WEBVTT - Tom Slater on Growth Investing (Podcast) 0:00:02.200 --> 0:00:06.399 This is Masters in Business with Barry Ridholts on Bloomberg 0:00:06.480 --> 0:00:09.720 Radio this weekend. On the podcast, I have an extra 0:00:09.800 --> 0:00:12.799 special guest. His name is Tom Slater. He's the head 0:00:12.800 --> 0:00:17.120 of the US equities team at UK firm Bailey Gifford, 0:00:17.200 --> 0:00:22.520 headquartered in Edinburgh. The firm has been around since They 0:00:22.560 --> 0:00:26.960 manage pick a number, almost three hundred billion dollars in assets. 0:00:27.040 --> 0:00:31.680 They've had explosive growth and they are not your typical 0:00:31.760 --> 0:00:37.040 growth manager. They run concentrated portfolios. He referred to one 0:00:37.040 --> 0:00:41.240 of the funds they run as growth at an unreasonable price, 0:00:41.760 --> 0:00:44.199 but it's worked out really well. That fund is up 0:00:44.600 --> 0:00:47.959 a hundred and twelve percent, almost a percent more than 0:00:48.080 --> 0:00:52.120 the S and P five hundred and Really this conversation 0:00:52.479 --> 0:00:56.120 is very much along the lines of what happens when 0:00:56.160 --> 0:01:01.279 you rethink the investment process over long, long periods of 0:01:01.320 --> 0:01:06.360 time and make well thought out, intelligent adjustments to how 0:01:06.400 --> 0:01:13.160 you go about selecting companies, constructing portfolios, making cell decisions, 0:01:13.600 --> 0:01:17.720 which Tom points out is where so many investors go awry. 0:01:18.319 --> 0:01:22.200 You know, your downside in anyone's stock is limited pretty 0:01:22.280 --> 0:01:26.520 much to but your upside is far far greater, and 0:01:26.640 --> 0:01:30.039 as he points out, four percent or so of the 0:01:30.080 --> 0:01:35.039 total US equity stocks are what has driven all of 0:01:35.080 --> 0:01:38.080 the gains over the past century, and so it becomes 0:01:38.200 --> 0:01:42.360 very important not to sell a stock that has potential 0:01:42.520 --> 0:01:45.240 to keep growing. And if you look at their portfolio 0:01:45.680 --> 0:01:49.960 grow substantially. They own things like Tesla and Netflix and 0:01:50.640 --> 0:01:54.720 Alphabet etcetera. This was really a fascinating conversation if you 0:01:54.760 --> 0:01:57.840 were at all interested in growth investing, if you want 0:01:57.840 --> 0:02:00.760 to know why having a large to share and not 0:02:00.840 --> 0:02:05.000 being a closet indexer is important as an active manager. Well, 0:02:05.600 --> 0:02:07.520 this is going to be the interview few so, with 0:02:07.600 --> 0:02:12.720 no further ado, my conversation with Tom Slater of Bailey Gifford. 0:02:14.040 --> 0:02:18.600 This is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:02:19.160 --> 0:02:22.240 My special guest today is Tom Slater. He is the 0:02:22.280 --> 0:02:25.920 head of the US equities team for Bailey Gifford, where 0:02:25.919 --> 0:02:28.280 he has been a partner since two thousand and twelve. 0:02:28.639 --> 0:02:32.359 He runs the long term Global Growth portfolios, which are 0:02:32.480 --> 0:02:37.280 focused on growth companies that are both listed and private. 0:02:37.760 --> 0:02:42.000 Tom Slater, Welcome to Bloomberg. Hi Berry, Thank you very 0:02:42.080 --> 0:02:44.880 much for having me. So let's start a little bit 0:02:44.919 --> 0:02:48.000 with your background. How did you find your way into 0:02:48.040 --> 0:02:52.240 the investment management business. I know you have an experience 0:02:52.240 --> 0:02:55.480 in computer science and mathematics. Yeah, that was that was 0:02:55.520 --> 0:03:01.320 my background. I I studied mass and computer science University UM. 0:03:01.880 --> 0:03:05.680 I was thinking probably about about doing something in in academia. 