Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: Hey Marin Talks Money listeners.
Speaker 1: Earlier this week, we had our subscriber event in the
Speaker 1: Bloomberg offices in London. It was so wonderful to see
Speaker 1: so many listeners and so many readerserves, so thank you
Speaker 1: so much.
Speaker 2: To all of you who came, and to those of
Speaker 2: you who couldn't come.
Speaker 1: We are bringing you some of the conversations we had
Speaker 1: that evening to the podcast feed. So first up we
Speaker 1: have my conversation with Sebastian Lion of Troy Asset Management. Enjoy.
Speaker 1: Welcome everybody, and thank you for coming to Marrin Talks Money,
Speaker 1: the podcast in which people who know the markets explain
Speaker 1: the markets. Now we are recording this episode with those
Speaker 1: of you aren't here, do come next time in front
Speaker 1: of an audience of subscribers at the Bloomberg London offices.
Speaker 2: Now there'sill be three sections to it.
Speaker 1: There's gonna be this bit where I talked to Sebastian,
Speaker 1: and then we'll do some more personal finance stuff and
Speaker 1: we'll take lots of questions. Do use that QR code
Speaker 1: to ask questions, but you will also be able to
Speaker 1: ask for the mic at the end, I don't feel
Speaker 1: you have to use the QR code. Now we're going
Speaker 1: to start all this with Sebastian.
Speaker 2: Who's a long term friend of the show and mine.
Speaker 1: We were just saying earlier we started our businesses around
Speaker 1: the same time twenty five twenty five years ago, and
Speaker 1: I think we've been talking about the gold price pretty
Speaker 1: much ever since, ever since.
Speaker 3: Without without break, we've aged well, we have, we have
Speaker 3: and serves the gold price certainly has.
Speaker 1: Yep, right by Sebastian, thank you for coming and doing this.
Speaker 1: Then let's start with the general miseries, shall we.
Speaker 2: I mean listening how many are there? So many listening
Speaker 2: to that list of sigmons.
Speaker 1: The first thing that I think strikes you is how
Speaker 1: extraordinarily calm markets are in the wake of that sort
Speaker 1: of bizarrely unexpected list of things that have happened in
Speaker 1: the last two and a half three months, on two
Speaker 1: and a.
Speaker 3: Half weeks, let alone two and a half weeks. I mean,
Speaker 3: people have forgotten about the fed appointment. Really that happened
Speaker 3: at the end of January, and it's just sort of
Speaker 3: in the midst of time. But actually so much has
Speaker 3: happened since then, so I'm having to deal with that,
Speaker 3: having to keep your focus, are having to be consistent
Speaker 3: as a fun manager with all of that. I mean,
Speaker 3: the noise level are off the scale, but consistency, as
Speaker 3: you're the seers are, yes, absolutely what we do try,
Speaker 3: That's what we are there for.
Speaker 1: So I think what we really want to talk about
Speaker 1: this evening is how exactly you manage money and construct
Speaker 1: a portfolio in this kind of environment, because really the
Speaker 1: style that you use was really.
Speaker 2: Designed for this kind of environment, right.
Speaker 1: I mean, there are a period in the markets when
Speaker 1: you want to be in expensive growth dove and where
Speaker 1: you want to be thinking mainly about how do I
Speaker 1: grow my capital, how do I make more money all
Speaker 1: the time, And then there are berriers such as this
Speaker 1: when mainly you're thinking about how on earth do I
Speaker 1: protect what I already have.
Speaker 3: It's about preparing for dislocations basically, because dislocations happen, whether
Speaker 3: it be COVID, whether it be the financial crisis, whether
Speaker 3: it be the dot com bust another instance, whether it
Speaker 3: be the Gulf Wall, the invasion of or not the
Speaker 3: invasion of Iran yet, but we'll see about that maybe
Speaker 3: in a few weeks time. So we are waiting for those.
