1 00:00:02,200 --> 00:00:06,399 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg 2 00:00:06,480 --> 00:00:09,720 Speaker 1: Radio this weekend. On the podcast, I have an extra 3 00:00:09,800 --> 00:00:12,799 Speaker 1: special guest. His name is Tom Slater. He's the head 4 00:00:12,800 --> 00:00:17,120 Speaker 1: of the US equities team at UK firm Bailey Gifford, 5 00:00:17,200 --> 00:00:22,520 Speaker 1: headquartered in Edinburgh. The firm has been around since They 6 00:00:22,560 --> 00:00:26,960 Speaker 1: manage pick a number, almost three hundred billion dollars in assets. 7 00:00:27,040 --> 00:00:31,680 Speaker 1: They've had explosive growth and they are not your typical 8 00:00:31,760 --> 00:00:37,040 Speaker 1: growth manager. They run concentrated portfolios. He referred to one 9 00:00:37,040 --> 00:00:41,240 Speaker 1: of the funds they run as growth at an unreasonable price, 10 00:00:41,760 --> 00:00:44,199 Speaker 1: but it's worked out really well. That fund is up 11 00:00:44,600 --> 00:00:47,959 Speaker 1: a hundred and twelve percent, almost a percent more than 12 00:00:48,080 --> 00:00:52,120 Speaker 1: the S and P five hundred and Really this conversation 13 00:00:52,479 --> 00:00:56,120 Speaker 1: is very much along the lines of what happens when 14 00:00:56,160 --> 00:01:01,279 Speaker 1: you rethink the investment process over long, long periods of 15 00:01:01,320 --> 00:01:06,360 Speaker 1: time and make well thought out, intelligent adjustments to how 16 00:01:06,400 --> 00:01:13,160 Speaker 1: you go about selecting companies, constructing portfolios, making cell decisions, 17 00:01:13,600 --> 00:01:17,720 Speaker 1: which Tom points out is where so many investors go awry. 18 00:01:18,319 --> 00:01:22,200 Speaker 1: You know, your downside in anyone's stock is limited pretty 19 00:01:22,280 --> 00:01:26,520 Speaker 1: much to but your upside is far far greater, and 20 00:01:26,640 --> 00:01:30,039 Speaker 1: as he points out, four percent or so of the 21 00:01:30,080 --> 00:01:35,039 Speaker 1: total US equity stocks are what has driven all of 22 00:01:35,080 --> 00:01:38,080 Speaker 1: the gains over the past century, and so it becomes 23 00:01:38,200 --> 00:01:42,360 Speaker 1: very important not to sell a stock that has potential 24 00:01:42,520 --> 00:01:45,240 Speaker 1: to keep growing. And if you look at their portfolio 25 00:01:45,680 --> 00:01:49,960 Speaker 1: grow substantially. They own things like Tesla and Netflix and 26 00:01:50,640 --> 00:01:54,720 Speaker 1: Alphabet etcetera. This was really a fascinating conversation if you 27 00:01:54,760 --> 00:01:57,840 Speaker 1: were at all interested in growth investing, if you want 28 00:01:57,840 --> 00:02:00,760 Speaker 1: to know why having a large to share and not 29 00:02:00,840 --> 00:02:05,000 Speaker 1: being a closet indexer is important as an active manager. Well, 30 00:02:05,600 --> 00:02:07,520 Speaker 1: this is going to be the interview few so, with 31 00:02:07,600 --> 00:02:12,720 Speaker 1: no further ado, my conversation with Tom Slater of Bailey Gifford. 32 00:02:14,040 --> 00:02:18,600 Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio. 33 00:02:19,160 --> 00:02:22,240 Speaker 1: My special guest today is Tom Slater. He is the 34 00:02:22,280 --> 00:02:25,920 Speaker 1: head of the US equities team for Bailey Gifford, where 35 00:02:25,919 --> 00:02:28,280 Speaker 1: he has been a partner since two thousand and twelve. 36 00:02:28,639 --> 00:02:32,359 Speaker 1: He runs the long term Global Growth portfolios, which are 37 00:02:32,480 --> 00:02:37,280 Speaker 1: focused on growth companies that are both listed and private. 38 00:02:37,760 --> 00:02:42,000 Speaker 1: Tom Slater, Welcome to Bloomberg. Hi Berry, Thank you very 39 00:02:42,080 --> 00:02:44,880 Speaker 1: much for having me. So let's start a little bit 40 00:02:44,919 --> 00:02:48,000 Speaker 1: with your background. How did you find your way into 41 00:02:48,040 --> 00:02:52,240 Speaker 1: the investment management business. I know you have an experience 42 00:02:52,240 --> 00:02:55,480 Speaker 1: in computer science and mathematics. Yeah, that was that was 43 00:02:55,520 --> 00:03:01,320 Speaker 1: my background. I I studied mass and computer science University UM. 44 00:03:01,880 --> 00:03:05,680 Speaker 1: I was thinking probably about about doing something in in academia. 45 00:03:06,280 --> 00:03:09,680 Speaker 1: It was quite an interesting and exciting time in in 46 00:03:09,800 --> 00:03:13,600 Speaker 1: the computer science world ninety six to two thousands when 47 00:03:13,639 --> 00:03:15,880 Speaker 1: I was at university. But I had a very good 48 00:03:15,880 --> 00:03:19,400 Speaker 1: friend that that I studied Mass with and and she 49 00:03:19,480 --> 00:03:23,920 Speaker 1: went and worked in in the city of London during 50 00:03:24,000 --> 00:03:28,840 Speaker 1: our final sort university UM. She she came back Frans 51 00:03:28,880 --> 00:03:30,720 Speaker 1: of Franz Anderson, the name was she came. She came 52 00:03:30,760 --> 00:03:33,480 Speaker 1: back and she said to me that this this is that, 53 00:03:33,639 --> 00:03:36,240 Speaker 1: this is the direction we want to be looking at UM. 54 00:03:36,600 --> 00:03:38,160 Speaker 1: And that's what that was really the first time I 55 00:03:38,400 --> 00:03:42,560 Speaker 1: encountered the world of investment management UM. Probably the summer 56 00:03:44,040 --> 00:03:46,480 Speaker 1: really that that was a heck of a time in 57 00:03:46,960 --> 00:03:50,480 Speaker 1: terms of the end of that last big stock cycle. 58 00:03:51,200 --> 00:03:56,960 Speaker 1: Was that your formative experience the dot com boom and bust? Yes, 59 00:03:57,560 --> 00:04:01,800 Speaker 1: in a lot of ways it was. I started working 60 00:04:01,880 --> 00:04:04,720 Speaker 1: at Baiby Gifford in in September of two thousand, so 61 00:04:05,480 --> 00:04:09,240 Speaker 1: just after the peak of the boom, and and then 62 00:04:09,400 --> 00:04:11,920 Speaker 1: for the for the next three years, of the first 63 00:04:11,920 --> 00:04:15,840 Speaker 1: three years of my career, watch markets decline substantially. I 64 00:04:15,920 --> 00:04:18,040 Speaker 1: think there's this slight danger in quing it formative. And 65 00:04:18,320 --> 00:04:21,120 Speaker 1: of course there had been a lot of speculative excess 66 00:04:22,000 --> 00:04:25,600 Speaker 1: in that period, but some some amazing things have come 67 00:04:25,640 --> 00:04:29,800 Speaker 1: out of it as well. Subsequently, we've had a lot 68 00:04:29,839 --> 00:04:32,480 Speaker 1: of time for the work of Colota Perez at Sussex 69 00:04:32,600 --> 00:04:35,520 Speaker 1: University in this in this regard and and the link 70 00:04:35,680 --> 00:04:41,680 Speaker 1: between financial mania and subsequent technological innovation quite interesting. So 71 00:04:41,800 --> 00:04:44,480 Speaker 1: let's switch gears. You're an active manager and you are 72 00:04:44,560 --> 00:04:48,240 Speaker 1: both selecting stocks and determining how long to hold them. 73 00:04:48,520 --> 00:04:51,400 Speaker 1: And I want to ask you about a quote of 74 00:04:51,480 --> 00:04:55,279 Speaker 1: yours that I read where you you had written quote 75 00:04:55,360 --> 00:04:59,080 Speaker 1: the active management industry has done a poor job of 76 00:04:59,320 --> 00:05:03,560 Speaker 1: making the as for its own existence. Discuss that. I 77 00:05:03,680 --> 00:05:08,040 Speaker 1: think it's a really interesting area. By the the start 78 00:05:08,080 --> 00:05:13,080 Speaker 1: of it was was looking at this polarization between active 79 00:05:13,120 --> 00:05:18,120 Speaker 1: management and passive management and thinking through, well, what is 80 00:05:18,240 --> 00:05:21,760 Speaker 1: the what are we really trying to say about about 81 00:05:21,800 --> 00:05:26,960 Speaker 1: the case here? And it struck me that both both 82 00:05:27,120 --> 00:05:32,120 Speaker 1: passive and active had become terms that had become quite corrupted. 83 00:05:33,040 --> 00:05:35,679 Speaker 1: So in the in the case of the active management industry, 84 00:05:36,240 --> 00:05:40,799 Speaker 1: you see so many funds that label themselves as active, 85 00:05:41,400 --> 00:05:46,120 Speaker 1: that charge fees for active management, but have huge overlap 86 00:05:46,320 --> 00:05:49,279 Speaker 1: with the index or low active share as it's known. 87 00:05:50,120 --> 00:05:53,600 Speaker 1: And so what those companies are really focused on is 88 00:05:53,720 --> 00:05:57,000 Speaker 1: business risk and not producing an outcome that diverges too 89 00:05:57,080 --> 00:05:59,800 Speaker 1: much from the market, because of course, diverging too much 90 00:05:59,839 --> 00:06:02,960 Speaker 1: from the market is what leads you to your your 91 00:06:03,000 --> 00:06:08,000 Speaker 1: clients to fire. And so I think when you hear 92 00:06:08,480 --> 00:06:11,600 Speaker 1: those sort of hours from the act of management industry 93 00:06:11,640 --> 00:06:16,680 Speaker 1: about losing assets to passive management, in some ways the 94 00:06:16,760 --> 00:06:20,279 Speaker 1: industry has has been the architect of its own demands 95 00:06:20,560 --> 00:06:25,400 Speaker 1: by providing sufficient value to save us. And that leads 96 00:06:25,480 --> 00:06:29,160 Speaker 1: to these sort of remarkable results from the likes of 97 00:06:29,279 --> 00:06:33,000 Speaker 1: Cramers and Petagist so that show that there being a 98 00:06:33,120 --> 00:06:38,400 Speaker 1: correlation between active share and performance. So you have this 99 00:06:38,600 --> 00:06:41,200 Speaker 1: remarkable idea that you don't even need to know what 100 00:06:41,480 --> 00:06:44,719 Speaker 1: bets your fund manager is taking, simply that the fact 101 00:06:44,839 --> 00:06:48,880 Speaker 1: they are taking bets is likely to lead to a 102 00:06:48,960 --> 00:06:53,680 Speaker 1: better outcome, just because the aggregate statistics are dragged down 103 00:06:53,720 --> 00:06:56,720 Speaker 1: by those who aren't actually offering a genuine act of experience. 104 00:06:58,120 --> 00:07:02,320 Speaker 1: At the same time, though, you you the passive management industry, 105 00:07:02,960 --> 00:07:06,640 Speaker 1: I think has been guilty of coming up with so 106 00:07:06,839 --> 00:07:11,280 Speaker 1: many induicries against which to manage assets passively that you 107 00:07:11,880 --> 00:07:14,360 Speaker 1: can't help but concluded it is a little more than 108 00:07:14,440 --> 00:07:19,200 Speaker 1: a than an asset gathering exercise. There are more indseased 109 00:07:19,360 --> 00:07:22,760 Speaker 1: than than there are stocks to invest in, which was 110 00:07:23,000 --> 00:07:25,360 Speaker 1: which was a threshold that was crossed two or three 111 00:07:25,440 --> 00:07:27,960 Speaker 1: years ago. And so I think both both sides of 112 00:07:28,400 --> 00:07:31,440 Speaker 1: this argument have become quite polarized, that they've become at 113 00:07:31,480 --> 00:07:35,840 Speaker 1: times quite disingenuous. And that's what's what's taking bairy g 114 00:07:35,840 --> 00:07:39,680 Speaker 1: effort towards this idea of of categorizing ourselves as actual investors, 115 00:07:40,160 --> 00:07:45,120 Speaker 1: by which we mean that we aim to be long term, supportive, 116 00:07:45,360 --> 00:07:50,040 Speaker 1: engaged shareholders and companies, which is which is is nothing 117 00:07:50,080 --> 00:07:53,120 Speaker 1: to do with taking positions relative to an index. So 118 00:07:53,320 --> 00:07:55,800 Speaker 1: let's talk about one of the funds you're affiliated with, 119 00:07:56,040 --> 00:07:59,640 Speaker 1: the US Equity Growth Funds. It's up over a hundred 120 00:07:59,680 --> 00:08:03,080 Speaker 1: and twelve percent year to date. I have to assume 121 00:08:03,760 --> 00:08:08,560 Speaker 1: that has a substantial active share given the SMP is 122 00:08:08,640 --> 00:08:13,960 Speaker 1: up only year to date. Yes, we do not look 123 00:08:14,040 --> 00:08:19,160 Speaker 1: at the index when we construct portfolios. I think indices 124 00:08:19,360 --> 00:08:22,640 Speaker 1: are a good way to evaluate the performance of a 125 00:08:22,680 --> 00:08:24,800 Speaker 1: fund manager, so long as you do it over a 126 00:08:24,880 --> 00:08:27,440 Speaker 1: time scale which which is commensurate with the way that 127 00:08:27,520 --> 00:08:30,400 Speaker 1: which the fund is managed. But I think it's an 128 00:08:30,440 --> 00:08:35,120 Speaker 1: