Fifteen Years of Forager and that Fifty Basis Point US Rate Cut

As we approach Forager's 15th birthday, in Episode 33 of Stocks Neat, CIO Steve Johnson and Portfolio Manager Gareth Brown dive into the 50bps rate cut in the US and its impact on small-cap stocks. They unpack the latest market moves, spotlight companies like #Motorpoint and #Ferguson poised to benefit from lower rates, and share their strategies amidst ongoing volatility. 

The discussion explores resilient businesses, the correlation between rate cuts and small-cap outperformance, and how Forager has evolved over the past 15 years. Tune in as they reveal current opportunities and what the future may hold for investors navigating this changing landscape.

"Rate cuts, especially unexpected rate cuts, tend to benefit the more marginal businesses. Think heavily-geared businesses, cyclical industries, lower-margin businesses, companies that don't necessarily lead their markets of secondary and tertiary competitors."

Transcript

EPISODE 33

[INTRODUCTION]

[0:00:03] ANNOUNCER: Just a quick reminder, this podcast may contain general advice, but it doesn't take into account your personal circumstances, needs, or objectives. The scenarios and stocks mentioned in this podcast are for illustrative purposes only and do not constitute a recommendation to buy, hold, or sell any financial products. Read the relevant PDFs, assess whether that information is appropriate for you, and consider speaking to a financial advisor before making investment decisions. Past performance is no indicator of future performance.

[EPISODE]

[0:00:39] SJ: Hello, and welcome to Episode 33, take two of Stocks Neat. I'm Steve Johnson, Chief Investment Officer here at Forager Funds. I'm joined by Gareth Brown, my regular co-host on the podcast and we've just done a whole run through of the podcast and not realized that we weren't recording it. Welcome to session two, and we'll endeavor to do a better job than we did in the first time around.

[0:01:02] GB: Thanks for having me back, Steve. Hello, everyone.

[0:01:05] SJ: Didn't sack you after the first one. You might have noticed it's been a few months between podcasts. We have actually made the decision to record them once a quarter instead of once a month. We've just been around the country. There's a lot of clients really enjoying what we're doing with the podcast and it's great to have that relationship with you. It's not growing much. We're not attracting many new people to the business and we just want to keep the investment teams time concentrated down to a week or so, a quarter where we do the quarterly report or get the podcast recorded and do our webinars as well. So, I hope you can appreciate that we're just saving a bit of time there and can still get out a good podcast once a quarter.

Today, we're going to talk about the big 50 basis point or half a percent rate cut in the US, implications for our portfolios, and wider markets. Particularly, that small cut part of the market's been underperforming. We'll wrap things up with a bit of a chat about Forager's 15th birthday, which is rapidly approaching. Gareth, there was a lot of chatter about whether it was going to be 25 basis points or 50 basis points. Really, interestingly, this Federal Reserve decision to cut rates by 50 basis points came with one dissenter. That hasn't happened for a very long time. One of the members of the board there only wanted 25 basis points and wrote effectively a dissenting decision, which was interesting. They're clearly worried about a deteriorating labor market, but the rate cut cycle has begun. What does it mean?

[0:02:35] GB: Well, the market – I think, the chatter to me was focused on 25 basis points, I think 50 was potentially a surprise for a lot of pundits, let's say. I don't think the markets are really, I think they've sort of taken it in their stride. I think people have been expecting rates cuts, not just one, but maybe multiple over a period of time. We've got a bit more of it up front.

[0:02:57] SJ: Yes. Just on that point, the three-year rate is a full percent, a hundred basis points lower than it was just three months ago. So, whether this was 50 now, and then two lots of 25, or whether it was four lots of 25, people have an expectation that this is only the beginning and they're going lower already, which might explain some of the muted reaction to this particular cut. 

