WEBVTT - James Anderson on Why Fund Management Is 'Broken' (Podcast) 0:00:00.080 --> 0:00:06.080 M This is Mesters in Business with Very Results on 0:00:06.240 --> 0:00:11.800 Bluebird Radio this weekend. On the podcast man Strap Yourself In. 0:00:12.080 --> 0:00:17.280 I love finding these people, just rockstar fund managers who 0:00:17.440 --> 0:00:22.200 who just blow everybody else's doors off, but have somehow 0:00:22.239 --> 0:00:26.680 managed to maintain a relatively low profile over the decades 0:00:26.720 --> 0:00:30.360 they've been in in the business, and today's guest is 0:00:30.440 --> 0:00:34.320 absolutely an example of that. James Anderson has been at 0:00:34.320 --> 0:00:40.839 Bailey Gifford since nine His track record is superlative. But 0:00:41.000 --> 0:00:44.360 what I'm really fascinated by is not just the outcomes 0:00:44.360 --> 0:00:50.640 of his investments. It's how his process is so atypical 0:00:50.760 --> 0:00:55.480 of what we see in the world of investment. Very thoughtful, 0:00:55.720 --> 0:01:01.280 very eccentric, really considers investments in in terms of decades, 0:01:01.600 --> 0:01:05.480 forget years, decades. I don't know how else to describe 0:01:05.560 --> 0:01:10.080 it other than strap yourself in. For this one, it's spectacular. 0:01:10.600 --> 0:01:14.679 With no further ado. My conversation with the soon to 0:01:14.840 --> 0:01:18.800 be retiring manager of the Scottish Mortgage Investment Trust and 0:01:18.920 --> 0:01:25.120 partner at Bailey Gifford, James Anderson. This is Mesters in 0:01:25.160 --> 0:01:31.560 Business with very renorlts on Bluebird Radio. My extra special 0:01:31.600 --> 0:01:34.920 guests this week is James Anderson. He is a partner 0:01:35.000 --> 0:01:38.280 at Bailey Gifford, where he runs the Footsie one hundred 0:01:38.280 --> 0:01:43.160 listed Scottis Mortgage Investment trust funds. It's about twenty three 0:01:43.160 --> 0:01:45.840 and a half billion dollars last I checked. He has 0:01:45.959 --> 0:01:53.640 generated returns over the past two decades of over. Bailey 0:01:53.680 --> 0:01:57.520 Gifford also manages about four hundred and seventy billion dollars. 0:01:57.880 --> 0:02:02.160 James Anderson, Welcome to Moomberg. Thank you. It's a pleasure 0:02:02.160 --> 0:02:04.800 to be with you. Let's talk about your career. You 0:02:05.320 --> 0:02:09.560 join Billy Gifford back. Tell us how you found your 0:02:09.600 --> 0:02:13.680 way into finance and how did your financial career begin. Barry. 0:02:13.760 --> 0:02:18.560 I think it's a combination of a fairly um normal 0:02:19.120 --> 0:02:23.880 British establishment story with a few twists. UM. I came 0:02:23.919 --> 0:02:27.359 from a very medical family. UM I didn't much care 0:02:27.400 --> 0:02:30.280 for the idea of being a doctor, although everybody assumed 0:02:30.320 --> 0:02:33.040 that's because I wasn't remotely clever enough, which used to 0:02:33.080 --> 0:02:36.400 annoy be a bit. I did a history degree at Oxford, 0:02:36.400 --> 0:02:39.200 which may or may not have been relevant, and I 0:02:39.280 --> 0:02:42.680 then spent a couple of years at university abroad, in 0:02:42.720 --> 0:02:46.760 particular a year at Johns Hopkins and Bologna in Italy, 0:02:47.280 --> 0:02:50.160 which was originally set up to use for the c 0:02:50.320 --> 0:02:53.839 I spent spy on the Italian communist parties involved by then, 0:02:54.480 --> 0:02:57.760 but it gave me a first for hearing different interpretations. 0:02:57.840 --> 0:03:00.840 There were people from approximately forty different tris and really 0:03:01.160 --> 0:03:03.560 made me a great deal more curious than I was 0:03:03.639 --> 0:03:06.040 when I was being talked down straight lines at Oxford. 0:03:06.600 --> 0:03:08.760 And I think, and I think you would probably agree, 0:03:09.040 --> 0:03:13.000 fund management is great if you're really curious about the world. 0:03:13.680 --> 0:03:17.320 Journalism was the only other thing I considered um and 0:03:17.400 --> 0:03:22.079 I didn't much like London, so Edinburgh was quite interesting. 