03 October 2023

Kyle Grieve chats with Dede Eyesan about the importance of diversifying geographical investment knowledge for discovering new opportunities and achieving multibagger returns, while also highlighting the role of margin expansion in micro and nanocap stocks. Dede further explores strategies for identifying multibaggers in turnaround and cyclical sectors, underscores the value of understanding the Indian markets, revealing the untapped potential of seemingly mundane multibagger stocks, and much, much more!

Dede Eyesan is the Chief Investment Officer of Jenga Investment Partners (IP). Jenga IP is a fund specializing in allocating capital to public and private companies in any country in the entire world. They own businesses in countries such as Poland, China, Mexico, U.S., Australia, Sweden, Kazakhstan, and France.



  • Why searching for margin expansion is integral in finding multibaggers.
  • The importance of expanding your geographical circle of competence.
  • The magical effects of micro and nanocaps on 10-baggers.
  • How to find multibaggers in turnarounds and cyclicals.
  • Why Indian markets are worth understanding.
  • The prevalence of “boring” multibaggers.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

 Dede Eyesan: You to what really matters. What matters is that you’re able to grow NNs by at least 15 percent year on year for 10 years. You’re at low multiples and you’re improving your businesses. Of course, being founder led, having an owner oriented mentality would be a key factor there, but it’s not about the founder led.

[00:00:18] Dede Eyesan: It’s about the fact that you have good business and you made your business better and you grew over time. 

[00:00:23] Kyle Grieve: On today’s episode, I chat with Dede Eyesan. Dede is a Chief Investment Officer of Jenga Investment Partners. I first heard of Dede when I came across his book Global Outperformers. I researched it extensively, and I came away with a lot of takeaways.

[00:00:38] Kyle Grieve: Most books and research I’ve come across which discuss high performing stocks deal only with Western countries. What stood out to me about Dede’s study was the breadth of multi baggers out there when you simply expand your geography. One of my favorite insights from this conversation was the power of small businesses.

[00:00:54] Kyle Grieve: Dede cut his 10 baggers off at a minimum of 50 million in market cap to start off with. But he told me if he removed that restriction, the amount of 10 baggers would go up substantially, almost doubling the sample size. On today’s episode, we’ll discuss the importance of diversifying geographical investment knowledge For discovering new opportunities and achieving multi bagger returns.

[00:01:16] Kyle Grieve: The role of margin expansion in micro and nano cap stocks. Strategies for identifying multi baggers and turnaround in cyclical sectors. The value of understanding the Indian markets, revealing the untapped potential of seemingly mundane multi bigger stocks, and much, much more. Now, sit back and relax as we get right into this week’s episode with Dede Eyesan.

[00:01:12] Intro: You are listening to Millennial Investing by The Investor’s Podcast Network, where your hosts, Robert Leonard, Patrick Donley, and Kyle Grieve, interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

[00:02:06] Kyle Grieve: Welcome to the Millennial Investing Podcast. I’m your host, Kyle Grieve. And today we bring Dede onto the show. Dede, welcome to the podcast. 

[00:02:14] Dede Eyesan: Thanks, Kyle. Thanks for having me on the podcast. 

[00:02:17] Kyle Grieve: Dede authored a highly insightful book called Global Outperformers, where he researched businesses that returned 1, 000 percent or more to shareholders in just one decade.

[00:02:26] Kyle Grieve: Additionally, he is the CEO of Jenga Investment Partners, which invests in global public and private equity markets. I want to get into the details of how Jenga invests, but first I want to begin by discussing your research. I’d love to know why you decided to do this research and what previous book, people, or research inspired you to do it.

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[00:02:44] Dede Eyesan: Yeah, so I think generally in any career I was going to get into, I always wanted to study the successful stories. So in investment, I’ll be studying successful stocks or the people. And with Global Art Performance, all we did was that we had 100 percent focus on the stocks that did well over the last 10 years.

[00:03:00] Dede Eyesan: In terms of the timing I originally planned to do it ending 2021. And when I started the research, there were just so many stocks doing well, and I just thought I wasn’t going to have a good perspective of the truth, basically. And so I shifted it to a year after being 2022. And the number of our performance was basically cut in half.

[00:03:19] Dede Eyesan: So I felt the research would have a lot more authentic quality per se. And in terms of what inspired me there are lots of research of similar. content. But two, just in terms of the two I came across, I thought were quite helpful. One was Chris Meyer’s Hundred Baggers, which is an amazing book.

[00:03:35] Dede Eyesan: And the other one was a research, I think the makings of a multi bagger by Alter Fox a hedge fund based in the US. They also did something similar, but both were really insightful for me in terms of while I was writing the book. 

[00:03:47] Kyle Grieve: Yeah, when I read it, that’s what I would have imagined you, you would have been inspired by the only other one that I could think of that comes even close, but it’s a lot older is the one that inspired Chris Mayer, which was the Thomas Phelps book.

[00:03:59] Kyle Grieve: But yeah, I absolutely love the research. So how long were you working on it for 

[00:04:04] Dede Eyesan: From when I started doing the research to when I finished the first draft, it took about three months. Over the summer last year, so generally at Django, what I try to do is every summer, I try to do like a big project.

[00:04:16] Dede Eyesan: Some get published, some don’t. Last year’s one got published, and usually over the summer break, so that’s why I was doing the summer. 

[00:04:23] Kyle Grieve: So are you working on a big project right now then? 

[00:04:26] Dede Eyesan: Yeah, we are. I think it’s going to take this and next year’s summer to produce not just one summer. 

[00:04:33] Kyle Grieve: Awesome.

[00:04:34] Kyle Grieve: Can’t wait. I hope that’s published. So you mentioned that you restricted the study to only include businesses with over 50 million market caps, as businesses with lower valuation than that would have little interest from institutions. How would including businesses with less than 50 million market caps have affected your results?

[00:04:52] Dede Eyesan: So actually the companies were less than $550 million as of May 31st, 2022. So how you get to 50 million is 50 million compounded. 1000% would give you 550 million. So that’s actually the starting point. If we included all types of companies, so even companies of market value of 1 million, what happens that the number of upward performers goes from 446 to 935?

[00:05:15] Dede Eyesan: And when you look within the nano cap space, what. we had when we looked at companies worth less than 50 million was that they were overrepresented. So I think the number was about 67 percent of all the outperformers came from just that segment, even though they only represented 47 percent of the universe.

[00:05:35] Kyle Grieve: Yeah. So that makes sense that you would have eliminated them. And so I guess if you had looked at the results and the the different segments that you put cyclicals and stuff like that, would the nano caps have fit into there or was it just an absolute madness of different types of businesses?

[00:05:51] Dede Eyesan: There was a madness of different types of businesses. And I tried to quantify which were turnarounds and which were cyclicals. But what happens is that you have businesses that shift among those different segments. So initially it’s a special situation and then it becomes a turnaround and then next it is a compounder.

