Speaker 1: Welcome to Inside Active, a podcast about active managers that
Speaker 1: goes beyond sound bites and headlines and looks deeper into
Speaker 1: their processes, challenges and philosophies and security selection. I'm David Cohne,
Speaker 1: I lead mutual fund and active research at Bloomberg Intelligence.
Speaker 1: Today my co host is Laurent Duier, senior equity strategist
Speaker 1: at Bloomberg Intelligence. Laurent, thank you for joining me today.
Speaker 2: Thank you foroving me.
Speaker 1: I wanted to ask you about a recent note you
Speaker 1: wrote about industrial valuations in Europe. Can you tell our
Speaker 1: audience how current valuations compare historically and how potential showdown
Speaker 1: in the US could affect those valuations.
Speaker 2: Yes. In fact, the industry lay is a very interesting
Speaker 2: sector in Europe because it offers many growth opportunities, but
Speaker 2: also it is the most the second most expensive after technology.
Speaker 2: Currently trades on a forward peer of about nineteen times,
Speaker 2: which is the thirty seven percent premium to European equities,
Speaker 2: and historically it has always treaded at a premium between
Speaker 2: fifteen to twenty percent. So I mean today, what explain
Speaker 2: a higher premium for European industrials compared to the market.
Speaker 2: It's all the clean energy investment. Also you have the
Speaker 2: rearmament in Europe, and also you have the massive US
Speaker 2: fiscal programs, which I think are major gross drivers for
Speaker 2: companies in arrow space, defense and also capital goods. And
Speaker 2: I think these growth opportunities for many of those companies
Speaker 2: are not just for the next twelve or eighteen months.
Speaker 2: It may be for several years to come, so I
Speaker 2: think it puts them on your growth trajectory, which justifies
Speaker 2: the higher valuation ratios. Regarding your question about what could
Speaker 2: happen to European industrials if there is a wobble in
Speaker 2: the US economy, I think definitely it will be a
Speaker 2: problem because US is about thirty percent of the sector
Speaker 2: cells and I think the US market is also quite
Speaker 2: profitable for European companies, So any wble in the in
Speaker 2: the US economy will create a problem with earnings, but
Speaker 2: also potentially are durating on many of those companies given
Speaker 2: the rich multiple. And the last point I would like
Speaker 2: to make as well is that if you look at
Speaker 2: the valuation of industrial companies which are challenged either by
Speaker 2: the green transition or the adoption of AI, they are
Speaker 2: currently trading at very low multiples compared to their own history.
Speaker 2: And I think it's suggests that some of the venues
Speaker 2: that started to be discounted in the share price. For sure,
Speaker 2: some of them will be value trap along the line,
Speaker 2: but I think that potentially some of them could offer
Speaker 2: some good investment opportunities. So lacking many sectors in Europe
Speaker 2: stockpicking is key.
Speaker 1: Great. Well, let's bring in our guests who can talk
Speaker 1: about Europe and other international markets. I'd like to welcome
Speaker 1: Sarah Ketterer, who is chief exggative officer and a fundamental
Speaker 1: portfolio manager at Causeway Capital Management. Sarah, thank you so
Speaker 1: much for joining us.
Speaker 3: Thank you for inviting me.
Speaker 1: Well, I want to start by asking you how you
Speaker 1: got your start in the investment industry.
Speaker 3: Well, the short answer was a long long time ago.
Speaker 3: But I rose up through the ranks, went to the
Speaker 3: school of hard knocks in investment banking, and was in
Speaker 3: business school and more investment banking. And that turns out
Speaker 3: and it still is today, a resonably good background for
Speaker 3: fundamental research, and then it instills valuation techniques and skills.
Speaker 3: The only thing I couldn't get a job at Causeway today, however,
Speaker 3: because we need so much more than that the next
Speaker 3: several decades are going to require an ability with data
Speaker 3: that just didn't exist when I started. Nonetheless, I had
Speaker 3: an opportunity with my co founder Harry Hartford in two
Speaker 3: thousand and one to start Causeway, and we've had a
Speaker 3: twenty three year record of managing predominantly international equity fundamentally,
Speaker 3: but we also have global equity and we manage quantitative
Speaker 3: strategies including emerging markets and small cap.