extremely dangerous way to start constructing a portfolio. So our 129 00:08:35,160 --> 00:08:39,040 Speaker 1: portfolios are constructed simply of the stocks that we think 130 00:08:39,240 --> 00:08:43,559 Speaker 1: offer the most exciting possibility is the greatest chance of 131 00:08:44,160 --> 00:08:48,760 Speaker 1: being exceptional companies, by which we mean addressing large opportunities, 132 00:08:49,320 --> 00:08:52,240 Speaker 1: having some form of sustainable edge and something special about 133 00:08:52,280 --> 00:08:54,880 Speaker 1: the culture and the way in which they go about 134 00:08:54,960 --> 00:08:58,559 Speaker 1: the task. So I discourage people from looking at the 135 00:08:58,600 --> 00:09:01,560 Speaker 1: one year numbers because I think one year numbers are 136 00:09:02,040 --> 00:09:06,040 Speaker 1: filled with noise, and actually extending the time frame looking 137 00:09:06,120 --> 00:09:09,520 Speaker 1: at three years, looking at five years is much more 138 00:09:09,640 --> 00:09:14,200 Speaker 1: likely to give investors evidence or otherwise of the skill 139 00:09:14,240 --> 00:09:18,400 Speaker 1: of the manager. So you use a benchmark that is 140 00:09:18,480 --> 00:09:23,079 Speaker 1: the S and P five plus one point five. I 141 00:09:23,240 --> 00:09:26,760 Speaker 1: have to ask where that benchmark came from. If you 142 00:09:26,840 --> 00:09:29,600 Speaker 1: were in British I would accuse you of showing off. 143 00:09:31,720 --> 00:09:36,080 Speaker 1: I think that is actually an artifact of of MIFED 144 00:09:36,160 --> 00:09:40,839 Speaker 1: regulations that we have to um have to declare our 145 00:09:41,200 --> 00:09:45,520 Speaker 1: performance objective, not just a benchmark, but a performance objective 146 00:09:45,600 --> 00:09:49,520 Speaker 1: for the fund. Um. I think if I have to 147 00:09:49,559 --> 00:09:53,199 Speaker 1: link that to a characteristic of Bailey Gifford, we have 148 00:09:53,360 --> 00:09:58,120 Speaker 1: an extremely strong compliance culture. Um. You if you go 149 00:09:58,240 --> 00:10:01,760 Speaker 1: way back in time, you know, um, after after the 150 00:10:01,840 --> 00:10:06,679 Speaker 1: Maxwell scandal and the raid on the pension fund, who 151 00:10:06,800 --> 00:10:08,760 Speaker 1: is that pension fund given to to manage? It was 152 00:10:08,880 --> 00:10:13,520 Speaker 1: daily gifted because the firm has a reputation of being 153 00:10:14,440 --> 00:10:16,679 Speaker 1: white and white when it comes to all of all 154 00:10:16,760 --> 00:10:21,199 Speaker 1: of these compliance um and management traits. And that's that's 155 00:10:21,280 --> 00:10:23,160 Speaker 1: really a function of the fact that the firm is 156 00:10:23,520 --> 00:10:27,400 Speaker 1: an unlimited liability partnership, which I think is a is 157 00:10:27,440 --> 00:10:29,840 Speaker 1: a very rare structure these days if you look at 158 00:10:29,840 --> 00:10:33,920 Speaker 1: the front management industry. But the forty yard partners who 159 00:10:34,080 --> 00:10:37,199 Speaker 1: work directly in the firm are personally liable for the 160 00:10:37,920 --> 00:10:41,640 Speaker 1: film's liabilities. And so when it comes to things like 161 00:10:42,200 --> 00:10:45,439 Speaker 1: MITHID regulations, we tend to follow the absolute letter of 162 00:10:45,480 --> 00:10:49,000 Speaker 1: the law and declare our performance relative to the one 163 00:10:49,040 --> 00:10:53,440 Speaker 1: and a half percent above the benchmark, you know, perhaps 164 00:10:53,480 --> 00:10:57,360 Speaker 1: a slightly more enthusiastic way than than many of our 165 00:10:57,440 --> 00:11:01,160 Speaker 1: peers might quite fascinating. So Tom, let me ask you, 166 00:11:01,480 --> 00:11:05,360 Speaker 1: how do you think about both assets under management and 167 00:11:05,520 --> 00:11:08,960 Speaker 1: how quickly the firm is growing when you're out looking 168 00:11:09,080 --> 00:11:12,120 Speaker 1: at companies or starts to buy. Yes, it's a really 169 00:11:12,200 --> 00:11:17,480 Speaker 1: interesting question. Um. The film was actually founded in so 170 00:11:17,600 --> 00:11:20,199 Speaker 1: if you look at the full sweep of its existency, 171 00:11:20,360 --> 00:11:23,400 Speaker 1: the growth hasn't been that explosive. But certainly our assets 172 00:11:23,440 --> 00:11:28,280 Speaker 1: and the management have have grown reasonably sharply of late. 173 00:11:29,240 --> 00:11:32,480 Speaker 1: But if you actually look at the flows of our clients, um, 174 00:11:32,760 --> 00:11:36,040 Speaker 1: there's there's significant flows both in and out, and the 175 00:11:36,160 --> 00:11:40,240 Speaker 1: net of those two numbers is just about zero. UM. 176 00:11:40,360 --> 00:11:42,880 Speaker 1: So the growth and assets has been much more to 177 00:11:43,040 --> 00:11:47,920 Speaker 1: do with investment performance and alpha generated for our clients 178 00:11:48,440 --> 00:11:51,560 Speaker 1: than it has from from an exercise around asset gathering. 179 00:11:52,360 --> 00:11:54,599 Speaker 1: And the reason for those two way flows is a 180 00:11:54,720 --> 00:11:59,520 Speaker 1: mixture of both the our core base of pension fund 181 00:11:59,559 --> 00:12:03,520 Speaker 1: clients gradually reducing their exposure to equities over time, and 182 00:12:03,600 --> 00:12:09,520 Speaker 1: then also clients rebalancing their portfolios. But in terms of 183 00:12:09,960 --> 00:12:12,040 Speaker 1: how I think about it, if you if you ask 184 00:12:12,120 --> 00:12:16,120 Speaker 1: me the question today what is bailic efforts assets and 185 00:12:16,160 --> 00:12:19,400 Speaker 1: the management, I wouldn't be able to tell you the 186 00:12:19,520 --> 00:12:23,120 Speaker 1: answer It's a statistic that at one stage in our 187 00:12:23,200 --> 00:12:25,959 Speaker 1: life used to be available on our Internet, but we 188 00:12:26,120 --> 00:12:29,040 Speaker 1: purposefully removed it. And the reason we did so is 189 00:12:29,120 --> 00:12:33,760 Speaker 1: that our objective is not to grow assets under management 190 00:12:33,880 --> 00:12:36,959 Speaker 1: in and of itself. UM. What we believe is that 191 00:12:37,080 --> 00:12:40,160 Speaker 1: if we do a good job from an investment standpoint 192 00:12:40,320 --> 00:12:43,640 Speaker 1: for our clients, if we provide a really high level 193 00:12:43,720 --> 00:12:47,760 Speaker 1: of service, that the assets and the management figure will 194 00:12:47,800 --> 00:12:52,000 Speaker 1: take care of itself. Um. One of the directors of 195 00:12:52,679 --> 00:12:56,200 Speaker 1: the investment trust that I managed, Scottish Mortgod Investment Trust, 196 00:12:56,880 --> 00:13:00,320 Speaker 1: wrote a book called Obliquity and talking about how those 197 00:13:00,360 --> 00:13:03,800 Speaker 1: things that had the greatest success often did that because 198 00:13:03,840 --> 00:13:08,800 Speaker 1: they pursued a different goal around delivering an excellent product 199 00:13:08,920 --> 00:13:12,120 Speaker 1: or service for their customers, and the success followed from 200 00:13:12,160 --> 00:13:17,000 Speaker 1: that they didn't target those financial objectives. Quite quite interesting. Well, well, 201 00:13:17,080 --> 00:13:20,920 Speaker 1: let's stick with the concept of both active share and 202 00:13:21,200 --> 00:13:25,400 Speaker 1: active management. You know, it's been the decade has really 203 00:13:25,520 --> 00:13:29,520 Speaker 1: been defined as the rise of passive and indexing. And 204 00:13:29,600 --> 00:13:33,280 Speaker 1: when we see firms like Vanguard at that six trillion 205 00:13:33,480 --> 00:13:36,760 Speaker 1: or Black Rocket eight trillion, that they've become the eight 206 00:13:36,840 --> 00:13:42,400 Speaker 1: hundred pound guerrillas, what should investors know about active strategies, 207 00:13:43,360 --> 00:13:49,960 Speaker 1: what types of strategies can work beyond simple passive indexing. Well, 208 00:13:50,440 --> 00:13:53,959 Speaker 1: I think passive indexing can be a great product for 209 00:13:54,320 --> 00:14:00,840 Speaker 1: and service. I think UM Vanguard does a fabulous job 210 00:14:01,080 --> 00:14:05,520 Speaker 1: of producing a really great value for money product for 211 00:14:05,679 --> 00:14:09,679 Speaker 1: savers UM and doing it with with real integrity. They 212 00:14:09,720 --> 00:14:13,920 Speaker 1: also have a very significant active management business, and again 213 00:14:14,280 --> 00:14:19,160 Speaker 1: they bring that that high quality attitude towards the way 214 00:14:19,200 --> 00:14:23,400 Speaker 1: they approached the task. I think that in an era 215 00:14:23,600 --> 00:14:28,800 Speaker 1: where there is so much change going on, where there 216 00:14:28,920 --> 00:14:34,720 Speaker 1: are companies using new business models, often underpinned by technology, 217 00:14:35,200 --> 00:14:41,000 Speaker 1: to bring transformational change in industries that have really historically 218 00:14:41,080 --> 00:14:47,360 Speaker 1: seen very little progress, UM that it creates pockets of growth, 219 00:14:47,800 --> 00:14:50,800 Speaker 1: creation of value that if you can tap into as 220 00:14:50,840 --> 00:14:53,560 Speaker 1: an act of manager, can be hugely valuable to your 221 00:14:53,840 --> 00:14:58,720 Speaker 1: underlying clients. UM. Now, it's it's it's important that you 222 00:14:58,840 --> 00:15:04,000 Speaker 1: have clarity around philosophy, process, what you're actually trying to do, 223 00:15:04,640 --> 00:15:09,640 Speaker 1: and it's it's centrally important that your fees are reasonable 224 00:15:09,760 --> 00:15:13,000 Speaker 1: and don't detract from that underlying experience at the end investor. 225 00:15:13,520 --> 00:15:17,760 Speaker 1: But I think subject to those qualifications, active management has 226 00:15:17,840 --> 00:15:20,840 Speaker 1: it has a huge amount to offer offer savers So 227 00:15:20,960 --> 00:15:24,400 Speaker 1: let's talk a little bit about active management. This era 228 00:15:24,680 --> 00:15:28,160 Speaker 1: is known, especially the past couple of years, for the 229 00:15:28,320 --> 00:15:32,840 Speaker 1: high valuations we've seen for for multiple growth companies. How 230 00:15:32,920 --> 00:15:37,680 Speaker 1: should investors think about valuations? The best stocks never look cheap, 231 00:15:38,280 --> 00:15:42,880 Speaker 1: but names that have looked historically expensive have done excellently 232 00:15:42,960 --> 00:15:47,600 Speaker 1: well this year. One of the ways we would characterize 233 00:15:47,600 --> 00:15:51,560 Speaker 1: our approach to investment would be the idea of growth 234 00:15:51,720 --> 00:15:58,440 Speaker 1: at an unreasonable price. And what what what it means 235 00:15:58,520 --> 00:16:03,840 Speaker 1: when I say that is that we're looking for companies 236 00:16:03,920 --> 00:16:09,160 Speaker 1: that address really big opportunities and where that opportunity is 237 00:16:09,240 --> 00:16:14,080 Speaker 1: often dynamic, it's often changing, and you have a hypothesis 238 00:16:14,160 --> 00:16:17,120 Speaker 1: about why this company might be the one to to 239 00:16:18,320 --> 00:16:23,440 Speaker 1: benefit from that change, but we don't know. But if 240 00:16:23,480 --> 00:16:25,840 Speaker 1: if the opportunity is big enough, if they if the 241 00:16:26,000 --> 00:16:28,000 Speaker 1: edge of the company is great enough, if there's something 242 00:16:28,120 --> 00:16:30,680 Speaker 1: special about the way it goes about that task, then 243 00:16:30,840 --> 00:16:36,480 Speaker 1: it can generate a huge amount of value. So if 244 00:16:36,560 --> 00:16:41,120 Speaker 1: you look at a company like Alphabet or Amazon, you 245 00:16:41,200 --> 00:16:45,960 Speaker 1: know these these companies have been vastly underestimated for most 246 00:16:46,360 --> 00:16:50,000 Speaker 1: of their life cycle. UM. I think it was Michael 247 00:16:50,080 --> 00:16:55,720 Speaker 1: Morrits Sequoia who said, why do we persistently underestimate just 248 00:16:55,960 --> 00:17:01,160 Speaker 1: how great a great company can be, and so we 249 00:17:01,400 --> 00:17:04,120 Speaker 1: we don't really look at multiples of near term earnings 250 00:17:04,200 --> 00:17:06,920 Speaker 1: or near term sales. We look at what might this 251 00:17:07,040 --> 00:17:10,000 Speaker 1: company achieve? Where could it be five years from now? 252 00:17:10,720 --> 00:17:13,480 Speaker 1: And I think over that time you can only think probabilistically. 