Speaker 3: Those events give us opportunities, but we also know that
Speaker 3: we need to be ready for them. We were ready
Speaker 3: for COVID, although COVID came totally out of the blue,
Speaker 3: we were prepared for the point of view, our act
Speaker 3: allocation was relatively low because xtually markets were high going
Speaker 3: into COVID. There was a lot of vulnerability. There's a
Speaker 3: lot of fragility within XIT markets.
Speaker 2: So when ready for COVID.
Speaker 3: So we weren't ready for COVID because no, absolutely not.
Speaker 3: But you've got to be ready for these instances and
Speaker 3: they come from left field. I mean, if you think
Speaker 3: about even three weeks ago, markets were very abulliant. People
Speaker 3: were talking very positive about ciclicality, about bank stocks, about
Speaker 3: house builders, all those areas of the market. Heavily cynical
Speaker 3: businesses which we tend to steer clear of. Those businesses
Speaker 3: now are down fifteen to twenty five percent just in
Speaker 3: the last two and a half weeks, with the your
Speaker 3: price going up. All you've got to do is be
Speaker 3: prepared to say, actually, those are not the kind of
Speaker 3: companies that I want to be in, because you know
Speaker 3: that those sort of instances can happen and do happen,
Speaker 3: and those businesses are more fragile, moreulnerable. I was with
Speaker 3: a property agent, a West End property agent this afternoon.
Speaker 3: He said that all transactions are just stopped literally on
Speaker 3: a pin, just until this situation is resolved, which may
Speaker 3: be weeks, it might be months. Transactions have just finished.
Speaker 3: So one has to be ready for events such as that.
Speaker 3: What they actually bring is opportunity. So as a long
Speaker 3: term investor, one can actually take opportunities when one sees
Speaker 3: huge risk a version. And we haven't seen that yet,
Speaker 3: by the way, But if and when we see huge
Speaker 3: risk of version, we see markets full as we did
Speaker 3: during COVID markets fell thirty five percent within the space
Speaker 3: of nine weeks, then you've got to be ready to
Speaker 3: act and lean in and take more riskers you're paid
Speaker 3: to take more risk. That's how you generate long term
Speaker 3: returns but also protect the downside. And the key thing
Speaker 3: for us, for personal assets or for the Trojan Fund,
Speaker 3: is that we want to give our investors a more
Speaker 3: comfortable ride that they sleep at night, that we're consistent,
Speaker 3: that they know they can run on us. So if
Speaker 3: markets do suddenly fall twenty five or thirty percent, that
Speaker 3: that they know that the Trajuy fund or personal asets
Speaker 3: would have fallen considerably less than the market a couple
Speaker 3: of percent. Well it could be a couple of percent.
Speaker 1: And when you when you look at their portfolio, you
Speaker 1: are not measuring yourself relative to a benchmark. You're always
Speaker 1: thinking about inflation. And that's it about first maintaining the
Speaker 1: real value of the assets before you think about growing them.
Speaker 2: Absolutely not about how it's perfect you're doing.
Speaker 3: It's not about absolutely not. I mean, obviously we look
Speaker 3: at the foot see obviously we look at the MSCI,
Speaker 3: the long term track record of the Trojan fun which
Speaker 3: is the longest track recording in back twenty five years.
Speaker 3: You mentioned, we've generated the equity type returns seven percentage,
Speaker 3: about the same as the UK stock market, but with
Speaker 3: less than half of volatility, so about six percent per
Speaker 3: year volatility rather than the market being thirty and.
Speaker 2: Measuring yourself against RPI rather than the CPI.
Speaker 3: Well that's going to change, but I don't want to
Speaker 3: give any too many surprises away because of the change
Speaker 3: in the RPI that will ultimately change. We need to
Speaker 3: review that. But yes, it has always been the RPI.
Speaker 3: We are trying to protect the real value of people's
Speaker 3: capital income helpful though it is is a residual. We
Speaker 3: never reach for income. It's one of the pluses of
Speaker 3: the whether we do it. Some of the people who
Speaker 3: invest for capital preservation have the tendency to reach for yield,
Speaker 3: and we actually do the opposite.
