Conscious Investor Fund: Proven Performance, Consistent Outperformance

Our next speaker is Mark Mullen, co-founder of Team Invest and director of the Conscious Investors Fund.

He has spent the last 16 years working with over 600 high net worth investors who target between 15% to 20% compound returns from their equity investments.

His presentation topic today is the Conscious Investor Fund, Proven Performance, Consistent Outperformance.

Welcome to the presentation, Mark.

Thank you very much, Angelina.

So I'm going to explain a bit how we actually work and how we get the results that we get.

So I'll get straight into it.

So the Conscious Investor Fund is a very different fund.

It was created in 2013 to provide a passive high performance

investing option for team invest members and their families.

It combines both the proven conscious investor software, which is fundamental to what we do, and the intelligence and insights generated from team invest members who focus on identifying true wealth winners.

And a true wealth is a company that compounds over five and 10 years.

So we're looking for long term

super compounders, or we can call them wealth winners, and also to avoid the opposite, which is capital killers.

The good news is it's now open to wholesale investors.

So conscious investor fund and performance.

Now, obviously, if you're going to invest money in a fund, what really, really counts is what your returns are.

And most funds' performances are pretty average, and they tend to be pretty consistent as well.

So a lot of them don't beat index funds, for instance.

What I've done here is given you, I'm gonna give you some stats on how well Conscious Investor Fund has performed compared to the S&P ASX 200.

So for the last, over the last 12 months, Conscious Investor Fund did 22.02% return.

Now these numbers, and I'm telling you, are all after fees and after performance fees as well.

So this is net, apart from tax, which obviously you have to pay,

These days it says death, taxes and tech, I would say.

The ASX 200 was 15.17 over the year, so there's sort of a handy seven percentage beat there.

If we look at the last three years, the Conscious Investor Farm was 12.42 and the ASX was 11.44, so close to 1% better, so not as big a difference.

And five years, 13.66 versus 7.97.

So that's about 5% as well.

And then since inception, the Conscious Investor Fund, which is 11 years by the way, is 284.5% versus the S&P at 171.76.

And that's 11.96 compound average return for 11 years.

And the first two years were actually quite bad because the market went down after we invested.

So it took a few years to catch up.

So it's including all that, we haven't shopped the numbers at all.

And the ASX is 8.75.

Now, if you look at the difference between those two numbers, it's only about 3%.

So you think 3% won't make that much difference in your performance.

That's what most people would think, because they don't understand what the power of compounding is even on small differences.

So I'll show you the next slide, which is using it in dollar terms.

And what it's showing you there

The blue is the Conscious Investor Fund, as I said, net of fees, and the accumulation index is in the orange.

So after costs and performance fees, you have $3.84 million in your account based on a million dollar starting position, versus if you had it in the S&P, you'd have $2.71 million.

So for the 11 year period, you're actually better off by $1.1 million in your pocket.

So that's only 3% difference per year.

And it just shows you how significant small percentage improvements are when they're compounded over time.

And it's obviously been the secret of Buffett as well, because he understood that a very long time ago.

So we're inspired by Buffett, and everything that Conscious Invest is about is all built on Buffett's metrics and Buffett's principles.

Now, why do we follow Buffett?

Well, he's been the most successful investor in history, and he's

At certain stages he's been the richest person in the world, but he's given away so much money now he doesn't, he's fallen back a bit, but he's still obviously super rich.

And basically he followed key principles and rules, which is what I'm gonna show you now.

So firstly, you say, what does Buffett look for?

And he looks for businesses with consistent high return on equity.

Now we consider return on equity as being a speed limiter on the business.

So if a business has 10% return on equity, which by the way, is Buffett's minimum,

then that's about the best you can do per year in returns over the next five and 10 years, except for PE expansion.

So the same PE, what you bought it for, if a company's only earning 10%, really all you can get is 10%, which is paid out as a dividend, or it's reinvested in the business and compounding, that's return on equity, and with little or no debt.

The trouble with debt, as Buffett's often said, it's a four letter word, is debt's not a problem until it is.

And so many companies go broke.

And particularly when we have a major crash like the GFC, when the really highly indebted companies go under and you lose 100% of your capital.

So whilst debt is definitely, and it helps the business make more money in a lot of cases, it's a significant risk that could turn it into a capital killer.

And you can be virtually certain that earnings per share will be materially higher in five and 10 years time.

Now, this is the difficult one.

This is now looking into the future.

So we're saying,

How do we do that?

Well, we look at the past and we look at how consistent a company's earnings growth has been and then say, do we understand the business well enough?

Do we understand its moats?

Do we understand how it's what the drivers of its profits are and its earnings?

And is it reasonable to assume that will continue at the same rate or a higher rate or maybe a lower rate?

But we do that.

It's all part of our process.

And that's basically that's the simple rules Buffett has and he has three ironclad rules.

Number one, don't lose money.

Number three is focus on the long term.

He said basically trading is for suckers and the computers and the brokers, they want to have a massive advantage on you.

And it's just, if you want to build serious wealth, the way to do it is having a long term mindset, investing in compounders, investing in wealth winners, and let them run.