253 00:17:13,520 --> 00:17:16,200 Speaker 1: There isn't an answer to that question. But if you 254 00:17:16,440 --> 00:17:19,240 Speaker 1: if you can identify one of those small number of 255 00:17:19,359 --> 00:17:23,160 Speaker 1: companies that are big winners in markets, um, then they 256 00:17:23,240 --> 00:17:27,760 Speaker 1: can justify paying what what may appear to be optically 257 00:17:28,400 --> 00:17:32,240 Speaker 1: high short term multiples because some of the growth opportunities 258 00:17:32,280 --> 00:17:34,760 Speaker 1: that are bound today are so open ended, and you 259 00:17:34,840 --> 00:17:36,439 Speaker 1: see a lot of when it takes all or when 260 00:17:36,520 --> 00:17:39,639 Speaker 1: it takes most economics. So I'm looking at the Bailey 261 00:17:39,680 --> 00:17:43,879 Speaker 1: Gifford US equity growth funds. The top ten holdings are 262 00:17:43,960 --> 00:17:49,399 Speaker 1: fairly concentrated. It's about fift the portfolio with a lot 263 00:17:49,480 --> 00:17:51,200 Speaker 1: of names that I think a lot of people would 264 00:17:51,200 --> 00:17:57,960 Speaker 1: recognize Tesla, Amazon, Shopify, Wayfair, Netflix, Alphabet, MasterCard. I have 265 00:17:58,119 --> 00:18:03,080 Speaker 1: to ask about check and Trade Desk, two companies I 266 00:18:03,160 --> 00:18:08,120 Speaker 1: am not all that familiar with. Yeah, if you look 267 00:18:08,200 --> 00:18:13,320 Speaker 1: at those two companies checkers and Education Platform, I think 268 00:18:13,359 --> 00:18:15,840 Speaker 1: there are. There are a lot of challenges faced by 269 00:18:16,040 --> 00:18:21,000 Speaker 1: the education system. And what CHECK has done is through 270 00:18:21,080 --> 00:18:26,680 Speaker 1: a director consumer model based around questions and answers products 271 00:18:27,359 --> 00:18:33,520 Speaker 1: um it. It is helping students to get measurably better 272 00:18:33,760 --> 00:18:38,320 Speaker 1: outcomes in in in their examinations, but around that and 273 00:18:38,840 --> 00:18:42,159 Speaker 1: on top of that it can build um all sorts 274 00:18:42,400 --> 00:18:47,199 Speaker 1: of products associated with student access and and in an 275 00:18:47,320 --> 00:18:52,920 Speaker 1: environment where college education is so expensive and inflation is 276 00:18:53,040 --> 00:18:57,480 Speaker 1: so high, actually providing a cost effective solution that demonstrates 277 00:18:57,600 --> 00:19:01,680 Speaker 1: value for money for students is something that I think 278 00:19:01,800 --> 00:19:06,359 Speaker 1: has a huge potential runway. UM You you've talked a 279 00:19:06,400 --> 00:19:08,520 Speaker 1: little bit about this year and the unusual traits of 280 00:19:08,600 --> 00:19:11,880 Speaker 1: this year. You know, I think what this year has 281 00:19:11,960 --> 00:19:16,440 Speaker 1: shown a spotlight on is um the challenges the education 282 00:19:16,720 --> 00:19:20,920 Speaker 1: sector has faced in embracing digital tools, digital methods of delivery. 283 00:19:21,680 --> 00:19:24,920 Speaker 1: Here in the fur management industry, here I am working 284 00:19:25,000 --> 00:19:28,200 Speaker 1: from home using a whole array of cloud based services. 285 00:19:28,320 --> 00:19:31,680 Speaker 1: It's it's probably made me more productive, not less productive. 286 00:19:32,200 --> 00:19:35,080 Speaker 1: But if I look at my children and their educational experience, 287 00:19:35,400 --> 00:19:38,359 Speaker 1: you know, as these UM state at home orders have 288 00:19:38,800 --> 00:19:41,200 Speaker 1: come through, you know, it's really shown a spotlight on 289 00:19:41,560 --> 00:19:44,919 Speaker 1: on how slow the education sector has been to embrace 290 00:19:44,960 --> 00:19:47,760 Speaker 1: some of these tools. Now check is a company that 291 00:19:48,760 --> 00:19:53,800 Speaker 1: it's run by its founder, a significant amount of equity 292 00:19:53,960 --> 00:19:57,240 Speaker 1: tied up in of their own wealth, tied up in 293 00:19:57,280 --> 00:19:59,439 Speaker 1: the equity of the business. It's run with a very 294 00:19:59,520 --> 00:20:02,840 Speaker 1: long time horizon, exactly the type of characteristics that we're 295 00:20:03,119 --> 00:20:05,440 Speaker 1: looking for in the in the long term growth businesses 296 00:20:05,520 --> 00:20:07,639 Speaker 1: that we invest in. I would say, and you know 297 00:20:07,720 --> 00:20:09,720 Speaker 1: if you when you when you talk to you talked 298 00:20:09,760 --> 00:20:13,480 Speaker 1: a bit about some of those UM top holdings, and 299 00:20:13,880 --> 00:20:16,000 Speaker 1: you know, if I was to pull out at difference 300 00:20:16,160 --> 00:20:20,280 Speaker 1: perhaps in the way we approached the task versus versus 301 00:20:20,359 --> 00:20:23,440 Speaker 1: some of our peers, it would be in the in 302 00:20:23,560 --> 00:20:28,200 Speaker 1: the longevity of the holdings. So you know, um, Amazon, 303 00:20:29,200 --> 00:20:32,560 Speaker 1: we bought in two thousand and five, so the holding 304 00:20:32,600 --> 00:20:35,600 Speaker 1: period as far as been fifteen years, and you know 305 00:20:36,600 --> 00:20:39,480 Speaker 1: has two thousand and thirteen, it's been seven years. So 306 00:20:39,640 --> 00:20:42,480 Speaker 1: it's the time horizon, not not the recent growth that 307 00:20:42,560 --> 00:20:46,159 Speaker 1: I think is the is a really important and defining characteristic. 308 00:20:46,680 --> 00:20:50,560 Speaker 1: Quite interesting. So Tom, let's talk a little bit about Passive. 309 00:20:50,760 --> 00:20:56,160 Speaker 1: You've talked about why Active doesn't do such a good 310 00:20:56,280 --> 00:21:00,320 Speaker 1: job of explaining their own existence. Kind of left the 311 00:21:00,400 --> 00:21:03,440 Speaker 1: field all alone to passive. But I want to come 312 00:21:03,480 --> 00:21:07,679 Speaker 1: back to another statement you made, quote the average active 313 00:21:07,760 --> 00:21:14,320 Speaker 1: manager will underperform the market. Unfortunately, this statement is mathematically inevitable. 314 00:21:15,160 --> 00:21:21,440 Speaker 1: Isn't that essentially the underlying argument in favor of passive Yeah, 315 00:21:21,840 --> 00:21:25,000 Speaker 1: I mean, I guess what what I is getting up is. 316 00:21:25,160 --> 00:21:27,480 Speaker 1: You know, if you if you say the market is 317 00:21:28,200 --> 00:21:32,520 Speaker 1: is made up of active and passive approaches to investment, 318 00:21:33,040 --> 00:21:38,000 Speaker 1: then after fees, you are guaranteed to see those brooches 319 00:21:38,359 --> 00:21:41,720 Speaker 1: underperform whatever the benchmark is. And since the fees on 320 00:21:41,760 --> 00:21:45,359 Speaker 1: active management are higher and see some passive management, you 321 00:21:45,400 --> 00:21:48,679 Speaker 1: would expect that that in some day or to as 322 00:21:48,720 --> 00:21:52,960 Speaker 1: a group underperform unerformed by a greater amount. But I 323 00:21:53,000 --> 00:21:55,000 Speaker 1: think you you know you You have to come back 324 00:21:55,160 --> 00:22:00,400 Speaker 1: to some of the challenges around what is active management. 325 00:22:00,960 --> 00:22:04,600 Speaker 1: And there are some some rules of of um not 326 00:22:04,960 --> 00:22:07,720 Speaker 1: even rules of fun. But there are some some interesting 327 00:22:07,760 --> 00:22:11,920 Speaker 1: academic results in this area. One we've touched on is 328 00:22:12,320 --> 00:22:16,520 Speaker 1: that simply having a higher active share chorities positively with 329 00:22:16,600 --> 00:22:20,679 Speaker 1: performance outcomes. But I think in the subsequent academic results 330 00:22:20,720 --> 00:22:25,920 Speaker 1: have shown that time horizon is also important in this 331 00:22:26,680 --> 00:22:29,400 Speaker 1: and as as you extend the time horizon. The academic 332 00:22:29,440 --> 00:22:35,160 Speaker 1: evidence is also supportive of better outcomes for for active management. 333 00:22:36,119 --> 00:22:40,560 Speaker 1: So I don't know, I don't think the averages matter 334 00:22:40,720 --> 00:22:45,200 Speaker 1: a great deal. It's much more about can you can 335 00:22:45,240 --> 00:22:47,800 Speaker 1: you find investment manager with the philosophy and process that 336 00:22:47,920 --> 00:22:50,800 Speaker 1: you believe in? Do they keep their fees to a 337 00:22:50,880 --> 00:22:53,639 Speaker 1: minimum so that you as an individual have to have 338 00:22:53,800 --> 00:22:57,919 Speaker 1: the best chance of our performing because the fees are 339 00:22:57,960 --> 00:23:00,600 Speaker 1: the one part that we do have sitt and t about. 340 00:23:01,119 --> 00:23:02,960 Speaker 1: And then it's you know, when you when you when 341 00:23:03,000 --> 00:23:05,440 Speaker 1: you believe you have found the manager that meets this 342 00:23:05,520 --> 00:23:09,840 Speaker 1: great area. If little changes, then stick with them through 343 00:23:09,920 --> 00:23:14,119 Speaker 1: inevitable performance cycles. You know, the the oldest client I 344 00:23:14,800 --> 00:23:17,679 Speaker 1: manage money for a betting g EFFITS is Scottish Mortgage 345 00:23:17,720 --> 00:23:20,879 Speaker 1: Investment Trust. We've we've managed that that fund for a 346 00:23:20,960 --> 00:23:24,320 Speaker 1: hundred and twelve years through the Great Depression and two 347 00:23:24,359 --> 00:23:27,720 Speaker 1: World Wars and unfortunately the performance numbers that come out 348 00:23:27,760 --> 00:23:31,879 Speaker 1: of that are not gifts compliant. But over that hundred 349 00:23:32,119 --> 00:23:34,800 Speaker 1: and twelve year period, you know, it is has been 350 00:23:34,920 --> 00:23:40,240 Speaker 1: a phenomenally attractive thing for investors to be invested in 351 00:23:40,359 --> 00:23:44,359 Speaker 1: an in an actively managed fund, quite interesting for Americans 352 00:23:44,400 --> 00:23:48,120 Speaker 1: who may not be familiar with what the Scottish Mortgage 353 00:23:48,160 --> 00:23:51,800 Speaker 1: Trust investment trust is. Can you explain a little bit 354 00:23:51,960 --> 00:23:56,320 Speaker 1: exactly what that entity is. I can't. Yes, it's it's 355 00:23:56,320 --> 00:24:01,120 Speaker 1: a closed ended investment vehicle listed on the London Stock Exchange. 356 00:24:01,760 --> 00:24:05,120 Speaker 1: It's capitalized around twenty five billion dollars. It's a member 357 00:24:05,200 --> 00:24:09,480 Speaker 1: of the foot See Index UM. But it's really a 358 00:24:09,600 --> 00:24:15,080 Speaker 1: collective investment vehicle UM that was raised in originally in 359 00:24:15,280 --> 00:24:18,960 Speaker 1: in in the fund structures that invested in that time. 360 00:24:19,480 --> 00:24:24,080 Speaker 1: But it's an incredibly flexible structure UM. It has an 361 00:24:24,119 --> 00:24:28,440 Speaker 1: independent board of directors who are who are of extremely 362 00:24:28,520 --> 00:24:32,680 Speaker 1: valuable source of council and advice for us as the 363 00:24:32,720 --> 00:24:36,480 Speaker 1: managers who do a great job of protecting the interests 364 00:24:36,640 --> 00:24:41,280 Speaker 1: of the tens of thousands of independent shareholders in the trust. 365 00:24:42,359 --> 00:24:46,120 Speaker 1: And it's a very flexible structure being being closed ended 366 00:24:46,119 --> 00:24:49,000 Speaker 1: in a permanent pool of capital, allowing us to invest 367 00:24:49,080 --> 00:24:53,479 Speaker 1: in both public and private companies really on the basis 368 00:24:53,520 --> 00:24:57,080 Speaker 1: of where we find the most exceptional opportunities with without 369 00:24:57,119 --> 00:25:00,760 Speaker 1: worrying about a company's public or private status, and in 370 00:25:01,000 --> 00:25:05,399 Speaker 1: an environment where many companies are able to grow very 371 00:25:05,520 --> 00:25:09,760 Speaker 1: rapidly with very modest capital requirements, often staying private for longer. 372 00:25:10,280 --> 00:25:12,960 Speaker 1: It's a structure that allows us to many maintain the 373 00:25:13,000 --> 00:25:16,520 Speaker 1: opportunity set of investing in the world's greatest growth companies. 