TIP854: GE Aerospace: Chris Hohn’s Biggest Bet w/ Daniel Mahncke & Shawn O'Malley

SPEAKER_1 (0:00)

You're listening to TIP.

Daniel Mahncke (0:03)

Welcome back to The Investor's Podcast, episode 854 And in our last episode, Shawn, I pitched LVMH and MS to you, two incredible businesses that are currently struggling, mainly because of the macro environment globally, and then especially in China. And I would argue personally that today's business is even higher quality than those two, which is definitely not easy.

Shawn O'Malley (0:25)

No, it's not easy to do. And when we talk about GE Aerospace, which is actually the biggest position in Sir Christopher Hohn's portfolio, and Chris Hohn is probably one of the top 10 investors of all time truly. It delivered roughly 20% annual returns for over two decades now.

Daniel Mahncke (0:44)

We actually got a lot of heat for skipping him in one of our latest YouTube live streams. We basically ranked the best investors in the world, but you don't have to worry. Eventually, there will be a part two, and we'll definitely not disrespect Hohn like that again.

SPEAKER_1 (1:00)

Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.

We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only.

All opinions expressed by hosts and guests are solely their own, and they may have investment in the securities discussed. Now, for your hosts, Shawn O'Malley and Daniel Mahncke.

Shawn O'Malley (1:46)

There's just so many great investors to include. You can't give them all the proper shout out that they deserve. But I will say the interesting thing about Hohn is that he is a really very highly concentrated investor. So when you cover his ideas, you know that it's not just some position that he sort of made a casual bet on and then allowed to run up in size in the portfolio. Instead he has maybe the highest bar for investing in a company of any investor I've ever studied. And that's saying a lot. And with GE being more than 30% of his $50 billion portfolio, that is just, it's insane. So we covered Heico and TransDigm recently on the podcast. And those are fantastic businesses in the aviation space too. But I feel like GE Aerospace really is the pinnacle of quality in that industry. And it's definitely valued that way too though. It's no secret to the market how good of a business this is.

Daniel Mahncke (2:44)

It's not cheap. That's for sure. And actually one of the things that I like so much about Hohn is, he tends to find these businesses when not the entire market is actually thinking it's one of the best businesses in the world, which is why he's mostly paying pretty good prices for them. And then over time, they grow up. But I should also say that as Edwin, one of our Inner Circle Mastermind members pointed out at our New York City Conference, just a week or two ago, he basically spent decades managing money at Fidelity and then many other places in the financial world. And he said that there's something to say about the GAAP approach, G-A-A-P. And that's not supposed to be the accounting term, but actually growth at any price. So Howard Marks would certainly not agree with that because he's famous for saying there's always a price too high and it doesn't sound too value investor like to say you buy at any price. But I think if you adjust it to say there's growth and quality at any price, GE Aerospace is actually a company that fits that profile quite well. Because I feel like it's just a company that we need to cover so that if at any point there's a more severe drawdown, we are ready to buy that stock.

Shawn O'Malley (3:46)

We are already in a bit of a small drop down at the time of recording here. GE's shares are down about 20% recently.

Of course, that is a pretty small blip when you zoom out and look at their meteoric rise post COVID. But before we get lost in the stock action, how about you just take a moment and walk us through the history of the company and what it is exactly that GE does and then how that differs from their peers in the aviation space of Heico and TransDigm.

Daniel Mahncke (4:17)

Yeah, GE has an interesting history, I would say. You and I actually just went to the Air and Space Museum in DC where we spent a couple of days after our conference in New York City and the history of aviation is incredibly interesting. So going from Leonardo da Vinci's first prototypes to the actual first motorized airplanes and then eventually landing on the moon and working on going to the Mars, whether that will be the case in the next decade or maybe in the next two or three decades, but all of that is basically happening in just 500 years, which might seem like a long time, but if you compare that to the history of humans, I think it's fair to say that this is not a very long time, but let me tell you guys, I figured that out when we were looking at all this stuff in the museum. Aviation innovation would have definitely been slower if they would have needed to count on more value investors. I got to say there's absolutely no way I would have been part of any of those early airplane experiments. I just kind of felt there's no margin of safety when they showed me the things that, you know, actually humans went into and then started to fly in that thing.