You don't sell out easily.

You sell out only if something changes materially about the business where you lose confidence in the management or something in the business means it can't continue growing the way it has.

Rule number two,

Buffett's always said, refer to rule number one, a double emphasis on not losing money, because when you lose money, it's gone and you can't get it back, particularly, obviously, if it's 100% loss.

So to quote the late Charlie Munger, without rules, you're lost.

And I learned this the hard way many, many years ago.

And it's very easy if you don't have a rules-based system that you invest under, you'll follow the fads, you'll listen to the talking heads, you know, you'll invest in whatever, whatever's fashionable at the time and what we used to call glamour stocks.

It's a recipe for losing your money.

So you need a rules-based system, and that's what we have.

And so that rules-based system is based on the Conscious Investor software, our qualitative system, replicating Buffett's principles.

The foundation of Conscious Investor, it's the foundation of the Conscious Investor Fund, and it delivers a rules-based filtering system.

So each reporting season, we run the filters on the markets, that's the US and the Australian market, and only the companies that pass all of Buffett's filters

get put up into being potential wealth winners.

But at that stage, they're just a possibility.

The numbers are quite small.

So if you look at Australia at the moment, there's less than 50 companies out of 2,200 that pass our base level filters.

We also include a margin of safety because things can go wrong that you can't forecast.

So we want to buy a business for less than what we think it's worth.

And we've had a 22 year consistent high performance history between the USA and Australia.

So this was basically 11 years before we started the fund.

And the history has gone right through where we have not been below the index in any of 22 years based on just using the companies that passed the filters in the first stage.

We use it to identify potential wealth winners and also we use it to avoid capital killers.

So here's an example of one of our companies, Technology One is our largest holding in the portfolio.

And this is our summary page from Conscious Investor.

And if you look at it, you can see a lot of green

And that's all good.

There's only one red one, which is Stret D. And Stret D stands for stock return with dividends reinvested.

And that's only showing 6%.

And the reason is, there's nothing wrong with T&E.

It's a fabulous company, and it's been a super, super wealth winner for us.

We've been invested in it for 10 years.

And I think our average return now is over 50% per year on our investment.

And if you look at down the bottom here, though, the problem with T&E is the market loves it.

And it's on a 77.5 P at the moment, and you can see

It's on the greedy end at the top of the red.

That's the highest the PE's ever been.

So there's nothing wrong with T&E, but the market loves it.

So as Buffett said, if you buy a fantastic business and you pay too much for it, you're gonna get a mediocre return, or it'll take you years before you can actually start getting a decent return.

So T&E, we wouldn't buy now, and we're showing on Conscious Investor that if we bought it now, we'd be getting an 8.6% return, which is about the market, so it doesn't compute.

So other than that, it's a fabulous company.

So let's have a look at, now stage two of our process is the qualitative, is the, sorry.

Stage two is our qualitative process.

And what we do is we have, we don't have analysts, we have over 600 successful investors who work in teams to evaluate the companies that pass the filters.

So this is all around Australia.

So the group we're looking at here is Melbourne and they meet monthly.

And basically what we do is we workshop and discuss each company and members do their own independent research first and we score their moats, the risks, alignment of management and skin in the game.

We look at the whole business and we work out what we think the earnings are gonna be going forward and that's re-fed back into Conscious Investor and that'll give us an outcome on how much we can pay for it.

So this is another shot just from the other meeting.

And I'll show you one company here, which is one of our, also our longstanding holdings is Microsoft.

Now everyone knows what Microsoft is.

Microsoft is all green.

Now this is nearly a $3 trillion company in the US, of course.

And it's been going for, I think, 35 years now.

So this is not a flash in the pan.

It's been a very, very long term compounder.

Interestingly, Microsoft's PE is on 31, which is less than half of what T&E's was.

And T&E's growth rate was 14%.

and Microsoft's is 18.9.

So this is, it gives you an example of the difference between the value in the US versus Australia.

Generally speaking, we get a lot better value in the US than we do here, particularly at this time.

So if you look at Microsoft, we're showing a high return on equity, 32%, Buffett wants at least 10%, return on capital, 25, debt to equity 36 is quite low.

It passes everything and we're showing a default rate of 21% compound return.

So our expectation is we should get 21,

If we go margin of safety, which is a fairly extreme measure, it brings it down to eight on my assumptions of coming at 15.2, which is fine.

So if you look at the numbers I see quickly, there's the return on equity 32, growth.

The key thing on growth here is 18.9, but it's got 93% stability.

And that means that if you look at that graph, you see how smooth, it's relatively smooth.

There's only a 7% variation in its earnings growth over the last six years.

So that makes it much, much easier for us to be able to predict the future and say, well, okay, is Microsoft likely to continue this trajectory?

And the answer is yes, absolutely.

Because of course, Microsoft is also massively benefiting from the AI revolution and what's going on.

And that's giving them a whole new impetus to keep growing.

In fact, all the FANG stocks have quite a strong tailwind from AI now as well.

So we're expecting, if anything, the earnings could easily increase over time.

So debt ratio is quite low and declining.

So Microsoft's been reducing its debt every year, which is great.

