Take Adobe. We have seen an explosion in digital content creation and digital advertising. The money Adobe makes is subscription-based. As soon as you stop paying money your software stops working. So while creative professionals have probably seen their workload decrease by 50% since Covid, they’re not going to cut off their subscription to Adobe because then otherwise they wouldn’t be able to complete the other 50% of their workload.
This is what makes Adobe beautiful as a business model.
So what don’t you like?
There are a lot of things within the technology sector that we would never touch. The likes of Netflix, Apple, Peloton, Uber, Zoom, any semiconductor names, any hardware providers. We are not interested.
The landscape that Netflix operates in is highly competitive. It is competing for content against HBO, Hulu, Amazon Prime, etc. So while Netflix can continue to add paying subscribers, they will never be able to deliver a high level of return on investment capital because a lot of that money is going to buy up new content.
If you ask me which other companies or sectors that Netflix is similar to, I would suggest a football club. They continually need to pay up to get the best players. That’s why they can never make any money or sensible enough money.
What about Zoom?
I compare Zoom to Uber. If I look at my smartphone now, I have five different taxi apps and at any one point in time I will probably check maybe three out of the five to see which one of them offers me the best price. Uber is not my only choice. As far as Zoom is concerned, they are competing with two giants, Microsoft and Google. WhatsApp is coming as well. How are you going to get consumers to pay for your service?
What’s your long term outlook?
The only thing that’s quite certain is that the world will become more uncertain.
There’s a trade war and cold war going on between the U.S. and China. You have the Hong Kong situation. You have Brexit. Argentina is defaulting. And then you have Covid as well. So you would probably expect five years from today that the world is going to be in worse shape. We want to invest in companies that aren’t going to be materially impacted by whatever direction these issues take.
What are your favorite memories?
The solo trips I did when I first graduated. I was 21, or 22. I didn’t know what to do next and someone recommended I take a year out to go traveling.
I’ve done overland routes such as Mexico to Panama in Central America, Hong Kong to London through Siberia, Tibet to Hong Kong through the Greater Mekong, London to Egypt through the Middle East. In Cairo, I climbed to the top of the Great Pyramid of Giza and spent a night there.