Speaker 1: Okay, let's start the next bit by talking about your
Speaker 1: inflation expectations, because I know a lot of the portfolio
Speaker 1: has historically been designed around your expectation of fast rising inflation,
Speaker 1: and obviously the war is going to feed into that absolutely.
Speaker 3: Yeah. So I mean, with the your price up but
Speaker 3: one hundred dollars and it my spike further, I wouldn't
Speaker 3: be surprised if it sprites further. Then obviously we're going
Speaker 3: to see an inflation shock to the RPI, so that
Speaker 3: none of those numbers have gone in we think. I mean,
Speaker 3: it's very interested listening to your podcast two weeks ago
Speaker 3: with Edward Chancellor. That book The Price Time We've given
Speaker 3: its clients. It's a remarkably well timed, brilliant book. But
Speaker 3: what he is effectively saying, what we have recognized as
Speaker 3: investors over the last five six years, is that in
Speaker 3: twenty twenty with COVID. Things changed, and things were going
Speaker 3: to change anyway when an event happened, whether it be
Speaker 3: a recession or or whether it be a pandemic, as
Speaker 3: it happened, but interest rates basically bottomed, and we had
Speaker 3: this extraordinary period of a decade where interest rates were
Speaker 3: at zero and nailed to the floor, and we recognized
Speaker 3: that we were going to go into a world of
Speaker 3: rising rates and probably as a result, higher inflation all
Speaker 3: the other way around. We saw those inflationary pressures build up,
Speaker 3: which we saw with the war in Ukraine. RPI went
Speaker 3: to thirteen percent CPI and the US went to nine.
Speaker 3: It has been above target since then, so central backs
Speaker 3: have failed to get it below target. We think we
Speaker 3: are in a world obviously clearly helped by the old
Speaker 3: price going out to two hundred dollars, where the surprise will
Speaker 3: be on the upside for inflation rather than downside. Twenty
Speaker 3: ten to twenty twenty one, the surprise was permanently on
Speaker 3: the downside. The centerprise was struggling as hard as they
Speaker 3: could to get actually inflation up. Now we're in a
Speaker 3: very different world.
Speaker 2: Okay, but you know this was very much the case.
Speaker 2: But before the oil preach started to move.
Speaker 3: Yes, well, we yeah, absolutely, we believe that we're in
Speaker 3: a secular period whereby as Edward is, where yields are rising,
Speaker 3: where the bond market, bond market yields bottoms in August
Speaker 3: July August of twenty twenty, yields have been rising since then. Yes,
Speaker 3: there will be downward moves. What's very interesting about this period,
Speaker 3: the last few weeks is that actually, although the expectation
Speaker 3: would be with the rising oil price of flight to quality,
Speaker 3: yields would actually fall, they haven't. In fact, they've risen.
Speaker 3: So there isn't that protection, that natural protection of the
Speaker 3: sixty forty sixty equity forty bonds. And we knew that
Speaker 3: we were in a different world where sixty forty type
Speaker 3: structure of a portfolio. You asked me about the structure
Speaker 3: of the portfolio. We moved from a world where you
Speaker 3: do not want to have sixty forty because actually equities
Speaker 3: and bonds can go down at the same time within
Speaker 3: an inflationary world.
Speaker 2: Stick with inflation. What are the drivers of this change?
Speaker 1: I mean, I think we can probably list them all
Speaker 1: in geopolitics supply.
Speaker 3: Chaine, well geopology, but in particular tariffs, the world getting larger,
Speaker 3: rather so the world was always getting smaller with global
Speaker 3: lotation that really has been reversing for quite a long
Speaker 3: time now. That has meant that there's a greater fragility
Speaker 3: in supply chains. And that is meant when we've seen
Speaker 3: these crisis, whether it be Ukraine, whether it be Iran,
Speaker 3: that the response is higher prices, whereas we've been used
Speaker 3: to lower and lower and lower prices, and it takes
Speaker 3: these shocks where there's a very oh okay, we're back
Speaker 3: in this world again. We're back in this world of
Speaker 3: higher prices. The old price. You know, there is a
Speaker 3: higher prices are deflationary. Well, yes, if the price goes
Speaker 3: to one hundred and fifty dollars, suddenly demand disappears because
Speaker 3: people can't afford the old price at that level. So
Speaker 3: that that's when we get the risk. I think there
Speaker 3: is a risk which I don't think is being discounted
Speaker 3: at the moment of recessionary courses.