0:03:06.280 --> 0:03:09.680 It was quite an interesting and exciting time in in 0:03:09.800 --> 0:03:13.600 the computer science world ninety six to two thousands when 0:03:13.639 --> 0:03:15.880 I was at university. But I had a very good 0:03:15.880 --> 0:03:19.400 friend that that I studied Mass with and and she 0:03:19.480 --> 0:03:23.920 went and worked in in the city of London during 0:03:24.000 --> 0:03:28.840 our final sort university UM. She she came back Frans 0:03:28.880 --> 0:03:30.720 of Franz Anderson, the name was she came. She came 0:03:30.760 --> 0:03:33.480 back and she said to me that this this is that, 0:03:33.639 --> 0:03:36.240 this is the direction we want to be looking at UM. 0:03:36.600 --> 0:03:38.160 And that's what that was really the first time I 0:03:38.400 --> 0:03:42.560 encountered the world of investment management UM. Probably the summer 0:03:44.040 --> 0:03:46.480 really that that was a heck of a time in 0:03:46.960 --> 0:03:50.480 terms of the end of that last big stock cycle. 0:03:51.200 --> 0:03:56.960 Was that your formative experience the dot com boom and bust? Yes, 0:03:57.560 --> 0:04:01.800 in a lot of ways it was. I started working 0:04:01.880 --> 0:04:04.720 at Baiby Gifford in in September of two thousand, so 0:04:05.480 --> 0:04:09.240 just after the peak of the boom, and and then 0:04:09.400 --> 0:04:11.920 for the for the next three years, of the first 0:04:11.920 --> 0:04:15.840 three years of my career, watch markets decline substantially. I 0:04:15.920 --> 0:04:18.040 think there's this slight danger in quing it formative. And 0:04:18.320 --> 0:04:21.120 of course there had been a lot of speculative excess 0:04:22.000 --> 0:04:25.600 in that period, but some some amazing things have come 0:04:25.640 --> 0:04:29.800 out of it as well. Subsequently, we've had a lot 0:04:29.839 --> 0:04:32.480 of time for the work of Colota Perez at Sussex 0:04:32.600 --> 0:04:35.520 University in this in this regard and and the link 0:04:35.680 --> 0:04:41.680 between financial mania and subsequent technological innovation quite interesting. So 0:04:41.800 --> 0:04:44.480 let's switch gears. You're an active manager and you are 0:04:44.560 --> 0:04:48.240 both selecting stocks and determining how long to hold them. 0:04:48.520 --> 0:04:51.400 And I want to ask you about a quote of 0:04:51.480 --> 0:04:55.279 yours that I read where you you had written quote 0:04:55.360 --> 0:04:59.080 the active management industry has done a poor job of 0:04:59.320 --> 0:05:03.560 making the as for its own existence. Discuss that. I 0:05:03.680 --> 0:05:08.040 think it's a really interesting area. By the the start 0:05:08.080 --> 0:05:13.080 of it was was looking at this polarization between active 0:05:13.120 --> 0:05:18.120 management and passive management and thinking through, well, what is 0:05:18.240 --> 0:05:21.760 the what are we really trying to say about about 0:05:21.800 --> 0:05:26.960 the case here? And it struck me that both both 0:05:27.120 --> 0:05:32.120 passive and active had become terms that had become quite corrupted. 0:05:33.040 --> 0:05:35.679 So in the in the case of the active management industry, 0:05:36.240 --> 0:05:40.799 you see so many funds that label themselves as active, 0:05:41.400 --> 0:05:46.120 that charge fees for active management, but have huge overlap 0:05:46.320 --> 0:05:49.279 with the index or low active share as it's known. 0:05:50.120 --> 0:05:53.600 And so what those companies are really focused on is 0:05:53.720 --> 0:05:57.000 business risk and not producing an outcome that diverges too 0:05:57.080 --> 0:05:59.800 much from the market, because of course, diverging too much 0:05:59.839 --> 0:06:02.960 from the market is what leads you to your your 0:06:03.000 --> 0:06:08.000 clients to fire. And so I think when you hear 0:06:08.480 --> 0:06:11.600 those sort of hours from the act of management industry 0:06:11.640 --> 0:06:16.680 about losing assets to passive management, in some ways the 0:06:16.760 --> 0:06:20.279 industry has has been the architect of its own demands 0:06:20.560 --> 0:06:25.400 by providing sufficient value to save us. And that leads 0:06:25.480 --> 0:06:29.160 to these sort of remarkable results from the likes of 0:06:29.279 --> 0:06:33.000 Cramers and Petagist so that show that there being a 0:06:33.120 --> 0:06:38.400 correlation between active share and performance. So you have this 0:06:38.600 --> 0:06:41.200 remarkable idea that you don't even need to know what 0:06:41.480 --> 0:06:44.719 bets your fund manager is taking, simply that the fact 0:06:44.839 --> 0:06:48.880 they are taking bets is likely to lead to a 0:06:48.960 --> 0:06:53.680 better outcome, just because the aggregate statistics are dragged down 0:06:53.720 --> 0:06:56.720 by those who aren't actually offering a genuine act of experience. 