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Speaker 1: This is Master's in Business with Barry rid Holds on

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Speaker 1: Bloomberg Radio.

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Speaker 2: This week on the podcast, I have an extra special guest,

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Speaker 2: Graham Foster is PM at Orbis Investment Management. The fund

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Speaker 2: runs about thirty four billion dollars. I've been intrigued by

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Speaker 2: Orbis for quite a while. They have a truly unique

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Speaker 2: approach to investing. They're also owned by a foundation, something

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Speaker 2: that's rather rare in the finance industry, and they also

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Speaker 2: have a unique approach to fees. When they're generating alpha,

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Speaker 2: when they're outperforming their benchmark, they take a performance fee,

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Speaker 2: and when they're not generating alpha, when they're underperforming, they

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Speaker 2: actually return fees. I don't think anybody else in the

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Speaker 2: entire industry does anything like that. Fortunately for them, they've

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Speaker 2: been outperforming for decades, so it isn't very often they

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Speaker 2: have to return fees. This is one of those really models.

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Speaker 2: I've written about them before, I've interviewed other partners at

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Speaker 2: Orbis before. They're really an intriguing firm. I found this

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Speaker 2: conversation to be absolutely fascinating, and I think you will too.

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Speaker 2: With no further ado, my discussion with Graham Foster, PM

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Speaker 2: and partner at Orbis holdings. So you have a fascinating background.

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Speaker 2: I want to get into that before we start talking

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Speaker 2: about asset management. A degree in mathematics from Oxford, a

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Speaker 2: doctorate in mathematical epidemiology and economics from Cambridge. What is

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Speaker 2: that mathematical epidemiology. I'm assuming that's probability and statistics of

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Speaker 2: viral disease.

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Speaker 1: Exactly grow, That's exactly right. So that I did a

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Speaker 1: math degreat Oxford, which is more pure math, and then

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Speaker 1: I was looking for something more applied. You know, pure

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Speaker 1: math can be very theoretical and detached from the real world,

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Speaker 1: and it's getting worse. It gets further and further away

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Speaker 1: the DEEPU go, and so I wanted to move into

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Speaker 1: something useful. Mathematical epidemiology is a study of disease spread

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Speaker 1: through modeling. You know, how do you understanding the spread,

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Speaker 1: how do you treat the spread, When do you treat

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Speaker 1: the spread? You know, things that the vaccination programs, and

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Speaker 1: it's all the mathematics around that. So it was very

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Speaker 1: relevant then and even more relevant recently with all of

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Speaker 1: the you know, the infectious diseases seeing.

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Speaker 2: So let's talk test your theoretical mathematics. So I was

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Speaker 2: for something wholly unrelated. I'm diving into some set theory

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Speaker 2: and I come across a paper that makes the claim

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Speaker 2: that some infinities are larger than other infinities. Now, my

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Speaker 2: naive assumption was infinite men infinite? But is that the

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Speaker 2: sort of stuff you were studying undergraduate?

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Speaker 1: That was a number that was number theory, pure number theory,

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Speaker 1: and that was one course I did not take. But

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Speaker 1: that is a fascinating field, that's for sure. There's many

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Speaker 1: different types of infinities.

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Speaker 2: Apparently it's I just assumed if it's infinite, it's infinite.

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Speaker 2: And whether it's all numbers or even numbers.

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Speaker 1: Yeah, that is an incredibly complex area of mathematics, to

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Speaker 1: the point where you spend weeks and weeks proving that

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Speaker 1: one isn't equal to zero. Right, that's how fundamental. You

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Speaker 1: get it right back to the axioms and you do

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Speaker 1: a lot of work with infinity.

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Speaker 2: And then economics, which is a little bit squishier. What

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Speaker 2: made you add economics to your to your graduate degree?

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Speaker 1: Well that was really an add on. But you know,

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Speaker 1: if you're thinking about the spread and control of disease,

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Speaker 1: given this is academia, you know the big focus is

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Speaker 1: on how do you do it? It's not really on

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Speaker 1: what does it cost?

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Speaker 2: Right? Right, which some people actually care about.

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Speaker 1: Some people do right, that is, that's quite a relevant question.

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Speaker 1: So a big part of the thesis, which we sort

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Speaker 1: of started, you know, around one year in after getting

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Speaker 1: the kind of the basis right, was how do you

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Speaker 1: treat this?

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Speaker 2: Was?

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Speaker 1: This was in agricultural system? So how do you treat disease?

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Speaker 1: When do you treat and how much is it going

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Speaker 1: to cost? And it's basically an optimization problem.

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Speaker 2: Well, we'll talk a little bit more about fees and

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Speaker 2: costs later, So let's talk about your first jobs out

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Speaker 2: of school. I'm assuming mathematical epidemiology wasn't the career you followed.

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Speaker 2: What did you do after Cambridge?

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Speaker 1: Yeah? I mean academia should be meritocratic, should be should

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Speaker 1: be right.

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Speaker 2: It's a little more political than that. It's very very political.

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Speaker 1: And you know, the deeper you go within a field,

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Speaker 1: the less the people who are funding the research understand

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Speaker 1: about the research. So it gets very bureaucratic and you

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Speaker 1: spend a lot of your time, in my view, try

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Speaker 1: to build your funding to do your next project. And

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Speaker 1: so you know, one reason for looking for an exit,

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Speaker 1: if you like, from academia, which has its positive elements.

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Speaker 1: Right in academia you get the feeling the fulfillment of

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Speaker 1: doing something that's good for the world.

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Speaker 2: In theory theoretically.

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Speaker 1: So, but one that that sort of looking for something

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Speaker 1: meritocratic was one reason for look. And I started during

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Speaker 1: my PhD getting into game theory and decision making under

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Speaker 1: uncertainty and all these interesting areas which were a bit tangential.

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Speaker 2: Although maybe not so tangential. I read something you had mentioned,

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Speaker 2: Schlansky's book, The Theory of Poker. A professional poker player teaches

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Speaker 2: you how to think like one. Obviously, decision making under

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Speaker 2: uncertainty with probabilistic odds and an inherently unknowable future. Is

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Speaker 2: that poker? Is that investing?

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Speaker 1: Sounds like, Well, it's the same thing, right, It's the

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Speaker 1: same skill set. And so during my PhD I started

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Speaker 1: playing a lot of cards. It was Omaha and poker

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Speaker 1: and gin and then backgam and all these games interesting

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Speaker 1: from the sense that luck or uncertainty play a big role,

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Speaker 1: and that's interesting. I thought that was that's an interesting

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Speaker 1: element of those games. And one of the things that

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Speaker 1: drew me into that wasn't just the intellectual side of it.

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Speaker 1: How do you make decisions under uncertainty? It's the uncertainty

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Speaker 1: itself and what that does. And you know, if you

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Speaker 1: if you're a chess player, it's almost pure skill. If

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Speaker 1: you're a poker player, I think it's you know, maybe

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Speaker 1: forty percent skills, sixty percent luck over short periods. And

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Speaker 1: what that does is it draws in a lot of

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Speaker 1: people to the game. But maybe you know, don't appreciate

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Speaker 1: that that kind of the rigor goes into the decision making.

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Speaker 1: It's like people who play the lottery. Why do people

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Speaker 1: play the lottery? They know it's a negative expected value game,

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Speaker 1: do they Maybe they do, maybe they don't, But they

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Speaker 1: see the potential to win the big jackpot, right, And

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Speaker 1: they also, you know, they get little wins here and

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Speaker 1: there through the lottery, right, it gives them a buzz.

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Speaker 1: It's why do people go to the casino. They gamble.

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Speaker 1: So game playing with large elements of uncertainty draw people

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Speaker 1: in who aren't necessarily suited to the rigor of the activity.

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Speaker 1: And if you think about what's similar to poker in

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Speaker 1: that regard, it's investing very very similar, massive levels of uncertainty,

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Speaker 1: in fact, more uncertainty in the investment world in the

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Speaker 1: poker world, because you're making these long term decisions and

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Speaker 1: getting very little feedback from your actions until years and

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Speaker 1: years down the road. So it draws people in. So

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Speaker 1: they'll have big wins, you know, they'll buy a stock,

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Speaker 1: it'll go up. I can do this, and they keep going,

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Speaker 1: and they keep playing, and they keep going. And so

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Speaker 1: it is a game that a game. It's a field

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Speaker 1: that drives a lot of inefficiency, and I think that

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Speaker 1: inefficiency is sustainable. And so that's you know, one of

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Speaker 1: the reasons that drew me, And the other reason that

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Speaker 1: drewman was, you know, I think the relationship we, you

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Speaker 1: and I, everybody has with money is heavily dictated by

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Speaker 1: their upbringing coure. And so if you have spent you know,

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Speaker 1: your childhood, making compromises because you're always bumping up against

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Speaker 1: the barrier of not having enough money, it changes the

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Speaker 1: way you look at money. And so I didn't want

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Speaker 1: to spend my life in academia, where you know, the

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Speaker 1: money is not bad depending on what you do, but

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Speaker 1: I would always be in that situation of sort of

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Speaker 1: bumping up against that barrier. It limits your choices in

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Speaker 1: life if you don't if you have that constraint.

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Speaker 2: No doubt about that. So I love where you've taken this,

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Speaker 2: and I want to I want to stay with the

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Speaker 2: idea of poker and casino and uncertainty. Some people look

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Speaker 2: at a casino as entertainment and hey, we're going to

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Speaker 2: spend X dollars picking up for five hundred, two thousand

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Speaker 2: and whatever it is, and that's you know, that's what

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Speaker 2: a night out at a Broadway play would cost. Here's

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Speaker 2: what I'm going to spend that night. I think that's

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Speaker 2: a small percentage of people and other people. It's not

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Speaker 2: a coincidence that the One Armed bandits those machines that

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Speaker 2: pay out the most with the lights and the bells

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Speaker 2: are right by the entrances there to capture people a

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Speaker 2: lot of was kind of fascinating because I always thought

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Speaker 2: you paid two dollars and were coming up on nine

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Speaker 2: hundred million as we speak. Is the current lottery nine

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Speaker 2: hundred million? Yeah, they changed the lottery a couple of

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Speaker 2: years ago, so there are some blank numbers in it

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Speaker 2: in order to create these billion dollar payouts, and they

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Speaker 2: go on longer and longer and obviously more profitable for

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Speaker 2: the states that run the lottery. But to me, it's

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Speaker 2: like you paid two dollars and you get to fantasize

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Speaker 2: about what you would do with a couple of hundred

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Speaker 2: million dollars. That's the two dollars that the lottery is

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Speaker 2: worth for me. I don't think the average person who's

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Speaker 2: plucking down twenty or one hundred bucks every week thinks

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Speaker 2: of it the same way. I think they're just junkies

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Speaker 2: at this point, and very addictive manipulation of dopamine for people.

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Speaker 1: I think that's absolutely right, And I mean it's two

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Speaker 1: sides of the same coin, really, because you know, you're

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Speaker 1: paying your two dollars and you're dreaming of the big jackpot.

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Speaker 1: Is there's an element of that in your in your

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Speaker 1: you know, pulling the lever. I used to go to

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Speaker 1: casinos when I was in college and I would see

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Speaker 1: people they were almost They would have these cards and

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Speaker 1: it would be the membership card for the casino, and

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Speaker 1: it would be attached to their belt and it would

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Speaker 1: be plugged into the slot machine and it would look

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Speaker 1: like they were one and the same, Right, they were

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Speaker 1: connected by connective yeah, right, And they would sit there

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Speaker 1: all day zombiefide. That's an addiction, that's absolutely addiction. But

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Speaker 1: it's the same mentality of that little buzz you get

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Speaker 1: when you win something, or the dreaming of the big payout. Right,

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Speaker 1: And I think the lottery is fascinating, because I'm sure

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Speaker 1: we'll talk about this, But we did a study recently

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Speaker 1: where we took a thousand investors, hypothetical investors, and we said, okay,

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Speaker 1: if you've got a fifty year time horizon in terms

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Speaker 1: of their investment time horizon, and you're simulating a return

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Speaker 1: profile from let's say the S and P five hundred's

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Speaker 1: bell curve of returns over the last hundred years. So

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Speaker 1: you're sampling your returns each year for these one thousand

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Speaker 1: investors over the next fifty years, and you see a

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Speaker 1: wealth path for each of those investors, and what you

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Speaker 1: get at the end is a very very uneven distribution

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Speaker 1: of wealth. That's a function of returns, that's a function

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Speaker 1: of the capitalism, it's a function of log normal returns

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Speaker 1: that we see in stock markets, and it's exactly the same.

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Speaker 1: You see exactly the same nonlinear wealth distribution in real life.

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Speaker 1: It's a very uneven outcome, right, very very wealthy people

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Speaker 1: and a lot of you know own there was point

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Speaker 1: one of the world earn fifty percent of the wealth

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Speaker 1: or something, just some crazy number. That is a function

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Speaker 1: of capitalism. It's not a it's not a bug. It's

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Speaker 1: part of the system. And I think it's an essential

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Speaker 1: part of the system in a little bit like the

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Speaker 1: way the lottery you see these big, big payouts right

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Speaker 1: at the top. You need to see them or you

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Speaker 1: won't play. And you need to It needs to be

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Speaker 1: the nine hundred million, and you need to see the winner,

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Speaker 1: and you need to see them change their life and

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Speaker 1: all of the joy and inverted comments they get from that.

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Speaker 1: That's why you play, because you see that big payout.

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Speaker 1: And we see Elon Musk and we see Warren Buffett,

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Speaker 1: and we see these people at the top of the

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Speaker 1: capitalist pyramid, and we think, huh, play the game because

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Speaker 1: we can see them. They're very visible. And I think

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Speaker 1: capitalism is a big function of capitalism is having those

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Speaker 1: big winners and then everyone you know wants to take part.

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Speaker 2: And that so correct my bias, because when I look

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Speaker 2: at lottery players, your odds are more likely that you'll

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Speaker 2: be hit by lightning than winning the lottery, and I

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Speaker 2: see that same fat head long tail distribution in capitalism.

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Speaker 2: Maybe my bias is just because I've been lucky in

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Speaker 2: my career, but it seems like winning in capitalism is

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Speaker 2: easier than winning in the lottery. And I don't mean

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Speaker 2: being a billionaire run down the list. Must gates are

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Speaker 2: not go through all the people LVMH. Bernard, go down

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Speaker 2: everybody who's a billionaire. Yeah, that's a little bit of

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Speaker 2: marketing for capitalism. But go to school, do well in

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Speaker 2: a profession. You can have a fairly comfortable life without

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Speaker 2: a whole lot of risk, assuming you have just a

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Speaker 2: modicum of skills and diligence.

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Speaker 1: One hundred percent. So on the lottery side is pure randomness,

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Speaker 1: and there's a negative ev game. Right, every time you

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Speaker 1: play you lose a bit of money in probability space

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Speaker 1: you are if you're playing cards, you're playing poker. There's

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Speaker 1: more skill and if you're very good at it, you

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Speaker 1: can eke out when positive EV outcome and grow your

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Speaker 1: wealth in a very lumpy fashion. In capitalism it's the same, Right,

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Speaker 1: there's a lot of skill, there's a lot of luck,

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Speaker 1: and if you work hard and you do everything, you

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Speaker 1: can possibly do. You probably climb the ladder and you

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Speaker 1: can push yourself a little bit to the right in

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Speaker 1: that distribution of wealth over time.

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Speaker 2: Second quartile is not unattainable.

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Speaker 1: Absolutely not No, that's right. But I mean, and it's

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Speaker 1: the pie grows as well. The more people work, the

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Speaker 1: more productive they are. There's the other element to it.

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Speaker 2: Really quite interesting. So you mentioned the fifty year study.

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Speaker 2: I'm kind of intrigued by your thoughts on investor longevity.

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Speaker 2: And this quote I pulled of yours is delivering excess

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Speaker 2: returns over long periods of time in order to achieve

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Speaker 2: extraordinary results as an investor. Is your folk? All right?

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Speaker 2: How does one do? That? Sounds easy? Just market over

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Speaker 2: decades and you're a winner.

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Speaker 1: It sounds incredibly easy. And if you if you write

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Speaker 1: it down on paper, you can run the numbers. It's there,

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Speaker 1: it exists. It's clear. Three things that matter. Number one longevity.

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Speaker 1: I talk about that study that was a study of

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Speaker 1: randomly selecting returns from the S and P. Five hundred

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Speaker 1: and that group of one thousand investors gives you that

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Speaker 1: very nonlinear outcome in terms of wealth. What that tells

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Speaker 1: you is, if you change your inputs a little bit,

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Speaker 1: Like you said, around, if you work hard, et cetera,

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Speaker 1: et cetera, you can push yourself a little bit to

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Speaker 1: the right on that wealth distribution. If you do that,

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Speaker 1: because it's non linear, you can get you can get big,

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Speaker 1: big improvements in your end wealth, massive improvements. So there

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Speaker 1: are really three key inputs to that. One is longevity, right,

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Speaker 1: just sticking with it, Warren Buffett, what's the statistic? Ninety

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Speaker 1: five percent of wealth has generated after the age of

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Speaker 1: sixty five? Impressive, Impressive because he's stuck at it, right,

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Speaker 1: and he's pretty smart as well.

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Speaker 2: He never tapped into his capital to go get on

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Speaker 2: the hit on and treadmill. He's been just let.

