Hello, and welcome to the Download. I'm your host, Dave Richardson, and it is Stu’s days. And it's a beginning-of-schoolyear Stu’s days. Stu, you have anyone starting school today in your house?
Two are starting school, Dave, although they're late in their high school careers. So it's not the same level of excitement on day one. There's no handholding walking to school or anything like that.
I would think that from a household that cherishes learning, this would be an exciting day, finally get away from the boredom of summer to go and learn.
Something like that.
I know my daughters are pretty excited, too.
With that one last week, last week of August or first week of September straddle, summer seemed a little bit long. People were actually looking forward to school.
Yeah, well, my eldest is up at the University of Guelph, and so, being a social character, they gave her a golf cart to drive around and steer the new students and welcome them. And she's just having the time of her life. She's apparently a very effective greeter. I just wish she was a better student, but we'll see how this year goes. I'm optimistic.
Did she take the Richardson family microphone, Dave, for that, or did they give her one?
They gave her an official Guelph golf cart. I think it's kind of souped up relative to the ones I get on the golf course. Very nice. We could use one around here and drive around in our giant somewhat empty office here.
On certain days you could, that's for sure.
So, Stu, we were talking last week just casually, and you talked about this idea of wanting to invest in things that have multiple legs. There's an opportunity now, but you're at the start of something that's just going to spread out. Why don't you tell everyone the way you described it?
When it comes to big events in the market, I like to use the analogy of throwing a stone into the river or into the water, and you watch the circles just ripple away from each other. And quite often when you see that stone go in the water, there's a lot of volatility that's contained around it, but it's where things start to ripple that you can make a lot of money. And we've seen that in the summertime. We saw that with artificial intelligence, where the direct beneficiaries of those trends, like Nvidia and some of the software companies ballooned, and there was reasonable exposure to those in some of the funds. And then you have to go and find where's the second, the third, the fourth derivative of all these things that might take place. And there's a whole variety of those types of events that are happening all the time. We go back and we think about some of the fiscal stimulus that might have been through COVID around reshoring. And then you sit here 12 to 18 months later and industrial stocks in the United States have been very strong because the level of factory creation and all sorts of things in response to that is ballooning. Trying to figure out where is the 5th or 6th ripple going to be. One that was interesting at the end of the summer was these weight loss drugs. We saw some enormous moves in some of the pharmaceutical companies, but it also then sparks the debate about where's the second, the third, the fourth ripple. What will this do to diet? What will it do to food consumption? What will it do to quick service? Does it suppress appetite? Does it change eating demands? What does it do for insurance? Do we live longer? What does it do for long-term care? All sorts of things can take place and we have to have discretions around these because the stock market is extremely efficient. While it may take some time on the clock before this all presents itself, the stock market is quite efficient at knowing the winners and losers. When you think back in the mid- to late 90s, early 2000s, when the Internet came along, newspaper stocks never traded the same, even though it took a long time for that to die out. We've seen some pretty big announcements in the last six months, and we've had some direct exposure to that announcement, but then the team of analysts and portfolio managers are busy figuring out what it means for almost every business, to some degree.
I believe you've called it the long nose of the stock market. I believe that's one of your lines, right?
It's not my line, but it is one I like.
So it's up there. It's always sniffing around for where things are going to happen, and it's looking farther ahead than you'd think. It was interesting, just before we hopped on to tape this, I was scrolling through the CNBC site and there was a headline: this might be the next stock to join the trillion-dollar market capitalization club with Apple and Amazon! I'm sitting there and go, geez, I wonder what that's going to be. That must be some kind of technology stock. Nvidia recently crossed a trillion dollars in market cap. What would this next great technology stock be? And I clicked on it and it's Eli Lilly, which again falls into this whole pharmaceutical idea and the effects of all of these incredible discoveries. You've talked specifically about what's going on in the weight loss sector, which for those of us like your beloved host who tends to struggle with weight, gets excited about as something that could be life changing. But it's certainly a game changer in terms of business opportunities. But again, not just for those companies, but you can look out in a number of sectors and there's going to be some winners and losers out of this.
100%. It's a great reminder, too, about the dynamism of businesses. Not just in the diet category, but also in dementia and memory care. These have been big categories that have emerged as well. Whenever as investors, we're talking about problems that might be facing markets in the short term or facing industries, businesses, there's another management team out there that's saying these problems are going to be massive opportunities if we can figure out how to find our way through them. And Eli Lilly has really dominated along with some European pharma companies in that regard in the most recent times.
I know a former colleague and guest that we've had on the podcast before, Dominic Wallington, was very early on this particular trend. His focus was more around diabetes, but ultimately led to what was going to happen with weight loss and diet management and all those things and created some real opportunities. He was managing a portfolio out of Europe. A really interesting one. But another one, Stu, I think a lot of people had forgotten about the energy sector. There are debates in terms of whether this was right, but at one point the future suggested that a price of a barrel of oil was minus $40, or zero. There was a cost to actually taking that barrel of oil. Of course, that was in the height of the pandemic. And then of course, we came out of it. Oil prices spiked. We've now had a normalization of prices, but still at a level that creates a lot of opportunities. But how does the energy sector fall into this dropping a pebble in the water idea that you've presented?
Well, I think we have certainly seen a bit more supply tightness or supply discipline from the OPEC nations. But longer term, when you think about decarbonization— as we're talking about going back to school—, how long will we use oil for? No doubt at some point it will peak and start to decline, but it's still quite healthy today. Even enrollment for petroleum engineers. Who's going off to be a petroleum engineer today? Not that many people. So when you think about the ultimate supply that's required and how we might provide it, the number of ripples away from that decision; there's going to be less energy demand, so it likely also means that the cost of finding incremental supply when it's needed is going to be higher. It's going to require carbon capture. It's going to require a whole bunch of things that are going to cost more. So if you think about the marginal price of crude oil, is it higher than it otherwise would have been because of some of these dynamics? And some of these dynamics are absolutely necessary for the longer-term transition, but they also have implications when it comes to producing what will still be necessary for a bit of time here in the world. You try and think about where is the marginal price of crude? And as that drifts a little bit higher here, perhaps, then you have to think through all sorts of implications on consumption and driving and all sorts of things. This iterative process of managing money, this endless puzzle, can be enormously fascinating if that's your bag.
Yeah. And that's what's always interesting. I love this podcast and I love talking to people who do this for a living, like yourself, the intellectual curiosity of investment managers. Because you do constantly need to not just be looking at the headline today, but then thinking of the ripple effect, literally, to your analogy here, of what will happen next and what will be affected next. Because oftentimes for that first one, once that pebble drops, the news around that is already priced into whatever is being affected by it. And your opportunity is really in figuring out what happens from that point on.
Exactly. You just have to always be relentlessly forward-looking.
Wow. With a big long nose. Which is why it's an audio podcast with Stu Kedwell on Stu’s days, and likely we'll stay that way. Although we might try video at some point, Stu.
You do need to be a super sniffer, Dave. That's what you need to be.
A super sniffer. That was my big accomplishment on the weekend; I discovered YouTube TV on my actual TV in my living room and how to actually watch a program on it. I know that's embarrassing. My kids laughed, but I was quite proud of myself.
I'm proud of you, too, Dave.
That's the perfect spot to end it because I don't hear that very often. Stu, thanks as always.