 Good day, fellow investors. I'm here today with Peter Barclayn, who is a professional asset manager. He runs the niche master's fund, which is a fund that focuses on small niche companies that are great businesses and that have an advantage over other businesses. He was a consultant for more than 30 years. He had the consulting business with his partner, Perry Enster, that we did an interview a few weeks ago, and they were consulting companies like Deloitte, Unilever, IBM, you name it. He has a consulting experience, and now he is really a professional asset manager. The beautiful thing is, and also the reason why I am here now talking to him, is that you and Perry have your money in the fund. You have a skin in the game, so you're not selling anything. You just mostly manage your money and from your friends and interested people, so it's not something like a bank or something, and that's why we have here the opportunity to learn from you. Something that I find amazing, and Peter can tell it much better, is you were a consultant and an investor, and I think we should start with that. What's the difference when you come to a company like a consultant or as an investor? Well, thanks, Sven. I think there are many differences, but one of the interesting ones is that, and I think you should mention that the kind of consulting we did was not any kind of consulting, but strategy consulting, which we define as the most important issues that face a company or a company's management. So we went to see companies, of course, constantly, and we had quite a few clients around the world, and every time we came to visit a CEO for the first time, knowing full well that there would be a bill for the services, there was hardly an end to the number of problems that a company will lay out, and that's of course the nature of business. There's a lot of issues that have to be taken care of and developed, but as an investor, when I go and visit companies, I have yet to hear one CEO mention one problem unprompted. Of course, we ask them for problems that we think they might face to hear their opinions, but other than that, they do not volunteer problems. I think maybe the best or the most important qualification to be a CEO is to be a great salesman. And how do you navigate that? Well, obviously, we just have to realize that that's the position, it's the natural state of affairs. Actually, it goes deeper than this, because there are things we can ask them, because of all the stock market ethical rules, even every time a company answers a question to us that is of any relevance about the company, they actually have to make the same information available to all other investors. So it's in actual fact very little that we can find out by asking management, not only very little we can find out, but very little we can find out that everybody else doesn't know. So I think that's one of the key things about that. With your consulting experience, can you find those things that perhaps other people don't see? Yes, I think sometimes we can. Sometimes we would ask questions that investors would not usually ask. We're very keen on competitive advantage, for example. The company needs to be able to explain why it can do what it does better than the competition. We have ourselves a long list of things we ask about companies, and to ask for clarification about that is something that is. I mean, for example, what is the meaningful difference between one company's products and another company's products? And some will explain, and these are not secrets, but these are some things that we would take into consideration. Speaking of competitive advantages, would you elaborate on the strategy of your fund and what are you focusing on? Our funds focus, I mean, we have a sentence that is relatively small companies, companies that are exposed to growth, and companies that we can buy for a reasonable price, value companies. And for all of these companies that have profitability, that can be protected from the competition. And that is just our way of defining competitive advantage, that the advantage is that the profits you make as a company can be protected from the competition. Because you know that every time a company shows great results, there will be competitors or potential competitors out there who wants to take those profits away. And they will. And I strongly believe in markets these days. And when somebody sees somebody has done something great, somebody tries to copy it. And if they can't, if they haven't put up barriers to entry, then they will. And then the profitability will erode. So we try to, I mean, when we have a chance to do it, we try to engage management in conversations about the strategy. And the strategy is not which new market they want to go into, which new product they want to develop only. And that's relatively straightforward. By the strategy we mean the plan they have put in place to protect their profitability against the competition. And let us know, why do you focus on small companies? What's the advantage that you give in your hedge fund there? I mean, we believe that, and I think we have a good reason to believe, so you can be shown statistically, that over time, small companies grow their profits faster than big companies. And it's almost a natural thing if you are a hundred million dollar company, it's easier to get 10% growth that if you are a billion dollar company, you need to create a lot more. So smaller companies give us an advantage to achieve more growth. The disadvantage this gives us is that there's a limit to how big the investments can be. But this is a good, I think a good trade-off. We think we look for slightly higher returns, but in a smaller fund. So if we go deeper into that, what are the specific factors that you're looking when you watch at the competitive advantage, the barriers to entry? And so elaborate a little bit more on that, because I'm sure the viewers are very interested in knowing, okay, how, how to do it? Because there are thousands of small companies out there. So how can we find the ones that will deliver long-term sustainable returns as you find them? So when we, when academics use the term barriers to entry, they typically envision some kind of physical barrier, that some kind of thing you can see, that means that competitors can't enter your business. But that's not actually how it's defined, or certainly not how we define it. We define a barrier. Well, first of all, a company in order to be, to have a competitive advantage, it must naturally follow that it will then use that advantage to make more money than the competition, otherwise it's just wishy-washy. So if you have a company that makes a certain level of profits and you want that to be higher than the competition, then