16 | Jason Sedawie, Where the World is Going

My guest today is Jason Sedawie. Jason is Senior Portfolio Manager at Spaceship. In this conversation, we cover Jason’s investing style, mental models, and his Where The World is Going philosophy.

I hope you enjoy my conversation with Jason Sedawie.

Show Notes:

[00:00:31] – [First question] – Jason’s background
[00:02:12] – Early influences for investing
[00:03:35] – Was Jason’s temperament always suited for investing?
[00:04:54] – Things Jason wished he learned earlier
[00:07:04] – What’s Jason’s edge?
[00:08:48] – Where The World Is Going approach
[00:11:33] – How much has that approach changed recently?
[00:13:22] – Investing globally vs locally?
[00:14:38] – Interesting trends?
[00:15:42] – The pressure of investing
[00:17:11] – What’s a typical day as a fund manager look like
[00:18:17] – How Jason filters news and information
[00:21:04] – What surprised Jason most about life as a fund manager?
[00:23:21] – Why Jason joined Spaceship
[00:25:15] – What should school teach about investing?
[00:27:55] – Peter Lynch and other influences?
[00:30:18] – Consumer investing and holding through volatility
[00:37:28] – Most undervalued life experience?
[00:39:08] – Influential books?
[00:43:09] – Biggest opportunities for youth today?
[00:45:25] – Plans or vision for the future?

Connect with Jason:

Mentioned/Recommended Content:

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Kalani Scarrott (00:31): My guest today is Jason Sedawie. Jason is the senior portfolio manager at Spaceship and in today’s conversation, we cover Jason’s investing style, some of his mental models in investing and his where the world is going approach to investing. So please enjoy my conversation with Jason Sedawie.

Jason, thank you so much for being here today. But maybe just to introduce yourself for listeners who may not know you, could you just give a quick rundown of maybe your background and how you ended up to where you are today?

Jason Sedawie (00:59): Yeah, sure, Kalani. Thanks for having me. It’s great to be on. So yeah, my name’s Jason Sedawie and I work for Spaceship. We’re a FinTech based in Sydney. We have around 1.2 billion funds under management and 200,000 customers. We basically have two products. We started out in superannuation and we’ve got what we call Voyager, which is a savings and investment app. So I’d split between those two products. I guess for me, I started out as a chartered accountant of… You can still see my glasses, just as a badge of honor for getting through that.

Then my background was in boutique funds management. So with Australian equities and then global equities. For me, I just really like Spaceship’s mission of trying to make investing easy. It’s something near and dear to my heart because I think the best way to build wealth is to own things. It’s very difficult to own a property and to start a business. Starting a podcast is hard, but we can all very easily buy a share and we can piggyback on some of great wealth builders and businesses out there. So for me, just totally aligned with the mission of trying to make investing more easy and accessible and get people started thinking about investing.

Kalani Scarrott (02:12): Yeah. Totally agree. And like you said, the capital required to get started investing so much lower than compared to a house or say or anything. In terms of your interest in investing, obviously, you started with accounting. What started with your interest in maybe some early influences? Why did it appeal to you?

Jason Sedawie (02:23): I’m not sure how true it is today, but investing is still not really taught at school. So I grew up not really knowing much about it. My parents are in small business and you name it, they’ve owned lots of random businesses. So I grew up in that environment and it probably wasn’t until I was in maybe year 10 or 11 at school and I had my first job at Hungry Jack’s. You know what it’s like with your first job. You go, “Wow, this is a real world and you really own a couple of dollars per hour. I got to be more careful with my money.”

Just that confluence of factors along with the Billabong IPO, because I grew up surfing, just got me really interested in going. Wow, I can invest in businesses and leverage my money and not have to put in the hours, but have someone work for me 24/7 around the world. Billabong had that potential at the time because it was still very Australian going over to the US. Yeah, that really opened up my eyes to this whole perspective, “Oh, what is the share market? What is that?” It’s basically businesses that you can buy.

So you go to the supermarket to buy groceries, you go to the stock market to buy businesses. Every now and again, they go on sale. So for me it just all lined up and like, wow, this is a great little hobby. This is something that really interests me, and it’s just been a journey of continuous learning ever since.

Kalani Scarrott (03:35): Do you think your temperament has always suited investing or was that something that maybe you’ve developed along the way?

Jason Sedawie (03:40): I actually think my initial temperament was really good, but then like most people get caught up in the market and you think, “Oh, I’m a genius. I’m going to start buying.” Like being in Perth, I can imagine just the resource stock, the mining stock stories that you hear. You hear about the ones that make a hundred times your money, but it’s a bit like the lottery and it’s not really a consistent way of doing it.

If you really want to, you can put a small percentage. Not personal advice, but it’s not a consistent long term way of investing. And I think my initial approach of buying what you understand, thinking about it as a business is actually correct. And then the sort of everything like the whole industry is not structured to drive your return.

You think about the business news. They’re there to drive ratings. You think about stockbrokers. They’re there to get you to trade. And fund managers, most of them are there to build a business. It’s sort of linked to your returns, but they’re trying to build a business. So everyone’s not exactly aligned with your long-term wealth building. And I think that’s something to not stray from just that whole incentive structure that a lot of people are trying to get you to trade, to be active because that’s how they make money, but that’s not necessarily how you can make a lot of money. It’s a journey of back to the future for me in a lot of ways.