0:03:22.160 --> 0:03:25.360 So so you're barely Gifford in eighty three, how do 0:03:25.400 --> 0:03:30.519 you eventually become the manager of the Scottish Mortgage Investment Trust, 0:03:30.560 --> 0:03:33.760 which dates back to practically the turn of the last centric. 0:03:34.600 --> 0:03:37.000 That's right, and to be honest, Barry, I think that 0:03:37.640 --> 0:03:40.760 some of the events in the early years of Scottish 0:03:40.760 --> 0:03:45.720 bortgage quite fascinating. You might be intrigued to read, for instances, 0:03:45.760 --> 0:03:50.200 accounts of UH ninety thirty, where it was much more 0:03:50.200 --> 0:03:53.240 concerned about which member of the Scottish middle classes was 0:03:53.280 --> 0:03:55.320 going to be appointed to the board than it was 0:03:55.440 --> 0:03:58.440 by what was happening on Wall Street. It's account of 0:03:58.440 --> 0:04:03.560 why Canada and Argentina were more interesting than America was 0:04:03.720 --> 0:04:07.800 interesting the backstory that for many years, UM, but I've 0:04:07.840 --> 0:04:13.560 always thought that investment trusts are a fantastic instrument UH 0:04:13.600 --> 0:04:16.120 and you know that's come across even more in recent 0:04:16.240 --> 0:04:19.240 years because our freedom to go where we want an 0:04:19.240 --> 0:04:23.080 investor in whichever form we want UH, and to try 0:04:23.120 --> 0:04:26.880 and offer at low costs to retail investors has been 0:04:26.960 --> 0:04:31.360 something that I really value. And so the unpopularity of 0:04:31.400 --> 0:04:35.400 that form which existed back in UM, you know, it 0:04:35.480 --> 0:04:37.960 was just a fascinating project to try and get involved 0:04:38.000 --> 0:04:41.599 and gradually UM see the benefits of it. And I 0:04:41.720 --> 0:04:46.560 much admired my predecessor, Max Would, who had the same 0:04:46.640 --> 0:04:50.160 thirst for growth investing. Billy Gifford made a huge mistake 0:04:50.839 --> 0:04:53.599 because in the late nineties seventies Max was by far 0:04:53.680 --> 0:04:57.920 our most outstanding investor UM, and of course so many 0:04:57.960 --> 0:05:00.240 of our assets were in the UK at that time. 0:05:00.960 --> 0:05:03.039 Max was persuaded to be in charge of the UK 0:05:03.200 --> 0:05:07.000 market when his heart was in America. And I think 0:05:07.040 --> 0:05:09.680 Scottish Borgage shouldn't really give a right had been further onwards. 0:05:09.680 --> 0:05:14.599 If we'd revert that last year you happened to say 0:05:14.960 --> 0:05:19.920 fund management was irretrievably broken. Um explained that a little bit. 0:05:19.920 --> 0:05:24.440 That's a fascinating quote. Yeah, well, and I'd be very 0:05:24.480 --> 0:05:28.440 interested to pursue this and follow up questions from you Berry, 0:05:28.480 --> 0:05:32.520 because I think it's a critically important issue. I think 0:05:32.560 --> 0:05:37.359 fun of management has inherently become inward looking. And you 0:05:37.480 --> 0:05:40.960 know this as well as I do. People measure themselves 0:05:41.000 --> 0:05:43.960 by how they do to their comparators. If I go 0:05:44.080 --> 0:05:48.280 back to the early days of stock markets, what we 0:05:48.279 --> 0:05:52.840 were in the business of was helping to create a 0:05:53.120 --> 0:05:57.880 nurture great companies. So we're going to move society as 0:05:57.880 --> 0:06:01.520 well as investors onwards, and I think that we've lost 0:06:01.600 --> 0:06:04.960 that sense of purpose over the years. So that is 0:06:05.000 --> 0:06:08.120 absolutely central to how I see it. I would evidence 0:06:08.200 --> 0:06:11.640 it by not just all the type of short run 0:06:12.160 --> 0:06:16.200 performance statistics and short run media coverage there is, but 0:06:16.400 --> 0:06:21.560 by the lacerating overall facts that both in Britain and America, 0:06:21.760 --> 0:06:26.200 for a very long decade now, more money has been 0:06:26.240 --> 0:06:30.080 given back by companies in the quoted markets than has 0:06:30.200 --> 0:06:34.719 been raised. Um. You know, he's become a machine for 0:06:34.800 --> 0:06:38.839 recycling rather than a machine for creation. Now I could 0:06:38.920 --> 0:06:42.599 go on, but fundamentally, I think that is the