WEBVTT - Why the UK Is a Stock Pickers Paradise with Kernow's Alyx Wood 0:00:02.720 --> 0:00:17.560 Bloomberg Audio Studios, Podcasts, radio News. Welcome to Meron Talks Money, 0:00:17.560 --> 0:00:20.040 the podcast in which people who know the markets explain 0:00:20.120 --> 0:00:22.920 the markets. I'm Meren sumsat Web. This week I'm speaking 0:00:22.920 --> 0:00:26.240 with Alex Wood, chief investment officer of Kerno Asset Management. 0:00:26.480 --> 0:00:31.440 Kerno describes itself as a contrarian investment manager, specializing exclusively 0:00:31.560 --> 0:00:34.680 in UK equities, currently about one hundred million pounds in 0:00:34.760 --> 0:00:39.239 assets under management. Before co founding Kerno in twenty seventeen, 0:00:39.280 --> 0:00:41.760 Alex worked as a fund manager at Downing, a vice 0:00:41.800 --> 0:00:45.560 president at Deutsche Bank, and a management consultant at KPMG. 0:00:46.120 --> 0:00:47.920 Welcome Alex to Merin Talks Money. 0:00:48.560 --> 0:00:50.720 It's a pleasure, Miron. Thank you very much for your time. 0:00:50.720 --> 0:00:52.720 It's a bit surreal, little bit of a career highlight 0:00:52.760 --> 0:00:54.319 for me because I've listened to your show and I'm 0:00:54.360 --> 0:00:56.680 on it so and I just found out you're half 0:00:57.160 --> 0:00:59.720 your cornished as well, So this is this is perfect. 0:01:00.440 --> 0:01:02.800 I mean, this is a career highlight for me as well, 0:01:02.880 --> 0:01:05.319 and that so far we have never yet had a 0:01:05.400 --> 0:01:10.200 cornish person on who is a value orientated contrarian who 0:01:10.240 --> 0:01:13.160 specializes in the UK. It looks like hitting every single 0:01:13.240 --> 0:01:16.040 button for this podcast. So we're more excited than you are. 0:01:16.080 --> 0:01:20.360 Gott to tell you hopefully certain quality. But yes, I agree. 0:01:21.959 --> 0:01:25.560 Okay, so listen. Tell me about why you started this fund. 0:01:25.959 --> 0:01:27.080 What's the key behind it? 0:01:27.720 --> 0:01:30.319 Oh, it's been my lifelong dream since I've been investing 0:01:30.360 --> 0:01:32.840 since fifteen. I enjoy it. I love it. The opportunity 0:01:32.880 --> 0:01:36.000 set is amazing in the UK. The number of decent 0:01:36.160 --> 0:01:38.840 jobs and places you can practice this craft has been 0:01:38.880 --> 0:01:41.440 declining because of the growth of index hugging and businesses 0:01:42.040 --> 0:01:45.400 merging and forgetting how to make money. So the opportunity 0:01:45.440 --> 0:01:49.640 aligned got big enough and ivy enough to go for it, 0:01:49.720 --> 0:01:51.080 and so I did. 0:01:51.600 --> 0:01:53.240 Let's go back to the beginning of what you said 0:01:53.240 --> 0:01:56.360 that there aren't very many markets left where you can 0:01:56.400 --> 0:01:59.040 be properly active because the rise of passive are slightly 0:01:59.080 --> 0:02:01.080 destroyed the ability to do that. Can you talk a 0:02:01.120 --> 0:02:02.040 little bit more around that. 0:02:02.320 --> 0:02:05.040 It's more the index hugging. You know, it's a disease. 0:02:05.320 --> 0:02:07.560 You know, ten years ago there were four hundred U 0:02:07.600 --> 0:02:09.320 came up exaggerating ums a little bit, but the four 0:02:09.360 --> 0:02:11.560 hundred UK managers that were doing plus and minus ten percent. 0:02:12.080 --> 0:02:15.000 Now you've got forty guys probably doing decent job and 0:02:15.040 --> 0:02:18.160 everyone else's plus and minus two on the index, and 0:02:18.200 --> 0:02:20.760 that index hugging that lack of conviction makes it very 0:02:20.760 --> 0:02:22.040 hard to find a job because if you go join 0:02:22.080 --> 0:02:25.280 a big house or a medium house, you're tracked against that, 0:02:25.360 --> 0:02:27.240 and if you go too far away, you get fired. 