Will Kim (Apsis Capital): Why do you like Nvidia & Airbnb?

Will Kim, Apsis Capital Management

“So we concentrate our investments in certain trends, but we diversify within that trend because at the end of the day, you’re not going to know exactly who the winners are in that trend.”

[00:27:02]

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Will Kim [00:00:00] But if you really want to have the most impact, you should focus on your strengths and that’s what we try to do at Apsis Capital is we try to focus on our strength of trying to understand the trend and picking the best winners, the best high quality and you know potential winners within that value chain of that ecosystem that will benefit from that trend.

So the high conviction ideas will come into larger per cent, so it could come in, maybe 50%, 75% of the total portfolio. And then the remaining will be a much smaller percentage. Peter Lynch’s invest in what you know concept has been truly influential in how I invest as well as Phil Fisher’s scuttlebutt method of really digging into the company trying to understand the company as well as the competitors in the ecosystem around it is what who’s influenced me.

Tilman Versch [00:00:52] Dear viewers of Good Investing Talks, it’s great to have you back to the podcast and it’s great to welcome Will Kim of Apsis Capital Management for the first time here. Will, it’s great to have you here.

Will Kim [00:01:04] Hey, Tilman, thanks for having me here and it’s great to be here.

Tilman Versch [00:01:06] Thanks for joining us. We also have some interesting topics today, but maybe let’s dive in with you and your personality, which also might shape your style of investing a maybe a bit of ambitious question at the beginning. So what kind of fit ambitious or outstanding things have you achieved outside of investing before you joined the investing crowd?

Will Kim [00:01:30] Yeah. So, I’ve had around 10 years of career in the corporate world. I’ve done both. I’ve worked both as an asset allocator called Cambridge Associates, which I guess many of you guys probably know. I’ve worked in the financial services and consulting industries. As well as I spent some time doing business development and strategy at big tech firms.

So that’s kind of my background. But I think when I think about achievements, I would say, it’s the small things in life that matter to me. For example, it’s being able to spend time with people that you care about, whether that’s your friends, family, or significant others. And I think that’s what I consider an achievement. Being able to put yourself in a position to actually. spend time and enjoy a lot of small things in life.

Tilman Versch [00:02:36] So you had this career, maybe to namedrop from your LinkedIn. It’s Discord and Indeed that is standing there. And it’s also like I think working there in corporate development and strategy is not the worst paying job. And what has driven you to start playing the investing game full-time and managing money for others as a goal instead of staying there and climbing the corporate ladder?

Will Kim [00:03:03] Yeah. So I guess I’ll take it a little bit far when I was a child. So I think the concept of finding value really resonated with me as a child. So I think when I was five years old or so I remember building Lego pieces and selling them to my brother and, essentially selling it to him for a higher price than what we bought those Lego pieces for and that was great until my mom found out and she stopped it.

Essentially, the regulator came in and closed the market down. And so I think the idea of making money, I think finding value those kinds of concepts always resonated with me. And, but I would say in terms of actually finding a passion for investing, I wasn’t really exposed to any of that until really I would say college. So I went to NYU Stern, which is a Business School in New York City, and that’s where I really got to see the world of financial services.

And that’s when I really got to, when I got really passionate about investing and to me, investing is, from my perspective, an intersection of something I really enjoy, something I, I have been good at as well as something that provided that value to people around me.

So I think that’s why I got really into investing.

Tilman Versch [00:04:24] So your relationship with your brother is good again, I hope.

Will Kim [00:04:28] Yeah, no, we still keep in touch. We were cordial. No, we’re, we’re great. Yeah, my brother and I are very close though. I’ve never asked him about it, actually, since that day. But I don’t think he has anything holding back from it.

Tilman Versch [00:04:48] Maybe it’s a good time to ask this question and just kidding. So you have this career on the corporate ladder, are there any learnings you used and transferred to your style of investing, which could lead to different outcomes?

