1 00:00:02,200 --> 00:00:06,359 Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg 2 00:00:06,480 --> 00:00:09,440 Speaker 1: Radio this weekend. On the podcast, I have an extra 3 00:00:09,520 --> 00:00:12,440 Speaker 1: special guest. His name is Simon Howett and he is 4 00:00:12,520 --> 00:00:16,720 Speaker 1: the co chief investment officer at Harding Lovener, which is 5 00:00:16,760 --> 00:00:19,200 Speaker 1: a firm that's been around for about forty years and 6 00:00:19,280 --> 00:00:24,119 Speaker 1: manages about seventy three billion dollars. He also is the 7 00:00:24,160 --> 00:00:28,200 Speaker 1: majority owner of Plymouth Argyle of football club in the 8 00:00:28,320 --> 00:00:32,640 Speaker 1: uk UH. He has a fascinating background and has been 9 00:00:32,720 --> 00:00:37,920 Speaker 1: running money on an international basis for many decades. He 10 00:00:38,080 --> 00:00:43,280 Speaker 1: is uniquely insightful to discuss how to pick stocks, what 11 00:00:43,440 --> 00:00:46,400 Speaker 1: the difference between growth and value is, and how to 12 00:00:46,600 --> 00:00:51,120 Speaker 1: use both in order to identify companies most likely to 13 00:00:51,479 --> 00:00:56,280 Speaker 1: perform the market. The track record of Harding Lovener's international 14 00:00:56,320 --> 00:01:00,720 Speaker 1: funds has just trounced the ms c I innchmarked by 15 00:01:00,760 --> 00:01:06,040 Speaker 1: two hundred and fifty basis points annually over decades. So 16 00:01:06,160 --> 00:01:10,920 Speaker 1: this isn't somebody speaking theoretically. They have actually put processes 17 00:01:11,000 --> 00:01:15,320 Speaker 1: to work that have allowed them to dramatically outperform with 18 00:01:15,360 --> 00:01:20,800 Speaker 1: no further ado. My conversation with Simon Howett, this is 19 00:01:20,959 --> 00:01:25,440 Speaker 1: Master's in Business with Barry Ridholts on Bloomberg Radio. My 20 00:01:25,520 --> 00:01:28,520 Speaker 1: special guest this week is Simon Howett. He is the 21 00:01:28,600 --> 00:01:32,400 Speaker 1: co chief investment officer at Harding Lovener, a firm that 22 00:01:32,440 --> 00:01:36,600 Speaker 1: manages about seventy three billion dollars in assets. He is 23 00:01:36,640 --> 00:01:40,759 Speaker 1: also the majority owner of Plymouth Argyle of football club, 24 00:01:41,240 --> 00:01:46,280 Speaker 1: located in the UK. Simon Hallett, Welcome to Masters in Business. 25 00:01:46,440 --> 00:01:48,640 Speaker 1: Thank you for having me. Very so, let's talk a 26 00:01:48,680 --> 00:01:51,840 Speaker 1: little bit about your background. You earn your b A 27 00:01:51,840 --> 00:01:55,440 Speaker 1: at Oxford and then you begin working in the financial 28 00:01:55,480 --> 00:01:59,760 Speaker 1: services industry in London in the early nineteen eighties. Tell 29 00:01:59,840 --> 00:02:02,840 Speaker 1: us about that era. It was actually the late seventies. 30 00:02:02,880 --> 00:02:06,280 Speaker 1: I graduated in nineteen seventy seven and went to work 31 00:02:06,320 --> 00:02:09,160 Speaker 1: for the Midland Bank, which was then one of the 32 00:02:09,160 --> 00:02:11,920 Speaker 1: big four clearing banks in England. UM in the early 33 00:02:11,960 --> 00:02:17,440 Speaker 1: eighties I moved to investment management financially investing, let's say 34 00:02:17,520 --> 00:02:20,960 Speaker 1: in Hong Kong. In London, that was an era of 35 00:02:21,320 --> 00:02:23,679 Speaker 1: high interest rates. We were just coming off to financial 36 00:02:23,680 --> 00:02:26,760 Speaker 1: crisis and the mid seventies, and when I moved to 37 00:02:26,800 --> 00:02:31,720 Speaker 1: Hong Kong, we were just beginning in a property collapse. 