great 0:06:42.640 --> 0:06:46.800 trouble and has led us to have have to reinvent 0:06:47.080 --> 0:06:51.040 a different way of really providing serious equity capital outside 0:06:51.040 --> 0:06:55.320 the public markets. That's really interesting. So when you say 0:06:55.720 --> 0:06:59.880 a machine for recycling rather than inventing, are you referring 0:06:59.880 --> 0:07:03.520 to share buy backs rather than R and D, research 0:07:03.560 --> 0:07:08.200 and development and investment in new ideas. Yeah, that that's 0:07:08.200 --> 0:07:12.640 absolutely right. Share back buy backs um in many cases 0:07:12.680 --> 0:07:18.160 successive divid and insufficient investment UM, and particularly in capital 0:07:18.200 --> 0:07:20.600 intensive business, which, as you know of not on the 0:07:20.600 --> 0:07:23.120 whole being what's been on people's minds for most of 0:07:23.120 --> 0:07:25.640 the last that he is. But yeah, I think this 0:07:25.800 --> 0:07:29.000 is a real problem. And to build these companies you 0:07:29.120 --> 0:07:32.920 need a time horizon that is well longer earth than 0:07:33.080 --> 0:07:38.040 quarters years and possibly even the decades. Huh. There's another 0:07:38.120 --> 0:07:40.960 quarte of yours related to this exact issue that I 0:07:41.080 --> 0:07:45.640 found very amusing. Fund managers are addicted to the near 0:07:45.800 --> 0:07:51.960 pornographic allure of earnings reports and macro economic headlines. Is 0:07:52.000 --> 0:07:55.800 that just a colorful way of saying they're too short term, 0:07:55.800 --> 0:08:02.640 They're not thinking long term enough. That's that's certainly part 0:08:02.880 --> 0:08:08.160 of it, but I don't think it is underneath even 0:08:08.240 --> 0:08:13.480 in terms of the moment the critical part of it. UM. 0:08:14.560 --> 0:08:19.360 I'd cite for instance that I spend a lot of 0:08:19.440 --> 0:08:25.560 time asking companies when they've been fortunate enough to be successful, 0:08:25.760 --> 0:08:32.000 what have been the critical moments, critical decisions? And very rarely, Barry, 0:08:32.120 --> 0:08:35.440 do they say it was because we had a great 0:08:35.520 --> 0:08:40.880 quarter in or of course we beat ourn ex expectations 0:08:40.880 --> 0:08:43.840 in two thousand and five. And indeed, I think if 0:08:43.880 --> 0:08:47.800 you if you drill down from that, very often the 0:08:47.840 --> 0:08:53.760 most significant moments of companies history have been when they've 0:08:53.800 --> 0:08:58.760 done something that is annoyed in the quarterly reports sense um. 0:08:58.800 --> 0:09:01.920 And you know, I I would cite, for instance, the 0:09:02.200 --> 0:09:08.000 extreme drawdowns we saw with Amazon around the time of 0:09:08.120 --> 0:09:14.120 developing Prime, which was plainly a fantastically good long run 0:09:14.280 --> 0:09:21.320 term value creating proposition, but yet the preoccupation was with 0:09:21.400 --> 0:09:24.720 the short term impact on earnings. And you know, I 0:09:24.720 --> 0:09:27.280 think you can drill into that again in a different 0:09:27.320 --> 0:09:32.280 way by asking what are the questions that happen in 0:09:32.360 --> 0:09:36.800 quarterly earning schools? As you know, very rarely do you 0:09:36.880 --> 0:09:42.920 see major investors in the company. UM. The focus of 0:09:42.960 --> 0:09:48.520 those discussions. It is about the brokerage industry, the investment banks, 0:09:48.559 --> 0:09:52.200 and the next quarter, and I think that is profoundly 0:09:52.320 --> 0:09:55.440 dangerous and does have an impact. So I think it 0:09:55.440 --> 0:10:00.640 actually goes well beyond just the time frame a justice 0:10:00.679 --> 0:10:04.160 though that's a unimportant when plainly it's deeply, deeply important. 