Will Kim [00:05:05] Yeah. So when I first started my career, I started my career at Cambridge Associates. So the reason I went to Cambridge Associates was because I wanted to get tremendous exposure to the best investors in the world.

So at Cambridge Associates, we had access and I got the chance to meet very famous investors, I mean. I don’t want name-drop, but you know Seth Klarman and Bill Ackman. Some of these are some of the people that I was able to meet because I worked at Cambridge Associates, so that was great. So exposure and kind of the motivation to become an investor myself was what I got at Cambridge Associates.

I think when I worked in consulting and private equity, that’s where I really got exposure to how to analyse businesses, when you want to fact-check something, you want to understand the market quickly, I think those are the kinds of skills I got there. And then when I worked at you know whether it’s Sony, PlayStation, Discord, that’s where I got to see how corporates work, the pace, how people operate. So I think all these things help me become an investor to some degree.

Tilman Versch [00:06:19] So there are also other options, not have to find a YouTube channel to talk to interesting investors, you can also get paid doing it. With the investing part of you like what is your goal or what are you trying to achieve for you and your client base maybe put the client base first.

Will Kim [00:06:38] So on a personal level, I’ve been investing since 2015. And I started a firm Apsis Capital Management in 2019 and the goal really was and the reason, again, why I started it was because one, I’ve been enjoying it since 2015. Two, I was able to achieve you know higher than-market returns since 2015.

And then the third piece which is kind of on a more personal level for me, was there were a lot of people around me, whether it’s family, friends, people I knew from different backgrounds, where they were making sub-optimal investment decisions. And I think that really motivated me to say hey, I’m able to achieve, make good investment decisions on a personal level, why don’t I make this something that I do full time and that’s where my passion really started.

Tilman Versch [00:07:36] How would you describe your style of investing?

Will Kim [00:07:39] Yeah. So I guess there’s a simple version and there’s a complex version. I will go with the complex version. The complex version.

Tilman Versch [00:07:51] So let’s start with the simple one and then see how you can make it more complex.

Will Kim [00:07:56] Sure. OK. So the simple version high-level is I invest in 10 to 20 stocks mostly primarily focused on U. S. equity. Long bias portfolio, that’s what I would say is the simple version of you know what I do, but really there’s a lot more that goes into how I the result of being 10 to 20 stocks, right?

And my strategy really is to invest in high-quality companies that benefit from major secular trends or themes. So when you think about, you know a theme or a secular trend, there is a cycle, right? So we want to be a little bit ahead of the curve, but not too early because at the end of the day, investing is about trying to predict how everyone’s going to think in the future.

Yes, there is a true intrinsic value within the company but the beauty as well as the fall of the public markets is that your opinion only matters if other people value your opinion. For example, I mean you think about GameStop, right?

They’ve had declining revenues for the last five years and there’s no reason it should have gone up, but I think if you remember back in 2021, I think there was a guy named Roaring Kitty who jacked up the price of the stock like crazy and there were very famous hedge funds that were short on that stock and they did poorly. One way to think about it is from an intrinsic perspective, they were correct. It wasn’t a good company necessarily.

They had declining revenues. There’s no reason it should have, 5x, 10x, 50x in a span of a few months. But if other people don’t agree with your opinion, then you’re wrong. And so that’s why I think you want to be a little bit early ahead of the curve, but not too early. And the way I think about it is you have an adoption curve.

So there are the innovators, early adopters, early majority, late majority and the laggards. We want to be, in between kind of the early adopter and the early majority because that’s the sweet spot where we can already see the change and some of the metrics that I look for when you make an investment and also reduce the risk of being wrong.

Tilman Versch [00:10:26] Who influenced you to come up with this approach?

Will Kim [00:10:32] I would say there are two people that you know have been the most influential in kind of my investment strategy. The first one is Peter Lynch. Invest in what you know. And so Peter Lynch says the best investments are, investments that you find out in the field and what you know that are close to your heart.