Kalani Scarrott (04:54): Is there anything else maybe you wished you learned earlier along your investment journey? Was there any painful lessons along the way?

Jason Sedawie (05:00): I think you’ve got your podcast name right, Compounding Curiosity. I think that for me is a big thing. And going back to school or uni, there are no classes about decision-making. I think decision-making is such an important thing. Warren Buffet’s right hand man, Charlie Munger talks a lot about mental models and I think that’s a really helpful way to learn and think about investing.

How does that relate to investing? Well, your investment returns will reflect your decision making and mental models and the more mental models or I call them lenses will help you improve your decision-making. For example, a psychologist. If you put on the psychologist lens, they’ll think about things in terms of incentives and psychology. Whereas like an engineer, you put on their glasses, they’ll think about things in terms of systems, redundancies.

So I guess what I would try to do is just to learn the basics of each field. It’s difficult, but just having that different perspective will help you make better decisions and help you make better investments. I guess the benefit of good decision-making, doesn’t just help investing, it helps a lot of things like choosing what you want to do in life. What am I going to wear today?

Just thinking probabilities and just building up these mental models because I think they’re really key to helping you learn. And to go on a bit, it helps me as an investor because what I’m actually doing is people give me their hard earned money and I invest it, but I give it to management teams and they invest. So I’m actually subcontracting out the decisions a little a bit and what I want to see is management decision making frameworks around capital allocation. How they think about problems. How they think about competition. How they think about supply and demand.

So for me, some of the biggest learnings have been from just watching some of the best business people invest. We all follow the great investors like Warren Buffet, et cetera. But just seeing the framework that Jeff Bezos uses and Reed Hastings has used at Netflix. That has been a big learning for me.

Kalani Scarrott (07:04): In terms of your edge, how do you see your edge? Because you’ve got a background with startups fund management accounting. How do you view your background that gives you a unique feel market? How do you view your edge when competing against, obviously everyone else in the market?

Jason Sedawie (07:17): That sounds like something lame I said on LinkedIn. That’s probably where you got it from, isn’t it?

Kalani Scarrott (07:20): Yeah, basically.

Jason Sedawie (07:24): Be careful what you’re say in social media. I would say it’s the different lenses that you have. And going back to, this is the mental model example like you can read and learn things. But sometimes you have to experience things. I think working for me at Spaceship has helped me become a better investor. Just watching how our engineers think about problems.

I’m not a big whiteboard person, but they’ll go to town on a whiteboard and break down problems, and it’s a work of art to me. Then we also have VC investors and how they think about it from a team point of view and problem solving. So for me, it’s just helped me double down on things that you read about, you learn about, but then when you really experience it, it’s really ingrained.

I think Spaceship is interesting because we’re not just a traditional fund manager, we’re a FinTech and because of those people there. I try and structure it thinking as a way to be more long term. So thinking about over three to five-year period, not a one year period, because a lot of people are very short-term orientated because of those structures. So we try and structure everything.

As a Superfund as well. We’re trying to take the best of each Superfund industry, funds management, FinTech, engineering, and just putting it all together and putting together a process that can over tie them, create hopefully better decisions and environment that gets you to those better decisions, which hopefully should lead to better returns if it all works out.

Kalani Scarrott (08:48): Yeah. So with regards to Spaceship, could you maybe explain a little bit about where the world is going approach and your approach to investing?

Jason Sedawie (08:55): Yeah, sure. So where the world is going is basically we look for products or services that are becoming more relevant over time. So think about like TV streaming or cloud computing. There’s four steps we look for. So we look for trends. We’re looking for companies that are building new habits or solving problems in a new way. And the best trends actually combine a lot. So you think about PC hardware and software, mobile apps, cloud computing. They all work together. So we’re looking for trends that really compound and work together. The second one is a moat.

So we all heard about this moat concept from Buffett having a barrier to entry to your business like a brand or intangibles, patents, scale network effects. You can picture a castle, right? The more moats and drawbridges, crocodiles, piranhas, the more you’ve got in the way, the harder it’s to get that treasure, that cash flow in the middle. So that trend aspect is important in terms of creating value and thinking about what technologies can adopt new products, like ride sharing in the mobile phone, smartphone. For Uber to take off, it really required that.

But also that moat is important. So to create and capture that moat. And then the third one is management and management is really important because I influence the execution of those trends. We do have a preference for owner and founder led companies, but also throw in they’re business builders. So we’re not looking just for great products. We’re looking for a company that has a structure of… Going back to mental models, like a process, system, training systems, remuneration, KPIs that will enable people to take risks and solve problems in a better way.

So you think about someone in Amazon or Apple. There’s just certain businesses where you can just look at it and you go, they have the business building muscle. Every year or two, they’re always doing something new or trying something. It’s really difficult to really innovate and do that while you’re running, executing your original business. So for them to keep building on top of that is quite extraordinary.

So we do look for that. And then the final one is just a return requirement. So we really are trying to be long term. We try and say we’re looking at over five years and over that five year period, we’d like to see the shares potentially double, which is a 15% per annum compound return. So those four things, the trends, the moats, the management, which influence it and a certain return requirement, because if you can’t, it could be priced for it and then it’s not really worth investing. So that’s a quick summary of it.