Speaker 1: Well, actually, you mentioned Causeway, so you know I like
Speaker 1: to talk a little bit about it. What would you
Speaker 1: consider the overall investment philosophy of the company.
Speaker 3: We are very much steeked in a value investment philosophy,
Speaker 3: particularly in the work we do fundamentally to identify companies
Speaker 3: we believe our training at levels below their intrinsic value.
Speaker 3: And this is both a combination of very intensive understanding
Speaker 3: evaluation tools and the assumptions we make about the business
Speaker 3: layer of subjectivity that comes with experience. So our portfolio
Speaker 3: managers we have six cluster heads, individuals responsible for in
Speaker 3: depth work in sectors. They have to make the final
Speaker 3: decision on stocks and they rely heavily on value and
Speaker 3: then quantitatively we use value amongst other factors. Albeit, value
Speaker 3: has a very large weight, So overall, Causeway is very
Speaker 3: focused on the price we pay in our analysis of
Speaker 3: the likely return we'll see for our clients.
Speaker 1: Great well, I do want to ask you specifically about
Speaker 1: the International Value Fund, the ticker symbols civv X. Is
Speaker 1: there a specific process, you know, investment process for that
Speaker 1: particular fund.
Speaker 3: Yes, there is, and it's the same process we've used
Speaker 3: since our inception. In fact, parts of a date back
Speaker 3: to antiquity. But the whole idea here is that we
Speaker 3: sift through thousands of companies outside the US market to
Speaker 3: identify and nes Laran noted there's plenty of under evaluation.
Speaker 3: The US market is the most expensive and has been
Speaker 3: amongst the developed world for a number of years. And
Speaker 3: you might say rightly so, because of its emphasis more
Speaker 3: on growth, a greater exposure to technology, and less what
Speaker 3: we call old world businesses, But that we're indifferent to
Speaker 3: the types of businesses. We're looking through these thousands of
Speaker 3: stocks for certain criteria we need looking for income companies
Speaker 3: that are predisposed of returning capital to shareholders. At the
Speaker 3: same time, those stocks are generally trading on a price
Speaker 3: to cash flow basis below their industry average, so they
Speaker 3: tend to look in expensive. There's capital coming back to shareholders,
Speaker 3: which in all interest rate environments except zero, is very important.
Speaker 3: And then from there we narrow the group and do
Speaker 3: quite a bit of intense research on under standing in
Speaker 3: this fund where the opportunities are bi sector. And then
Speaker 3: as we present these incredibly interesting companies that have had
Speaker 3: some sort of setback and that's why the share price
Speaker 3: is nowhere near its ultimate valuation, or we call a
Speaker 3: two year price target, we then decide as a team
Speaker 3: if that price target is the one that we have
Speaker 3: arrived at is reasonable, and then we know what we
Speaker 3: expect the company's return should be including income, and then
Speaker 3: we risk adjustment using our quantitative risk model, so we
Speaker 3: can get a risk adjusted return. And all the stocks
Speaker 3: that we are considering for this fund, we rank them
Speaker 3: daily on risk adjusted return and it's the highest risk
Speaker 3: adjuster return stocks they'd end up in our fund with
Speaker 3: the largest weights.
Speaker 2: Given the large amount of data which have to be
Speaker 2: processed by your equity pms at least, I mean, are
Speaker 2: you already using or do you intend to use AI
Speaker 2: to potentially improve your investment process?
Speaker 3: Yes, definitely, I have great admiration for our Digital services
Speaker 3: area and run by my colleague Pete Peterson. He's made
Speaker 3: a huge effort to ensure that not only do we
Speaker 3: have access to tools already embedding AI in them, such
Speaker 3: as Facts or Bloomberg, but we are also developing our
Speaker 3: own tools so that we can be more productive as
Speaker 3: a research team. And this is true quantitatively as well
Speaker 3: as it is fundamentally. We've been working with large language
Speaker 3: models quantitatively for some time, but that research, some of
Speaker 3: that translates into what we can do in the rest
Speaker 3: of the organization. But specifically for fundamental research, we use
Speaker 3: a chat function that's embedded in a system we have
Speaker 3: that's connected with facts that that allows us to do
Speaker 3: queries because if you think about it, we have twenty
Speaker 3: six fundamental research channels scouring the globe constantly taking notes,
Speaker 3: meeting with companies that information. We need to be able
Speaker 3: to access it, assimilate it, distill it, understand better what
Speaker 3: the management said the last time we met with them,
Speaker 3: so that we can ask even better questions going forward.
