Welcome to the Fear and Greed Business Interview. I'm sure al mum. There aren't a lot of old style listed conglomerates on the AX anymore, but one of the oldest and most interesting is Washington Hate Sol Patterson. On the surface, some of the numbers look quite ordinary. It's net profit fell twenty eight percent for the financial year, but the story behind it is fascinating, with a long, long history of strong returns for investors. Remember this is general information only and you should always seek professional advice before making investment decisions. Gourab Soodi is the deputy head of research at Intelligent Investor. Gorev Welcome back to Fear and Greed. Nice to be with you, Sean, Thank you cracking company. This one I remember as a journalist when I first started twenty five years ago, trying to understand Soul Pats and probably failing. It's been listed for one hundred and twenty years, started as a pharmacy. Give us the sort of a snapshot of its history.

Welcome to the Fear and Greed Business Interview. I'm sure al mum. There aren't a lot of old style listed conglomerates on the AX anymore, but one of the oldest and most interesting is Washington Hate Sol Patterson. On the surface, some of the numbers look quite ordinary. It's net profit fell twenty eight percent for the financial year, but the story behind it is fascinating, with a long, long history of strong returns for investors. Remember this is general information only and you should always seek professional advice before making investment decisions. Gourab Soodi is the deputy head of research at Intelligent Investor. Gorev Welcome back to Fear and Greed. Nice to be with you, Sean, Thank you cracking company. This one I remember as a journalist when I first started twenty five years ago, trying to understand Soul Pats and probably failing. It's been listed for one hundred and twenty years, started as a pharmacy. Give us the sort of a snapshot of its history.

Yes, often called Australia's version of Berkshire Hathaway and compared to Warren Buffett's business. And I think part of that is because it does run a conglomerate structure. It owns a whole bunch of businesses in a whole bunch of different industries. And also because I think it's run by a genteel billionaire who demonstrates the patience and the wisdom of Uncle Warren himself. And that's part of the appeal of this business. It's not only about what the company does, and as you say, it's got this long history, it's also a business that's characterized by the amazing traits of the family that has run it for generations.

Yes, often called Australia's version of Berkshire Hathaway and compared to Warren Buffett's business. And I think part of that is because it does run a conglomerate structure. It owns a whole bunch of businesses in a whole bunch of different industries. And also because I think it's run by a genteel billionaire who demonstrates the patience and the wisdom of Uncle Warren himself. And that's part of the appeal of this business. It's not only about what the company does, and as you say, it's got this long history, it's also a business that's characterized by the amazing traits of the family that has run it for generations.

Tell us about the family.

Tell us about the family.

Yes, it's the Milner family who's run this business for multi generations, and they're a billionaire investor family. I've gone met them many times, gone to the Berkshey Meeting, met them at the Berkshey Meeting in the US time War two as well, and they are as conservative, as patient, and as wise as they appear on the outset. This is a business run with great care and dedication, with great conservatism, and it's run with the aim of generating cash and paying dividends. So I think one of the great lessons from Soul Paths for individual investors in particular, is that you don't need to chase trends. You don't need to find sexy stories to do well on the market. You won't find soul paths chasing decarbonization or an aging population or Chinese middle class or AI. They do business the old fashioned way in that they look for businesses that generate lots of cash, They buy them at sensible prices, and they hold them for a long time, partnering with incentivized management. And when you buy into this business, that's the sort of philosophy you're buying into, and you can be confident that that sort of philosophy won't change.

Yes, it's the Milner family who's run this business for multi generations, and they're a billionaire investor family. I've gone met them many times, gone to the Berkshey Meeting, met them at the Berkshey Meeting in the US time War two as well, and they are as conservative, as patient, and as wise as they appear on the outset. This is a business run with great care and dedication, with great conservatism, and it's run with the aim of generating cash and paying dividends. So I think one of the great lessons from Soul Paths for individual investors in particular, is that you don't need to chase trends. You don't need to find sexy stories to do well on the market. You won't find soul paths chasing decarbonization or an aging population or Chinese middle class or AI. They do business the old fashioned way in that they look for businesses that generate lots of cash, They buy them at sensible prices, and they hold them for a long time, partnering with incentivized management. And when you buy into this business, that's the sort of philosophy you're buying into, and you can be confident that that sort of philosophy won't change.

Okay, So they've got sizable stakes in mid sized companies like Brick Works, which does exactly as you would expect Brick Works to do, New Hope, which is coal, TPG Telco. I suppose you have just explained their philosophy, but leaving the large caps out of it, why do they invest in these mid caps?

