Insights Into What Makes Companies Great with Michael T. Moe.
Odds are against a new business succeeding, so how can one tell if a company is heading toward success, mediocrity or failure? Moe identifies remarkable companies through a systematic evaluation of people, products, potential and predictability. He will also discuss where the greatest opportunity for success lies: where society's biggest problems are- Commonwealth Club of California
Michael T. Moe
Michael Moe is a founding partner of ThinkEquity Partners LLC and was formerly Director of Global Growth Stock Research and a Managing Director at Merrill Lynch. Prior to joining Merrill Lynch in 1998, Michael was a Senior Managing Director and Director of Growth Stock Strategy at Montgomery Securities. Michael has been named to Institutional Investor's "All American" research team and has been awarded "Best on the Street" by The Wall Street Journal. He has also testified in front of the U.S. Congress on the subjects of education technology, the new economy and initial public offerings, and he has also appeared before the President's Information Technology Advisory Committee. Michael is frequently cited in publications such as The Wall Street Journal and The New York Times for his opinions on growth companies. Michael also appears regularly on financial programs on CNBC and CNN and is a contributor to the AlwaysOn Network - a blog site about new media technology and venture capital news. Michael earned his BA in Political Science and Economics at the University of Minnesota. He is a member of the New York Society of Security Analysts, a member of the San Francisco Analyst Society and is a past advisor for the Center for Innovation. In 2007 he published his first book, Finding The Next Starbucks: How to Identify and Invest in the Hot Stocks of Tomorrow.
Good evening and welcome to today's meeting of the Commonwealth Club of California. My name isTom Waller; I am Chair of the Club's Business and Leadership Forum and your host for today. Thisevenings program is entitled "Insight into what makes companies great." We want to welcome ouraudience here tonight. We hope you'll visit the club on the website at www.commonwealthclub org, tolearn about the many fine programs held here at the club. Now it's my pleasure to introduce ourdistinguished speaker.Michael Moe is a founding partner of Think Equity Partners LLC and was formerly Director of GlobalGrowth Stock Research and a Managing Director at Merrill Lynch. Prior to joining Merrill Lynch in1998, Michael was a Senior Managing Director and Director of Growth Stock Strategy at MontgomerySecurities. He has been named to Institutional Investor's "All American" research team and has beenawarded "Best on the Street" by The Wall Street Journal. He also has testified in front of the Congresson the subjects of education technology, the new economy and initial public offerings, and he has alsoappeared before the President's Information Technology Advisory Committee. He is frequently cited inpublications such as The Wall Street Journal and The New York Times for his opinions on growth ofcompanies. He also appears regularly on financial programs on CNBC and CNN and is a contributor tothe Always On Network - a blog site about new media technology and venture capital news. He earnedhis BA in Political Science and Economics at the University of Minnesota. He is a member of the NewYork Society of Security Analysts, a member of the San Francisco Analyst Society and is a pastadvisor for the Center for Innovation. In 2007 he published his first book, "Finding The NextStarbucks: How to Identify and Invest in the Hot Stocks of Tomorrow." So, please join me inwelcoming Michael Moe.Now, it's a my absolute pleasure to be here this evening and just by way of background though thebook that by I would try to give the the name, you know the invest in the hot stocks tomorrowmakes me crazy a little bit. But why in fact, the the publisher suggested that name was back in1992, I happened to be fortunate of to be the first person to identify and recommend invest in theStarbucks coffee and that turned out to be a pretty fortuitous investment idea. Well with that, theyand I think, over last really 20 years, I've been fortunate to be involved with small companies thatbecame big companies, the power group what actually was the number one performance stock for 1994,2004's largest private university in the country. Our firm was the first recommend research on Google.And I am saying all these not to toot my horn, but just the the background that has lead to what I amgoing to talk about tonight really is you know and it's very foundation is the best investments youknow, are really the best businesses. And so, talk about "Invest in the Hot Stocks of Tomorrow", whatit really boils down to how do you identify what I call the stars of tomorrow, the most importantyou know most innovative companies in the market place. And so, just for that back drop let me hithit you with a few facts. Because the bull you know, it boils down to often an entrepreneur with anidea, a dream and how they execute against that dream.You know, everyday in America, 2700 companies are formed. Every day in America, 2200 companiesfail. The probability of a new business surviving this first three years is then percent. In 2006, VentureCapitalists invested in 3522 companies. IN 2006, just 61 venture back companies were able to gopublic. What kind of now we start a business?And what I found in 20 years of trying to find the next Starbucks trying to find these stars oftomorrow, the first and most common the most important ingredient were finding entrepreneurs thatjust wouldn't quit. They had the persistence and the guts to keep on