And I completely agree with that because when something when something happens around you that’s when you truly have invested interest in looking into how that evolves over time. And so Peter Lynch’s invest in what you know concept has been truly influential in how I invest as well as Phil Fisher’s scuttlebutt method of really digging into the company. Trying to understand the company as well as the competitors and the ecosystem around it that influenced me.

Tilman Versch [00:11:33] How long are you in the listing game for?

Will Kim [00:11:37] How long have I been or how long will I be in it?

Tilman Versch [00:11:40] How long do you plan to be around?

Will Kim [00:11:43] I plan to be around forever as long as I’m capable of generating good returns, and I have the confidence to do that then I’ll be in it forever.

Tilman Versch [00:11:56] Maybe let’s open the engine a bit more and look into your process and portfolio construction. So let’s start with the question. Where do you get your ideas from?

Will Kim [00:12:08] Yeah. So I get my ideas from various sources, but the most important thing is reading a lot and getting exposure to a lot of different things. Reading articles, news, third-party research like from, Sell Side investment banks as well as just like credit card trends and history, raw data from US Census or BLS, community opinions of other investors as well as just talking to other people, industry kind of folks.

I think that’s how I source my investment ideas, but really what triggers the engine is when you see something happening in front of you that triggers me to dive deeper. So for example, I think there’s a big topic about declining birth rates. That’s happening globally. It’s especially pronounced in Asia, especially in Japan, Korea and China East Asian countries.

But it’s happening, globally, I think birth rates have declined from fertility rates declined from like 4. 4 to 2 point something. So I think that says… Then you think about, OK, let’s fact-check to make sure that’s real. Let’s see how that trend is affecting different industries or different things. And then from there, I think that’s where the investment idea gets sourced.

Tilman Versch [00:13:39] Which aspects do you spend the most time in your research process? You can pick one to three aspects.

Will Kim [00:13:46] Yeah, I would say the most important part and the part that is the hardest for me is thinking about the trend and whether that trend is going to continue on. So that requires you know a lot of opinions. I’m thinking about whether you think that trend is going to continue on, but also where you can fact-check and trying to see the data behind it to see whether that’s going to.

That’s one part the second part of that is trying to figure out whether that trend is investable. So, for example, declining birth rates, that’s a trend that everyone knows and likely to continue on, given just how people think these days, but investing in that is not necessarily as easy. Whether that’s because a lot of the companies are private because I can’t invest as a public investor, or because maybe some of the companies in that industry are already highly valued or overvalued, that it’s not actually a good investment because there’s a difference between being a good company and a good investment.

Tilman Versch [00:14:58] Mentioned that you look for high quality in these trends. How do you find high quality and what is your assessment criteria?

Will Kim [00:15:07] Yeah. So, when I think about high quality. Generally speaking, I look for three things. One is high revenue growth. Two is good operating margins profit, you know profitable, highly profitable companies.

And the third one is you know good balance sheet. That’s in terms of the kind of the accounting financial metrics that I look for. There’s also another component of a high-quality company is whether it’s a relative good relative investment. Again, there’s a difference between a good company and a good investment. So that’s another piece that I take into account.

Tilman Versch [00:15:47] What is the difference?

Will Kim [00:15:49] Yeah. So again, I think I mentioned intrinsic and extrinsic factors that affect the stock. So the intrinsic factor is if a company is worth $100 billion and generating $100 billion revenues and is $20 billion profit, and you know healthy balance sheet. That’s a good company, right? No matter what you say, it has 20% margins, has out of $100 billion revenue. That’s a great company.

But what if that company was valued at $1 trillion? What if that company was valued at $10 trillion, $100 trillion? For a company worth $100 trillion, if you’re making $100 billion, that’s not a good investment, but it’s still. and that’s just a factor of just because people have put money in it, the company has become overvalued. But it’s still a great company. It’s still generating 20%, profit margins. So that’s what I would say the differences.

Tilman Versch [00:16:55] Which three investing mistakes have improved your research process the most?

Will Kim [00:17:02] Three investment mistakes, I think one is fact-checking the trend that I believe in. So, one investment mistake I made was Upwork, so the reason I invested in Upwork back in the day was because and this is before 2021 was because it was part of the shared economy and the shared economy is growing 30%, you know it’s expected to grow 30% a year over the next couple of years.