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Speaker 1: It, just let it compound over time, you know, watches

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Speaker 1: his pending and just stays in the game. Another good

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Speaker 1: if if the best example of this is endowments here

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Speaker 1: in the US phenomenal institutions, and they're set up to

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Speaker 1: be perpetually around. They stick around. So if you take

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Speaker 1: the Met Museum. I'm sure you've been to the Met

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Speaker 1: Museum here in New York. Their endowment I think is

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Speaker 1: around five to six billion, phenomenally large number for a

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Speaker 1: single institution in Central Park and you know, I'm sure

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Speaker 1: they're a very intelligent and diligent investment committee, but the

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Speaker 1: Keith at the Keith thing for them has been longevity.

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Speaker 1: One hundred and thirty years of compounding has got them

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Speaker 1: to where they are today. Stick around is the big is,

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Speaker 1: you know, that's the key.

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Speaker 2: The rule to be tax exempt in the US is

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Speaker 2: you have to disperse five percent of the foundation and

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Speaker 2: if you look at long term returns for stocks and bonds,

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Speaker 2: that's not a tough target to make. You give out

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Speaker 2: five percent. You don't have to pay any tax and

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Speaker 2: just let the rest ride exactly that great, that's not bad.

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Speaker 2: I think The Guardian also has a foundation that owns

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Speaker 2: it that has a few billion dollars and Rolax a

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Speaker 2: lot of people don't realize is owned by a private foundation.

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Speaker 2: The founder gifted everything to the foundation, and same sort

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Speaker 2: of situation. Those have compounded over the centuries and have

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Speaker 2: managed to amass a huge amount of capital.

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Speaker 1: I mean, there's no it's just simple. It's just math.

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Speaker 1: Stick to it of a long period of time, and

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Speaker 1: it's much harder in practice because you have to put

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Speaker 1: that longevity into your process. The second is excess returns.

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Speaker 1: If you can just increase your excess returns a little

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Speaker 1: bit each year, massive difference. It makes a massive difference

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Speaker 1: of a fifty sixty, seventy years, even just a percent.

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Speaker 1: So you know, our sister company is South Africa. Africa

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Speaker 1: have done eight percent above the benchmark for fifty years.

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Speaker 2: That's insane.

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Speaker 1: So that's a three hundred to four hundred time time

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Speaker 1: sort of out improvement in your end wealth. Phenomenal amount

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Speaker 1: of compounding over a long period of time. And the third,

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Speaker 1: the one that nobody talks about is risk management risk management,

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Speaker 1: and so that's not just we talk about risk management

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Speaker 1: in terms of buying at a big discounter intrinsic value and

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Speaker 1: then that gives you that capital sort of buffer. You know,

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Speaker 1: the last thing you want to do is buy above

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Speaker 1: intrinsic value because then you know, that's where you get

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Speaker 1: capital impairment. But a big you know, the thing, the

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Speaker 1: risk thing that we don't talk about that people should

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Speaker 1: talk about is just variance. Volatility. It's people say, oh, volatility,

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Speaker 1: you can just it just goes up and down. That's fine,

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Speaker 1: but it makes a big, big difference to your long

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Speaker 1: term outcomes if you can just avoid those big losses.

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Speaker 2: Especially if you have to put money to work on

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Speaker 2: a regular basis, especially exactly, then the volatility and the

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Speaker 2: valuation makes an enormous differ.

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Speaker 1: It makes an enormous difference. And so when you run

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Speaker 1: that simulation of and you get that distribution of wealth,

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Speaker 1: what you notice about the people at the top end

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Speaker 1: is they avoid those big negatives. Is if you lose

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Speaker 1: fifty percent, then you've got a double to get back

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Speaker 1: to where you were. And if you're comparing at seven

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Speaker 1: percent a year, which is what markets have done, it

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Speaker 1: takes you about ten years to get back to where

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Speaker 1: you were. It's a long time. And so watching your

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Speaker 1: downside is very important. So those two things, longevity, a

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Speaker 1: little bit of excess return and risk management to be

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Speaker 1: the key.

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Speaker 2: So let's talk a little bit about Orbis and what

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Speaker 2: makes it so special. You joined in two thousand and seven,

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Speaker 2: what led you there? So?

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Speaker 1: I mean it was interesting because the background I had

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Speaker 1: in mathematics, I really had a decision to make do

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Speaker 1: you go quantitative root or fundamental route? And it might,

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Speaker 1: you know, surprise you to imagine that I thought the

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Speaker 1: future was more not on the fundamental side. And I

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Speaker 1: came to that conclusion because If you think about what

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Speaker 1: the quant side does and what the fundamental side does,

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Speaker 1: they're both trying to find the signal in the noise,

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Speaker 1: signal in the noise. There's all this noise, all this noise,

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Speaker 1: all this noise. What's the signal? What's the core signal? Right,

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Speaker 1: that's absolutely what the quant teams are doing around the world.

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Speaker 1: What the quant funds are doing is they're analyzing tons

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Speaker 1: and tons of data. They're looking for the little signal

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Speaker 1: that drives price moves, and hence that's how they generate

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Speaker 1: their returns. As I thought about, you know, what is

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Speaker 1: going to sustain over the long term? What is the

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Speaker 1: ultimate signal in markets? What is the ultimate signal? And

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Speaker 1: for me, what is a stock? Is a what is

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Speaker 1: an equity? It's a piece of a business. You own

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Speaker 1: a piece of a business, right, and so the ultimate

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Speaker 1: signal in terms of determining where a price goes over

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Speaker 1: the long term is the value of that business. That's

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Speaker 1: the signal, right, that's the signal that won't go away

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Speaker 1: because it's the base of the whole you know, efficient

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Speaker 1: allocation of capital, it's the base of the whole market.

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Speaker 1: It's not the little signals that you're trying to pick

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Speaker 1: up day to day to figure out where a price

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Speaker 1: is going to go. That's the thing that should sustain.

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Speaker 1: So that's what drew me to the fundamental side, thinking

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Speaker 1: the fundamental side will sustain over a long periods of time.

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Speaker 1: Now the fundamental side can adapt, it can bring in

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Speaker 1: more and more technology to help it to assess that

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Speaker 1: core variable, which is intrinsic value, which is the true

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Speaker 1: underlying value of the business. And I think that's what

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Speaker 1: will happen. I don't it's interesting as to why the

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Speaker 1: quant side doesn't try to figure out what intrinsic value is.

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Speaker 1: And I think the problem with it is the prices

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Speaker 1: move much much faster than the intrinsic value of the business.

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Speaker 1: In order to figure out what the value of the businesses,

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Speaker 1: you have to see it evolve. You have to see

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Speaker 1: his cash flow come through over years and years and years.

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Speaker 1: Is a data on a quarterly basis exactly? And if

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Speaker 1: you're in a quand fund and your clients say, you know,

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Speaker 1: you've underperform for the last three quarters and I don't

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Speaker 1: quite understand the black box, how do you retain how

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Speaker 1: you drive that alignment between the client and the business

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Speaker 1: and so you need shorter term returns, you need less

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Speaker 1: volatility so that you can't sustain. So I think that's

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Speaker 1: why the QUIN side doesn't focus on that fundamental side too.

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Speaker 1: So that's you know, why did I choose orbis Is

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Speaker 1: Because if I looked at when I looked at Orbis,

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Speaker 1: when I looked at this sister company, Alan Gray, which

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Speaker 1: goes back to nineteen seventy three, you know, they'd sustained

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Speaker 1: this long, very long period of excess performance six seven

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Speaker 1: eight percent excess return over the market of very long

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Speaker 1: periods of time, and they've done that. You know, at

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Speaker 1: Alan Gray they'd done it for thirty four thirty five

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Speaker 1: years and obviously've done it for sixteen seventeen years when

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Speaker 1: I joined, And very few companies can sustain performance over

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Speaker 1: that length of time with it being a pure fluke.

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Speaker 1: So the fascinating part was what, you know, what drove that?

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Speaker 1: And that sort drew me in. And you know, when

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Speaker 1: I went to interview at Orbis versus other firms, they're

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Speaker 1: just so different in the way that they interviewed. It

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Speaker 1: wasn't you know they were trying to pull out not

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Speaker 1: just IQ. I got a ton of IQ questions. Right,

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Speaker 1: you got to interviews. It's like, can you answer this puzzle?

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Speaker 1: Tell me about this mathematical thing. It's all IQ, but

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Speaker 1: investing is I don't know, twenty percent IQ.

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Speaker 2: IQ is table stakes the table absolutely right, it's a

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Speaker 2: lot more than just as much more intelligence.

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Speaker 1: And you look at what Warren Buffett say. You give

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Speaker 1: away IQ points so you can get some of these

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Speaker 1: other things because the other things are even more important.

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Speaker 1: You think about two people are going to look at

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Speaker 1: the same data and come to very different conclusions. And

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Speaker 1: that's rationality, that's judgment. How do you assess judgment? That's

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Speaker 1: a different thing than IQ. That's you know, unbiased assessment

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Speaker 1: of data is a different thing, right, So that's your

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Speaker 1: decision making and that's so we try to pull that

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Speaker 1: out at interviews. What about emotional intelligence? The biggest returns

432
00:23:31,280 --> 00:23:33,960
Speaker 1: you can make are at the most extreme points. In markets,

433
00:23:34,400 --> 00:23:36,760
Speaker 1: It's like sitting down at a poker table. There's one

434
00:23:36,760 --> 00:23:38,560
Speaker 1: hand a night that really matters. You need to make

435
00:23:38,560 --> 00:23:41,119
Speaker 1: the right decision in that hand, and that to take

436
00:23:41,200 --> 00:23:43,440
Speaker 1: dictates whether you go home happy or you go home sad.

437
00:23:43,960 --> 00:23:46,040
Speaker 1: And it's exactly the same in markets, and you need

438
00:23:46,119 --> 00:23:51,240
Speaker 1: a very level, unemotional you know, way of going about things,

439
00:23:52,280 --> 00:23:54,600
Speaker 1: and to be able to make good decisions at those

440
00:23:54,640 --> 00:23:58,840
Speaker 1: extreme moments. It's absolutely critical those three variables iq rq

441
00:23:59,560 --> 00:24:04,359
Speaker 1: EQ intelligence, rationality and emotional intelligence. And so that's what

442
00:24:04,400 --> 00:24:06,679
Speaker 1: August was trying to draw out. You can't draw it

443
00:24:06,680 --> 00:24:09,960
Speaker 1: out or interview. So that's where you have the systems

444
00:24:10,000 --> 00:24:11,760
Speaker 1: we have in place to assess people at a time,

445
00:24:11,800 --> 00:24:13,639
Speaker 1: what they're good at, what they're not good at. But

446
00:24:13,680 --> 00:24:15,200
Speaker 1: that's really what drew me to the firm.

447
00:24:15,320 --> 00:24:20,639
Speaker 2: Huh, really really quite intriguing. So your fee structure is

448
00:24:20,760 --> 00:24:25,520
Speaker 2: very different. When you outperform the market, you take a

449
00:24:25,600 --> 00:24:30,880
Speaker 2: performance fee based on that outperformance above beta. What happens

450
00:24:30,920 --> 00:24:33,200
Speaker 2: when you underperform the market.

451
00:24:33,119 --> 00:24:35,840
Speaker 1: We refund the fee. So what happens is, let's say

452
00:24:35,880 --> 00:24:39,000
Speaker 1: you outperform by five percent in the first six months

453
00:24:39,000 --> 00:24:42,280
Speaker 1: of the year. That fee on the performance that we

454
00:24:42,320 --> 00:24:45,480
Speaker 1: generate for our clients. A proportion of that our performance

455
00:24:45,520 --> 00:24:48,439
Speaker 1: goes into a bucket or an escrow account if you like.

456
00:24:48,880 --> 00:24:52,640
Speaker 1: And then if we subsequently underperform by five percent let's

457
00:24:52,640 --> 00:24:56,119
Speaker 1: say over the next six months, so you're flat on

458
00:24:56,160 --> 00:25:00,000
Speaker 1: the year, the client shouldn't have paid a fee right,

459
00:25:00,480 --> 00:25:03,120
Speaker 1: and that is the case. So we refund the feedback

460
00:25:03,119 --> 00:25:04,680
Speaker 1: from the bucket and goes back to the count.

461
00:25:04,720 --> 00:25:08,520
Speaker 2: And this isn't a theoretical construct. This is literally the

462
00:25:08,600 --> 00:25:11,679
Speaker 2: cash is pulled aside, held in es grow on the

463
00:25:11,720 --> 00:25:14,679
Speaker 2: client's behalf. And you guys have been doing this just

464
00:25:14,760 --> 00:25:17,080
Speaker 2: about twenty years, just about twenty years.

465
00:25:17,160 --> 00:25:19,960
Speaker 1: Yeah, So it leads to much stronger alignment with the client,

466
00:25:20,000 --> 00:25:23,399
Speaker 1: has a lot of positive outcomes. And number one is

467
00:25:23,440 --> 00:25:25,520
Speaker 1: it reduced the volatility a bit. We talked about the

468
00:25:25,560 --> 00:25:29,800
Speaker 1: importance of risk management and volatility. When we're underperforming, we're

469
00:25:29,800 --> 00:25:33,119
Speaker 1: refunding the fees. That reduces the volatility to an extent.

470
00:25:33,400 --> 00:25:37,440
Speaker 1: It also aligns clients and improves client behavior because one

471
00:25:37,440 --> 00:25:41,600
Speaker 1: of the key things. Another problem with the industry is

472
00:25:41,640 --> 00:25:44,359
Speaker 1: it's all very well saying you can outperform the market,

473
00:25:44,760 --> 00:25:46,240
Speaker 1: but what you have to be able to do is

474
00:25:46,280 --> 00:25:50,760
Speaker 1: outperform on a dollar weighted basis. So that's a combination

475
00:25:51,200 --> 00:25:55,440
Speaker 1: of you doing good things and generating returns, but also

476
00:25:55,680 --> 00:25:59,520
Speaker 1: the client acting in a way that's not pro cyclical,

477
00:26:00,119 --> 00:26:02,960
Speaker 1: not investing more money after good performance and pulling out

478
00:26:03,000 --> 00:26:06,119
Speaker 1: after bad performance. And it's chronic in the industry to

479
00:26:06,160 --> 00:26:09,639
Speaker 1: see the dollar weighted return for clients be much below

480
00:26:09,800 --> 00:26:11,960
Speaker 1: the actual return of the funds that they invested it.

481
00:26:12,040 --> 00:26:16,960
Speaker 2: There was a Wall Street Journal article a couple of

482
00:26:17,040 --> 00:26:22,320
Speaker 2: years ago about John Paulson, whose funds had just crushed

483
00:26:22,320 --> 00:26:26,399
Speaker 2: it during the financial crisis. There were short mortgages, there

484
00:26:26,400 --> 00:26:30,399
Speaker 2: were short derivatives. They put up outrageous returns when they

485
00:26:30,400 --> 00:26:34,200
Speaker 2: were a relatively small funds, and then all this cash

486
00:26:34,240 --> 00:26:38,280
Speaker 2: flows in, and now they're running forty billion dollars buying gold,

487
00:26:38,560 --> 00:26:44,200
Speaker 2: and not only are they not outperforming, they're pretty substantially underperforming.

488
00:26:44,520 --> 00:26:48,560
Speaker 2: Assuming I'm remembering this article right, it might not even

489
00:26:48,560 --> 00:26:50,160
Speaker 2: been there. It might have been Barrens. I don't remember

490
00:26:50,160 --> 00:26:52,840
Speaker 2: where I read it. But the net take was exactly

491
00:26:52,840 --> 00:26:57,120
Speaker 2: what you're saying. On a dollar weighted average net net

492
00:26:57,240 --> 00:27:01,000
Speaker 2: his fund was a money loser over its even though

493
00:27:01,000 --> 00:27:05,119
Speaker 2: it put astonishing numbers up in the beginning of its life,

494
00:27:05,200 --> 00:27:07,639
Speaker 2: when it was, you know, a billion or two, not

495
00:27:07,800 --> 00:27:11,320
Speaker 2: twenty thirty forty. I apologize if I'm getting the precise

496
00:27:12,280 --> 00:27:14,520
Speaker 2: source wrong, but it was pretty substantial.

497
00:27:15,119 --> 00:27:19,359
Speaker 1: That's a common, very common story, really really common, and it's.

498
00:27:19,240 --> 00:27:20,080
Speaker 2: How do we avoid that?

499
00:27:20,160 --> 00:27:22,320
Speaker 1: How do we avoid that? You build alignment into the

500
00:27:22,760 --> 00:27:25,520
Speaker 1: into everything you do, you try to build alignment. So

501
00:27:25,600 --> 00:27:29,320
Speaker 1: you're trying to find clients that really understand you, number one,

502
00:27:29,840 --> 00:27:31,960
Speaker 1: so that they know the type of volatility that they're

503
00:27:31,960 --> 00:27:34,359
Speaker 1: going to get. They're not going to make, you know,

504
00:27:34,359 --> 00:27:37,879
Speaker 1: when we get to we get to those inevitable tough periods.

505
00:27:38,520 --> 00:27:41,480
Speaker 1: They understand that, they recognize it, and you know, we're

506
00:27:41,480 --> 00:27:43,680
Speaker 1: always communicating with them to sort of help them through

507
00:27:43,680 --> 00:27:46,439
Speaker 1: those periods. And the second is the feest. You know,

508
00:27:46,440 --> 00:27:48,960
Speaker 1: if you're refunding fees two clients in this periods of

509
00:27:48,960 --> 00:27:51,320
Speaker 1: tough performance, that really does align you. They say, Okay,

510
00:27:51,320 --> 00:27:56,159
Speaker 1: you're suffering, we're suffering. That's okay, everyone's suffering, and and

511
00:27:56,240 --> 00:27:59,160
Speaker 1: you get a much stronger result in terms of clients

512
00:27:59,160 --> 00:28:00,840
Speaker 1: sticking with you through those cycles.