[0:03:17] GB: Yes. People have been expecting it, and I guess maybe people are a bit worried about the economic outlook, and that the central bank has access to a lot of data. You made the point first time around when we're recording this, that Powell was at pains to point out that it was just in response to inflation has been down. He just raised it well above that. It was a process of normalizing rather than panic. I mean, he's never going to tell you to panic, right? I don't know how much to read into that.

[0:03:49] SJ: Yeah, but it is true that you've got – we had rates at 5%, and inflation down under three, and that gap of more than 2% real interest rates is very, very significant. Certainly, more conducive to a tight monetary policy rather than neutral, and they're trying to get back to neutral fairly quickly. When you look across the world, who does it help? Who does it hinder? Maybe even just in our own portfolio.

[0:04:12] GB: Mainly, we are trying to put together a portfolio that is resilient to whatever comes rather than sit here and say, "I expect rate cuts, I want to bet on that". That's just, I think an important point to get out first. One of the stocks that's traditionally been – type of stocks has been a beneficiary of rising rates is banks. So, most stocks are beneficiary of falling rates. Banks are a little bit unique in that regard, they make their margin by how much they pay on deposits versus how much they earn on loans. They typically, especially, the large traditional banks have a very large zero interest rate deposit base.

[0:04:52] SJ: Yes. Lots of retail customers that are not earning anything on their deposit.

[0:04:56] GB: At higher rates, what's called the net interest margin explodes higher, and they benefit from that. We've gone into banks. We own some European banks in the International Fund. We've gone in eyes wide open to the fact that net interest margin will erode over time. So, none of this is a surprise to us. I think you've seen that in the share price reaction over the last week or so. US banks like JPMorgan, Chase, and Citibank are actually up a little bit since the announcement. And the European banks as well, they've sort of taken it in their stride. But generally speaking, they face a bit of a headwind from falling rates. That is a smaller part of our portfolio than the beneficiaries.

On to the beneficiaries, we own some, explain a few, a Motorpoint, the used car retailer in the UK. A lot of its profit traditionally comes from commission on loans that its customers signed with their banking partners. So, you come into the dealership, you go, "I'd like that car, I'm going to take this loan with Black Horse" or whoever it is. They receive a commission on that. At higher rates as rates have risen over the last few years, the price that they've had to charge customers has gone up. So, that's actually impacted their ability to buy used cars in the first place. 

Motorpoint has had to eat it a little bit on their commission to keep that headline rate low enough to attract sales. So, the commission that they get, the flat commission they get for a loan is inversely correlated with interest rates. Over the last few years, they've signed fewer loans. It's been a headwind on sales, because the financing costs have gone up for their customers, and the commissions they receive have gone down in absolute terms.

[0:06:41] SJ: I think that'll be true across a lot of that sort of consumer space where the consumers depend on credit to buy the product. It's been pretty hard.

[0:06:48] GB: It's a big, chunky purchases. This is what you're typically looking at there.

[0:06:53] SJ: Cars have been expensive themselves, and then when the rates are high, the monthly payments that someone needs to repay the same vehicle have been probably 50%, 60% higher than they were five years ago.

[0:07:03] GB: Oh, yes. Easy. We are now seeing, probably we've had only one 25 basis point cut in the UK. But if rates falling are a global phenomenon, it's a good thing for Motorpoint, their customers will have access to cheaper headline rates. So, it will encourage sales in the first place. There'll be more loan-based buyers rather than cash buyers. It will be attractive to their penetration rates on financing and their absolute commission is likely to rise. That has a lot of that drops through to the bottom line in the good times. So, something that we hopefully are a beneficiary of.

Again, we haven't seen dramatic moves in the share price, so it's not like – either the market was anticipating. It's had a really good run over the last 12 months or they're being hesitant about betting on it.

[0:07:52] SJ: The other piece there is whether the consumer is going to have a job with which to repay that loan. So, people I think are weighing up the environment for employment versus cheaper capacity to pay, which will definitely help long term.