0:06:58.120 --> 0:07:02.320 At the same time, though, you you the passive management industry, 0:07:02.960 --> 0:07:06.640 I think has been guilty of coming up with so 0:07:06.839 --> 0:07:11.280 many induicries against which to manage assets passively that you 0:07:11.880 --> 0:07:14.360 can't help but concluded it is a little more than 0:07:14.440 --> 0:07:19.200 a than an asset gathering exercise. There are more indseased 0:07:19.360 --> 0:07:22.760 than than there are stocks to invest in, which was 0:07:23.000 --> 0:07:25.360 which was a threshold that was crossed two or three 0:07:25.440 --> 0:07:27.960 years ago. And so I think both both sides of 0:07:28.400 --> 0:07:31.440 this argument have become quite polarized, that they've become at 0:07:31.480 --> 0:07:35.840 times quite disingenuous. And that's what's what's taking bairy g 0:07:35.840 --> 0:07:39.680 effort towards this idea of of categorizing ourselves as actual investors, 0:07:40.160 --> 0:07:45.120 by which we mean that we aim to be long term, supportive, 0:07:45.360 --> 0:07:50.040 engaged shareholders and companies, which is which is is nothing 0:07:50.080 --> 0:07:53.120 to do with taking positions relative to an index. So 0:07:53.320 --> 0:07:55.800 let's talk about one of the funds you're affiliated with, 0:07:56.040 --> 0:07:59.640 the US Equity Growth Funds. It's up over a hundred 0:07:59.680 --> 0:08:03.080 and twelve percent year to date. I have to assume 0:08:03.760 --> 0:08:08.560 that has a substantial active share given the SMP is 0:08:08.640 --> 0:08:13.960 up only year to date. Yes, we do not look 0:08:14.040 --> 0:08:19.160 at the index when we construct portfolios. I think indices 0:08:19.360 --> 0:08:22.640 are a good way to evaluate the performance of a 0:08:22.680 --> 0:08:24.800 fund manager, so long as you do it over a 0:08:24.880 --> 0:08:27.440 time scale which which is commensurate with the way that 0:08:27.520 --> 0:08:30.400 which the fund is managed. But I think it's an 0:08:30.440 --> 0:08:35.120 extremely dangerous way to start constructing a portfolio. So our 0:08:35.160 --> 0:08:39.040 portfolios are constructed simply of the stocks that we think 0:08:39.240 --> 0:08:43.559 offer the most exciting possibility is the greatest chance of 0:08:44.160 --> 0:08:48.760 being exceptional companies, by which we mean addressing large opportunities, 0:08:49.320 --> 0:08:52.240 having some form of sustainable edge and something special about 0:08:52.280 --> 0:08:54.880 the culture and the way in which they go about 0:08:54.960 --> 0:08:58.559 the task. So I discourage people from looking at the 0:08:58.600 --> 0:09:01.560 one year numbers because I think one year numbers are 0:09:02.040 --> 0:09:06.040 filled with noise, and actually extending the time frame looking 0:09:06.120 --> 0:09:09.520 at three years, looking at five years is much more 0:09:09.640 --> 0:09:14.200 likely to give investors evidence or otherwise of the skill 0:09:14.240 --> 0:09:18.400 of the manager. So you use a benchmark that is 0:09:18.480 --> 0:09:23.079 the S and P five plus one point five. I 0:09:23.240 --> 0:09:26.760 have to ask where that benchmark came from. If you 0:09:26.840 --> 0:09:29.600 were in British I would accuse you of showing off. 0:09:31.720 --> 0:09:36.080 I think that is actually an artifact of of MIFED 0:09:36.160 --> 0:09:40.839 regulations that we have to um have to declare our 0:09:41.200 --> 0:09:45.520 performance objective, not just a benchmark, but a performance objective 0:09:45.600 --> 0:09:49.520 for the fund. Um. I think if I have to 0:09:49.559 --> 0:09:53.199 link that to a characteristic of Bailey Gifford, we have 0:09:53.360 --> 0:09:58.120 an extremely strong compliance culture. Um. You if you go 0:09:58.240 --> 0:10:01.760 way back in time, you know, um, after after the 0:10:01.840 --> 0:10:06.679 Maxwell scandal and the raid on the pension fund, who 0:10:06.800 --> 0:10:08.760 is that pension fund given to to manage? It was 0:10:08.880 --> 0:10:13.520 daily gifted because