There’s a lot of reasons why the shared economy is good. That trend is expected to continue because you know people want to share their assets. They’re leveraging technology. So now you can actually reach people easier, but Upwork, there was a critical error I made in specifically Upwork.

And the critical mistake I made was for the sharing and for our sharing economy company to be sustainable, it has to meet true two criteria, one is it needs to have high volume of transactions. And then the second part is every transaction has to be unique enough that you need to go back to the platform. So, an example of that is when you think about Upwork, is there enough volume of transactions? The answer is not really because maybe I’ll need to hire someone once in a while to you know for example edit my photos or do my handy work or create a presentation for me that doesn’t happen every day. That doesn’t happen even every week or every month potentially.

Two, when I find someone to do that for me. I can be that same person for the same job again, which means I don’t need the platform anymore if I can talk to that person and get them off the platform. That transaction could happen off the platform very easily. But when you think about companies like, Uber or even Airbnb.

Both the transaction is very unique because one let’s use Uber as an example. If you need to travel from your home to, I don’t know, let’s say another location, that’s a unique transaction. At that specific time, that’s a unique transaction. You’re travelling to another country; you’re not going to use the same driver for that transaction.

Now, of course, if you’re travelling from your home to work every day and that’s the only time you need to, you need a driver, then you might hire your own driver. But at that point your need is no longer unique. So that’s why Uber has been a successful growing or a successful shared economy company,

Airbnb, very similarly, you’re not going to go to the same place over and over for vacation. So if you decide to go in July every year, to some beach every year, then yes, that transaction is no longer unique and maybe you’ll get a timeshare, maybe you’ll buy a vacation home. You won’t need that anymore, but maybe you want to go somewhere different.

Maybe you want to stay at a different part of the city. Maybe your budget is different every year because of that the transaction is unique and there are enough people, enough transact or volume of vacation rentals, right? So that’s why Airbnb is more successful shared economy company.

Tilman Versch [00:21:07] Are there any other mistakes you want to share?

Will Kim [00:21:12] Other mistakes Upwork was one, I think that was essentially not understanding the shared economy model. The second one was match.com or Match group or specifically it’s online dating company and the mistake I made there was I overestimated the runway it had in terms of market saturation.

So I think the market was a lot more saturated than I expected. So when you when I think about the adoption curve, we weren’t early enough in that curve, we’re probably more in the late majority than the early majority.

Tilman Versch [00:22:00] Let us compare your research process like from today to like five or whatever years ago after five. Where are you now spending way more time and effort on?

Will Kim [00:22:14] Are you talking about the research process itself, or are you talking about the industries or?

Tilman Versch [00:22:19] The research process itself, so if you think about like your pattern of research, let’s call it like this, how has it shifted and evolved in the last five years?

Will Kim [00:22:30] Yeah, I would say it hasn’t shifted that much. What I would say, the biggest difference is I know the types of mistakes I make, as well as the tendencies I might have. For example, I might be a lot of my mistakes have been. I tried to follow a trend when the trend was already kind of deep in the late majority phase. And I think to improve that mistake what I’ve done is try to market size, better try to understand where in the cycle we are with that trend better and I think that’s where I spend more of my research time because of those mistakes I’ve made.

Tilman Versch [00:23:17] One investment you seem to have made right with the trend is NVIDIA, and it’s a quite transformational investment. Uh, so maybe talk us a bit through. When did this company come the first time on your radar?

Will Kim [00:23:31] Yeah. I was a gamer back in the day back 20 years ago.

Tilman Versch [00:23:37] Hey, me too.

Will Kim [00:23:38] Yeah, like I was a big PC Gamer, so you know GPU’s and not having a strong graphics card was bad because your friends could play the best games back then and you couldn’t because you didn’t have a good GPU to run.