0:02:27.280 --> 0:02:29.440 So you know, it's better to fail conventionally rather than 0:02:29.440 --> 0:02:32.919 win unconventionally, and you have to follow someone else's philosophy 0:02:33.120 --> 0:02:34.840 to have your own philosophy and come out of an 0:02:34.840 --> 0:02:38.239 investment bank in your twenties that doesn't exist anymore to join. 0:02:38.280 --> 0:02:39.480 I'm not going to use names, but some of the 0:02:39.480 --> 0:02:43.840 great training programs that still exists, they just don't give 0:02:43.919 --> 0:02:48.840 you that career exposure anymore. There are places the multi 0:02:48.840 --> 0:02:50.320 straps are doing a pretty good job of the young 0:02:50.360 --> 0:02:53.520 people today, but the dearth of talent and opportunity is 0:02:53.639 --> 0:02:55.880 kind of frightening. The flip side of that, it creates 0:02:55.960 --> 0:02:59.080 huge opportunity and trend following now is massive. The wisdom 0:02:59.120 --> 0:03:01.560 of crowd don't exist of ais to the same extent, 0:03:02.160 --> 0:03:04.960 so fundamentals and reality are getting a long way from 0:03:04.960 --> 0:03:07.560 each other. And there's a lot of crazy, interesting things, 0:03:07.600 --> 0:03:09.720 fascinating things going on today. And I'm chomping at the 0:03:09.720 --> 0:03:12.440 bitch on to capsule this and share it with people. 0:03:13.240 --> 0:03:15.280 Okay, that's very interesting. So what you're saying is something 0:03:15.320 --> 0:03:16.919 we have heard quite a lot on the part of 0:03:16.960 --> 0:03:19.240 the last few years, which is that the closet tracker 0:03:19.320 --> 0:03:21.640 never disappeared. There was a period when we all read 0:03:21.639 --> 0:03:23.760 a lot about closet trackers and we were infuriated by 0:03:23.800 --> 0:03:25.720 what they charged, et cetera, etc. And then there was 0:03:25.760 --> 0:03:28.880 a view that gradually that would disappear. But from what 0:03:28.919 --> 0:03:31.600 you're saying, the most of the funds left in the 0:03:31.680 --> 0:03:35.880 UK that call themselves active funds are really closet trackers, 0:03:36.680 --> 0:03:38.839 and that's maybe one of the reasons why active has 0:03:38.880 --> 0:03:41.640 such a difficult time in theory. But the other thing 0:03:41.680 --> 0:03:44.480 that we have looked at recently is the performance of 0:03:45.160 --> 0:03:47.920 genuinely active funds. So if you look at funds with 0:03:47.960 --> 0:03:50.560 a very high active share, you tend to find a 0:03:50.640 --> 0:03:53.400 much more and much higher likelihood that they will. 0:03:53.240 --> 0:03:57.200 Outperform exactly, I would just caveat that. It's the larger 0:03:57.240 --> 0:03:59.600 funds have got larger as opposed to there aren't good 0:04:00.120 --> 0:04:03.280 There's still plenty of active, good high quality managers out there. 0:04:03.680 --> 0:04:06.600 It's just that the marketing machine has sucked it all 0:04:06.680 --> 0:04:10.600 up into the say, the twenty largest, and that proportion 0:04:10.720 --> 0:04:12.280 of assets has then flown in. And then you also 0:04:12.440 --> 0:04:15.240 have fun flows from interlashal investors pulling from small caps 0:04:15.280 --> 0:04:16.200 and all the rest of it. So you have this 0:04:16.640 --> 0:04:20.000 quite interesting distortion and Carlstone flows out of acting markets 0:04:20.040 --> 0:04:20.600 and all this. 0:04:21.240 --> 0:04:22.599 Yes, but we still need to say it. 0:04:22.600 --> 0:04:24.920 It just creates pockets of opportunity. And you know how 0:04:24.960 --> 0:04:28.039 many people really do all the fundamental work and take 0:04:28.080 --> 0:04:30.680 a different view out of consensus. You're just not going 0:04:30.720 --> 0:04:32.359 to get paid for it. And I love it, so, 0:04:32.960 --> 0:04:35.840 you know, looking silly and being ridiculed making money doesn't 0:04:35.839 --> 0:04:37.840 go out of fashion. So that's what I'm going to 0:04:37.880 --> 0:04:38.120 stick to. 0:04:38.520 --> 0:04:39.800 Okay, And how's performance been. 0:04:39.920 --> 0:04:41.760 It's been good, it's been pleasing. I would have liked 0:04:41.800 --> 0:04:43.560 to have made more, but we've we've beaten the pack 0:04:43.640 --> 0:04:46.680 by a decent margin. That means we're starting to be 0:04:46.720 --> 0:04:49.480 taken seriously. Now we've got to do another five years 0:04:49.480 --> 0:04:52.159 of that before we have we earn any sort of reputation. 