the firm has a reputation of being 0:10:14.440 --> 0:10:16.679 white and white when it comes to all of all 0:10:16.760 --> 0:10:21.199 of these compliance um and management traits. And that's that's 0:10:21.280 --> 0:10:23.160 really a function of the fact that the firm is 0:10:23.520 --> 0:10:27.400 an unlimited liability partnership, which I think is a is 0:10:27.440 --> 0:10:29.840 a very rare structure these days if you look at 0:10:29.840 --> 0:10:33.920 the front management industry. But the forty yard partners who 0:10:34.080 --> 0:10:37.199 work directly in the firm are personally liable for the 0:10:37.920 --> 0:10:41.640 film's liabilities. And so when it comes to things like 0:10:42.200 --> 0:10:45.439 MITHID regulations, we tend to follow the absolute letter of 0:10:45.480 --> 0:10:49.000 the law and declare our performance relative to the one 0:10:49.040 --> 0:10:53.440 and a half percent above the benchmark, you know, perhaps 0:10:53.480 --> 0:10:57.360 a slightly more enthusiastic way than than many of our 0:10:57.440 --> 0:11:01.160 peers might quite fascinating. So Tom, let me ask you, 0:11:01.480 --> 0:11:05.360 how do you think about both assets under management and 0:11:05.520 --> 0:11:08.960 how quickly the firm is growing when you're out looking 0:11:09.080 --> 0:11:12.120 at companies or starts to buy. Yes, it's a really 0:11:12.200 --> 0:11:17.480 interesting question. Um. The film was actually founded in so 0:11:17.600 --> 0:11:20.199 if you look at the full sweep of its existency, 0:11:20.360 --> 0:11:23.400 the growth hasn't been that explosive. But certainly our assets 0:11:23.440 --> 0:11:28.280 and the management have have grown reasonably sharply of late. 0:11:29.240 --> 0:11:32.480 But if you actually look at the flows of our clients, um, 0:11:32.760 --> 0:11:36.040 there's there's significant flows both in and out, and the 0:11:36.160 --> 0:11:40.240 net of those two numbers is just about zero. UM. 0:11:40.360 --> 0:11:42.880 So the growth and assets has been much more to 0:11:43.040 --> 0:11:47.920 do with investment performance and alpha generated for our clients 0:11:48.440 --> 0:11:51.560 than it has from from an exercise around asset gathering. 0:11:52.360 --> 0:11:54.599 And the reason for those two way flows is a 0:11:54.720 --> 0:11:59.520 mixture of both the our core base of pension fund 0:11:59.559 --> 0:12:03.520 clients gradually reducing their exposure to equities over time, and 0:12:03.600 --> 0:12:09.520 then also clients rebalancing their portfolios. But in terms of 0:12:09.960 --> 0:12:12.040 how I think about it, if you if you ask 0:12:12.120 --> 0:12:16.120 me the question today what is bailic efforts assets and 0:12:16.160 --> 0:12:19.400 the management, I wouldn't be able to tell you the 0:12:19.520 --> 0:12:23.120 answer It's a statistic that at one stage in our 0:12:23.200 --> 0:12:25.959 life used to be available on our Internet, but we 0:12:26.120 --> 0:12:29.040 purposefully removed it. And the reason we did so is 0:12:29.120 --> 0:12:33.760 that our objective is not to grow assets under management 0:12:33.880 --> 0:12:36.959 in and of itself. UM. What we believe is that 0:12:37.080 --> 0:12:40.160 if we do a good job from an investment standpoint 0:12:40.320 --> 0:12:43.640 for our clients, if we provide a really high level 0:12:43.720 --> 0:12:47.760 of service, that the assets and the management figure will 0:12:47.800 --> 0:12:52.000 take care of itself. Um. One of the directors of 0:12:52.679 --> 0:12:56.200 the investment trust that I managed, Scottish Mortgod Investment Trust, 0:12:56.880 --> 0:13:00.320 wrote a book called Obliquity and talking about how those 0:13:00.360 --> 0:13:03.800 things that had the greatest success often did that because 0:13:03.840 --> 0:13:08.800 they pursued a different goal around delivering an excellent product 0:13:08.920 --> 0:13:12.120 or service for their customers, and the success followed from 0:13:12.160 --> 0:13:17.000 that they didn't target those financial objectives. Quite quite interesting. Well, well, 0:13:17.080 --> 0:13:20.920 let's stick with the concept of both active share and 0:13:21.200 --> 0:13:25.400 active management. You know, it's been the decade has