Speaker 3: So from a productivity perspective, we're at the early stages
Speaker 3: of implementing AI. What would be more interesting in what
Speaker 3: we're working on, i'd say next horizon type project is
Speaker 3: how we can use AI to generate investment ideas, and
Speaker 3: part of that will come from having our IT experts
Speaker 3: spend more time with our research channels, understanding better what
Speaker 3: they go through and how they think about their areas
Speaker 3: of coverage in order to be able to automate some
Speaker 3: of that.
Speaker 2: Maybe a flow of question on AI as an investment opportunity,
Speaker 2: which Checter do you think would allow the greatest investment
Speaker 2: over the next three to five years.
Speaker 3: We think about AI in stages and how it's impacting
Speaker 3: the companies that we could buy. And again I'm speaking
Speaker 3: to you from the lens of a value investor, so
Speaker 3: we're not going to pay large multiples that embed growth
Speaker 3: that we are concerned might not occur, might be vulnerable.
Speaker 3: But some of the most interesting stocks right now are
Speaker 3: in the building phase. That's the phase that's focused on
Speaker 3: getting the infrastructure needed, all the computing infrastructure, and a
Speaker 3: lot of that are semiconductor firms and they've been pretty
Speaker 3: awful lately. So the opportunities are considerable. Companies in the
Speaker 3: microcontroller and power semic inductor area that have an industrial focus,
Speaker 3: like infinion firm or Renaissance in Japan or We also
Speaker 3: are very interested in the two big memory non US
Speaker 3: memory companies, Memory semiconductors, Samsung Electronics and sk Heinex. So
Speaker 3: they we think they that given the the increasing need
Speaker 3: for semiconductor content, whether it be in automotive applications or
Speaker 3: other industrial applications, not to mention in the devices that
Speaker 3: we all use smartphones, PCs, and then of course there's
Speaker 3: data centers that the demand will pick up quite significantly
Speaker 3: in these areas of what we call building, which is
Speaker 3: predominantly again semiconductors. And then in AI delivery that would
Speaker 3: be phase two. That would be companies that are involved
Speaker 3: in network infrastructure and end devices, so we like Marauder
Speaker 3: manufacturing for example, and then Samsung and Heinex are involved
Speaker 3: there too. And then I say you said three to
Speaker 3: five years. At the five year mark, that could be deployment.
Speaker 3: And so enterprises now Causeway as an example, we're deploying AI,
Speaker 3: but we know we're early, and we're looking for all
Speaker 3: we're asking our peers what they're doing, any type of
Speaker 3: consulting help, if we need it, we get it. We
Speaker 3: think enterprises globally are at the early stage, particularly those
Speaker 3: that are already just engaged in digital transformation, they need
Speaker 3: quite a bit of help. And that's where it services.
Speaker 3: Companies like Fujitsu in Japan or SAP in Germany, where
Speaker 3: enterprise software is their main line of business, they should
Speaker 3: do quite well. And then companies that are just going
Speaker 3: to imbue AI in their products or embed I would
Speaker 3: say ten Cent and China is an example of that.
Speaker 3: So I've just rottled off a whole lot of stocks,
Speaker 3: and none of them are Nvidia.
Speaker 1: Well, I actually do you know you mentioned a video.
Speaker 1: You know that's obviously you know, trading at a much
Speaker 1: higher valuation. You know, no one would consider that a
Speaker 1: value stock. But I do want to ask you a
Speaker 1: follow up on valuations. You know you mentioned it in
Speaker 1: your process, and you know you alluded to a few metrics.
Speaker 1: I guess you know, when you're looking at companies, is
Speaker 1: there kind of like a cutoff of certain metrics that
Speaker 1: you would consider? You know, like, how does that fit
Speaker 1: into the entire process of evaluating companies?
Speaker 3: There are we don't have strict multiples where we walk away,
Speaker 3: but we are we get very uncomfortable when we see
Speaker 3: that there are high multiples in a stock where we're
Speaker 3: already observing record levels of earnings or what we call
Speaker 3: cyclical peaks in earnings. And this is where value investing
Speaker 3: can be a little bit confusing because it simplistically and
Speaker 3: per the indices, value investing consists of low pe multi
Speaker 3: full low price to book, low price to cash flow stocks.