getting up in even evenagainst the odds when people told him to stay down, now the people that were told they were crazy butthey are the ones that also going to make it happens. So I guess one lesson is he going to kind of throwthe conventional wisdom out the door and really truly find people that you know, that that areexceptional and unusual.See if you can name this nut. He failed in business in '32.He ran as a state legislator and lost in '32.He tried business again in '33 and failed again. His sweetheart died in '35. He had a nervousbreakdown in '41. He was defeated for the nomination of Congress in '43, defeated again for Congressin '48, defeated when he ran for the Senate in '55, and defeated for the vice presidency of the UnitedStates in '56. He ran for the Senate again in '58 and lost. And the answer is, Abraham Lincoln. See thefactor the matter is when you look at the success stories, whether you talk about politics, whether youtalk about businesses. But it's made up you know, history is made up by these people that you knowjust kept on pushing.Thomas Edison, the kind the person who came up with the phrase that "Success was one percentinspiration and 99 percent perspiration." You know he was the one that invented the photograph, thethe electric light bulbs, the film. You know today, General Electric is a $400 billion Market CapCompany. Walt Disney, in 1923 we started Walt Disney Company in the back of a realtors office inLos Angeles after he was fired for his first job because he wasn't innovative enough. You know, wenton to create the business today worth a $60 billion Market Value.Sam Walton started his first two businesses in Missouri called Wal-Mart Five and Dime. You know thisis one of the first Wal-Mart see to business. So this is the two so they openly open up the first toclose down and they open second. That closed down. Today, Wal-Mart, is largest retail the world the$190billion Market Value. Howard Schultz, the the CEO Chairman of Starbucks Coffee actuallycame to Starbucks which was in Pike Place, Seattle; in 1982 as a sales person. He had this dream ofputting a Coffee Bar in every corner. People thought he was crazy, he left the company and actuallystart his own coffee company, came back was founded to start Starbuck today $20billion Market Cap11000 stores, 35 countries.Mike Bloomberg, you know who is now has been toted as a as a Presidential candidate was firedfrom Salomon Brothers which was a huge disappoint; started a company Bloomberg. Terminals whichis the first one you know Bloomberg has become a ubiquitous media empire what are them most importantmedia business in the world. And obviously Mike may Mike Bloomberg has become a very successfulpolitician running New York City. Steve Jobs, you know again started the Apple Computer with SteveWozniak in 1976 in the literally in his parents garage. This is what was called an insanely greatcomputer which was the vision in 1976, came afar, stretch from that was fired from from thecompany that he started was brought back. Today, you know, Apple Computer not only $120 billionMarket Value but also creating one of the most important brands in media and retail businesses in the world.The point with all this is it starts with people and so what we are trying to find the stars of tomorrow asI said. You know, we have a formula that we call the four P's which really is the essence of everygreat business and every great company and it starts with people. As I said, whether it's a business,whether it's a Government, whether it's a sports team; people make the difference particularly with themerging companies. People that have the passion to to go against all odds. People have the opportunityto execute against were able to execute against an opportunity. A lot of these companies don't havelong histories but the people do. And so we are looking the better on people. Here I just gave a fineexample of of a different situation that businesses is is the story of Michael Jordan of the ChicagoBulls. When he joined Chicago Bulls after 1984 season, that year before they did, they had 261,000fans came to Bulls, games paid $15 a ticket. In the four years after he joined the team, the Jordan Era;ticket ticket prices went to $30, fans were 737,000. And they won three National three WorldChampionships and the economic difference is $18million. So, you know one person does make adifference. When you look at the people aspect of the great businesses of today and tomorrow, it'sreally is critical. In the old economy in the old businesses it was it was, book value wasmanufacturing businesses that you know, that weren't as dependent on people as businesses todayand tomorrow will be. But when you look at some of the most important attributes of the businessesthat we think are critical you know since this people on the culture, Fortune Magazine comes out w anannual survey of the hundred best companies to work for. It's interesting when you look at the criteriaof companies that make that that list it's things such as how much training and education do theyprovide, how much you know what is the what is the turn over, you know what kind of benefits arebeing provided in terms of child support and other health care benefits. And when you look at that listits companies that everybody recognizes, this is the Googles and Whole Foods and Star bucks and Ciscosystems and Qualcomm, quite interesting from an investment stand point that these companies weren'tlisted because they were successful stocks when you look at it from a stock perspective for the lastthree years the dollar invested in this ten best companies to work for, actually is worth $2 and 47 cents.So when people makes the difference in your business having invested