0:04:53.360 --> 0:04:57.719 So yeah, I can ask for more, given how important 0:04:57.720 --> 0:05:01.040 it is to beat the competitors. But this buck sustaining 0:05:01.080 --> 0:05:03.080 that and have been maintaining that edge is the important thing. 0:05:03.839 --> 0:05:05.520 Okay, so you found that you're in a position where 0:05:05.520 --> 0:05:08.960 you could start your own fund. Fantastic, and of all 0:05:09.040 --> 0:05:11.760 the markets in the world, you chose possibly the most 0:05:11.880 --> 0:05:15.080 unpopular one there is and still is. I would likely 0:05:15.240 --> 0:05:17.559 I keep looking at the numbers and thinking this will 0:05:17.560 --> 0:05:19.880 come back. People are going to become interested in this again, 0:05:19.960 --> 0:05:22.960 It's going to happen. But even the most recent numbers, 0:05:23.320 --> 0:05:26.200 the calistone numbers that you're talking about, So where money 0:05:26.240 --> 0:05:29.640 is flowing to. We've seen one of the biggest movements 0:05:29.760 --> 0:05:32.760 out of UK stocks in record in January and hopefully 0:05:32.760 --> 0:05:35.200 that will have turned around a little in February March. 0:05:35.279 --> 0:05:38.039 But it hasn't become any more popular in the last 0:05:38.040 --> 0:05:40.320 five years. But this is the market that you chose. 0:05:41.320 --> 0:05:43.840 Yes, the causality is probably the other way. I used 0:05:43.880 --> 0:05:45.719 to invest in everything since I was fifteen. Then I 0:05:45.720 --> 0:05:48.120 specialize in twenty twelve and UK only because I get 0:05:48.120 --> 0:05:51.440 the culture of a very fortunate accounting background. I can 0:05:51.520 --> 0:05:54.240 get in front of anyone in terms of network, So 0:05:54.440 --> 0:05:56.479 it's an area where you can really build an area 0:05:56.520 --> 0:05:58.839 of specialism, and part of my philosophy is I spend 0:05:58.839 --> 0:06:01.520 as much time analyzing shit sareholders as I do companies. 0:06:01.839 --> 0:06:04.279 So my specialism is I understand the flows and a 0:06:04.320 --> 0:06:07.560 makeup of a shareholder base very very well. And I'm 0:06:07.600 --> 0:06:09.680 buying off to stress sellers and selling to greedy buyers, 0:06:09.680 --> 0:06:11.800 and I almost don't need to know about the company 0:06:11.800 --> 0:06:14.240 to make money. I do because it's a safety thing 0:06:14.240 --> 0:06:16.279 and that's actually the core of what I find interesting 0:06:17.640 --> 0:06:20.880 and so it's a product of history why I specialize 0:06:20.920 --> 0:06:23.680 in the UK and just quickly touched on the UK. 0:06:24.080 --> 0:06:25.960 You know, there's more ten bagglers in the UK than 0:06:26.080 --> 0:06:28.359 there's a percentage market cap than in the US. The 0:06:28.440 --> 0:06:31.840 distribution of curve, the flatness of the curve means you've 0:06:31.880 --> 0:06:34.720 got a lot of high quality, amazingly rated, great businesses, 0:06:35.520 --> 0:06:37.440 you know, experience games works, and then you've got a 0:06:37.440 --> 0:06:40.440 lot of dogs to make that work. The net result 0:06:40.560 --> 0:06:43.240 is you have a pedestrian, frankly boring market that does 0:06:43.240 --> 0:06:46.760 four to six percent, but the tails, you know, it's fantastic. 0:06:46.800 --> 0:06:49.560 It's a stock picker's paradise. Which is the weird dichotomy 0:06:49.920 --> 0:06:53.200 of this situation that when the discounters and closes, you 0:06:53.200 --> 0:06:54.599 are articulated earlier. 0:06:55.040 --> 0:06:56.520 I know that you are both long and short and 0:06:56.680 --> 0:06:59.839 will come to short later. But what kind of companies 0:06:59.880 --> 0:07:02.960 are looking for you? Mainly large caps, small medium cap 0:07:03.040 --> 0:07:05.920 I'm guessing down the bottom end of the market cap spectrum. 