Speaker 3: But that could be for a deep cyclical stock when
Speaker 3: earnings are at its zenith, just the absolute long time
Speaker 3: to own them. In fact, you might be much better off.
Speaker 3: And we know this and so do our quantitative colleagues
Speaker 3: through their research that some cyclical companies and Laurent referred
Speaker 3: earlier to some of the European industrials that they'd make
Speaker 3: great examples of. We invested in is about two years ago.
Speaker 3: A French rail operator, rail equipment manufacturer, signaling manufacturer Alstom
Speaker 3: and Alstam was made a poor acquisition in Bombard det
Speaker 3: Transport in Canada, so they ended up with an integration problem,
Speaker 3: They ended up with a cost problem through COVID, and
Speaker 3: they also ended up with a pricing problem with contracts,
Speaker 3: so they the earnings were collapsing, so the multiple began
Speaker 3: to expand, but it wasn't because this was a growth stock,
Speaker 3: was because it was broken cyclical, and that was precisely
Speaker 3: time to own it. They had to show up their
Speaker 3: balance sheet and that gave us an opportunity. So we're
Speaker 3: very opportunistic. That core of our strategy international is to
Speaker 3: make sure we own companies that are well positioned as
Speaker 3: long as we have that, And another example would be
Speaker 3: in aerospace with the wide body aircraft engine manufacturer Rolls Royce.
Speaker 3: The pandemic was devastating for them and they bled cash
Speaker 3: flow and they too had to shore up their balance sheet.
Speaker 3: But what a phenomenal market position with two competitors Pratt
Speaker 3: and Whitney and ge and a great business that needed
Speaker 3: to be better managed. But as long as we have that,
Speaker 3: and or the companies in fine financial shape, they've just gone.
Speaker 3: They've just had some mix miss execution by management that
Speaker 3: makes a huge difference. We're again this is a long
Speaker 3: with an answer, but there are no specific multiples that
Speaker 3: are appropriate. There's more a question of what are normalized
Speaker 3: learnings when can the company get Can they do that
Speaker 3: in our two year window? How long will it take?
Speaker 2: Yeah? I have a question on another important aspect of
Speaker 2: the investment process, which is ESG. ESG has been a
Speaker 2: big investment theme in Europe for the past few years,
Speaker 2: but we have seen a bit of pushback. So how
Speaker 2: ESG criteria impacting your investment decisions? And as a stock picker,
Speaker 2: do you think it makes a difference, because there is
Speaker 2: a lot of debate about the value add of ESG
Speaker 2: data in an investment process. So what is your view
Speaker 2: on this topic.
Speaker 3: Well, we are convinced that material sustainability factors have the
Speaker 3: potential to impact investment performance. We've seen it and it
Speaker 3: wasn't until we hired our colleague in our con area
Speaker 3: more over five years ago, who helped us create a
Speaker 3: systematic way to understand ESG within the companies that we
Speaker 3: were analyzing. And this is important. It's one thing just
Speaker 3: to ask a few questions about governance. It's another to
Speaker 3: ask specific questions that we know lead to that when
Speaker 3: we score them, we can compair all companies on a
Speaker 3: level playing field within the country of their listing and
Speaker 3: that's been very helpful. So governance the G. If you
Speaker 3: were to put ESG together, the G is the one
Speaker 3: that has we think of the greatest potency, but E
Speaker 3: isn't very far behind and neither is s and the
Speaker 3: way we think about ease in terms of companies carbon
Speaker 3: emissions and water usage, and we get that information from
Speaker 3: databases and then we supplement within company conversations. But polluters
Speaker 3: and companies that misused sources are typically badly managed. So
Speaker 3: there's a perfect or an excellent alignment between what we're
Speaker 3: looking for, which are which are underlying good businesses that
Speaker 3: have great potential but something is going awry, and the
Speaker 3: way they treat the resources they have, So everything about
Speaker 3: that is aligned with what we do. And as for
Speaker 3: social our understanding of how they how companies treat their
Speaker 3: labor and what is what may be occurring in their
Speaker 3: supply chain such concerns, for example, with modern slavery. The
Speaker 3: more companies can tell us about that, the more transparency
Speaker 3: we have into how they run their operations. And again
Speaker 3: that's totally aligned. So our process involves quantifying through a
Speaker 3: series of questions and companies ESG, positioning, scoring, and then
Speaker 3: comparing the scores over time, and we talk about ESG
Speaker 3: and sustainability at the time we present a new stock,
Speaker 3: we'll review it if there are significant changes, which there
Speaker 3: often are. Albeit most of our information comes in annually,
Speaker 3: and we have discussions with companies about how they are
Speaker 3: going to reach the goals they've set. And this is
Speaker 3: true across the ESG spectrum as well as financial and
Speaker 3: they're often interlinked because that's our job as investors. It's
Speaker 3: an active approach we take to hold the companies accountable
Speaker 3: for the goals they have established.
