October 3, 2018

StableView Asset Management Technology Investment Event #SVTECH18

Midas Letter
Midas Letter
StableView Asset Management Technology Investment Event #SVTECH18

StableView Asset Management President and Portfolio Manager Colin Fisher, CIM, discusses the StableView TECH18 conference that will be held in Toronto on October 4th. In its fifth year, the invitation-only event aims to provide capital markets with education about the tech space in Canada. At #SVTECH18 there will be 25 presenting technology companies with 10 attending companies. Fisher compares the similarities and differences between the technology, mining, and cannabis sectors in terms of investing. He details the various uses off AI in the financial sector and emphasizes its investment value in terms of technology plays.


James West:   Hey, welcome back. My guest this segment is Colin Fisher; he’s the portfolio manager and president of StableView Asset Management Inc. Colin, welcome to the show.

Colin Fisher: Thank you for having me.

James West:   Coli, you have – I guess you’re in the fifth year, now, of what has become a bit of a staple in the technology sector in Canada. The StableView Tech 18 Conference is going to be this Thursday, October 4th from 9:00 a.m. till 5:00 p.m.?

Colin Fisher: About that, yeah.

James West:   Okay. Tell me about StableView, why you came up with the conference, and what the conference is all about.

Colin Fisher: Well, StableView is primarily an investment firm. So we have a hedge fund and pooled funds, and we invest primarily, or we have a focus on, the technology and knowledge based sector. It’s a lonely space in Canada, probably, so you know, we wanted to have some friends; so we started to throw this technology event, primarily to help educate the capital markets writ large, to the space.

So you know, simple math: if you don’t want to own 10 percent of a company, you need 11 investors. And so we’re trying to get more and more – we’ve been doing primarily institutional investors have been in the crowd. This is the first year we’ve opened it up to advisors and a bit more the retail space. We think it’s a – because much of the technology in Canada, because of a whole host of structural issues in the capital markets, many companies go probably a little too early, to be completely frank. And so when they go public early, there’s a – they’re smaller, and typically a lot of institutions have a harder time getting down into the smaller areas.

And therefore, retail investors have a better chance of actually getting good returns in that space, but they’re also required for capital to get into that space. So that’s why we opened it up, just we think it helps balance out the overall ecosystem.

James West:   Mm-hmm. Okay, so are all of the exhibitors at the conference, then, technology companies?

Colin Fisher: Yes, and so they’re not exhibitors; so what we have is, they just present. So we have presenting slots. This is the first year where we have attending companies as well, so I think we have 25, 26, maybe – I don’t know the exact number, around 25, 26 presenting companies, and then we have I think around 10 attending companies right now. There’s a few more that are still in the works, and so basically what those companies do, they don’t present, but they take meetings, they meet with investors and whatnot.

So if you think about it like TIFF, TIFF has a whole bunch of movies that go onscreen, and then there’s a whole bunch of business that’s done in the background, and so that’s sort of where the attending companies, the evolution of the concept of the attending companies.

James West:   Okay. How many companies will be there?

Colin Fisher: So we’re – I think we’re at 40 for the overall group, so between the presenting and the attending companies. So like I said, about 30 and about 10 some-odd, so, somewhere around 40 companies right now. And then in terms of attendance, I think we’re north of 500 right now. I was going through the list, and it’s staggering the quality of the people that show up; like, I’m staggered. So we have some very – so last year I think we had around 350 billion in the crowd of assets under management. So we have pension funds that show up, hedge funds that show up…you know, a lot of people think it’s only open to people who do business with StableView; we invite our “competitors”, because as I said, you know, if you need – if you’re a private equity firm who buys the whole company, you need other investors at the table.

And so what we’re trying to do is help educate the capital markets. Generally, a Canadian investor is typically a generalist, and so, you know, to – last year we had a focus on Blockchain and AI, and it wasn’t because it’s the hot thing, it’s because we want to educate people to not burn themselves on the hot thing.

So, you know, we try to – so we had some amazing panels last year on what an ICO was, how does it differ from the security, is it a security. We had artificial intelligence, what is the difference between computer vision, different types of neural networks – it’s really so people, when they get into it and hear an investment, all these words don’t just, you know sound like Charlie Brown’s teacher – wah wah wah wah wah wah.

James West:   Yeah.

Colin Fisher: So were trying to make it a more approachable space, and also, because we curate the event – so it’s not just anyone who can go to the event. So it’s an invitation-only event. The way we’ve made it sort of mass invitation is that anyone can apply, can register, and then we’ll go through and we only allow sort of people that are actually either investors or truly part of the capital markets ecosystem, so that we have a quality audience for the people who are presenting, and for people who are attending, that they meet like-minded people. You know, we don’t want 10,000 kids from high school, you know?

James West:   Right. So this is not an event that retail investors off the street can walk into?