38 00:02:31,760 --> 00:02:33,800 Speaker 1: I moved there in nine one and the property market 39 00:02:33,840 --> 00:02:37,680 Speaker 1: collapsed in ninety. In some of that year, um the 40 00:02:37,720 --> 00:02:39,960 Speaker 1: oil price was thirty two. It was about to go 41 00:02:40,919 --> 00:02:43,200 Speaker 1: fall in half as well, So it was an era 42 00:02:43,480 --> 00:02:47,120 Speaker 1: really of continuous crisis as far as far as I 43 00:02:47,240 --> 00:02:50,680 Speaker 1: was concerned. Hong Kong in the nineteen eighties, that had 44 00:02:50,720 --> 00:02:53,120 Speaker 1: to be a house a fire though, because Hong Kong 45 00:02:53,200 --> 00:02:56,800 Speaker 1: was really ramping up there with a gateway to Asia, 46 00:02:57,000 --> 00:03:00,840 Speaker 1: not just Japan, but China and a lot of the 47 00:03:00,840 --> 00:03:04,640 Speaker 1: rest of it. What was your experiences like in Hong Kong. Well, 48 00:03:04,680 --> 00:03:06,760 Speaker 1: it was the first time I've traveled anywhere other than 49 00:03:06,800 --> 00:03:10,720 Speaker 1: to France, so everything about it was tremendously exciting. As 50 00:03:10,720 --> 00:03:12,240 Speaker 1: you say, it was a great time to be in 51 00:03:12,280 --> 00:03:15,080 Speaker 1: Hong Kong. It was a few years before the reservation 52 00:03:15,160 --> 00:03:18,200 Speaker 1: began to open up, but Hong Kong itself had just 53 00:03:18,360 --> 00:03:21,120 Speaker 1: had a massive expansion in population as a result of 54 00:03:21,880 --> 00:03:25,160 Speaker 1: immigration from China after the misery of England in the 55 00:03:25,240 --> 00:03:28,000 Speaker 1: nineteen seventies. It was just amazing to be surrounded by 56 00:03:28,040 --> 00:03:32,080 Speaker 1: people who often lived in great poverty, having just arrived 57 00:03:32,120 --> 00:03:34,800 Speaker 1: from China, but being left to their own devices to 58 00:03:34,840 --> 00:03:38,200 Speaker 1: better their lives, almost always successfully. So you know, all 59 00:03:38,240 --> 00:03:40,880 Speaker 1: the cliches about Hong Kong about it's you know that 60 00:03:41,000 --> 00:03:44,840 Speaker 1: it's a culture of independence, it's a culture of trying 61 00:03:44,840 --> 00:03:49,400 Speaker 1: hard to personal success were true, and I just found 62 00:03:49,400 --> 00:03:52,600 Speaker 1: it tremendously exciting. So what do you make of what's 63 00:03:52,640 --> 00:03:56,120 Speaker 1: been going on with Hong Kong the past few years, 64 00:03:56,680 --> 00:04:01,880 Speaker 1: not only since the handover from UK, but increasingly aggressive 65 00:04:02,360 --> 00:04:06,280 Speaker 1: Beijing policy towards Tanka. I find it horrifying. You know, 66 00:04:06,360 --> 00:04:08,640 Speaker 1: Hong Kong was very much left to its own devices. 67 00:04:08,680 --> 00:04:12,000 Speaker 1: I thought that the sign a British Joint Declaration in 68 00:04:12,040 --> 00:04:15,800 Speaker 1: the mid was going to be a treaty that guaranteed 69 00:04:15,840 --> 00:04:18,320 Speaker 1: the independence of Hong Kong. Clearly that's being overcome, and 70 00:04:18,360 --> 00:04:20,440 Speaker 1: I think it's not going to be good for Hong 71 00:04:20,520 --> 00:04:22,960 Speaker 1: Kong is a place, and I worry about the future 72 00:04:23,040 --> 00:04:25,080 Speaker 1: of the people that I know who are still there 73 00:04:25,080 --> 00:04:27,400 Speaker 1: and the rest of the population. I don't think it's 74 00:04:27,400 --> 00:04:30,279 Speaker 1: going to be healthy for for Hong Kong. Quite interesting, 75 00:04:30,360 --> 00:04:33,360 Speaker 1: So let's talk a little bit about your investing style. 