The Conscious Investor Fund - mirroring Teaminvest principles and success

Our next speaker is Mark Morland, co-founder of Team Invest and founding director of the Conscious Investor 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, mirroring Team Invest's principles and success.

Welcome, Mark.

Hello, Angelina.

It's great to be here.

So let's get underway.

Now, the Conscious Investor Fund is a very different fund.

So I'm going to try and explain it to you.

We've only got 10 minutes, so it's going to be squeezed, but we'll give it a shot.

We created in 2013 to provide passive, high-performance investing options for Team Invest members and their families.

That's now open, so we're now accepting people outside of Team Invest to invest in the fund.

So far, it's only been them.

Combines both the proven conscious investor software and the intelligence and insights generated by Team Invest members to identify what we call true wealth winners.

And a wealth winner is basically a company that's going to significantly improve your wealth over more than an economic cycle.

So we're not traders, we're looking for long-term investments, and it's very Buffett-esque, if you like.

So this is the performance of the fund since we started.

So assuming you put a million dollars into the fund 11 years ago in 2013, you would now have 3.5 million compared to the ASX 200 accumulation index, which you'd have 2.4 million.

So it's 950,000 more, nearly double.

So you've got, instead of having 2.4 million, you've got 3.35 million in your account.

So it really has been extremely consistently successful, and I'm going to show you quickly how we do that.

So investing has a lot to do with surfing.

Now, I woke up early this morning after having a dream that I was surfing, which was a bit weird.

I haven't been on a surfboard for about 50 years.

And when I thought about it, I thought, well, rather than showing you heaps of numbers, which is really boring, let's look at an analogy of surfing versus investing.

Well, firstly,

Surfing, you require patience.

You've got to sit there and wait for the waves.

Now, obviously a wave in our case is an investment.

And as a surfer, you also need to have done your preparation.

You need to be conditioned.

You need to have experience.

You need to know how to identify which wave to catch once they come.

And investing is exactly the same.

We do a lot of sitting, a lot of waiting.

And one of the challenges is to be patient enough to wait for the right waves.

Buffett is absolutely an exemplar of doing that.

He said he's willing to wait forever to buy a company that he lusts for, but if he can never buy it at a price he deems appropriate, he'll never buy it.

So that's the extreme of patience.

We're not Buffett, but that's what he does.

So what do you want to avoid if you're a surfer?

You want to avoid the wipeout.

Now wipeouts hurt, and they can be bad for your health.

And why do you wipe out?

Probably because he chose the wrong wave.

So all at the wrong time he's got onto the wave.

And this is the same with investing as well.

So what we want to do is choose the right waves.

And when I say the right wave, it's a wave that is going to give us that predictable long-term return in performance without the risk of wiping out.

So let's have a look at this wave.

This is an impressive wave.

So this wave, I'm going to call it the Nvidia wave, is very, very exciting.

It's an adrenaline rush.

Nvidia is a superstar company.

I'm not being critical of Nvidia.

I'm just saying though that it's a high, high adrenaline ride.

You can see these guys flying down there.

The question is, how long do you get to ride it?

And what are your returns going to be?

And will you end up crashed on the rocks at the end?

Well, we don't know.

That's time to tell.

So far, Nvidia has absolutely shot the lights out with its earnings and growth.

And it's actually done, the last two years, it's doubled its revenue and earning each year.

And this year, they may even do another double, which is, if they do, it'll be the first time in company history where a large cap company's done that.

How about this wave?

I'm gonna call this wave the Buffett wave.

So this is a Warren Buffett wave.

This is in Hawaii, and these waves go for a long way.

You can catch them way out there and ride them all the way in.

No chance of getting squashed on the rocks.

It's not stressful.

The guy's enjoying it there.

It's a pleasant ride, and it's gonna give him

Very in an investment term, it would be a way that's giving you a predictable return.

Now I don't mean a small return, we want 15 to 20% compound.

So the question is you want reliable companies that have certain characteristics that can give you those returns, and then you need to buy them at a time that's going to allow you to get those kinds of returns.

And I'll show you how we do that.

And then at the end of that wave, when the wave starts petering out, you wanna be able to elegantly step off that wave without hurting yourself and then go and look for the next wave.

And that's the same with investing.

We want to stay in the companies as long as we can, meaning as long as it's worthwhile for us to have our capital deployed in the company.

So once that changes, then obviously you move on to the next one.

But it's not a chop and change.

It's not a trading approach.

It's very much a slow, selective process.

And then stay the course.

Don't upset compounding, as Charlie Munger says.

The worst thing you can do is interrupt compounding.

Don't interrupt it.

Let the companies compound your returns.

So inspired by Buffett, I've been inspired by Buffett for over 20 years.

I've been to 13 AGMs in Omaha and I met him a few years ago, about 10 years ago, and I got to have a chat with him for about five minutes, which was fabulous.

In fact, I told him what we were doing in Australia and his quip back to me was,

Boy, I wish I had that when I was starting out, our tool saying that we mimicked his investments, style and principles.

So what does Buffett look for?

At the top end, there's a few very, very key elements, which if you just do these things, you will do way, way better than the average in the market.