So, I first encountered NVIDIA, probably 20, 30 years ago. But in terms of when it got into the portfolio was 2018. So, NVIDIA has been in the portfolio since 2018. So, I think 6 years we haven’t done anything. We haven’t touched the position for six years. The reason I invested in NVIDIA and fortunately you know NVIDIA has done quite well as well as we were you know earlier on the trend than some of the other, you know mistakes that I’ve mentioned before.

But the reason I invested in NVIDIA is because the demand of NVIDIA chips. And the technology they have is unparalleled. So, when you think about NVIDIA versus some of the other competitors NVIDIA chips are like $30,000 and some of the newer generation competitor chips like AMD, I think are like half the price like $15,000.

So, you ask why would people invest in and you know why? Why would people buy chips that are $30,000? Well, the reasoning is because NVIDIA has been in this business for, I think 30 years or so, they’ve been around since 1990s.

And fundamentally, you know GPU’s and you know processors are very different and because they’ve had expertise in GPUs which can do parallel computing. This expertise has been with them for a very long time and because of that they’ve been able to kind of cement their lead and benefit on the computing and networking trend.

What they’ve also done is added a layer of a software layer on top which is called CUDA. Essentially, they’re creating an ecosystem around their product, and I think it’s very similar to how Apple built its leadership by integrating hardware and software. So when you think about Apple, the iPhone or even the Mac computers, Microsoft had the software, but they didn’t have the hardware, which now they do right after kind of what’s happened.

Google tried to buy Motorola and create their own phones, and they have their own phones now. But the Motorola acquisition was not a great acquisition. By any means, but Apple had this leadership, and Apple had this idea of integrating both software and hardware earlier than their competitors, and they’ve been able to kind of reap the benefits now. NVIDIA has kind of done the same.

They started out with the product simple GPUs and because they built this software layer on top, which is essentially the industry standard, there are no other ways, or I guess the switching cost for users would be a lot higher on top of the product itself. And because of that NVIDIA has been able to keep their leadership in this space.

Tilman Versch [00:26:57] What made you hold you onto the investment?

Will Kim [00:27:02] Yeah, so NVIDIA has gone through a lot of ups and downs since I invested in it since in 2018 and I think even when it was down, I think you know, 30% I think in 2022 a lot of you know tech stocks were down quite a lot back then.

I held onto it because I believed in the computing and networking trend. I didn’t invest in NVIDIA back in 2018 because I knew AI was going to happen that. I didn’t know the, you know crypto craze was going to happen.

What I knew about NVIDIA was we were going to need more computing power and within the computing and networking ecosystem there were a couple of companies that picked which included NVIDIA. But I actually invested in a couple of semiconductor companies because our investment approaches, we invest in secular trends, but we have a concentrated diversified approach.

So we concentrate our investments in certain trends, but we diversify within that trend because at the end of the day, you’re not going to know exactly who the winners are in that trend. But if you can understand who the top. I guess the high-quality companies are and who reap the benefits within that ecosystem best and you pick those companies, you will probably be right one out of four.

And the reality is Warren Buffett mentioned, you know, one stock can outdo all your other mistakes, because if you make you know if you make one good investment, that could essentially just change everything and statistics say 25% of S&P 500 companies, only 25% have beaten the S&P 500 average.

So you only have one in four chance of beating the market. If you choose a random stock on the S&P 500 in the last 20 years and so I didn’t know that it was going to be NVIDIA that was going to benefit from the, I guess, computing and networking craze. But I did know that NVIDIA could be potentially one of the few and NVIDIA was within the ecosystem. One of the top players at the time and still is. And that’s why I invested in NVIDIA.

Tilman Versch [00:29:34] What would make you sell?

Will Kim [00:29:36] What would make me sell? I would say, if my thesis changed about the trend, and if the company’s valuation got so ridiculous that the risk reward would not make sense.

Tilman Versch [00:29:51] And you’re fine with the valuation right now?

Will Kim [00:29:53] I’m fine with the valuation. Yeah, I’ve held onto it for, six years haven’t touched it and I think. If I were to sell NVIDIA, it wouldn’t be because of the current valuation. Well, it would be because of how much of the portfolio it currently is right now.