[0:08:05] GB: Then, we are in Ferguson in the US, this a distributor/middleman, connecting millions of customers with thousands of supplies on just an ungodly number of SKUs, as they call them. The end markets are generally very strong beneficiaries of lower interest rates. So, we're talking about new housing builds, refurbishments of houses, commercial buildings, civil infrastructure, all that kind of stuff typically gets a boost from lower interest rates. So, the customer does better. It's a complicated situation because we've bought this stock. How long ago now? A bit over two years, about two years ago into a really panicky environment around this sector. It's had some wild swings because the market is an anticipatory machine rather than sits there and reacts to.

We've made some good money on that stock over the last little bit. The rate cut hasn't actually changed the picture significantly, but it is going to be a beneficiary if there's any more surprise cuts or things being equal. 

[0:09:12] SJ: Yes. I think it's going to, and there's a lot of businesses in this camp. It's going to help the profit line almost certainly, whether that is reflected in the high share. Price depends on how much is already anticipated by investors investing in those stocks. I feel like I've talked about this a lot, but I feel like that relationship has got shorter and shorter between the transmission mechanism being. Two months ago, people started thinking interest rates are going to fall quite dramatically over the next couple of years. You saw a lot of those companies move very early, and then you get the rate cut, and it's almost a non -event in terms of follow-up because it was already expected.

[0:09:52] GB: I'm onto that sort of market as the anticipatory machine. It's also in evident interest rates. There's that market law that when you get that first big rate cut, then your economy slumps into recession and we sort of touched on that a little bit already. Do you think that's something to be worried about?

[0:10:10] SJ: Definitely, something to be worried about, and particularly, I think with markets where they are, it has been a good two-year period. Very, very focused on the large and better-quality end of the market, but still overall indices have done very well over the past couple of years. To the extent that the earnings take a hit because of a recession, and I can see that being bad for stock prices, I think there's evidence on both sides of the argument here. I think Powell's right that the natural rate of interest needs to be lower, and that's just a simple fact with where inflation is at the moment. But there's been quite a few companies, and statistics at the moment talking about weakening labor environment, weak consumer. Even just last night, it was one of the weakest consumer confidence reads we've had out of the US for a long time.

So, there's definitely a bit more pain out there at the moment, but it doesn't feel badly recessionary to me just yet. So, we'll see. I mean, when you look at the historical data in terms of whether the overall market is going to do post-rate cut, it is a mixed bag, and that is the key metric, is it a rate cut that helps the economy grow quite healthily from here or is it a sign that there's a big recession down the road.

[0:11:23] GB: Yes. I mean, we've got this chart that Baird put out, showing the movement in the following months after months, years even after a rate cut. There's been some wide dispersion, there's no clear trend. So, 2001 and 2007, two situations where stock market continued going down significantly for a quite extended duration after the first-rate cuts. Both those situations, I mean, with the benefit of hindsight, of course, but they were slow moving train wrecks. We had a massive unwind after the tech bubble in 2001. 

Then, what ultimately developed into the GFC in 2007 and 2008. The other years when you roll them off, they feel a bit more normal, 1995, 2019, 1984, '87, '89. Eighty-nine was probably at the start of a pretty decent recession. I don't think there's any pattern there for us to take advantage of.

[0:12:21] SJ: No. We're coming off a period for financial markets that I think is unprecedented in terms of COVID's impact on the ups and downs. I don't think there's any reason to think that the next few years is going to be particularly predictable based on historical trends or anything. What about this small versus large valuation discrepancy? I feel like people are much more interested in the small and mid-cap part of the portfolios at the moment. It's been so good at the big end. What was mostly an international phenomenon has been true here in Australia now as well with CBA performing very well.

There's been a gap here in Australia too, but that gap has been particularly wide over the past few months. So, I do think people are looking for what's next and the small and mid-cap angles getting a bit of traction. Is the rate cuts cycle the start of that gap closing here?