Okay, So they've got sizable stakes in mid sized companies like Brick Works, which does exactly as you would expect Brick Works to do, New Hope, which is coal, TPG Telco. I suppose you have just explained their philosophy, but leaving the large caps out of it, why do they invest in these mid caps?

Yeah, so they actually came to each of these opportunities. The companies you just mentioned, actually Shanna, TPG, Brickworks, and New Hope they make up something about around forty percent of the entire portfolio. They actually came to these businesses when these were tiny little companies. So TPG was founded by David TiO. Saltpats Management found David Tia when he was running a microcap business when it was ten or twenty million dollars when TPG was fraction of sense, and they invested heavily into that and back that all the way as it was sold to Vodafone, and they still own a stake today when it's a multi billion dollar business. Did a New Hope? New Hopes started out as an Indonesian coal miner of small volume and nascent profitability. It is now a multi billion dollar business. They've held that thing for decades and it's provided tens of billions of dollars in dividends to think so you can see a pattern emerging here. They buy these businesses when they're small. They often identify individuals who are talented at running them or in a specific business with a enduring competitive advantage, and they hold them for decades. They harvest the cash and reinvested in other ventures. That's why they maintain holdings in those businesses. They've taken cash earned from those businesses and they're now investing them in new lines of business, in private credit, in funds management, They're in a whole suite of private businesses, including swim pool tuitions. So if if you send your kid to to swimming classes, there's there's a decent shot that that swim class might be owned by soul Pats. And there's a lot of little private businesses in here that no one would ever he hear of and aren't necessarily listed or well known, but they are owned and managed very conservatively by this business.

Yeah, so they actually came to each of these opportunities. The companies you just mentioned, actually Shanna, TPG, Brickworks, and New Hope they make up something about around forty percent of the entire portfolio. They actually came to these businesses when these were tiny little companies. So TPG was founded by David TiO. Saltpats Management found David Tia when he was running a microcap business when it was ten or twenty million dollars when TPG was fraction of sense, and they invested heavily into that and back that all the way as it was sold to Vodafone, and they still own a stake today when it's a multi billion dollar business. Did a New Hope? New Hopes started out as an Indonesian coal miner of small volume and nascent profitability. It is now a multi billion dollar business. They've held that thing for decades and it's provided tens of billions of dollars in dividends to think so you can see a pattern emerging here. They buy these businesses when they're small. They often identify individuals who are talented at running them or in a specific business with a enduring competitive advantage, and they hold them for decades. They harvest the cash and reinvested in other ventures. That's why they maintain holdings in those businesses. They've taken cash earned from those businesses and they're now investing them in new lines of business, in private credit, in funds management, They're in a whole suite of private businesses, including swim pool tuitions. So if if you send your kid to to swimming classes, there's there's a decent shot that that swim class might be owned by soul Pats. And there's a lot of little private businesses in here that no one would ever he hear of and aren't necessarily listed or well known, but they are owned and managed very conservatively by this business.

Is that something that's new or has that always been the strategy? I A TPG new hope. We're tiny little companies none of us knew about decades ago and look at them now.

Is that something that's new or has that always been the strategy? I A TPG new hope. We're tiny little companies none of us knew about decades ago and look at them now.

Is that just par for the course for soul Pads, Yes, it is. The Other thing that characterizes soul Pats is the long history of dividends. So, as I said, this is a business that's one hundred and twenty years old, they have increased dividends every year for the last twenty five years. I don't think any other business on the AX can claim that. And they paid a dividend consistently for at least on to say, half a century at least. And so the aim of the business really that the aim of buying all these collective businesses is to is to pull together cash flows and then to pay cash flows consistently and with regularity to shareholders. That's how the Milner family has really built its wealth and that's why there are so many successful investors inside New Hope and its sister companies. If you look at the last twenty years, when we've crunched the numbers, it looks like they've generated about thirteen percent annualized returns of the last twenty years, which I think would put it in the top two or three percent of any funds manage business. I mean, it's enough to make any big name, high feed generating fund manager blush. And that's why soul Pats is a good alternative in my view for a managed fund or a LICK or an ETF.

Is that just par for the course for soul Pads, Yes, it is. The Other thing that characterizes soul Pats is the long history of dividends. So, as I said, this is a business that's one hundred and twenty years old, they have increased dividends every year for the last twenty five years. I don't think any other business on the AX can claim that. And they paid a dividend consistently for at least on to say, half a century at least. And so the aim of the business really that the aim of buying all these collective businesses is to is to pull together cash flows and then to pay cash flows consistently and with regularity to shareholders. That's how the Milner family has really built its wealth and that's why there are so many successful investors inside New Hope and its sister companies. If you look at the last twenty years, when we've crunched the numbers, it looks like they've generated about thirteen percent annualized returns of the last twenty years, which I think would put it in the top two or three percent of any funds manage business. I mean, it's enough to make any big name, high feed generating fund manager blush. And that's why soul Pats is a good alternative in my view for a managed fund or a LICK or an ETF.