really 0:13:25.520 --> 0:13:29.520 been defined as the rise of passive and indexing. And 0:13:29.600 --> 0:13:33.280 when we see firms like Vanguard at that six trillion 0:13:33.480 --> 0:13:36.760 or Black Rocket eight trillion, that they've become the eight 0:13:36.840 --> 0:13:42.400 hundred pound guerrillas, what should investors know about active strategies, 0:13:43.360 --> 0:13:49.960 what types of strategies can work beyond simple passive indexing. Well, 0:13:50.440 --> 0:13:53.959 I think passive indexing can be a great product for 0:13:54.320 --> 0:14:00.840 and service. I think UM Vanguard does a fabulous job 0:14:01.080 --> 0:14:05.520 of producing a really great value for money product for 0:14:05.679 --> 0:14:09.679 savers UM and doing it with with real integrity. They 0:14:09.720 --> 0:14:13.920 also have a very significant active management business, and again 0:14:14.280 --> 0:14:19.160 they bring that that high quality attitude towards the way 0:14:19.200 --> 0:14:23.400 they approached the task. I think that in an era 0:14:23.600 --> 0:14:28.800 where there is so much change going on, where there 0:14:28.920 --> 0:14:34.720 are companies using new business models, often underpinned by technology, 0:14:35.200 --> 0:14:41.000 to bring transformational change in industries that have really historically 0:14:41.080 --> 0:14:47.360 seen very little progress, UM that it creates pockets of growth, 0:14:47.800 --> 0:14:50.800 creation of value that if you can tap into as 0:14:50.840 --> 0:14:53.560 an act of manager, can be hugely valuable to your 0:14:53.840 --> 0:14:58.720 underlying clients. UM. Now, it's it's it's important that you 0:14:58.840 --> 0:15:04.000 have clarity around philosophy, process, what you're actually trying to do, 0:15:04.640 --> 0:15:09.640 and it's it's centrally important that your fees are reasonable 0:15:09.760 --> 0:15:13.000 and don't detract from that underlying experience at the end investor. 0:15:13.520 --> 0:15:17.760 But I think subject to those qualifications, active management has 0:15:17.840 --> 0:15:20.840 it has a huge amount to offer offer savers So 0:15:20.960 --> 0:15:24.400 let's talk a little bit about active management. This era 0:15:24.680 --> 0:15:28.160 is known, especially the past couple of years, for the 0:15:28.320 --> 0:15:32.840 high valuations we've seen for for multiple growth companies. How 0:15:32.920 --> 0:15:37.680 should investors think about valuations? The best stocks never look cheap, 0:15:38.280 --> 0:15:42.880 but names that have looked historically expensive have done excellently 0:15:42.960 --> 0:15:47.600 well this year. One of the ways we would characterize 0:15:47.600 --> 0:15:51.560 our approach to investment would be the idea of growth 0:15:51.720 --> 0:15:58.440 at an unreasonable price. And what what what it means 0:15:58.520 --> 0:16:03.840 when I say that is that we're looking for companies 0:16:03.920 --> 0:16:09.160 that address really big opportunities and where that opportunity is 0:16:09.240 --> 0:16:14.080 often dynamic, it's often changing, and you have a hypothesis 0:16:14.160 --> 0:16:17.120 about why this company might be the one to to 0:16:18.320 --> 0:16:23.440 benefit from that change, but we don't know. But if 0:16:23.480 --> 0:16:25.840 if the opportunity is big enough, if they if the 0:16:26.000 --> 0:16:28.000 edge of the company is great enough, if there's something 0:16:28.120 --> 0:16:30.680 special about the way it goes about that task, then 0:16:30.840 --> 0:16:36.480 it can generate a huge amount of value. So if 0:16:36.560 --> 0:16:41.120 you look at a company like Alphabet or Amazon, you 0:16:41.200 --> 0:16:45.960 know these these companies have been vastly underestimated for most 0:16:46.360 --> 0:16:50.000 of their life cycle. UM. I think it was Michael 0:16:50.080 --> 0:16:55.720 Morrits Sequoia who said, why do we persistently underestimate just 0:16:55.960 --> 0:17:01.160 how great a great company can be, and so we 0:17:01.400 --> 0:17:04.120 we don't really look at multiples of near term earnings 0:17:04.200 --> 0:17:06.920 or near term sales. We look at what might this 0:17:07.040 --> 0:17:10.000 company achieve? Where could it be five years from now? 0:17:10.720 --> 0:17:13.480 And I think over that time you can only think probabilistically. 