0:10:05.040 --> 0:10:09.439 But I think you actually get the immediate discussions as 0:10:09.440 --> 0:10:13.680 well as the long term discussions bias towards whether the 0:10:13.760 --> 0:10:16.760 next quarter is going to be up or down relative 0:10:16.800 --> 0:10:21.280 to a set of analyst expectations. You were early desparked 0:10:21.320 --> 0:10:25.880 the potential for some really explosive growth stocks, and they're 0:10:25.920 --> 0:10:30.600 all very different. I'm thinking about Tesla Ali, Barba, Amazon, 0:10:31.360 --> 0:10:34.720 What were the tells of each of these that led 0:10:34.760 --> 0:10:39.480 you to think, Hey, there's really something special here. I 0:10:39.520 --> 0:10:44.960 think fundamentally there are two important tracks in this Barry 0:10:45.720 --> 0:10:51.200 uh to discuss try and um elucidate our thought process 0:10:51.240 --> 0:10:57.240 of now. I think really you're looking for the scale 0:10:57.320 --> 0:11:00.520 and this has become almost bernal to say, but the 0:11:00.600 --> 0:11:05.400 scale of the addressable market that is there, and very 0:11:05.440 --> 0:11:09.080 often I think it's it's it's key to stress this 0:11:09.480 --> 0:11:15.679 that scale is not necessarily all that obvious at the 0:11:15.720 --> 0:11:18.359 start of it. You know when Amazon was a bookseller, 0:11:19.120 --> 0:11:21.880 when Tester was a sporting goods company, or you read 0:11:21.920 --> 0:11:24.160 about the early days of Ali Baba when there were 0:11:24.200 --> 0:11:27.400 twenty of it, but you can't really guess to that. 0:11:27.559 --> 0:11:31.880 But I think that means that a critical important part 0:11:31.920 --> 0:11:37.200 of this is a management that can accept that type 0:11:37.200 --> 0:11:41.080 of open endedness and that type of time horizon and 0:11:41.200 --> 0:11:45.320 that type of business decisions that we were talking about. Now, 0:11:45.440 --> 0:11:48.679 if I look at this from an intellectual point of view, 0:11:49.640 --> 0:11:58.079 we've had a splendid relationship with a set of academics 0:11:58.160 --> 0:12:01.280 who have tried to focus on what really happened in 0:12:01.320 --> 0:12:06.040 the stock market from that that point of view, UM 0:12:06.080 --> 0:12:09.480 And you know, I think the history is going right 0:12:09.559 --> 0:12:12.680 back to the Dutch East India company that a very 0:12:12.720 --> 0:12:17.000 small number of people dominate. And this was our experience 0:12:17.080 --> 0:12:20.560 ourselves that you had to have that ability of the 0:12:20.600 --> 0:12:25.080 management to think in those brought raw terms. But we 0:12:24.760 --> 0:12:28.240 we we we acquired ever greater conviction of this when 0:12:28.240 --> 0:12:31.480 it wasn't just our own experience but from the work 0:12:31.520 --> 0:12:35.680 of Hendrick Bessing Bhind at Arizona State University UM in 0:12:36.000 --> 0:12:38.760 just stocks out performing treasury builds and they're onwards and 0:12:39.040 --> 0:12:42.120 to put this in context. Um, you know, his data 0:12:42.400 --> 0:12:46.560 on the American market goes back to twenty four thousand 0:12:46.559 --> 0:12:52.000 companies in US common stock. Since then, um, now, over 0:12:52.000 --> 0:12:55.480 that time, half the value of the key bills has 0:12:55.520 --> 0:12:59.760 been created by just ninety companies. Now, talking to Hendrick, 0:12:59.840 --> 0:13:03.479 he would agree that these companies don't just have huge markets, 0:13:04.200 --> 0:13:08.440 but they have a willingness to say, we don't know 0:13:08.559 --> 0:13:11.480 there's going to take us. And you mentioned there as 0:13:11.559 --> 0:13:15.000 we we we all often do Amazon within this now, 0:13:16.000 --> 0:13:19.240 possibly of all the many brilliant things that Jeff Bezos 0:13:19.280 --> 0:13:22.520 has said and done, I think it was one of 0:13:22.559 --> 0:13:26.000 his initial comments that there was this weirdness about his 0:13:26.080 --> 0:13:30.679 business that everything he and Amazon News got better and cheaper, 0:13:30.920 --> 0:13:36.120 usually by around perannum um. And then he paused and 0:13:36.200 --> 0:13:39.440 probably gave a characteristic laugh and said, which I think 0:13:39.559 --> 0:13:42.200 is really important. I don't know where this is going 0:13:42.240 --> 0:13:44.320 to take me, but I think it is going to 0:13:44.400 --> 0:13:48.120 be very exciting. Now we don't know, and surely we 0:13:48.160 --> 0:13:52.520 didn't know about a WS and the like. And you know, 0:13:52.800 --> 0:13:55.440 I think what you're there