Tilman Versch [00:30:12] Then we have the bridge to the next topic. So how do you think about portfolio construction? What is your framework there?

Will Kim [00:30:18] Yeah. So again, you know the result of the portfolio is about 10 to 20 stocks. But when I think about portfolio construction, I think of high conviction ideas and low conviction ideas. So I have high conviction trends that I think about and a couple of companies within that trend and low conviction ideas or trends in companies.

So the high conviction ideas will command a larger percent. So it could command, maybe 50%, 75% of the total portfolio. And then the remaining will be a much smaller percentage but generally speaking, when a position enters into the position and enters into our fund, it usually is maybe anywhere from 2 to 5% of the portfolio because that’s a good starting position for me. And I could tell you NVIDIA was about a 3% position when it started out in 2018, and it no longer is, but now it’s the biggest portfolio holding in the fund. But it was actually 3% back then because again I believed in the trend and NVIDIA was one of the highest quality companies but again, wasn’t sure that was going to be the only winner.

Tilman Versch [00:31:32] So do you manage your positions then actively to make them higher conviction ideas or how do you go about like trimming if you ever do this and adding?

Will Kim [00:31:50] Yeah, I usually don’t trim or try to manage position so that it fits a certain bill, but generally, if the position gets too big, which is the case right now, then that’s when I consider whether the risk reward or if there are other opportunities that are better that I can benefit from better and that’s generally I don’t really trim positions.

Tilman Versch [00:32:14] And adding?

Will Kim [00:32:15] Adding. So usually, additions happen when there’s a higher conviction idea and I feel like the current positions in the portfolio do not have as high of a risk reward to reward to risk ratio as the newcomers. So essentially, I come up with a brilliant idea and I feel like that’s going to 10x or 20x in the next few years, that’s going to come into the position versus the one that I feel like now is only going to 5x in the next 5 years.

Tilman Versch [00:32:45] OK. Is there any difference? You have this experience from great investors or other peers. So how do you describe your framework as differently to others?

Will Kim [00:33:03] Yeah, I would say what’s unique about my portfolio process is there’s investors range from I own five companies. I have private equity like ownership structure or investment approach to I own hundred 200 companies. I’m so diversified.

I think we are closer to the private equity like approach but still diversified in a way that we have confidence and conviction in some of the trends that we are looking into or invested in, but we don’t necessarily say that we’re going to be right with this company and know everything about the company because the reality is you know in a couple of years a newcomer can completely, completely disrupt and transform the industry that they’re in.

And again, that’s why the approach we have is we believe in this trend, but within that value chain of the value chain that benefits from that trend, we invest in you know different verticals of that company of that trend. So that’s, I would say that’s the biggest differentiator versus you know owning five different stocks in various industries that are you know very different from each other or owning everything in tech because I’m a generalist. So I invest across you know I’m industry agnostic.

Tilman Versch [00:35:08] One investment we also decided to discuss is Airbnb. So how did you play your investment with Airbnb? So do you also have Expedia with Vrbo and Booking in your portfolio or is it just like here I said Airbnb is the clear winner and I want to write.

Will Kim [00:35:27] Yeah. So the trend that Airbnb benefits from is consumer spending and travel, and that trend has been happening for and I expect it to continue on for you know a little bit longer and that’s because of couple of reasons. One, it’s because you know we’re still below, you know pre you know pre COVID spending levels for travel.

So there’s like a small tailwind to you know you know potentially get back to where we were. Two, there’s a demographic effect. So Gen Z and millennials are more likely to spend on travel than future generations or older generations. And then we have the I would say shift in behaviour about how people think about travel versus goods, etcetera. And then the fourth one is again growth in the sharing economy. I invested in Airbnb as well as you know some airline stocks as well as even some hotel chains. That’s how I invested for this trend.

Tilman Versch [00:36:37] Why not Booking or Expedia with Vrbo, which is a competitor in like Holiday Homes?