Speaker 2: So now moving on more to investment opportunities in different
Speaker 2: parts of the world. At this stage, I mean, where
Speaker 2: do you think are the best opportunities globally in terms
Speaker 2: of Europe or emerging markets? Emerging markets? What are your
Speaker 2: use potentially on China evens that they are I would
Speaker 2: say many issues there. And also are you view on
Speaker 2: geography acquisition depending on what is going going to oppen
Speaker 2: to the US economy as well.
Speaker 3: The opportunities are widespread, and our geographic exposure in the
Speaker 3: International Fund is entirely a byproduct of our bottom up
Speaker 3: stock selection process. Okay, but I did mention risk model,
Speaker 3: and I mentioned it very briefly. If it turns out
Speaker 3: that we become as portfolio managers too enthusiastic about a
Speaker 3: certain geography, we will start to see the risk scores
Speaker 3: begin to increase on those stocks because we will have
Speaker 3: concentrated risks in one particular area. So it's our quantitative
Speaker 3: risk model that keeps us diversified when a portfolio that
Speaker 3: averages about sixty stocks, and that's really important across the
Speaker 3: whole spectrum of factors, but region is certainly one of them.
Speaker 3: We've had clients ask us why do you have so
Speaker 3: much in the UK, and it is a large overweight
Speaker 3: for our fund, and one of the reasons why is
Speaker 3: because the companies listed there don't do very much business
Speaker 3: in the UK, so it's not really UK risk we're taking.
Speaker 3: An example would be the UK beverages company Dago Dago,
Speaker 3: known for world class spirits, and they have six percent
Speaker 3: of their revenues in the UK market, so they're listed
Speaker 3: in the UK, their headquarters are there, but that is
Speaker 3: really not where their economic exposure resides. Or maybe more
Speaker 3: extreme and one of the stocks that we think has
Speaker 3: considerable upside is the Life in Asia life insurance company Prudential,
Speaker 3: listed in the UK for historic reasons, and yet they
Speaker 3: have no revenue in the UK. So the country of
Speaker 3: listing can be a little deceptive, and we spend time
Speaker 3: with our clients showing them where the economic exposure resides
Speaker 3: from a revenue perspective versus the benchmark, typically the EFA
Speaker 3: or world XUS Index. But our risk model does an
Speaker 3: even better job of discerning where our risks are geographically
Speaker 3: and making sure we don't concentrate where the opportunities are.
Speaker 3: I was going to get to that, which is just
Speaker 3: about everywhere. I'd say some of these UK companies I mentioned,
Speaker 3: like Rolls Royce still significant upside, or the financials company Barclays,
Speaker 3: or in energy we're very much like VP, the integrated
Speaker 3: oil company. I'm just rattling off a few UK but
Speaker 3: there are plenty in Europe too, and quite a few
Speaker 3: listed in France I'd mentioned earlier Alstom, and then the
Speaker 3: luxury goods company Caring, the owner of Gucci, amongst other brands.
Speaker 3: Sangobin and Materials are airly keyed in industrial gases, Sanathee
Speaker 3: in healthcare. All of these companies have a reason they're
Speaker 3: in the portfolio, and it's it's because their risk adjuster
Speaker 3: return is very attractive versus the other alternatives. We're not hesitant, however,
Speaker 3: if their share prices rise, we will be reducing the
Speaker 3: weight in the portfolio and then recycling those sales proceeds
Speaker 3: back into higher ranking stocks. But I again would reiterate
Speaker 3: Europe looks very attractive from a yield perspective, dividends and
Speaker 3: buybacks versus rescue the world. But there's no there's no
Speaker 3: one part that we favor over another. They're just where
Speaker 3: we can find the stocks.