by looking for is both 0:13:55.480 --> 0:13:59.559 that type of management attu in general and something specifically 0:13:59.679 --> 0:14:02.720 in the vigil. We'd be lucky to have on the 0:14:02.760 --> 0:14:08.520 board of Scottish Mortgage and sadly now retired professor per 0:14:08.559 --> 0:14:12.600 s John Kum, who is his work. You probably know 0:14:13.720 --> 0:14:18.080 m but you know a truly brilliant and thoughtful economist 0:14:18.120 --> 0:14:21.880 who really puts Tom Slater. You've talked to him myself 0:14:23.520 --> 0:14:27.920 on our biggest tests, board meetings and other discussions. But 0:14:28.040 --> 0:14:31.640 I think one of the best sentences that even John 0:14:31.720 --> 0:14:35.240 has as written um is the start of one of 0:14:35.280 --> 0:14:41.720 his books where he compares great companies with fiction, and 0:14:41.840 --> 0:14:45.480 he cites the first line of Van Karenina, which says 0:14:45.600 --> 0:14:50.040 that all unhappy marriages are different, but all happy marriages 0:14:50.160 --> 0:14:53.280 the same. And John's take as a second line is 0:14:53.320 --> 0:14:57.120 it's the reverse in companies, that all great companies are 0:14:57.240 --> 0:15:00.760 unique and all mediocre companies that are saying. And I 0:15:00.760 --> 0:15:03.440 think if he runs through all these examples, and we 0:15:03.520 --> 0:15:06.800 may well do with some of those, they are unique 0:15:06.920 --> 0:15:11.400 and they have a different interpretation. So my challenge to myself, 0:15:11.960 --> 0:15:15.960 you know, sticking with the Amazon example, is instead of 0:15:16.080 --> 0:15:19.520 we spotted it early, what took us so long? Because 0:15:19.560 --> 0:15:22.680 we only became major owners of Amazon in approximately two 0:15:22.760 --> 0:15:26.400 thousand and four. I think if you go back and 0:15:26.560 --> 0:15:29.200 read and try and x out you know, all the 0:15:29.240 --> 0:15:35.720 subsequent UM successes. But if you read what Jeff based 0:15:35.760 --> 0:15:39.320 Us wrote, I think you and I would agree that 0:15:39.440 --> 0:15:42.360 it is a unique document, and I think you can 0:15:42.480 --> 0:15:47.280 find that form of thought processes about the future of 0:15:47.320 --> 0:15:51.480 their companies in all the truly great companies. Yeah, I 0:15:51.480 --> 0:15:55.120 think a lot of us read that initial letter to shareholders, 0:15:56.080 --> 0:15:58.800 but we probably didn't see it for a fifteen or 0:15:58.800 --> 0:16:01.880 twenty years. Not a lot but read it and really 0:16:02.040 --> 0:16:07.920 understood it back in that that may be. I mean, 0:16:07.960 --> 0:16:10.720 I I almost think of, you know, to come back 0:16:10.720 --> 0:16:13.400 to my comments about our ownership, we made it more 0:16:13.840 --> 0:16:18.960 more difficult for ourselves varied by waiting those intervening six 0:16:19.080 --> 0:16:22.480 or seven years, because you know, I think one skepticism 0:16:22.520 --> 0:16:25.440 had only grown over that point. And you know, I'm 0:16:25.480 --> 0:16:32.360 always amuse frustrated now when people UM talk about the 0:16:32.440 --> 0:16:37.760 late ninety nineties as some sort of just simply a bubble. 0:16:37.960 --> 0:16:40.520 I think there was also and here for once I 0:16:40.560 --> 0:16:43.240 would find myself agreeing with Peter Deal. There was also 0:16:43.360 --> 0:16:46.400 a huge amount of clarity around that point, and I 0:16:46.480 --> 0:16:51.040 think people's ability to explore those ideas was there. But yet, 0:16:51.040 --> 0:16:54.480 if I compare what Amazon was saying what Jeff Besis 0:16:54.560 --> 0:16:57.840 was saying about that point of time, UM, compared to 0:16:58.240 --> 0:17:03.440 what the average telecoms or media company equally sucked up 0:17:03.440 --> 0:17:05.480 in the whole boom was. I think you could make 0:17:05.520 --> 0:17:09.320 those differentiations. So you know, I know that a periods 0:17:09.320 --> 0:17:12.240 of stress, and plainly there's another one at the beginning 0:17:12.280 --> 0:17:16.879 of this year. Um, the correlations go to one and 0:17:16.920 --> 0:17:20.480 all companies are regarded as the same. But I genuinely 0:17:20.520 --> 0:17:24.960 believe that the market and the articulation given by individuals 0:17:24.960 --> 0:17:28.520 and companies of their culture and ambitions does enable you 0:17:28.600 --> 0:17:34.639 to differentiate. Really interesting, So you mentioned Jeff Bezos and 0:17:34.720 --> 0:17:38.640 Peter Till, what is the allure of the enigmatic founder? 