Colin Fisher: They could, but they would have to caveat themselves. Typically what’ll happen is, they’ll register; if we don’t know anything about them, we’ll send them an email and say ‘Can you please give us a little bit more of a description?’ Listen, we have a ton of high net worth investors that come as well, but you know, it just takes us an extra step to make sure that they’re a person that we want to have at the event. And it’s not to be snob appeal, it’s that we only have so many seats, and we’re trying to ensure that there’s enough money going into that space to make sure that there’s an impact for investing in quality companies in technology in Canada.

James West:   Right. Okay, so most investors in Canada right now are rather thoroughly obsessed with cannabis and cannabis stocks. Then you have the hard-core mining and resource audience. Where does technology fit into that sort of bipolar universe?

Colin Fisher: So I think there’s actually quite a similarity between – and I’m going to talk more about the junior mining and exploration space. So, the junior mining and exploration space is very much about stories, right? There’s the close-ology element – we’re next to this thing, and we think it’s contiguous find, and yada, yada, yada, and we’ve got great relations with the aboriginals, and we’ve got great relations with the governments…and when you listen to 50 of them, they found literally identical. And so there’s a very big similarity to that, and then you have the cannabis space, which is a story element, right? There’s a lot of story to it. Is there reality behind it? 100 percent, there’s reality to it.


You know, the next sort of hot – so last year, the hot space was Blockchain for a while; to me, that was in the mining element. There was a lot more hype than there was reality. AI, in my estimation, has more applicability, and there’s going to be more winners made in that space; but you really have to understand the use case. So I think the big difference is, cannabis and weed and mining, well, I guess, they’re commodity-based; and a lot of what is being done when you mine something, or when you build out a plant or a facility, is it works on the balance sheet side, right? So if you find, if you have nothing and you find a whole bunch of oil, you’ve got a massive balance sheet. You’ve gone boom, I’ve got X amount of oil, I’ve got X amount of nickel or copper or whatnot, and so that’s a balance sheet find. It’s a very different trade than when you have a business.

So for example, if you have a business, and the business starts to accelerate, well, if you grow your revenues materially faster than your gross margin, you consume cash. It’s a different type of animal, because when you find something – I find a bajillion pounds of gold, ounces of gold – it doesn’t do it in your cash flow; you found it, it’s a balance sheet item. So there’s differences from the business perspective of how do you actually understand a business model.

Now, cannabis, if you’re actually producing and whatnot, has that element of mining which is similarity – you need a big CapEx up front, and typically, the OpEx is much lower and you can get out a lot of product; but there will be the commodity similarity, i.e., if there’s way too much production, you’re going to have a commoditization of the product and a compression of the margins. You’re going to have a problem.

So the way I’ve looked at the weed space from time to time is, you know, who is the lowest-cost producer? That is no different than in the commodity space, so that’s the overlap.

How do you figure out the price of a commodity? Very simple: find the highest cost producers of production of anyone; if there’s a material period of time when they start, those are the guys that are going to start dropping off, and that’s where you find your cost of production, right? It’s a marginal cost of production.

Same thing for cannabis. You know, we were chatting a little bit earlier: the big winners, I think, in cannabis space, is going to be the ones who create a brand and a quality and an awareness that is differentiated from the production guys. And so I think those are going to be the next sort of iterations of cannabis in the whole overall space, is that there’s going to be a better understand where they’re going to be able to drive margin. You know, making wine or making beer, there’s a higher price for higher perceived quality in beer than the lower cost production, right?

James West:   Okay, so in the resource industry, the value proposition is, we’re looking for this: put your money down and we’ll spin the wheel and see if we find something. You win, and if we don’t find anything, you lose.

In the cannabis space, it’s a matter of, put your money down, close your eyes and you win no matter what, at least temporarily. But in the technology space, the value proposition is so much different, and that’s why I’m always intrigued by technology investors who say, “I’m a technology investor,”, because for me, as a resource and cannabis guy, those are things I understand easily. Technologies, for me, are either black box, in which case the level of technical sophistication to actually understand the applicability of it is way beyond me, or, it’s the use of a technology to disintermediate another function in society that has previously been solved by something less technical, or less sophisticated technical – in which case, okay, I can wrap my head around that.

So for me, technology has always been kind of like, no, I’m going to stay away from that, because A), I hate to admit I don’t understand it, but if I don’t, I won’t go there; B), it’s a much more nuanced value proposition than straight-up bet over here or we’re just riding a brand-new wave over here.

Colin Fisher: Yeah, well that’s why we put this conference on, right? Is exactly, because it’s actually not that complicated; physics works, in tech, in mining, in cannabis. There’s a, you have to understand at some point in time the business is doing something, and it will produce value or it won’t.

You know, it’s interesting: in the case of – I’ll give you a reasonable concept: so fintech writ large, right? There’s this concept of fintech, it’s this big, monolithic concept. But when you start to parse it out, right, so you take a company like Versapay, in whom we are large investors. They do something, so they do what’s called accounts receivable automation. Bill goes out, but they do it in a way that allows the customer to click on it, see their bill at that point, they make a payment, it goes into their bank account; they have a system then that allows it to reconcile to their accounts receivable in their accounting package, and the entire system is a closed loop [snaps fingers] like that.