[0:13:12] GB: Potentially. I don't have any fancy charts to point to at the moment on this, but rate cuts, especially unexpected rate cuts, they tend to benefit the more marginal businesses. Think heavily-geared businesses, cyclical industries, lower-margin businesses, companies that don't necessarily lead their markets of secondary and tertiary competitors. So, they tend to benefit the most from a cheaper funding, and cheaper finance. and cheaper cost of money. That includes a great number of businesses in the small cap, although not necessarily the ones we're targeting, but you can really boost that.

I think it's probably a secondary influence. I think starting valuations is really, really important in small cap land in particular, the big periods about performance. One that comes to mind, 2001-ish to 2007. Just because those small caps got so bombed out firstly by people taking money out to go and buy tech stocks back in the boom. Then, the fairly difficult recession they hit in that early 2000s, and then build off that base. It was five years of outperformance. Then everyone was a small cap manager by the end of it. I think we're probably in maybe a similar situation right now. One point I would like to make is, when we talk about that relative valuation, let's keep in mind that we are talking about relative valuations rather than necessarily absolute. We are comparing against a subset of large companies that are very different to the ones that dominated indices, say, 40 years ago. 

They grow fast, they're very tech focused, and maybe they themselves have been big beneficiaries of lower cost of money as well. So, our job is to find absolute cheapness as well as relative cheapness.

[BREAK]

[0:15:09] ANNOUNCER: Stay tuned. We'll be back in just a sec. Are you a long-term investor with a passion for unloved bargains? So are we. Forager Funds is a contemporary value fund manager with a proven track record for finding opportunities in unlikely places. Through our Australian, and international shares funds, investors have access to small and mid-size investments not accessible to many fund managers in businesses that many investors likely haven't heard of. We have serious skin in the game too. Meaning, we invest right alongside our investors. For more information about our investments, visit foragerfunds.com. If you like what you're hearing and what we're drinking, please like, subscribe, and pass it on. Thanks for tuning in. Now, back to the chat. 

[EPISODE CONTINUES]

[0:15:51] SJ: Yes. It's not straightforward, and I even think at the smaller end of the market, you've seen this in both of our portfolios. But the better-quality businesses have done particularly well over the past couple of years. They've performed in line with those better-quality large cap stocks. So, it's been a large versus small phenomenon. It's also been a quality versus lack of quality phenomenon. I think sailing into what could potentially be a recession or a slowdown, that more cyclical difficult end of the market's got okay. Lower rates are generally good for things here, but unemployment and a difficult economy is not. They're more fragile businesses than the better-quality ones. 

I think the money from here, there's going to be more money made amongst those stocks, finding the right ones that are going to navigate through this, the ones that haven't performed well over the past few years. Motorpoint's up a lot recently, but still below where it was quite a few years ago. There's a number of, I think, interesting opportunities in the consumer discretionary space out there that are in the same boat. We're both pretty big fans of Yeti and Crocs in our portfolio that share prices have been volatile, but it's three, four, five years of sideways movements overall for those stocks. I think their examples of better, some better-quality retailers there that can come out the other side of this looking quite well. 

So, yes, I don't think it's as clear cut as just going by the small cut market, especially given the same as this happened overall markets, the better-quality small cups have become a much bigger percentage of those indices than they were before. We're recording this podcast at the end of September.

End of October is Forage's 15th birthday, believe it or not. Australian shares fund was launched on the 31st of October 2009, just coming out of that financial crisis. It was called Intelligent Investor Value Fund back then, but it's the same fund and many of the same unit holders that we had back then when we started that fund still with us today, and we met with quite a few of them going around the country. There's no reason it has to be any sort of juncture or any different to any other year, but we got a lot of questions about longevity and plans for the business around the country. It did get me thinking that it feels like a juncture in our history in a lot of ways. I'm 46 now, 15 years the business has been going and another 15 years I'll be in my early sixties.

We've learned an incredible, incredible amount, been a lot of fun, a lot of difficult lessons along the way as well. I don't know, it does feel like a juncture of sorts where we've got a really nice consistent team of people here now. I'm looking forward to this next 15-year period with a lot of excitement about what we can do. So, I just thought we'd have a general conversation about that, get your thoughts on where you've come from, and two, us as a business in terms of things that you've learned over that period.