it can only do one or two things to achieve that. Either sell the products at a higher price than the competition or produce the products and deliver them at a lower cost or a combination of the two. And the in-between becomes the profit. So in other words, an excellent company has an advantage to increase the price and or lower the cost of its products. Now, that's the, that'll be the barrier to entry because the barrier to entry is not to do what an existing company does, but to make the profits that an existing company makes. So if I look at a company, say in a pharmaceutical business that has been in that business and runs the company and has run it for, say, 20 years, based on patience, and I say, I could make what they make, or maybe not me personally, but I could hire a bunch of engineers to make what they make, except that one, I can't get the price they get because they have a brand that has been incorporated, introduced to the market for more than 20 years. So even though I could sell my products even to their customers, I would still not be able to make their profits. For the first barrier to entry, namely the branding advances. The second one might be that I would have a scale disadvantage. I would be so small in the market that my cost per unit would be much higher than the established player. The result being that, yes, I can sell the product, but at a too high cost. So I don't get the right price and I don't get the right cost and I end up not making any money. So the barrier to entry are all these things that affect prices and patience is one, branding is another, image is a third, and we have a whole long list of those. Would you mind explaining that on an example perhaps? Yes, no, I don't mind. Take an example of a branding advantage. So if I give you, throw two company names that you, Coca-Cola and Shell, you know, Royal.Shell, the petroleum company. Would you say those are well-known brands or good brands? Yeah, most people would say they're well-known brands and they're good brands. But if you start to look at the administrative perspective, then you ask yourself, why is Coca-Cola a good brand? Does Coca-Cola or is Coca-Cola as a company able to charge a higher price for a cola than the competition? And the answer is more or less yes. Coca-Cola is typically 30-40% more expensive than a local cola in a country around the world. And the cost of making Coca-Cola, because they make so many, such a huge company, is so low that there's no soft drink that is cheaper to make than Coca-Cola. As a result, Coca-Cola makes a huge profit and they make billions of dollars every year and they have done for maybe 120 years at least. Now, if you ask Shell, they will probably also tell you that they have a great brand name too. Shell is a well-known brand. But how much do people pay extra for a leader of Shell petroleum or gasoline than they do for a leader of any other gasoline? And you will realize it's certainly not 30% that Coca-Cola gets. It may be a little bit and it may be explained by the location of the Shell refilling stations more than the actual value of the Shell brand. So the Shell brand may help the company with their name recognition. I know I go into Shell, I have a Shell credit card maybe, so that's why I go to fill up the tank. But it doesn't actually explain why Shell makes a lot of money. Shell does make a lot of money, but for other reasons. For example, for their concessions in various countries around the world. But then that is what we need to understand. So I think that's the best example I can give of two well-known brands where one actually creates economic value at the bottom line and the other doesn't. It's just there for other reasons. It's more like I call those trademarks. So that's an example of higher pricing. But there are many, many others and I probably can't even remember all of them, but off the top of my head. But one would be very certainly you have a patent. Your competitors are therefore forbidden from producing the same thing as you. Hence, you can charge a higher price than you otherwise would. Then there is the question of reputation. We all have to have a good reputation. Without a reputation there is nothing we can do in any business. But there are some businesses that are different in the sense that reputation actually leads to a higher price in addition to more business. Take, for example, brain surgery. Imagine if you had the bad luck that you needed to have brain surgery. And you knew that you needed to have brain surgery. So you were conscious enough to be the one to go and pick which surgeon to employ for this job. Then you would ask yourself, is this an important thing? And of course the answer is yes, because we all know this kind of surgery can go wrong. So your task becomes, how do I pick a good brain surgeon? In fact, the best brain surgeon I can find. And you quickly realize that unless you are a brain surgeon yourself, you don't really have the qualifications to evaluate the qualities of a brain surgeon you just meet from the beginning. So how do you pick the brain surgeon that you want to use? Well, you go and talk to people. You read trade magazines, perhaps medical journals and so on and so forth. And you will find the brain surgeon who has the best reputation, who has the most happy or surviving patients and so on and so forth. Then you go talk to them. And so you can almost imagine the dialogue where you ask the brain surgeon, can you do this for me? And it says, yes, I can and I have 100 cases I can show you. But can you give me a discount? And in other words, which of course that particular brain surgeon does not have no reason to give a discount because everybody is coming to look for his or her services. Over on the other side of the street may be a brain surgeon that sees this and is envious and puts up a sign that says this week, you know, 20% discount on brain surgery. And how many customers do you think they're getting? Not at all. So the person with the good reputation ends up with not only all the customers but also all the profits. So that's the way the reputation works. Well, thank you for this introduction. I don't know, am I allowed to use your quote that CEOs are salesmen or will that put you in trouble from a consulting investing perspective? I think most CEOs would be proud to be recognized as sales people. So I don't think that's a bad thing. Alright, then I'll use it. Well, thank you for this introduction. We'll make another few videos and to discuss also your specialties and how you see the world, how you invest. We'll talk about Brexit, about value investing, how to find the quality company. So that will come in the following videos. And thank you very much for this introduction. And we'll chat again.