513
00:28:01,520 --> 00:28:05,040
Speaker 2: How substantial are the fee refunds is it? Is it

514
00:28:05,760 --> 00:28:08,479
Speaker 2: a meaningful amount of money? How how big a difference

515
00:28:08,480 --> 00:28:12,520
Speaker 2: does it make to clients who are who are happy

516
00:28:12,560 --> 00:28:14,840
Speaker 2: that they've outperformed for a few quarters and now they're

517
00:28:14,840 --> 00:28:16,640
Speaker 2: looking at a few quarters of underperformance.

518
00:28:16,760 --> 00:28:20,679
Speaker 1: I mean, it's to the extent to the extent that well,

519
00:28:20,720 --> 00:28:21,919
Speaker 1: it really depends on the extent to.

520
00:28:21,880 --> 00:28:22,880
Speaker 2: Which we've outperformed.

521
00:28:23,920 --> 00:28:26,480
Speaker 1: Because we've outperformed a lot by a lot, there's a

522
00:28:26,480 --> 00:28:29,800
Speaker 1: point where the firm itself needs to take some cash

523
00:28:30,440 --> 00:28:33,960
Speaker 1: to give the lights on. But you know, in regular cycles,

524
00:28:34,160 --> 00:28:36,240
Speaker 1: a little bit of out performance, a little bit of underperformance,

525
00:28:36,280 --> 00:28:37,720
Speaker 1: you're just refunding that fee.

526
00:28:38,160 --> 00:28:42,760
Speaker 2: Huh. Really really interesting. So this should be taking the

527
00:28:42,800 --> 00:28:46,440
Speaker 2: industry by storm. Everybody else should be stealing your idea.

528
00:28:46,920 --> 00:28:52,160
Speaker 2: How how widely dispersed is the concept of fund managers

529
00:28:52,280 --> 00:28:55,600
Speaker 2: returning a percentage of the fees when they underperform.

530
00:28:56,160 --> 00:28:58,920
Speaker 1: When we put this in place, we thought this was it.

531
00:28:59,120 --> 00:29:02,720
Speaker 1: The floodgates were open, right, everyone was going to follow.

532
00:29:02,760 --> 00:29:05,040
Speaker 1: And the reason why we follow is it's such a

533
00:29:05,080 --> 00:29:07,960
Speaker 1: tough thing for a manager to do, and so the

534
00:29:08,000 --> 00:29:10,440
Speaker 1: client you know you should. We should get a lot

535
00:29:10,480 --> 00:29:15,320
Speaker 1: of clients sort of saying okay, finally an aligned fee,

536
00:29:16,120 --> 00:29:18,560
Speaker 1: and it would be so popular with clients that it

537
00:29:18,560 --> 00:29:21,440
Speaker 1: would be very difficult, difficult for other managers not to follow.

538
00:29:23,000 --> 00:29:25,320
Speaker 1: And we've not seen that, which is interesting, And I

539
00:29:25,320 --> 00:29:27,160
Speaker 1: think one of the reasons is it's very difficult for

540
00:29:27,200 --> 00:29:31,760
Speaker 1: the manager to sustain that type of fee because you're

541
00:29:31,800 --> 00:29:35,680
Speaker 1: transferring the volatility from the client to the manager right,

542
00:29:35,720 --> 00:29:38,200
Speaker 1: So it means the manager has to do things like reserve.

543
00:29:38,840 --> 00:29:41,440
Speaker 1: There has to be a stronger balance sheet, and therefore

544
00:29:41,520 --> 00:29:44,880
Speaker 1: you're not paying out dividends to partners, so you have

545
00:29:44,920 --> 00:29:49,240
Speaker 1: to make that decision to reserve, and you know, you're

546
00:29:49,240 --> 00:29:51,280
Speaker 1: just taking on more volatility as a business.

547
00:29:51,840 --> 00:29:55,760
Speaker 2: I've also been kind of astonished at seeing some pretty

548
00:29:55,760 --> 00:30:02,120
Speaker 2: famous fund managers go on TV and refuse to admit error,

549
00:30:02,640 --> 00:30:05,160
Speaker 2: this is a draw down, we were a little early,

550
00:30:05,520 --> 00:30:08,000
Speaker 2: or whatever it is. No one comes out and says, oh,

551
00:30:08,080 --> 00:30:11,600
Speaker 2: we were wrong about this. How significant is that a

552
00:30:11,640 --> 00:30:15,880
Speaker 2: factor in getting a fund management company to say, hey,

553
00:30:15,920 --> 00:30:18,000
Speaker 2: we stunk to join up and hear your feesback for

554
00:30:18,040 --> 00:30:18,560
Speaker 2: this quarter.

555
00:30:19,640 --> 00:30:23,280
Speaker 1: I mean, it's enormous. You know. One of the key

556
00:30:23,320 --> 00:30:26,400
Speaker 1: things as an investment firm is you have to recognize

557
00:30:26,680 --> 00:30:30,040
Speaker 1: your errors and you have to learn from them, and

558
00:30:30,080 --> 00:30:34,280
Speaker 1: you have to have a robust system internally to make

559
00:30:34,320 --> 00:30:37,120
Speaker 1: sure that you know there's biases those errors you're making

560
00:30:37,200 --> 00:30:39,440
Speaker 1: are picked up and addressed so you can do better

561
00:30:39,480 --> 00:30:43,320
Speaker 1: in the future. And I think, if anything, we are

562
00:30:43,320 --> 00:30:46,880
Speaker 1: on the other side, so we're too explicit about the

563
00:30:47,000 --> 00:30:53,440
Speaker 1: errors we make. And I mean, but it is endemic

564
00:30:53,480 --> 00:30:56,280
Speaker 1: in the industry because the industry is incentive ized to

565
00:30:56,280 --> 00:31:00,240
Speaker 1: grow assets and hence admitting errors is not something that

566
00:31:00,280 --> 00:31:01,400
Speaker 1: you want to do on TV.

567
00:31:02,400 --> 00:31:05,000
Speaker 2: Let's talk a little bit about some of your strategies.

568
00:31:06,240 --> 00:31:09,520
Speaker 2: You have three separate strategies. I'm familiar with Global Equity,

569
00:31:10,080 --> 00:31:14,200
Speaker 2: Global with Exclusions, and Global Balance. Tell us a little

570
00:31:14,240 --> 00:31:17,239
Speaker 2: bit about the approach, Am I am I summing them

571
00:31:17,320 --> 00:31:19,560
Speaker 2: up correctly more or less.

572
00:31:20,040 --> 00:31:22,000
Speaker 1: So we're really focused in terms of what we do

573
00:31:22,040 --> 00:31:25,560
Speaker 1: with equity investors typically so a company analyst, we look

574
00:31:25,560 --> 00:31:27,360
Speaker 1: for intrinsic value of businesses looked to buy it a

575
00:31:27,400 --> 00:31:30,880
Speaker 1: significant discount. Our main product, our flagship, is Global that's

576
00:31:30,880 --> 00:31:33,160
Speaker 1: been running since nineteen nineteen. We actually have a market

577
00:31:33,160 --> 00:31:36,800
Speaker 1: neutral hedge fund associated with that, which is really a

578
00:31:36,920 --> 00:31:38,080
Speaker 1: bitter neutral.

579
00:31:37,880 --> 00:31:39,920
Speaker 2: Market neutral meaning long short.

580
00:31:39,840 --> 00:31:42,920
Speaker 1: Or long the stocks we like in short market industry.

581
00:31:42,960 --> 00:31:45,680
Speaker 1: It's a very very simple way to extract the alpha

582
00:31:45,760 --> 00:31:49,120
Speaker 1: plus the cash rate from the strategy. Now, so those

583
00:31:49,120 --> 00:31:51,080
Speaker 1: are the two of the longest stunning strategies, and we

584
00:31:51,160 --> 00:31:54,200
Speaker 1: launch the Japan strategy, which you know, there's very interesting

585
00:31:54,200 --> 00:31:56,480
Speaker 1: things happening in Japan now in nineteen ninety eight, we've

586
00:31:56,480 --> 00:31:59,000
Speaker 1: got an em strategy. We've got an international strategy we've

587
00:31:59,000 --> 00:32:00,760
Speaker 1: t we launched in two thousand nine, which is non

588
00:32:00,880 --> 00:32:03,320
Speaker 1: US Those would be the main ones. We do have

589
00:32:03,640 --> 00:32:07,400
Speaker 1: multi asset strategy called Balanced which we launched in twenty fourteen.

590
00:32:07,400 --> 00:32:10,320
Speaker 1: Fifty stocks and bonds or bonds, stocks and bonds and

591
00:32:10,360 --> 00:32:14,000
Speaker 1: others where you can hold commodities and currencies and things in.

592
00:32:13,920 --> 00:32:16,520
Speaker 2: This Speaking of commodities, they seem to be doing pretty

593
00:32:16,520 --> 00:32:19,760
Speaker 2: well here we are about to start the fourth quarter

594
00:32:20,280 --> 00:32:24,320
Speaker 2: of twenty twenty three. What do you how do you

595
00:32:24,360 --> 00:32:30,000
Speaker 2: approach commodities if your bottom up fundamental equity investors, Commodities

596
00:32:30,080 --> 00:32:31,200
Speaker 2: is a totally different beast.

597
00:32:31,840 --> 00:32:34,760
Speaker 1: Yeah, commodity is a tricky right, But what you can

598
00:32:34,760 --> 00:32:36,800
Speaker 1: do in terms of as an equity investor, you can say,

599
00:32:36,800 --> 00:32:39,720
Speaker 1: what is a normal sort of commodity price deck for

600
00:32:40,240 --> 00:32:42,760
Speaker 1: your business and then say how much free cash flow

601
00:32:42,800 --> 00:32:47,080
Speaker 1: can that business generate on that typical price of oil

602
00:32:47,200 --> 00:32:49,920
Speaker 1: or gas or whatever it is you're looking at. So

603
00:32:49,960 --> 00:32:52,520
Speaker 1: that's one of the things we're looking at, is what

604
00:32:52,640 --> 00:32:54,960
Speaker 1: is a normalized pricing, what sort of free cash flow

605
00:32:55,000 --> 00:32:56,920
Speaker 1: can you generate? And how can you grow from that base?

606
00:32:57,360 --> 00:32:59,120
Speaker 1: And that gives you a rough value for the business

607
00:33:00,080 --> 00:33:03,040
Speaker 1: of the industry is very fruitful because it's so volatile.

608
00:33:03,760 --> 00:33:07,320
Speaker 1: So you get massive swings in the price of the shares,

609
00:33:07,360 --> 00:33:11,560
Speaker 1: you get massive swings in the market capital companies, and

610
00:33:11,920 --> 00:33:14,880
Speaker 1: you don't get that much swing in the true underlying

611
00:33:14,920 --> 00:33:18,959
Speaker 1: value in the businesses. So that's been an area that

612
00:33:19,000 --> 00:33:21,800
Speaker 1: we've been investing in for a long period.

613
00:33:22,440 --> 00:33:26,320
Speaker 2: Let's talk a little bit about unpopular or ignored stocks.

614
00:33:27,080 --> 00:33:29,200
Speaker 2: How do you define those and how do you go

615
00:33:29,280 --> 00:33:31,440
Speaker 2: about finding them?

616
00:33:32,640 --> 00:33:36,000
Speaker 1: So that this word contrarian is interesting, right because we

617
00:33:36,360 --> 00:33:40,000
Speaker 1: talk about contrarian investing and everyone wants to be a contrarian.

618
00:33:40,200 --> 00:33:41,000
Speaker 2: I love that line.

619
00:33:42,240 --> 00:33:44,080
Speaker 1: Everyone wants to be looking in areas that nobody else

620
00:33:44,120 --> 00:33:49,880
Speaker 1: is looking and buying into fear, selling into greed. And

621
00:33:50,320 --> 00:33:52,719
Speaker 1: you know, a better way I think to describe what

622
00:33:52,760 --> 00:33:57,000
Speaker 1: we do is just differentiated thinking. So not necessarily looking

623
00:33:57,080 --> 00:34:00,480
Speaker 1: for things that are bombed out, although that can be

624
00:34:00,600 --> 00:34:04,160
Speaker 1: very fruitful in terms of, you know, thinking about which

625
00:34:04,200 --> 00:34:08,840
Speaker 1: areas are potentially over sold or you know there's too

626
00:34:08,920 --> 00:34:12,160
Speaker 1: much fear around them. You know, a more fruitful way

627
00:34:12,200 --> 00:34:16,560
Speaker 1: is looking for apathy, people are just lost interest, or

628
00:34:17,120 --> 00:34:19,840
Speaker 1: just a differentiated view on a business. That's how I

629
00:34:19,960 --> 00:34:24,040
Speaker 1: describe our style is just assessment of intrinsic value. So

630
00:34:24,080 --> 00:34:25,239
Speaker 1: that's deep company work.

631
00:34:25,640 --> 00:34:28,560
Speaker 2: So if you're looking at intrinsic value, does that make

632
00:34:28,600 --> 00:34:33,319
Speaker 2: it easier to determine Hey, this stock is inexpansive for

633
00:34:33,440 --> 00:34:36,879
Speaker 2: a good reason, and this stock is inexpansive of course

634
00:34:36,920 --> 00:34:39,840
Speaker 2: people are failing to see the value there, Meaning some

635
00:34:40,640 --> 00:34:43,839
Speaker 2: stocks are cheap for a reason and others are cheap

636
00:34:43,920 --> 00:34:47,560
Speaker 2: because people seem to be missing the underlying value.

637
00:34:47,719 --> 00:34:49,279
Speaker 1: Well that's I mean, our job is to figure out

638
00:34:49,320 --> 00:34:51,040
Speaker 1: the difference between those two.

639
00:34:50,800 --> 00:34:52,040
Speaker 2: So how do you do that.

640
00:34:52,640 --> 00:34:55,640
Speaker 1: One of the key things, one of the differentiators potentially

641
00:34:55,680 --> 00:34:57,640
Speaker 1: of the firm is that all of our analysts run

642
00:34:57,640 --> 00:35:00,640
Speaker 1: paper portfolios. So all of our lists are working in

643
00:35:00,719 --> 00:35:04,040
Speaker 1: niches the computer pan analysts or UK analysts or financials analysts,

644
00:35:04,600 --> 00:35:07,040
Speaker 1: and their job is really did into the companies well

645
00:35:07,600 --> 00:35:10,480
Speaker 1: teared under pieces, build them back up again, figure out

646
00:35:10,520 --> 00:35:14,719
Speaker 1: what they're worth, and through that process they determine which

647
00:35:14,760 --> 00:35:18,279
Speaker 1: stocks are potentially mispriced and then then they recommend a

648
00:35:18,320 --> 00:35:20,279
Speaker 1: list of those into a paper portfolio and you track

649
00:35:20,360 --> 00:35:22,120
Speaker 1: the performance of that over time. And it's quite a

650
00:35:22,200 --> 00:35:26,600
Speaker 1: useful mechanism to have that for the analysts themselves because

651
00:35:26,640 --> 00:35:31,239
Speaker 1: they it's a learning mechanism as a recommendation mechanism for

652
00:35:31,320 --> 00:35:34,560
Speaker 1: portfolio managers and thinking about how to allocate capital. And

653
00:35:34,600 --> 00:35:36,839
Speaker 1: what we find over time is, you know, the top

654
00:35:36,960 --> 00:35:40,080
Speaker 1: three or four ideas coming from key analysts who are

655
00:35:40,080 --> 00:35:42,800
Speaker 1: really deep in the weeds, generate a lot of our performance.

656
00:35:43,160 --> 00:35:45,440
Speaker 1: And that's the key. It's just been close to your business,

657
00:35:45,840 --> 00:35:48,120
Speaker 1: really tearing it to pieces, understanding what it's worth, and

658
00:35:48,120 --> 00:35:50,520
Speaker 1: buying it a good price. And that's really the lifeblood

659
00:35:50,520 --> 00:35:51,000
Speaker 1: of the firm.

660
00:35:51,560 --> 00:35:56,480
Speaker 2: So let's talk about again another quote, the great misallocations

661
00:35:56,480 --> 00:36:00,680
Speaker 2: in the market that skilled active managers can take advantage of.

662
00:36:01,400 --> 00:36:06,320
Speaker 2: How often do these misallocations come along and how easy

663
00:36:06,520 --> 00:36:09,359
Speaker 2: or difficult is it to identify them in real time?

664
00:36:09,920 --> 00:36:12,160
Speaker 1: I think a lot of people forget that. As an investor,

665
00:36:12,160 --> 00:36:15,480
Speaker 1: you're a price taker. You're just waiting. You're just waiting

666
00:36:16,719 --> 00:36:19,200
Speaker 1: for prices to give you the opportunity to buy the

667
00:36:19,280 --> 00:36:22,759
Speaker 1: discount to the true worth of the business. And so

668
00:36:22,920 --> 00:36:27,200
Speaker 1: the critical component in terms of managing a portfolio or

669
00:36:27,239 --> 00:36:31,400
Speaker 1: finding great ideas is flexibility because you are you know,

670
00:36:31,800 --> 00:36:35,000
Speaker 1: you're not dictating what the market does, you're just waiting.