[0:18:49] GB: I think one of the things that is probably important for our investors to understand is the way that process has changed over the last five plus years. You've talked about this with a lot of clients, at least individually, that this business started off as a stock picking business, and a process inside your head. As the team got bigger, it was a process in my head, a process in other analysts' heads as well. I think we've done a very good job led by you, of course, to institutionalize that and to get it so that we are working as a team and working on a structure that is fairly standard. Rather than just going around looking for cheap stocks around the world.

It is a process that is easier now to bring new staff members into, if they have the right temperament for our style of investing. It's more self-evident what we're doing and it's easier to compare between different investments, whether they're worked on by one analyst or another. Which is an important part for them, the portfolio managers to be able to pick how to put it all together. But I think that that sort of institutionalization, I know that's probably not a great word, but we are trying to make this more of a team effort. I think we've made some very big strides here in standardizing things and making them more comparable. 

[0:20:12] SJ: Yes. For longevity, it's absolutely fundamental. I mean, I'd really like this business to outlive me and to be successful. It needs to be about that process and philosophy all needs to be part of our culture, and codified rather than just one person saying something. I think what's interesting for me is that, that process that we've now got and landed on, it's not exactly what was in my head ten years ago. There have been people come into the business that I've learned a lot from. There've been things go wrong that I've learned a lot from, and that process has some pretty big differences from the way I was thinking about the world 10 years ago. The main ones are around portfolio management.

I think we've got a really, really good sense for people panicking, for stuff being unloved, for where bargains arise, and how they come about, and never want us to lose that as a business. It's fundamentally important how we make money out of those environments without taking on too much risk has been where most of the effort has gone to in this process. Both stock specific level and then at a portfolio level, how do we mitigate the impact that mistakes make on your portfolio. From my experience, they're actually inevitable. They're going to happen. Especially with our style of investing, you can maybe touch a little bit on this. But when you're waiting into that uncertainty, when you're wrong, it's going to be expensive.

[0:21:45] GB: Yes. I think the way I was going to put that there is that process has been an important thing in the whole company. I think that portfolio management piece has been something we've, maybe you've gone through as well, but I've gone through it significantly over the last few years. I've been appointed as portfolio manager some years ago. Grasping that that is a different job to stock picking took a few years. There are two jobs for the portfolio management is to make sure that the stock selection is excellent. But then, there's a completely different job to put this together so that we're not too exposed to anyone, headwind or tailwind, anyone factor, any one interest rate change, or a war, or whatever it is.

Separating those two jobs and learning to get better at the job of portfolio management has been a really important part of my development over the last few years. The most important part, I would say. I think from the whole company point of view, where we're doing a much better job of it, actually thinking of those as really two different roles. 

[0:22:49] SJ: Yes. Then, it's related to stock picking, but just actually embracing the certainty of the situation that we're going into and not being overly confident in the early days of an investment. I think there are still times, and you see it in our portfolio, you're seeing 8%, and 9%, and 10% weightings in some stocks, but reserving that for a particular type of business, and also a business that we have owned for a decent amount of time. We want to buy, make our initial investment in these companies at times of distress. That's when we get the bargains. 

We work out over the next few reporting periods, a couple of years, whether that distress was justified or not. Then, I think the capacity to really upsize those investments where they are working out as you had hoped when you first bought it. You can afford to miss out on 20% and 30% of upside.

[0:23:45] GB: And more.

[0:23:46] SJ: Most of the stocks that we've got right, we've made three, four, five times our money out of. I think just sensible conservative initial weightings in those stocks, and then upsizing them when we're on that path of the –

[0:23:59] GB: Proving that we're right or closer to right, let's say.