[00:06:07] Dede Eyesan: So it’s hard to put them by number in those buckets. But what I’ll say is in terms of the nature of the journey they used and get becoming an outperformer it was quite a wide range of them. 

[00:06:19] Kyle Grieve: So increasing operating margins was a big driver for a large percentage of your outperformers.

[00:06:25] Kyle Grieve: You mentioned three main drivers of margin expansion. One effects of volume growth on fixed costs.

[00:06:36] Kyle Grieve: What were some of the identifiable signals investors should look for to identify businesses that are currently going through or have the opportunity to expand margins? 

[00:06:46] Dede Eyesan: So the margin expansion growth and low valuations are the main big factors in terms of getting to Being an outperformer. And when you look at margin expansion, you basically can bucket them into two areas.

[00:06:58] Dede Eyesan: One are internal factors where it’s in the company’s control, and then you have external factors. So from an external factor one of the industries that had a lot of outperformers where the salmon companies, and that was all driven external. So you have the price that. All the companies have to follow.

[00:07:14] Dede Eyesan: So it’s a commodity business. And in that situation, what you’re really trying to understand is how sustainable is this price for? So with salmon, you can’t wake up the next morning and say you want to build your own farm. You need to have the right aquatic regions. And I think Really only Norway and Chile really have that at a global scale.

[00:07:32] Dede Eyesan: So you have supply that’s a natural constraint. And then on the demand side, salmon is growing, giving, people are looking for more health resources of need. It’s not going anywhere. So in terms of understanding the cycle, that’s a good signal. So you want to be in those industries where supply is constrained for certain reasons, demands growing, even though it’s cyclical.

[00:07:50] Dede Eyesan: And at the same time, you focused on companies that have mainly low cost advantage, room for growth. Room to drive volume and they’re just doing the simple things really well. And a lot of companies exercise that. And I guess on the more internal factors, you are looking at it more from a micro perspective.

[00:08:07] Dede Eyesan: You’re really trying to understand what exactly is going on in this business and why it can drive operating margins. And there are three main sources. The best companies were the ones that were able to combine the different. internal factors. So for example, they’re able to raise prices mainly driven by having better products or services.

[00:08:25] Dede Eyesan: They’re able to drive volume by expanding to new markets and all sorts. I think those were the businesses that really had really high performance. And with them, it’s just understanding how the business works, how it functions, and why exactly they’re raising prices. Is this something that’s sustainable or?

[00:08:43] Dede Eyesan: This is something that’s unsustainable. And you have businesses that raise prices, but it’s not very sustainable after two or three years. And you want to focus on those ones that can do that over the longer term. And that’s mainly driven by having better products, having better services. 

[00:08:56] Kyle Grieve: Yeah. So obviously you can use a screener, to just look at businesses with specific operating margins, and then just look at their history to see if they’re increasing. What other. Qualitative. You just mentioned if the business is selling an incredible product, that’s just better than its competitors, that might be a signal that they’d be able to keep their operating margins high or increasing over a specific period of time.

[00:09:18] Kyle Grieve: What other qualitative factors did a lot of these outperformers show you? 

[00:09:22] Dede Eyesan: I’ll give some examples of some of them that should operate in a margin expansion. So we, one of the buckets were the ones where they shifted into new products. So a good example was Neste. Neste, that’s a Finnish renewable.

[00:09:35] Dede Eyesan: Initially they focused on just diesel. And then what happened was that I think in late 2009, 2010, they started going into renewable diesel through their own proprietary technology. And then what that happened was I allowed them to earn more margins per volume, so per liters or barrel, you’d say. And also there was a lot of subsidy because again, this was a product that was actually creating value for society really.

[00:09:58] Dede Eyesan: So there was a lot more subsidy flowing into these areas for nesting. Now, what then happened was that when you look at the percentage of their revenue, if you look through the years, the renewable diesel was going up while diesel itself was just going down. And when you go to about 2017, I think it’s had.

[00:10:15] Dede Eyesan: Becoming the majority and then you really saw the margins go up. So I think margins went from like 1% or so, or 2% to like 12, 13%. And you’re able to get half of the our performance in terms of getting to 1000% from just switching products. So in that situation, you are really trying to understand the competitive edge the new product has of arrivals.

[00:10:34] Dede Eyesan: So next day, again, they were the first. Mover in the industry, and they still have that market leadership. So when you’re thinking about it from a competitive view, it’s still strong. Another example of margin expansion was the ones that they didn’t really change their product, they just impacted the non-product factor.

[00:10:53] Dede Eyesan: So again, another good example here will be Britannia in India. So they make biscuits. I know it sounds weird making biscuits and telling you it’s going to return 1000%, but they made biscuits in India. And of course, India is a really large population, a billion plus. And what these guys did was they had legacy biscuit brands that had been around since 1800s, but a mixture of Computation from Nestle plus some other players and also internal mismanagement made their margins go down.

[00:11:21] Dede Eyesan: New management came in. They shifted their focus from the tier one to two cities in India. They renewed different partnerships with distributors. They cut down on wholesale and expanded more on direct to consumer and then also launched new products that were higher margin and, when you look at the combination of those factors, that’s why they were able to Grow revenue and grow earnings over time and of course get that margin expansion.

[00:11:43] Dede Eyesan: And there were other examples as well. You had companies like Tesla where I mean I didn’t introduce Tesla to anyone, but like you had companies like Tesla where they had a better control of their cost by building more plants and going expanding to China when they built their plants in China, they’re able to control cost better and just grow volume and that’s why they were able to get that margin expansion from loss making to profitability.

[00:12:06] Kyle Grieve: Excellent examples. Thank you. So your study showed a very high representation of India. We’re outperformers with 91 total names, which was about 20 percent of the total sample size. This is a country that has fascinated me, but I must admit it’s far outside of my circle of competence. How do you view investing in countries that are outside of your native land in terms of being competent enough in their culture, business practices, and social governance, et cetera?

[00:12:30] Dede Eyesan: So from a personal level, Every company I invest in is outside my native land. Cause I’m from Nigeria and since 0 percent of my portfolio. So I’m forced to learn about different countries and culture. But I think this question, so before I focus more on India, I think this question can be boiled down into two key things.

[00:12:51] Dede Eyesan: So one is that is the fact that human nature is human nature, regardless of where you go. So whether you’re in India, China, the U S people go through periods of over optimism and they go through periods of over pessimism. And it’s being able to understand that I think you’ve solved 30 percent of the problem.

[00:13:06] Dede Eyesan: So if you look at Asia, for example, you had Japan that had this mega bubble up until the late 80s, where the P. U. went up to 60 times earnings. You didn’t need to understand the culture or understand financial statements to see that the market was overvalued by just looking at the top down view.

[00:13:24] Dede Eyesan: It’s quite clear. And same thing when you go to Japan again, you look at 2012. You could tell that these things were undervalued. Companies growing 20 percent earnings growth rate at a times P. E. ratio. That doesn’t, that screams undervalued, especially if it’s sustainable. So I think from a top down view, that’s like you’ve done half of the work.