Kalani Scarrott (11:33): Yeah. So with regards to how the world is going at the moment, especially given the last year and a half, how much has that accelerated the change? How has your approach maybe differed or what’s been the past year and a half, two years for you now really given your approach?

Jason Sedawie (11:48): Where the world going approach has benefited from this environment, because COVID has been horrible to be clear, but it’s also made us re-question assumptions and habits. So we tend to live life on autopilot with a lot of things. We tend not to change things too often. But lockdowns and all these other situations have created an opportunity for us to pick up new habits to rethink what we do.

Streaming for example, telehealth, something like working from home for me for example was something I never thought I’d really enjoy, but it’s given me time to think. So we’ve been able to try things that we were probably less willing to try in the past, and that’s really helped us with that where the world is going approach because people have adopted these trends at a much faster rate. And we’re seeing things just changing a lot quicker than ever.

As an investor, it has been quite difficult looking at the human cost, but there’s also the positive of we’re digitalizing a bit faster. There’s people picking up new habits and opportunities. There really hasn’t been an environment quite like this. So we haven’t really changed anything. I mean, from a portfolio point of view, we did sell some travel stocks early on, but we’ve generally kept that process of where the world is going, because I think it’s actually accelerated and helped us a lot over the last year and a half.

Kalani Scarrott (13:09): Yeah. Fair enough. You’ve already mentioned a few international names, but given that the Spaceship universe portfolio invests globally with a strong focus on the US, I think 80%, was it?

Jason Sedawie (13:20): Around 55? Yeah, 55.

Kalani Scarrott (13:22): 55. Okay. Sorry. How do you approach investing in markets globally versus your home? Because Australia only makes up, what, 2% of the global stock market. So how do you approach that?

Jason Sedawie (13:32): Yeah. So I think you’re referring to the [inaudible 00:13:35] global allocation and then 55%. For us, we think about trends. We don’t really think about sectors and countries as much because I mean, how these things are sort of put together is quite this bizarre like for example technologies all lumped together, but each business has really different drivers like Apple is a hardware company and Google is a media company, for example.

So we’ve broken it down into trends instead of sectors. We’ve done it in a way where we’re not looking at everything because it’s a big world out there, but there’s a lot of disruption as well. So for banks, we don’t really spend any time. Oil and resources. We’re not spending any time because of the renewables and disruption risk there. So there’s whole parts of the market we don’t look at. We do go back to that process of looking for trends.

For me, the most interesting trends are the ones that multiply. I think about healthcare for example is one like you’ve got all these genomics, the prices going down, artificial intelligence, telehealth. There’s more data out there. For me, that’s a really interesting area as well.

Kalani Scarrott (14:38): Yeah. Is there any other trends that really caught your eye interested or maybe underrated?

Jason Sedawie (14:42): Well, the Metaverse is one that comes out a lot. I wouldn’t call that underrated, but that’s one where a lot of us are locked down in homes and gaming has been a real social avenue. Then you have all these NFTs as well. I think that’s been a real big area of interest for me because if you can get it, it’s not every day that you create a new world, right? So if we create a digital world, it’s quite interesting. You can create a new product and your ecosystem and platform, but if you’re creating a digital twin of the world, that’s quite valuable. It’s not just going to be one company, it’s going to be a lot.

That could potentially be something that we never quite see before and things like virtual reality and a lot of these game engine platforms and 3D. It’s just getting a lot easier for people design. I think with all blockchain technology as well people are just delving into this a lot more than they have in the past. Maybe we might finally see that happen and that’s an area I’m really keeping an eye because I think if companies can get it right, it’s a whole new world and that doesn’t happen very often.

Kalani Scarrott (15:42): Yeah, for sure. With regards to returns and maybe the pressure that comes along with it, Spaceships universe portfolios averaged nearly 30% annum since it was first funded in May 2018. What’s the pressure that comes with it? How do you even approach a portfolio going forward after doing so well? Maybe just walk me through it. I’d just love to hear it.

Jason Sedawie (15:59): Yeah. This is the time for the typical disclaimer of past performance. There’s no guarantee of future performance. I would just say COVID was quite unusual in terms of accelerating some of these trends. When we do buy shares, we’re looking for 15% per annum. That’s what we’re looking for. So we’ve done better than that, which is great. And we hope to do better than that, but the market has gone up quite a lot. When we do try and make those 15% per annum returns, we’re going to make mistakes. So our returns could be actually lower than that.

I mean, that’s what we’re targeting on average, and that’s what I would point people to expect rather than what’s happened in the past. Even though that is a good guide. It’s more about the process rather than the returns. If you like the process and it makes sense, then maybe consider it. Don’t just look at the returns because returns can change quite quickly. And if you don’t believe in the process and you’re not going to hang around.

So for me, outside investors focus more on what’s the mental model? What’s the decision-making like? What are the decisions they’re making? What is their process? Do I understand it? Is it simple? Does it make sense to me rather than focusing too much on returns? I know it’s not exciting, but it’s a process over outcomes. Always, always go to the process rather than the outcome.

Kalani Scarrott (17:11): For sure. I totally agree. And in terms of the process as a fund manager, what is a typical day look like for you? Maybe the pre-COVID now. Take with it however you like.

Jason Sedawie (17:19): Yeah. It is different, post-COVID. For me, what I do like about it, every day is quite different. I try not to get too caught up in market news, but there’s always something happening. There’s always something you can learn about. For me, at the end of the day, I actually measure myself from what have I learned today. Have I learned anything new about my companies, the businesses, any new trends? Have I improved my decision-making? Have I learned anything? Have I acted like in a long-term manner?