374 00:25:17,040 --> 00:25:21,159 Speaker 1: So let's stick with the idea of private. Generally speaking, 375 00:25:21,240 --> 00:25:24,520 Speaker 1: we're seeing companies staying private for longer. As you mentioned, 376 00:25:24,600 --> 00:25:27,920 Speaker 1: they're they're not I P O in as often, and 377 00:25:28,080 --> 00:25:32,159 Speaker 1: there's clearly no passive, comparable sort of fund for pre 378 00:25:32,320 --> 00:25:39,040 Speaker 1: public companies. How different is making the stock selection decision 379 00:25:39,240 --> 00:25:43,400 Speaker 1: about private companies compared to what we see for publicly 380 00:25:43,440 --> 00:25:46,160 Speaker 1: traded firms. We have to be clear about what we're 381 00:25:46,160 --> 00:25:50,800 Speaker 1: trying to do here. We're investing in growth companies and 382 00:25:51,640 --> 00:25:55,280 Speaker 1: companies that we aren't venture couplists. We're not going in 383 00:25:55,480 --> 00:26:00,840 Speaker 1: and funding two people in a garage, um where where. 384 00:26:00,960 --> 00:26:03,000 Speaker 1: But we are investing in companies that have chosen to 385 00:26:03,000 --> 00:26:06,800 Speaker 1: stay private, possibly because you know, in in today's world, 386 00:26:06,920 --> 00:26:11,160 Speaker 1: where your addressable market is, there's three billion people globally 387 00:26:11,280 --> 00:26:15,520 Speaker 1: that have a smartphone where you can address that market 388 00:26:15,640 --> 00:26:19,800 Speaker 1: without investing in significant couple capital. You know you can 389 00:26:19,880 --> 00:26:23,200 Speaker 1: pay five percent of revenue to an Amazon Web services, 390 00:26:23,800 --> 00:26:26,360 Speaker 1: pay thirty percent to an app store, and then suddenly 391 00:26:26,600 --> 00:26:30,440 Speaker 1: you know that that three billion people is an addressable audience. 392 00:26:30,880 --> 00:26:34,360 Speaker 1: And as a result, with very modest capitals and investors, 393 00:26:34,480 --> 00:26:37,880 Speaker 1: you can see that the most successful companies really growed 394 00:26:38,000 --> 00:26:43,520 Speaker 1: to phenomenal size very rapidly. And so our observation was 395 00:26:43,640 --> 00:26:48,000 Speaker 1: that these are companies in another era that we you know, 396 00:26:48,240 --> 00:26:51,320 Speaker 1: we've we may well have been investing in any way 397 00:26:52,400 --> 00:26:54,600 Speaker 1: because because they would have come to public markets at 398 00:26:54,640 --> 00:26:57,240 Speaker 1: a much earlier stage. So I think in terms of 399 00:26:57,320 --> 00:27:00,679 Speaker 1: the decisions about investment, there's there's very little different. There 400 00:27:00,720 --> 00:27:03,960 Speaker 1: are some technical differences around the leagal negotiations around the 401 00:27:04,000 --> 00:27:06,600 Speaker 1: type of shares to you, but but I think that's 402 00:27:07,040 --> 00:27:09,600 Speaker 1: sort of slightly tangential to the to the core task 403 00:27:09,760 --> 00:27:13,280 Speaker 1: of picking the picking the investments. I think the other 404 00:27:13,359 --> 00:27:16,920 Speaker 1: thing to to to to comment on is you know 405 00:27:17,040 --> 00:27:19,600 Speaker 1: the costs at which this can be done. You know, 406 00:27:19,800 --> 00:27:23,920 Speaker 1: the the ongoing charges of Scottish mortgage investment trusts is 407 00:27:23,960 --> 00:27:26,440 Speaker 1: around thirty six basis points or just over a third 408 00:27:26,520 --> 00:27:29,600 Speaker 1: or one percent, And think for our shoolders to get 409 00:27:29,640 --> 00:27:34,360 Speaker 1: access to some of the world um most promising private 410 00:27:34,440 --> 00:27:38,720 Speaker 1: companies within that type of cost structure is game changing, 411 00:27:39,640 --> 00:27:44,200 Speaker 1: quite quite fascinating. So the equity markets in the US 412 00:27:44,280 --> 00:27:48,879 Speaker 1: have been dominated by the fang stocks or the phantom stocks. 413 00:27:48,960 --> 00:27:54,880 Speaker 1: If we throw in Microsoft, Facebook, Apple, Alphabet, Amazon, Netflix, Google, 414 00:27:55,040 --> 00:27:57,120 Speaker 1: I guess, I guess we could add even another Egg 415 00:27:57,440 --> 00:28:01,160 Speaker 1: if we change Google to Alphabet. These are the companies 416 00:28:01,240 --> 00:28:05,840 Speaker 1: dominating today, but they weren't the dominant companies twenty years ago. 417 00:28:06,640 --> 00:28:10,400 Speaker 1: Are these going to be the dominant companies twenty years 418 00:28:10,480 --> 00:28:13,800 Speaker 1: from now? Well, I think the first thing we ought 419 00:28:13,840 --> 00:28:17,160 Speaker 1: to be careful of is how we talk about these companies. 420 00:28:17,920 --> 00:28:22,119 Speaker 1: I try to ban the use of the term fang internally, 421 00:28:22,800 --> 00:28:26,119 Speaker 1: and the reason is that it creates this idea of 422 00:28:26,440 --> 00:28:29,960 Speaker 1: equivalence that this is, you know, these groups, these group 423 00:28:30,000 --> 00:28:33,520 Speaker 1: of companies driven by the same growth drivers, but also 424 00:28:33,840 --> 00:28:36,600 Speaker 1: affected by the same risk practice. You know, if you 425 00:28:37,000 --> 00:28:39,720 Speaker 1: if you go back and in fifteen years we were 426 00:28:39,760 --> 00:28:42,280 Speaker 1: all talking about the bricks. She was like, I think 427 00:28:42,280 --> 00:28:46,680 Speaker 1: an acronym coined by Jim O'Neill. But it was it 428 00:28:46,760 --> 00:28:50,560 Speaker 1: was an emerjoring markets Brazil, Russia, India, China. Now, if 429 00:28:50,600 --> 00:28:53,360 Speaker 1: you if you actually look at what's happened since that 430 00:28:54,360 --> 00:29:00,440 Speaker 1: brick acronym was coined, China has created an economy a 431 00:29:00,560 --> 00:29:04,160 Speaker 1: new economy two times the size of the other three combined. 432 00:29:05,040 --> 00:29:07,680 Speaker 1: So so they were really never that alike as as 433 00:29:07,760 --> 00:29:12,280 Speaker 1: economies in the first place. And so we try to 434 00:29:12,320 --> 00:29:16,720 Speaker 1: think about these these companies separately from one another. Amazon 435 00:29:16,880 --> 00:29:20,840 Speaker 1: remains one of our largest holdings, and you know, I 436 00:29:20,960 --> 00:29:23,640 Speaker 1: think there we see a runway to to a much 437 00:29:23,760 --> 00:29:25,920 Speaker 1: bigger business as you as you look at some of 438 00:29:25,960 --> 00:29:30,000 Speaker 1: the different components there, from from the general merchandise business 439 00:29:30,120 --> 00:29:33,520 Speaker 1: to it's it's moving to grocery in the retail space, 440 00:29:33,640 --> 00:29:36,360 Speaker 1: to it's so it's move into new geographies such as India, 441 00:29:37,040 --> 00:29:41,440 Speaker 1: but also it's it's in this this sort of intangible 442 00:29:41,520 --> 00:29:45,360 Speaker 1: quality of being able to move into areas that there 443 00:29:45,400 --> 00:29:48,440 Speaker 1: are somewhat adjacent to where they are, but where it's 444 00:29:48,520 --> 00:29:51,400 Speaker 1: very hard for people to to to imagine their progress. So, 445 00:29:52,040 --> 00:29:55,120 Speaker 1: you know, I strongly believe Amazon Web Services is just 446 00:29:55,320 --> 00:29:58,080 Speaker 1: about the most important business that exists in the world today. 447 00:29:58,440 --> 00:30:00,520 Speaker 1: Now Wall Street is very good at value doing you know, 448 00:30:01,280 --> 00:30:07,520 Speaker 1: today's products, today's markets, it's very bad anticipating or valuing 449 00:30:07,880 --> 00:30:10,920 Speaker 1: imagination and ambition, and that has been such an important 450 00:30:11,000 --> 00:30:14,800 Speaker 1: driver of value growth at Amazon. So I think these companies, 451 00:30:14,880 --> 00:30:18,520 Speaker 1: you know, over the past decade when everybody's been searching 452 00:30:18,600 --> 00:30:21,320 Speaker 1: for who is the next Alphabet, who is the next Facebook, 453 00:30:21,360 --> 00:30:23,680 Speaker 1: who is the next Amazon? You know, what we've we've 454 00:30:23,720 --> 00:30:26,959 Speaker 1: seen is actually those companies have reinvented themselves. They've got 455 00:30:27,040 --> 00:30:29,400 Speaker 1: stronger as they've they've got bigger that they've sucked it 456 00:30:29,400 --> 00:30:33,719 Speaker 1: in economic activity from across the Internet and also from 457 00:30:33,760 --> 00:30:36,480 Speaker 1: the real economy. I think it's you know, it's a 458 00:30:36,600 --> 00:30:39,960 Speaker 1: it's a much more nuanced question for for some of 459 00:30:40,040 --> 00:30:42,240 Speaker 1: those companies as you when you start out, you know, 460 00:30:42,720 --> 00:30:47,800 Speaker 1: trillion dollars of capitalization. So what excites me is that 461 00:30:48,000 --> 00:30:52,720 Speaker 1: you see some of them, the technologies that have driven 462 00:30:53,280 --> 00:30:56,760 Speaker 1: this transformation in retail, this transformation in media media over 463 00:30:56,800 --> 00:30:59,840 Speaker 1: the past twenty years, being applied to areas which have 464 00:31:00,080 --> 00:31:03,200 Speaker 1: us see nothing like that piece of change. And I 465 00:31:03,280 --> 00:31:06,680 Speaker 1: think that creates a whole new raft of opportunities, you know, 466 00:31:07,720 --> 00:31:12,360 Speaker 1: in in areas from I know, from insurance to to 467 00:31:12,600 --> 00:31:18,920 Speaker 1: real estate to um the automotive industry and and you know, 468 00:31:19,240 --> 00:31:22,320 Speaker 1: I think sort of one of the things that's so 469 00:31:22,400 --> 00:31:26,200 Speaker 1: exciting for a growth investor at the current time is 470 00:31:26,400 --> 00:31:30,240 Speaker 1: just how we're seeing the broadening of the impact of 471 00:31:30,320 --> 00:31:35,600 Speaker 1: More's law of ubiquitous mobile communications of advanced software across 472 00:31:35,720 --> 00:31:39,880 Speaker 1: huge suites of the economy. M So let's stick with 473 00:31:40,040 --> 00:31:44,640 Speaker 1: the concept of a WS and some of their competitors. Obviously, 474 00:31:45,480 --> 00:31:49,080 Speaker 1: Microsoft is a key competitor. A recent I p O 475 00:31:49,320 --> 00:31:53,000 Speaker 1: Snowflake is a company that won public and they seem 476 00:31:53,080 --> 00:31:56,479 Speaker 1: to be in a similar space and they quickly scaled 477 00:31:56,600 --> 00:31:59,600 Speaker 1: up to like a hundred billion dollar market gap. How 478 00:31:59,640 --> 00:32:03,640 Speaker 1: do you look at motes that these various companies create. 479 00:32:04,400 --> 00:32:09,000 Speaker 1: Is Amazon now just a behemoth that can never be 480 00:32:10,080 --> 00:32:14,760 Speaker 1: taken down? Or will anyone ever managed to penetrate the 481 00:32:14,920 --> 00:32:18,720 Speaker 1: motes that they've built? I mean, I think ever is 482 00:32:18,760 --> 00:32:21,880 Speaker 1: a long time. But some of the things we do 483 00:32:22,040 --> 00:32:26,440 Speaker 1: know about about Amazon web services businesses. Firstly that the 484 00:32:26,480 --> 00:32:32,960 Speaker 1: addressable opportunity is very very large, trillion dollar plus market 485 00:32:33,120 --> 00:32:36,800 Speaker 1: for for I infrastructure. We know it has a very 486 00:32:36,880 --> 00:32:39,600 Speaker 1: strong first move of advantage that it's got to a 487 00:32:39,760 --> 00:32:43,920 Speaker 1: scale long before others. If you if you listen to 488 00:32:44,080 --> 00:32:47,440 Speaker 1: Jeff Bezos the Amazon CEO talk, you know he was 489 00:32:47,560 --> 00:32:50,480 Speaker 1: saying was he was amazed at the at the head 490 00:32:50,520 --> 00:32:53,640 Speaker 1: start he was able to get in this business. I think, um, 491 00:32:54,200 --> 00:32:59,280 Speaker 1: I think few people appreciated just just how fantastic the 492 00:32:59,320 --> 00:33:02,720 Speaker 1: economics that could be. And I think scale is a 493 00:33:02,800 --> 00:33:06,280 Speaker 1: self reinforcing advantage here. You know that it it allows 494 00:33:06,320 --> 00:33:09,360 Speaker 1: you to invest in infrastructure and better service and the 495 00:33:09,640 --> 00:33:12,560 Speaker 1: bigger data sets means better machine learning, which means better 496 00:33:12,640 --> 00:33:15,000 Speaker 1: outcomes for companies, which means you attract more companies. So 497 00:33:15,680 --> 00:33:17,960 Speaker 1: so I think it is it is in infrastructure, it's 498 00:33:17,960 --> 00:33:20,920 Speaker 1: in a very powerful position, you know. I think Microsoft 499 00:33:21,000 --> 00:33:24,080 Speaker 1: has has been has done very well at using its 500 00:33:24,160 --> 00:33:28,440 Speaker 1: distribution um into the enterprise space to to really get 501 00:33:28,520 --> 00:33:31,080 Speaker 1: itself back into the game. And I think, you know, 502 00:33:31,160 --> 00:33:34,200 Speaker 1: it remains to be to be seen how how Google 503 00:33:34,320 --> 00:33:38,120 Speaker 1: is offering under the leadership of Thomas Curion competes from here, 504 00:33:38,160 --> 00:33:43,040 Speaker 1: because it's obviously a company with phenomenal technological pross. But 505 00:33:43,480 --> 00:33:48,360 Speaker 1: this shift in enterprise from on premise to the cloud 506 00:33:48,880 --> 00:33:50,960 Speaker 1: is one which I think plays out over the next 507 00:33:51,440 --> 00:33:55,360 Speaker 1: ten or twenty years and is of enormously large size. 508 00:33:55,400 --> 00:33:59,000 Speaker 1: So I think they know the capitalizations that you mentioned 509 00:33:59,040 --> 00:34:01,760 Speaker 1: sort of attached to things such as Snowflake reflect the 510 00:34:01,840 --> 00:34:04,680 Speaker 1: fact that investors are starting to incorporate that just just 511 00:34:04,840 --> 00:34:07,920 Speaker 1: a longevity of the shift into their thinking. So we're 512 00:34:07,960 --> 00:34:13,600 Speaker 1: talking about some pretty gigantic industries and companies, But when 513 00:34:13,680 --> 00:34:18,080 Speaker 1: we think about growth going forward, all these companies today, 514 00:34:18,760 --> 00:34:23,040 Speaker 1: they didn't many of them anyway, didn't really exist five, ten, fifteen, 515 00:34:23,120 --> 00:34:26,160 Speaker 1: twenty years ago. So that leads me to the question, 516 00:34:26,800 --> 00:34:31,280 Speaker 1: where are the big opportunities out there that aren't already 517 00:34:31,360 --> 00:34:37,480 Speaker 1: dominated by these behemoth firms. Yeah. I think one of 518 00:34:37,600 --> 00:34:41,080 Speaker 1: the interesting dynamics that we're seeing in the market today 519 00:34:42,040 --> 00:34:48,280 Speaker 1: is around the companies that are providing scale as a service. 