Speaker 2: Okay. And so given you your US based investors, given
Speaker 2: the large positions that you're have in the UK and Europe,
Speaker 2: all the countries, how do you manage the currency risks?
Speaker 2: I mean, is it integrated in your risk EDUSM model
Speaker 2: because some of the currencies could be very volatile. We
Speaker 2: saw it very recently with the yen. So how do
Speaker 2: you manage I mean this type of risk as a
Speaker 2: US based investor in.
Speaker 3: Two ways That primarily through as you noted, our risk model,
Speaker 3: because our risk model does include currency, and our risk
Speaker 3: model is very because we review it once a week
Speaker 3: in our portfolio manager meeting with one of our quantitative
Speaker 3: portfolio managers, it becomes very clear where we are taking
Speaker 3: large active bets, where our weights in the portfolio either
Speaker 3: greatly exceed or maybe maybe we are very underweight versus
Speaker 3: benchmarking currencies. And the end it has been one of
Speaker 3: them where we've been underweight because our allocation to Japanese
Speaker 3: stocks has been less than that a benchmark. But as
Speaker 3: for what the vault of the currency actually does to
Speaker 3: the portfolio, that we think about at the stock level,
Speaker 3: So in order to arrive at a two year price target,
Speaker 3: we have to be very confident in how sensitive earnings
Speaker 3: are of the particular company to fluctuations, and it's in
Speaker 3: the currencies that are meaningful to it. Then for a
Speaker 3: big exporter in Japan, dollar yen or dollar or yen
Speaker 3: euro can be very important. So we'll look at that
Speaker 3: and then if it turns out we think the stock
Speaker 3: is too vulnerable to currency fluctuations, we may that we
Speaker 3: may hesitate or certainly create a greater hurdle so that
Speaker 3: we buy the stock even cheaper. The beauty of having
Speaker 3: a great proprietary multi factor risk models and we blend
Speaker 3: all the currencies in the portfolio, they tend to negate
Speaker 3: some of the risks of having too much of any
Speaker 3: one of them. So there's a there's an element of
Speaker 3: duristfication that is fair useful in ensuring the portfolio doesn't
Speaker 3: end up, for example, being taken for a ride by
Speaker 3: the yen volatility.
Speaker 1: You know, we've talked about your selection criteria, what you
Speaker 1: look for. You know, if we talk kind of about
Speaker 1: on the opposite side, what triggers or sell. Is it
Speaker 1: when a company hits its price target or you know
Speaker 1: the fundamental you know, could a company still be undervalued,
Speaker 1: but it's fundamentals changed that that could lead you to
Speaker 1: selling a position.
Speaker 3: Yes, so well, we typically sell because stocks drift down
Speaker 3: that ranking and they're no longer in the top say
Speaker 3: quartile of the ranking, and then they're no longer in
Speaker 3: the top half and at some point in time we
Speaker 3: have to take profit and then reinvest those selle proceeds
Speaker 3: in the higher ranking stocks. So that's the major reason
Speaker 3: why we sell. And for some stocks, they can have
Speaker 3: a very sharp price appreciation and then we have no
Speaker 3: reason and to raise our price target and then our
Speaker 3: holding perier turns out to be very short. But that's rare.
Speaker 3: It's kind of a good day. Most of the time.
Speaker 3: It takes it takes years. It can take the full
Speaker 3: two years, if not longer, for companies to implement the
Speaker 3: operational restructuring needed to improve the business. And earlier you're
Speaker 3: asking about China, I gracefully skipped over, but it is
Speaker 3: a good time to mention it because there are It's
Speaker 3: not that we have many Chinese stocks in the portfolio.
Speaker 3: We have very less than two percent of the portfolio
Speaker 3: is exposed to China directly, but so many of the
Speaker 3: companies we invest in they have exposure to China, and
Speaker 3: it's cross all industries. We see it in technology, we
Speaker 3: see it in consumer, we see it everywhere. And one
Speaker 3: I'd mentioned earlier, Caring, is a great example. This is
Speaker 3: a stock where we bought too early, there's no doubt
Speaker 3: about it, and not we underestimated how significant the consumer
Speaker 3: downturn would be with the Chinese consumer, so that's likely cyclical.