0:17:13.520 --> 0:17:16.200 There isn't an answer to that question. But if you 0:17:16.440 --> 0:17:19.240 if you can identify one of those small number of 0:17:19.359 --> 0:17:23.160 companies that are big winners in markets, um, then they 0:17:23.240 --> 0:17:27.760 can justify paying what what may appear to be optically 0:17:28.400 --> 0:17:32.240 high short term multiples because some of the growth opportunities 0:17:32.280 --> 0:17:34.760 that are bound today are so open ended, and you 0:17:34.840 --> 0:17:36.439 see a lot of when it takes all or when 0:17:36.520 --> 0:17:39.639 it takes most economics. So I'm looking at the Bailey 0:17:39.680 --> 0:17:43.879 Gifford US equity growth funds. The top ten holdings are 0:17:43.960 --> 0:17:49.399 fairly concentrated. It's about fift the portfolio with a lot 0:17:49.480 --> 0:17:51.200 of names that I think a lot of people would 0:17:51.200 --> 0:17:57.960 recognize Tesla, Amazon, Shopify, Wayfair, Netflix, Alphabet, MasterCard. I have 0:17:58.119 --> 0:18:03.080 to ask about check and Trade Desk, two companies I 0:18:03.160 --> 0:18:08.120 am not all that familiar with. Yeah, if you look 0:18:08.200 --> 0:18:13.320 at those two companies checkers and Education Platform, I think 0:18:13.359 --> 0:18:15.840 there are. There are a lot of challenges faced by 0:18:16.040 --> 0:18:21.000 the education system. And what CHECK has done is through 0:18:21.080 --> 0:18:26.680 a director consumer model based around questions and answers products 0:18:27.359 --> 0:18:33.520 um it. It is helping students to get measurably better 0:18:33.760 --> 0:18:38.320 outcomes in in in their examinations, but around that and 0:18:38.840 --> 0:18:42.159 on top of that it can build um all sorts 0:18:42.400 --> 0:18:47.199 of products associated with student access and and in an 0:18:47.320 --> 0:18:52.920 environment where college education is so expensive and inflation is 0:18:53.040 --> 0:18:57.480 so high, actually providing a cost effective solution that demonstrates 0:18:57.600 --> 0:19:01.680 value for money for students is something that I think 0:19:01.800 --> 0:19:06.359 has a huge potential runway. UM You you've talked a 0:19:06.400 --> 0:19:08.520 little bit about this year and the unusual traits of 0:19:08.600 --> 0:19:11.880 this year. You know, I think what this year has 0:19:11.960 --> 0:19:16.440 shown a spotlight on is um the challenges the education 0:19:16.720 --> 0:19:20.920 sector has faced in embracing digital tools, digital methods of delivery. 0:19:21.680 --> 0:19:24.920 Here in the fur management industry, here I am working 0:19:25.000 --> 0:19:28.200 from home using a whole array of cloud based services. 0:19:28.320 --> 0:19:31.680 It's it's probably made me more productive, not less productive. 0:19:32.200 --> 0:19:35.080 But if I look at my children and their educational experience, 0:19:35.400 --> 0:19:38.359 you know, as these UM state at home orders have 0:19:38.800 --> 0:19:41.200 come through, you know, it's really shown a spotlight on 0:19:41.560 --> 0:19:44.919 on how slow the education sector has been to embrace 0:19:44.960 --> 0:19:47.760 some of these tools. Now check is a company that 0:19:48.760 --> 0:19:53.800 it's run by its founder, a significant amount of equity 0:19:53.960 --> 0:19:57.240 tied up in of their own wealth, tied up in 0:19:57.280 --> 0:19:59.439 the equity of the business. It's run with a very 0:19:59.520 --> 0:20:02.840 long time horizon, exactly the type of characteristics that we're 0:20:03.119 --> 0:20:05.440 looking for in the in the long term growth businesses 0:20:05.520 --> 0:20:07.639 that we invest in. I would say, and you know 0:20:07.720 --> 0:20:09.720 if you when you when you talk to you talked 0:20:09.760 --> 0:20:13.480 a bit about some of those UM top holdings, and 0:20:13.880 --> 0:20:16.000 you know, if I was to pull out at difference 0:20:16.160 --> 0:20:20.280 perhaps in the way we approached the task versus versus 0:20:20.359 --> 0:20:23.440 some of our peers, it would be in the in 0:20:23.560 --> 0:20:28.200 the longevity of the holdings. So you know, um, Amazon, 0:20:29.200 --> 0:20:32.560 we bought in two thousand and five, so the holding 0:20:32.600 --> 0:20:35.600 period as far as been fifteen years, and you know 0:20:36.600 --> 0:20:39.480 has two thousand and thirteen, it's been seven years. So 0:20:39.640 --> 0:20:42.480 it's the time horizon, not not the recent growth that 0:20:42.560 --> 0:20:46.159 I think is the is a really important and defining characteristic. 