Speaker 1: And you would you also think that the public debt
Speaker 1: problem feeds into the inflationary environment.
Speaker 3: The public debt problem doesn't help, doesn't help at all. No,
Speaker 3: it's because effectively policy makers are stuck as stuck in
Speaker 3: this period whereby they have to consequently out of the debt.
Speaker 3: I mean in the UK the interest bills now weout
Speaker 3: one hundred and ten billion pounds. In the US it's
Speaker 3: one point one trillion, So that desperately trying to keep
Speaker 3: the interest rates down, but clearly at the moment that's
Speaker 3: not necessarily likely to be the case. If anything, interest
Speaker 3: rates are going to be on hold. As central banks
Speaker 3: try and work out could there be a policy error
Speaker 3: of putting rates up or keeping rates on hold when
Speaker 3: actually demand falls off due to a high old price,
Speaker 3: or should they be cutting because it's that we're into
Speaker 3: a recession and you.
Speaker 1: Think recession risks in the US everywhere globally.
Speaker 3: Yes, absolutely so that I'm not predicting a recession, but
Speaker 3: there is far more of a risk recession than markets
Speaker 3: are discounting. After two and a half weeks of this.
Speaker 3: If this carries on and the gover of Homers stays
Speaker 3: shut for a prolonged period of time, call it three
Speaker 3: to six months rather than three to six weeks, then
Speaker 3: you could have real issues. And you know, I do
Speaker 3: see the lightly of the downtown and the downturn. There
Speaker 3: were risks of a downtime back in twenty twenty two
Speaker 3: twenty twenty three with with the invasion of Ukraine. But
Speaker 3: fortunately in that situation there were huge pent up savings
Speaker 3: from consumers, so consumers were actually in a very good
Speaker 3: place back in twenty twenty two twenty three they could
Speaker 3: withstand the higher prices to some extent. This time around,
Speaker 3: you've got a K shape recovery. I a mismatch between
Speaker 3: the haves and the have not have not You've got
Speaker 3: in the UK, you've basically, as you know, married very well.
Speaker 3: You've got zero growth as of the quarter to the
Speaker 3: end of January before this happened. And in the US
Speaker 3: actually growth has been not as strong as as many
Speaker 3: have expected, you know, sort of two percent, but by
Speaker 3: US standards actually relatively modest. So it's coming at a
Speaker 3: difficult time.
Speaker 1: The challenge to your moving away from recession, the it
Speaker 1: challenged your view on inflation, is that the technological progress
Speaker 1: that we're making at the moment is very deflationary. That
Speaker 1: the combination of AI, robotics, all these things coming together
Speaker 1: is a huge deflationary impulse across the global economy.
Speaker 3: Technology always has been a deflationary impasse. But I think
Speaker 3: that what's happening in terms of the reversal of globaliza.
Speaker 3: Globalization makes it, I think, much more difficult. That's why
Speaker 3: I mean, technological gains have been been made over the
Speaker 3: last five years, have been made materially since twenty twenty,
Speaker 3: since twenty twenty two. Yet we're in a position where
Speaker 3: inflation is above and sticky and above targets. So I
Speaker 3: think the technological revolution view of keeping inflation down yes,
Speaker 3: at the margin, but I think there are other factors
Speaker 3: at play which are frankly more important, that are sort
Speaker 3: of overruling the factors of of technology. Just at the moment.
Speaker 3: We will see maybe that will evolve, But so far
Speaker 3: that technological argument over the last five years hasn't really worked.