[0:24:03] SJ: Yes, and never fully approved, but you get a lot more certain as you collect more information over time. Then, maybe one other thing that has been an interesting time for us in our Aussie portfolio, Gentrack and RPMGlobal going into the ASX 300. Just trying to think, I'm not sure I've actually ever owned a stock for that full journey from Gentrack's case, $150 million market cap too. You're big enough to get put into the ASX 300. There's a certain amount of liquidity required. Effectively though you're the biggest 300 companies on the ASX. Just owning both of those companies for the entirety of that journey, the weight has been managed first up, and then down as the margin of safety and the valuation of that business has become much closer to the share price. We've managed it, but we've owned both of those stocks all the way through to them going into the index, and capturing that upside in the right business when we're right has become increasingly, increasingly important to me.

We had a couple, Jumbo Interactive and Dicker Data that we owned in the early years of the fund's life, where we did a great job of finding a hidden gem, and sold it after we doubled our money. They both went on to be in the ASX 300 now and –

[0:25:21] GB: Very large companies and –

[0:25:23] SJ: Yes, another three times at least in both cases relative to where we sold them. So, I think recognizing when you're heading down a path where other people are going to apply much higher valuation to the business, and capturing more of that upside in those companies is very important. 

[0:25:41] GB: I wondered if you could maybe share any insights around how you decide which of the businesses that are on the right path versus maybe ones that you've made some money out of it, but you probably should be selling it.

[0:25:53] SJ: The first piece is a really clear roadmap around what you think is going to make the investment a success. Some companies end up going better than you had anticipated. You touched on Norbert before. We'd probably – 

[0:26:05] GB: That was in the first take, wasn't it?

[0:26:06] SJ: Oh, sorry about that. Gareth touched on a stock called Norbert before that –

[0:26:06] GB: I'll bring it up in a moment if you just hold your horses there.

[0:26:14] SJ: The business has made a lot more money than we ever anticipated in making. So, you only know that that's the case if you've got a clear roadmap about what you expect to happen. It's more likely with certain types of businesses than it is with others. I think where you've got the capacity for the businesses sector that's going to grow over time, and it has the capacity to grow its own market share of that sector. Versus, for example, traditional media here in Australia at the moment. You can make money out of businesses that are generating lots of cash flow and giving it back to you in those sectors, but they're never going to become something different from what they are. 

I think that Alex Chevrolet likes to call it open-ended and closed-ended, but just recognizing is this a business that can surprise me positively on the upside, what do I need to look for to see that coming. Versus, this is a bit of a cigar butt that we're just trying to get the last puff out of. When we get that puff, it's time to move on to something else.

[0:27:09] GB: I think just to bring that back to the international fund that I work on, I would call our European bank investments, the sort of closed-ended opportunities. We think they're worth 50%, 60%, 70% more than we paid for them. But as we get that profit, we probably harvested the chance of them growing dramatically above that is slimmer. Then, you've touched on Norbert. That was a business we bought in an IPO. It took a few years, but then it just started delivering the goods in a tremendous way. The management team has now developed the track record of genuinely under proposing and overdelivering. It's growing much quicker than I would have thought. It's become more profitable than I would have thought. 

So, there's been multiple junctures on that trip where we've had to say, actually, our original thesis here wasn't right. We were too conservative. We can change all the numbers here. We still want to own it. Now, we own a lot less stock now than we did when it was trading at 20% of the current price, but we have managed to extract quite a lot out of there because we've taken that time to go and reconsider where we should be. I mean, obviously, that's our job but there are situations where you don't want to get too far down that rabbit hole, because there are traps there. There are situations where that's where the multi-baggers are as well.

[0:28:30] SJ: Yes. The other thing that's been really important and this comes back to process and framework, but is just having a sliding scale of required rates have returned from an investment as well. So, as that Norbert has proven itself up, it was an IPO. So, we had a very limited trading history for it. We now have the three years leading up to the IPO and five years since. So, we have a lot more evidence.