[00:13:42] Dede Eyesan: Now in terms of micro, so one of the fun things that One of the things I really enjoyed with the study was that it forced me to really look at places that I might not look from I guess from my own portfolio, just because I don’t understand things. And what I realized was that the really good companies, regardless of where they were listed, they provided their investors or shareholders with enough information.

[00:14:03] Dede Eyesan: I think anyone could make decisions. I remember going through M3. M3 is a Japanese company. Financials were all in Japanese, but if you look at their prospectus. From 1999 or 2000, it’s so clear what exactly they were trying to do. So they basically built this healthcare platform where you can do all sorts of things.

[00:14:21] Dede Eyesan: And what they were trying to do was make healthcare less time consuming, more cheap and a lot more efficient. And it was so clear in terms of the new product launches, the investments they were making, how management were thinking, regardless of the culture and same thing with the companies in India. Again, look at Britannia when the new management came in 2012.

[00:14:38] Dede Eyesan: 13, I believe like it was really clear in terms of what exactly he wants to do to get Britannia back into market leadership. And if you look through the years, he followed up on that. So regardless of it being in India or it being a frontier market, I think good management will make it clear to shareholders in terms of what they want to do.

[00:14:54] Dede Eyesan: But with that said it’s at the end of the day, you still have to understand how things work locally. And I think that just comes from experience, reading things, speaking to local investors, speaking to local managers, just building that competence over time. 

[00:15:07] Kyle Grieve: Yeah, that makes a lot of sense about the way you’re explaining that the management in these companies in other countries is really important.

[00:15:15] Kyle Grieve: Not that the business obviously isn’t if you find a management team that seems trustworthy and maybe even has a really good track record, that’s definitely going to help remove a lot of the worries that investing in a foreign land would have. 

[00:15:28] Dede Eyesan: Yeah, the track record is so important because when I’m looking at, when I was doing the whole project from 2012 to 2022, I was trying to remove myself from 2022.

[00:15:36] Dede Eyesan: I take myself back to 2012 and really follow on that track record before 2012 and also after. And it was just quite clear that a lot of these companies were consistent with what they were doing and with the goals they had set. And I think if you’ve spent a lot more time focused on that track record, even with turnarounds, I think you’ll be able to get some value out of that.

[00:15:56] Dede Eyesan: regardless of the country you’re in. 

[00:15:58] Kyle Grieve: So reflecting on your research, how many of these outperformers do you feel were predictable back in 2012? There are some big winners in super highly cyclical industries. Do you think that investors without an in depth understanding of say mining or chemical industries would have been able to find some of these businesses early enough to capture the 1000 percent upside?

[00:16:19] Dede Eyesan: I think this question would be a scope for the next book, which will be easier to find. That really depends on who you are and what your competence is. So from a personal angle, I really enjoy investing in consumer discretion and staples. One, because I like looking at products and seeing what people are buying.

[00:16:34] Dede Eyesan: And I find it easier than diving into like chemicals I have no idea about. So in terms of who I am, I might find consumer easier than industrials. Now, someone who has an industrial background, they might find looking at chemicals or add poets. easier to understand than consumers. So I think it’s legendary investors like Warren Buffett preach these things.

[00:16:55] Dede Eyesan: And I think it’s really important with outperformers. It’s easy to like, look at outperformers in industrials and say, yes, I should have caught this, but it’s very hard. And the reason why it’s very hard is if you look at a lot of the outperformers, especially actually in industrials, is that a lot of them fell 50 percent before 2012, or they had this wide swings as a whole sector.

[00:17:14] Dede Eyesan: And with cyclicals, With compounders, you can get away without understanding the competitor because you’ve spotted something that’s just so unique and you think is going to work over the long term, where you’re not really worried about what competitors do. Whereas with cyclicals or with turnarounds, you really have to understand the macro and how the macro affects the industry and also how competitors affect that company.

[00:17:34] Dede Eyesan: So you have, you need a much deeper understanding of Why this would change. And I think with cyclicals with turnarounds, I don’t really think there’s a shortcut with building that competency with the industry. And when I was looking at the companies that had done very well, and I was trying to make that self reflection, I think one of the lessons for me was if I’m going to invest in cyclicals, I really need to spend a lot of time trying to understand how the cycle works and what drives the demand supply of that cycle.

[00:18:02] Dede Eyesan: I don’t think there’s any shortcut to that. I think everyone has to just learn that work. 

[00:18:06] Kyle Grieve: Yeah, so outside of cyclicals, which investment style outside of compounders, turnarounds, stalwarts, and special situations do you anecdotally find the most predictable after conducting the study? You mentioned you really like consumer durables, but yeah, I’d love to get some more light on that.

[00:18:22] Dede Eyesan: Is this from an industry, geography, or just investment style perspective? Yeah, like I guess an industry. Again, for me, industry, I thought the consumer companies were more predictable. Some of the ones from the top of my head, I think if you looked at Britannia and you try to understand what exactly mines were going to do, I think it was clear that they had a superior product.

[00:18:44] Dede Eyesan: With turnarounds and cyclicals, you’re really trying to understand especially with turnarounds, you really try to understand if this company has a superior product. You could, the other things can be solved really quickly, but if that company doesn’t have a superior product, it’s going to be very hard to achieve a turnaround because it’s just so much work.

[00:19:02] Dede Eyesan: So I think that’s the first question. Do they have a superior product? And I think answering that question when you have access to the customers, they might be your friends, family, might even be yourself. I think it’s much easier to answer that question instead of trying to answer if this renewable diesel product is better than alternatives.

[00:19:19] Dede Eyesan: I have no clue about that. So I think from that perspective, consumer and businesses where you’d have access to the customers or the supply chain will be the easier ones to understand. The most complicated ones were the ones where they were diversified across different areas. Some of the case studies we did were businesses where they had several segments.

[00:19:39] Dede Eyesan: One that comes up from my head was Hypoport. So we did a case, we did some cases in the book and Hypoport, it’s a German company. They basically have a brokerage platform across real estate, insurance, like a bunch of financials. Trying to understand even though I could see all the annual reports and I could see all that data.

[00:19:56] Dede Eyesan: And I asked myself, looking back in 2012, will I have predicted this is going to be a 10 bagger? The answer is still no, because we’re just doing so many things. I’m really just trying to understand that mode without being from an outsider perspective, it’s just so tough. So I think it’s easier. Again, investors, we.

[00:20:11] Dede Eyesan: With some, I myself, me included, you sometimes try to overcomplicate things where you think an outperformer might be this loss making company that’s going to do something so unique and so complex, or this very complex business that only you understand what exactly they do from the outward. But sometimes you overcomplicate things.

[00:20:28] Dede Eyesan: Sometimes it could just be simpler businesses. And I think it’s just easier to also focus on this type of business. There were so many examples of companies where they had two, three core products in one industry. They were already profitable. It was very clear. They had a track record of having the star product that rivals just couldn’t replicate and they turned out to be outperformers.