Will Kim [00:36:46] Yeah. So when I think about the value chain within the travel ecosystem, I think of booking.com as not, it has tremendous market share and it has economies of scale and it’s a dominant, I would say, leader and that’s in at least getting traffic. But it doesn’t necessarily have what I would say a differentiating factor or an asset or an IP that’s really differentiated. And what I mean by that is, if another spent a lot of money and built another website.

Why would that be any different from Booking? So when I think about, searching for hotels. You know Expedia, booking.com, I will use multiple websites, and I can, you know get the same thing. But with Airbnb, you can’t go to another website because the hosts are already on Airbnb. Acquiring the host is much more difficult than just scraping websites, getting their numbers and doing affiliate linking. Affiliate marketing, that’s essentially what booking.com is and because of that it has a lot, I would say the IP and the asset that it has is a lot less valuable than Airbnb.

Tilman Versch [00:38:12] What makes Airbnb a high-quality company? It’s not only the numbers, but I’m more asking for like the qualitative facts and why it’s hard to replicate this high quality?

Will Kim [00:38:25] Yeah, again, I think there’s a couple of things. One is the types of customers that it attracts and it meets a demand that, yes, it’s competitive. It’s in a way competitor to hotels, but also it’s satisfying demand that hasn’t been satisfied before. So, Airbnb again satisfies the typical hotel people that would typically go to hotels, but also at the same time it satisfies budget conscious travellers as well as people that are looking for unique experiences.

So people that maybe they want to have five people in a room together, or maybe they want to rent a beach house. You can’t do that with. I mean, yes, you can own, you can rent a penthouse at the Ritz or something, if you wanted to, but maybe you just want to have a house. Maybe you just want to rent a house for a weekend, then that’s not something that you could do before. Maybe you want to stay at like, a tree house, which you can do that at Airbnb. I don’t think Marriott has a tree house that you can, you know stay at. So from a demand perspective, it meets a demand that hasn’t existed before and that demand has been continued to grow.

I would say from a supply perspective it essentially taps into, host or workers that want to essentially get the most out of their asset. If you think about the unit economics for a host, what is the cost for an Airbnb host? Yes, it does require intangible costs, like your time and effort, but reality is it actually requires pretty much your dollars for you to actually host someone, because if you were planning on being away anyways, or you know if you had a spare room anyways, you’re already paying rent at some cost.

So your unit economics is essentially infinite because if nothing had happened, you made $0.00, but now you’re making some money. I mean, yes, there is some value and intangible value to effort and time that you have to spend to do that, but that’s compared to hotel, there’s real cost to actually operating hotels. So that’s why Airbnb from a both demand and supply perspective is a great company qualitative company.

Tilman Versch [00:40:56] Maybe you don’t have a good answer to this, but do you have any unique insights why the consensus or the market what they might miss on Airbnb?

Will Kim [00:41:05] Yeah, I think one of the biggest kind of risk factors for Airbnb is regulatory, so that could depend by country, that could depend by state. So a lot of states want to clamp down on people doing Airbnb and a lot of it is because of, you know, real estate companies lobbying they don’t want Airbnb to or hotels, you know don’t want Airbnb to make money.

There’s also a lot of city residents that think Airbnb’s are increasing the price of their homes because a lot of their investment firms that actually buy Airbnb’s and that, theoretically, could potentially increase rent or housing prices. And that is a that is a real risk factor for Airbnb. But if you think about Airbnb, when it’s valued at 20x PE when the market is 30x PE and has much better margins than the average S&P 500, it’s still growing 15% a year. I think that’s a good investment.

Tilman Versch [00:42:16] What rocks did you turn before buying Airbnb. So maybe walk us a bit of your research process.

Will Kim [00:42:24] Yeah. So the most important thing and the part that I spend the most time on is thinking about the trend, whether like how far in on the trend are we and based on kind of you know what the research I did was I talk to, again, reading a lot of third-party research reports. Whether that’s reading a lot of third-party research reports, talking to users of Airbnb, including my friends, looking at NPS scores of hotels versus Airbnb loyalty scores, credit card spending, peoples.