76 00:04:33,640 --> 00:04:38,560 Speaker 1: You're essentially your bottoms up fundamental stock picker. Since we're 77 00:04:38,640 --> 00:04:42,800 Speaker 1: talking about the macro landscape, do you ignore what's going 78 00:04:42,800 --> 00:04:45,520 Speaker 1: on in the background, Does it not enter the calculus 79 00:04:45,640 --> 00:04:50,000 Speaker 1: or does that force you to modify the sectors and 80 00:04:50,160 --> 00:04:55,200 Speaker 1: companies you're considering. No, we try very hard to ignore it. 81 00:04:55,400 --> 00:04:57,840 Speaker 1: We're investment people, so you know, we're kind of curious 82 00:04:57,880 --> 00:05:01,240 Speaker 1: about the world, and we're opinionates, so we have opinions 83 00:05:01,240 --> 00:05:04,400 Speaker 1: about the macroeconomic environment, but we tried very hard not 84 00:05:04,480 --> 00:05:09,159 Speaker 1: to let it influence our portfolios. I actually like to 85 00:05:09,400 --> 00:05:12,279 Speaker 1: quite something that you wrote four or five years ago, 86 00:05:12,440 --> 00:05:15,680 Speaker 1: when you're asked about the economy and what you think 87 00:05:16,440 --> 00:05:19,280 Speaker 1: you know, I think you your basic answer is, you know, 88 00:05:19,640 --> 00:05:21,760 Speaker 1: why would you ask me, why do you think that 89 00:05:21,800 --> 00:05:24,479 Speaker 1: my forecasts have any value? And why do you think 90 00:05:24,520 --> 00:05:28,080 Speaker 1: forecasts themselves have any value? And that's pretty much the 91 00:05:28,200 --> 00:05:31,159 Speaker 1: view that we take. You know, the academic studies suggest 92 00:05:31,200 --> 00:05:35,839 Speaker 1: there's very little correlation between let's say GDP and stock 93 00:05:35,839 --> 00:05:39,800 Speaker 1: market returns. I think it's interesting to discuss, you know, 94 00:05:39,920 --> 00:05:44,520 Speaker 1: why there's little covariance between GDP growth and stock market returns, 95 00:05:45,200 --> 00:05:48,919 Speaker 1: but in fact this there's not um Secondly, you can't 96 00:05:48,920 --> 00:05:53,120 Speaker 1: forecast GDP, so it distresses me that the financial services 97 00:05:53,160 --> 00:05:57,600 Speaker 1: industry devote so many resources to try and make forecast 98 00:05:57,640 --> 00:06:01,160 Speaker 1: that it inaccurate and have no bearing upon as cust 99 00:06:01,200 --> 00:06:04,560 Speaker 1: customers returns. So you know, I look upon macro economic 100 00:06:04,600 --> 00:06:10,600 Speaker 1: forecasting as damaging too good investment returns. So no, we don't, 101 00:06:10,600 --> 00:06:13,320 Speaker 1: we don't, We don't bother with them at all. Having 102 00:06:13,360 --> 00:06:16,120 Speaker 1: said that, we do think about them a little bit 103 00:06:16,200 --> 00:06:19,960 Speaker 1: and thinking about expectations for how we should expect our 104 00:06:20,120 --> 00:06:24,000 Speaker 1: portfolios to perform. So, you know, a good example what 105 00:06:24,200 --> 00:06:28,040 Speaker 1: would be after the financial crisis, where you know, our 106 00:06:28,120 --> 00:06:31,360 Speaker 1: expectations to the economy, such as they were, were that 107 00:06:31,839 --> 00:06:34,520 Speaker 1: it was based upon Reinhardt and Rogoff. We thought it 108 00:06:34,560 --> 00:06:37,880 Speaker 1: would be a long, hard slog to recover fully from 109 00:06:37,920 --> 00:06:41,200 Speaker 1: the financial crisis. We thought that, knowing a bit about 110 00:06:41,520 --> 00:06:44,800 Speaker 1: people's psychology, that they'd start the year optimistic, they end 111 00:06:44,880 --> 00:06:47,720 Speaker 1: the year pessimistic, and that that would lead to more 112 00:06:47,760 --> 00:06:50,200 Speaker 1: market volatility. But we thought it would be a good 113 00:06:50,279 --> 00:06:54,200 Speaker 1: environment for our kind of investing in high quality, long 114 00:06:54,240 --> 00:06:59,480 Speaker 1: duration growth companies, and we were We were right about that. Interestingly, 115 00:06:59,560 --> 00:07:03,520 Speaker 1: we were comply wrong with our forecast of stock market volatility, 116 00:07:03,560 --> 00:07:06,760 