So I’m always trying to think about how can I improve what I do every day. A privilege for me is just listening to company management. These people are on the edge of everything they’re investing billions of dollars, potentially new technologies, new trends. I’m always reading earnings transcripts or speaking to someone or learning from them to see what they’re seeing, because they’re the ones who are at the forefront of this. For me, it’s all about learning and every day is different. So if you like learning funds management is for you.

Kalani Scarrott (18:17): Yeah. But I was talking to these mates the other day and it’s a hard balance, isn’t it? Because you want to read and keep up with things, but at the same time you have to try and filter what is actually useful rather than just consuming for the sake of it. So how do you balance that? Or is it just…

Jason Sedawie (18:30): Yeah, that’s a really good question. I think that’s changed a lot. You look back 10, 15 years ago stockbrokers were like the bees knees, because it was all about information. The information didn’t really flow as easily as it does now. Now it’s just, there’s stuff everywhere, podcast, social media, you name it. For me, it’s more about filtering and it’s understanding. It’s not just news. News is just news. It’s just short term. Is this going to help me understand the company or improve my decision-making over the long term? And there’s lots of stuff you can read, but I filter it. Will this news matter in year or two’s time? And if you use that filter, most things you can throw out.

But you do have your own favorite sources for certain areas like you’ll follow a certain newsletter from a certain area. You’ll have your favorite analyst. You’ll get there over time. But yeah, that’s a really important thing to do. Just make sure you’re filtering the right information. Make sure that the people you’re reading are experts in that area, that they do have the same time horizon and what are their incentives?

I talked about the news articles, like it’s mostly about ratings and and readership. So of course it’s going to be controversial. Whereas something that’s sort of compounding a working way in the background might not get that news. So you’ve just got to make sure you dig a bit deeper and try and look at more positive news because there’s always negative news headlines blaring out at you, but there’s always something positive happening underneath.

Kalani Scarrott (19:58): Yeah. So I got to ask, and obviously off the top of your head, if you can remember, but what are some of your favorite sources of information, newsletters, blogs, whatever, podcasts, anything? What do you find the most value out of?

Jason Sedawie (20:10): I like Annual Letters by Jeff Bezos. I hope he keeps it up now he’s chairman. I thought they’re always good. Everyone talks about Warren Buffet. I would say for newsletters, I do like Stratechery, Ben Thompson. The information I think has some pretty good articles on the tech industry like just interviewing managers. Not just CEOs, but just from the manager point of view, I think, which is quite interesting. They might normally not get contacted by the media. So I think they’ve done a really good job from that point of view. I mean, there’s so many great podcasts that I don’t want to single out anyone, but there’s a lot.

Invest Like the Best. Patrick, he’s gifted at what he does. You can tell, he puts in a lot of effort and he really knows his topics and I think he does a really great job. And Business Breakdowns, which is related to them. I really enjoy that as well. Just breaking down the business within that as well.

Kalani Scarrott (21:04): Yeah, sure. In terms of life as a portfolio manager, has there anything been that surprised you the most about it or what do you wish maybe more people knew about your role?

Jason Sedawie (21:13): I guess what’s interesting about this industry is that there are all different incentive structures. That’s what surprised me. I didn’t realize how often an investment bank is more interested in their IPO. Getting an initial public offerings is a generalization than the research. So I guess I didn’t realize just the amount of conflicting incentives. Even portfolio managers. We all say we’re long-term. I don’t think you’ll hear anyone who says they’re a short term trader, but you look at their portfolios, they turn their portfolio 100% a year.

So their holding period is one year. So there’s nothing really long-term about that. So for me, it was quite a surprise just to come in and just see the behavior. But you’re incentivized for it. If you get an annual bonus, well, you’re probably going to turn over the portfolio every year.

If your business makes more money from RPOs, well, you might prioritize that over the research. So for me, it was just, I don’t know, an eye opener to the power of incentives and structure and making sure you’re in a structure and you understand what incentives are driving behavior. I think that was the biggest eyeopener to me. And just the whole, just reading research reports. All of it is about short term earnings. There’s nothing really about the whole product roadmap or what I call that business building model.

What processes are they putting in because who knew Amazon was going to launch AWS? Who knew Apple would launch the iPhone? You didn’t, but if you knew they had this process for inventing and learning, and their competitors didn’t, well, you can have a vague idea. Well, going forward, I’m not sure what’s going to happen, but I know if something happens or changes, they’ll jump on this trend and execute it quicker than anyone else could.

So for me, it’s just a surprise to think that it’s very different. I would say what we do is very different from most other fund managers. It shouldn’t be, but it is because of those incentive structures that drive sort of short term performance and activity rather than long-term investing in customers best interests.

Kalani Scarrott (23:21): Yeah. With regards to spaceship, how do you think they’re specifically changing and maybe why did you join them as well and what makes them different?

Jason Sedawie (23:29): Yeah, I think it’s that whole approach to disrupting. So if you’re getting people to think about it, nobody thinks about superannuation because it’s 30, 40 years off. It’s not your money, but really it is. I think it’s a perfect vehicle for building wealth because you’re not tempted to do anything or touch it. So that really got me interested. Then I think we’ve done a great job with this, if I could say, the Voyager app. Just having an app, it doesn’t seem groundbreaking, but for the funds management and industry, it is because historically you’ve had to get a financial planner. You’ve made a certain amount of money. You fill out these paper forms to invest. You need 500 or $1,000 minimum.