He looks for businesses with consistently high return on equity.

He says it needs to have a minimum of 10, be likes 20 and 30.

And so as an addition to that, with little or no debt,

Debt's a four letter word from Buffett's point of view and it's the main reason that companies go broke when we have a credit squeeze or a GFC or something like that.

So because he doesn't want to lose money, he doesn't want to be invested in companies that can get into trouble even though they may be able to afford their debt now.

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

In other words, you want the company, you want to invest in companies that have consistent and stable growth and predictable growth.

Nvidia has spectacular growth

But everybody knows it can't keep growing at over 100% a year.

And the question is, how fast can it grow in five years and 10 years?

I don't know.

I think it's still gonna be a very successful company, but it's not gonna grow at 100% a year, because it'll own the world if it does within about 10 years.

Buffett's rules, don't lose money is his number one rule.

So these are his principle three rules of investing.

Rule number three, focus on the long term, don't trade.

Trading is the,

is the crowded area.

That's what everyone's doing.

Everyone's trying to beat everybody else.

The people who are actually looking to position themselves long term are absolutely in the minority.

And the amount of money that's now going into index funds is meaning there's less and less and less and less money looking for value.

And this is better for us.

So as value, as stock pickers, and we are both in Team Invest and the fund, we think the market is going to be fantastic over the next decade for us.

Rule number two,

was referred to rule number one.

In other words, a double emphasis on not losing your capital.

So quote Charlie Munger, he said, without rules, you are lost.

Now what he means by that is you'll get dragged into whatever the fad at the time is.

And the trouble with that is you basically get sucked into schemes and you'll lose your money and so on.

So rules are, now you can have whatever rules you decide you have.

We follow Buffett's rules because Buffett has been the most successful investor in history, as we said.

And he's basically done the same thing for 50 years and hasn't changed it one bit, which is quite amazing actually.

Now, does that mean he can't invest in technology?

Well, he didn't for a long time, but he did buy Apple and that's softened off lately.

And you need to change your accounting, some of the accounting metrics and so on in high tech growth companies to be able to value them properly compared to what comes down on Gap Accounting.

That's a bigger subject than we have today.

But as Mungus says, you need guardrails and you need to stay within your area of competence and what you understand.

This is our Conscious Investor program, which mirrors all of Buffett's metrics.

And as you can see here, we've got stability of sales, 94%, stability of earnings, 99%.

In other words, on the last six years, technology one has had a 99% consistent EPS growth rate.

The return on equity, 31, spectacular.

10% debt, which is leases, virtually nothing.

So this is a spectacular wealth winner.

It has been for us for a long time.

Then we have over 600 members.

Now the members, we don't have analysts, so we don't have, we have members and the members are all successful people who come from business backgrounds and professions, and they work in collaboration and have spent a lot of time looking at the companies that pass our filters to value them based on their moats, their strengths, their weaknesses, management, alignment, and so on.

the company's in detail, then we get the CEOs in of the companies we're interested in and we grill them.

All the results of these are published and we do them over and over again in different states and different markets.

This is the Melbourne group you're looking at here.

And all of that intel is fed into the conscious investor fund.

So a conscious investor fund decisions are investing only in the companies that pass the whole rigorous team invest process.

So I'll give you two quick examples.

This is a technology one which you've mentioned.

The first investment we made in T&E in the fund was in June 15, and consisted of 1000 shares at $3.52.

We spent a big total of $3,520, big deal.

These shares are now worth $18.23 each plus dividends.

Since then, we've purchased a further 50 parcels of shares, and they were bought for an average return of 26% per year.

So in other words, we've built up a position in T&E, which is now 11.6 million, and that's given us an average 26%

compound return per year.

So this just proves what I'm saying in that you can do that.

This is the EPS growth rate of TNE I was talking about.

It's nearly linear.

And by the way, that was the same 10 years' price.

Done that for 20 years.

It's a spectacular business.

These are the parcels of shares we bought over the years.

And that average comes out, as I said, to 26%.

Second example is a US company, Mastercard.

First investment was in April 15 as well.

300 shares at $90, we've spent 27,000.

Those shares are now valued at $449 each plus dividends.

And since then, we've purchased a further 25 parcels of shares of Mastercard.

And that Mastercard has delivered us a 22.47 average compound return per year since 2015.

The current position in Mastercard is 5.2 million.

And there's the same thing, earnings.

Mastercard had a drop in COVID.

which a lot of our companies did, but you will notice that very, very quickly went straight back on the same growth trajectory as it had before COVID, insignificant in the long run.

And they're the parcels we bought in MasterCard.

So your goal as an investor should simply be to purchase at a rational price a past part interest in an easily understandable business, whose earnings are virtually certain to materially be higher in five, 10 and 20 years from now,

And if you put together a portfolio of companies whose aggregate earnings market upward over the years, so also will your portfolio's market share, which is what I'm demonstrating here is exactly what we've done.

This was a quote from Buffett in the 1996 shareholder letter, but you can find similar quotes going back 50 years from Buffett.

Here's our portfolio.

This is the top 10 holdings in our portfolio, half of them are US and half of them are Australia.