Speaker 1: and we're actually right with relying on the Reinhardt Rockoff 117 00:07:06,800 --> 00:07:10,120 Speaker 1: forecast of the macro economy. So it's quite ironic that 118 00:07:10,600 --> 00:07:12,800 Speaker 1: the thing that you know, we think we can't forecast 119 00:07:12,800 --> 00:07:16,200 Speaker 1: at tour was the one we actually got right. I recall, 120 00:07:16,320 --> 00:07:19,280 Speaker 1: I want to say it was December of oh seven 121 00:07:19,440 --> 00:07:21,760 Speaker 1: that ran Hardt and Rogu came out with a short 122 00:07:21,800 --> 00:07:26,920 Speaker 1: white paper that looked at five previous financial crises. Now, 123 00:07:26,920 --> 00:07:30,040 Speaker 1: remember the market peaked in oh seven. To come out 124 00:07:30,080 --> 00:07:33,600 Speaker 1: with something like that in two thousand and seven was 125 00:07:33,760 --> 00:07:36,760 Speaker 1: um was way way ahead of its time, and that 126 00:07:36,840 --> 00:07:40,880 Speaker 1: white paper not only was prescient, it became the basis 127 00:07:40,920 --> 00:07:44,360 Speaker 1: of eight hundred years of this time. It's different. They 128 00:07:44,480 --> 00:07:48,320 Speaker 1: really had a handle on what financial crises due to 129 00:07:48,400 --> 00:07:53,200 Speaker 1: stocks and economies. Did their research really influence how you 130 00:07:53,240 --> 00:07:56,960 Speaker 1: look at at the recovery from a financial crisis like 131 00:07:57,000 --> 00:07:59,760 Speaker 1: OH eight or nine? Absolutely, I mean that view, but 132 00:07:59,840 --> 00:08:01,920 Speaker 1: it would be a long, hard slog. Was entirely based 133 00:08:01,960 --> 00:08:04,960 Speaker 1: upon their work, and I have to say that this 134 00:08:05,040 --> 00:08:07,480 Speaker 1: is something that I look upon as typical of my 135 00:08:07,640 --> 00:08:11,680 Speaker 1: entire career. I've been very open about things. We have 136 00:08:11,840 --> 00:08:15,640 Speaker 1: relied very heavily on other people's work, on other people's 137 00:08:15,640 --> 00:08:19,000 Speaker 1: academic work informing our own views. Um. You know, I 138 00:08:19,440 --> 00:08:22,480 Speaker 1: always say that I haven't had an original sort in 139 00:08:22,560 --> 00:08:25,880 Speaker 1: my entire career, but I've been very very good at 140 00:08:25,960 --> 00:08:31,560 Speaker 1: identifying useful thoughts from other people and implementing them in investing. 141 00:08:32,120 --> 00:08:34,960 Speaker 1: Rein hot Rogoff was was a classic case. You know, 142 00:08:35,000 --> 00:08:37,520 Speaker 1: we read the book, book became popular, it was available 143 00:08:37,600 --> 00:08:41,520 Speaker 1: for fifteen bucks on Amazon, and it helped us with 144 00:08:41,600 --> 00:08:45,480 Speaker 1: our expectations and our client communications for a decade. People 145 00:08:45,640 --> 00:08:48,760 Speaker 1: underestimate the power of the written word. I think it 146 00:08:48,840 --> 00:08:51,400 Speaker 1: depend is mightier than the swords, and it's certainly true 147 00:08:51,440 --> 00:08:53,600 Speaker 1: in the world of finance. And I think there's this 148 00:08:53,679 --> 00:08:58,160 Speaker 1: relentless pursuit of originality. We all feel the pressure to 149 00:08:58,200 --> 00:09:00,400 Speaker 1: be original, to be original thinkers, and I don't think 150 00:09:00,440 --> 00:09:03,640 Speaker 1: it's necessary. I think, you know, there's so much good 151 00:09:03,679 --> 00:09:06,640 Speaker 1: advice about how to behave how to invest out there, 152 00:09:07,000 --> 00:09:09,680 Speaker 1: and what's what's the key to success in investing is 153 00:09:09,679 --> 00:09:12,600 Speaker 1: taking that advice and are using it for the benefit 154 00:09:12,640 --> 00:09:16,160 Speaker 1: of your clients. I couldn't possibly agree more. Let's talk 155 00:09:16,200 --> 00:09:20,440 Speaker 1: a little bit about the track record that Hardy Lovener 156 00:09:20,480 --> 00:09:25,160 Speaker 1: has put together. The Global Equity portfolio since inception has 157 00:09:25,240 --> 00:09:30,679 Speaker 1: outperformed ms CI by two d and fifty basis points annually. 