520 00:34:49,160 --> 00:34:52,400 Speaker 1: And what I mean by that is that the biggest 521 00:34:52,640 --> 00:34:57,520 Speaker 1: online players have had phenomenal resources at the disposal, which 522 00:34:57,560 --> 00:35:00,440 Speaker 1: has been very hard to compute. But if you look 523 00:35:00,440 --> 00:35:05,279 Speaker 1: at something like a Shopify, what that company has all 524 00:35:05,880 --> 00:35:10,200 Speaker 1: as created is a platform for merchants to compete on 525 00:35:10,239 --> 00:35:12,440 Speaker 1: a more equal footing with the likes of Amazon and 526 00:35:12,600 --> 00:35:17,240 Speaker 1: or Mart, by providing them with the tools to create 527 00:35:17,320 --> 00:35:20,560 Speaker 1: their online store, the same sort of browsing experience for 528 00:35:20,640 --> 00:35:23,880 Speaker 1: their customers, the access to a payments gateway, increasing the 529 00:35:23,960 --> 00:35:28,080 Speaker 1: access to two day fulfillment. And so they've created that 530 00:35:28,200 --> 00:35:31,800 Speaker 1: scale themselves, and then as they've got as as they've 531 00:35:32,640 --> 00:35:34,680 Speaker 1: as they've attracted more and more merchants, they can then 532 00:35:34,760 --> 00:35:37,439 Speaker 1: negotiate better and better terms with their suppliers and pass 533 00:35:37,520 --> 00:35:40,239 Speaker 1: that on to the smaller merchants. So they're they're really 534 00:35:40,560 --> 00:35:44,800 Speaker 1: selling scales to those underlying customers. Now Shopify doing that 535 00:35:44,880 --> 00:35:47,200 Speaker 1: in the retail area. But if you take a company 536 00:35:47,280 --> 00:35:52,440 Speaker 1: like Strip in payments, you know they're navigating the payments infrastructure. 537 00:35:53,280 --> 00:35:58,040 Speaker 1: Is it is a phenomenally challenging thing because there's different regulations, 538 00:35:58,120 --> 00:36:00,640 Speaker 1: there's different banks in every geography that you go to, 539 00:36:00,800 --> 00:36:04,920 Speaker 1: different business practices. You almost impossible for small businesses to 540 00:36:05,040 --> 00:36:09,120 Speaker 1: incorporate payments on a global scale into what they're doing. Um. 541 00:36:09,560 --> 00:36:13,800 Speaker 1: But but what Strype has done is navigate that incredibly 542 00:36:13,840 --> 00:36:18,360 Speaker 1: complex world and then make it extremely simple for for 543 00:36:18,480 --> 00:36:22,479 Speaker 1: individual companies to then incorporate that capability into their app, 544 00:36:22,560 --> 00:36:26,759 Speaker 1: into into their their website. And you know, I could 545 00:36:26,800 --> 00:36:29,120 Speaker 1: go on with this. You know, companies like Trilio doing 546 00:36:29,200 --> 00:36:32,680 Speaker 1: exactly the same thing in communications and providing a gateway 547 00:36:32,760 --> 00:36:37,319 Speaker 1: into this these incredibly complex communication networks. So I think 548 00:36:37,320 --> 00:36:41,839 Speaker 1: there's one really interesting angle is around those this set 549 00:36:41,920 --> 00:36:45,279 Speaker 1: of companies selling selling scale as a service into into 550 00:36:45,400 --> 00:36:48,920 Speaker 1: small emergence. I think the other angle I would go 551 00:36:49,000 --> 00:36:54,360 Speaker 1: at it from would be about about those companies that 552 00:36:54,960 --> 00:36:57,640 Speaker 1: can harness this this new world that we live in, 553 00:36:57,760 --> 00:37:02,160 Speaker 1: this this technology lead world to to to use new 554 00:37:02,239 --> 00:37:07,440 Speaker 1: business models in in in established industries. UM. So you know, 555 00:37:08,360 --> 00:37:11,080 Speaker 1: insurance is an interesting one. You know, we invest in 556 00:37:11,239 --> 00:37:14,360 Speaker 1: Lemonade the iPod recently. UM. You know, I think, what 557 00:37:14,719 --> 00:37:19,440 Speaker 1: what what they've done in creating a completely digital experience 558 00:37:19,560 --> 00:37:23,280 Speaker 1: for their for their customers, UM in terms of accessing 559 00:37:23,280 --> 00:37:26,719 Speaker 1: their insurance products, in terms of making claims UM just 560 00:37:27,040 --> 00:37:31,360 Speaker 1: is is really challenging for business models that are based 561 00:37:31,440 --> 00:37:36,960 Speaker 1: on mainframe computing and expensive expensive distribution. UM. That I 562 00:37:37,000 --> 00:37:39,120 Speaker 1: could go on in redfin in real estate as as 563 00:37:39,160 --> 00:37:41,960 Speaker 1: another example of that. You know, if you if you 564 00:37:42,080 --> 00:37:44,960 Speaker 1: can create, if you if you can tap into a 565 00:37:45,040 --> 00:37:48,759 Speaker 1: direct relationship with the consumers through your website, if you 566 00:37:48,880 --> 00:37:51,440 Speaker 1: can have an agent directly employed agent force, but give 567 00:37:51,520 --> 00:37:54,200 Speaker 1: them all the the digital tools to make them more 568 00:37:54,200 --> 00:37:56,680 Speaker 1: effective in their jobs, then I think that gives you 569 00:37:56,719 --> 00:38:01,239 Speaker 1: a big competitive advantage over over traditional income bunch. Quite 570 00:38:01,320 --> 00:38:05,800 Speaker 1: quite interesting. So I have to ask about the impact 571 00:38:05,920 --> 00:38:11,040 Speaker 1: of the COVID nineteen pandemic. How has that affected your 572 00:38:11,239 --> 00:38:14,040 Speaker 1: thought process about the companies you want to have in 573 00:38:14,120 --> 00:38:17,760 Speaker 1: your portfolio? How much of what you own has really 574 00:38:18,440 --> 00:38:21,399 Speaker 1: been in the right space to deal with a work 575 00:38:21,520 --> 00:38:27,040 Speaker 1: from home shelter in place pandemic. And what happens to 576 00:38:27,120 --> 00:38:32,360 Speaker 1: those companies sometime next year once we see widespread distribution 577 00:38:32,480 --> 00:38:36,400 Speaker 1: of the various vaccines that have been developed. Yeah, this 578 00:38:36,600 --> 00:38:40,880 Speaker 1: is a really interesting area. And UM I think for 579 00:38:41,080 --> 00:38:44,120 Speaker 1: sure a lot of the companies that we own have 580 00:38:44,400 --> 00:38:49,640 Speaker 1: been beneficiaries of the circumstances we find ourselves. And we 581 00:38:49,800 --> 00:38:54,200 Speaker 1: own Zoom, the video communications platform, which we we bought 582 00:38:54,239 --> 00:38:57,319 Speaker 1: in early two thousand and nineteen. But if you stick 583 00:38:57,360 --> 00:38:59,120 Speaker 1: with that one for a for a moment and maybe 584 00:38:59,160 --> 00:39:02,520 Speaker 1: explore from the shoes, you know, the the the insight 585 00:39:02,600 --> 00:39:05,040 Speaker 1: that we had when we we we participated in the 586 00:39:05,120 --> 00:39:10,279 Speaker 1: I p O of Zoom was that video communications in 587 00:39:10,360 --> 00:39:16,799 Speaker 1: the enterprise UM was massively under penetrated. You know, if 588 00:39:16,840 --> 00:39:19,279 Speaker 1: we were having this conversation, you know, a couple of 589 00:39:19,360 --> 00:39:22,879 Speaker 1: years ago via video conference. Sorry, what what I think 590 00:39:22,960 --> 00:39:25,120 Speaker 1: we would have done is that that your I T 591 00:39:25,280 --> 00:39:27,160 Speaker 1: team and my I T team would have arranged a 592 00:39:27,200 --> 00:39:29,920 Speaker 1: meeting they have. They'd have gone into a know, a 593 00:39:30,040 --> 00:39:32,600 Speaker 1: room that's somewhere in our offices that's only used for 594 00:39:32,680 --> 00:39:35,359 Speaker 1: video conferencing and and spent about half an hour trying 595 00:39:35,400 --> 00:39:37,719 Speaker 1: to set up the call and then being on hand 596 00:39:37,760 --> 00:39:39,600 Speaker 1: when we actually tried to do it in person the 597 00:39:39,680 --> 00:39:44,839 Speaker 1: next day. UM. But so so, the constraints on much 598 00:39:44,880 --> 00:39:46,840 Speaker 1: broader use of video conferencing was that it was a 599 00:39:46,920 --> 00:39:52,239 Speaker 1: dreadful product. And as you created a much more engaging 600 00:39:52,400 --> 00:39:54,800 Speaker 1: user experience, as you as you made it possible for 601 00:39:54,880 --> 00:39:58,239 Speaker 1: people to just do video conferencing, you know that that 602 00:39:58,560 --> 00:40:01,880 Speaker 1: you would see an explosion in the scale of the 603 00:40:01,960 --> 00:40:05,640 Speaker 1: market and also a viral selling dynamics that if if 604 00:40:05,760 --> 00:40:07,360 Speaker 1: if I phoned you via zoom and you had a 605 00:40:07,400 --> 00:40:09,440 Speaker 1: good experience, you would say, what's this product? I'm going 606 00:40:09,520 --> 00:40:12,400 Speaker 1: to use it? And I think you know that that 607 00:40:12,640 --> 00:40:15,880 Speaker 1: was that that dynamic was unfolding through two susand nineteen. 608 00:40:16,239 --> 00:40:20,160 Speaker 1: But but in with the impact of the virus, usage 609 00:40:20,200 --> 00:40:23,960 Speaker 1: has has exploded. UM. And I think now they talked 610 00:40:23,960 --> 00:40:27,400 Speaker 1: about maybe three million users of this service. UM. I 611 00:40:27,440 --> 00:40:29,359 Speaker 1: think the last number I saw was that they had 612 00:40:29,840 --> 00:40:35,359 Speaker 1: eleven million paying customers. So what what happens going forward? Well, 613 00:40:35,560 --> 00:40:37,520 Speaker 1: you know, if if the vaccines are as effective as 614 00:40:37,560 --> 00:40:40,080 Speaker 1: we hope, then then I think we'll all be having 615 00:40:40,120 --> 00:40:43,040 Speaker 1: a lot more in person meetings. Um, you know, because 616 00:40:43,120 --> 00:40:45,560 Speaker 1: everybody is set up of being cooped up at home, 617 00:40:45,719 --> 00:40:48,000 Speaker 1: you know, they want to get out. So so the 618 00:40:48,440 --> 00:40:51,800 Speaker 1: unprecedented level of demand that we have today, of course 619 00:40:51,880 --> 00:40:56,320 Speaker 1: the clients. But then the question is, you know, everybody 620 00:40:56,400 --> 00:40:58,440 Speaker 1: knows what zoom is. And I'm not talking about you know, 621 00:40:58,560 --> 00:41:01,640 Speaker 1: people in the in the I. T. Departments of the enterprises. 622 00:41:02,000 --> 00:41:05,200 Speaker 1: You know, it's it's it's become a verb. Um. You know, 623 00:41:05,920 --> 00:41:10,480 Speaker 1: millions of sales people and marketing people and people in 624 00:41:10,640 --> 00:41:14,840 Speaker 1: education understand this product now. And so of the billion 625 00:41:14,920 --> 00:41:17,960 Speaker 1: knowledge workers that are on the planet, how how much 626 00:41:18,040 --> 00:41:20,040 Speaker 1: of that is addressable for this company that starts with 627 00:41:20,120 --> 00:41:23,200 Speaker 1: eleven million licenses? And I think those are the really 628 00:41:23,320 --> 00:41:26,640 Speaker 1: challenging questions. You know, it's not will demand decline, of course, 629 00:41:26,880 --> 00:41:28,920 Speaker 1: of course it will decline as as as we come 630 00:41:28,920 --> 00:41:31,840 Speaker 1: out of blockdown. And I think if you, you know, 631 00:41:32,000 --> 00:41:35,800 Speaker 1: you expand that more broadly. One of the frameworks that 632 00:41:35,960 --> 00:41:39,000 Speaker 1: I've I've found really helpful and it's worked on with 633 00:41:39,160 --> 00:41:41,960 Speaker 1: by by one of my colleagues, Dave Putschnowski is a 634 00:41:42,480 --> 00:41:49,759 Speaker 1: fascinating analyst, but he's drawing on an idea of accumulated accidents. 