We’ve just gotten rid of that and made it simple. Just download an app. You can look at the stock profiles. You can look at returns and you can set up investment plans. Really simple stuff, but no one’s really done that well. So I think that’s what makes us quite different. We’re just not a typical funds management sort of business. And to me, I’m very mission driven like I talk about it a lot at work. We want missionaries not mercenaries.

It’s okay to want to earn some money, but the people are going to stick around and stick through it. It’s like a mission and they’re the ones who are really going to drive the business. And we look for that in our investments or businesses that have a mission that can really attract a loyal community of supporters. You build word of mouth and the community is just such a powerful thing to replicate. You can replicate a product feature or something else, but you can’t replicate that community.

If people love your product, they’re going to love to share it around. It goes around to a lot of people. People ever love to talk about something like some cool experience I’ve had or something like that. So we’re trying to capture that in our investments and hopefully as a company as well.

Kalani Scarrott (25:15): To sort of wind back, we mentioned way back about how maybe in schools investing isn’t taught and maybe with younger investors not knowing that much about super. I don’t even want to know how many people still have the same super account when they first started their first job. What do you wish maybe more young investors knew or if you could teach, I don’t know, investing at high school, what would you teach or what would you focus on, do you reckon?

Jason Sedawie (25:35): It’s a good question about super in ways because I’m in the industry myself and you can probably talk to a lot of people who probably don’t spend enough time on the super when they work in the industry and they probably should. So I think it’s a problem. Everyone has. I just think just the importance of owning, like becoming an owner like we’re so focused.

I’ve talked about lenses before like we have this consumer lens. We’re just bombarded to be a consumer like you should buy this next. You should upgrade to your TV, but we’re never marketed or told to become owners. I think that’s a real reason why there is a wealth gap in a lot of places because we’re just not taught that way. And it’s not taught that you should be an owner and the stock market is a great path to owning businesses.

I just think it should be mandatory to be honest. Just the power of compounding. I talk about learning and investing, being linked because they are. It’s about decision-making. If you improve your decision by, or you’re learning by 1% a day that compounding after 365 days, after one year, it’s nearly 38 times, 37 times that balance. So it’s really important to get started young because we talk about Buffet a lot, but he’s so wealthy because he started like when he was 11 or something and he’s still going. He’s 90.

People forget about that. Not only has he got really great returns, but he’s done it over a long period of time. Most of his wealth was built after his like 50 or 60. It’s really important to get started. As a young person, you should still travel and have those experiences, but you should also build that habit of just stocking a little bit away. And then you realize after like, “Wow, actually, it’s quite a meaningful amount.”

So for me, just going back to thinking about mental models, thinking about the lenses. When you’re shopping, think about it as an owner, when you’re out shopping. For me, I actually like going shopping now because I’m looking at, oh, where are the biggest lines? What’s going on? What are new people buying? What habits are being built? So it’s just having that owner lens and mental models and power of compounding would probably be the three ones I’d talk about rather than some of the other things we learned at school, which I can’t even… I’d say, but I probably can’t even remember. With my kids, why are you learning this? I’m like, “Oh, you just use a calculator for that.” I’m a bad example.

Kalani Scarrott (27:55): I think we were the same. We learned, yeah. Just not much useful, but now it is what it is. But sort of the Peter Lynch model almost as a consumer. You’re looking for what’s… Has there been in any things like that, that have been real big influences maybe him or any others?

Jason Sedawie (28:07): You’ve picked up on that. So yeah, big influence on me is Peter Lynch. I think it’s a great investing book to start out on. Because it is quite simple and investing can be simple if you make it. There are no points for extra difficulty. This isn’t gymnastics or we’re not diving. You can keep it simple. And I think people do have that knowledge. Sometimes the way we shop can be counterproductive like if we’re buying out of excitement or just out boredom, it’s not great. But the way we buy a refrigerator or car is a great analogy to investing.

You’re doing your research. You’re budgeting. You’re looking at competitors. You’re looking at relative valuation. You spend a bit of time on it. Even planning holidays, right? So you can use some of those skills to invest. So for me, the best companies are products that you know and use, and that people love. It gives that word of mouth. People promote.

So I’m always going back like what is a real great product and what is a great process? What business out there could increase prices and you potentially would be happy to pay. You can do this very easily. You can go down your bank statements and see where’s my money going. You can see like, what is a must have? What is unique? Some companies just have that mind share, like I’d say Disney. If you go to theme park, Disney just has a mind share like Nike in shoes, or Uber.

Just some companies just have this mind share that is extremely valuable. You know it as a consumer, but as an investor, like ride sharing is only, what, 3, 4% of transportation. You think it’s a lot bigger than what it is, but it’s not. So you can sort of bridge the gap as a consumer and thinking about it as an investor point of view. It’s the next step up, but I think that consumer knowledge and that foundation is really important to becoming an investor.

It’s all there. It’s just that next level. We’ve just got to build up and work on and it just takes time. Like every other business or job, it’s like an apprenticeship, it takes time and you’ll work on it and you’ll get there. But yeah, it is there for everyone, I think, which is great.