671
00:36:35,320 --> 00:36:38,759
Speaker 1: So having the ability for capital to move to the

672
00:36:38,760 --> 00:36:42,440
Speaker 1: most dislocated ideas is absolutely essential. So if you go

673
00:36:42,480 --> 00:36:44,200
Speaker 1: back and look at the history of our funds, sometimes

674
00:36:44,200 --> 00:36:46,600
Speaker 1: we're very, very heavily invested in one country. Sometimes we

675
00:36:46,640 --> 00:36:49,800
Speaker 1: have zero. That's exactly how it should be because inefficiencies

676
00:36:49,800 --> 00:36:53,160
Speaker 1: don't static, They move right and they evolve.

677
00:36:53,400 --> 00:36:58,200
Speaker 2: So flexibility in order to be opportunistic to take advantage

678
00:36:58,840 --> 00:37:03,000
Speaker 2: our investors and clients patient enough for you to, you know,

679
00:37:03,000 --> 00:37:06,520
Speaker 2: one Buffett famously said, the nice thing about investing is

680
00:37:06,920 --> 00:37:09,040
Speaker 2: there are no cold strikes. You can sit there with

681
00:37:09,080 --> 00:37:11,720
Speaker 2: the bat on your shoulder and just wait for your pitch.

682
00:37:12,360 --> 00:37:14,840
Speaker 2: I don't know how familiar you are with us baseball,

683
00:37:14,960 --> 00:37:19,040
Speaker 2: but that that normally it's a game of cold balls

684
00:37:19,040 --> 00:37:22,600
Speaker 2: and strikes. Buffett says, you could watch one hundred pitches,

685
00:37:22,640 --> 00:37:25,279
Speaker 2: go buying until the one you like. Is there are

686
00:37:25,400 --> 00:37:27,920
Speaker 2: clients patient enough to say, hey, why are you sitting

687
00:37:27,920 --> 00:37:31,520
Speaker 2: around in cash? There aren't there opportunities? How does that work?

688
00:37:31,719 --> 00:37:35,520
Speaker 1: So really, the tough part of what we do is

689
00:37:35,560 --> 00:37:38,440
Speaker 1: we have to run a portfolio of equities for our clients.

690
00:37:38,760 --> 00:37:40,160
Speaker 1: And what we're trying to do is just find the

691
00:37:40,160 --> 00:37:44,080
Speaker 1: best ones. And there's always the best ones, right ther

692
00:37:44,760 --> 00:37:48,440
Speaker 1: market's very rarely narrow, so narrow that everything is efficiently

693
00:37:48,480 --> 00:37:51,640
Speaker 1: priced and there's no opportunity. And if that is the case,

694
00:37:51,680 --> 00:37:54,600
Speaker 1: then that's okay. You can just hold something that gives

695
00:37:54,640 --> 00:37:57,879
Speaker 1: you seven percent a year of a time and that's fine. Yeah,

696
00:37:57,920 --> 00:38:01,000
Speaker 1: but there's always opportunity and it's just question of finding it.

697
00:38:02,080 --> 00:38:05,000
Speaker 1: And you need a lot of depth that comes from

698
00:38:05,040 --> 00:38:07,080
Speaker 1: the analyst looking in the different niches and need a

699
00:38:07,080 --> 00:38:08,560
Speaker 1: lot of breath. You need to just turn over a

700
00:38:08,600 --> 00:38:10,800
Speaker 1: lot of stones and cover a lot of ground.

701
00:38:11,160 --> 00:38:15,160
Speaker 2: So let's talk about that, because over the past, you know,

702
00:38:15,640 --> 00:38:19,520
Speaker 2: either one or multiple years, it's been pretty much you know,

703
00:38:20,320 --> 00:38:23,120
Speaker 2: it started out as fang. Now some people are using

704
00:38:23,120 --> 00:38:28,120
Speaker 2: the phrase magnificent seven. The seven largest tech stocks have

705
00:38:28,200 --> 00:38:32,160
Speaker 2: been driving about twenty five percent market Kappa, the S

706
00:38:32,200 --> 00:38:35,360
Speaker 2: and P five hundred, driving a lot of value creation.

707
00:38:36,239 --> 00:38:39,239
Speaker 2: Can you look outside of those seven or is it

708
00:38:39,840 --> 00:38:41,799
Speaker 2: that seems to be the only game in town here.

709
00:38:42,480 --> 00:38:44,239
Speaker 1: I'm not even sure what's in the seven? Can you

710
00:38:44,239 --> 00:38:45,240
Speaker 1: tell me what's in the seventh?

711
00:38:45,600 --> 00:38:53,680
Speaker 2: Amazon, Apple, Tesla, and Vidia, maybe Facebook, maybe Microsoft, something

712
00:38:53,760 --> 00:38:56,600
Speaker 2: like that. I don't really pay much, to be honest,

713
00:38:56,760 --> 00:38:59,520
Speaker 2: I don't pay much attention to them, Oh did I

714
00:38:59,560 --> 00:39:02,480
Speaker 2: leave out Google? And I'm sure there's something else I'm forgetting.

715
00:39:03,400 --> 00:39:06,879
Speaker 2: That's not how I want to invest. However, if you're

716
00:39:07,000 --> 00:39:11,920
Speaker 2: looking for opportunities and those seem to be driving so

717
00:39:12,120 --> 00:39:16,160
Speaker 2: much of the index returns, how challenging is this environment?

718
00:39:16,680 --> 00:39:19,239
Speaker 2: Or do you just pile into those seven.

719
00:39:19,440 --> 00:39:21,760
Speaker 1: I mean a lot of people have right now, that's

720
00:39:21,840 --> 00:39:26,200
Speaker 1: the challenge. So two points, I'd make one fang to

721
00:39:26,320 --> 00:39:30,239
Speaker 1: magnificent seven. It changes, right, the basket changes, and it's

722
00:39:30,320 --> 00:39:32,560
Speaker 1: just the next big thing two or three years ago,

723
00:39:32,560 --> 00:39:34,800
Speaker 1: as NFTs and all this sort and now it's AI

724
00:39:35,280 --> 00:39:40,080
Speaker 1: and large language models. It's always something comes up, bust

725
00:39:40,520 --> 00:39:42,880
Speaker 1: and then it sort of emerges from the ashes and

726
00:39:42,920 --> 00:39:45,440
Speaker 1: they're all relevant new technologies. But you just don't want

727
00:39:45,480 --> 00:39:46,600
Speaker 1: to get caught up too much enough.

728
00:39:46,640 --> 00:39:49,160
Speaker 2: You figure out the metaverse between NFTs and AI was

729
00:39:49,160 --> 00:39:52,720
Speaker 2: the metaversese, and I know that created a lot of value, right.

730
00:39:52,920 --> 00:39:56,680
Speaker 1: That's right, I'll give it time. Who knows. So there's

731
00:39:56,680 --> 00:39:59,200
Speaker 1: three thy five hundred investible stocks or more in the

732
00:39:59,200 --> 00:40:02,120
Speaker 1: world for us. We treat them on a unit basis. Right,

733
00:40:02,120 --> 00:40:04,160
Speaker 1: in any one of those threey five hundred stocks, you

734
00:40:04,160 --> 00:40:06,680
Speaker 1: could see a big, big miss pricing, and so the

735
00:40:06,760 --> 00:40:08,680
Speaker 1: chances that we end up in the biggest seven stocks

736
00:40:08,680 --> 00:40:10,760
Speaker 1: in the world are quite slim on that basis, because

737
00:40:10,760 --> 00:40:14,080
Speaker 1: what's the chance you're going to have the most inefficiency

738
00:40:14,360 --> 00:40:15,280
Speaker 1: in the biggest seven.

739
00:40:15,080 --> 00:40:17,800
Speaker 2: Story those are probably the most efficient.

740
00:40:17,920 --> 00:40:20,120
Speaker 1: Probably the most efficient. Now the two the problem, as

741
00:40:20,120 --> 00:40:21,719
Speaker 1: you say, you have to deal with is if they

742
00:40:21,719 --> 00:40:23,839
Speaker 1: go through a long period of performing very well, then

743
00:40:23,920 --> 00:40:26,359
Speaker 1: you you know, you have to stack up against that, right,

744
00:40:26,480 --> 00:40:28,200
Speaker 1: And that's the issue we've had in terms of if

745
00:40:28,239 --> 00:40:29,880
Speaker 1: we look at the world on an equally weighted basis,

746
00:40:29,880 --> 00:40:31,320
Speaker 1: we've added a lot of value for clients over the

747
00:40:31,360 --> 00:40:33,000
Speaker 1: last ten years. If we look for us a cap

748
00:40:33,000 --> 00:40:36,800
Speaker 1: weighted basis, it's been much harder, much harder, either because

749
00:40:36,840 --> 00:40:40,160
Speaker 1: we missed those opportunities. Either were fundamentally mispriced and we

750
00:40:40,200 --> 00:40:41,480
Speaker 1: missed them and I think there's a little bit of

751
00:40:41,480 --> 00:40:44,600
Speaker 1: that in there, or they just did well right their

752
00:40:44,680 --> 00:40:49,280
Speaker 1: randomness and you know they hit had a few hits also,

753
00:40:49,520 --> 00:40:53,480
Speaker 1: or all the valuation went up right to fairly extreme levels.

754
00:40:53,640 --> 00:40:55,520
Speaker 1: So one of a combination of those two things have

755
00:40:55,640 --> 00:40:58,040
Speaker 1: happened over periods of time. The last five years have

756
00:40:58,080 --> 00:41:00,200
Speaker 1: been a good example of that. The late nineties good

757
00:41:00,200 --> 00:41:01,960
Speaker 1: example of that. You go back to the late sixties,

758
00:41:01,960 --> 00:41:04,239
Speaker 1: you saw exactly the same dynamic. So you go through

759
00:41:04,239 --> 00:41:06,759
Speaker 1: these periods and you just have to be patient as

760
00:41:06,760 --> 00:41:09,320
Speaker 1: long as you're generating a good absolute return for your clients.

761
00:41:09,840 --> 00:41:12,000
Speaker 1: I think, you know, our clients are happy and they

762
00:41:12,000 --> 00:41:13,760
Speaker 1: recognize you go through these big cycles.

763
00:41:14,800 --> 00:41:19,279
Speaker 2: So you've talked about finding your edge, what makes your

764
00:41:19,320 --> 00:41:23,719
Speaker 2: approach unique to you and the advantage you have? How

765
00:41:23,719 --> 00:41:26,759
Speaker 2: do you find your edge? What can investors do to

766
00:41:26,920 --> 00:41:30,880
Speaker 2: identify their own strategic or tactical advantage?

767
00:41:31,320 --> 00:41:33,239
Speaker 1: So, I mean edge is a tricky one, right, and

768
00:41:33,320 --> 00:41:36,520
Speaker 1: everyone tries to define their edge. Everyone's trying to look

769
00:41:36,520 --> 00:41:38,520
Speaker 1: for their edge. And I think it if it was

770
00:41:38,520 --> 00:41:40,719
Speaker 1: so simple as to say, hey, do this and then

771
00:41:40,719 --> 00:41:42,239
Speaker 1: you've got an edge, then everyone would do it and

772
00:41:42,239 --> 00:41:43,840
Speaker 1: it wouldn't be an edge. So it has to be

773
00:41:43,880 --> 00:41:45,840
Speaker 1: a number of things, and you have to balance, you know,

774
00:41:45,880 --> 00:41:48,560
Speaker 1: across a number of different variables. I would point to

775
00:41:48,640 --> 00:41:51,560
Speaker 1: a few things. One we talked about how and this

776
00:41:51,680 --> 00:41:53,520
Speaker 1: links to the you know the second part of the question,

777
00:41:53,880 --> 00:41:56,520
Speaker 1: how does that you know, an every day investor develop

778
00:41:56,560 --> 00:41:58,920
Speaker 1: an edge and how should they think about investing? It's

779
00:41:58,960 --> 00:42:02,359
Speaker 1: those three things. It's the three key variables. Number one

780
00:42:03,239 --> 00:42:07,000
Speaker 1: longevity and that really comes down to ownership structure. You know,

781
00:42:07,040 --> 00:42:10,759
Speaker 1: the really tough part of this business is succession. You

782
00:42:10,800 --> 00:42:14,520
Speaker 1: build an asset manager, you build Bloomberg, you build any organization.

783
00:42:14,920 --> 00:42:17,759
Speaker 1: How do you handle succession? And in asset managers it's

784
00:42:17,800 --> 00:42:21,840
Speaker 1: really difficult because you usually have a founder. Founder builds

785
00:42:21,840 --> 00:42:25,680
Speaker 1: the business up. If they're successful, then what then what

786
00:42:26,040 --> 00:42:30,080
Speaker 1: next generation? Generation? But how do they take the you know,

787
00:42:30,200 --> 00:42:34,800
Speaker 1: take the ownership from the founder? Do they have to

788
00:42:34,840 --> 00:42:37,880
Speaker 1: borrow money to buy them out? Who are out? Do

789
00:42:37,920 --> 00:42:40,759
Speaker 1: they need to go public? You know, sell to and

790
00:42:40,800 --> 00:42:43,279
Speaker 1: then that leads to other discussions. It could be there's

791
00:42:43,280 --> 00:42:46,600
Speaker 1: a lot of different ways, but very few of them

792
00:42:46,920 --> 00:42:50,600
Speaker 1: are sustainable perpetual solutions because you're going to you know,

793
00:42:50,600 --> 00:42:52,640
Speaker 1: if you're selling to the next people, they need to

794
00:42:52,760 --> 00:42:56,440
Speaker 1: they have the same problem, et cetera, et cetera. So

795
00:42:56,520 --> 00:42:58,719
Speaker 1: the one thing you need to build into your organization

796
00:42:58,880 --> 00:43:02,600
Speaker 1: is longevity. And so that's one thing we've done through

797
00:43:02,600 --> 00:43:06,080
Speaker 1: the ownership, through the charitable foundation which owns the business

798
00:43:06,080 --> 00:43:10,560
Speaker 1: into perpetuity, giving you that stability and enabling the business

799
00:43:10,840 --> 00:43:12,440
Speaker 1: to embed that long term philosophy.

800
00:43:12,520 --> 00:43:19,719
Speaker 2: Also I mentioned Orbis's fee structures unique having then investment

801
00:43:19,760 --> 00:43:23,640
Speaker 2: manager owned by a charitable foundation fairly unique. I don't

802
00:43:23,680 --> 00:43:27,040
Speaker 2: know many other companies that operate. The closest thing is

803
00:43:27,160 --> 00:43:30,719
Speaker 2: Vanguard is a mutual theoretically owned by their shareholders. But

804
00:43:30,840 --> 00:43:35,320
Speaker 2: this is even more specific. This foundation owns the asset

805
00:43:35,360 --> 00:43:38,080
Speaker 2: manager in perpetuity exactly.

806
00:43:38,200 --> 00:43:41,560
Speaker 1: Yeah, and it's mutually beneficial. One, you get that very

807
00:43:41,600 --> 00:43:44,560
Speaker 1: long term time horizon from an owner very stable, which

808
00:43:44,560 --> 00:43:48,560
Speaker 1: is essential when you're making long term investment decisions. Two,

809
00:43:49,480 --> 00:43:53,000
Speaker 1: the foundation gets the cash flow from the business to

810
00:43:53,040 --> 00:43:58,839
Speaker 1: a degree to facilitate its philanthropic work. So you get

811
00:43:58,880 --> 00:44:01,160
Speaker 1: that nice symbiotic relation ship. And the incentive of the

812
00:44:01,200 --> 00:44:04,040
Speaker 1: foundation is to make sure that underlying investment business is

813
00:44:04,080 --> 00:44:07,400
Speaker 1: healthy and sustains of a very long period of time,

814
00:44:07,719 --> 00:44:10,200
Speaker 1: so that it's very much embedded in that the trustees

815
00:44:10,239 --> 00:44:13,239
Speaker 1: of the foundation that we need healthy underlying investment businesses

816
00:44:13,320 --> 00:44:15,960
Speaker 1: because that's what drives the dividends, that drives the philanthropic

817
00:44:16,000 --> 00:44:19,440
Speaker 1: activity over time. So long term ownership is key. The

818
00:44:19,480 --> 00:44:22,280
Speaker 1: other is excess returns. I've talked about the paper portfolio

819
00:44:22,360 --> 00:44:25,440
Speaker 1: system is quite unique to what we do. Every analyst

820
00:44:25,520 --> 00:44:28,560
Speaker 1: having that ability to express themselves from very early on

821
00:44:28,600 --> 00:44:31,680
Speaker 1: in their career and learn and we can learn about

822
00:44:31,719 --> 00:44:34,640
Speaker 1: them and all their foibles and all their biases over time,

823
00:44:35,239 --> 00:44:37,000
Speaker 1: which is quite a big deal because then you get

824
00:44:37,000 --> 00:44:39,560
Speaker 1: to sort of draw out what is a person's superpower.

825
00:44:39,600 --> 00:44:43,040
Speaker 1: How can they contribute in the best way to the firm? Okay,

826
00:44:43,080 --> 00:44:44,959
Speaker 1: so that would be on the on the return side

827
00:44:44,960 --> 00:44:47,560
Speaker 1: and then on the risk side. The fees really help

828
00:44:47,600 --> 00:44:50,239
Speaker 1: with that, as we talked about, because they make the

829
00:44:51,000 --> 00:44:54,560
Speaker 1: return series for the end client to mother right, and

830
00:44:55,000 --> 00:44:58,680
Speaker 1: having less variants of return is important, you know. One

831
00:44:58,680 --> 00:45:01,040
Speaker 1: of those three critical variables. The fourth one, of course

832
00:45:01,080 --> 00:45:04,600
Speaker 1: is client alpha or dollar weighted alpha, and that's alignment

833
00:45:04,640 --> 00:45:06,040
Speaker 1: as well. The fees help with them.