Speaker 3: And the company has been restructuring it's Gucci division with
Speaker 3: a new creative director, so that's all good. But this
Speaker 3: sort of market is very unforgiving, and I think this
Speaker 3: has become as the amount of capital that's focused in
Speaker 3: on equities has increased. It is almost as if the
Speaker 3: discounting mechanism of markets is amplified. So stocks where there's
Speaker 3: or there will be a weight until recovery, nobody wants
Speaker 3: to bother, or so it seems, so that's really the finesse.
Speaker 3: That is part of our job is that we see
Speaker 3: the stock. It looks very undervalued. It's now buoyed up
Speaker 3: to the top of our ranking. But is it a
Speaker 3: two year weight or is it longer? Those are the
Speaker 3: questions we're asking because clients don't really want to wait longer.
Speaker 3: They'd like as the time the return perfectly, which is
Speaker 3: quite difficult. We have to be early. These guys need
Speaker 3: to be pretty dark for us to get the valuation
Speaker 3: we want. But we need an improvement in the weather
Speaker 3: pretty soon. And when there is a setback, we talk
Speaker 3: amongst ourselves as a team and we say, is this
Speaker 3: is this has changed? Did something go wrong with this
Speaker 3: business and now it's we have to sell it out
Speaker 3: of the portfolio? Or is it just a delay? And
Speaker 3: vast majority of the time it's a delay.
Speaker 2: I mean it seems that in the market, I mean
Speaker 2: these mentality of techno Prisoner has accelerated over the past
Speaker 2: few years. I mean, do you think it could change
Speaker 2: or do you think it is a new state of
Speaker 2: the market, of the equity market where now as soon
Speaker 2: as the company disappoints and its evaluation is going to
Speaker 2: be annihilated.
Speaker 3: I think this is the status quo. I believe we
Speaker 3: are in an farm up where money is very fungible
Speaker 3: across borders. There are enormous investors out there with maybe
Speaker 3: shorter timeframes then I would like to see, like lots
Speaker 3: and lots of hedge fund activity, and they pay the
Speaker 3: brokerage bills, and so the brokerage firms deliver research that's
Speaker 3: oriented to perhaps a much shorter time holding period, and
Speaker 3: that feeds on itself. But if you think about what's
Speaker 3: happened post to global furnatural prices post two thousand and eight,
Speaker 3: the amount of money created by central banks globally is
Speaker 3: just head spinning. The US got up I think nine
Speaker 3: the FED balanceship and nine trillion and has slipped back
Speaker 3: to seven. But it was something like three hundred and
Speaker 3: fifty billion at two thousand and eight, Like where did
Speaker 3: all that money go? When did a bank reserve and
Speaker 3: they got lent out? And it's there's just lots and
Speaker 3: lots of money in the financial system. And that to
Speaker 3: me is that level of financial liquidity is one of
Speaker 3: the reasons why markets react as they do so quickly.
Speaker 1: No, that makes sense. Before we go, I did you know,
Speaker 1: I'd love to ask what advice would you give your
Speaker 1: younger self just starting out in the business.
Speaker 3: Sleep more. I stayed up all night sometimes. I first,
Speaker 3: when I first get into this industry, I didn't I
Speaker 3: wanted to know what was happening to the other side
Speaker 3: of the trades. I decided to travel the globe and
Speaker 3: suit with cell side trade desks. That was a lot
Speaker 3: of jet lag, and there was always because there's always
Speaker 3: a market open when you cover non us, not to
Speaker 3: mention us the granddaddy of them all. So you have
Speaker 3: to force yourself to sleep because there's always something to
Speaker 3: be looking at, researching, thinking about. And now that I
Speaker 3: have put on a few years, I'd say I have
Speaker 3: to sleep. But when I was younger that would be wise.
Speaker 3: I think I would have I think I would have
Speaker 3: sudden a lot more intelligent meetings if I had more
Speaker 3: than two hours of sleep.
Speaker 1: That's a good answer. Well, thank you Sarah for speaking
Speaker 1: with us today, Thank you for much time in Laurent.
Speaker 1: Thank you for serving as my co host today. Thank
Speaker 1: you very much to you until our next episode. This
Speaker 1: is David Cohne with Inside Active