The management team have made some big promises and then delivered more than those promises. The liquidity in the stock has improved. There's a lot more buying of it. So, all of those things for us go from, "Okay. When we bought this, we were sitting here thinking we need 15%, 16% of prospective return to own this stock." As we get more evidence, as the risk of the investment comes down, really lowering that discount rates, and someone else is going to pay a price that gives them a nine or 10 on this stock if it ticks all of the right boxes, and that company is doing that. I think recognizing that lets you increase that valuation quite meaningfully. Your assumptions are higher, but also, your required rate of return is up as well.

[0:29:38] GB: That sliding scale, I'll talk about it in a moment, but it's been such a simple thing, but it's been one of the more profound impacts on the way I think about investment. It's been a really useful tool to keep in mind. So, what we're talking about here is that slide that we put up where it shows safe, liquid, low-risk businesses where we're sort of targeting and maybe a 12% return. Then, if we want to own something that's illiquid, maybe more cyclical, less certain, we really want a much higher return, maybe 20% or even more. It's just been a really good way to keep front of mind, put the job in portfolio management needs.

I found this illiquid business. I think I can underwrite or justify a 14% return. Why would I take it? I can buy a really, really robust business, and I can get a 12. Now, don't get me wrong, finding 12s from robust business is not easy. Sometimes you have to go looking in geographies, different geographies, whatever. It really helps keep front of mind that I'm not going to screw around with this small illiquid business with a less certain future for 14 or 15. I wanted 20. Otherwise, I'm going to do more at the left end of the spectrum and build a portfolio that is more likely to deliver positive returns based on the way we manage that risk, I guess.

[0:30:58] SJ: Yes. It can go both ways. You can buy a stock on day one, thinking it should be a 15, and they do an acquisition or the balance sheet changes, and you go, "This is not going the way that I wanted." Liquidity deteriorates and you now need a 20. That actually helps you sell some of the thesis drift stocks. Okay, I'm drifting here, but I'm actually going to put my required rate of return up that forces you sometimes to sell stocks at lower prices than you bought them. Then, we've touched on Motorpoint, it's a really good example, I think of a business that's on the precipice of, is it a good business that is going to grow into something that's more liquid and lower rate of return. Or, is it a cyclical, difficult business that's not going to earn great returns on capital.

[0:31:43] GB: We'll find out. No, I mean, I think we bought this business. It had IPOed not that many years earlier. I had a thesis here that this business could distribute the great bulk of its earnings to shareholders each year. It just doesn't need a lot of capital. Even when it grows the number of dealerships that it has, the net investment is very small. It was right on the right on the cusp of proving that it had paid out of $15 million in 2019, $18 – not dollars, pounds, 18 million to cut to shareholders going into 2020. Then, COVID hit and then the chip shortage hit, new cars dried up So, it hit some really big headwinds that just changed the game move to slowly getting out of it.

I think we're on the, I don't want to use the word cusp again, what's an alternative? You said precipice, I need another one. On the verge of this business proving our original thesis, which we're going through the ringer in the meantime. But it's a business that can generate really good free cash flow in the right environment, and can distribute most of it to its shareholders, hopefully, but it proves to be a cheap stall.

[0:32:58] SJ: I think the point is, it's from a philosophy and process perspective, it is really important to be very open-minded to the fact that it could be either. I'm going to go into this situation and you just don't know what the future holds and you accept that there's a lot of uncertainty out there. You change your portfolio allocation decisions as those probabilities change over time. Well, that wraps up the second take. It was better or worse, Gareth?

[0:33:23] GB: Can you just check this machine. It is recording, right?

[0:33:25] SJ: As far as I can see, it's recording. If it's not, you'll be missing out on a podcast for six months rather than three. So, thank you for tuning in. Please give us any feedback that you've got. As I said, I hope you understand the lower frequency of the podcast, but we'll endeavor to make them as interesting or more interesting than they have been before. Keep your eyes and ears out for the webinar and the quarterly report coming out soon as well. Thanks for tuning in.

[END]