Stay with me, we'll be back in a minute. I'm speaking to Gurav Sodi, deputy head of research at Intelligent Investor. Okay, so let's delve into that a little bit about where a company like soul Pats can fit into your portfolio. You're not buying a sector or you're not buying a stock. You're kind of buying a bit of everything.

Stay with me, we'll be back in a minute. I'm speaking to Gurav Sodi, deputy head of research at Intelligent Investor. Okay, so let's delve into that a little bit about where a company like soul Pats can fit into your portfolio. You're not buying a sector or you're not buying a stock. You're kind of buying a bit of everything.

Yes, what you're buying is an investment approach, and you're buying the conservatism and patience of people who have done this for one hundred years. So I would I would hesitate to look at this business as a standalone company today the way it is, because in ten years it's likely going to look a little bit different. So you don't want to be focused on the numbers too much. You know, they don't think ratio analysis, pe row, these sort of things are largely irrelevant for a bit this business.

Yes, what you're buying is an investment approach, and you're buying the conservatism and patience of people who have done this for one hundred years. So I would I would hesitate to look at this business as a standalone company today the way it is, because in ten years it's likely going to look a little bit different. So you don't want to be focused on the numbers too much. You know, they don't think ratio analysis, pe row, these sort of things are largely irrelevant for a bit this business.

Now.

Now.

That's partly because of the way accounting rules work in enforcing the business to recognize profits and debt and that sort of thing, but it's also because this is a company that's going to allocate capital to new areas, it's going to buy and sell businesses. It's going to look different, so those sort of things don't look don't work. We typically value this on a some of the parts basis. We make estimates of what the whole business is worth and then try and put those pieces back together to get a share price. I reckon it's probably a little bit expensive, but it's never going to be cheap. This business. This is one company, and this is rare for us to say I'm going to say, now, this is one company where it's okay to pay a little bit too much because you're never going to get this cheaply and you're going to be holding this for decades ideally.

That's partly because of the way accounting rules work in enforcing the business to recognize profits and debt and that sort of thing, but it's also because this is a company that's going to allocate capital to new areas, it's going to buy and sell businesses. It's going to look different, so those sort of things don't look don't work. We typically value this on a some of the parts basis. We make estimates of what the whole business is worth and then try and put those pieces back together to get a share price. I reckon it's probably a little bit expensive, but it's never going to be cheap. This business. This is one company, and this is rare for us to say I'm going to say, now, this is one company where it's okay to pay a little bit too much because you're never going to get this cheaply and you're going to be holding this for decades ideally.

So every I mean, that's a great rep for the company. What worries you about it, though, because of course every investment has an upside and a downside.

So every I mean, that's a great rep for the company. What worries you about it, though, because of course every investment has an upside and a downside.

Look, I think the thing that worries me with most businesses is the way cash is reinvested in the profits are spent. I have no such class in this business. Look, they'll make mistakes and they've lost money on investments before. Again, that doesn't really concern me because it's the aggregate accounts and the aggregate is solid. I think where you can get wrong is just paying too much for the company and selling too early. This is not a business where the management's likely going to make errors. It's a business where the shareholder is probably going to make errors, and that's in selling it when it looks a little bit too expensive in the short term or not buying it when it looks too expensive in the short term. So look, I actually think this is one of the safest stocks on the ASX one that most investors can sleep safely at night and treat like a managed fund. But I would say that the price you pay will have a big determinant on the likely capital gains, more so than other businesses, because this is not a swiftly growing business. This is a company that demands you. You need to pay a sensible price if you're going to generate that sort of fifteen percent plus return that most of us are looking for, So price matters. Here.

Look, I think the thing that worries me with most businesses is the way cash is reinvested in the profits are spent. I have no such class in this business. Look, they'll make mistakes and they've lost money on investments before. Again, that doesn't really concern me because it's the aggregate accounts and the aggregate is solid. I think where you can get wrong is just paying too much for the company and selling too early. This is not a business where the management's likely going to make errors. It's a business where the shareholder is probably going to make errors, and that's in selling it when it looks a little bit too expensive in the short term or not buying it when it looks too expensive in the short term. So look, I actually think this is one of the safest stocks on the ASX one that most investors can sleep safely at night and treat like a managed fund. But I would say that the price you pay will have a big determinant on the likely capital gains, more so than other businesses, because this is not a swiftly growing business. This is a company that demands you. You need to pay a sensible price if you're going to generate that sort of fifteen percent plus return that most of us are looking for, So price matters. Here.