0:07:06.320 --> 0:07:08.719 We go where the value is, where the biggest opportunity is. 0:07:08.760 --> 0:07:11.840 So we have large caps, we have medium and small 0:07:12.080 --> 0:07:14.240 today with a bias and medium because of the high 0:07:14.280 --> 0:07:16.640 quality business of dominant positions. I imaginedent teams sent out 0:07:16.680 --> 0:07:18.640 in a big chunk, and still sometimes we found ERUs. 0:07:20.160 --> 0:07:22.320 You've been doing a lot recently on investment trusts. We've 0:07:22.320 --> 0:07:25.880 got two investment trust trades on that disappear now. So 0:07:25.920 --> 0:07:28.040 we just move where the biggest gap is. Small cap 0:07:28.200 --> 0:07:31.960 is currently still I think primed to you talk about turning. 0:07:32.480 --> 0:07:34.600 Small cap does turn. That's the best returning asset class 0:07:34.640 --> 0:07:36.000 in the world. If it doesn't, then we won't do 0:07:36.040 --> 0:07:39.080 a big proportion of it. There's some great large cap businesses, 0:07:40.440 --> 0:07:43.720 you know, global businesses on the UK discount. We'll do 0:07:43.800 --> 0:07:46.000 them as well, so you know, we paid less for 0:07:46.000 --> 0:07:49.560 something and then we trade the catalyst and we'll move 0:07:49.600 --> 0:07:51.400 wherever the value is. That's why we call the fund 0:07:51.400 --> 0:07:54.680 the navigator and Okay. 0:07:54.760 --> 0:07:56.920 So many questions I want to didn't we start Let's 0:07:56.960 --> 0:07:58.840 go back to the first thing you said about it 0:07:59.000 --> 0:08:02.280 recently getting into doing vestment trust and you're right, listener, 0:08:02.320 --> 0:08:04.560 the very interested investment trust, and so we what what 0:08:04.600 --> 0:08:06.440 are the two that you've brought into. 0:08:09.360 --> 0:08:14.360 One the other one is Amadeo, which is an airline 0:08:14.400 --> 0:08:17.040 craft fleecing company. So this nearly went bust and COVID 0:08:17.080 --> 0:08:20.600 just for reasons. You can imagine the two clients. One 0:08:20.720 --> 0:08:23.600 was very safe and the other one was actually in bankruptcy, 0:08:23.640 --> 0:08:25.600 but then that got bailed out, so then the covenants 0:08:25.600 --> 0:08:28.280 became good. We got interested in the asset class because 0:08:28.280 --> 0:08:31.320 you're trading at a eighty sixty percent discount and the 0:08:31.320 --> 0:08:35.200 cash flows are good. The catalyst there was the board 0:08:35.240 --> 0:08:38.559 and governments and the other shareholders Metage and Elliott are 0:08:38.559 --> 0:08:44.160 incredibly smart investors. And that discount has closed and you've 0:08:44.200 --> 0:08:46.560 we were collecting a twenty two percent dividend, it's now 0:08:46.600 --> 0:08:49.920 down to thirteen and they've been doing terrific buybacks. So 0:08:49.920 --> 0:08:54.000 it's a pretty great assets story, good managed governance, change 0:08:54.120 --> 0:08:56.640 and a wind down of the business over eight years 0:08:56.679 --> 0:08:59.640 that will hopefully double our money okay. 0:09:00.040 --> 0:09:02.800 That was an example of looking at the other shareholders 0:09:02.960 --> 0:09:04.960 the business to find the catalyst for the value to 0:09:04.960 --> 0:09:09.439 be released. Yes, yeah, okay. And then the next thing 0:09:09.440 --> 0:09:12.040 you said was about large caps and the global UK discount, 0:09:12.040 --> 0:09:13.719 and it's interesting, you know, the idea that the UK 0:09:13.840 --> 0:09:17.000 has a discount is not generally accepted. Everyone refers to it. 0:09:17.040 --> 0:09:18.959 What do you think that discount comes from. 0:09:19.080 --> 0:09:22.400 It's a natural oscillation of markets, of perception of reality. 