0:17:39.000 --> 0:17:41.719 How much of the buyers you made in companies like 0:17:41.760 --> 0:17:46.800 Amazon and Tesla are because the companies were helmed by 0:17:46.920 --> 0:17:52.520 visionaries like Jeff Bezos and Eon musk H. Of course, 0:17:52.920 --> 0:17:56.760 of what I've said about the power of truly great 0:17:56.760 --> 0:18:01.240 businesses has come from reinterpreting uh the industries in which 0:18:01.280 --> 0:18:05.359 they operate, and very often, as the examples you side show, 0:18:05.840 --> 0:18:09.320 there are people who are basically from outside the industry. 0:18:09.600 --> 0:18:14.439 I think it is very very hard, um, not to 0:18:14.520 --> 0:18:17.480 think that that is an absolutely critical factor. Um. You know, 0:18:17.520 --> 0:18:21.480 I would be intrigued. Uh. And you know we may 0:18:21.480 --> 0:18:24.120 come onto one or two counterexamples, but I wouldn't treat 0:18:24.160 --> 0:18:27.680 as how many companies have managed to rise to Chew 0:18:27.760 --> 0:18:32.360 greatness without having had that at the start of the Uh. 0:18:32.440 --> 0:18:35.879 There that the life stories And again that's something that 0:18:36.040 --> 0:18:38.560 basically Henry Bess and Binder would agree with us. If 0:18:38.560 --> 0:18:42.520 you go back early companies, that is also true of them. 0:18:43.359 --> 0:18:47.520 You know, I find we were talking Amazon them. But 0:18:47.560 --> 0:18:49.439 I think the test A story in that sense is 0:18:49.480 --> 0:18:54.720 even more remarkable. Um. Somebody I much admard within the industry, 0:18:54.840 --> 0:18:59.240 John L. Kind of Ferrari installantis um As has said 0:18:59.400 --> 0:19:02.840 very clearly that he didn't think it could have Tessler, 0:19:02.920 --> 0:19:07.120 could have been done by anybody from inside the industry. 0:19:07.200 --> 0:19:12.000 So I think that different vision It very rarely comes 0:19:12.040 --> 0:19:16.800 about without there being one single individual funders now to 0:19:16.920 --> 0:19:20.800 undermine my own case Bury because you know, I think 0:19:20.880 --> 0:19:24.880 that the nuance and the discussion is important here. Funny enough, 0:19:25.160 --> 0:19:28.919 one of the companies that people don't seem to focus 0:19:28.960 --> 0:19:31.280 on a lot, and they don't seem to ask me 0:19:31.359 --> 0:19:34.640 a lot lot or about all my colleagues, But which 0:19:34.680 --> 0:19:38.159 we probably most admire in the changes that have happened 0:19:38.160 --> 0:19:41.680 in the world, would be ASML in Holland, and I 0:19:42.240 --> 0:19:48.160 consider that both the extraordinary European example of a really 0:19:48.280 --> 0:19:52.919 deep technology company that has actually succeeded. I also consider 0:19:53.000 --> 0:19:56.960 it's possibly, in terms of what it enables, the most 0:19:56.960 --> 0:20:00.320 deeply incomportant company in the world. You're not one of 0:20:00.400 --> 0:20:06.400 the Internet helpfullys would basically exist unless, as abuts continued 0:20:06.440 --> 0:20:10.120 More's law. But although there are individuals who have done 0:20:10.200 --> 0:20:15.479 absolutely superb jobs, it's not so much associated with the 0:20:15.520 --> 0:20:20.639 philosophy of one all domineering founders. And I find that 0:20:20.680 --> 0:20:24.320 thereby an example that is even more intriguing. How do 0:20:24.400 --> 0:20:27.639 you get to this level of ambition, this level of attainment, 0:20:27.760 --> 0:20:31.880 this level of world leadership without having that sort of leader. 0:20:31.960 --> 0:20:34.800 But I'm assuredly of the view that having one of 0:20:34.840 --> 0:20:38.080 these sort of visionary leaders at the start is hugely important. 