Are there many other companies that you can compare to sol Paths? I mean West Farmers has a chemical business and retail business, so you sort of think of that as a great conglomerate, but in actual fact it's only in two or three areas. And I suppose some of Kerry Stokes I said they are in a bunch of areas, but partly listed, partly unlisted. Is there anything to compare sol pads.

Are there many other companies that you can compare to sol Paths? I mean West Farmers has a chemical business and retail business, so you sort of think of that as a great conglomerate, but in actual fact it's only in two or three areas. And I suppose some of Kerry Stokes I said they are in a bunch of areas, but partly listed, partly unlisted. Is there anything to compare sol pads.

You've highlighted the two that come to mind. I agree completely. West Farmers and seven Group two businesses that are run I would say, with equal patients and conservatism very intelligently, run a good selection of businesses that are high quality. To that list, I will also throw in a third which may not be as well known and that's Infratil. Infertil is a New Zealand based and conglomerate. It's really a publicly listed private equity firm in that it's a bit like West Farmers and Soul Paths that it have its money from shareholders and then try and allocate that to different sources, and it will shop and change businesses. It will look for different opportunities and buy and sell when the prices are right. So again what you're buying there is an approach and a collective experience rather than any individual business. And those three, so West Farmers, seven and Infertol, we've held all of them at various times during the life of our funds, and all three I would put way up there with Soul Paths as outstanding opportunities.

You've highlighted the two that come to mind. I agree completely. West Farmers and seven Group two businesses that are run I would say, with equal patients and conservatism very intelligently, run a good selection of businesses that are high quality. To that list, I will also throw in a third which may not be as well known and that's Infratil. Infertil is a New Zealand based and conglomerate. It's really a publicly listed private equity firm in that it's a bit like West Farmers and Soul Paths that it have its money from shareholders and then try and allocate that to different sources, and it will shop and change businesses. It will look for different opportunities and buy and sell when the prices are right. So again what you're buying there is an approach and a collective experience rather than any individual business. And those three, so West Farmers, seven and Infertol, we've held all of them at various times during the life of our funds, and all three I would put way up there with Soul Paths as outstanding opportunities.

They're not very trendy, are they. Conglomers They were thirty years ago, but they really have fallen out of fashion.

They're not very trendy, are they. Conglomers They were thirty years ago, but they really have fallen out of fashion.

Yeah, And I think the key is that these aren't really run as conglomerates. They're run as private equity firms. So inside these companies, individual businesses compete for capital and the management of the master business is very happy to sell and to buy to replace, to add to shrink and to grow the constituent parts as the returns dictate, and that sort of flexibility is the secret to their high returns. And over that, on top of that, we overlay conservatism and patients from the master business. I think that's really important if you look at the if you think about the old style conglomerates of the past, the ges, or some of the consumer FMCG businesses of the past, those were businesses that really just were a mishmash of different companies and they didn't really fight for capital, or they didn't weren't as flexible in their approach. It's not what we see here.

Yeah, And I think the key is that these aren't really run as conglomerates. They're run as private equity firms. So inside these companies, individual businesses compete for capital and the management of the master business is very happy to sell and to buy to replace, to add to shrink and to grow the constituent parts as the returns dictate, and that sort of flexibility is the secret to their high returns. And over that, on top of that, we overlay conservatism and patients from the master business. I think that's really important if you look at the if you think about the old style conglomerates of the past, the ges, or some of the consumer FMCG businesses of the past, those were businesses that really just were a mishmash of different companies and they didn't really fight for capital, or they didn't weren't as flexible in their approach. It's not what we see here.

Grav thank you for talking to Fear and.

Grav thank you for talking to Fear and.

Greed Pleasure as always, no one thank you as.

Greed Pleasure as always, no one thank you as.

Grev Sody, Deputy head of Research at Intelligent Investor. This is the Fear and Greed Business Interview. Remember this is general information only, and you should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Business News for people who make their own decisions. I'm Seane Elmer. Enjoy your day.

Grev Sody, Deputy head of Research at Intelligent Investor. This is the Fear and Greed Business Interview. Remember this is general information only, and you should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Business News for people who make their own decisions. I'm Seane Elmer. Enjoy your day.