Speaker 1: Okay, let's go back to the conversation we started about
Speaker 1: bond and the sixty to forty portfolio.
Speaker 2: That really doesn't work anymore.
Speaker 1: But that doesn't mean there aren't fixed income holdings in
Speaker 1: your portfolio.
Speaker 3: No, But they're very very short duration, so we're just
Speaker 3: not taking any duration risk at all, and we haven't
Speaker 3: taken any duration risk for a very long time. So
Speaker 3: with a very long bond, clearly you're taking a lot
Speaker 3: of duration risks. A lot of the value of that
Speaker 3: bond is out into the twenty thirties, twenty forties, twenty fifties.
Speaker 3: The capital value to that bond is at risk if
Speaker 3: yields rise, as we expect yields to be sticky and
Speaker 3: continue to rise over time until governments ultimately intervene, which
Speaker 3: I expect them to do at some stage in the
Speaker 3: next four or five years, because this whole situation is
Speaker 3: ultimately unsustainable. Intervene now intervene in possible two ways. One
Speaker 3: would be your curve control because the interest is just
Speaker 3: not affordable. Well, the tried and tested ways are either
Speaker 3: the your curve control or actually a cutting of the coupon,
Speaker 3: which has been done in the past as well. If
Speaker 3: you remember but Warlane, which I used to own in
Speaker 3: the fact, remember, which is a very very long dated
Speaker 3: UK government bond, in fact about the longest dated that
Speaker 3: the yield was cut of seven percent to three and
Speaker 3: a half percent between the wars, So yields coupons have
Speaker 3: been cut, but yu curve to control is probably the
Speaker 3: most likely that was used in the US after the war.
Speaker 3: But there are tried and tested They're not very pleasant
Speaker 3: and clearly they are default and clear they have implications
Speaker 3: for currencies, but the unsustainable nature of sovereign government bonds
Speaker 3: higher yields than today are very material. That is why
Speaker 3: the UK government is subsessed by the guilt market because
Speaker 3: you know that has huge ramifications for them.
Speaker 1: Okay, so what replaces the traditional bond part of a
Speaker 1: portfolio so effectively it's liquidity, and we've got liquidity.
Speaker 3: We've got index linked so for example, we'd benefit from
Speaker 3: that inflation. If you look at what index link bonds
Speaker 3: have done since twenty twenty since inflation started to pick up,
Speaker 3: and what conventional bonds have done, Index lenth bonds have
Speaker 3: done much better because we've been taking that inflation every month.
Speaker 3: So we've got short but short dated index link. The
Speaker 3: longer dated index link bonds were very, very badly hit
Speaker 3: in twenty twenty two where we saw that inflation, but
Speaker 3: ironically people had long duration indexcellent bonds thinking that they
Speaker 3: were going to get the outside and actually the duration
Speaker 3: killed them even though they got they got the inflation.
Speaker 3: The shorter dated index links, which we had, got the
Speaker 3: inflation without the risk of the duration, so we didn't
Speaker 3: get hurt nearly as badly in twenty twenty two as
Speaker 3: a sum. But I think the key thing is is liquidity,
Speaker 3: and then you've got the greater flexibility as well. So
Speaker 3: our bonds are less than two years in duration. We
Speaker 3: could look don't very very quickly and move into other
Speaker 3: asset class if need be. And the other thing obviously
Speaker 3: within equities forty percent in equities and gold as well,
Speaker 3: which is ten percent of the portfolio.
Speaker 2: Let's talk gold last we yes, I think we must
Speaker 2: say it.
Speaker 1: Everyone expects us to talk about gold, right like it
Speaker 1: if we didn't yet, everyone wants justus talk about gold.
Speaker 1: Tis end of the portfolio. Still it's the biggest holding.
Speaker 1: But you have sold down quite a lot.
