VALUE: After Hours (S07 E33): Finding Bottlenecks in Megatrends

During their recent episode, Taylor, Carlisle, and Will Thomson discussed Finding Bottlenecks in Megatrends. Here’s an excerpt from the episode:

William: Yeah. Well, so, before we started, we were talking about water, right? I said I hadn’t figured out a lot of good ways to make investments in water. But it did come up with one interesting way.

Earlier this year, I was in and then I was out of it. But one of the things we tend to focus on is areas where there’s overlap between hard material sciences, geopolitics and– Well an overlap in those two things, we find interesting. And so, one area in our industrial sleeve that we’ve looked at is people who are producing the equipment to manufacture the inputs into the semiconductor processing chain. And so, they use a lot of water in semiconductor processing.

And so, one of the companies that sole sourced all their– TSMC, sole sourced all their water purification equipment from is a company on Japan called Organo. So, that’s an interesting bottleneck. There are three companies that manufacture the equipment to make the ultra-pure water that is necessary for the world’s best semiconductors. There are a couple other companies that have small lines in it, but really, it’s three small Japanese companies. They manufacture it all. One of them specializes exclusively for semiconductors. So, that’s an interesting bottleneck, because as this semiconductor explosion happens and building all these facilities, they have giant order flow for new equipment to create ultra-pure water. So, that’s an interesting bottleneck.

Now, everyone’s aware of some of the obvious bottlenecks and say critical minerals, but what’s interesting is that with those types of bottlenecks, some individual commodity has a really good press age. So, like rare earth metals. Gosh, whoever their press agent is, [Tobias and Jake chuckles] they’re great, [crosstalk] because every morning you wake up and you hear about rare earth metals. The stories being told aren’t wrong. They’re not lies. It’s just that’s the headline.

But you look at say, US critical metals list, and you say cross off rare earth metals, cross off copper and nickel, the big guys, and you’re left with this list of other critical metals. Some of them like tin, antimony, tungsten, these guys, they have no attention on them. But if China stops shipping tungsten, it would be a similar situation to if they stopped shipping us rare earth metals.

Or, you look at say titanium. China controls like 60% of the titanium sponge refining. That’s a precursor to the metal. You’ve got a bottleneck there too. And so, those are some of the types of bottlenecks we look at. I used to underwrite political risk insurance policies for Lloyd’s of London insurance syndicate. So, we’re really interested in situations where political risk creates a dislocation. I’m probably the only investor. You guys know who hear the sound of guns, and I’m like, “Oh, maybe there’s a company there too.”

Jake: Someone’s making money.

William: So, that’s some of the types of bottlenecks we’re interested in. Places where the supply is both an immediate issue, but there’s also a time to build problem.

Jake: I wonder if the public markets are long-term looking enough sometimes for these projects. And do you get a mismatch there where that can create problems to get a project finished to have the patience to see it through for if it takes five years to get it up and running?

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VALUE: After Hours (S07 E33): Finding Bottlenecks in Megatrends

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