Kalani Scarrott (30:18): Same thing with consumers. I think they’re so early in on it as well. I don’t even want to think about the amount of times I’ve seen a company start making moves early, or you notice a trend, but you don’t really actually make a move into investing or even just further research. But you sense it, I think a lot earlier as a consumer after time as well.

Jason Sedawie (30:34): Yeah. We made things difficult, like Afterpay is my favorite. It was just everywhere. Investors would talk about, oh, it’s doubled. It’s gone up too much or it’s expensive short term, which it was, but it’s about the engagement and lifetime value of the customer. It was how you thought about it as well. Not only your payment platform, but it’s marketing and that’s why companies pay extra for it because it’s a driver of traffic.

Your best idea just come from the internet and seeing new adoption, as you say. It seems too simple at times just like Netflix as well. You can think about all these examples. You can think, “Wow. People really talked about these services and shared it around.” But we’ll put off because the share has doubled or it looked expensive one on one year basis.

We’ve just got to make sure we look at the actual adoption because it’s probably a lot less than what you think, because depending on your crowd, if it’s more younger people like the younger people will adopt it a bit earlier and then other people take a bit longer. So it depends on who you talk to, but the adoption rates could actually be quite a bit lower than what you thought.

Kalani Scarrott (31:40): Yeah. That’s a great point. And then yeah, I get guess getting in is one thing and then holding throughout, I guess, through these growth stages. How do you view holding through volatility or deciding when to sell? What’s your views on that? Just walk me through it.

Jason Sedawie (31:53): It. Oh, that’s the hardest part, isn’t it, knowing when to sell? I mean, that’s why it goes back to make sure you’re buying right. So you’re buying, make sure there’s a moat and you’re in it for the long term. For me, I try to imagine like that framework of the VC. If I was a VC investor, what would I think? Afterpay was a good example, cause it’s extremely volatile. We were quite lucky, I think as investors in Australia, because it listed, I think maybe two years after I was in business.

I couldn’t get VC funding. So I listed quite early. So I always think to myself of like, if this was a private company or if this was VC funded, would I want to own it? What would it be valued at? So I’m not always looking at the share price. I’m looking at the market cap, which is basically made up of the number of shares, outstanding, times of share price. Afterpay was valued… I thought if it was private, it would be valued more at certain times of its life.

Not lately because it has gone up. But I try and think of it from a point of view as like if I was a business owner, what would I think it’s worth? If you look at some of these financial metrics, say like in Apple and I’ve made this mistake of selling it in the past. But if you just look at the financial metrics and the products and what they’re doing, you would’ve never sold it.

As a business person, like if it was a private business, you would’ve never thought of selling it because you’re looking at all the metrics. Everything’s going up, but because it’s listed, you’ll see it. “I think it’s gone up too much. We might just sell a little bit or it’s down 30%. Oh, the iPhone cycle is over or whatever.” You’ll come with all these other reasons to sell it. But if you owned it as a business, would you sell it? Is there anything structurally? Do I see that decision-making has changed? Do people still love the product?

Just making sure I stay there because I think having a really good management team, if you’re go into my big mistake, it’s underestimating management team and a really good management team or do things you could never imagine. I think back to Netflix and that’s personally my biggest mistake just in terms, because it’s gone up so much, right? You lose money and lose 20, 30%, which is horrible.

But if you don’t buy something or you sell it and it goes up like three, four, five, tenfold that’s massive. So for me, it was like, I own Netflix when it was a sort of that DVD provider, right? Not much of a moat. Great service, but I didn’t really think it through like just this process.

He knew this from the beginning. He named it Netflix. He named it Netflix while still a DVD company for 10 years or whatever. And he knew in the back of his head, he had to blow up that business and switch to streaming. I think for me, what I learned from Reed Hastings and Netflix is just the timing of the technology waves. He timed it perfectly.

He launched Netflix just as DVDs got cheap. I mean, VHS, if you remember that one, that wouldn’t work. Then they launch streaming when broadband was at a certain level. Then they launched original content when they were global. So that made a lot of sense for them because the original content, they could have the licenses all at once. They didn’t have to put it in each region and they could scale the costs across not just American households, but globally it’s like how can you compete with that.

So for me, my biggest learnings have been just understanding the process and structures that management use and that can be quite hard to see from the outside. So I’ve just got to make sure that I course adjust and then go, okay. They are showing it. Even though the shares might have gone up, they’ve really got this cultural business building and taking advantage of opportunities versus competitors that could be really valuable and just valuing that rather than just the product set.

Kalani Scarrott (35:29): I loved what you said about thinking about the whole business, it would be cheaper. But it also probably helps you on the flip side as well. Maybe it applies maybe to more my mates and stuff, but if they’re thinking of taking a risky bet on a company, but if they thought about buying the whole thing, maybe they wouldn’t because it’s just too much problems. Whereas if it’s just buying a couple shares, maybe they’re willing to take that gamble. You know what I mean?

Jason Sedawie (35:48): Yeah. Apple for me isn’t like a couple hundred dollar stock. It’s a $2 trillion business. So I’m struck. We own Apple, but I’m like, are we finally at the stage? I’m holding on because they do have that business building culture. I laughed at AirPods. I was like, great. But that’s like a fortune 100 business on its own. So it’s quite extra to me if you do have that culture just even though it might seem expensive just to hold on because you just can’t know what they’ll do. It’s very rare to have businesses like Amazon, or I’ll throw in Tesla.