Speaker 3: We have sold down quite a lot. I think it's
Speaker 3: more a question of tempering our enthusiasm. We have done
Speaker 3: very well in gold, going right the way back to
Speaker 3: when we met. I think we first bought gold for
Speaker 3: the Trojan found back in twenty two thousand and four,
Speaker 3: so over twenty years ago. Gold price was four hundred
Speaker 3: and twenty four dollars back then. We've held it uninterrupted
Speaker 3: all of that time. We haven't been in and out
Speaker 3: and in and outs. We held it a long time
Speaker 3: and since after the financial crisis. We've in between about
Speaker 3: ten and twelve percent. But when I met you three
Speaker 3: years ago sitting on the stage, I think the price
Speaker 3: was around just over two thousand, two thousand, two hundred
Speaker 3: dollars something like that. Today it's five thousand dollars plus
Speaker 3: on minus. It's been a hell of a run. We
Speaker 3: know the reasons as to why that has been the
Speaker 3: A well exercise particularly interesting and not about consumers or
Speaker 3: institutional investors particularly adding to gold. Be much more about
Speaker 3: central banks diversifying their portfolios, and that has continued and
Speaker 3: that's been of great support to the market. So I'm
Speaker 3: not overly pessimistic about gold at these levels. However, they
Speaker 3: have had a great run and we need to get
Speaker 3: our risks proportionately correct. We allowed gold to run out
Speaker 3: fourteen percent at the end of last year within the portfolio.
Speaker 3: In January, the price spiked above five thousand, five hundred dollars.
Speaker 3: We sold some just over about five thousand, one hundred,
Speaker 3: five thousand, two hundred dollars, and we brought it down
Speaker 3: to ten percent. So it's a very bitch. We've cut
Speaker 3: our goal hold in about thirty percent in a day.
Speaker 3: Shows how liquid it is.
Speaker 2: A ten percent.
Speaker 3: At ten percent, I think expresses low long term confidence.
Speaker 3: In the short term, I think it's going to be
Speaker 3: quite bumpy. It's traveled a long way very quickly, and
Speaker 3: I think it's not necessarily going to protect in a
Speaker 3: way that it has done in the past from volatility
Speaker 3: within markets because of that high level. So it's just
Speaker 3: not going to be that necessarily that portfol insurance. And
Speaker 3: we've seen that in the last two to three weeks.
Speaker 3: We've seen the bomby of Iran at a time the
Speaker 3: gold prize actually hasn't done anything in Sterling. It's up
Speaker 3: a little bit because the dollars strengthened, but really it's
Speaker 3: done nothing. And you would have expected it if you
Speaker 3: were to say to me, right lo Gate, the US
Speaker 3: is going to bomb Iran with Israel tomorrow morning, what
Speaker 3: do you expect the gold price to do? You would
Speaker 3: naturally expect it as a flight to quality, for the
Speaker 3: gold price to go up. It hasn't, and I think
Speaker 3: that and when, when, eventually, whenever it is, the US
Speaker 3: steps back from the war, then it would be interesting
Speaker 3: to see what happen the gold price. Then I wouldn't
Speaker 3: be surprised if it has a correction, but that I
Speaker 3: would view that as a long term opportunity. I think
Speaker 3: with everything we've talked about in terms of sovereign debt risk,
Speaker 3: that is not going away, and that will be very
Speaker 3: positive gold, both from the point of view of weak
Speaker 3: ocurrencies and debasement, but also from the point of view
Speaker 3: of owning another asset other than fixed income. So so
Speaker 3: I don't think the bull market is over, but I
Speaker 3: think we have had a very strong run, and I
Speaker 3: think there's reason to be a little bit more circumspect
Speaker 3: from these levels. And just there is no right answer
Speaker 3: about how to size this thing. I've got friends who've
Speaker 3: got fifty percent in gold. I've got friends who've got
Speaker 3: one percent in goals. I've got friends who've got no gold.
Speaker 3: So it is not necessarily to size. What I've always
Speaker 3: felt is that you've got to have enough to make
Speaker 3: a difference, but not so much that the tailwork's dog.
Speaker 3: So I've always felt between eight and twelve percent about right.