0:20:38.600 --> 0:20:43.159 So that raises a fascinating quandary, which is, how do 0:20:43.240 --> 0:20:48.000 you separate the true disruptor, the folks like bezos and musk, 0:20:49.000 --> 0:20:52.560 from the crowded fields of those who you know, promise 0:20:52.880 --> 0:20:56.040 over promise and under deliver um. And I'm thinking of 0:20:56.080 --> 0:21:00.480 either Adam Newman of of WE Work or Travis Clentic 0:21:00.640 --> 0:21:07.679 of of Uber. Well, firstly, I I don't think I 0:21:07.720 --> 0:21:10.359 will have any difficulty persuading you of this very let 0:21:10.400 --> 0:21:14.119 alone the audience. Um, I think one accepts that the 0:21:14.240 --> 0:21:18.520 hit rate is going to be comparatively low. You know, 0:21:18.560 --> 0:21:21.200 another one of the points that Hedrick best of mind 0:21:21.200 --> 0:21:24.040 who would make, is that he can stick up a 0:21:24.119 --> 0:21:27.520 chart of where the returns in public equity markets, whether 0:21:27.560 --> 0:21:31.880 in America or internationally, have come from, and people assume 0:21:32.560 --> 0:21:36.440 it's a return structure of the venture capital industry rather 0:21:36.440 --> 0:21:40.560 than the public equity markets. And inevitably that means you are, 0:21:40.840 --> 0:21:43.800 just as in the venture capital We're going to have failures. 0:21:44.520 --> 0:21:47.320 But yes, of course you both try and capture the 0:21:47.359 --> 0:21:51.840 extreme and try and winnow out um where the differences, 0:21:52.240 --> 0:21:55.399 and you know, I think it genuinely has to come 0:21:55.440 --> 0:22:00.680 down to a judgment of the caliber and the persuades 0:22:00.800 --> 0:22:04.240 us of those individual ideas. You know, to be quite 0:22:04.280 --> 0:22:07.800 frank with you, we did talk to WE Work, but 0:22:07.880 --> 0:22:10.919 we didn't invest. We did talk to to run Us, 0:22:10.960 --> 0:22:14.320 but we didn't invest. Now, to some extent, you're relying 0:22:14.359 --> 0:22:17.840 on network of people who you will have good conversations 0:22:17.880 --> 0:22:19.879 with them when we might come that. Come back to 0:22:19.960 --> 0:22:25.640 that later. But I think it is about whether when 0:22:25.680 --> 0:22:29.640 you put to these people the difficulties, the drawbacks, why 0:22:29.680 --> 0:22:33.520 do they believe in what they're saying, um, and why 0:22:33.560 --> 0:22:36.320 do they think they might have a chance? Then I 0:22:36.359 --> 0:22:40.240 think you can make a more intelligent answer to that 0:22:40.359 --> 0:22:43.719 than you think. And you know, I think thereby and 0:22:43.760 --> 0:22:46.879 this is I think a very are the easy question 0:22:47.080 --> 0:22:51.920 for most investment managers. You are thereby coming down on 0:22:52.080 --> 0:22:59.560 it being critically about making qualitative judgments rather than quantitative ones. 0:22:59.600 --> 0:23:03.600 And when we were discussing earlier Ernie his cause and 0:23:03.720 --> 0:23:06.800 the like, I think that that rushed to what you 0:23:06.960 --> 0:23:11.000 can measure rather than what you can think about and 0:23:11.160 --> 0:23:17.160 not even analyze but creatively enquire about is hugely important UM. 0:23:17.160 --> 0:23:20.240 And I think your biggest single objective on that is 0:23:20.280 --> 0:23:24.320 to try and understand whether there is a reason that 0:23:24.520 --> 0:23:28.000 only the one company who are investing in can do 0:23:28.080 --> 0:23:31.240 what was happening. So we we worry a lot about 0:23:31.280 --> 0:23:35.520 companies in which the clones can easily happen. On that score, 0:23:37.080 --> 0:23:40.000 one of my takeaways from the Bess and Binder studies 0:23:40.640 --> 0:23:45.120 was that a lot of fund managers and staff pickers 0:23:45.760 --> 0:23:50.640 were excellent at identifying the companies to buy, but they 0:23:50.760 --> 0:23:56.200 weren't especially good at determining when to sell. And I 0:23:56.320 --> 0:23:59.720 bring this up in light of you essentially cutting your 0:23:59.760 --> 0:24:04.600 tes So steake in half at a time after it 0:24:04.680 --> 0:24:08.879 had really ballooned up and was very fortunate timing. Was 0:24:08.920 --> 0:24:13.160 this just a function of