158 00:09:31,400 --> 00:09:35,240 Speaker 1: That's pretty interesting. Is this still the same methodology or 159 00:09:35,320 --> 00:09:38,720 Speaker 1: philosophy that was used when you joined the firm back 160 00:09:38,760 --> 00:09:44,920 Speaker 1: in what was um. The philosophy has not changed, but 161 00:09:45,000 --> 00:09:48,040 Speaker 1: the methods of the investment process has a lot. Our 162 00:09:48,080 --> 00:09:51,480 Speaker 1: investment process today is much more structured, it's much more disciplined. 163 00:09:51,920 --> 00:09:55,319 Speaker 1: We're much more objective about how we define the characteristics 164 00:09:55,360 --> 00:09:58,320 Speaker 1: of the companies we followed, and the result has been 165 00:09:58,360 --> 00:10:01,840 Speaker 1: a gradual shrinking of the freedom that portfolio manager has. 166 00:10:02,200 --> 00:10:04,079 Speaker 1: I think that's one of the interesting things about the 167 00:10:04,160 --> 00:10:08,120 Speaker 1: lessons from behavioral finance. What we've learned is that people 168 00:10:08,160 --> 00:10:10,800 Speaker 1: need to control their behavior, but they find it difficult 169 00:10:10,800 --> 00:10:14,200 Speaker 1: to do so. So one of my roles as co 170 00:10:14,320 --> 00:10:18,079 Speaker 1: chief investment Officer and previously chief equity officer has been 171 00:10:18,120 --> 00:10:20,640 Speaker 1: that I've had to set out the rules and then 172 00:10:20,640 --> 00:10:22,960 Speaker 1: make sure we stick to them. Of course, that's going 173 00:10:23,000 --> 00:10:27,200 Speaker 1: against the financial services culture that a portfolio manager is 174 00:10:27,200 --> 00:10:30,040 Speaker 1: the top dog in an investment process, and people don't 175 00:10:30,080 --> 00:10:35,600 Speaker 1: like having their freedom restricted. So the methodology has changed, 176 00:10:35,679 --> 00:10:38,120 Speaker 1: and it's been a methodology that has been disciplined, it's 177 00:10:38,160 --> 00:10:42,800 Speaker 1: been objective, and it's been reducing the autonomy of individuals. 178 00:10:42,800 --> 00:10:46,160 Speaker 1: But the philosophy has been constant that we will focus 179 00:10:46,320 --> 00:10:52,120 Speaker 1: exclusively on long duration, growth growth companies, and pay attention 180 00:10:52,200 --> 00:10:56,760 Speaker 1: to the price at which there stops trade. So so 181 00:10:56,840 --> 00:11:01,120 Speaker 1: let's talk a little bit about the methodology. Your firm 182 00:11:01,200 --> 00:11:06,079 Speaker 1: references four qualities for a company to be a potential 183 00:11:06,120 --> 00:11:14,400 Speaker 1: portfolio holding, competitive advantage, quality management, financial strength, and sustainable growth. 184 00:11:15,200 --> 00:11:18,600 Speaker 1: How do you quantify these? Some of them are kind 185 00:11:18,600 --> 00:11:22,960 Speaker 1: of squishy, like like quality management. How do you determine 186 00:11:23,040 --> 00:11:26,880 Speaker 1: who's a quality manager or not? And is that a subjective, 187 00:11:26,920 --> 00:11:29,080 Speaker 1: squishy rating or do you come up with a way 188 00:11:29,120 --> 00:11:34,199 Speaker 1: to make it much more quantifiable. Yeah, the the squishi 189 00:11:34,280 --> 00:11:37,000 Speaker 1: is that these four criteria isn't doubtedly the one that 190 00:11:37,400 --> 00:11:40,600 Speaker 1: assess his management. And again, you know, thinking about how 191 00:11:40,640 --> 00:11:43,360 Speaker 1: the process has changed over the last thirty