Speaker 3: Were allowed to get to fourteen, we came back to ten,
Speaker 3: But I think that's the right sort of level for
Speaker 3: the environment that we're in. And it is an educated guest.
Speaker 1: Frankly, always of course, but you would expect to invest
Speaker 1: a demand for gold to go up if you think
Speaker 1: that for many decades until relatively recently, everyone had four
Speaker 1: or five, six, seven percent of their portfolio in gold,
Speaker 1: and now the everage person still has.
Speaker 2: Maybe zero percent in gold.
Speaker 1: So you would expect as people starting to build up
Speaker 1: gold holdings again in response to the conversations had about
Speaker 1: bond and diversifiers and balancers, you would expect there to
Speaker 1: be a big level of retail demand coming through.
Speaker 3: Yes, and I think that a lot of the diversifiers
Speaker 3: that people hope we're going to work, let's say in
Speaker 3: twenty twenty two, didn't work. And so yeah, gold has
Speaker 3: worked for the right reason.
Speaker 1: So many people would say the bitcoin has worked to
Speaker 1: a degree, to a degree perhaps, but you've got none
Speaker 1: of that.
Speaker 3: No, I'm afraid there are sometimes I admire the works
Speaker 3: of mister Buffett, Mistermonger, and you know, sometimes they say
Speaker 3: it goes into the two hard bucket, A nets cop
Speaker 3: out MAREA.
Speaker 2: I'll take coin.
Speaker 3: Definitely goes into the two our bucket, and I will
Speaker 3: leave that so far fast, people, let's talk almost.
Speaker 2: I don't know who else bitcoin.
Speaker 1: There.
Speaker 2: Listeners audience are on your side.
Speaker 3: Who owns gold?
Speaker 1: I know everyone owns gold, right, hands up for gold
Speaker 1: For those who aren't with us, pretty much the entire audience.
Speaker 2: We are an audience with a converted.
Speaker 1: Then let's talk about the actually part of the portfolio
Speaker 1: and how you do that, because you know, when I
Speaker 1: look at it, I don't see any of much of
Speaker 1: the stuff that John and I have been.
Speaker 2: Talking about on the podcast.
Speaker 1: Basically, you don't see much in the way of energy stocks,
Speaker 1: or metals and miners or anything that really fits the
Speaker 1: the halo vibe hot and slower obsolescence, et cetera.
Speaker 2: You haven't. You haven't gone in for that, and I
Speaker 2: might have expected you to.
Speaker 3: Yeah, we have a little bit. We have diversified more.
Speaker 3: I mean, we like to invest in higher quality businesses.
Speaker 3: Quality is in the either beholder, and the key thing
Speaker 3: is is that we don't overpay for those quality businesses.
Speaker 3: So when events like Iran happen, when events like COVID happens,
Speaker 3: those businesses get Actually, the miners have sold off quite
Speaker 3: a lot in the last two or three weeks, so
Speaker 3: that was very much the zeitgeist of two or three
Speaker 3: weeks ago. Whether it is in a year or t
Speaker 3: his time. We will see our preferences to own businesses
Speaker 3: which are defensive, where there's consistent cash generation, where there's
Speaker 3: consistent rewards for investors in terms of in terms of
Speaker 3: particularly dividends, which we prefer rather than buybacks, and we
Speaker 3: hold companies usually for a very long time. Where we
Speaker 3: have changed a little bit in the last year or
Speaker 3: two is we've been reducing our exposure to US equities
Speaker 3: in favor of European and UK, but particularly European equities
Speaker 3: we think valuations are better, which where we agree with you,
Speaker 3: and also where we have sold out in the US.
Speaker 3: We've sold things like American Express, which is very vulnerable
Speaker 3: to a downtown, which we've done did phenomenally well, and
Speaker 3: for example, we own that for over a decade, so
Speaker 3: we can hold companies for a very long period of time.
Speaker 3: We sold Procter and Gamble similarly, we'd own that for
Speaker 3: a decade, which had done very well and have a
Speaker 3: very material rerating. And we also sold Moodies because we
Speaker 3: were concerned about the risks there in terms of valuation.