rebalancing or valuation or what 0:24:13.240 --> 0:24:17.240 was the thinking behind the cell in in a substantial 0:24:17.280 --> 0:24:22.879 stake of of your Tesla Holden. I'll try and answer 0:24:22.920 --> 0:24:26.399 that directly first, but then I'd like to cover a 0:24:26.400 --> 0:24:29.960 bit of the intermediary stage, because you know, I think 0:24:29.960 --> 0:24:32.840 it is it is the holding on that is critically 0:24:32.880 --> 0:24:36.560 important in this um. You know, I was very interesting 0:24:37.160 --> 0:24:39.359 interesting you had a discussion a few months ago, I 0:24:39.400 --> 0:24:42.920 think with Bill Gurley about the importance of the holding 0:24:42.920 --> 0:24:46.119 all elements of this which you know I think is 0:24:46.359 --> 0:24:49.320 essential to it. But let let me try and run 0:24:49.320 --> 0:24:53.439 the testa one to you. So what we're constantly trying 0:24:53.440 --> 0:24:58.640 to answer, and I will mention some less excience successful 0:24:58.680 --> 0:25:02.520 examples of this, uh than how Tesla has seemed, at 0:25:02.560 --> 0:25:06.440 least so far. What we're trying constantly to ask ourselves 0:25:07.280 --> 0:25:11.000 is has this company got the possibility to be in 0:25:11.000 --> 0:25:13.920 the top five pc of outcomes over the next five 0:25:14.040 --> 0:25:18.120 years UM and even longer if if if we can, 0:25:18.200 --> 0:25:20.520 and we do, we try to make it longer, so 0:25:20.760 --> 0:25:24.840 you're sticking out, can it still produce enough return to 0:25:24.960 --> 0:25:29.840 make it into that sort of very high level competition. UM. 0:25:29.920 --> 0:25:35.240 We did not think last January that at the total 0:25:35.320 --> 0:25:39.639 market capitalization, total enterprise values that Tesla was getting to, 0:25:40.200 --> 0:25:42.879 that we could see that degree of upside. It was 0:25:43.000 --> 0:25:47.080 not about a worry that it would go down, which, 0:25:47.119 --> 0:25:49.479 of course, in the case of Teslary even more than 0:25:49.520 --> 0:25:53.879 the case of ny NY companies always existed. It's that 0:25:53.960 --> 0:25:57.560 we doubted there was sufficient upside. Now to bring that 0:25:57.720 --> 0:26:04.200 up to day have to say that, if anything, we 0:26:04.320 --> 0:26:10.720 have been i'd almost say taken aback by the excellence 0:26:10.840 --> 0:26:15.040 the brilliance of Texas executions since that period of time. 0:26:15.440 --> 0:26:17.840 And I don't think it's just in quarterly and it's 0:26:17.920 --> 0:26:22.120 terms again to go back that I think their ability 0:26:22.160 --> 0:26:25.840 to build out the factories, to build out their expertise 0:26:26.160 --> 0:26:31.920 in the batteries broadly defined, their ability to internationalize, their 0:26:31.960 --> 0:26:35.240 ability to in fact increase their leadership over the industry 0:26:35.320 --> 0:26:39.400 rather than Saturn is truly remarkable. So you know you're 0:26:39.440 --> 0:26:42.360 being kind enough to say it was not an ill 0:26:42.480 --> 0:26:46.480 timed reduction, which it wasn't in terms of having held 0:26:46.520 --> 0:26:49.840 on before. But it's perfectly possible we'll be wrong. And 0:26:49.880 --> 0:26:53.879 that's much of my mind, Barry, because you know, I think, 0:26:54.160 --> 0:26:59.480 if anything, although we pride ourselves hugely on our ability 0:26:59.640 --> 0:27:02.840 to in juror and back companies for for years and 0:27:02.920 --> 0:27:06.359 years and years, um, I think our longest holding is 0:27:06.400 --> 0:27:09.080 in Atlas Copca in Sweden, which I first brought in 0:27:09.359 --> 0:27:13.320 I think, and we still own it, but sometimes we've 0:27:13.320 --> 0:27:15.960 given up and made very bad mistakes on that point 0:27:15.960 --> 0:27:18.280 of view. You know, we were large owners of Apple. 0:27:18.840 --> 0:27:21.920 I myself did the exercise of trying to see whether 0:27:21.960 --> 0:27:24.200 I thought it could be in the top five cent 0:27:24.280 --> 0:27:27.280 of outcomes over the next ten years, and I didn't 0:27:27.280 --> 0:27:30.360 think it could do could be now that's approximately five 0:27:30.440 --> 0:27:32.600