in the attributes that make agreat place to work ultimately turn into a great investments as well.In the product piece back to this you know we are looking for you know what makes it greatcompanies like all four Ps and started with the first P, people. Second P is product and here what youare looking for is a company that is really is a leader in what they do has acclaimed the fame, one of akind of kind company something that makes it special different or great, because lot of me too companiesparticularly in hot industries that ultimately you know don't have the same type of success as theleaders. So we want to have the companies that are not only survive but thrive during the corporateevolution and the difference between the leader and the second best you know can be you know notthat big in the terms of numbers but could be awfully big in terms of value. You know in horse racingjust in the Preakness you see streets stand one by just a nose but the economic value for thatleading horse was tens of millions of dollars in terms of siring again the same example we can look atGoogle and Yahoo you know Google and Yahoo are comparable businesses in many respects but thefact is the Google's market value is about 4X than Yahoo's and again its the little things that make thebig difference. Potential, you know finding the companies that have open ended growth potential smallcompanies that can be big companies and here we are really looking at mega trends and impact that thesectors that we follow. We are looking for areas where there is benefits such as globalization, theinternet outsourcing, demographics and also companies that address problems the bigger the problemthe bigger the opportunity. So the mega trends that we look at in terms of spotting industries andcompanies within those industries that have huge potential, we first look at what are the growth sectorsof the economy, so health care, green technology which we think is an enormous area of opportunitiesso alternative of the energy, software semiconductors media communications and business consumerservices and I am thinking about these mega trends, the knowledge economy where education andknowledge makes the difference now where the company does but how the person does and how thatfragment of our country does globalization, internet, consolidation, branding, demographics,outsourcing, convergence are mega trend that we added is green you know we think green is importantmega trends that kind of cross all growth sectors that will create the biggest opportunities as we look ahead.And our fourth P is predictability how visible is that growth what type of reoccurring revenue does acompany have, the more reoccurring revenue, the more visibility - the greater the value ultimatelyshould be described just because it's that much more predicable. Here is the one that I like in terms ofpredictability forecast for tonight...dark. George Carlin. But you know just like the birds migrating tothe south in the winter, finding predictable business patterns you know ultimately creates a betterbusiness and ultimately creates a more valuable business and so just give me an example on everybodythinks of business and where you create a contract and so you get a five or ten year contract with thegovernment or something, and that's how we heard outsourcing contract you know we could have fiveor ten years, that creates great visibility but even business that don't that necessarily you think about asbeing inherently predictable it can be very predictable so for example Star bucks you say well howpredictable could be a restaurant or retailer be well the typical Star bucks customer went there 16 to 20times a month, create a real association with the business and the brand and Star bucks is able to createother other products so they will be able solve their consumers who is coming there 16 to 20 times amonth creating real visibility if you look the same story, sales or Star bucks over the last 10 years hasbeen not short remarkable. And so I think we look at any business creating - figuring out how you makeit more predictable its very very crucial great businesses are systematic and strategic in the terms ofthe way they operate and so as we tried to think about what are the attributes of great business andhow do we identify investing in those business and what are the characteristics we have created aframe work. We have talked about the 4 Ps here the 10 commandments that we use to define the firstcommitment "earnings growth drive stock price". Over time this is essentially a 100 percentcorrelation with how a business does and how their stock does or how their earning how theirearnings do and how the stock does, secondly being proactive not reactive. I think importantly beingable to look what tomorrow looks like I suppose to what yesterday is as critical to really be positionedwhere the puck's going be rigorous but don't have rigor mortis by this I mean being very disciplinedabout a frame work how you look at a business, how businesses are being built but you have to flexiblebecause things change, times change. When wrong admitt it. You know one of the biggest mistakes Ithink we see people make is they get kind of locked into a decision and no matter what the new factsmight be they continue trying to rationalize a decision based on by that old thesis. One of the greatlessons that I learnt very early in my in the business career was I happened to be following twocompanies writing research on two companies at Pearland who was arguably one of the most importantmutual fund managers of the last 30 - 40 years whom own both of these companies not because of meby the way but because he just followed me talked to me because I covered them. And