James West:   Wow.

Colin Fisher: Many people talk about e-billing, but they confuse e-billing. E-billing is, I send out a bill electronically. All they’re doing is replacing the paper. But okay, I got it, but now I’ve got to pay it and do this, and there’s all these things that you have to do, all these steps that you have to do. But it’s not an automated system.

In our day-to-day life, when was the last time you cut a cheque?

James West:   It’s been years.

Colin Fisher: How many times does your corporation cut cheques?

James West:   It almost never does, because I’ve been a huge fan of electronic wire transfers from a very young age.

Colin Fisher: That’s fine, but that’s – okay, so you’re – but you’re replacing the paper version of the cheque. An electronic wire transfer is still the same methodology, and there’s costs to your –

James West:   I haven’t even used cash, it’s been almost six weeks now, I have not touched cash.

Colin Fisher: Just don’t go to Chinatown bakeries. I went to two Chinatown bakeries yesterday, I was trying to eat steamed pork buns, and they only took cash. The most frustrating thing ever, when you want a steamed pork bun and you can’t get it.

James West:   [laughter] I can imagine, right.

Colin Fisher: So you know, the truth of the matter is that corporately, people cut cheques all day, every day, and in our day-to-day life –

James West:   Electronic ones.

Colin Fisher: No, no. I’m telling you – it’s cheques get cut all the time. But even my little company, we have the corporate chequebook is like, front and centre.

James West:   We can’t even find ours.

Colin Fisher: Well, good for you. But the, you know, I write my rent cheques, I write my different types of service providers, you know, for different types of service providers. We write not an insignificant number of cheques, so that’s an issue. So you take that, that’s accounts receivable automation – there’s only two or three companies in the world that are actually doing it, because you have to tie into the ERP system, you have to have a full, you know, you have to have PCI compliance, you have to be able to get the banks; there’s a lot of different moving parts. That’s an actual fintech company. It’s technology being applied to a financial.

Then there’s lending tech. lending tech is, you know, at the end of the day –

James West:   Mogo.

Colin Fisher: They’re one example, but even them, they’ve gotten more away from the lending component and more towards value-added services that they’re doing, as a good example, right?

James West:   Sure.

Colin Fisher: Because at the end of the day, if my whole business process – so if I make your shirt, and let’s say the buttons on your shirt is less than 2 percent of the overall cost of your shirt. And I drive the cost of your buttons down from 1 percent to 0.5 percent, it really doesn’t fundamentally do that big a deal, right? So when you look at, for example, lending tech, you get all these guys that are doing all the statistical analysis, regression analysis, figure out what you’re going to default on. Do you know what the number one data point for regression analysis on automating lending and underwriting, the number one thing that says you’re going to pay your bills or not?

James West:   Funerals?

Colin Fisher: Whether you pay your taxes. Full stop, end of discussion. It’s like 95 percent. Once you’ve paid that, the additional information levels are nothing. And so they’re driving down the cost of the button; it doesn’t mean much.

But when something defaults, when you have that – that’s why you’ve seen some of the companies like ScotiaBank, I forget the name right now, but they bought an AI chatbot, and the whole concept is so that they can hunt down people with using artificial intelligence and automated process, for the recovery of people who are in default, which is where there’s a fat problem, right?

So part of it is understanding, where does the tech get applied? How fat is that problem from a cost perspective, and how do you minimize it? And that’s why, for example, with Blockchain, you’re going to see a whole ton of different businesses that exist right now; it’s going to be in their back-end systems and it’s going to reduce error, it’s going to increase accuracy, reduce back-end system cost.

It’s not going to be sexy. There will be sexy stuff at some point, but the first stuff is going to be really boring, grind, knock it out. But the application of that technology is sexy, if you care about efficiency process and the reducing of costs.

James West:   Okay. So that’s an example of what we can find at StableView? If I’m a retail investor, I’m a high net worth guy, and I want to get in on this conference –

Colin Fisher: Or you’re a broker, like you’re an investment advisor and whatnot –

James West:   Okay, and I’m hearing about this on our live stream today, how do I get an invitation?

Colin Fisher: So you would go to stableview.ca – I used to do pretty well in those spelling bees as a kid. So, stableview.ca, and there’s a, it should pop up, but if you have pop ups blocked, then you see Events, and you can register. Like I said, it’s a registration, then we go through the process and then we send you an invitation.

So you know, we want to have people there; we want other portfolio managers, we want other investment firms to come out, and we do want retail. This is the first year we’ve actually done a push to sort of retail brokers, because we think that they’re a very crucial part of the overall ecosystem, and so this is the first year we’re doing a bit of a push out to them, as well. And so we’re happy to have them.

There’s no cost to attend, so that’s one of the other reasons why we’re a little bit more judicious as to who attends.

James West:   Sure, cool. Okay, well, we will see you there on Thursday. Colin, this has been a great introduction to StableView, and I’ll look forward to seeing the conference. Thanks for joining me today.

Colin Fisher: Thanks very much.


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