635 00:41:50,400 --> 00:41:55,400 Speaker 1: So this idea that what were the structures UM that 636 00:41:55,520 --> 00:41:59,480 Speaker 1: were the norm before COVID hit. There weren't the sort 637 00:41:59,520 --> 00:42:02,000 Speaker 1: of local maximum or the perfect way that something should 638 00:42:02,000 --> 00:42:06,120 Speaker 1: be done, but instead just the product of accumulated accidents 639 00:42:06,239 --> 00:42:08,840 Speaker 1: over time. Because I think those are the things that 640 00:42:08,920 --> 00:42:13,799 Speaker 1: are UM were unlikely to go back to UM as 641 00:42:13,960 --> 00:42:17,880 Speaker 1: as COVID starts to unwind UM. And and you know, 642 00:42:18,760 --> 00:42:22,120 Speaker 1: let me talk about as an example. You know, in advertising, 643 00:42:22,600 --> 00:42:25,920 Speaker 1: you know, a great deal of television advertising is sold 644 00:42:26,000 --> 00:42:31,560 Speaker 1: at the upfronts in New York each each spring, and 645 00:42:31,880 --> 00:42:35,399 Speaker 1: and and it's where the advertisers will go and bet 646 00:42:35,520 --> 00:42:40,320 Speaker 1: on the content slate of of of the broadcasters and 647 00:42:40,760 --> 00:42:43,840 Speaker 1: and and spend sense significant chunks of their marketing budget 648 00:42:43,880 --> 00:42:46,840 Speaker 1: for the year. Now, in a world where you know, 649 00:42:46,960 --> 00:42:51,280 Speaker 1: we have connected television a huge amount of data about 650 00:42:52,040 --> 00:42:56,480 Speaker 1: about the audience that content has been broadcast too, particularly 651 00:42:56,680 --> 00:43:01,360 Speaker 1: connected television platform site rock, who does a ceremony like 652 00:43:01,560 --> 00:43:04,680 Speaker 1: like that persist or do you do the much more 653 00:43:04,760 --> 00:43:09,320 Speaker 1: effective data driven advertising products of the of the digital 654 00:43:09,400 --> 00:43:13,760 Speaker 1: age now start to make significant inroads into into that market. 655 00:43:14,239 --> 00:43:16,720 Speaker 1: And so I think it's that's that's a really helpful 656 00:43:16,760 --> 00:43:19,520 Speaker 1: framework to us and trying to think about and what 657 00:43:19,680 --> 00:43:22,359 Speaker 1: the what the post COVID world looks like. So let's 658 00:43:22,400 --> 00:43:26,080 Speaker 1: stick with that theme of data analytics and how much 659 00:43:26,120 --> 00:43:32,239 Speaker 1: more information both clients and investors get. You know, we 660 00:43:32,360 --> 00:43:35,640 Speaker 1: mentioned earlier you graduated from Edinburgh with a degree in 661 00:43:36,360 --> 00:43:41,239 Speaker 1: computer science with mathematics. How much quant do you use 662 00:43:41,520 --> 00:43:45,840 Speaker 1: in your investing process? Or or s differently, how important 663 00:43:45,960 --> 00:43:48,680 Speaker 1: are all the metrics that are available today to be 664 00:43:48,800 --> 00:43:53,960 Speaker 1: crunched versus twenty years ago to your process? And answer 665 00:43:54,040 --> 00:43:56,759 Speaker 1: that in two ways if I may, I think the 666 00:43:57,000 --> 00:44:05,120 Speaker 1: fist is that our process is very qualitative. Um what 667 00:44:05,600 --> 00:44:08,520 Speaker 1: what we're trying to think about? What are the big drivers? 668 00:44:08,640 --> 00:44:10,680 Speaker 1: You know, where could the revenues of this company be 669 00:44:10,920 --> 00:44:14,480 Speaker 1: five or ten years from now? Um? What? What? What 670 00:44:14,640 --> 00:44:18,360 Speaker 1: are the competitive advantages? You know? Which is really getting 671 00:44:18,400 --> 00:44:23,440 Speaker 1: into questions about about profitability and margins? Um? But but 672 00:44:23,600 --> 00:44:26,479 Speaker 1: what is the corporate culture? What is it about makes 673 00:44:26,680 --> 00:44:30,920 Speaker 1: that makes this business special? Why can't somebody else did? 674 00:44:31,440 --> 00:44:32,799 Speaker 1: And we think if we can answer some of those 675 00:44:32,840 --> 00:44:36,560 Speaker 1: more qualitative questions, I think it gets you. It gets 676 00:44:36,640 --> 00:44:39,719 Speaker 1: you to to to broadly correct answers. You know, the 677 00:44:40,000 --> 00:44:43,000 Speaker 1: left of the decimal point if you will and and 678 00:44:43,360 --> 00:44:45,880 Speaker 1: I see much more value in that for us than 679 00:44:46,560 --> 00:44:50,080 Speaker 1: then this what we see in in markets, which is 680 00:44:50,200 --> 00:44:54,359 Speaker 1: this this constant attempt to predict what a company will 681 00:44:54,400 --> 00:44:58,960 Speaker 1: learn this quarter or next quarter more accurately than everybody else. Um, 682 00:44:59,239 --> 00:45:01,279 Speaker 1: which is a game. Think firstly that we have no 683 00:45:01,400 --> 00:45:05,160 Speaker 1: advantage in and it's so important for an investor to 684 00:45:05,239 --> 00:45:08,000 Speaker 1: be able to articulate what they think their own advantages. 685 00:45:08,239 --> 00:45:10,680 Speaker 1: We spend so much time asking it of companies, but 686 00:45:10,760 --> 00:45:14,080 Speaker 1: so little time asking it of ourselves. But we have 687 00:45:14,239 --> 00:45:18,239 Speaker 1: no advantage in that that more precise estimation of of 688 00:45:18,360 --> 00:45:21,880 Speaker 1: short term learning than anybody else. But what we do have, 689 00:45:22,280 --> 00:45:24,600 Speaker 1: you know, being in Edinburgh having a bit of a 690 00:45:24,840 --> 00:45:28,279 Speaker 1: distance and perspective on what's happening in financial markets, is 691 00:45:28,320 --> 00:45:31,040 Speaker 1: maybe that ability to be patient in the in this 692 00:45:31,239 --> 00:45:35,320 Speaker 1: most impatient of industries, and we think that's more likely 693 00:45:35,400 --> 00:45:40,080 Speaker 1: to to add value for our clients over time. UM. 694 00:45:41,800 --> 00:45:44,600 Speaker 1: Another take on it would be, UM that if I 695 00:45:45,840 --> 00:45:49,919 Speaker 1: as observing what's been happening in our companies over over 696 00:45:50,000 --> 00:45:54,560 Speaker 1: the past five years, maybe a little longer, is just 697 00:45:54,719 --> 00:45:59,759 Speaker 1: seeing the impact of machine learning and artificial intelligence and 698 00:46:00,160 --> 00:46:03,719 Speaker 1: what this these technologies are capable of and it's that 699 00:46:03,880 --> 00:46:08,840 Speaker 1: ability to ingest huge amounts of quantitative data and spot 700 00:46:08,960 --> 00:46:11,040 Speaker 1: patterns in a in a way that a human just 701 00:46:11,160 --> 00:46:16,080 Speaker 1: isn't capable of. UM. And so we've we've we've been 702 00:46:16,160 --> 00:46:19,960 Speaker 1: having an experiment within beating iff it, looking at you know, 703 00:46:20,360 --> 00:46:23,959 Speaker 1: could we apply these same technologies to recreate the human 704 00:46:24,000 --> 00:46:29,440 Speaker 1: investors that we have UM and so so are systematic 705 00:46:29,520 --> 00:46:33,120 Speaker 1: investment strategy which we wear. We started incubating in the 706 00:46:33,160 --> 00:46:37,359 Speaker 1: past couple of months. UM we're after after after three 707 00:46:37,440 --> 00:46:40,800 Speaker 1: years of investment in the team and the technology and 708 00:46:40,840 --> 00:46:44,920 Speaker 1: the algorithms, is our own experiment to try and disrupt 709 00:46:45,000 --> 00:46:48,720 Speaker 1: ourselves in going about the task of investment. Quite interesting. 710 00:46:49,280 --> 00:46:51,680 Speaker 1: I have to ask you a question about a little 711 00:46:51,680 --> 00:46:56,440 Speaker 1: bit about some of your background relative to being a 712 00:46:56,640 --> 00:47:00,600 Speaker 1: US and a global investor. You worked on a Developed 713 00:47:00,680 --> 00:47:02,920 Speaker 1: Asia team at Daily Gifford, and you also worked on 714 00:47:03,080 --> 00:47:07,560 Speaker 1: the UK equity teams. What was the takeaway from that 715 00:47:07,719 --> 00:47:13,160 Speaker 1: experience when you're either looking at US investing or global 716 00:47:13,280 --> 00:47:17,920 Speaker 1: investing and how different UM is investing in those areas 717 00:47:18,080 --> 00:47:23,080 Speaker 1: versus let's say the US. I think for most of 718 00:47:23,840 --> 00:47:30,080 Speaker 1: of my career, UM, the the emergence of China as 719 00:47:30,320 --> 00:47:35,560 Speaker 1: a global economic superpower has has been an absolutely central 720 00:47:35,640 --> 00:47:40,480 Speaker 1: phenomenon in the world of investing, and not only it's 721 00:47:40,640 --> 00:47:45,279 Speaker 1: it's economic rise, but the emergence of companies on on 722 00:47:45,440 --> 00:47:50,080 Speaker 1: the East coast of China with with the innovative capacity 723 00:47:50,160 --> 00:47:52,920 Speaker 1: and entrepreneurship to match some of those that you have 724 00:47:53,080 --> 00:47:57,759 Speaker 1: on the west coast of the US. UM. And so 725 00:47:57,960 --> 00:48:02,080 Speaker 1: I suppose UM, the one of the things I take 726 00:48:02,360 --> 00:48:06,520 Speaker 1: take away from from my experiences is is just an 727 00:48:06,800 --> 00:48:11,759 Speaker 1: appreciation of that phenomenon, UM helped by some of my 728 00:48:11,880 --> 00:48:15,799 Speaker 1: Chinese colleagues, Helped by the fact that and we've now 729 00:48:15,920 --> 00:48:21,040 Speaker 1: opened an investment office in Shanghai, UM where one of 730 00:48:21,120 --> 00:48:24,000 Speaker 1: one of my partners has moved out from from Edinburgh. 731 00:48:24,600 --> 00:48:26,680 Speaker 1: UM that some of some of my Chinese colleagues have 732 00:48:26,760 --> 00:48:29,520 Speaker 1: moved back to China as part of that effort. And 733 00:48:29,800 --> 00:48:34,640 Speaker 1: and a really important part of understanding what's going on 734 00:48:34,719 --> 00:48:38,480 Speaker 1: in the world is understanding some of those developments. UM. 735 00:48:39,560 --> 00:48:43,000 Speaker 1: I think and looking at the US with an international 736 00:48:43,120 --> 00:48:49,400 Speaker 1: perspective can can yield insights that others aren't looking for. UM. 737 00:48:49,920 --> 00:48:54,920 Speaker 1: So you know, I and I link it to to 738 00:48:55,120 --> 00:48:58,480 Speaker 1: Netflix because I think there's there's there's a few few 739 00:48:58,800 --> 00:49:01,200 Speaker 1: few points in there that are irrelevant to our process. 740 00:49:02,040 --> 00:49:05,799 Speaker 1: And what we're trying to do is look for big 741 00:49:05,840 --> 00:49:08,160 Speaker 1: winners on the sort of time horizon that we have. 742 00:49:08,360 --> 00:49:14,239 Speaker 1: So ten years UM you see this this um um 743 00:49:15,520 --> 00:49:18,160 Speaker 1: power or distribution in stock market returns, you see a 744 00:49:18,239 --> 00:49:21,520 Speaker 1: very small number of big winners. And so you know, 745 00:49:21,600 --> 00:49:24,000 Speaker 1: what we're trying to do is identify companies with that 746 00:49:24,080 --> 00:49:26,359 Speaker 1: sort of potential and then where we find them, aim 747 00:49:26,440 --> 00:49:29,640 Speaker 1: to be very patient and long term owners, accepting that 748 00:49:29,760 --> 00:49:32,279 Speaker 1: at times we will look very out of favor with 749 00:49:32,360 --> 00:49:37,040 Speaker 1: the market UM. And one consequence of that approach is 750 00:49:37,440 --> 00:49:41,640 Speaker 1: that actually the biggest mistakes that you make are UM, 751 00:49:42,239 --> 00:49:45,359 Speaker 1: not stocks that you own which go down, which are inevitable. 