0:09:22.400 --> 0:09:25.320 That's how prices work and story. So the UK out 0:09:25.320 --> 0:09:26.960 of two thousand and eight twos and I actually came 0:09:27.000 --> 0:09:30.080 up pretty good relatively speaking. And from twenty eleven to 0:09:30.080 --> 0:09:33.520 twenty fourteen the UK he was doing incredibly well. You 0:09:33.520 --> 0:09:36.439 have to ignore my Eco because it's been absolutely fantastic 0:09:36.480 --> 0:09:38.840 in India and China. Those are the outlies if you 0:09:38.880 --> 0:09:43.960 were Jim Rodgers picking Macro. But the the Brexit haze, 0:09:43.960 --> 0:09:46.200 as I should to be kindly called it, essentially was 0:09:46.200 --> 0:09:48.040 a middle finger to the rest of the world, and 0:09:48.120 --> 0:09:52.640 that perception caused money to essentially start flighting. And then 0:09:52.640 --> 0:09:55.160 you had a Woodford scandal which would have hurt people 0:09:55.360 --> 0:09:58.560 having a go cavid and so it's just a general 0:09:59.760 --> 0:10:03.160 you know, the natural buyers of UK equities has been 0:10:03.280 --> 0:10:07.560 declining and pension funds don't buy it. So the retail 0:10:07.600 --> 0:10:09.920 market in the UK's are lower than in terms of 0:10:10.000 --> 0:10:12.640 active buying as a percentage is lower than other countries. 0:10:13.320 --> 0:10:16.720 So you have to ask if the liquidities are not there, 0:10:16.720 --> 0:10:18.760 and then the companies have perception of lack of liquidity 0:10:18.760 --> 0:10:21.080 and then they don't ipo. It then starts self fulfilling. 0:10:21.800 --> 0:10:25.160 So we're in this self fulfilling, self harmed situation. At 0:10:25.160 --> 0:10:28.360 the moment, the companies are amazing. Some of the companies 0:10:28.400 --> 0:10:29.720 are still amazing, and it just means you have a 0:10:29.720 --> 0:10:32.880 better opportunity to get and it will turn because things 0:10:32.920 --> 0:10:34.800 always change. We just don't know when. 0:10:34.840 --> 0:10:36.440 Aw where you still when? 0:10:36.800 --> 0:10:37.000 Yeah? 0:10:37.240 --> 0:10:37.960 What are you holding? 0:10:38.040 --> 0:10:43.120 In the large caps, we've got hiscocks phrases these probably 0:10:43.200 --> 0:10:48.400 more than the mid cap ones. We recently come out 0:10:48.400 --> 0:10:52.000 of a viva. We've got Burbery, Okay, took us through that. 0:10:52.679 --> 0:10:57.559 Burbery went from an embarrassing stock last year to hold 0:10:58.000 --> 0:11:02.320 to having a change of management. And that's interesting. So 0:11:02.360 --> 0:11:04.240 then you look at the luxury market and well, actually 0:11:04.280 --> 0:11:07.160 that's growing and globalization is going to get bigger. It 0:11:07.280 --> 0:11:09.640 doesn't feel like it but there's more people and wealth's 0:11:09.679 --> 0:11:11.360 going up, and there's more millionaires every day than there's 0:11:11.400 --> 0:11:14.800 the day before. Status and security. They don't sell clothes, 0:11:14.840 --> 0:11:18.600 they're selling status and that only goes up with globalization. 0:11:19.080 --> 0:11:21.839 So the setup is great. The best luxury goods ban's 0:11:21.840 --> 0:11:26.680 obviously in Europe, but I don't trade that, so Birbury 0:11:26.720 --> 0:11:30.600 happens to be the highest luxury factor company in the 0:11:30.720 --> 0:11:33.080 UK for two one hundred. I can't buy Mold because 0:11:33.080 --> 0:11:36.080 it's too small than there's a shareholder problem. So the 0:11:36.120 --> 0:11:39.720 setups are very very interesting. New management team, great tailwind asset. 0:11:40.720 --> 0:11:43.360 Then you're saying, well, they need to make money, and 0:11:43.440 --> 0:11:45.600 what's the normal basis for their cash flow, what does 0:11:45.600 --> 0:11:48.199 the business valuation look like, and all the fundamentals and 0:11:48.240 --> 0:11:49.839 all of that, and you get to about a ten 0:11:49.920 --> 0:11:53.480 or twelve billion valuation and the market cap I think 0:11:53.520 --> 0:11:55.120 was two and a half or three, which is quite 0:11:55.120 --> 0:11:57.400 a big gap. So then you need the setup to 0:11:57.480 --> 0:12:00.760 realizing that value, which is essentially what we're trading. It's 0:12:00.800 --> 0:12:03.480 the time value of money because this could take five 0:12:03.679 --> 0:12:06.720 or eight years to do two three hundred percent and 0:12:06.760 --> 0:12:08.880 the stretching might be wrong, and you have to recycle 0:12:08.920 --> 0:12:11.840 it once or twice. I've been watching Birbray for fifteen 0:12:11.880 --> 0:12:13.120 years and this is the only time I've ever been 0:12:13.120 --> 0:12:16.600 able to buy it, that trench coat in that brand. 