We're about 50-50 split.

And what I'll show you, just point out there, is the return on equities.

All of them, except for Berkshire, and the reason Berkshire Hathaway Buffett's company is lower is it's a complication in the way the accounting rules work these days.

It's actually, it doesn't give us an accurate reading.

But if you have a look there, the only one, nothing's below 10%, and most of them are 20% or 30%.

You know, excellent.

One-year returns on earnings.

Now I'm talking about shares here, share price.

This is what the earnings growth of the company is.

We're good.

And then this is the five-year average, which is the more important one for each company.

So Google's been 23.

Microsoft 30, Berkshire Hathaway 16, and so on, going down here.

And the average of the whole lot has been, last five years, average earnings growth for those companies is 17.86.

Now that is very, very similar to our total return that we've received on the portfolio.

So if it's in Team Invest, directly held shares, it's closer to 20%, and in the fund, it's about 16 and a half.

So this just proves the whole rationale of what Buffer does

and why taking a long-term view, not trading and building positions in quality companies works.

So how's the Conscious Investor Fund different?

Well, we don't charge fees.

We just have a small fixed subscription regardless of the amount invested.

We only make a profit if our unit holders do so we have a performance fee and we only get that if our unit holders make money.

We follow consistent proven principles.

We work on a rules-based system which hasn't changed.

We've got a 16 year history with Team Invest in 11 years with the fund, just like Buffett.

And we focused on earnings per share growth and the probabilities five years out.

So a lot of our work is on saying what has the company done in the past and are they likely to continue with that growth rate for the next five years or what should that be?

And that's what we spend a great amount of our time on working out.

We are long term investors, not traders.

And we don't have a few analysts.

We have 600 highly successful members, as I mentioned before, who I think we have unmatched intel on the companies that we develop over time and getting to know the businesses really, really well.

And the last one is we've beaten the benchmark accumulation index for every period, 12 months, 36 months, 60 months, and 10 years, and since inception.

I actually haven't seen any other fund that's done that, by the way.

Maybe there is one out there, but I haven't seen it.

And the last five years, the average return has been

16.16 per annum versus 7.83 for the accumulation index, which is just a bit over double.

So your options, if you prefer to manage all or part of your own portfolio and realistically target 10, 15 to 20% compound returns, Team Invest membership might be right for you.

So you can go to teaminvest.com.au or if you want to relax with the peace of mind and consider investing in the Conscious Investor Fund, which is conscious capital

So both options are available to you and we'd be happy to discuss options with you.

And lastly, if you would like, just take a scan of the QR code there and you can download our Buffet report, which is the nine key principles that Buffet has and how we use them in Conscious Investor and how we use them to select companies.

So whatever investing you're doing, you'll find this very, very useful and I would advocate you to

read it regardless of whether you want to be part of Team Invest or Conscious Capital Fund.

So thank you very much for your time and we'd love to have a chat with you and talk about your situation and how well you fit in with us.

So thank you once again.

Angelina.

Thanks, Mark.

Good to see you.

Do you have time for two questions?

Sure, I definitely do.

How does Team Invest and the Conscious Capital Fund value companies?

Okay, good question.

We don't actually value companies.

What we do is we work out how consistent the business has performed in the past and what we think it can do in the future, its cash flows, and what it's going to generate.

So the way we calculate it is we say, if we buy XYZ company for $10 now, let's say the share price is $10, what return am I going to get over the next five years with a margin of safety?

That's how we do it.

So we look at what the company is going to generate.

That's why there's so much emphasis on earnings per share growth.

because it takes out a lot of the garbage, which is EBITDA, and like earnings, as Mungus says, earnings before everything.

What we're interested in is what the actual earnings are, and do we believe they can continue making that?

And to do that, we need to understand the business, we need to understand management, their skin in the game, and commitment to the company, what their incentives are, and so on.

So it's a whole process we go through, we score everything, and then we share that with the other members.

But we don't actually take a valuation approach, because if you do, the market can,

disagree with that for years and years and years.

What we're interested in is what are we going to earn?

You only talk about buying shares.

Do you take profits as a company's share price goes up?

No, we don't.

This is one of the really big differences in the way we operate and the way Buffett operates.

We don't try to be clever and go, oh, the share price has gone a bit above our valuation or whatever, and then we're going to sell a bit and then we'll buy it back.

And people do that and they go in and out, in and out, all the way through.

Our experience has been that

letting it ride in the quality companies.

I'm not saying if the company's not working, we change our view on it, we'll sell it for sure.

But assuming our investment thesis hasn't changed, we're very reluctant sellers and we are typically adding to it.

So nearly all those companies, I think all those companies that you saw in our top 10, I don't think we've sold any of them at all over that period.

All we've done is added to the position and we've generated over 20%.

compound returns on most of them for that and the lesser ones.

Overall, the average has been 16.6.

So you go, well, if that's the case, why would you spend all the time and effort trying to pick these little ups and downs and so on?

It's just it's not worth it.

So the answer is no, we don't.

Thanks, Mark.

You're welcome.

Thank you very much, Angelina.

Bye bye.