[00:20:49] Kyle Grieve: Yeah. And going back to what you were talking about Buffett and he just absolutely loves simple businesses. And if you can find businesses that have one or two or three core products that are likely to get better and better over time I think that your research shows that can drive a business to do really, for a really long period of time.

[00:21:09] Dede Eyesan: There are so many examples of them. I look back now and I’m like, I should have spent a lot more time focusing on certain areas. One of the examples we did in the book on Keisha, there was Anther Sports. And Anther Sports, I know in China, there was a discount in China. So that obviously impacted its journey to becoming an art performer, but they literally did really simple things.

[00:21:27] Dede Eyesan: They sold apparel. In China, population of more than 1 billion people and a consistent 20% EB margins, and it was very clear that they’re gonna end that 20% EB margins regardless of what happened. Founder led very simple business and it was quite a straightforward journey for them achieving that. 

[00:21:42] Kyle Grieve: A very interesting quote from the book was, Among the companies that returned more than 1000% between 2002 to 2012, only 23 of 300 companies were among the 446 outperformers between 2012 and 2022.

[00:21:56] Kyle Grieve: Did you observe any specific traits in businesses that returned 10 x and two consecutive decades? 

[00:22:02] Dede Eyesan: Yeah, 10X in two consecutive decades, it’s, the odds are against you. Basically one in one in 10 maximum would end 10X in two decades. So I think the buy and hold forever philosophy and expect in our performance year on year for 20 years, it’s going to be very tough.

[00:22:19] Dede Eyesan: So in terms of the businesses among those 23 businesses, when I looked at them, one thing stands out, they came from one country. Most of them, I want you to guess which one it is. India. Yeah, it was India. I think 18 of the 23 came from India and outside India, you had five businesses. One of them was Amazon of course, another one was Old Dominion, Freight.

[00:22:39] Dede Eyesan: When I looked at the ones in India, so all the companies apart from Amazon had a market cap of less than a hundred million. So relax of footwear. It’s one of India’s largest footwear brands. They had a market cap of just 4 million 2002, and between 2002 and 2022, they grew revenues 18 fold. Earnings grew like 23 fold, something like that.

[00:22:59] Dede Eyesan: And these were just businesses that were able to grow for a very long time consistently. One of the more crazy examples was vtech software. So vtech software, they basically. They’re like Constellation software where they just invest in software businesses, buy new businesses, expanding to more verticals in very niche business critical areas.

[00:23:19] Dede Eyesan: And over that period, I mean they grew fif, they grew their revenues 59 fold, I believe, from yeah, they grew their revenue 59 fold and earnings grew like 180 8 fold between those 20 years. And these are really small businesses that they were profitable year on year for very long periods of time.

[00:23:36] Dede Eyesan: Amazon was the odd one out in terms of, they. were quite big when they started that joint in 2002. But then again, you have to remember that Amazon is a very big market. I guess the summary is you look for businesses that have the competitive edge in big markets, but they have small market shares and have room to grow.

[00:23:54] Dede Eyesan: That was the magic formula, you would say, with those 10x in two decades companies. 

[00:24:00] Kyle Grieve: So there are a few massive turnarounds in your study. You already mentioned Britannia Industries and then a couple of those ones were Trex and Adobe. So for investors who are interested in turnarounds, what were the primary characteristics to search for when looking for future turnarounds?

[00:24:13] Kyle Grieve: And have you recently researched any developing turnarounds that interest you? 

[00:24:17] Dede Eyesan: Yeah. The first part of the question on like lessons from turnarounds. So again, at the end of the book, I put together 10 lessons I thought I learned that were really important. Some of them are quite common, like everyone would know them, but like with turnarounds, the framework to use for turnarounds I thought was useful is called the distance analysis.

[00:24:35] Dede Eyesan: And one of the famous investors, Nick Sleep, he’s actually used that framework in terms of. is thinking on investing. So the distance or the journey per se analogy is you want to think about these investments from a distance, time and speed angle. So with distance, you want investments that can go very far.

[00:24:51] Dede Eyesan: So a very far investment will be a business that in their best scenario, they earn 10 percent EBIT margins, but right now they’re earning 1%. So if they get things right, they can go from 1 percent EBIT margins to 10 percent EBIT margins really quickly. From a speed angle, you want things that can go really quickly.

[00:25:08] Dede Eyesan: And what that happens is that reduces the journey that you need to do to get there. And then again, when you think about it from a turnaround angle, these are businesses where the problems are not product driven. They’re either marketing or supply chain or cycles just turned a lot. So a good example here in the U.

[00:25:26] Dede Eyesan: S. was TREX. So TREX, they make alternative wood. I know that sounds very boring, but when you actually look at the journey of how they became a 10 bagger, it’s so interesting. So the founder, the original founder of TREX had developed this product where he combined sawdust and shredded plastic. And they basically reinvented a whole product called alternative wood.

[00:25:45] Dede Eyesan: And I think mobile bought them and then they spawn off and then they went public and they had about 20 percent EB margins just in the years leading to the financial crisis. And then when the financial crisis happened, they fell to 0. 8%. So when you’re thinking about it from a turnaround, you’re asking yourself, what is the journey it needs to do to get back to where it was before?

[00:26:06] Dede Eyesan: So now if you look at the margins falling to 1 percent and you’re asking yourself, can you get back to 20%? The first thing is to look at the competitors. If you had looked at the competitors in 2012, you’ll have realized there were no new entrants to the market. Trex, even though they were failing or struggling, they still had that market leadership.

[00:26:21] Dede Eyesan: That makes the journey of being a turnaround so much easier because you’re not really thinking about, do I need to change my product? You just need to reorganize cost, cut down in certain areas, improve your marketing process. And that’s exactly what new management did. And if you look at the journey, they went from having poor margins back to where they were in 2005.

[00:26:40] Dede Eyesan: And it became, I think they went back to 18 percent EB margins and then became a 10 bagger, just from margin expansion alone. Some other examples are even easier. So again, I mentioned like Antosports. So Antosports, they do uproll in China. And then what had happened in China was that in 2008, After the Olympics, all the Chinese brands in Aperol had expanded very aggressively to just get market share in the years leading up to the Olympics.

[00:27:02] Dede Eyesan: And then after the Olympics, people, tourists left China people were less excited about sports. The market basically crashed. So if you looked at Antosports, you’ll have noticed in 2012, their share price fell by 75%. But where it got really interesting was that. Even though the share price fell by 75%, the EBIT margin only fell by 2%.

[00:27:23] Dede Eyesan: So it still earned 18% EBIT margins and was P ratio felt like four times. If you compare that to the rivals, like leaning and some other players, they went loss making. So the journey of getting back to where they were before was gonna be so much easier. Why? Because they had cash on their balance sheet.