0:12:16.760 --> 0:12:19.520 It's been arounded a long time. And if you can 0:12:19.559 --> 0:12:21.480 make me for thirty quid a scarf and select for 0:12:21.480 --> 0:12:24.040 one thousand pounds, that's a very high quality business. 0:12:24.720 --> 0:12:26.760 Yeah, we do all like to do that. So this 0:12:26.840 --> 0:12:28.440 is the way you look at it on your website. 0:12:28.520 --> 0:12:30.920 When you look at your process, it's value, the equity 0:12:30.960 --> 0:12:33.320 acquired at the acquired a discount, which is something that 0:12:33.360 --> 0:12:35.559 you know everybody wants to do. But then the difficult 0:12:35.600 --> 0:12:38.800 bit is finding the catalyst. So what was the catalyst here? 0:12:38.840 --> 0:12:41.400 The change of management or a change in the shareholder structure. 0:12:41.559 --> 0:12:42.600 So when I get in, I want to know who 0:12:42.640 --> 0:12:45.640 I'm going to sell it to. Birbury's my new games workshop. 0:12:45.760 --> 0:12:48.160 So when it's toasted the town and it's winning awards 0:12:48.240 --> 0:12:51.520 and all, and they're paying back the normal progressive dipogrant, 0:12:52.080 --> 0:12:54.960 we will exit because then the normal buyers are back in. 0:12:55.000 --> 0:12:57.400 If you think about the register, you want to have 0:12:57.679 --> 0:13:01.960 a proportion of blackwork x X and if the register 0:13:02.080 --> 0:13:04.240 is close to what the normal register should look like 0:13:04.280 --> 0:13:06.120 it can't move very much. If the register is a 0:13:06.120 --> 0:13:08.640 long way and they deliver, then you the share price 0:13:08.720 --> 0:13:11.960 can move along towards it. It's a pretty much turnaround, 0:13:12.080 --> 0:13:16.040 classic turnaround story. And so you then come out at 0:13:16.040 --> 0:13:17.600 the back of that. You need two or three good 0:13:18.200 --> 0:13:20.680 years of numbers going up, and then the greed comes 0:13:20.679 --> 0:13:22.240 back in, and then you exit and you get the 0:13:22.280 --> 0:13:24.280 multiple expansion and the growth. 0:13:25.200 --> 0:13:28.480 In earnings, and you're happy to come out a little 0:13:28.480 --> 0:13:31.000 before the top. Leave it for everyone else. 0:13:31.280 --> 0:13:33.280 I would love to be able to time tops and 0:13:33.280 --> 0:13:37.120 bottoms perfectly. I've never figured a way to do that 0:13:37.160 --> 0:13:38.839 without activism. 0:13:38.960 --> 0:13:41.520 Without activism, so that I mean, it's interesting because you're 0:13:42.280 --> 0:13:44.839 that's not something that you're going to be able to do. 0:13:44.920 --> 0:13:47.600 So when you join, when you join the shareholder register 0:13:47.640 --> 0:13:50.920 of a company, you may be joining one where mcdike 0:13:51.080 --> 0:13:53.199 take their investment Cruss. We've just been talking about where 0:13:53.200 --> 0:13:55.320 you might have Elliot, etcetera. On the share register, but 0:13:55.360 --> 0:13:58.040 they're the activists. You might come in behind them, but 0:13:58.160 --> 0:14:01.120 not necessarily of a science to be activist, you're I. 0:14:01.040 --> 0:14:04.400 Think people prefer the quality of argument as opposed to 0:14:04.520 --> 0:14:06.839 strong arguing as long as you get past one or 0:14:06.880 --> 0:14:09.640 three percent, if there's an activist involved and it's important. 