834
00:45:06,440 --> 00:45:09,280
Speaker 2: So let's talk about what's going on in the world.

835
00:45:10,360 --> 00:45:15,120
Speaker 2: We've been in deep into this rate rising environment and

836
00:45:15,200 --> 00:45:19,880
Speaker 2: this inflationary environment. How does that affect your ability to

837
00:45:19,920 --> 00:45:22,560
Speaker 2: do your job? What do you need to do to

838
00:45:22,640 --> 00:45:27,320
Speaker 2: adjust when the era of low rates and free capital

839
00:45:27,440 --> 00:45:28,360
Speaker 2: suddenly goes away?

840
00:45:28,680 --> 00:45:30,520
Speaker 1: Well, I mean that's the key you just hit on it.

841
00:45:30,520 --> 00:45:33,680
Speaker 1: It's been free capital and so we've seen a giant

842
00:45:33,760 --> 00:45:37,399
Speaker 1: capital misallocation on the basis of rates being too low

843
00:45:37,560 --> 00:45:40,320
Speaker 1: long yields being too low, and there's been a raging

844
00:45:40,320 --> 00:45:44,000
Speaker 1: debate even in that period our rates too low? Aren't

845
00:45:44,040 --> 00:45:45,720
Speaker 1: we inherently deflationary environment?

846
00:45:46,280 --> 00:45:46,480
Speaker 2: Right?

847
00:45:46,560 --> 00:45:50,560
Speaker 1: Aren't we? Demographics and technology and et cetera, et cetera.

848
00:45:50,760 --> 00:45:54,279
Speaker 2: Just just because we're in a deflationary environment doesn't mean

849
00:45:54,360 --> 00:45:58,280
Speaker 2: that rates have to be on an emergency footing on zero.

850
00:45:58,760 --> 00:46:01,680
Speaker 2: You can have two or three percent fed funds rates

851
00:46:02,040 --> 00:46:08,600
Speaker 2: and still have technologically induced inflation. Why are they mutually exclusive?

852
00:46:08,600 --> 00:46:11,799
Speaker 1: One hundred percent agree. And the other element is you

853
00:46:11,840 --> 00:46:16,400
Speaker 1: can there's a specific variable you can look at that

854
00:46:16,640 --> 00:46:20,040
Speaker 1: tells you that it was a giant inefficiency, and that

855
00:46:20,160 --> 00:46:22,960
Speaker 1: is the term premium, right, which is now getting into

856
00:46:23,000 --> 00:46:24,600
Speaker 1: the media a bit more. You see more and more

857
00:46:24,600 --> 00:46:26,920
Speaker 1: about the term premium. So the term premium is embedded

858
00:46:26,960 --> 00:46:29,440
Speaker 1: in the long bond, in the ten year yield of

859
00:46:30,360 --> 00:46:36,160
Speaker 1: a JGB or a treasury or a bund, and it

860
00:46:36,239 --> 00:46:39,160
Speaker 1: is the extra return you should get for taking on

861
00:46:39,239 --> 00:46:42,680
Speaker 1: time risk effectively, because that long bond should embed the

862
00:46:42,680 --> 00:46:45,640
Speaker 1: expected inflation rate, the expected path of short term real rates,

863
00:46:45,760 --> 00:46:48,759
Speaker 1: and something else. And that's something else should compensate you

864
00:46:49,400 --> 00:46:52,000
Speaker 1: for the uncertainty and all those other variables because you

865
00:46:52,000 --> 00:46:54,000
Speaker 1: don't know what inflation is going to do, you don't

866
00:46:54,040 --> 00:46:55,719
Speaker 1: know what real rates are going to do, so you

867
00:46:55,760 --> 00:46:58,920
Speaker 1: need an extra bit of compensation. And that's back that's

868
00:46:58,960 --> 00:47:00,800
Speaker 1: backed out. It's like a risk pre like an equity

869
00:47:00,840 --> 00:47:02,960
Speaker 1: risk premium. You can back that out. And that term

870
00:47:02,960 --> 00:47:06,320
Speaker 1: premium has been negative. Never before in history of tracking

871
00:47:06,320 --> 00:47:09,040
Speaker 1: this this variable has that gone negative. In the sixties,

872
00:47:09,120 --> 00:47:11,959
Speaker 1: it was very low. In the nineties, it was very low.

873
00:47:12,520 --> 00:47:15,440
Speaker 1: It's gone negative of the last five years, absolutely incredible,

874
00:47:15,440 --> 00:47:17,680
Speaker 1: and that tells you there's a huge mispricing in duration,

875
00:47:17,800 --> 00:47:20,240
Speaker 1: a huge mispricing on the long end of the curve.

876
00:47:20,440 --> 00:47:24,080
Speaker 2: So meaning are you saying the long end of the

877
00:47:24,120 --> 00:47:30,200
Speaker 2: curve is now attractive and cheap, I would know you're

878
00:47:30,239 --> 00:47:30,759
Speaker 2: taking me up.

879
00:47:30,840 --> 00:47:33,000
Speaker 1: I'm saying the opposite. And the reason is because that

880
00:47:33,080 --> 00:47:35,640
Speaker 1: term premium has been very negative of the last five

881
00:47:35,719 --> 00:47:39,960
Speaker 1: years and still isn't positive. It's risen from very very

882
00:47:40,040 --> 00:47:42,080
Speaker 1: negative levels, but it's still not positive. But that has

883
00:47:42,120 --> 00:47:44,760
Speaker 1: to be in my opinion positive. People disagree on this point.

884
00:47:45,239 --> 00:47:47,560
Speaker 1: It has to be positive because it has to compensate

885
00:47:47,600 --> 00:47:50,040
Speaker 1: you for taking time risk. That's the real time risk.

886
00:47:50,120 --> 00:47:52,520
Speaker 1: Is the term premium and I think it's fascinating it

887
00:47:52,520 --> 00:47:54,160
Speaker 1: if you go back to the sixties and you look

888
00:47:54,160 --> 00:47:56,360
Speaker 1: at when it was very low through the late sixties,

889
00:47:56,400 --> 00:47:58,600
Speaker 1: and you go back to the late nineties, also very low,

890
00:47:59,360 --> 00:48:02,200
Speaker 1: you see the same dynamic that we've seen over the

891
00:48:02,280 --> 00:48:05,240
Speaker 1: last five years. That is, all the long duration stuff

892
00:48:05,280 --> 00:48:08,319
Speaker 1: goes up up up. In the early seventies, you had

893
00:48:08,360 --> 00:48:10,719
Speaker 1: the nifty fifty right, in the late nineties, you had

894
00:48:10,760 --> 00:48:13,800
Speaker 1: the tech mania, right, and then we've had all sorts

895
00:48:13,840 --> 00:48:18,200
Speaker 1: of you know, a bubble to in extreme proportions, especially

896
00:48:18,200 --> 00:48:21,319
Speaker 1: on the long duration end, especially on the long duration end.

897
00:48:21,480 --> 00:48:25,120
Speaker 1: So that's led to this huge displication within asset markets.

898
00:48:25,480 --> 00:48:29,840
Speaker 1: With the long duration businesses I've been trading at extraordinary multiples,

899
00:48:30,440 --> 00:48:32,520
Speaker 1: and the short duration businesses, which are typically the very

900
00:48:32,520 --> 00:48:36,400
Speaker 1: cash flow generative, low growth ones, have been extremely depressed.

901
00:48:36,719 --> 00:48:38,720
Speaker 1: And you could see that dynamic in the late sixties,

902
00:48:38,760 --> 00:48:40,440
Speaker 1: see in the nineties, and it led to a very

903
00:48:40,440 --> 00:48:46,000
Speaker 1: interesting thing, which was the companies whose share prices were

904
00:48:46,080 --> 00:48:49,840
Speaker 1: very low stopped investing, like the energy companies in the

905
00:48:50,000 --> 00:48:52,520
Speaker 1: late sixties and the late nineties, they just stopped. They

906
00:48:52,600 --> 00:48:55,759
Speaker 1: reduced capex enormously because the share prices were telling them,

907
00:48:55,840 --> 00:48:58,640
Speaker 1: don't go out and grow, just pay out your cash

908
00:48:58,640 --> 00:49:00,680
Speaker 1: flow to us, because we're not giving you any kind

909
00:49:00,719 --> 00:49:03,960
Speaker 1: of rating. And it was the opposite for the high

910
00:49:03,960 --> 00:49:07,040
Speaker 1: growth businesses, those very high ratings were saying, Okay, go

911
00:49:07,080 --> 00:49:09,640
Speaker 1: and raise more capital your cost the capital's very low,

912
00:49:09,960 --> 00:49:10,560
Speaker 1: go and grow.

913
00:49:11,560 --> 00:49:16,239
Speaker 2: So we've had this distortion caused by free capital and

914
00:49:16,400 --> 00:49:23,480
Speaker 2: low rates. Where is the biggest misallocation in allocations? A

915
00:49:23,600 --> 00:49:26,840
Speaker 2: year ago summer of twenty twenty two, we saw people

916
00:49:27,160 --> 00:49:31,440
Speaker 2: piling into private credit and private debt and private equity.

917
00:49:32,480 --> 00:49:35,799
Speaker 2: It felt like a crowded trade, a little bubblicious, and

918
00:49:36,400 --> 00:49:40,640
Speaker 2: a year later nothing's blown up, but clearly not not

919
00:49:40,719 --> 00:49:44,000
Speaker 2: as attractive of a sector as it was. How does

920
00:49:44,000 --> 00:49:45,600
Speaker 2: this impact public equities?

921
00:49:46,000 --> 00:49:49,240
Speaker 1: So what we've seen is the top of that dynamic

922
00:49:49,280 --> 00:49:52,440
Speaker 1: has happened. So in twenty twenty one was the equivalent

923
00:49:52,480 --> 00:49:53,840
Speaker 1: of March two thousand.

924
00:49:54,280 --> 00:49:57,240
Speaker 2: Right the top of the dot com dot.

925
00:49:57,080 --> 00:49:59,360
Speaker 1: Com and the early seventies the top of the nifty

926
00:49:59,360 --> 00:50:01,880
Speaker 1: to fifty I think. So we've passed that point. So

927
00:50:01,920 --> 00:50:05,760
Speaker 1: we're just in a gradual corrective process. We've seen it before.

928
00:50:05,760 --> 00:50:07,399
Speaker 1: We saw it through the seventies, we saw it through

929
00:50:07,440 --> 00:50:09,759
Speaker 1: the two thousands, and we're just in that moment. And

930
00:50:09,800 --> 00:50:12,480
Speaker 1: if you look at that gap between the evaluations in

931
00:50:12,520 --> 00:50:15,080
Speaker 1: the long short duration end is closed, but it's not

932
00:50:15,120 --> 00:50:17,000
Speaker 1: closed by very much. I think you know, listen to

933
00:50:17,000 --> 00:50:19,480
Speaker 1: Cliff as s Aqr. He say, Okay, it was it

934
00:50:19,560 --> 00:50:21,840
Speaker 1: the ninety ninth percentile. Now it's at the seventieth or

935
00:50:21,880 --> 00:50:23,000
Speaker 1: the eighty fifth or some such.

936
00:50:23,080 --> 00:50:25,439
Speaker 2: Right, we make cheaper, but not outright cheap.

937
00:50:27,200 --> 00:50:30,880
Speaker 1: This is the relative attractiveness of the shorter end, the

938
00:50:30,880 --> 00:50:33,279
Speaker 1: shorter duration end of the equity space. So this isn't

939
00:50:33,320 --> 00:50:36,120
Speaker 1: more like the real economy, slow growth businesses. They are

940
00:50:37,000 --> 00:50:41,000
Speaker 1: on a relative basis cheap, very very cheap versus where

941
00:50:41,000 --> 00:50:43,000
Speaker 1: they had normally not cheap versus twenty twenty one. That

942
00:50:43,080 --> 00:50:46,480
Speaker 1: was the most extreme point. So that leaves us sort

943
00:50:46,480 --> 00:50:47,960
Speaker 1: of in a place where I think you just see

944
00:50:48,239 --> 00:50:51,080
Speaker 1: this dynamic continuing to play out. I would be concerned

945
00:50:51,120 --> 00:50:52,640
Speaker 1: about duration still.

946
00:50:52,880 --> 00:50:55,080
Speaker 2: Now you could buy a one year bond and you're

947
00:50:55,120 --> 00:51:00,439
Speaker 2: practically getting the same yield, but you're taking risk there. Hey,

948
00:51:00,440 --> 00:51:03,399
Speaker 2: maybe rates go lower if there's a recession next year.

949
00:51:03,880 --> 00:51:07,719
Speaker 2: How do you operate around that uncertainty?

950
00:51:07,960 --> 00:51:10,640
Speaker 1: So that's the cycle, and that's the you know, your

951
00:51:10,680 --> 00:51:12,440
Speaker 1: short term versus your long term view, and a long

952
00:51:12,520 --> 00:51:14,439
Speaker 1: term view, you've got to embed the term premium into

953
00:51:14,480 --> 00:51:17,080
Speaker 1: that long gyield on a short term view. If you're smart,

954
00:51:17,239 --> 00:51:19,040
Speaker 1: I'm not smart enough to do this. You can sort

955
00:51:19,080 --> 00:51:21,360
Speaker 1: of try to play around recessions and slow downs and

956
00:51:21,440 --> 00:51:24,279
Speaker 1: rate cuts and there you'll you know, you might make

957
00:51:24,320 --> 00:51:26,040
Speaker 1: a bit of money on the duration end like that.

958
00:51:26,840 --> 00:51:29,720
Speaker 1: But I still see that as the big dislocation within

959
00:51:30,480 --> 00:51:31,640
Speaker 1: the equity market.

960
00:51:32,040 --> 00:51:36,480
Speaker 2: So let's talk about equities. So value over growth is it?

961
00:51:36,520 --> 00:51:39,719
Speaker 2: For a while, value had come back with a with

962
00:51:39,800 --> 00:51:42,400
Speaker 2: a vengeance that seemed to have stopped for a while,

963
00:51:42,480 --> 00:51:47,640
Speaker 2: and since the lows in October twenty twenty two, growth

964
00:51:47,680 --> 00:51:50,879
Speaker 2: has done really well. How do you look at those

965
00:51:50,920 --> 00:51:54,359
Speaker 2: two spaces? You sound more like a value investor than

966
00:51:54,400 --> 00:51:57,359
Speaker 2: a growth investor. So let's start with that and then

967
00:51:57,400 --> 00:51:59,960
Speaker 2: we'll look around the world. So what do you look at?

968
00:52:00,080 --> 00:52:02,840
Speaker 2: What do you think of in terms of how value

969
00:52:02,880 --> 00:52:05,640
Speaker 2: stocks appear versus growth stock?

970
00:52:05,760 --> 00:52:09,520
Speaker 1: So I would have value stocks are synonymous with short duration,

971
00:52:09,600 --> 00:52:11,040
Speaker 1: and I still think they love very cheap. So your

972
00:52:11,080 --> 00:52:15,960
Speaker 1: value stocks are attractive, and getting back to that AQR measure,

973
00:52:15,960 --> 00:52:19,319
Speaker 1: they're pretty the dispersions are still very wide. I think

974
00:52:19,360 --> 00:52:22,960
Speaker 1: this is a cycle which is reflexive. Once you get

975
00:52:22,960 --> 00:52:27,840
Speaker 1: to the top, it starts to roll. And you know

976
00:52:27,880 --> 00:52:32,520
Speaker 1: what the reason for that is getting back to those

977
00:52:32,640 --> 00:52:36,440
Speaker 1: short duration old economy businesses, the lower growth ones, the

978
00:52:36,520 --> 00:52:39,439
Speaker 1: value stocks, if you like, because they've had such low

979
00:52:39,520 --> 00:52:43,640
Speaker 1: valuations through this cycle, they haven't invested. That drives not

980
00:52:43,840 --> 00:52:47,480
Speaker 1: enough stuff into the real economy because you're not producing

981
00:52:47,560 --> 00:52:50,359
Speaker 1: enough and it's not enough primary energy and et cetera,

982
00:52:50,440 --> 00:52:53,880
Speaker 1: et cetera, And that drives this kind of inflation impulse

983
00:52:54,440 --> 00:52:56,600
Speaker 1: through and we saw that in the seventies, and we

984
00:52:56,640 --> 00:52:58,440
Speaker 1: saw that in the two thousands. The two thousands it

985
00:52:58,440 --> 00:53:00,000
Speaker 1: wasn't quite a strong because you had a big labor

986
00:53:00,080 --> 00:53:03,320
Speaker 1: a charge with China, but the underlying inflation was reasonable.

987
00:53:04,520 --> 00:53:07,160
Speaker 1: And what that does is it pushes up the term premium.