years, we 192 00:11:43,480 --> 00:11:46,080 Speaker 1: used to think we knew quality management when we saw it, 193 00:11:46,320 --> 00:11:49,439 Speaker 1: and often that simply meant meant that we've met them 194 00:11:49,440 --> 00:11:51,720 Speaker 1: and we like them. And you know, there's very little 195 00:11:51,760 --> 00:11:54,439 Speaker 1: correlation between whether we like people and whether they're good 196 00:11:54,600 --> 00:11:58,520 Speaker 1: managers of corporations on behalf of their shareholders. So you know, 197 00:11:58,600 --> 00:12:01,840 Speaker 1: we are today much more active in how we assess management. 198 00:12:02,360 --> 00:12:04,640 Speaker 1: And just to give a little bit of detail on 199 00:12:04,720 --> 00:12:09,360 Speaker 1: that particular one, we quite early on started using cash 200 00:12:09,360 --> 00:12:12,880 Speaker 1: flow return on investment based on the work of people 201 00:12:12,960 --> 00:12:16,120 Speaker 1: like Michael Mobson, not just to value companies, but to 202 00:12:16,200 --> 00:12:20,800 Speaker 1: assess assess the abilities of management, not just to generate 203 00:12:21,040 --> 00:12:23,360 Speaker 1: free cash flow, about how they allocate it. We actually 204 00:12:23,440 --> 00:12:26,920 Speaker 1: used to hold valuation system with some adjustments for our 205 00:12:27,000 --> 00:12:30,240 Speaker 1: own beliefs, but we can use that to look at, 206 00:12:30,360 --> 00:12:34,680 Speaker 1: for example, how management allocates capital, and for us that 207 00:12:34,679 --> 00:12:38,160 Speaker 1: that's a very very important way of looking objectively at 208 00:12:38,200 --> 00:12:40,640 Speaker 1: their track record. I think when you're investing for the 209 00:12:40,679 --> 00:12:44,280 Speaker 1: long term in quality growth companies, obviously a lot of 210 00:12:44,280 --> 00:12:48,520 Speaker 1: the value is in the future cash flows, but the 211 00:12:48,640 --> 00:12:51,360 Speaker 1: past has to be some guide. You have to believe 212 00:12:51,400 --> 00:12:53,720 Speaker 1: that the past is some guide to the future. So 213 00:12:53,800 --> 00:12:56,040 Speaker 1: a good track record is something that we like to 214 00:12:56,080 --> 00:12:58,920 Speaker 1: see and we will use that to assess management. The 215 00:12:59,240 --> 00:13:04,480 Speaker 1: other aspect of high quality management for US is corporate governance, 216 00:13:04,800 --> 00:13:07,640 Speaker 1: which is essentially how those high returns on capital end 217 00:13:07,720 --> 00:13:11,439 Speaker 1: up with shareholders. Are they retained in the company, are 218 00:13:11,480 --> 00:13:15,520 Speaker 1: they paid out as dividends, are they distributed via buybacks, 219 00:13:16,000 --> 00:13:20,120 Speaker 1: or are they used to further the interests of other stakeholders, 220 00:13:20,160 --> 00:13:24,400 Speaker 1: most noticeably, of course, the executives of the company. So 221 00:13:24,520 --> 00:13:27,160 Speaker 1: corporate governance for us again is more than just a 222 00:13:27,200 --> 00:13:30,480 Speaker 1: matter of sticking a finger in the air making a judgment. 223 00:13:30,559 --> 00:13:34,560 Speaker 1: It's we have a series of checklists which have identified 224 00:13:34,600 --> 00:13:38,640 Speaker 1: the factors that we think we are important in assessing 225 00:13:38,760 --> 00:13:40,839 Speaker 1: overall levels of corporate governance. And I'm not going to 226 00:13:40,880 --> 00:13:44,000 Speaker 1: pretend that all the companies in which we invest are perfect. 