There’s a few businesses like that, that just have this culture of just executing and taking advantage of those opportunities. For me, I would say don’t check the share price too often. Check the business fundamentals as much as share prices. So if I do have Bloomberg, I’ll look at the chart, but I’ll also have a chart of earnings or revenue along with it. You can see how consistent the revenue might be. That stock price is all over the place.

Overtime there is a correlation. So for me, if you’re checking the share price, make sure you just check the business fundamentals as well. Make sure they’re going up in the same region because the stock that might go up might seem expensive, but it’s doubled, but sales are up more than double or it could be cheap. A stock that goes down 50% could be expensive because the profits are down 70%.

You know what I mean? It’s just tying it back to the fundamentals and not just looking at the share price in isolation, which is very easy to do. With Robinhood and everything that’s going on at the moment, it’s very easy to get caught up in the share price, but look at the business fundamentals as well.

Kalani Scarrott (37:28): Yeah, for sure. I totally agree. To move into my final round of closing questions, what do you think is the most undervalued life experience that university age students don’t give weight to? What’s an underrated skill or an experience that you think maybe they should have?

Jason Sedawie (37:41): Yeah, I would just double down on mental models. There was never a decision 101 class like they’re assortment. You’ll learn something from economics. You’ll know about supply and demand, which is helpful, but that’s just one mental model. So for me, it’s just being multidisciplinary. It’s hard to get that out of school and university. So it’s just having a varied amount of friends and looking at podcasts.

I’d also say travel. Hopefully now that we’re opening up, we can travel because I think that’s… Going back to the lenses that we wear as consumers, owners and different industries. I think when you travel, you just get different perspective on things. I think you’ll learn a lot. When you’re young you learn a lot about yourself of how capable you are like going to a country with different languages and different things you take for granted.

You go, “Oh my gosh, it’s so hard to go out. Oh, I go out to buy everything.” I think you do learn a lot as traveling and hopefully we can get back to doing that because I think you come back as well with different lens and you appreciate home a lot more and you just open your eyes to the world out there.

We’re very lucky, I think, to be in Australia. So I think it’s very important for young Australians to go out in a travel because it’s quite pretty good over here.

Kalani Scarrott (38:50): Yeah. Oh, totally agree. Ours is exact same. So lucky over here. I didn’t quite realize and I was probably a bit of an A-hole. But then once you go overseas, a whole different world. Character building as well. You’ll put your passport through the wash and you’re trying to deal with embassies. You’ll get a few good stories out of it.

Jason Sedawie (39:06): Yeah, exactly.

Kalani Scarrott (39:08): Have there been any maybe books or classes or even experiences, travel experiences they’ve been influential in shaping your worldview? What’s been the most impactful, do you think?

Jason Sedawie (39:17): Double down on the Peter Lynch book. I think that’s a great one to read for first time investors. For mental models, what opened up my eye to that was Poor Charlie’s Almanack. I don’t know if you’ve read that one, but it’s a bit of a coffee table like book, but that’s a great introduction to thinking about what’s really driving decisions because there’s the rational decisions and then there’s the emotional and the psychological reasons that we do things.

A non-investing book, which I thought was interesting that gets talked about a lot, and rightly so is Sapiens. I think that’s Yuval. That’s a great book, because for me it just shows how we progressed as humans through history and how we make up these imagined realities. What is a company? We just made it up. What is money? It’s just something we made up.

So we’ve just made up a lot of these things to make us work and cooperate together. It’s really influenced the way I think about investing because investing hasn’t been around that long. Companies haven’t been around long. Stock markets aren’t around that long, but we’re still wired for this lizard brain that we’ve got from the stone age, like the Flintstones.

So whenever there’s a market correction, we’ll panic because we don’t want to lose money. A flight or flight response kicks off and we’ll go off. We don’t think in probabilities. There’s a rustle in the bush. The people who ran away survive. People have thought about it. It’s probably not a lie. I’m not sure. Most of them are dead.

How we’ve evolved as people is not helpful for our investing. I understand why it’s hard just because those biases just kick in like that fight or flight kicks in and it just makes it difficult. So just understanding that I think was a bit helpful for me in that framework. I really enjoyed Sapiens and whatever he writes.

Kalani Scarrott (40:58): I think it’s been very relevant in the last year. I’ve mentioned this mentions before, but same thing, if everyone believes something is true, then it kind of just… It was hard for me to wrap my head around sometimes like you just thought. If it doesn’t match fun… Like with GameStop and stuff when that started, I don’t believe it, but if everyone else does, then I guess it’s sort of is. You know what I mean?

Jason Sedawie (41:15): Yeah. It’s a self-fulfilling prophecy. That’s the tricky out about the markets and what I… People talk about hedge funds. What I’ve never liked about them is like there are good hedge funds, but when they’re short selling, they’re creating a negative feedback loop that’s hard to get out and they can destroy companies. We’ve seen a few companies get destroyed, but now we have this opposite Robinhood effect where people are supporting companies, buying the shares so the company can raise money and then it’s more likely to survive as you say, like GameStop and AMC.

So for me, those companies shouldn’t be trading where they are, but people believe in it and they want to support it. I think that’s a great sort of counter factor to short selling sometimes. If you really want a company to survive, buy the shares and support them in raising money. But it’s not a great investment style potentially. But it is counter to short selling. So I think it’s quite interesting to see that phenomenon.