988
00:53:07,200 --> 00:53:09,800
Speaker 1: And as the term premiums going up, then this normalization

989
00:53:10,080 --> 00:53:12,520
Speaker 1: of the relative valuation gap between the value stocks and

990
00:53:12,520 --> 00:53:15,120
Speaker 1: the growth stock starts to close. And you get that

991
00:53:15,200 --> 00:53:18,080
Speaker 1: at the same time as these businesses are generating very

992
00:53:18,120 --> 00:53:21,680
Speaker 1: very healthy margins as well, because pricing's good. Pricing's good,

993
00:53:21,719 --> 00:53:24,200
Speaker 1: and they're using that free cash flow not to reinvest

994
00:53:24,200 --> 00:53:25,960
Speaker 1: in the business because they're still worried about all those

995
00:53:25,960 --> 00:53:28,440
Speaker 1: share prices. They're just paying it all out, so it's

996
00:53:28,480 --> 00:53:29,920
Speaker 1: all going to the bottom of line. It's all it's

997
00:53:29,920 --> 00:53:32,360
Speaker 1: all coming back to shareholders. That's where we're getting a

998
00:53:32,360 --> 00:53:33,680
Speaker 1: lot of yield in the portfolio.

999
00:53:33,920 --> 00:53:37,760
Speaker 2: Huh interesting. What about geographically? Where are you looking around

1000
00:53:37,760 --> 00:53:38,920
Speaker 2: the world that's attractive.

1001
00:53:39,320 --> 00:53:41,880
Speaker 1: I don't think there are any big geographical inefficiencies today.

1002
00:53:41,960 --> 00:53:44,400
Speaker 1: Japan's very interesting because they're going through a big corporate

1003
00:53:44,440 --> 00:53:47,439
Speaker 1: governance change, which is getting in the news right.

1004
00:53:47,800 --> 00:53:52,839
Speaker 2: It's also look over the past couple of years, the

1005
00:53:53,040 --> 00:53:58,279
Speaker 2: Japanese stocks have seemed to really come alive since the pandemic.

1006
00:53:59,239 --> 00:54:02,480
Speaker 2: What's driving Is it this corporate governance or is it

1007
00:54:02,880 --> 00:54:07,839
Speaker 2: just they've been underperforming since nineteen eighty nine. That's a

1008
00:54:07,880 --> 00:54:13,560
Speaker 2: long time to run a pretty poor basis. They're still

1009
00:54:13,560 --> 00:54:16,719
Speaker 2: below their bubble peak, which is kind of hard to

1010
00:54:17,400 --> 00:54:20,719
Speaker 2: imagine thirty years later. Imagine I think it took us

1011
00:54:20,760 --> 00:54:26,000
Speaker 2: thirteen years to recover the Nasdaq dot com collapse down

1012
00:54:26,040 --> 00:54:29,319
Speaker 2: to about eleven hundred from five thousand and we passed that.

1013
00:54:30,719 --> 00:54:35,160
Speaker 2: The nick is still way below where it was. What's

1014
00:54:35,160 --> 00:54:36,040
Speaker 2: happening in Japan.

1015
00:54:36,760 --> 00:54:38,600
Speaker 1: So, I mean, the reason why you were still way

1016
00:54:38,640 --> 00:54:41,480
Speaker 1: below that thirty year ago peak is because it was

1017
00:54:41,520 --> 00:54:43,640
Speaker 1: just absolutely extraordinary. There's never been a bubble like it.

1018
00:54:44,000 --> 00:54:46,800
Speaker 2: Four x the dot com or five x the dot.

1019
00:54:46,600 --> 00:54:50,360
Speaker 1: Com, something like that. Some multiple crazy, absolutely crazy, and

1020
00:54:50,440 --> 00:54:54,200
Speaker 1: it was, you know, the lower quality businesses, there were

1021
00:54:54,840 --> 00:54:56,799
Speaker 1: the ones that were getting the most expensive. It was

1022
00:54:56,800 --> 00:54:59,239
Speaker 1: the one It was a balance sheet bubble, almost based

1023
00:54:59,280 --> 00:55:01,359
Speaker 1: on the price of land. And so that was one

1024
00:55:01,360 --> 00:55:05,200
Speaker 1: reason why we talk about. Another reason is the corporate

1025
00:55:05,239 --> 00:55:08,000
Speaker 1: governance in Japan has been awful. Too much cash on

1026
00:55:08,040 --> 00:55:12,319
Speaker 1: balance sheets, unproductive cash, too many cross shareholders, they all

1027
00:55:12,360 --> 00:55:13,640
Speaker 1: hold bits of each other.

1028
00:55:13,840 --> 00:55:15,960
Speaker 2: No activist shareholders in Japan.

1029
00:55:16,120 --> 00:55:18,080
Speaker 1: No, it's very difficult to be an activist shareholder in

1030
00:55:18,120 --> 00:55:22,360
Speaker 1: Japan because it's a very consensus society and you know,

1031
00:55:22,440 --> 00:55:25,000
Speaker 1: foreign shareholders coming in and doing the evil deeds aren't

1032
00:55:25,200 --> 00:55:28,040
Speaker 1: particularly welcome. What do you have to do in Japan

1033
00:55:28,200 --> 00:55:30,719
Speaker 1: is you have to build a relationship with management over

1034
00:55:30,760 --> 00:55:33,080
Speaker 1: a long period of time. So we've been investing in

1035
00:55:33,160 --> 00:55:36,200
Speaker 1: Japan since the early nineties. We meet with management twice

1036
00:55:36,200 --> 00:55:39,120
Speaker 1: a year, a lot of different management teams across the economy.

1037
00:55:39,280 --> 00:55:41,120
Speaker 1: We talked to them. We understand them, We try to

1038
00:55:41,120 --> 00:55:43,200
Speaker 1: figure out, you know, try to help them with their business.

1039
00:55:43,239 --> 00:55:45,960
Speaker 1: We try to understand, you know, the reasons for why

1040
00:55:45,960 --> 00:55:48,560
Speaker 1: they're doing what they're doing. We gradually try to help

1041
00:55:48,600 --> 00:55:51,240
Speaker 1: them on the capital allocation side, nudge them to Okay,

1042
00:55:51,520 --> 00:55:53,919
Speaker 1: is it sensible to hold shares in all these other

1043
00:55:53,960 --> 00:55:57,640
Speaker 1: businesses because you know, as an investor like us number one,

1044
00:55:57,680 --> 00:55:59,480
Speaker 1: we're just we're not just owning you, we're owning everything.

1045
00:56:00,120 --> 00:56:03,719
Speaker 1: I go to an index, and in terms of capital efficiency,

1046
00:56:03,760 --> 00:56:08,359
Speaker 1: it's horribly capital inefficient because you know, as soon as

1047
00:56:08,360 --> 00:56:11,919
Speaker 1: they start selling those cross shareholdings, that money starts coming

1048
00:56:11,960 --> 00:56:15,400
Speaker 1: out two shareholders. This gets reallocated to businesses on the

1049
00:56:15,440 --> 00:56:19,360
Speaker 1: basis of the growth potential, and so it's really positive

1050
00:56:19,360 --> 00:56:21,799
Speaker 1: for the economy to unwind all of these and to

1051
00:56:21,920 --> 00:56:26,360
Speaker 1: use all this idle cash. Ebonomics was the start of that.

1052
00:56:26,360 --> 00:56:30,720
Speaker 1: That was what twenty fifteen something like that, a decade ago. Yeah,

1053
00:56:30,760 --> 00:56:33,680
Speaker 1: so that was the start, and that was really good start.

1054
00:56:34,239 --> 00:56:36,400
Speaker 1: But recently we've seen some meaningful change.

1055
00:56:37,680 --> 00:56:40,680
Speaker 2: So let's let's stay with Japan a little bit. When

1056
00:56:40,680 --> 00:56:44,840
Speaker 2: you look at activists in the US, you have companies

1057
00:56:44,880 --> 00:56:49,200
Speaker 2: like Apple doing dividends and share buybacks, even Berkshire Hathaway

1058
00:56:49,640 --> 00:56:54,080
Speaker 2: doing the share buy back. I kind of always felt

1059
00:56:54,200 --> 00:56:58,320
Speaker 2: that it wasn't so much the activists that drove those

1060
00:56:58,800 --> 00:57:03,560
Speaker 2: as the threat of an activist that's missing in Japan

1061
00:57:04,760 --> 00:57:08,759
Speaker 2: other than abonomics. Would would this have happened? Or would

1062
00:57:08,800 --> 00:57:12,160
Speaker 2: they just have continued to all cross on each other

1063
00:57:12,640 --> 00:57:17,080
Speaker 2: and very unproductively sit with these assets on the balance sheet.

1064
00:57:17,400 --> 00:57:19,720
Speaker 1: I don't think this is activist driven. I don't think

1065
00:57:19,760 --> 00:57:22,160
Speaker 1: it's a threat of activists or the presence of activists

1066
00:57:22,200 --> 00:57:26,280
Speaker 1: that are driving this change. I think it's very internal. Yeah,

1067
00:57:26,280 --> 00:57:28,200
Speaker 1: and it had to be internal. It had to come

1068
00:57:28,240 --> 00:57:29,800
Speaker 1: from the institutions within Japan.

1069
00:57:30,040 --> 00:57:32,040
Speaker 2: This is a generational change, isn't it.

1070
00:57:32,120 --> 00:57:34,840
Speaker 1: I think so. Yeah, you're seeing people that took your

1071
00:57:34,840 --> 00:57:37,480
Speaker 1: stock exchange have come out and told businesses that they

1072
00:57:37,560 --> 00:57:39,920
Speaker 1: really need to trade above book value. Why do you

1073
00:57:39,920 --> 00:57:42,760
Speaker 1: trade below book value? It's extraordinary, you know you're not.

1074
00:57:42,840 --> 00:57:45,160
Speaker 1: That implies that the market thinks you don't create any

1075
00:57:45,240 --> 00:57:46,760
Speaker 1: value as a firm.

1076
00:57:46,800 --> 00:57:50,520
Speaker 2: Treading negative value, creating negative value, right, the replacement the

1077
00:57:50,840 --> 00:57:54,600
Speaker 2: what is that que? The replacement value of the company

1078
00:57:55,120 --> 00:57:58,640
Speaker 2: is less than what they're actually trading at that that

1079
00:57:58,640 --> 00:57:59,720
Speaker 2: that seems sort.

1080
00:57:59,480 --> 00:58:02,360
Speaker 1: Of the extraordinary, and some of these book values are understated,

1081
00:58:02,440 --> 00:58:06,240
Speaker 1: so I mean it's remarkable the evaluation. So it's coming

1082
00:58:06,280 --> 00:58:09,200
Speaker 1: from the internal pressure, it's coming from the regulator, it's

1083
00:58:09,200 --> 00:58:11,280
Speaker 1: coming from the government, it's coming from the stock Turkish

1084
00:58:11,280 --> 00:58:14,600
Speaker 1: shockage stock exchange. And when that starts to bite for

1085
00:58:14,760 --> 00:58:17,160
Speaker 1: one or two companies, you start to see it proliferate.

1086
00:58:17,560 --> 00:58:20,880
Speaker 1: Because business in Japan is all about not sticking out

1087
00:58:20,960 --> 00:58:23,680
Speaker 1: too much. It's about consensus. It's about doing the right thing,

1088
00:58:24,920 --> 00:58:26,920
Speaker 1: you know, societally as well as for your business r

1089
00:58:27,360 --> 00:58:29,680
Speaker 1: and so once you start seeing it start to roll,

1090
00:58:29,760 --> 00:58:31,560
Speaker 1: then it's snowballs. And I think we're just at the

1091
00:58:31,600 --> 00:58:32,320
Speaker 1: front end of that.

1092
00:58:32,520 --> 00:58:36,160
Speaker 2: Now, how long will that take to play out? Is

1093
00:58:36,200 --> 00:58:37,080
Speaker 2: this a decade?

1094
00:58:38,000 --> 00:58:39,600
Speaker 1: Yeah, it's a decade because it takes a long time

1095
00:58:39,640 --> 00:58:41,880
Speaker 1: to unwind cross shareholdings. It takes a long time to

1096
00:58:42,840 --> 00:58:46,800
Speaker 1: you know, move the narrative and for that to continue

1097
00:58:46,840 --> 00:58:49,520
Speaker 1: to go. But what we've seen is because we've been

1098
00:58:49,600 --> 00:58:53,680
Speaker 1: meeting with these management teams for decades now, we can

1099
00:58:53,800 --> 00:58:57,560
Speaker 1: kind of like benchmark it. What does the change look

1100
00:58:57,680 --> 00:58:59,600
Speaker 1: like now versus five years ago? Which is five years

1101
00:58:59,600 --> 00:59:01,920
Speaker 1: because it's been gradually improving at a time. This is

1102
00:59:01,960 --> 00:59:03,760
Speaker 1: a step change. This is when we go and meet

1103
00:59:03,800 --> 00:59:07,200
Speaker 1: with management teams. Now it's a meaningfully different conversation. It's

1104
00:59:07,240 --> 00:59:09,520
Speaker 1: a different tone. Now the activists are jumping in there.

1105
00:59:09,800 --> 00:59:13,080
Speaker 1: I don't think that's particularly helpful because it's happening by itself, right,

1106
00:59:13,280 --> 00:59:15,640
Speaker 1: And if you know you're you're coming as an activist,

1107
00:59:16,160 --> 00:59:19,720
Speaker 1: waving your flag, you'ing in the newspaper, you're almost sort

1108
00:59:19,720 --> 00:59:24,000
Speaker 1: of like you risk this delicate situation, right, breaking what

1109
00:59:24,160 --> 00:59:25,200
Speaker 1: is quite a nice trend.

1110
00:59:25,800 --> 00:59:30,000
Speaker 2: How significant is the currency offset with you know, yen

1111
00:59:30,240 --> 00:59:33,520
Speaker 2: versus the dollar has been a tough trade. How important

1112
00:59:33,600 --> 00:59:37,080
Speaker 2: is a currency hedge on a Japanese investment if you're

1113
00:59:37,160 --> 00:59:38,760
Speaker 2: not a local in Japan?

1114
00:59:38,880 --> 00:59:41,000
Speaker 1: So the currency hedge is very helpful. So you look,

1115
00:59:41,080 --> 00:59:42,960
Speaker 1: we're own a business called Impax, which is one of

1116
00:59:42,960 --> 00:59:45,280
Speaker 1: the biggest energy companies in Japan. They're now paying out

1117
00:59:45,680 --> 00:59:47,080
Speaker 1: much more of their earnings than they used to, so

1118
00:59:47,120 --> 00:59:48,400
Speaker 1: that's nice. You've got a four percent of it a

1119
00:59:48,520 --> 00:59:50,080
Speaker 1: yield and a five percent by back year, so it's

1120
00:59:50,080 --> 00:59:54,080
Speaker 1: a nine percent total yield in yen, and they're still

1121
00:59:54,120 --> 00:59:56,160
Speaker 1: paying out about half the amount that a shell or

1122
00:59:56,400 --> 00:59:59,320
Speaker 1: or BP does impacts impacts, Yeah, so it stands for

1123
00:59:59,480 --> 01:00:03,760
Speaker 1: International Petroleum Exploration or something like impact. It's been around

1124
01:00:03,800 --> 01:00:08,440
Speaker 1: for a long time and they're mostly energy and they

1125
01:00:08,480 --> 01:00:10,760
Speaker 1: have these big energy fills off the coast of Australia

1126
01:00:11,720 --> 01:00:16,240
Speaker 1: supplying all of Asia with liquefied natural gas. So what's

1127
01:00:16,280 --> 01:00:18,560
Speaker 1: interesting there is you get that nine percent yield, but

1128
01:00:18,680 --> 01:00:21,600
Speaker 1: it's in yen. If you hedge to dollars, of course,

1129
01:00:21,640 --> 01:00:24,240
Speaker 1: because you've got that big, big interest rates spread today,

1130
01:00:24,960 --> 01:00:27,440
Speaker 1: you know that nine goes to thirteen.

1131
01:00:28,080 --> 01:00:28,280
Speaker 2: Wow.

1132
01:00:28,720 --> 01:00:31,160
Speaker 1: And so that's cash yield, real cash hyield. Now there's

1133
01:00:31,200 --> 01:00:34,040
Speaker 1: some you know, nuance there in the sense it's kind

1134
01:00:34,040 --> 01:00:36,680
Speaker 1: of a dollar business as well, so if it changes

1135
01:00:36,680 --> 01:00:38,640
Speaker 1: in the end, will impact the underlying business. But that

1136
01:00:38,800 --> 01:00:41,200
Speaker 1: is a good, solid yield that you're getting in your hand.

1137
01:00:41,240 --> 01:00:43,160
Speaker 1: What's the return of market's been of the long term

1138
01:00:43,240 --> 01:00:47,200
Speaker 1: seven percent, and that's seven percents come from growth and yield,

1139
01:00:47,960 --> 01:00:49,919
Speaker 1: a little bit of yield, a little bit of growth.

1140
01:00:49,920 --> 01:00:52,160
Speaker 1: That's where your return comes from. If you can get

1141
01:00:52,200 --> 01:00:55,960
Speaker 1: a thirteen percent pure cash yield with an inflation protector,

1142
01:00:55,960 --> 01:00:57,240
Speaker 1: which is inflation protected, is.

1143
01:00:57,280 --> 01:00:59,640
Speaker 2: Real because of the price and natural gas will rise

1144
01:00:59,640 --> 01:01:01,000
Speaker 2: and fall inflation exactly.

1145
01:01:02,000 --> 01:01:04,480
Speaker 1: That is phenomenal, right, So why you know that's where

1146
01:01:04,520 --> 01:01:06,360
Speaker 1: it comes back to AI. Do you need to make

1147
01:01:06,400 --> 01:01:10,680
Speaker 1: a decision on Nvidia's future here at this valuation or

1148
01:01:10,760 --> 01:01:13,080
Speaker 1: can you go out there and find these types of opportunities.