[00:27:40] Dede Eyesan: They were still profitable. They had much better run stores. And the management realized that and they just worked on improving Antiskills they were before. So the journey to being an outperformer was a lot less complicated than leaning, for example, like race capital and get private equity, money invent new product, that sort of thing.

[00:28:00] Dede Eyesan: So I think overall with turnaround, if you utilize that distance joining framework. And keep it easier for yourself where it’s less product driven turnarounds. It’s so much easier to really understand the journey to getting there. And I guess from my portfolio, I don’t, I used to spend a lot of time on turnarounds.

[00:28:19] Dede Eyesan: Right now we have shifted. I’ve always looked at compounders, but portfolio is more weighted towards compounders. But in South Africa, we had two turnarounds that we invested in one was MTN group, which is the. largest telecom player in Africa. And when I look at, when I go back to the distance journey analysis framework, MTN, they had fallen COVID and there’s a lot of pessimism in terms of Nigeria because of oil prices crashing during COVID.

[00:28:47] Dede Eyesan: So as a turnaround, and these are more macro problems, not product problems on the product level, people still use mobile money and it’s still growing. And also data, internet is still growing as well. So when you look at telecoms, it’s a declining industry in most regions, but in Africa, it’s still growing because the telecoms have actually taken market share from banks, from a financial services lens.

[00:29:08] Dede Eyesan: And then also internet is still under penetrated there. There’s still room to grow that data volume. So in terms of a turnaround, it was easier to achieve. And that was a turnaround that we invested in three years ago. And with ShopRite, it’s the largest retailer in Africa. They made some missteps in terms of their growth model and they were expanded into lots of regions outside South Africa.

[00:29:29] Dede Eyesan: So what they did was that they scaled back that growth outside South Africa and countries like Nigeria. What they did was that they focused on South Africa and then just doubled down on their supply chain. So from a difficulty of a turnaround, it was quite easy where they just had to just shut down operations, just focus on what they did best.

[00:29:45] Dede Eyesan: And that was a successful turnaround as well. 

[00:29:49] Kyle Grieve: Excellent. Decreasing debts and increasing operating margins were two of the big growth drivers that can be screened for. What are some other screenable metrics that you think would help investors search for future outperformers outside of, say, just evaluation?

[00:30:03] Dede Eyesan: So just before answering the question, I used to be very dependent on screens, where I look at businesses reducing debt or increasing revenues, that sort of thing. But when I did this study, I realized screens is looking at past data. And the problem is that if you’re screening companies on a debt level where they’ve fallen from 60 percent to 20%, let’s say debt to capital ratio, that’s good in the past, but what you’re thinking about is the future.

[00:30:28] Dede Eyesan: And if that company ends up doing an acquisition next year, where they need to raise debt for, and debt goes back up that screen hasn’t really helped. So I think one of the lessons that I learned. from just doing the global performance book. I think the best way to really screen for companies, just look at things from an A to Z lens and then just have a two minute research process where you just quickly look at a business and you try to figure out where to sit and if they can achieve good returns.

[00:30:53] Dede Eyesan: So I think that was one of my takeaways from a screening lens, but that said, if you have to screen because of time, I think. Profitability is a good way to filter out companies. So again, if you look at the outperformance, 82 percent of the companies that ended up outperforming in the 10 years. They were already profitable.

[00:31:11] Dede Eyesan: So you could basically say four in five outperformers will be profitable. So you can quickly remove companies that are just unsustainably unprofitable from that list. And then also, you also want to see some signs of future growth going forward. I think growth is really important. Now, the problem with growth is that you can’t really screen future growth because you could be growing 30 percent in the prior five years, but in the next five years, you might not even grow your earnings.

[00:31:34] Dede Eyesan: It’s something that you just want to be really focused on and ask yourself, can this business raise volume? So can they grow volume? Can they raise prices? Or can they reduce loss making or less profitable segments and expand their more profitable segments? And the answer is none of those three from your five minute initial due diligence.

[00:31:53] Dede Eyesan: I think just move on to the next case. 

[00:31:55] Kyle Grieve: You did a good job of separating industries in your research and showcase that certain industries just aren’t great outperformers from your dataset. Do you think poor performing industries will mean revert and produce more outperformers in the next decade after 2022?

[00:32:09] Kyle Grieve: And if so, which industries or themes seem ripe for the future? 

[00:32:14] Dede Eyesan: From an outperformance lens, there’s some industries that are at a disadvantage. When we talk about outperformance, we’re really looking for profitable growth. Now, for some industries, it’s hard to actually achieve profitable growth at a fast rate.

[00:32:29] Dede Eyesan: One, it could be regulation. So when you think about utilities, they’re just not built to grow. And because if they’re growing by raising prices, like when you think about the political climate and regulatory risk, they’re going to be on their toes and they’re going to have to cut prices to improve life for consumers.

[00:32:43] Dede Eyesan: So when you look at utilities, that was the worst segment, only five outperformers and all five were renewable businesses. And because renewable has a lot of support from a subsidy lens in terms of governments, it was able to grow. But that’s not going to last forever. So if you remove the renewable segment from utilities, there was no outperformer.

[00:33:00] Dede Eyesan: And I don’t say that mean reverting, cause I think it’s going to be that the case. So I’m not saying, and that doesn’t mean you shouldn’t invest in utilities. I think if you invest in utilities, you want it to be more value driven where. On average, they trade 10 times earnings, but there’s been some pessimism and now they’ve fallen to four or five times earnings.

[00:33:16] Dede Eyesan: So you could see them doubling or tripling in that sense, but expecting 10 baggers from gas or water producing companies. I don’t think that’s going to happen. And same thing goes for like financial segments where you look at banks. and insurance. So insurance as an industry, most companies have to pick between good combined ratios of good profitability with growth.

[00:33:35] Dede Eyesan: So if you’re growing, there’s a high chance that you’re going into weaker profile customers to insure. And that has a long term problem. So insurance though, I think there was only one outperformer from insurance and that was a Saudi company. And Saudi, if you look at that 10 years, they had the fastest insurance market, life insurance market, in the world.

[00:33:56] Dede Eyesan: I think it was growing about 9 percent per year and Bupa Arabic, which was the outperformer from insurance did really well in terms of being able to drive innovation. And it was really the innovation in the product that was able to drive sales and profits. But that’s not the case across all insurance markets, either sub markets or geography.

[00:34:14] Dede Eyesan: So it’s going to be very difficult for you to see insurance produce outperformers going forward. If you look at financials, it was mainly the non banks. And there’s only one bank. So banks it’s also not a great place to look for our performance. And I don’t think that’s going to mean revert in the future.

[00:34:29] Dede Eyesan: But again, financials, I think you have to look for places where they’re not under the same regulatory scrutiny as banks and insurers. So I think that will be a great place to invest in when you look going forward. So you think about financial exchanges, you think about research houses or loan platforms.

[00:34:47] Dede Eyesan: I think that could be interesting. The other segments that did really well, I think those were information technology, healthcare materials. I think if you look at the 10 years, there was a lot of multiple expansion in information technology and sub-segments like semiconductors. If you look at 2002, 2012, there was only one outperformer from semiconductors, and then in the decade after there was 49.