both companieshe couldn't have been more wrong about those companies than he turned out to be about what he didas when he when he realized that he was wrong he didn't even think twice about it he just made adecision and moved ahead. That I was stuck with me because you know how could be a person be sowrong but have such a wonderful track record well one of the reasons is because when he was wronghe admitted it. The Cockroach Theory is I think a great rule to have for emerging companies becausewhat the cockroach theory says once you find one cockroach in the kitchen, there is always more. Andso with an emerging company we truly find a problem and that problem is not a real bump in the roadproblem is a cockroach.You know its best to admit that you got a cockroach you got to home real problem that ultimatelymight do in. Investment ideas are about information and insight. The 4 Ps which I talked about beforereally are the essence of the every great company that we have ever seen or been involved with of fiveindependent sources to sort of check your thesis of be able to you know create information and insightintellectual capital, we create three main reasons for stock. Move up or down just to have a thesis,and tenth is be passion about investing but dispassion about investment I mean the stock doesn't know theowner it doesn't have any feelings. Once you make a decision that you ultimately want to dosomething different, you just kind of make it based on sort of intellectual anxiety and move on. So hereis sort of a conceptual framework we utilize to identify and invest in this stars of tomorrow, whattheir real characteristics are so the very top over arching all this, this is ten commandments I just discussmega trends, the impact of the growth sector that's creates investment themes that's how we allocateour research and resources the four Ps you know we have a evolution approach looking at repeatedgrowth and this kind of cash flow and price to sales. Now when we look at short term issues you knowand then we look at long term issues realities with the idea that earnings growth again is what drivesstock prices over time and so the simple formula that we are trying to find this companies that we thinkhas the earnings of the highest rate for the longest time and that's how we find the Star bucks and nextApollo the next Google and next My space. So who is next? Well to try to identify what's next is Ithink is, you know important to look at the past and in terms of what we can learn from it. So this justshows a list of the top 25 companies in the terms of overall return in stock market from 1995 to 2005and this is out of over 10,000 companies see you can see at the very top of list is a company that maybe somebody wouldn't even know that's American Yield Officers which is the number one performingstock during this 10 year period of time but the companies like Dell, Whole Foods, Best buy, Urban OutfittersSandisk, Qualcomm and these are all amongst the top performing stocks.What's interesting is not so much who made this list, because I think probably many of you could havepicked several of not many of these names in hindsight, what's interesting is the characteristics of howyou made this list. The first characteristic is the average stock appreciate at 36 percent per year, may bethat's not so surprising just because after all to make a top 25 list out of 10,000, you know you have tohave pretty strong returns with 36 percent pre year as the stock double in every two years. Interestinglythe average PE in 1995 in other words the year that this that our performance began was 31.8 times PEon a 31.8 times PE, so in other words these weren't exactly in general spirit terms undiscovered inexpensive stocks, 31 terms earnings are very expensive PE but double a current market multiple, yetnone or less these stocks have the top performance how that happen? Well the average earnings growthfor these companies was 42 percent per year, and that was what offset said that relatively high PE andthe medium market capital beginning that period of our performance was a 199 million market cap,which in today's world would actually not only we called a small cap company, we argue that wecalled a micro cap company. And so our conclusion from this is that if we are trying to pick companiesthat could be on this list ten years from now, you know one, you know we need to focus on you knowearnings growth not the market basement, because over time this earnings growth better stock pricessecondly focus on small companies they potentially be big companies, because as a company becomeslarger size force is in anchor so in other words you know for example, Google is one of my favoritecompanies in the world, really is and it gets probably the premier growth company on the planet rightnow. Its market cap is about a $150 billion. So for Google, unfortunately you know if it grows at youknow 40 percent rate for the next ten years what that basically says is that its market cap would be over$2 trillion, and in other words you know larger than the size of the Chinese economy.Now can that happen? Sure is it likely to happen? Probably no. So its likely the Google won't have thishigher future arranged growth as well as it had in the past but nevertheless it is a great company.Here is an interesting statistics just as the relates opportunity here by says well how do you youknow beat the pros of spending - have all this information and spent all the day looking atmachines and so forth, so here is an interesting fact. First of all you have got 73 percent of allNASDAQ companies have below billing to our market cap and back you know but if 85 percent ofWall Street's research coverage is above a billion market