The most exciting company possible?

Jonathan Copper: You bought what might be the most exciting company possible. Well, at least for someone like me who's a total car nut. Do you want to talk about that recent buy?

Aziz Hamzaogullari: Of course. We've been looking into Ferrari for a long time. Last year, our analyst, Larry, visited the company. Then last fall, I went myself to visit Ferrari. We always start with the quality of the business. The competitive advantages for Ferrari are significant. They have a very powerful brand. I would argue that in terms of scarcity, if people talk about Hermes and Hermes bags, take that and multiply it by thousands. So, there's substantial brand power, proven by pricing power, market share, and residual car values.

A typical car depreciates 40 to 60% of its value in the first three years. A Ferrari holds up its value because of that scarcity. In the supercar market, which is a $300,000-plus market, they have an incredible position. They get a share from F1, still about 5% of the revenues from F1 because of royalties and their contribution to F1. When we look at growth, it's really driven by high-net-worth individuals. The whole market has grown around 7%, and the ultra-luxury market has also grown at 7%. We expect that growth to continue, but this is not a volume story. They're not like Porsche, trying to sell many cars in China.

Ferrari, who started the company, said, "Our philosophy is to sell one car less than the market will bear." So their goal is not volume growth; they're going to get future growth through pricing and mix. The reason we had an opportunity to buy the company is the F80, this new car that's coming up. It's all sold out. This shows the short-termism of the market. People are worried about when production will take place over the next two or three years and when the revenue will hit the income statement. We took advantage of that reluctance by other shareholders. And of course, now we also have the Middle East, which is around 5% of their sales. Most of it will be impacted by that too. But these are the short-term headwinds that provided us the opportunity to buy a great company like Ferrari at a substantial discount to its intrinsic value.