[00:35:12] Dede Eyesan: So it’s very clear things go up and down with semiconductors. So again, the mistake people make is that this has worked for the last 10 years. It’s going to work for the future. Not really the case. It goes up and down and you’re the only one to understand why exactly it’s going up and down. So I think things like semiconductors would have to go down at some point and then come back up later.

[00:35:29] Dede Eyesan: And it’s just. Being realistic with that assumption, I think you’ll save yourself a lot of trouble. And then lastly, with materials, that was a surprise for me because materials, I really see them as commodities that go up and down. But then if you look at the performance, it did really well. I think about 15 percent of our performance came from materials.

[00:35:45] Dede Eyesan: And in this case, What we had was that you had materials that had either cost advantage, so they were the lowest cost producers in the industry, or they were diversifying into more advanced materials where you had to put in a lot more technology or innovation, and that was, that allowed them to built their moat in the industry and also drive volume growth.

[00:36:06] Dede Eyesan: So from that angle, when you think about where technology is growing and where the world’s growing, I think things are becoming a lot more technical. So industries like materials and industrials, even in a world where we’re moving more into technology, I still think there’ll be room for growth there. So I’ll still say, look at those segments, even though they did really well over the last 10 years.

[00:36:26] Kyle Grieve: Excellent. 36 percent of your old performers had negative returns in 2011 to 2013, meaning if you’d own them before that period and sold due to declining price fluctuations, you would have missed out on a hell of a lot of upside. I’m interested in knowing if these businesses had easily visible and improving profits in that 2011 to 2013 time period.

[00:36:45] Kyle Grieve: And a couple of names that you mentioned were Nvidia, Netflix, Antisports, Salmar, and Abbott India. 

[00:36:52] Dede Eyesan: Yeah there was a mixture. So the cyclical businesses, what happened during that period was that they were actually falling in profits. So in that bucket, some of the cyclical businesses were the salmon stocks.

[00:37:02] Dede Eyesan: So salmon, I believe had fallen by 60 percent in terms of earnings during that period. And same thing with the semiconductor companies. Nvidia, that’s a giant now, was unprofitable in 2012, I believe. At that period, that was when, I think, semiconductor sales fell by minus 2%, and then the fall was even more drastic with GPUs, because gaming fell that year, in terms of PC sales, and…

[00:37:26] Dede Eyesan: Playstation sales as well. NVidi had done quite badly from a profit lens and also from a share price lens. Now, when you look at those cyclical companies, again, the frameworks are very different. When you look at those types of cyclical companies you’re looking for technical buyers to entry. You’re looking for you want to be in those cyclical sectors where a new player can’t just come in.

[00:37:44] Dede Eyesan: Apple can not just start building their own GPUs or if you look at salmon, a chicken or a poultry. farmers can’t just say, I want to start producing salmon the next day. You actually have to have the right aquatic regions and not everywhere has that. Now, by being in those technical IRIS two entries in a much safer situation, why?

[00:38:05] Dede Eyesan: Because the existing players are more likely to still be there when the cycle turns, rather than new players coming in and flooding the market. The other example where companies where like You have another group of companies where it wasn’t necessarily cycles was more product lens or micro factors.

[00:38:23] Dede Eyesan: And you had lots of examples there. So like Netflix shifting more to streaming, the economics initially didn’t work. Then it started working. And as the group volume, it was quite clear that the economics are going to work. And in that case it’s more qualitative than quantitative because rather than looking at how this business has done from a D V D lens, you’re really trying to understand exactly what happens with streaming.

[00:38:44] Dede Eyesan: Why does streaming work? Why as a user, and why am I gonna spend 10, $15 per month on streaming? Why are they gonna be able to keep content costs low? How reputable is this as a business? And I guess with those type of business, you are more focused on the qualitative factors. And if I think. For some of them, if you spend a lot more time there, you’re able to get a better sense of the competitive advantage over their rivals.

[00:39:08] Dede Eyesan: So like with Netflix, for example, they literally created that segment and it was only up until 2019 where you had players like Apple Disney. And as you can see how the share price performed after that, struggled for a bit. That’s really when it became much more of a problem. 

[00:39:23] Kyle Grieve: I’d like to move on to learning a little bit more about Jenga Investment Partners.

[00:39:26] Kyle Grieve: Can you go over the evolution from an investment club to a hedge fund, and how did it start, and how does your investment strategy differ from other funds? 

[00:39:35] Dede Eyesan: I personally started investing at the age of 10. That’s really where my journey started, and it was through my dad. He used his savings to buy stocks, and then he told me to buy stocks, because it’s a great way to make long term investments.

[00:39:47] Dede Eyesan: I bought a few stocks in Nigeria and then four years later, some of them had quadrupled in price. And I told myself this is so easy. Why don’t I spend all my time doing this? And then I realized it’s not that easy. But during that whole journey of understanding most stocks, I realized I actually fell in love with just understanding how businesses work.

[00:40:04] Dede Eyesan: And in university, I started an investment club where I was investing for friends in university and family and later people I didn’t know. And what happened or what caused that transition was really just a deep passion. When you have a passion for something, you want to take it more seriously, like a football.

[00:40:21] Dede Eyesan: kid you know it plays football at home and like I’m so good I’m good at this. I didn’t, you know play for an actual club. So that was what happened. And after university I met people in the industry who were able to help out on the personal side of the business and then they were able to take it you know, into something that’s regulated.

[00:40:38] Dede Eyesan: From a strategy lens, we are global long only equities. So we look at public stocks and around the world. And we have no industry or geography barriers. So we can look anywhere, but really look at businesses that have a market cap of about 15 million as a strategy in terms of, what we do, what I would say is we try to do the little things slightly better.

[00:40:58] Dede Eyesan: So how we understand companies, the questions we ask, the curiosity we show when we’re looking at trying to understand businesses, where we look for the facts, how we stress test the facts and the insights. So that’s what we really try to do. I think one of the mistakes is a lot of younger investors that they try to reinvent the wheel.

[00:41:15] Dede Eyesan: And what I’ve learned is that you don’t really need to reinvent the wheel. What you really need is consistency, discipline. And that’s really just what I try to focus on as an investor. 

[00:41:24] Kyle Grieve: What lessons from your study on global outperformers had the biggest impact on how you run the fund now? 

[00:41:30] Dede Eyesan: Ah, there were so many of them, but I think, so I think I’ll start off from a geography lens.

[00:41:35] Dede Eyesan: So I think one of the struggles as a investor is that you have, as much as you’re thinking about return on your investment, you also need to be thinking about return on time. And you need to make sure return on time, Bill Ackman says this thing, return on brain capacity. So the amount of energy you’re spending trying to understand an investment, you want to make sure that you’re in the highest return factors.