You see it in companies themselves like Amazon. If people believe they can allocate capital better, then they can raise capital at lower rate and that affects the fundamentals. The stock price goes up, that can help you attract better people. So you do see self-fulfilling nature in markets as well. I think that’s an interesting point to point out.

Kalani Scarrott (42:28): I used to work at a quant fund for a little bit and that was based on momentum investing. Same sort of thing. In a box, I don’t typically believe in momentum investing, but if everyone else believes it’s true, same thing. It’s a self-fulfilling prophecy and it works. So it’s like, well yeah, what can you do?

Jason Sedawie (42:43): Yeah. It might not shortcut. So you got to be careful. If you’re shorting sometimes. It makes you very careful. The market is supposed to… George Flores talks about this. The market is supposed to reflect the fundamentals, but sometimes the market can affect the fundamentals. So we see it like during recessions, like the stock market will fall and then we’re in a recession or we’re in a recession because people lost money and they’re not confident. So they’re spending less. It’s self-fulfilling both ways.

Kalani Scarrott (43:09): Today, where do you think the biggest opportunities lie for youth? If you were 18, where would you be spending your time? Obviously, maybe travel like you mentioned, or what else would you be doing, do you reckon?

Jason Sedawie (43:18): Oh, for me what’s exciting is I hinted before is healthcare, like the convergence of healthcare and tech. I look at the US. Healthcare is 17% of US GDP. It’s material. You look at advertising globally, it’s a bit over 1% and you’re just seen these trillion dollar companies created out of making advertising more efficient. It’s like, how did we go there first? But yeah, we’re here.

So I’m very interested in healthcare, just the digitization of it, DNA sequencing. I’m blown away by these messenger RNA from bio and tech that vaccines have historically taken 10 years plus. It was all figured out in a year, which is amazing. So for me, if I was a young person, I would just get in that field of biotechnology just because I think there are just going to be some great breakthroughs.

We can computer code zeros and ones like we can code biology, ATCs and Gs and just hearing some of these companies talk about it. It’s something that at Spaceship we’re probably going to focus on a bit more, but a lot of these companies are still at very early stages. I just think it’s a super exciting area. If we can really get that area going, like if we can digitalize healthcare just a little bit more. Just the health outcomes, longevity, the efficiency, and then just the investor returns as well will be potentially great because healthcare has a lot of barriers to entry.

There is a reason why it’s taken so long regulatory, et cetera. But for me, it’s just really interesting area, just given the confluence, talking a multitude of trends like the cost of DNA sequencing. It’s just the amount of funding that’s been available for me. It’s just a very exciting area I think to follow.

Kalani Scarrott (45:00): Yeah. I love that answer. Yeah, some of those things. If more people get excited about it, then it might become what it’s destined to be, I guess.

Jason Sedawie (45:07): Yeah. I’m so glad we have these great scientists just to get these discoveries because a lot of them work in the backgrounds for years. Just to see, it all has been amazing compared to what we’ve had to deal with. If we didn’t have the vaccines, I shudder to think what this conversation would’ve been like.

Kalani Scarrott (45:25): For sure. My final question, what plans or vision do you have for maybe, I don’t know, five, 10 years, really extrapolating it? What are you most curious about going forward besides the healthcare bit?

Jason Sedawie (45:35): Yeah. The healthcare is interesting and also the Metaverse because for us the companies we own at Spaceship are already interested in it. So I feel for this. For us, it’s like an option, free option. So we own NVIDIA who is leader in graphic process units, which is they’re really good at gaming, right? Because they parallel compute each pixel, all at once on the screen.

It turns out that was great for AI. So what they’re doing is they call it the omniverse. So they’re basically building factories, like digital twins of factories and training robots in the artificial world. So then when they’re in the real world, they’re all fully trained. I was like, “Oh, wow. You’re training robots, simulated robots.” So for me, they already have a core business, but they have that.

And then there’s a company like Tencent like in social gaming. I think their background in gaming, social and payments, they would be really good in a gaming Metaverse and then Facebook is there sort of as well talking about it. They’re the largest social network. Well, can they replicate that in a digital type setting. So for me, it’s really interesting because they already have their core businesses, but they have this optionality on the Metaverse and they’re all building into it.

So for me to see how these great companies invest in it, it suggests that there’s something there and it’s something I’m pretty keen on looking at. Just following, I think over the next couple of years, because it’s low risk for us because I like the trade-offs there.

Kalani Scarrott (46:57): Yeah, exactly. The tall rewards from all optionality, so that’s perfect. So yeah, thank you. Jason, thank you so much for today. I’ve had a blast.

Jason Sedawie (47:05): It was a great chat. I can see you’re very curious and I’m sure we’ll keep chatting as well. So yeah, thanks for your time.

Kalani Scarrott (47:11): If you enjoyed this podcast episode, be sure to check the website, compoundingpodcast.com. On the website, you’ll find every episode complete with transcripts, show notes and other related resources. Also be sure to sign up to my weekly newsletter, Curated by Kalani, where I share what I’ve been reading, learning, and watching for that week. Same as the podcast, it’s compressed to impress and I aim for maximal return in the time invested. So sign up at kalanis.substack.com. You can also connect with me on Twitter @ScarrottKalani. But until next time, have a good one.