752 00:49:45,520 --> 00:49:48,600 Speaker 1: You know and make lots of mistakes UM, but it's 753 00:49:48,760 --> 00:49:51,640 Speaker 1: it's the ones that you you you look at, your 754 00:49:51,680 --> 00:49:54,560 Speaker 1: do the analysts on and you don't buy UM that 755 00:49:54,719 --> 00:49:57,279 Speaker 1: then turned out to be big winners. And I put 756 00:49:57,360 --> 00:50:01,279 Speaker 1: Netflix into that category for us UM. We were looking 757 00:50:01,320 --> 00:50:03,520 Speaker 1: at it back in I think it was two thousand 758 00:50:03,560 --> 00:50:07,360 Speaker 1: and twelve, around about the time they split. They they 759 00:50:07,360 --> 00:50:10,880 Speaker 1: announced the plan to split the streaming and the DVD 760 00:50:11,040 --> 00:50:15,800 Speaker 1: business UM and which which which was taken very badly 761 00:50:15,920 --> 00:50:20,280 Speaker 1: by both their customers and stock markets, and we we didn't. 762 00:50:20,800 --> 00:50:22,960 Speaker 1: We didn't take the plunge and buy the stock at 763 00:50:23,000 --> 00:50:25,920 Speaker 1: that point, which is which I see is as as 764 00:50:25,960 --> 00:50:28,960 Speaker 1: one of my biggest mistakes over the past ten years. UM. 765 00:50:29,360 --> 00:50:32,359 Speaker 1: But then so look looking at the stock maybe three 766 00:50:32,440 --> 00:50:35,920 Speaker 1: years later, UM, and it was up a lot at 767 00:50:35,960 --> 00:50:39,160 Speaker 1: that point, and of course it's it's very difficult to 768 00:50:39,440 --> 00:50:42,120 Speaker 1: to buy a stock that's that's gone up several folds 769 00:50:42,120 --> 00:50:45,520 Speaker 1: since you last looked at it. But but what stands 770 00:50:45,560 --> 00:50:47,680 Speaker 1: out for me and what allowed us to make that 771 00:50:47,800 --> 00:50:52,160 Speaker 1: purchase despite the stock price having increased, UM, was looking 772 00:50:52,320 --> 00:50:55,960 Speaker 1: at the progress of the international business. UM. You know, 773 00:50:56,040 --> 00:50:59,680 Speaker 1: the the US investor base in Netflix at that time 774 00:51:00,320 --> 00:51:04,960 Speaker 1: was almost singularly focused on the U S subscriber editions 775 00:51:05,040 --> 00:51:09,120 Speaker 1: and any single quarter and because the international business wasn't 776 00:51:09,200 --> 00:51:11,359 Speaker 1: wasn't making much money at that time. And I think 777 00:51:11,440 --> 00:51:14,200 Speaker 1: our insight was that, you know, it had seemed for 778 00:51:14,200 --> 00:51:16,480 Speaker 1: a long time that that Netflix wouldn't get away with 779 00:51:16,560 --> 00:51:18,320 Speaker 1: what it had managed to achieve in the US in 780 00:51:18,400 --> 00:51:21,280 Speaker 1: other markets because the incumbents would see what had happened 781 00:51:21,280 --> 00:51:23,880 Speaker 1: and they wouldn't let wouldn't let it happen. And our 782 00:51:23,960 --> 00:51:26,719 Speaker 1: insight was that there's you know, they might to turn 783 00:51:26,800 --> 00:51:29,480 Speaker 1: on all these markets in one sweep, and that the 784 00:51:29,880 --> 00:51:33,120 Speaker 1: traction that they were getting would ultimately lead to an 785 00:51:33,200 --> 00:51:37,040 Speaker 1: extremely profitable business. And so it was that that x 786 00:51:37,160 --> 00:51:39,279 Speaker 1: US piece, when everybody else was focused on the U 787 00:51:39,360 --> 00:51:41,720 Speaker 1: S subscriber base, that that I think was our insights 788 00:51:41,719 --> 00:51:45,120 Speaker 1: at that point. So let me raise an interesting question 789 00:51:45,200 --> 00:51:49,320 Speaker 1: about this. You mentioned a number of different companies, a 790 00:51:49,400 --> 00:51:53,720 Speaker 1: number of different stocks. How did they fit into managing 791 00:51:53,760 --> 00:51:57,880 Speaker 1: a portfolio? It's obviously the analysis of a single stock 792 00:51:58,040 --> 00:52:02,440 Speaker 1: or any stock is so only very different than constructing 793 00:52:02,520 --> 00:52:06,240 Speaker 1: a portfolio. How do you think about weight portfolio weights? 794 00:52:06,239 --> 00:52:10,000 Speaker 1: How do you think about different positions? You run a 795 00:52:10,120 --> 00:52:13,960 Speaker 1: fairly concentrated portfolio, so there aren't a whole lot of 796 00:52:14,719 --> 00:52:20,800 Speaker 1: openings for any one given company. Yeah. The way that 797 00:52:21,600 --> 00:52:25,279 Speaker 1: I think about this is UM. It comes back to this, 798 00:52:25,800 --> 00:52:29,719 Speaker 1: this asymmetry of returns for the concentration of returns in 799 00:52:29,760 --> 00:52:33,080 Speaker 1: a small number of companies UM. So I was doing 800 00:52:33,280 --> 00:52:36,760 Speaker 1: some work on this back in two thousand and twelve, 801 00:52:36,880 --> 00:52:39,960 Speaker 1: two thousand and thirteen, and the starting point for me 802 00:52:40,080 --> 00:52:44,040 Speaker 1: was actually trying to think about UM about outcomes for 803 00:52:44,120 --> 00:52:47,239 Speaker 1: individual companies. UM you know, and how if you know, 804 00:52:47,280 --> 00:52:49,920 Speaker 1: if I was looking at Amazon and said I had 805 00:52:49,960 --> 00:52:52,080 Speaker 1: a hundred percent upside and somebody else is looking at 806 00:52:52,120 --> 00:52:55,399 Speaker 1: Alphabet and said it two upside, how could we think 807 00:52:55,440 --> 00:52:58,400 Speaker 1: about those different outcomes and how would you attach probabilities 808 00:52:58,440 --> 00:53:02,719 Speaker 1: to them? And the the the way I looked at 809 00:53:02,760 --> 00:53:06,520 Speaker 1: it was was actually inspired by purnaments, but looking thinking 810 00:53:06,520 --> 00:53:08,960 Speaker 1: about base rates. So so let's look at the past 811 00:53:09,040 --> 00:53:12,759 Speaker 1: thirty years of the SMP five what can you say 812 00:53:12,800 --> 00:53:15,840 Speaker 1: about stock ritins? And there was one rule which emerged 813 00:53:15,880 --> 00:53:18,360 Speaker 1: which is actually quite consistent of two time, which was 814 00:53:18,880 --> 00:53:22,759 Speaker 1: that in any five year period, about five percent of 815 00:53:22,840 --> 00:53:28,000 Speaker 1: stocks go up fivefold, at least fivefold. And and so 816 00:53:28,680 --> 00:53:31,800 Speaker 1: one of the things we we we focused on is 817 00:53:31,920 --> 00:53:34,279 Speaker 1: has this company got the potential to go up at 818 00:53:34,360 --> 00:53:36,640 Speaker 1: least fivefold? And why is it more likely for this 819 00:53:36,800 --> 00:53:40,680 Speaker 1: company than than a stock picks a random um. And 820 00:53:41,480 --> 00:53:44,080 Speaker 1: you know, the the implication of that for portfolios is 821 00:53:44,200 --> 00:53:48,000 Speaker 1: quite interesting because you know, what you're saying is that 822 00:53:48,239 --> 00:53:50,920 Speaker 1: if you have a buy a whole portfolio, you know 823 00:53:51,160 --> 00:53:53,800 Speaker 1: a huge proportion of the return is going to be 824 00:53:54,120 --> 00:53:59,520 Speaker 1: concentrated in the top two or three successful holdings. So 825 00:54:00,400 --> 00:54:02,320 Speaker 1: come back to come back to this point about what 826 00:54:02,560 --> 00:54:07,440 Speaker 1: is a mistake. People rightly focused on cell discipline and 827 00:54:07,760 --> 00:54:10,080 Speaker 1: you know what caused you to sell a stock. But 828 00:54:10,360 --> 00:54:14,040 Speaker 1: actually the biggest danger for a long term by an 829 00:54:14,080 --> 00:54:18,200 Speaker 1: old investor is that you sell a stock prematurely um 830 00:54:18,560 --> 00:54:21,680 Speaker 1: and that you don't capture that outsized impacts of that 831 00:54:22,080 --> 00:54:26,960 Speaker 1: that small number of companies. UM. There's a there's a 832 00:54:27,040 --> 00:54:31,480 Speaker 1: really interesting piece of work UM done by an academic 833 00:54:31,520 --> 00:54:37,160 Speaker 1: Arizona State University very recently, Professor Bessembender, and he looked 834 00:54:37,200 --> 00:54:42,120 Speaker 1: at ninety years of US stock market data and what 835 00:54:42,600 --> 00:54:46,480 Speaker 1: what that showed is of the twenty six thousand companies 836 00:54:46,600 --> 00:54:49,640 Speaker 1: that you could have invested in over that period, UM, 837 00:54:50,120 --> 00:54:54,280 Speaker 1: all of the return came from from just four percent 838 00:54:54,400 --> 00:54:57,200 Speaker 1: of the companies. But in fact it was even more 839 00:54:57,280 --> 00:55:01,080 Speaker 1: concentrated that than that. So there was about I think 840 00:55:01,160 --> 00:55:03,200 Speaker 1: I think his numbers where there was about thirty two 841 00:55:03,320 --> 00:55:06,720 Speaker 1: trillion dollars of excess value created by the US equity 842 00:55:06,760 --> 00:55:10,920 Speaker 1: market over that ninety year period, and of that half 843 00:55:11,000 --> 00:55:13,760 Speaker 1: of the excess value creation came from just ninety companies. 844 00:55:14,840 --> 00:55:19,000 Speaker 1: So so stock markets are driven by a really small 845 00:55:19,120 --> 00:55:23,120 Speaker 1: number of exceptional companies. And so what we mustn't do 846 00:55:23,239 --> 00:55:27,000 Speaker 1: as long term investors is truncate the impact of those 847 00:55:27,080 --> 00:55:30,480 Speaker 1: big winners. So so go back to to you know, 848 00:55:30,600 --> 00:55:34,640 Speaker 1: talking about it in UM. You know, through specific examples. 849 00:55:35,719 --> 00:55:39,880 Speaker 1: Since since buying Tesla in in seven years ago, I 850 00:55:40,360 --> 00:55:42,880 Speaker 1: don't know how many times I've been told to sell it. 851 00:55:43,280 --> 00:55:46,400 Speaker 1: You know, it's it's a hard seven or eight drawdowns 852 00:55:46,480 --> 00:55:50,440 Speaker 1: of at least thirty in that period um, you know, 853 00:55:50,680 --> 00:55:52,840 Speaker 1: and and every time it goes up, you know, the 854 00:55:53,440 --> 00:55:55,839 Speaker 1: people know when are you're going when when when you're 855 00:55:55,840 --> 00:56:00,239 Speaker 1: going to sell UM. It's it's actually not unusual to 856 00:56:00,400 --> 00:56:02,560 Speaker 1: see a big winner like tess or if you look 857 00:56:02,600 --> 00:56:04,440 Speaker 1: over that time frame, you know, that's been the case 858 00:56:04,520 --> 00:56:07,080 Speaker 1: of Amazon over the past fifteen years, That's been the 859 00:56:07,120 --> 00:56:09,720 Speaker 1: case for us with ten Cent, the Chinese gaming company 860 00:56:09,760 --> 00:56:12,360 Speaker 1: over the past twelve years. Maybe with not quite the 861 00:56:12,440 --> 00:56:16,640 Speaker 1: same attraction of headlines that that Tesla has had, but 862 00:56:17,400 --> 00:56:19,799 Speaker 1: the structure of returns is clear. It's that small number 863 00:56:19,800 --> 00:56:22,520 Speaker 1: of big winners. And so you know, we go to 864 00:56:22,719 --> 00:56:25,840 Speaker 1: directly answer your question about about the structure of the portfolio. 865 00:56:26,480 --> 00:56:29,560 Speaker 1: We where we still see a past a significant upside, 866 00:56:29,560 --> 00:56:32,960 Speaker 1: where we see an involving opportunity we're very loath to 867 00:56:33,480 --> 00:56:36,960 Speaker 1: um sell stocks that we think are capitalizing on the 868 00:56:37,000 --> 00:56:39,279 Speaker 1: opportunity in front of them, and we allow them to 869 00:56:39,320 --> 00:56:42,960 Speaker 1: become a big part of the portfolio. Quite fascinating. I 870 00:56:43,080 --> 00:56:45,520 Speaker 1: know I only have you for a limited amount of time, 871 00:56:45,680 --> 00:56:49,560 Speaker 1: So let's jump to our favorite questions that we ask 872 00:56:50,120 --> 00:56:52,879 Speaker 1: all of our guests. And since we were just talking 873 00:56:52,920 --> 00:56:56,799 Speaker 1: about Netflix and Amazon, let's start with that. Tell us 874 00:56:56,880 --> 00:56:59,160 Speaker 1: what you're streaming these days? What are you watching? What 875 00:56:59,239 --> 00:57:02,400 Speaker 1: are you listening to do while we're all stuck sheltering 876 00:57:02,440 --> 00:57:08,799 Speaker 1: at home. Yeah, so, I think like most people, I'm 877 00:57:09,200 --> 00:57:12,960 Speaker 1: I'm enjoying the fourth series of The Crown on Netflix 878 00:57:13,239 --> 00:57:17,920 Speaker 1: at the moment um, addressing a really interesting period in 879 00:57:18,160 --> 00:57:23,040 Speaker 1: in in the British monarchy. I've also been enjoying Ted 880 00:57:23,120 --> 00:57:28,760 Speaker 1: Lasso on Apple tv UM and just a great a 881 00:57:28,840 --> 00:57:32,760 Speaker 1: great commentary on the power of positive thinking. I think 882 00:57:32,800 --> 00:57:34,560 Speaker 1: there's there, you know. I think we're just in a 883 00:57:34,640 --> 00:57:37,840 Speaker 1: fortunate position that there's so much great content out there 884 00:57:37,840 --> 00:57:42,120 Speaker 1: at the moment. I think what the piece