cap. So in other words you know most of theresearches on these companies there are larger impact of the study I just talked about before and theyare not focused on where they are most likely going to find these stars tomorrow, you know in thesmall market cap normal cap area. So I think that really is a message of hope, as it relates to findingcompanies that not every body in the world is focused on.The world is flat, it's just a theme that you know, I think its pretty critical its different. You know interms of this time around in the good old days you could find a lot of these companies just if you spentall your time between San Francesco and San Jose but investors today opportunities have been createdaround the globe. Tom Friedman is right, the worlds flat, and the fact is that other sectors are global.Where to hunt - its probably, you know again back to just some historical perspective to look ahead thisjust shows the top performing I have done this a little different but, the top performing, the topmarket cap companies in the US capital markets in 1925, what this shows that the rail roads, metalsand auto parts actually have the top 100 had 37 of that hundred largest companies in America in 1925, youfast forward to 2005 and only one of the largest hundred companies in the US capital markets onlyone of those three industries. If you look at information technology, financial service, and health careand pharmaceuticals Zero companies were amongst the top hundred in 1925 today 60 of the tophundred in those three sectors, the point as things change, times change, things change. You know interms of the market you know there is a little exception of two days last week you know you knowDow is hitting new highs very day Russell 2000 which is small cap index up a 141 percent since thisOctober 2002 bottom. But really you know as much as everybody talks about you know the marketdoing so well, grow stocks you know really not participated in other success in fact NASDAQ is 50percent below, its March 2000 high but finally we were in a bull market to grow stocks which I think isyou know we are encouraging to the people that are looking for that next Google or next Star bucksand also 26 percent since this bottom of July 2006, but I think that one of the things that is natural, butwrong is where people are looking and say oh finally the growth market will you know we are goingback to sort of the companies that we are with the stars of the last bull market for growth companies soYahoo, its down 70 percent from its all time high, Intel is down nearly 70 percent, CISCO down 65percent from its all time high. You know Oracle 56 percent, DELL 55 percent, Microsoft 44 percent,but I would argue that if you look ahead in this new year that we are entering this it is not going to bethe whole framers in the past and say just like you know Barry Bonds and you might have few goodhome runs left and then Roger Clements might have a few good innings you are not going to predictthat they are going to be in that many all star games over the next ten years because this age is to anathlete size is to a growth company.So you got a really say, who is next. So new era is required new leaders, I think and I am going to gothrough this real quickly I think some of the greatest places to find who these new leaders are going tobe is in the IPO market, this just shows 1990s, you had a average of 533 IPOs per year, you know 51percent of them were venture back, here is the nuclear winter that happened on Wall Street from 2000 to2003 and during that period of time you went from 533 IPOs per year to 87 per year and thecharacteristics of these company is much larger much slower growth when Sun came up on the eastagain sort of in 2004, you had to pick up to now about 240 IPOs per year but still dramatically belowwhat we experience during the 1990's but you are starting to see kind of this ray of hope and you arestarting to see the real innovation hits the market place and back to my point with that is often that'swhere you are going to find these new leaders and new companies new IPOs. So just looking at someeras and then going to kind of future so we know we have gone from the Agrarian economy when thebeginning of our country, the evidence by the steam engine James Watt and for the Industrial economywe talked about Thomas Edison so on General electric, manufacturing economy you know the bestposter child for that ford motor which one is public in the 1939 then we have the service economyand IBM is a great example of that and the Information economy the INTEL, with Microsoft andINTEL and Netscape sort of the shot gun going off on the Internet area, the knowledge economywhere again education and knowledge is making the difference, for how well a company did,companies like Google and salesforce.com and you know Apollo power group, Whole Foods are all part ofthat knowledge economy. I think the area that, we are entering as well, I call the innovation economy.The innovation economy is focused on creating solutions to worlds biggest problems so look at a few ofthose problems every day in America burns over 21 million barrels of oil. Everyday in America imports12 million barrels of oil, 785 million people in the world cant read or write nearly two million childrendie each year due to unsafe water and inadequate sanitation, the average college graduate who changesjob 11 times in his or her career. Ocean levels are expected to rise six feet with in the next hundred yearsleading to mass devastation of population centers world wide. 10,000 universities, is the size of theuniversity Indiana 10,000 universities of size the university of Indiana would be required to fill China'spost sector education needs it's a