And this is our calculate return page for Microsoft.

So what we've come up here with at the moment, Microsoft's $388 US, and we're saying we could buy it up to 409 at the moment to get a 20% return on our calculations.

So that's basically how we work it out.

I don't think we're buying anymore at the moment because we've actually got quite a good position in Microsoft.

I'm just showing you how it works.

As Buffett says, your goal as an investor should be simply to purchase at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now, put together a portfolio of companies whose aggregate earnings march upwards over the years, and so will the portfolio's market value.

Now Buffett said that in 1996, but he's been saying similar things as that for about 60 years now.

And it does work and we've proven it.

And we will just go into our holdings now.

This is our top 10 holdings.

We've only got 23 stocks, by the way, total half, bit over half in the US, half Australia.

Technology one's 11%.

There's Microsoft 7.14.

But what's interesting here is the earnings growth rates.

So this is the five-year EPS growth rate for each of those companies.

That's their average for the five years.

So T&E's 14, Google 23.8, Berkshire Hathaway 16, Costco 14, Microsoft 18, car sales, that is 21, Apple 17, all excellent numbers.

Fisher & Paykel's had a bit of a bad run since COVID, but it will come back, so it's dragged their percentage down to being negative.

Tractico is a US company that doesn't sell tractors.

Think of it, it's a bit like a Bunnings, but much, much bigger, 20.

And then CSL, who's also had a few lean years, but the last 12 months, they were up to 20.5, and they look like they're on the increase.

Interestingly though, if you look at the whole top 10 holdings, the average GPS growth rate for the five years is 14.77.

So that's EPS growth year on year, which is why overall we get the performance we do in the portfolio.

So how is Conscious Investor Fund different?

Well, it's easy to explain really.

We don't charge fees, just a small fixed percentage.

So it's a fixed dollar amount no matter what you invest.

So generally we like investors who are investing at least a hundred thousand.

If you're investing a million, it means the

The fixed cost is about point, I think it's point one or something like that, but don't quote me.

We only make a profit if our unit holders do too.

So in other words, a performance fee is based on a benchmark above.

So you have to be well in the black before we get a share of the upside.

We follow a consistent proven principles just like Buffett.

We focus on EPS growth and probabilities five years out.

So it's a rolling five year approach to our investing.

So we're reviewing the companies all the time.

The members are reworking them all the time.

We talk to management all the time.

And we change our views when appropriate.

And if everything's fine, we leave them alone.

So we only have about we have generally only had one investment meeting a month on the portfolio focuses on EPS growth, as I said, and also, we're long term investors, not traders.

So we're not trying to make quick gains.

We haven't sold any TNE, even though it's on a record price, but it's being discussed.

We might reduce our position a bit because it's so over, arguably overvalued, but no decision's been made.

We don't have a few analysts.

We have over 600 highly successful members, and we've beaten the benchmark accumulation index for every period, 12 months, 36 months, 60 months,

10 years and since inception.

I haven't actually seen any other funds by the way that I've seen that have done that.

They usually have one period where they underperform at least and sometimes more.

The last five years average gross return is 16.16 per annum versus 8.28 for the S&P 200, which is quite amazing.

So it's about just under 8% outperformance in the last year.

So it's your choice, but if you're interested in building your wealth and being serious about building your wealth, not just getting mediocre returns, relax with peace of mind and invest in the Conscious Investor Fund.

So it's consciouscapital.com.au.

Thank you very much.

Mark, what style investor would likely get the best results from investing in the fund?

Best investors who like Buffett or Buffett's thinking, in other words, not traders, if you don't invest in the conscious investor fund, if you're going to say, well, I'll put it in for three months and see how it goes, don't do that.

It really, you need to think of it in five years.

If you think five years, if you look at our results all the way through five years, you get a really good return, significantly better than the index funds and probably 98% of other funds out there.

You really need to have some patience and take a long term commitment or don't invest.

I understand you have retired from Team Invest after 17 years and started a next generation business called Value3.

Can you tell us a little about it?

Yes, it's very exciting.

Team Invest is very much Buffett orientated and that's fine because Buffett has been a brilliant success story.

Value3 is basically the next generation of value investing and really what I'm doing is focusing on tech and we're living in this incredible exponential age.

We're very, very privileged.

I think it's so exciting.

And what we're doing is we're looking to identify the next Amazons and Facebooks and so on that are going to be in 10 years time the next trillion dollar companies and there's going to be heaps of new ones.

So we're not going to invest them at the venture stage.

We're investing at the point where we are leveraging what we understand and how we use value investing.

But we're renormalising all their accounts to be able to deal with them more constructively because the accounting systems don't work well with high growth companies.

So that's basically what we're doing.

It's very exciting.

And if anyone is interested in finding out more about it, you can go to my website value3.com and just sign up.

I have a Marks Insider newsletter, which is free.

which explains our philosophy and what we're doing.

And if you're interested, you can come on the journey with us.

Angeline, by the way, I am still a director and shareholder of the Conscious Investor Fund.

I haven't retired from that.

It's only Team Invest.

Thanks for your time, Mark.

Thank you.