[00:41:55] Dede Eyesan: And there are only two ways to really know if you’re in those right buckets. And that’s either by studying what successful investors are currently doing. So looking at what Warren Buffett is doing and other key good investors are doing, or you’re looking at what has worked in the past. and asking yourself, why has this worked?

[00:42:12] Dede Eyesan: And if it’ll keep working. So by doing global outperformers, I was able to answer that second question by really trying to understand what exactly was working and why it was working. So for example, it was really clear to me that I needed to spend a lot more time as a global investor, understanding what’s going on in Asia.

[00:42:26] Dede Eyesan: And it’s not just because Asia had 59 percent of all our performance is understanding why exactly it had those outperformers, where exactly they were based. Work post in the smaller companies. And the thing with Asia, if you look at their index returns is gonna look very bad. So like China, for example, has returned 1.3%.

[00:42:45] Dede Eyesan: for the last 30 years. Now, I told you this market has really returned 1. 3%. You’re not going to want to spend that much time in terms of looking for our performers. But again, Senna was among the top five performers from our performance lens, and it’s about going into the smaller cap companies, having good filters to remove crappy comments from the good ones and spending a lot more time on the good ones.

[00:43:03] Dede Eyesan: So I think That was my key lesson, knowing where exactly to focus my time on from a geography lens and also from an industry lens. I spent maybe half of my time on consumer discretion and staples. And then when I did the research, I realized I actually have to spend a lot more time on other industries, especially the ones where I think I have some circle of competence within.

[00:43:22] Dede Eyesan: So that was my lesson from from a top higher level. And I guess from a more micro level not really micro from a strategy level was. Understanding that there was life beyond compounders. So I know 2021, 2020 investors got really excited about the idea of compounders, businesses that grow year on year, every year.

[00:43:41] Dede Eyesan: It’s great. I think if you look at what’s going to drive returns over the longterm, I think the compounders would be the biggest drivers, but I don’t think as investors, especially if you have a flexible mandate, we can look at both growth and value. I think. You should also be open to cyclicals and turnarounds as well.

[00:43:57] Dede Eyesan: And for me as a strategy doing this research and seeing how many like great investments even came from turnarounds and biscuit makers and all these weird, simple, low growing industries, it made me a lot more excited about the future of cyclicals and turnarounds. And then finally, I guess the other big lesson was just basic frameworks to think about investments.

[00:44:19] Dede Eyesan: One of the investments frameworks that I learned, I doubled down on after doing the book was this idea of value chain investing. So what happens in civilization is that every age or every decade you have this new technology or an innovation that drives or changes how we do things, either makes life cleaner, makes life more efficient, you’ll spend less doing the same thing. And in the last decade, one of the big top down changes was solar, where it made how we use energy slightly less pollution driven. So with solar, when you look at it from a bottom up, it can be very daunting because solar is quite cyclical. You might not realize it, but it’s actually quite cyclical.

[00:45:00] Dede Eyesan: And the industry is quite different from traditional oil and gas or traditional energy industries. So with solar, it’s very low cost driven. So China produces like 80 percent of all global PVs. And if you look at oil and gas, it’s quite, it’s more distributed globally. So India would have their own refineries, Saudi Arabia have their own refinery, U.

[00:45:20] Dede Eyesan: S. have their own methods, whereas with solids, it’s very winner take all market. So for me, in terms of understanding this type of industry, this is where a value chain really helps when you try to understand exactly how the. Whole ecosystem works from the polysilicon ships to the inverters and the additional supply chains in solar.

[00:45:40] Dede Eyesan: And by doing this in solar, you have a much, much better understanding of where the outperformers lie. And I feel like if you had done that value chain analysis in 2012, you’ll have very quickly realized that the outperformers in solar were very likely gonna come from China. One they had. A lot more subsidies from the government.

[00:46:00] Dede Eyesan: Two, they had a lower cost of production. Three, they had the supply chain that could allow them to export globally. One of the outperformers was a company called Solaria Energia. They’re based in Spain, and they initially used to make their own solar PVs, but they stopped that in 2010. If you had done that, Sub Value Chain Analysis, and you saw Solaria that had stopped making solar PVs and rather moved into utilities.

[00:46:24] Dede Eyesan: That would have given you a lot of information that it makes sense why they’re no longer producing their own PVs. Why? Because they just can’t compete with China. So what they did was that they moved into installation and utilities. And they were able to become an outperformer by just focusing on that.

[00:46:39] Dede Eyesan: And that is a lot more higher barrier because that’s where regulation comes into play. Government want local players in that market rather than like international players. And it’s much more of a struggle for a company in China to go into installing solar PVs in Spanish residential roof.

[00:46:55] Dede Eyesan: Understanding that value chain gives you a really good understanding of why certain things have to happen for a business to be an outperformer. And that was a big lesson for me. So now when I think about industries like semiconductors or wind energy or hydrogen, I’m really focused on the value chain.

[00:47:11] Dede Eyesan: I’m really trying to look for areas where You know, there are certain companies that can earn very strong competitive advantages over long periods of time. 

[00:47:20] Kyle Grieve: I really enjoyed your part on the value chain. And I’d like to actually jump into that just a little bit. What value chains are you looking at now that might be interesting for the next decade?

[00:47:29] Kyle Grieve: Are there any types of themes or anything like that you’re seeing develop now? 

[00:47:34] Dede Eyesan: From a value chain, I’m still looking at solar, so what had happened with solar was that in, after the pan 2019 to 2022, there was a high run up in prices, and now there’s been a fall, so I think if you look at the yen per kilo, Per kg price has fallen by like half in the last one year.

[00:47:53] Dede Eyesan: And all the stocks have fallen and I think it’s still going to fall a bit before it bounces back just because that’s how the cycles work. So I’m still looking at the solar change, just to have that understand. So even though I’ve written this book, I seem to do it all the more research and understanding how the buy in chain works.

[00:48:07] Dede Eyesan: So I’m still spending some time looking at solar and lithium cycle semiconductor, I think it’s really important when you think about, the impact AI is going to have for the future. Sadly, some segments of the value chain have already taken off where it’s very hard to see potential margin of safety going forward.

[00:48:25] Dede Eyesan: But there are other segments that I think would be indirect beneficiaries of any technological advancements in AI. So that’s something I’m spending quite a bit of time trying to understand who are the people producing stuff or giving services to the huge foundries in Taiwan and South Korea, whereas the area for improved costs in the value chain.

[00:48:50] Dede Eyesan: So that’s an area that I’m spending quite a bit of time in. 

[00:48:53] Kyle Grieve: So you mentioned that you’ve moved away from quantitative measuring and more to the qualitative end of things. How do you integrate the qualitative analysis into your investment process at the fund level in terms of capital allocation, management, looking at total available market?

[00:49:08] Dede Eyesan: So I think with other, at the big picture level, whether you’re looking qualitative or quantitative, The portfolio management is a function of two things. You’re trying to reduce risk or you’re trying to increase returns. Any other thing is a distraction. That’s really what you’re trying to do. Now, at a personal level, you have constraints.