big problem. By 2030, nearly 25 percent of the US population be 65years or older the median earnings or somewhat the bachelors degree is 70 percent higher than persongoing to a high school degree, 23 to 25 large global IPOs in 2006 were not listed in US exchange.Here is just an example of bunch of problems again problems create opportunities, who is creating thebetter solutions to those problems? So I sort of semi seriously, I pull out a weekly piece calledthink thoughts you can also subscribe to it for free just by going to going to the website but wecame up with a new party just because we said the democrats and republicans nobody was addressingthis big issues so what are the 6 EEs for this earth party one is the environment you know it's not aquestion of growth of the environment you got to have both and clearly of the businesses of tomorrowneed to have the balance between the two, the education is critical. You know it is what we look aboutaround the planet in terms of what is required for businesses to succeed, it is a knowledge economy,energy independence and alternatives you know again the depends on foreign oil you know whateveryour political stands is irrelevant. It's fundamentally unacceptable to have that being part of the futureequation. Elderly support and talk about 25 percent US population being 65 years or older andfundamentally how society treats its elder people is a real issue and real important. Entrepreneurism,one of the interesting facts when you look at the success of the 1990s and people kind of say well youknow everybody in the world interestingly unfortunately 500 or less lost three million jobs during the1990s. But that was replaced by the 25 million jobs that was created by Entrepreneurism and small midsize business and having you know again addressing that reality in terms of true economic growth isextremely important. Its economic can set us people behave or compensate.Investment themes and this is where I may wrap up. So you know the earth part is a kind of fine welooked at some problems, looked up at some opportunities. Here is some investment theme where Ithink some of the greatest opportunities will be created you know one the the mega theme amongstall these themes as web 2.O and we already talking about web 3.O. But web 2.O was really that theinternet is the platform for everything from information to commerce, to education to services, youknow Google is clearly at first in name of this web tool theme. But there is a number of themes andmany themes that is gone off from this and internet is really only probably in the second ending of theultimate reality of what that is going to mean. You know online advertising, which is the sub themefrom web 2.O and that is the shift from traditional media and advertising online. As much as you seentremendous growth and success with companies like Conex that was bought by Microsoft for I think ofseven billion dollars and 24/7 and the wave of success you have seen from this online advertisingcompanies, you still have only referred eight percent of all advertising dollars spent online yet the factto the matter is people are spending now about 20 percent of their media time online. Youngergeneration are spending significantly more and all by the way you are looking at the growth or negativegrowth you have seen every traditional form media when we talk about network TV, magazines,newspapers, radio, they all are going down. So advertisers are going to continue to put more and moredollars online. That is going to be a great theme from long time to come. Open source you know Linuxwas the beginning of this movement but have user generated content, blogs, software development,open sources, is extremely exciting theme, companies like Sugar CRM and so forth. Think you talkabout this for ever and ever because I'm such a believer in the power of this concept but there isgoing to be a lot of opportunities created within that. Our demand again on web tool of many theme,this is software, it's a service. Salesforce,com is the poster child at this moment but there is a numberof models that that are being created, that are doing quite well. The phone is my life and this is youknow when you look at my parents, the automobile was really kind of how they identify themselves,when you look at my kids, it's their phone and now you saw the iPhone which I kind of kiddinglysaid you know we had eight, we had PC, we had AD and now we have IP which is this after the eyeiphone. But the factor in matter is what apple's clearly done is created you know the first true computeras your phone and that's going with everywhere and just the complications of that the business arecreated for that and around that you know I think is extremely open ended. ABC is a biotech in thethree Gs. This is just talks about Amgen and Biogen and Cellgen and Gillia genentech and Genzonebeing sort of the new blue chip farmers in fact if you believe I mean that's and what they are going todo is basically will be buying the innovative product companies, there are going to be in our children'smedicine cabinets. The digital doctor even with the growth of technology in hospitals and health care,you are still seem just the very early innings of this digitization and the way to creative more effective,more efficient health care. Healthy and wealthy wise aging baby boomers looking for a life styles thatare both healthier and what they do with the fluency that is being created with this generation which isthe most innovative you know in the history of the world and wise life long learning, you don't stilland fill up your knowledge taking aged 25 and drive off but it is going to be ongoing and so againbusinesses is located in towards this and the