0:14:09.679 --> 0:14:11.920 In Burby's case, it's not that important. I'll give you 0:14:11.920 --> 0:14:13.520 a live examples. I'm looking at BP now, I'm not 0:14:13.600 --> 0:14:15.400 trading it. I don't think it's good enough. But you've 0:14:15.400 --> 0:14:18.520 got an activist in there. The CEO will get fired 0:14:18.520 --> 0:14:20.760 and maybe the Roles Royce CEO will come along and 0:14:20.800 --> 0:14:23.440 take over the BP roll. He's literally at the top. 0:14:23.480 --> 0:14:25.000 Can't go any bed at rolls Royce. He must not 0:14:25.080 --> 0:14:26.640 take over a BP, which is actually what he wants 0:14:26.680 --> 0:14:29.640 to do. That becomes very interesting because BP can be 0:14:29.680 --> 0:14:32.600 tidied up and double in value without too much effort 0:14:32.600 --> 0:14:35.920 and shouldn't be ashamed of what it is. That setup 0:14:36.040 --> 0:14:38.000 is right there and looking that's the stuff that we 0:14:38.000 --> 0:14:40.840 look up and we just we wait for these things 0:14:40.880 --> 0:14:43.560 to become real where they can hit enough trade ticks. 0:14:43.800 --> 0:14:48.120 That wouldn't happen without the activist involving BP being strong 0:14:48.240 --> 0:14:53.120 enough to basically get the board to do that. And 0:14:53.120 --> 0:14:55.400 I probably won't. It probably won't. Just I'm giving it 0:14:55.520 --> 0:14:55.760 you know. 0:14:56.040 --> 0:15:00.640 Won't happen. Yes, So that's that's an examp something that 0:15:00.680 --> 0:15:03.880 you would look at and you recognize the value, recognize 0:15:03.880 --> 0:15:06.280 the discount, but aren't convinced that there will be a 0:15:06.280 --> 0:15:08.280 catalyst in reasonable timescale. 0:15:09.080 --> 0:15:11.120 Yeah, there's hundreds of these and you just watch them. 0:15:11.240 --> 0:15:13.480 For me, it's like gardening. So the shorting is the weeds, 0:15:13.480 --> 0:15:15.280 the oaks, things that make money, and then it's the 0:15:15.360 --> 0:15:17.520 change of weather and what's flowering and what's not, and 0:15:17.560 --> 0:15:18.920 just how do you spend your time on the day. 0:15:18.960 --> 0:15:21.120 It's about a time. You have to swing at everything 0:15:21.160 --> 0:15:22.720 you've put to use your time effectively. And you know, 0:15:22.720 --> 0:15:24.440 if I hold Burberry, there's no point me looking at 0:15:24.480 --> 0:15:27.840 too many other retailers. I'll get more value go looking 0:15:27.880 --> 0:15:30.440 at some pharmaceutical businesses or something. 0:15:31.360 --> 0:15:33.280 Yeah, so there aren't very many of you. I mean 0:15:33.280 --> 0:15:36.440 you're the only investment managers like analyst at the company, right, 0:15:36.480 --> 0:15:38.280 So how many how many storms can you look at? 0:15:38.280 --> 0:15:41.400 I don't know if we'll no. My co founder was 0:15:41.400 --> 0:15:44.400 an ex head of extity research that an investment bank. 0:15:44.720 --> 0:15:47.520 We use four different outsourced research company. We use to 0:15:48.240 --> 0:15:51.760 referencing companies, we use a background check company. We have 0:15:51.840 --> 0:15:55.800 a quant outsourced product model. So it's a full offering. 0:15:55.880 --> 0:16:00.240 I don't our team and research depth. I hope is 0:16:00.240 --> 0:16:01.760 an inch wide and a mile deep. 0:16:03.280 --> 0:16:06.640 Do you worry about the operating environment in the UK 0:16:07.280 --> 0:16:10.720 in general? Awful lot of smaller companies in particular are 0:16:10.720 --> 0:16:15.080 going to have increasing troubles operating in a high tax, 0:16:15.920 --> 0:16:20.760 at high cost of employment, high regulation economy, and that 0:16:20.800 --> 0:16:22.880 doesn't look like it's going to turn around at any 0:16:22.920 --> 0:16:26.520 time soon, which may limit the universe in which you 0:16:26.560 --> 0:16:27.120 can invest. 0:16:28.240 --> 0:16:30.680 Am I concerned? I guess I'm a personal level. It's 0:16:30.680 --> 0:16:33.000 a bit disheartening. But then I take you know, do 0:16:33.040 --> 0:16:35.560 you want to be Singapore and Dubai or do you 0:16:35.600 --> 0:16:37.680 want to be Switzerland and Norway? And both of those, 0:16:38.760 --> 0:16:42.080 you know, ones heavily regulated, high tax, and the others aren't. 0:16:42.120 --> 0:16:43.960 And there's what you want to do is find a 0:16:44.000 --> 0:16:45.960 place in society that works. So I think I was 0:16:46.040 --> 0:16:48.840 very proud of the UK when I worked in London 0:16:49.000 --> 0:16:51.760 because there was a globalization hotbed between great art and 0:16:51.840 --> 0:16:54.520 media and business and I'm so close largest city in Europe. 