1149
01:01:13,760 --> 01:01:16,800
Speaker 1: So the risk, of course is the magnificent seven keep

1150
01:01:16,880 --> 01:01:19,240
Speaker 1: rising and the market that's twenty and you're doing thirteen.

1151
01:01:19,280 --> 01:01:22,520
Speaker 1: But thirteen is it's.

1152
01:01:22,600 --> 01:01:24,920
Speaker 2: That's a low. That's a pretty sounds like a lower

1153
01:01:25,040 --> 01:01:28,280
Speaker 2: risk sort of trade, even if it's not matching what

1154
01:01:28,960 --> 01:01:33,600
Speaker 2: the biggest AI funds are doing. What about the rest

1155
01:01:33,680 --> 01:01:36,520
Speaker 2: of the world, Let's talk a little bit about emerging markets,

1156
01:01:37,400 --> 01:01:38,400
Speaker 2: what's appealing there.

1157
01:01:40,000 --> 01:01:44,840
Speaker 1: Emerging markets are dominated by China. That's the problem you have.

1158
01:01:45,200 --> 01:01:46,160
Speaker 1: That's emerging marketing.

1159
01:01:46,240 --> 01:01:50,560
Speaker 2: But there are actually specific indexes and funds that are

1160
01:01:50,640 --> 01:01:54,880
Speaker 2: EM x China, just the way there are Developed World

1161
01:01:55,160 --> 01:01:57,640
Speaker 2: x US. So if you don't want to be the US,

1162
01:01:57,720 --> 01:02:03,160
Speaker 2: developed dominates Developed World, China dominates the EM arguably. Are

1163
01:02:03,240 --> 01:02:07,680
Speaker 2: they even really still an EM that's a whole nother discussion.

1164
01:02:07,840 --> 01:02:11,520
Speaker 2: But outside of China, well, let's start with China. Is

1165
01:02:11,680 --> 01:02:13,480
Speaker 2: China investible or are they attractive?

1166
01:02:14,600 --> 01:02:18,680
Speaker 1: China's investible, I think, and it's a question of risk premium.

1167
01:02:18,760 --> 01:02:20,600
Speaker 1: What risk premium do you get for investing in China?

1168
01:02:20,720 --> 01:02:20,840
Speaker 2: You know.

1169
01:02:20,920 --> 01:02:24,520
Speaker 1: The big issue you have is think about think about

1170
01:02:24,680 --> 01:02:26,840
Speaker 1: Ali Baba today. It's come down a long way, looks

1171
01:02:26,880 --> 01:02:30,200
Speaker 1: quite interesting, it looks very cheap a standalone basis. If

1172
01:02:30,240 --> 01:02:32,320
Speaker 1: it traded in the US, I think everyone will be

1173
01:02:32,360 --> 01:02:35,240
Speaker 1: all over it this evaluation. The problem is, you know,

1174
01:02:35,280 --> 01:02:37,640
Speaker 1: if you think about if you had to spare two

1175
01:02:37,720 --> 01:02:41,720
Speaker 1: hundred billion lying around, okay, would you go and spend

1176
01:02:41,800 --> 01:02:46,200
Speaker 1: that on buying the business outright as a long term investment,

1177
01:02:46,800 --> 01:02:49,040
Speaker 1: buying Ali Baba for the next thirty years? And right

1178
01:02:49,120 --> 01:02:50,640
Speaker 1: there's a long term investor. You have to think that

1179
01:02:50,720 --> 01:02:53,000
Speaker 1: way because you're buying a piece of a business, right,

1180
01:02:53,560 --> 01:02:55,439
Speaker 1: that's your you know, that's how you have to think.

1181
01:02:55,800 --> 01:02:57,560
Speaker 1: And so when I think about it in those terms,

1182
01:02:57,600 --> 01:03:00,840
Speaker 1: it's okay, you need to be a lot with the

1183
01:03:02,840 --> 01:03:07,720
Speaker 1: overall system. And that's the problem you have when investing

1184
01:03:07,800 --> 01:03:09,560
Speaker 1: in China is it's just that there's a lot of

1185
01:03:09,680 --> 01:03:12,600
Speaker 1: uncertainty around as we know, the geopolitics and the friction

1186
01:03:12,720 --> 01:03:14,320
Speaker 1: in terms of the different ideologies of that.

1187
01:03:14,440 --> 01:03:18,400
Speaker 2: I mean, their CEO disappeared for eight nine months because

1188
01:03:18,640 --> 01:03:21,600
Speaker 2: he seemed to have gotten into a little bit of

1189
01:03:21,640 --> 01:03:25,800
Speaker 2: a disagreement with g and to me, I don't know

1190
01:03:25,880 --> 01:03:28,880
Speaker 2: how you put capital at risk in a country where

1191
01:03:29,000 --> 01:03:34,480
Speaker 2: the government can say we're not happy with your operations,

1192
01:03:34,560 --> 01:03:37,919
Speaker 2: and so we're gonna throttle you for the next four

1193
01:03:38,040 --> 01:03:40,280
Speaker 2: quarters and then we'll see how you behave after.

1194
01:03:40,400 --> 01:03:42,880
Speaker 1: I agree, you have to be very very careful if

1195
01:03:42,880 --> 01:03:45,840
Speaker 1: you're looking broadly at emerging markets. Korea is very interesting.

1196
01:03:45,960 --> 01:03:46,160
Speaker 2: Ah.

1197
01:03:46,440 --> 01:03:49,640
Speaker 1: Obviously it's right next to China, but if you look

1198
01:03:49,680 --> 01:03:53,280
Speaker 1: at Korea historically, they've often been a japan fast follower.

1199
01:03:54,080 --> 01:03:56,720
Speaker 1: You think about the export markets that Japan built in

1200
01:03:56,800 --> 01:04:01,480
Speaker 1: the sixties and the seventies. Autostronics career, I really just

1201
01:04:01,520 --> 01:04:04,880
Speaker 1: followed that model and did it wonderfully well. And so

1202
01:04:05,680 --> 01:04:07,920
Speaker 1: the noises we're getting out of career are very similar

1203
01:04:07,920 --> 01:04:09,680
Speaker 1: to the noises we've been hearing out of Japan over

1204
01:04:09,680 --> 01:04:13,200
Speaker 1: the last five to six years. Corporate governance, reform, a

1205
01:04:13,360 --> 01:04:17,880
Speaker 1: balance sheet efficiency, capital allocation. All the things that put

1206
01:04:17,960 --> 01:04:20,400
Speaker 1: this big discount on Korea and put the big discount

1207
01:04:20,440 --> 01:04:24,520
Speaker 1: on Japan prior to the last few years exist, and

1208
01:04:24,680 --> 01:04:28,760
Speaker 1: so careers, I think Japan a few years ago, and

1209
01:04:28,880 --> 01:04:30,280
Speaker 1: you've got more upside there.

1210
01:04:30,320 --> 01:04:32,800
Speaker 2: We've been hearing a lot of noise about India lately,

1211
01:04:33,160 --> 01:04:38,440
Speaker 2: any thoughts on the subcontinent. There another billion people waiting

1212
01:04:38,560 --> 01:04:42,080
Speaker 2: to move to the middle classes. What's happening there.

1213
01:04:43,120 --> 01:04:48,800
Speaker 1: India is an really interesting area in terms of the geopolitics,

1214
01:04:48,840 --> 01:04:51,680
Speaker 1: in terms of the population story, in terms of the

1215
01:04:52,280 --> 01:04:55,680
Speaker 1: you know, the per capital wealth growth potential. But it's

1216
01:04:55,680 --> 01:04:59,560
Speaker 1: also a pricey market. Those businesses are not priced cheaply,

1217
01:05:00,320 --> 01:05:03,160
Speaker 1: and so you pay up for the promise, and that

1218
01:05:03,280 --> 01:05:05,120
Speaker 1: makes it less interesting in my mind. Whereas if you

1219
01:05:05,160 --> 01:05:09,520
Speaker 1: go to in Indonesia, which is similarly low per capital wealth,

1220
01:05:09,600 --> 01:05:12,200
Speaker 1: similar growth rates, similar productivity.

1221
01:05:12,080 --> 01:05:14,320
Speaker 2: Growth, and lots and lots of people, lots and lots of.

1222
01:05:14,320 --> 01:05:17,920
Speaker 1: People, you pay you five six times earnings. Some of

1223
01:05:18,000 --> 01:05:20,560
Speaker 1: these businesses getting sort of ten eleven percent given yells

1224
01:05:20,600 --> 01:05:24,280
Speaker 1: out with sort of low teen growth rates. If you

1225
01:05:24,360 --> 01:05:26,560
Speaker 1: go back to two thousand and five when I joined August,

1226
01:05:27,880 --> 01:05:30,600
Speaker 1: the bricks was all the rage, right, bricks, bricks, bricks

1227
01:05:30,680 --> 01:05:32,680
Speaker 1: was that was the ai of the time. Bricks.

1228
01:05:33,600 --> 01:05:38,600
Speaker 2: So Brazil, Russia, India, China, none of them have done

1229
01:05:38,680 --> 01:05:39,800
Speaker 2: especially well since then.

1230
01:05:39,880 --> 01:05:42,160
Speaker 1: They haven't in terms of their stock market in terms

1231
01:05:42,160 --> 01:05:44,480
Speaker 1: of their economies. Their economies have grown recently well in

1232
01:05:44,600 --> 01:05:47,480
Speaker 1: Russia aside, and South Africa is in there as well

1233
01:05:47,560 --> 01:05:48,000
Speaker 1: right now.

1234
01:05:47,960 --> 01:05:52,200
Speaker 2: And Russia was actually seeing some growth until they decided

1235
01:05:52,240 --> 01:05:54,720
Speaker 2: to invade Ukraine came up Parah.

1236
01:05:54,880 --> 01:05:57,840
Speaker 1: So the story around emerging markets in two thousand and

1237
01:05:57,840 --> 01:05:59,760
Speaker 1: five was absolutely right. You had growth rate in population

1238
01:06:00,120 --> 01:06:02,440
Speaker 1: come true, you had productivity growth. That's come true. What

1239
01:06:02,600 --> 01:06:06,000
Speaker 1: hasn't come true investment returns. Why has that not come true?

1240
01:06:06,000 --> 01:06:09,480
Speaker 1: Because everybody wanted a piece of them. Everybody wanted a

1241
01:06:09,560 --> 01:06:11,560
Speaker 1: piece of them. So whilst the earnings growth has been

1242
01:06:11,600 --> 01:06:15,840
Speaker 1: good for the economy overall, the per share earnings growth

1243
01:06:15,880 --> 01:06:17,920
Speaker 1: has been absolutely awful because the number of shares has

1244
01:06:17,960 --> 01:06:20,160
Speaker 1: gone up and up and up issued capital. For all

1245
01:06:20,240 --> 01:06:22,840
Speaker 1: this capital coming in, what have you got today? You've

1246
01:06:22,840 --> 01:06:27,160
Speaker 1: got apathy. Nobody wants to invest in Indonesia, which is

1247
01:06:27,200 --> 01:06:29,920
Speaker 1: great on two sides. You get cheap evaluation, but you

1248
01:06:30,000 --> 01:06:33,120
Speaker 1: also get the businesses that are in Indonesia and dominant.

1249
01:06:33,880 --> 01:06:38,920
Speaker 1: They don't have any capital to compete with, so their

1250
01:06:38,960 --> 01:06:41,160
Speaker 1: growth rate on a per share basis is actually higher

1251
01:06:41,240 --> 01:06:43,960
Speaker 1: than it was when everyone was excited twenty years ago.

1252
01:06:44,160 --> 01:06:46,280
Speaker 1: So I think that you know, there are really good opportunities.

1253
01:06:46,360 --> 01:06:49,400
Speaker 1: Brazil is another example in emerging markets. You're seeing cheap

1254
01:06:49,400 --> 01:06:52,720
Speaker 1: assets and you know, reasonably good backdrop.

1255
01:06:53,400 --> 01:06:56,400
Speaker 2: Really interesting. Before I get to my favorite questions, let

1256
01:06:56,480 --> 01:07:00,520
Speaker 2: me just throw a modest curveball. Since we've and talking

1257
01:07:01,080 --> 01:07:05,080
Speaker 2: so internationally. You're based in Bermuda. How does that affect

1258
01:07:05,160 --> 01:07:09,120
Speaker 2: your outlook? Does it affect your outlook? If so, how

1259
01:07:10,360 --> 01:07:14,520
Speaker 2: is that a location an advantage or a disadvantage? I

1260
01:07:14,600 --> 01:07:16,840
Speaker 2: would be afraid. It's beautiful and sonny every day. I

1261
01:07:16,880 --> 01:07:18,880
Speaker 2: would just throw money at the market all the time

1262
01:07:18,960 --> 01:07:20,600
Speaker 2: and not worry about anything.

1263
01:07:20,920 --> 01:07:22,480
Speaker 1: Yeah, that out looks very nice because we've got this

1264
01:07:22,560 --> 01:07:27,520
Speaker 1: lovely view from the of the bay. The decision to

1265
01:07:27,520 --> 01:07:31,280
Speaker 1: set up in Bermuda was the founder's original decision, based

1266
01:07:31,400 --> 01:07:35,280
Speaker 1: not on tax everyone as seems tax. It's based on

1267
01:07:35,600 --> 01:07:37,600
Speaker 1: the fact that it was well.

1268
01:07:37,480 --> 01:07:40,240
Speaker 2: Developed and big financial hub.

1269
01:07:40,320 --> 01:07:44,320
Speaker 1: Big financial hub and extremely convenient. So where where do

1270
01:07:44,360 --> 01:07:47,040
Speaker 1: you get to combine those two things? Convenient in the

1271
01:07:47,120 --> 01:07:49,919
Speaker 1: sense that what are the frictions in Bermuda? Very little.

1272
01:07:50,000 --> 01:07:52,040
Speaker 1: You can live right next to the office, You're right

1273
01:07:52,120 --> 01:07:54,520
Speaker 1: live right next to the kids' schools, right next to

1274
01:07:54,520 --> 01:07:56,600
Speaker 1: the dentist right next to the Is there anything you

1275
01:07:56,720 --> 01:08:00,120
Speaker 1: need to do right? There's there's very little friction in

1276
01:08:00,280 --> 01:08:02,960
Speaker 1: your life if you live in Bermuda and so but

1277
01:08:03,760 --> 01:08:06,080
Speaker 1: if you want that, typically you can't combine that with

1278
01:08:06,200 --> 01:08:11,160
Speaker 1: international business of the highest quality. But Bermuda is one

1279
01:08:11,160 --> 01:08:11,880
Speaker 1: of the few places.

1280
01:08:11,720 --> 01:08:15,000
Speaker 2: Well they've been a giant financial hub for decades insurance

1281
01:08:15,120 --> 01:08:17,680
Speaker 2: and I know Cayman's a really thought of more as

1282
01:08:17,720 --> 01:08:21,680
Speaker 2: the hedge fund venture capital space, but Bermuda has been

1283
01:08:21,760 --> 01:08:24,840
Speaker 2: a huge financial hub for a long time. And what

1284
01:08:24,920 --> 01:08:27,519
Speaker 2: are you two hours to New York and forty five

1285
01:08:27,520 --> 01:08:29,439
Speaker 2: minutes to Miami exactly?

1286
01:08:29,520 --> 01:08:31,559
Speaker 1: Yeah, two hours to most of those sort of East

1287
01:08:31,640 --> 01:08:33,720
Speaker 1: coast cities in the US and only six hours to

1288
01:08:33,800 --> 01:08:34,479
Speaker 1: London as well.

1289
01:08:34,800 --> 01:08:37,840
Speaker 2: Not to share at all. So let's jump to my

1290
01:08:37,960 --> 01:08:42,000
Speaker 2: favorite questions that we ask all of our guests, starting

1291
01:08:42,040 --> 01:08:44,200
Speaker 2: with tell us what you're streaming? What have you been

1292
01:08:44,400 --> 01:08:47,080
Speaker 2: watching or listening to these days? Ah?

1293
01:08:48,479 --> 01:08:51,400
Speaker 1: So we my wife and I just started watching After Party.

1294
01:08:51,560 --> 01:08:52,519
Speaker 1: Have you heard of that?

1295
01:08:52,880 --> 01:08:53,880
Speaker 2: I saw the first season?

1296
01:08:54,080 --> 01:08:56,439
Speaker 1: Oh it's okay, so it's not brand new then all right,

1297
01:08:56,560 --> 01:08:58,360
Speaker 1: I have no idea when these things come out. But

1298
01:08:58,720 --> 01:09:01,360
Speaker 1: that was good. Yeah, fu, yeah, it's fun, it's very

1299
01:09:01,400 --> 01:09:04,439
Speaker 1: well written. It's a little bit of music, great script,

1300
01:09:05,000 --> 01:09:07,600
Speaker 1: Ted Lasso. We enjoyed Succession, you know, all the all

1301
01:09:07,640 --> 01:09:10,519
Speaker 1: the big ones, the ones that I think maybe you

1302
01:09:10,880 --> 01:09:13,479
Speaker 1: wouldn't have heard of because I'm British and I like

1303
01:09:13,560 --> 01:09:17,599
Speaker 1: the sort of niche comedy series After Life with Ricky Gervai.

1304
01:09:18,000 --> 01:09:20,519
Speaker 1: Love it okay, by the way, that was a huge hit.

1305
01:09:20,560 --> 01:09:21,360
Speaker 1: And is that right?

