate them to say, well, we've had enough of reducing poverty and achieving all this success. Let's turn the page back. I just can't wrap my brain around that. Yeah,
Speaker 1
I think maybe their incentive is keep what we have, because it's not two parties running China. It's one party, so there's no elections, right? The CCP does what it wants. And maybe they tried to adapt to how quickly things were changing, how quickly things were moving, especially with technology. And yeah, I think the overly aggressive moves of the past few years kind of created a negative bubble on the stock market it's kind of you know a magnet or an anchor pulling them down you know some people say oh alibaba is really cheap of course it's cheap yes but don't expect alibaba to benefit from the passive flows or the speculative flows that apple benefited from right now or NVIDIA or Palantir. There is a delta between US markets and everything else. Yeah. I mean,
Speaker 2
in value circles, you often hear Chinese stocks presented as potential longs, but there's this existential risk with them where, because it's a communist country, it seems like, to me, all of them could potentially be zeros. Could
Speaker 1
be. It could be. I mean, you never know the trade war could get out of hand. The world war could become a reality if it isn't already some sort of world war now. I mean, it happened with Russia, right? So it's how you price an asset. It's what your valuation tactic is. But if you expect Alibaba to rally crazy anytime soon, I don't see it. If you're looking for value for value's sake, then by all means, check out China.
Speaker 2
Yeah, Russia is a pretty good comparison because I remember in 2018, a lot of Russian stocks were presented as really attractive longs. I think Gazprom had a 12% dividend or something, and a lot of people presented it as a no-brainer. But similarly, you have this existential risk, and that risk was ultimately realized. Those stocks are effectively zeros.
Speaker 1
Investing and trading, ultimately, all it's about is risk-reward and decision-making under uncertainty. And I say this to explain another point that even if you cannot be sure about the valuation of a stock like that, say Gazprom, maybe Gazprom will be nationalized and your value would be zero. However, if the reward could be 100x, then it's worth it to lose 1x to make 100x, right? You
Speaker 2
know what i mean so i mean it depends yeah it depends on which school you're coming from yeah that's yeah that's definitely like an approach where you have a lot of i'd say bets that can be zeros but there's such a high probability of success then there would be like the more Warren Buffett style where he would basically rule out anything that could potentially be a zero. So I guess it depends on your positioning and it depends on your overall
Speaker 1
philosophy. Of course, optionality and risk reward, they lie on a spectrum, right? It's not one specific thing. They lie on a spectrum. So many people, they talk about optionality these days or the past few years to kind of rationalize owning a stock which is crazy expensive. And the fact that it's selling for so expensive has stolen it of its optionality, but they still say, oh, optionality. I have a lot of beef with that because there are also positive and negative optionality, which is actually one of the modules that I'm going to be teaching on my upcoming investing course. I think optionality is important in investing, and I think it's really misunderstood. I think passive portfolios like the S&P 500, the NASDAQ, have already benefited from a lot of optionality from 10, 15 years ago, which wasn't priced in. And this is one of the reasons of the overperformance, but I don't know what kind of future optionality you have from these price levels, if you follow me.
Speaker 2
Yeah, absolutely.

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