Speaker 3: So the quality is fine, the qualities are given. It's
Speaker 3: a question of the valuation and what we don't do
Speaker 3: is what we don't do. Unlike some quality growth investors
Speaker 3: run their winners, run their winners. We're very careful about
Speaker 3: making sure that we manage the risk. And coming back
Speaker 3: to your point about trying to not target an equity index,
Speaker 3: we don't stretch the portfolio anywhere along index lines. But
Speaker 3: also we have pretty strong risk controls whereby if a
Speaker 3: stock goes above five percent, we trim it naturally anyway,
Speaker 3: because we don't want to have you know, we never
Speaker 3: know what could go wrong. Yeah, yeah, But the other
Speaker 3: thing that we've been doing within the portfolio is so
Speaker 3: we've been selling those sorts of stocks and buying things
Speaker 3: like railroads. We bought Canadian National. We've bought which obviously
Speaker 3: is does fit the theme. We bought insurance, so we've
Speaker 3: always had an exposure to insurance because we like insurance
Speaker 3: from a portfolio construction point of view. It does something
Speaker 3: very different. It plays to a different cycle from the
Speaker 3: equity cycle or the financial cycle. So we bought Chubb
Speaker 3: a couple of eighteen months ago, which has done well
Speaker 3: so and we bought Hubble, which is actually makes grid
Speaker 3: infrastructure not an AI play particularly actually, but just I
Speaker 3: don't know if you're were of this, Marin, But in
Speaker 3: the Californian wilfars that we had just over a year ago,
Speaker 3: one of them was started by electricity equipment that was
Speaker 3: one hundred and four years old. The US really really
Speaker 3: really needs to invest in its electricity infrastructure, and Hubble
Speaker 3: will be a beneficiary of that whatever happens to AI.
Speaker 3: So we have shifted subtly. The portfolio quality is a
Speaker 3: difficult one because quality evolves and the portfolio has to
Speaker 3: evolve with it, and we don't want to get stuck
Speaker 3: in things that, in particular where valuations are too high
Speaker 3: and there's valuation risks. That's the biggest risk of the
Speaker 3: way that we invest as valuation risks, because the businesses
Speaker 3: generally continue to grind out pretty well. But what we
Speaker 3: don't want to do is we want to be careful
Speaker 3: when Marcus get ever excited, as they did, particularly in
Speaker 3: twenty twenty one, and we reduced our exposure quite a
Speaker 3: lot during that period.
Speaker 2: Okay, we're going to have to finish.
Speaker 1: I feel like we could go on for a very
Speaker 1: long time, so I'm going to finish with one last question.
Speaker 1: What is the thing you are most worried about at
Speaker 1: the moment, I would ask other people what they're most
Speaker 1: optimistic about.
Speaker 2: But with you, I'm going to go with womo is worried.
Speaker 3: About sovereign government bonds has to be that over the
Speaker 3: next and I'm thinking about the next five years. That
Speaker 3: has got to be the thing that's the major worried
Speaker 3: because while I've said how it might be solved, it
Speaker 3: will be messy before then.
Speaker 2: Excellent.
Speaker 1: Thank you for finishing on that high notes. Qastian, thank
Speaker 1: you so much for joining us today.
Speaker 2: Spats your line right, you're off, Thank you, Thank you,
Speaker 2: Thanks for listening for this week's Maren Talks Money.
Speaker 1: If you like our show, rate review, and subscribe wherever
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Speaker 1: comments to marrin Money at Bloomberg dot net.
Speaker 2: You can also follow me and John.
Speaker 1: On Twitter or x I'm at marins w and John
Speaker 1: is John unders.
Speaker 2: Course step back.
Speaker 1: This episode was hosted by Meet Maren Umset, where it
Speaker 1: was produced by Zamasidi and Moses and sound designed by
Speaker 1: Aaron Kasperspy Sor thanks of course, just Sebastian Lion