reality is people live in more bios and where there is just anumber of business will be created for them.Knowledge economy I talked about before pay gap between somebody as a high school education andcollege education. High school education and colleges education is big and growing and so that canbecome greater minorities to majority. Demographics if I would tell you one thing I have learned fromsome of the most successful investors is that they really understand demographics becausedemographics are like a slow curve ball, you can see it coming from a mile away, and it allows you toposition yourself to where that ball is heading. So whether you are talking about you know for example,we have a media a theme called women probably you look at you know college educated womenhave gone from 20 years ago. 42 percent of college students were women today its 58 percent. You arelooking at the same reality in terms of graduate programs whether you are talking medicine whetheryou are talking business, you looking in politics, you looking at business history by women are two toone over man. I mean this is just a big wave of demographics in the implications of Brian that are goingto be for years and years -years to come. The fact in places like California and Hawaii, and makes fiveto six states, that the you know white population will be less than the minority and again you know Iwas the fast is growing, category is expanding and again for this type of marketing or restaurants andso forth is all very very significant, safe and secure you know in the old world, when you looked atyou know white, you are really certain that whiter people have banks because that's where the themoney is. On the new world, the money is on the internet, so how you create a safe and secureenvironment is critical. Greentech is huge and again problem opportunity whether you are talking aboutfrom environment state point or dependences on foreign oil or look at the economics of the 77 dollarbarrel oil price, whether we are talking bio fuels, solar, wind, all are very very important and big interms of what I think is on the greatest opportunities that may create in the future.Just two more - nanotechnology you know scientists and features for 20 years, have been talking aboutnanotechnology at being you know being the next big thing. The key thing about nanotechnology isthat it is actually becoming commercial. You know whether you are going to be looking at the decadeof the many me and it is going to affect all industries and so it affect Greentech, it affects automobiles,it affects apparel it affect technology, it affects biotech and that is going to be very exciting and lastly Ihate to be on the side of conventional wisdom with China and India are going to be were lot of theseopportunities are created. When we look at china for example there is going to be over 10000 IPOsproject in china in the next 20 years and you just can't get around the fact that you get 1.3 billionpeople with the GDP per capita, that's growing very very significant you know five or seven yearsago, we were looking a GDP per capita in china it was about 2000, today it is 7000 yet the UnitedStates is 42000, long way to go, huge leverage to their model. And last thing I am just going to tellabout is what I call the four sectors and this is sort of a side trend it's really not - I think it factors intheir commercial businesses but also can be independent by itself and this is just the trend you areseeing of people that want to do well but by doing good Ethos waters and example Star buck's boughtthis company whether they are given a neck of every barrel that they sell to help portable water youknow across in Africa. America idol had one night that was dedicated to providing the money that theymade, they give off to charity you know the red program that Bono started and again we were lookingacross the spectrum of opportunities, how they factor this four sector into their plan I think is a prettynotable trend.It is just a kind of you know something is not, this is in the advertisement but just in case you are havean interest in some of the things I have talked about that I mention think thoughts is something Ipublished for like in 17 or 18 years, it is a weekly commentary on the growth economy, we have 21thousand people that get this today. The only thing we ask for this if you like it you make it we give themoney to charities. Find next the book outside, we are fortunate to do 31 interviews for some of themost important investors and business people had some people say some nice things about the bookincluding Pier Lynch and Mike Nuke and then Dill Chamblee and Cindy Ripen so forth and lastly tojust to make you work if you have an interest we know, where our own focus is on innovation. Wehave a number of advancing conferences including we have our fifth growth conference in SanFrancisco in September we have 200 CEOs in the fastest growing companies in the world at thisconference so you can find all that stuff there in the website. So before you open up to questions, Iwant to see all good job I did and so if I do a reasonable job what I find is that people start to kind ofthink along the frame work, the systemic and the strategic and the kind of you know we start to kindhave a mind of - a kind of welcome mind also. Let me do this quick exercise with you. First of all thinkabout the fourth letter in the alphabet. Got it? Ok. Think about a country that starts with that letter ok.Take the last letter of that country and think of an animal. Ok. Now with that animal think of - take thelast letter of the animal and think of a color. Ok. Raise your hand if you thought about orange kangarooand Denmark. Ok it works pretty well.Thank you.