[00:49:25] Dede Eyesan: So you have sectors that you understand, or you can actually value the risk level or the potential return levels. So that’s one constraint. Another one might just be regions that you’re just not comfortable with. So for example, some people might just not be comfortable investing in China. So you have those constraints and you have to work around those constraints as an investor.

[00:49:43] Dede Eyesan: So for me as an investor, how I’m incorporating that qualitative factor is being able to widen my cycle of competence. So I’m spending a lot more time just trying to understand how different countries work why our business is great. 20 percent each year in India why. There’s so many great Indian chemical companies and just trying to find my spend some time just understanding how these businesses work.

[00:50:05] Dede Eyesan: So I think that any investor can do that. You don’t need you don’t need to be an institution. You can be a retail investor and still commit a lot of your time to just expanding that circle of competence over time. So I think. That for me is really the big way as an investor with being able to incorporate that qualitative factors in your investment process.

[00:50:24] Dede Eyesan: The second big thing is when you’re trying to size up investment, so I mean it is one of the things I’ve had to learn when I was running the investment club. I leat really quickly that picking stocks is very different from managing the portfolio and then later I learned is actually very different from also running the business as well.

[00:50:39] Dede Eyesan: But from a portfolio lens, being able to size up investments, the qualitative factor, because it can really impact the risk. in the business by understanding or having or putting the quality factors into your investment process, you’re able to really size up investment. So when you try to make decisions on trying to make this stock a 10 percent position or a 5 percent position, when do I sell or which might be more strict in terms of set a target price, for example, I think the qualitative factors are a lot more important there.

[00:51:09] Dede Eyesan: So I’ll give you one example here. So with cyclicals, my view, So what you compounders you can be a lot more, you can be less rigid with target prices because the potential is quite wide. There are a lot of things a business can do if they keep compounding, building, going to new markets and driving volume.

[00:51:28] Dede Eyesan: Whereas with price, there’s a limit to how price can go. With. If you go back to the solar panel and solar cycle, for example, there’s a limit really to where the solar PV price should be. So for me, as a quality factor, I’ve put those understandings of how the cycle works from a qualitative angle to really size up the pricing power potential.

[00:51:51] Dede Eyesan: So if a business cycle goes above a certain price, a lot more strict as an investor, that even though this is going very well and I’ve made money on this stock, I’m just going to sell because when it turns really aggressively and it’s very easy to lose 50 percent of your money when that cycle turns.

[00:52:07] Dede Eyesan: So for me that, that’s one of my takeaways when I was trying to understand qualitative analysis and understanding cycles that I learned from global art performers. 

[00:52:16] Kyle Grieve: As your research highlights, many more companies underperform than outperform. Knowing that what you’ve learned from the study, let’s invert and look at some of the underperformers.

[00:52:25] Kyle Grieve: What are some of the less obvious characteristics of underperformers that you’re actively trying to avoid at all costs? 

[00:52:32] Dede Eyesan: So first, inverting is it’s very important. So one of the most important thing from the book is I actually need to invert my ideas and just stress test them. So I was actually going to write a second book called Global Underperformers, but I realized half of the book is going to be bashing companies and I didn’t want to get any legal situations where I’m insulting companies and telling them, yeah, this is bad.

[00:52:51] Dede Eyesan: You’ve done badly for 10 years. So we pulled that off and just did global outperformance. So one of the key things I learned when I was thinking about global underperformance is that. A lot more companies underperform. So when I say underperform either companies that are flat for 10 years that end up growing being 10 baggers.

[00:53:10] Dede Eyesan: So I think among the 27, 000 companies that were around 10 years ago, I think about 9, 000 of them were flat. So the either flat or they fell in that 10 year period. So about a third of them, you just didn’t grow share price wise. Now, when I think about when I, when you look more at the numbers from a factor lens, there’s a certain category that mattered more.

[00:53:31] Dede Eyesan: So for example, growth was very important. So I think the number, I might be wrong here, but I think the number here was that 7 percent of the businesses that underperformed. So when I underperformed less than 0%, only 7 percent of them actually grew 10%. And it’s over that 10 year period. So basically the number is that nine in 10 of the underperformance with businesses that just don’t grow their earnings.

[00:53:55] Dede Eyesan: So for me, that really emphasizes how important earnings growth is in any investment case. So I think as an investor, I know we like to pick between value and growth. I think it’s just very important that we. every investment you’re trying to make, except it’s traded at one times earnings or two times earnings.

[00:54:10] Dede Eyesan: But if it’s not trading at some huge discount, I think it’s very important to make sure that investment is going to be able to exercise some form of earnings growth. So I’ll give you some of the companies that underperformed like in the 10 year period. So there was IBM, there was AT& T, there was Vodafone.

[00:54:27] Dede Eyesan: General electric. If you look at all those companies, none of them grew earnings during that 10-year period. And that’s why the underperformed it was just quite clear. So for me when you’re inverting earnings growth, I think that was a very important factor. Profits also important, but I mean for profits and profits, I think a lot more companies were profitable, but still underperformed.

[00:54:45] Dede Eyesan: So I wouldn’t say profit, being just profitable is enough. I think you need that profitability, but also earnings growth, and of course, low multiples. And I guess just to conclude. There are some mistakes when you’re looking at out performance people make. So I know a large percentage of out performance were founder-led businesses.

[00:55:03] Dede Eyesan: So a lot of investors say, I want investments with that founder-led and have high insider share purchases. But I don’t know, I don’t have the numbers with me, but a lot of the companies that underperformed and the ones that went to zero and went bankrupt, they’re also founder-led businesses. You don’t want to just focus on just that one That founder-led factor that, oh yeah, this company became an outperformer because it was founder-led hands.

[00:55:26] Dede Eyesan: Every founder-led business would out-outperform. It doesn’t really work that way. You have to go back to what really matters. What matters is that you’re able to grow earnings by at least 15% year on year for 10 years. You are at low multiples and you’re improving your businesses. Of course, being founder-led led, having an owner-oriented, my mentality would be a key factor there.

[00:55:46] Dede Eyesan: but it’s not about the founder-led, it’s about the fact that you have a good business and made your business better and you grew over time. So it’s very important to focus on what matters. That’s why we didn’t do like a big research on founder-led businesses, because again it could be, you could have very wide outcomes with founder-led businesses.

[00:56:05] Kyle Grieve: Dede, thank you so much for joining me today. Before we close out the episode, where can the audience connect with you and learn more about Jenga IP and your research? 

[00:56:14] Dede Eyesan: Our research is all on our website, which is

[00:56:19] Dede Eyesan: jengaip.com. I tweet often on Twitter, so you can also see some of my thoughts when I’m reading earnings calls on Twitter if you’re interested in that. And my handle is my first name underscore my last name. That’s @dede_eyesan. 

[00:56:31] Kyle Grieve: Okay folks, that’s it for today’s episode. I hope you enjoyed the show and I’ll see you back here very soon.

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