that I, um, 885 00:57:43,760 --> 00:57:45,680 Speaker 1: I'm really looking forward to that's been delayed by the 886 00:57:45,760 --> 00:57:50,520 Speaker 1: coronavirus is Dennis Fielder's adaptation of June which I think 887 00:57:50,560 --> 00:57:52,880 Speaker 1: is coming next year, but one of one of my 888 00:57:52,920 --> 00:57:56,000 Speaker 1: favorite science fiction books. And we were in Jordan a 889 00:57:56,040 --> 00:57:58,120 Speaker 1: couple of years ago and what we run where where 890 00:57:58,160 --> 00:57:59,720 Speaker 1: the film is set. So I think that that's going 891 00:57:59,760 --> 00:58:02,480 Speaker 1: to be an absoluties and spectac in a movie. Yeah, 892 00:58:02,520 --> 00:58:05,200 Speaker 1: I believe that's tied up for HBO max if I 893 00:58:05,480 --> 00:58:08,080 Speaker 1: if I recall what I what I heard about it 894 00:58:08,200 --> 00:58:11,600 Speaker 1: most recently, and I loved the first book, had a 895 00:58:11,640 --> 00:58:14,920 Speaker 1: hard time getting through some of the latter books, but 896 00:58:15,680 --> 00:58:21,120 Speaker 1: it has defied an outstanding film version. Hopefully this is 897 00:58:21,200 --> 00:58:25,240 Speaker 1: the one that will break that unlucky streak. So let's 898 00:58:25,280 --> 00:58:28,440 Speaker 1: talk about mentors. Who are some of the people who 899 00:58:28,520 --> 00:58:33,480 Speaker 1: helped shape your career? Well, you mentioned I started to 900 00:58:33,840 --> 00:58:39,920 Speaker 1: to fistival I like most of the the investment partners 901 00:58:39,920 --> 00:58:41,840 Speaker 1: at Batting, I said, I've I've spent my whole career 902 00:58:41,920 --> 00:58:46,400 Speaker 1: at the same UM and UM starting back in the 903 00:58:46,520 --> 00:58:51,960 Speaker 1: UK department with with imccombie and and Jared Callaghan, Charles Plowden, 904 00:58:52,080 --> 00:58:56,760 Speaker 1: who I think our UK team back at that point 905 00:58:57,000 --> 00:59:00,360 Speaker 1: was just a powerhouse in the UK equity market and 906 00:59:01,760 --> 00:59:05,800 Speaker 1: embraced the tools of free cash, fill yields, etcetera. That 907 00:59:05,920 --> 00:59:10,760 Speaker 1: was so effective through through the two thousand's and I 908 00:59:10,960 --> 00:59:13,000 Speaker 1: think I learned a lot about them the morality of 909 00:59:13,080 --> 00:59:19,040 Speaker 1: investing from the UM. I think I think UM becoming 910 00:59:19,080 --> 00:59:21,800 Speaker 1: a becoming the deputy manager and then co manager of 911 00:59:21,800 --> 00:59:24,880 Speaker 1: the Scottish Mortgage Investment Trust, and I'm working with with 912 00:59:25,080 --> 00:59:28,440 Speaker 1: James Anderson, who's who's been at Badger for for thirty 913 00:59:28,520 --> 00:59:33,200 Speaker 1: six years, UM and just just what I've learned from 914 00:59:33,320 --> 00:59:42,160 Speaker 1: him about UM both UM retaining just absolute curiosity and 915 00:59:42,320 --> 00:59:49,960 Speaker 1: focus on companies, UM focus on process and and differentiating 916 00:59:50,040 --> 00:59:55,560 Speaker 1: process and and and and having ambition in what we're 917 00:59:55,560 --> 00:59:59,560 Speaker 1: trying to do. Such an important mental for me. UM 918 01:00:00,440 --> 01:00:02,880 Speaker 1: as as as well as in fact Max Ward, who 919 01:00:03,000 --> 01:00:07,120 Speaker 1: was the manager of Scottish Mortgage before James and again 920 01:00:07,200 --> 01:00:13,000 Speaker 1: exemplified the power of positive thinking and an optimism which 921 01:00:13,000 --> 01:00:16,200 Speaker 1: I think is so crucial to to generating long run investment. 922 01:00:16,240 --> 01:00:20,840 Speaker 1: Retains quite interesting. Let's talk about everybody's favorite question. Tell 923 01:00:20,920 --> 01:00:23,720 Speaker 1: us about your favorite books. What do you like to recommend? 924 01:00:24,040 --> 01:00:26,880 Speaker 1: What are you reading right now? But I think when 925 01:00:26,920 --> 01:00:30,640 Speaker 1: it when it comes to investment, I believe some of 926 01:00:30,680 --> 01:00:34,960 Speaker 1: the best books about investing aren't aren't written about investment 927 01:00:35,000 --> 01:00:38,640 Speaker 1: at all. It's it's you know, getting to read about 928 01:00:38,720 --> 01:00:42,080 Speaker 1: people interacting with complex systems and lots of other settings. 929 01:00:43,120 --> 01:00:47,520 Speaker 1: Um so The Psychologry and the Psychology of Military and 930 01:00:47,600 --> 01:00:52,120 Speaker 1: Competence by Norman Dixon, or Deep Survival by Lawrence Gonzalez, 931 01:00:52,280 --> 01:00:55,640 Speaker 1: or or some of our old Granda's books on medicine. UM. 932 01:00:55,960 --> 01:00:59,600 Speaker 1: You know, I think there's there's lots of interesting tips 933 01:00:59,680 --> 01:01:05,360 Speaker 1: in there for for an interested investor. But it's just 934 01:01:05,480 --> 01:01:09,120 Speaker 1: one crucial point to remember, which is that in in 935 01:01:09,320 --> 01:01:14,320 Speaker 1: investment the upside is unbounded and the downside is constrained. 936 01:01:14,880 --> 01:01:17,360 Speaker 1: Whereas then I think all of these other settings, you know, 937 01:01:17,440 --> 01:01:21,280 Speaker 1: the downside is catastrophic. You know, you kill the patient, 938 01:01:21,560 --> 01:01:24,920 Speaker 1: you you die in a survival situation, you lose the war. 939 01:01:25,680 --> 01:01:27,920 Speaker 1: Um So, so long as you can make that mentally. 940 01:01:28,040 --> 01:01:31,160 Speaker 1: But I think that's some of the most interesting, um 941 01:01:32,400 --> 01:01:37,080 Speaker 1: um interesting literature on on an investment. In terms of 942 01:01:37,440 --> 01:01:42,160 Speaker 1: what I'm currently currently reading through UM just finished readas 943 01:01:42,200 --> 01:01:46,640 Speaker 1: Things book on on the culture of Netflix. Um some 944 01:01:46,800 --> 01:01:51,680 Speaker 1: fascinating observations in there. UM. I'm reading Linked at the moment, 945 01:01:52,320 --> 01:01:56,640 Speaker 1: which is about the impacts of complex networks and in 946 01:01:57,160 --> 01:02:00,440 Speaker 1: so many fields of endeavor, but all all of those 947 01:02:00,520 --> 01:02:03,480 Speaker 1: I listened to on audible when I'm when I'm outrunning. 948 01:02:03,600 --> 01:02:07,240 Speaker 1: That's become my reading time these days. Quite interesting. What 949 01:02:07,400 --> 01:02:10,320 Speaker 1: sort of advice would you give to a recent university 950 01:02:10,360 --> 01:02:14,040 Speaker 1: grad who was considering a career in either finance or 951 01:02:14,200 --> 01:02:19,520 Speaker 1: growth investing. I worry about graduates who are considering a 952 01:02:19,640 --> 01:02:24,800 Speaker 1: career in in finance or growth investing. I think being 953 01:02:24,880 --> 01:02:29,960 Speaker 1: interested in financial markets is not likely to be a 954 01:02:30,000 --> 01:02:32,080 Speaker 1: good indicator that that somebody is going to be a 955 01:02:32,120 --> 01:02:35,120 Speaker 1: good investor, right. I think a much better indicator is 956 01:02:35,200 --> 01:02:38,040 Speaker 1: whether they're interested in in companies, whether they have that 957 01:02:38,160 --> 01:02:44,440 Speaker 1: curiosity about business models, what makes the company work fascinating entrepreneurs. 958 01:02:45,200 --> 01:02:48,040 Speaker 1: I think all of the piece around interacting with financial 959 01:02:48,120 --> 01:02:50,439 Speaker 1: markets there's a sort of you know, there's a there's 960 01:02:50,480 --> 01:02:54,160 Speaker 1: a skills that you can teach somewhere, but but financial 961 01:02:54,240 --> 01:02:57,680 Speaker 1: markets are not interesting, intrinsically interesting in and of themselves. 962 01:02:58,080 --> 01:03:00,960 Speaker 1: What's much more interesting at the the lying companies and 963 01:03:01,040 --> 01:03:03,440 Speaker 1: if you can, if you can make good judgments about 964 01:03:03,520 --> 01:03:06,760 Speaker 1: those things. I think the finance piece looks after it's 965 01:03:06,960 --> 01:03:10,720 Speaker 1: after itself. When I used to I used to run 966 01:03:10,760 --> 01:03:14,200 Speaker 1: the run the graduate requiitment for investors at Bata Gifford, 967 01:03:14,240 --> 01:03:16,240 Speaker 1: and one of the things we tried very hard to 968 01:03:16,280 --> 01:03:22,120 Speaker 1: get away from was um business business studies or economics 969 01:03:22,160 --> 01:03:25,040 Speaker 1: graduates and try to get much more into the liberal 970 01:03:25,160 --> 01:03:27,880 Speaker 1: arts um where you know, I think you could get 971 01:03:27,960 --> 01:03:31,520 Speaker 1: people with curiosity, but that that went consumed with that, 972 01:03:31,720 --> 01:03:35,280 Speaker 1: that ambition to work in finance quite quite interesting. And 973 01:03:35,400 --> 01:03:38,360 Speaker 1: our final question, what do you know about the worlds 974 01:03:38,360 --> 01:03:41,920 Speaker 1: of growth investing today that you wish you knew twenty 975 01:03:42,040 --> 01:03:44,680 Speaker 1: or so years ago when you were first getting started. 976 01:03:45,280 --> 01:03:48,360 Speaker 1: I think it would be the extent to what the 977 01:03:48,480 --> 01:03:52,120 Speaker 1: what you do influences your fuse. You know, it's it's 978 01:03:52,480 --> 01:03:54,160 Speaker 1: you know, it's a it's the wrong way around to 979 01:03:54,280 --> 01:03:56,520 Speaker 1: think you can you can sit and then think about 980 01:03:56,600 --> 01:03:59,640 Speaker 1: things and then natural influence what you do. Instead, it's 981 01:04:00,000 --> 01:04:02,200 Speaker 1: you know, you've got to You've got to You don't 982 01:04:02,240 --> 01:04:04,400 Speaker 1: sit behind your desk and pontificate. You've got to get 983 01:04:04,400 --> 01:04:08,320 Speaker 1: out into the world. There are so many interesting sources 984 01:04:08,400 --> 01:04:12,240 Speaker 1: of information. You know. Some management is is it gets 985 01:04:12,320 --> 01:04:14,920 Speaker 1: most of its information from a very small number of people. 986 01:04:15,240 --> 01:04:18,160 Speaker 1: It's situated mainly in London and New York, but there's 987 01:04:18,200 --> 01:04:20,800 Speaker 1: a whole world out there. I've moved my family out 988 01:04:20,880 --> 01:04:24,480 Speaker 1: to Secon Valley on three different occasions, and don't extended 989 01:04:24,520 --> 01:04:27,439 Speaker 1: trips and the you know, the people that you meet, 990 01:04:27,600 --> 01:04:33,360 Speaker 1: the entrepreneurs, the investors, you know they they they can 991 01:04:33,640 --> 01:04:37,600 Speaker 1: shape the way you view the world. Um in a way. 992 01:04:37,680 --> 01:04:42,720 Speaker 1: That's that's that's extremely helpful. Um to to the job. 993 01:04:43,600 --> 01:04:47,760 Speaker 1: So get out and do things and meet people. Quite interesting. 994 01:04:48,400 --> 01:04:51,160 Speaker 1: We have been speaking with Tom Slater. He is the 995 01:04:51,200 --> 01:04:55,400 Speaker 1: head of US Equity Growth Investing at Bailey Gifford. If 996 01:04:55,480 --> 01:04:58,600 Speaker 1: you enjoyed this conversation, well be sure and check out 997 01:04:58,800 --> 01:05:03,680 Speaker 1: any of our prior nearly four hundred such discussions. You 998 01:05:03,800 --> 01:05:08,200 Speaker 1: can find them at iTunes, Spotify, wherever you get your 999 01:05:08,240 --> 01:05:12,800 Speaker 1: podcast fixed filled. We love your comments, feedback and suggestions. 1000 01:05:13,200 --> 01:05:16,000 Speaker 1: Give us a review at Apple iTunes. Write to us 1001 01:05:16,120 --> 01:05:20,120 Speaker 1: at m ib podcast at Bloomberg dot net. You can 1002 01:05:20,280 --> 01:05:23,160 Speaker 1: check out my daily reads at Rid Haltz dot com. 1003 01:05:23,920 --> 01:05:27,560 Speaker 1: Check out my weekly column on Bloomberg dot com slash Opinion. 1004 01:05:28,000 --> 01:05:30,920 Speaker 1: Follow me on Twitter at Rid halts. I would be 1005 01:05:31,080 --> 01:05:33,280 Speaker 1: remiss if I did not think of the crack team 1006 01:05:33,360 --> 01:05:37,480 Speaker 1: that helps put together this conversation every week. Maroufle is 1007 01:05:37,520 --> 01:05:42,560 Speaker 1: my audio engineer. Michael Boyle is my producer Altico Valdrun 1008 01:05:42,800 --> 01:05:46,480 Speaker 1: is our project manager. Michael Batnick is my head of research. 1009 01:05:47,280 --> 01:05:51,440 Speaker 1: I'm Barry Ridults. You've been listening to Master's Business on 1010 01:05:51,600 --> 01:05:52,520 Speaker 1: Bloomberg Radio.