1306
01:09:22,280 --> 01:09:26,000
Speaker 2: Well he's had the Office and then he's had a

1307
01:09:26,040 --> 01:09:30,960
Speaker 2: few on HBO and After Life very touching, very well done.

1308
01:09:31,880 --> 01:09:36,640
Speaker 1: He's delfl Yes, really great comedian, really great writer. Another one,

1309
01:09:36,720 --> 01:09:38,320
Speaker 1: I T Crowd? Have you ever heard of that? Now?

1310
01:09:38,360 --> 01:09:39,839
Speaker 1: This is about a geeky comedy.

1311
01:09:40,080 --> 01:09:40,680
Speaker 2: Let's go it.

1312
01:09:41,200 --> 01:09:43,200
Speaker 1: I T Crowd. It's about an IT department in the

1313
01:09:43,240 --> 01:09:46,760
Speaker 1: basement of a business in some London suburb. You have

1314
01:09:46,880 --> 01:09:49,400
Speaker 1: to you have to, you know, be very geeky to

1315
01:09:49,520 --> 01:09:50,080
Speaker 1: enjoy that one.

1316
01:09:50,560 --> 01:09:53,840
Speaker 2: If you if you this sounds a little bit like

1317
01:09:54,600 --> 01:09:56,800
Speaker 2: Silicon Valley. Did you did you see that?

1318
01:09:57,040 --> 01:09:57,800
Speaker 1: I never saw that one.

1319
01:09:58,000 --> 01:10:02,120
Speaker 2: So that was on HBO and it's geeky and tech

1320
01:10:02,640 --> 01:10:07,320
Speaker 2: and if you like Silicon Valley, I've been recommending to

1321
01:10:07,479 --> 01:10:11,640
Speaker 2: people on Apple TV. Mythic Quest, which is about a

1322
01:10:11,960 --> 01:10:17,799
Speaker 2: game developer. Same sort of geeky, quirky characters, lots of cursing,

1323
01:10:17,920 --> 01:10:19,479
Speaker 2: lots of fun sounds good.

1324
01:10:19,560 --> 01:10:22,280
Speaker 1: I did sound good and Red Dwarf was the other.

1325
01:10:22,640 --> 01:10:26,879
Speaker 1: Redwolf is a very very old British sci fi comedy.

1326
01:10:28,160 --> 01:10:30,080
Speaker 1: It's been one of my favorites. If you watch it

1327
01:10:30,160 --> 01:10:32,639
Speaker 1: for the first time, you'll think, wow, this is dated, right,

1328
01:10:32,800 --> 01:10:34,439
Speaker 1: because you know when you see the spaceships you can

1329
01:10:34,479 --> 01:10:37,760
Speaker 1: see the string attached to it, right. But the one

1330
01:10:37,840 --> 01:10:40,320
Speaker 1: liners are just great. There's a lot of those.

1331
01:10:41,120 --> 01:10:45,040
Speaker 2: So when I first moved out of the city, I

1332
01:10:45,880 --> 01:10:50,880
Speaker 2: used to get BBC Television and it wasn't available on cable.

1333
01:10:51,000 --> 01:10:55,280
Speaker 2: I had to get satellite, partly because I was a

1334
01:10:55,720 --> 01:10:58,719
Speaker 2: junkie for a Doctor Who. And there were a couple

1335
01:10:58,760 --> 01:11:03,360
Speaker 2: of other sitcoms like Coupling was hilarious, absolutely hilarious. Remember

1336
01:11:04,080 --> 01:11:07,240
Speaker 2: you watch Friends afterwards and you realize how milk toast

1337
01:11:07,320 --> 01:11:10,799
Speaker 2: it is compared to how nasty and funny and raunchy

1338
01:11:11,400 --> 01:11:14,160
Speaker 2: Coupling was. But Doctor Who is now going through another

1339
01:11:14,840 --> 01:11:18,479
Speaker 2: big set of changes. So I'm no spoilers, but I'm

1340
01:11:18,960 --> 01:11:21,040
Speaker 2: I got most of the season teed up and I'm

1341
01:11:21,080 --> 01:11:23,280
Speaker 2: just going to plow through it over the holidays.

1342
01:11:23,600 --> 01:11:25,360
Speaker 1: I didn't realize that was so popular over here.

1343
01:11:25,880 --> 01:11:28,320
Speaker 2: I don't know how popular it is amongst a certain

1344
01:11:28,479 --> 01:11:35,479
Speaker 2: group of sci fi geeks. It's required viewing, but it's

1345
01:11:35,560 --> 01:11:38,519
Speaker 2: been really interesting and they've continued to keep it fresh

1346
01:11:38,600 --> 01:11:43,200
Speaker 2: and intriguing. So let's go to our second question. Tell

1347
01:11:43,280 --> 01:11:47,479
Speaker 2: us who your early mentors were, who helped shape your career.

1348
01:11:48,720 --> 01:11:52,439
Speaker 1: I struggle with this one. You know, for knowledge, I

1349
01:11:52,479 --> 01:11:55,639
Speaker 1: always my philosophy has always been to go to people

1350
01:11:55,680 --> 01:11:58,880
Speaker 1: who really know about the specific thing you want to

1351
01:11:59,160 --> 01:12:02,479
Speaker 1: understand better. That's papers, and it's books, and it's just

1352
01:12:02,600 --> 01:12:05,760
Speaker 1: finding experts. But I think the key so I had

1353
01:12:05,800 --> 01:12:08,000
Speaker 1: to look up what is mentor? I think what is

1354
01:12:08,040 --> 01:12:10,200
Speaker 1: a mentor? And I think the key thing there is

1355
01:12:10,240 --> 01:12:13,600
Speaker 1: trusted is trusted counselor that you go to because you

1356
01:12:13,680 --> 01:12:15,800
Speaker 1: know they have your best interests at heart, right, And

1357
01:12:16,120 --> 01:12:19,679
Speaker 1: that for me is very much close friend's family, it's

1358
01:12:19,760 --> 01:12:23,680
Speaker 1: my brother, it's my close colleagues, it's you know, the

1359
01:12:23,920 --> 01:12:29,720
Speaker 1: Gray family and Orbits, Adam Carr, et cetera. People who

1360
01:12:29,920 --> 01:12:33,479
Speaker 1: you know have your back basically got it.

1361
01:12:34,040 --> 01:12:36,519
Speaker 2: Uh, Let's talk about some books. What are some of

1362
01:12:36,600 --> 01:12:38,400
Speaker 2: your favorites and what are you reading right now?

1363
01:12:39,800 --> 01:12:42,200
Speaker 1: Uh, Well, I went through I go through phases, so

1364
01:12:42,400 --> 01:12:45,360
Speaker 1: I mean I went through a long phase of factual books,

1365
01:12:45,439 --> 01:12:48,880
Speaker 1: learning books of Bernstein's books He's a financial historian, against

1366
01:12:48,920 --> 01:12:53,840
Speaker 1: the Gods, against the Gods, and Power of Gold and

1367
01:12:53,920 --> 01:12:56,559
Speaker 1: all those good ones. TALEB was when I picked up earlier,

1368
01:12:56,720 --> 01:12:58,880
Speaker 1: which is you know, Understanding the Role of Chance in

1369
01:12:58,960 --> 01:13:03,640
Speaker 1: Life and Alchemy of Finance by George Soros. You know,

1370
01:13:04,240 --> 01:13:09,040
Speaker 1: all the classics, Jim Rodgers books, and then fun business

1371
01:13:09,080 --> 01:13:11,320
Speaker 1: books like Rogue Trader is such a good book written

1372
01:13:11,360 --> 01:13:16,120
Speaker 1: by Nick Leeson, brought down bearings back. Fascinating story of

1373
01:13:16,880 --> 01:13:21,559
Speaker 1: how you can slip into those types of situations, right,

1374
01:13:21,720 --> 01:13:25,320
Speaker 1: not starting out as somebody who in any way wants

1375
01:13:25,360 --> 01:13:27,760
Speaker 1: to cause harm or a bad person. You just end

1376
01:13:27,840 --> 01:13:29,519
Speaker 1: up taking a little bit too much risk and then

1377
01:13:29,560 --> 01:13:31,559
Speaker 1: you step into some gray area, and then you step

1378
01:13:31,600 --> 01:13:33,800
Speaker 1: a little bit further to try to get that lost

1379
01:13:33,880 --> 01:13:38,720
Speaker 1: back and it snowballs. Fascinating story that's wrote. And then

1380
01:13:38,720 --> 01:13:40,400
Speaker 1: there's a whole bunch of stuff like Bad Blood and

1381
01:13:40,439 --> 01:13:41,160
Speaker 1: all those sort.

1382
01:13:41,000 --> 01:13:44,040
Speaker 2: Of those are really fascint You know, we talked earlier

1383
01:13:44,080 --> 01:13:46,800
Speaker 2: about the theory of poker, did you ever read any

1384
01:13:46,920 --> 01:13:48,360
Speaker 2: Duke's thinking in Bets?

1385
01:13:49,240 --> 01:13:53,160
Speaker 1: Yes, I mean that's that is exactly aligned with how

1386
01:13:53,240 --> 01:13:56,800
Speaker 1: I think everybody should think about investing and poker. You know,

1387
01:13:56,880 --> 01:13:59,439
Speaker 1: it's it's all about thinking about the process rather than

1388
01:13:59,479 --> 01:14:02,200
Speaker 1: the outcome. And that's what poker teaches you because it

1389
01:14:02,320 --> 01:14:04,599
Speaker 1: drums that into over and over and over and over again,

1390
01:14:05,000 --> 01:14:07,240
Speaker 1: that it's the process not the outcome, because the outcome

1391
01:14:07,320 --> 01:14:07,840
Speaker 1: is so different.

1392
01:14:08,320 --> 01:14:14,400
Speaker 2: The outcome is semi random. Michael Mobison talked about the

1393
01:14:15,360 --> 01:14:22,479
Speaker 2: impact of luck and skill in investing in sports and business,

1394
01:14:22,840 --> 01:14:27,280
Speaker 2: and it turns out, at a professional level, the skill

1395
01:14:27,920 --> 01:14:31,679
Speaker 2: it's very counterintuitive. When the skill level is that high.

1396
01:14:31,920 --> 01:14:34,840
Speaker 2: Sometimes a random bounce, a little bit of luck has

1397
01:14:34,920 --> 01:14:39,479
Speaker 2: an outside impact because everybody's playing at such a high level.

1398
01:14:40,200 --> 01:14:42,679
Speaker 1: Exactly, yeah, exactly, Yeah, that's dead.

1399
01:14:42,560 --> 01:14:46,320
Speaker 2: Right, really really quite interesting. And our final two questions,

1400
01:14:46,880 --> 01:14:49,120
Speaker 2: what sort of advice would you give to a recent

1401
01:14:49,200 --> 01:14:54,759
Speaker 2: college grad interested in a career in investment, fund management,

1402
01:14:54,920 --> 01:14:55,439
Speaker 2: et cetera.

1403
01:14:56,040 --> 01:14:57,880
Speaker 1: I found this. I find all your questions hard, but

1404
01:14:58,240 --> 01:15:01,599
Speaker 1: this one I found hard as well, in the sense

1405
01:15:01,680 --> 01:15:06,760
Speaker 1: that the more I you know, have interact with people

1406
01:15:06,840 --> 01:15:09,240
Speaker 1: I work with and other people, more you recognize that

1407
01:15:09,320 --> 01:15:12,559
Speaker 1: everyone is so different, everyone has such different characters, such

1408
01:15:12,640 --> 01:15:15,240
Speaker 1: different traits, and advice to one person who is completely

1409
01:15:15,439 --> 01:15:17,840
Speaker 1: useless when applied to another person you have to tailor

1410
01:15:17,920 --> 01:15:18,599
Speaker 1: it so much.

1411
01:15:20,600 --> 01:15:20,640
Speaker 2: So.

1412
01:15:20,760 --> 01:15:22,360
Speaker 1: The one thing I came up with which I think

1413
01:15:22,439 --> 01:15:27,639
Speaker 1: is universal, is not things like folly your passion, which

1414
01:15:28,000 --> 01:15:30,920
Speaker 1: you know is powerful for some but not others. It's

1415
01:15:31,160 --> 01:15:37,720
Speaker 1: act with integrity. It's that old adage of you know,

1416
01:15:37,880 --> 01:15:42,360
Speaker 1: trust is hard earned but easily lost, right, that's the

1417
01:15:42,920 --> 01:15:45,320
Speaker 1: And if you act with integrity through your career, through

1418
01:15:45,360 --> 01:15:49,400
Speaker 1: your life, when interacting with everybody around you, then I.

1419
01:15:49,479 --> 01:15:52,479
Speaker 2: Think you can't go far wrong. And our final question,

1420
01:15:52,920 --> 01:15:55,280
Speaker 2: what do you know about the world of investing today?

1421
01:15:55,640 --> 01:15:59,120
Speaker 2: You wish you knew back in the early nineties when

1422
01:15:59,120 --> 01:16:02,000
Speaker 2: you were first getting stuff guarded? And this can't be

1423
01:16:02,080 --> 01:16:07,720
Speaker 2: by Apple, Well it's not, you know, by Apple. In

1424
01:16:07,840 --> 01:16:10,000
Speaker 2: this universe. If you if we get to put you,

1425
01:16:10,479 --> 01:16:12,160
Speaker 2: if I put you on a time machine and send

1426
01:16:12,200 --> 01:16:14,599
Speaker 2: you back to nineteen ninety, how you don't know if

1427
01:16:14,640 --> 01:16:15,599
Speaker 2: it's the same exactly.

1428
01:16:15,600 --> 01:16:18,839
Speaker 1: You know that's true. Oh no, it's a multiple.

1429
01:16:19,840 --> 01:16:22,960
Speaker 2: That's the problem with time travel is you know, the

1430
01:16:23,040 --> 01:16:27,160
Speaker 2: butterfly effect and everything else so not simply by the way,

1431
01:16:27,160 --> 01:16:29,280
Speaker 2: if you would have bought Apple, I think from nineteen

1432
01:16:29,400 --> 01:16:32,840
Speaker 2: ninety to two thousand and four you were flat. That's

1433
01:16:32,840 --> 01:16:35,480
Speaker 2: absolutely right, which is which is kind of crazy.

1434
01:16:35,160 --> 01:16:37,439
Speaker 1: That's absolutely and the little things that went right there

1435
01:16:37,479 --> 01:16:40,000
Speaker 1: that led them on this path to your to your

1436
01:16:40,040 --> 01:16:45,200
Speaker 1: parallel universe point. So I struggle with this again. I

1437
01:16:45,600 --> 01:16:48,960
Speaker 1: think maybe this is a cop out. I wouldn't tell myself,

1438
01:16:49,360 --> 01:16:50,679
Speaker 1: you know, if I was had a time machine, I'd

1439
01:16:50,760 --> 01:16:54,960
Speaker 1: tell myself absolutely nothing. And I think the the values

1440
01:16:55,000 --> 01:16:58,160
Speaker 1: in the struggle basically you internalize lessons if you learn

1441
01:16:58,200 --> 01:17:01,080
Speaker 1: them yourself, right, even if it's you the path not

1442
01:17:01,240 --> 01:17:05,400
Speaker 1: the destination exactly right. So I think I would just say, look,

1443
01:17:05,560 --> 01:17:08,200
Speaker 1: you know, make the best decision you can at the

1444
01:17:08,280 --> 01:17:10,800
Speaker 1: time with all the information you have, and have no regrets. Right.

1445
01:17:11,800 --> 01:17:14,800
Speaker 2: I like that. Graham, thank you so much for being

1446
01:17:15,000 --> 01:17:18,760
Speaker 2: so generous with your time. We have been speaking with

1447
01:17:18,880 --> 01:17:23,920
Speaker 2: Graham Foster. He is portfolio manager at Orbis Holdings. If

1448
01:17:24,000 --> 01:17:27,040
Speaker 2: you enjoy this conversation, well, be sure and check out

1449
01:17:27,120 --> 01:17:30,280
Speaker 2: any of the previous five hundred or so we've done

1450
01:17:30,760 --> 01:17:36,040
Speaker 2: over the past nine years. You can find those at iTunes, Spotify, YouTube,

1451
01:17:36,880 --> 01:17:40,560
Speaker 2: wherever you find your favorite podcasts. Sign up for my

1452
01:17:40,720 --> 01:17:43,680
Speaker 2: daily reading list at ridults dot com. Follow me on

1453
01:17:43,760 --> 01:17:48,479
Speaker 2: Twitter at Barry Underscore rit Halts as I patiently await

1454
01:17:49,120 --> 01:17:53,080
Speaker 2: access to my actual account at ritults. Follow all of

1455
01:17:53,160 --> 01:17:57,960
Speaker 2: the Bloomberg Family of podcasts on Twitter at Podcasts. I

1456
01:17:58,040 --> 01:17:59,920
Speaker 2: would be remiss if I did not thank the crew

1457
01:18:00,280 --> 01:18:04,200
Speaker 2: team that helps put these conversations together each week. My

1458
01:18:04,360 --> 01:18:08,680
Speaker 2: audio engineer is Rich Subnani. My director of research is

1459
01:18:08,760 --> 01:18:12,240
Speaker 2: Sean Russo. A Teak of al Broun is our project manager.

1460
01:18:12,560 --> 01:18:17,040
Speaker 2: Anna Luke is my producer. I'm Barry Hittolts. You've been

1461
01:18:17,120 --> 01:18:20,519
Speaker 2: listening to Masters in Business on Bloomberg Radio