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There’s a lot of surveys about travel as well. I think that gave me confidence about Airbnb as a trend that it will benefit from the trend. But in terms of Airbnb specifically, what I did was I tried to understand how the key metric that I looked. So the key metric that I look for in Airbnb is actually host growth. I think demand is going to be there and based on kind of the macro research I did, but host growth is going to be the critical factor for Airbnb growth because you need more hosts and you need more good quality host so that demand will continue.

Demand will always, you know be there because if there are cheap enough hotels, if there are you know good quality kind of stays that you can go to like people will find you because Airbnb essentially is. You don’t need marketing to know Airbnb anymore. So I think that’s what I did the most research on is trying to understand host economics.

The trouble is that hosts have to go through how Airbnb is incentivizing hosts as well as regulatory. You know how states and how different countries are thinking about Airbnb and potentially limiting them and based on what I’ve seen I am comfortable with the risk or the risk I’m taking with the regulatory risk for Airbnb.

Tilman Versch [00:44:43] What could he have gotten potentially gotten wrong?

Will Kim [00:44:47] There’s a lot of things I could have gotten wrong. The first one is. Maybe we have an economic downturn, maybe there’s another COVID and thing is just the trend of hotel spending or, hotel and travel spending declines.

Now, that’s not something I can predict, but again, based on current trends, inflation rising, that is something that maybe there are signs that travel spending and consumer spending could decline in the future. That’s one from a macro perspective. That’s what I could have gotten wrong. The second part is maybe I’m underestimating the regulatory risk with Airbnb.

Maybe a lot of these companies will actually decide to clamp down on Airbnb and shut down their operation. Which I think would be terrible for travellers in general because now you have less of an option. There’s actually research that shows after the introduction of Airbnb, hotel prices have gone down in the places where they have had Airbnb. I think from anywhere from like $30 to $50 to $70. 00 per night and that’s a benefit for customers and consumers. And I think it would be a shame for, you know, the state. The state, you know, the regulators to essentially just close it down or to ascend you remove that benefit for consumers.

Tilman Versch [00:46:18] How do you think about the exit here?

Will Kim [00:46:21] Yeah. So the exit for me will really depend on two things. One is, are there other better higher return? I guess alternative stocks that I find in the future, I would say that’s probably the biggest one. The second one is where in the trend I am with consumer spending and travel spending. I think this trend is going to continue for maybe up the next 5-7 years and I think based on the valuation and based on how long this trend is going to continue on that will determine when I exit the position.

Tilman Versch [00:47:09] I have finished asking my questions, so for the end of the interview I want to give you the chance to add anything. So, do you have anything to add?

Will Kim [00:47:18] Yeah. So, I would say, you know, Don Clifton, who’s like a famous American psychologist as well as the former founder of Gallup, which is like a famous research firm, he said that.

Tilman Versch [00:47:32] There’s good, good tests. I recommend them and the strength test is good.

Will Kim [00:47:36] Yeah, I’ve done that test as well. Yeah. But he mentioned that, if you don’t want to fail, you should focus on improving your weaknesses. But if you really want to have the most impact, you should focus on your strengths.

And that’s what we try to do at Apsis Capital is we try to focus on our strength of trying to understand the trend and picking the best winners, the best high quality and you know potential winners within that value chain of that ecosystem that will benefit from that trend. You know there are companies that again do private equity-like approach and have five companies or companies that have funds that have 100 companies.

But I think our advantage is you know focusing on that trend and investing within that across that trend and that’s what our strength is and that’s you know how I want to approach investing.

Tilman Versch [00:48:32] And thank you very much and good luck with it and for the end of and we are now at the end of our interview. So, it’s time to say goodbye to the viewers. Bye-bye.

Will Kim [00:48:37] Thanks, Tilman. Bye, everyone.

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Will Kim

Founder and portfolio manager

Apsis Capital Management

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