0:20:46.680 --> 0:20:50.560 Quite interesting. So Tom, let's talk a little bit about Passive. 0:20:50.760 --> 0:20:56.160 You've talked about why Active doesn't do such a good 0:20:56.280 --> 0:21:00.320 job of explaining their own existence. Kind of left the 0:21:00.400 --> 0:21:03.440 field all alone to passive. But I want to come 0:21:03.480 --> 0:21:07.679 back to another statement you made, quote the average active 0:21:07.760 --> 0:21:14.320 manager will underperform the market. Unfortunately, this statement is mathematically inevitable. 0:21:15.160 --> 0:21:21.440 Isn't that essentially the underlying argument in favor of passive Yeah, 0:21:21.840 --> 0:21:25.000 I mean, I guess what what I is getting up is. 0:21:25.160 --> 0:21:27.480 You know, if you if you say the market is 0:21:28.200 --> 0:21:32.520 is made up of active and passive approaches to investment, 0:21:33.040 --> 0:21:38.000 then after fees, you are guaranteed to see those brooches 0:21:38.359 --> 0:21:41.720 underperform whatever the benchmark is. And since the fees on 0:21:41.760 --> 0:21:45.359 active management are higher and see some passive management, you 0:21:45.400 --> 0:21:48.679 would expect that that in some day or to as 0:21:48.720 --> 0:21:52.960 a group underperform unerformed by a greater amount. But I 0:21:53.000 --> 0:21:55.000 think you you know you You have to come back 0:21:55.160 --> 0:22:00.400 to some of the challenges around what is active management. 0:22:00.960 --> 0:22:04.600 And there are some some rules of of um not 0:22:04.960 --> 0:22:07.720 even rules of fun. But there are some some interesting 0:22:07.760 --> 0:22:11.920 academic results in this area. One we've touched on is 0:22:12.320 --> 0:22:16.520 that simply having a higher active share chorities positively with 0:22:16.600 --> 0:22:20.679 performance outcomes. But I think in the subsequent academic results 0:22:20.720 --> 0:22:25.920 have shown that time horizon is also important in this 0:22:26.680 --> 0:22:29.400 and as as you extend the time horizon. The academic 0:22:29.440 --> 0:22:35.160 evidence is also supportive of better outcomes for for active management. 0:22:36.119 --> 0:22:40.560 So I don't know, I don't think the averages matter 0:22:40.720 --> 0:22:45.200 a great deal. It's much more about can you can 0:22:45.240 --> 0:22:47.800 you find investment manager with the philosophy and process that 0:22:47.920 --> 0:22:50.800 you believe in? Do they keep their fees to a 0:22:50.880 --> 0:22:53.639 minimum so that you as an individual have to have 0:22:53.800 --> 0:22:57.919 the best chance of our performing because the fees are 0:22:57.960 --> 0:23:00.600 the one part that we do have sitt and t about. 0:23:01.119 --> 0:23:02.960 And then it's you know, when you when you when 0:23:03.000 --> 0:23:05.440 you believe you have found the manager that meets this 0:23:05.520 --> 0:23:09.840 great area. If little changes, then stick with them through 0:23:09.920 --> 0:23:14.119 inevitable performance cycles. You know, the the oldest client I 0:23:14.800 --> 0:23:17.679 manage money for a betting g EFFITS is Scottish Mortgage 0:23:17.720 --> 0:23:20.879 Investment Trust. We've we've managed that that fund for a 0:23:20.960 --> 0:23:24.320 hundred and twelve years through the Great Depression and two 0:23:24.359 --> 0:23:27.720 World Wars and unfortunately the performance numbers that come out 0:23:27.760 --> 0:23:31.879 of that are not gifts compliant. But over that hundred 0:23:32.119 --> 0:23:34.800 and twelve year period, you know, it is has been 0:23:34.920 --> 0:23:40.240 a phenomenally attractive thing for investors to be invested in 0:23:40.359 --> 0:23:44.359 an in an actively managed fund, quite interesting for Americans 0:23:44.400 --> 0:23:48.120 who may not be familiar with what the Scottish Mortgage 0:23:48.160 --> 0:23:51.800 Trust investment trust is. Can you explain a little bit 0:23:51.960 --> 0:23:56.320 exactly what that entity is. I can't. Yes, it's it's 0:23:56.320 --> 0:24:01.120 a closed ended investment vehicle listed on the London Stock Exchange. 