0:16:54.680 --> 0:16:56.880 It was like combining the East and West, the time 0:16:57.000 --> 0:17:00.880 zone in the immigration and accept It's felt really good 0:17:00.880 --> 0:17:03.080 to me. I really enjoyed that narrative as the UK, 0:17:04.080 --> 0:17:05.959 you know, grown up. It was a nice place to 0:17:05.960 --> 0:17:08.399 be where I've kind of become a bit upset. I 0:17:08.440 --> 0:17:10.639 don't want to move into politics. Is that's kind of 0:17:10.720 --> 0:17:14.359 less feels less now and we've sort of lost a 0:17:14.359 --> 0:17:16.639 bit of the golden goose. If I'm interpreting what you're saying, 0:17:18.040 --> 0:17:20.520 and you know, I go abroad a lot and I 0:17:20.560 --> 0:17:24.880 hear oh UK's instructural decline. It's not very nice. It's 0:17:24.920 --> 0:17:27.080 one on the numbers. But my life would be easier 0:17:27.200 --> 0:17:31.359 if more great companies listed Quantum, Cambridge Quantum and we 0:17:31.480 --> 0:17:34.600 lost armholdings to America and things. So I'd love to 0:17:34.680 --> 0:17:37.360 be part of the next revolution and the great companies 0:17:37.359 --> 0:17:38.840 of the future and be able to have that story 0:17:38.880 --> 0:17:41.840 over the next ten twenty years. Let's all find a way. 0:17:42.160 --> 0:17:45.280 And it's been talking about. This is all very marginal 0:17:45.440 --> 0:17:48.160 from an investment perspective. It makes no difference. 0:17:48.880 --> 0:17:52.480 Only must make a difference to profit to earnings. If 0:17:52.480 --> 0:17:54.640 employment costs go up and if taxes go. 0:17:54.680 --> 0:17:56.240 Up, oh yeah, But if it's priced in or if 0:17:56.240 --> 0:17:57.880 I'm shorting it, then I'll make money on that side. 0:17:57.960 --> 0:18:00.560 If the multiple goes from you might you all share 0:18:00.600 --> 0:18:03.320 multiple stays fifteen If the market multiple taxes go up 0:18:03.320 --> 0:18:06.600 to your point should actually be ten. Then I'll price 0:18:06.600 --> 0:18:09.199 everything off ten. So you know, if we have a 0:18:09.240 --> 0:18:11.320 dot com boom, then I can do fifty to one 0:18:11.359 --> 0:18:14.600 hundred percent a year. If we have an income driven 0:18:14.880 --> 0:18:16.560 five percent market, then I might be able to do 0:18:16.680 --> 0:18:20.199 fifteen percent per year. So the opportunity to deliver and 0:18:20.240 --> 0:18:23.920 the dispersion definitely changes, and I can control that. Would 0:18:23.920 --> 0:18:26.840 I like a crazy market, I think not every year. 0:18:27.720 --> 0:18:30.840 A stable one makes my job frankly easier. It means 0:18:30.880 --> 0:18:32.840 I can keep up and hopefully develop ahead of everybody. 0:18:34.000 --> 0:18:38.359 Let's talk about shorting, so presumably that's that works in 0:18:38.400 --> 0:18:42.600 exactly the opposite way. Find something that's overvalued and wait 0:18:42.600 --> 0:18:43.879 for a catalysts and then short. 0:18:44.520 --> 0:18:48.400 Yeah, preferably zero. So we do fads, failures, and frauds. 0:18:48.560 --> 0:18:50.359 The frauds are the sexy fun one. Our big win 0:18:50.480 --> 0:18:54.320 was Wan Disco. We discovered that billion pound forward. We've 0:18:54.359 --> 0:18:56.600 got a couple of others or seven others today that 0:18:56.600 --> 0:19:00.280 we've identified these criminal enterprises. I feel a bit like man. 0:19:00.400 --> 0:19:03.240 I like going after them. We don't do activism, we 0:19:03.280 --> 0:19:06.840 don't make them public apart from our investors, and we 0:19:06.880 --> 0:19:08.439 just take the money off the table and typically we 0:19:08.480 --> 0:19:10.040 wait for them to run out of money, to not 0:19:10.080 --> 0:19:10.919 be too clever with it. 0:19:10.920 --> 0:19:12.400 Hang on, does this mean that you are not going 0:19:12.440 --> 0:19:16.560