0:24:01.760 --> 0:24:05.120 It's capitalized around twenty five billion dollars. It's a member 0:24:05.200 --> 0:24:09.480 of the foot See Index UM. But it's really a 0:24:09.600 --> 0:24:15.080 collective investment vehicle UM that was raised in originally in 0:24:15.280 --> 0:24:18.960 in in the fund structures that invested in that time. 0:24:19.480 --> 0:24:24.080 But it's an incredibly flexible structure UM. It has an 0:24:24.119 --> 0:24:28.440 independent board of directors who are who are of extremely 0:24:28.520 --> 0:24:32.680 valuable source of council and advice for us as the 0:24:32.720 --> 0:24:36.480 managers who do a great job of protecting the interests 0:24:36.640 --> 0:24:41.280 of the tens of thousands of independent shareholders in the trust. 0:24:42.359 --> 0:24:46.120 And it's a very flexible structure being being closed ended 0:24:46.119 --> 0:24:49.000 in a permanent pool of capital, allowing us to invest 0:24:49.080 --> 0:24:53.479 in both public and private companies really on the basis 0:24:53.520 --> 0:24:57.080 of where we find the most exceptional opportunities with without 0:24:57.119 --> 0:25:00.760 worrying about a company's public or private status, and in 0:25:01.000 --> 0:25:05.399 an environment where many companies are able to grow very 0:25:05.520 --> 0:25:09.760 rapidly with very modest capital requirements, often staying private for longer. 0:25:10.280 --> 0:25:12.960 It's a structure that allows us to many maintain the 0:25:13.000 --> 0:25:16.520 opportunity set of investing in the world's greatest growth companies. 0:25:17.040 --> 0:25:21.159 So let's stick with the idea of private. Generally speaking, 0:25:21.240 --> 0:25:24.520 we're seeing companies staying private for longer. As you mentioned, 0:25:24.600 --> 0:25:27.920 they're they're not I P O in as often, and 0:25:28.080 --> 0:25:32.159 there's clearly no passive, comparable sort of fund for pre 0:25:32.320 --> 0:25:39.040 public companies. How different is making the stock selection decision 0:25:39.240 --> 0:25:43.400 about private companies compared to what we see for publicly 0:25:43.440 --> 0:25:46.160 traded firms. We have to be clear about what we're 0:25:46.160 --> 0:25:50.800 trying to do here. We're investing in growth companies and 0:25:51.640 --> 0:25:55.280 companies that we aren't venture couplists. We're not going in 0:25:55.480 --> 0:26:00.840 and funding two people in a garage, um where where. 0:26:00.960 --> 0:26:03.000 But we are investing in companies that have chosen to 0:26:03.000 --> 0:26:06.800 stay private, possibly because you know, in in today's world, 0:26:06.920 --> 0:26:11.160 where your addressable market is, there's three billion people globally 0:26:11.280 --> 0:26:15.520 that have a smartphone where you can address that market 0:26:15.640 --> 0:26:19.800 without investing in significant couple capital. You know you can 0:26:19.880 --> 0:26:23.200 pay five percent of revenue to an Amazon Web services, 0:26:23.800 --> 0:26:26.360 pay thirty percent to an app store, and then suddenly 0:26:26.600 --> 0:26:30.440 you know that that three billion people is an addressable audience. 0:26:30.880 --> 0:26:34.360 And as a result, with very modest capitals and investors, 0:26:34.480 --> 0:26:37.880 you can see that the most successful companies really growed 0:26:38.000 --> 0:26:43.520 to phenomenal size very rapidly. And so our observation was 0:26:43.640 --> 0:26:48.000 that these are companies in another era that we you know, 0:26:48.240 --> 0:26:51.320 we've we may well have been investing in any way 0:26:52.400 --> 0:26:54.600 because because they would have come to public markets at 0:26:54.640 --> 0:26:57.240 a much earlier stage. So I think in terms of 0:26:57.320 --> 0:27:00.679 the decisions about investment, there's there's very little different. There 0:27:00.720 --> 0:27:03.960 are some technical differences around the leagal negotiations around the 0:27:04.000 --> 0:27:06.600