227 00:13:44,559 --> 00:13:47,800 Speaker 1: One of the checklists, for example, asked questions about um 228 00:13:48,440 --> 00:13:52,720 Speaker 1: record of integrity, and they will be exclusionary. So if 229 00:13:52,760 --> 00:13:55,679 Speaker 1: companies don't need a minimum standards, we won't. We won't, 230 00:13:56,120 --> 00:13:59,480 Speaker 1: we won't follow them. So we have got more disciplined, 231 00:13:59,520 --> 00:14:01,120 Speaker 1: we have got more structures, and I think when it 232 00:14:01,160 --> 00:14:04,680 Speaker 1: comes to allocating capital, we've got much more objective. But 233 00:14:04,720 --> 00:14:06,960 Speaker 1: I will say that when it comes to assessing management, 234 00:14:07,000 --> 00:14:11,319 Speaker 1: we also have an element of assessing their strategic vision, 235 00:14:11,400 --> 00:14:15,280 Speaker 1: and that really would be from analysts making judgments, from 236 00:14:15,280 --> 00:14:18,920 Speaker 1: reading transcripts, from interviewing managers and so on and so on. 237 00:14:19,080 --> 00:14:23,160 Speaker 1: So the ark at Harding Lavena really has been from 238 00:14:23,600 --> 00:14:27,680 Speaker 1: qualitative judgment towards objective judgment, and that that applies to 239 00:14:28,080 --> 00:14:31,200 Speaker 1: the four criteria that we use as well. So so 240 00:14:31,240 --> 00:14:35,840 Speaker 1: I can certainly see financial strength being totally quantifiable and 241 00:14:35,880 --> 00:14:40,160 Speaker 1: even sustainable growth. You can track that over time. What 242 00:14:40,280 --> 00:14:44,200 Speaker 1: about competitive advantage? That's one of those sort of Warren 243 00:14:44,240 --> 00:14:48,120 Speaker 1: Buffet Mote type things that also sounds a little subjective. 244 00:14:48,600 --> 00:14:53,560 Speaker 1: How do you make that less squishy? We make it 245 00:14:53,600 --> 00:14:56,600 Speaker 1: less squishy by again being structured and disciplined. So we 246 00:14:56,680 --> 00:15:00,800 Speaker 1: rely very heavily, not just on analyzes of competitive advantage, 247 00:15:01,000 --> 00:15:02,840 Speaker 1: which is really an answer to the question what is 248 00:15:02,880 --> 00:15:05,680 Speaker 1: it in this company does well that gives it an 249 00:15:05,720 --> 00:15:08,520 Speaker 1: advantage in the industry in which which it competes, But 250 00:15:08,600 --> 00:15:12,120 Speaker 1: we also look at the Michael Porter four forces structure 251 00:15:12,120 --> 00:15:14,200 Speaker 1: of an industry to make sure that the company is 252 00:15:14,480 --> 00:15:19,000 Speaker 1: operating in an industry where high margins can be protected. 253 00:15:19,520 --> 00:15:22,760 Speaker 1: So it's not always objective and quantitative, but it is 254 00:15:22,800 --> 00:15:27,440 Speaker 1: structured and consistent across across the various sectors and geographies 255 00:15:27,520 --> 00:15:32,840 Speaker 1: in which we invest, and you know, ultimately competitive advantage 256 00:15:32,880 --> 00:15:36,880 Speaker 1: is seen in high margins and strong Peschelor return on investment, 257 00:15:37,160 --> 00:15:41,000 Speaker 1: which are sustainable over long periods of time. So again 258 00:15:41,080 --> 00:15:44,400 Speaker 1: it's a mixture of trying to be disciplined and structured 259 00:15:44,400 --> 00:15:48,240 Speaker 1: about where you're making judgments and trying to be objective 260 00:15:48,360 --> 00:15:51,120 Speaker 1: about where you don't make judgments, and I think you 261 00:15:51,160 --> 00:15:53,400 Speaker 1: know in some ways this is a feature of all research. 262 00:15:54,080 --> 00:15:56,440 Speaker 1: We We are not ashamed that a lot of the 263 00:15:56,680 --> 00:16:00,640 Speaker 1: inputs we use are backward looking, but backward the inputs 264 00:16:00,840 --> 00:16:06,360 Speaker 1: are the ones that are facts subjects cause to an 265 00:16:06,400 --> 00:16:09,720 Speaker 1: opinion about the value of accounting rules. I think that 266 00:16:09,880 --> 00:16:12,320 Speaker 1: people have described them as opinions, not facts. But at 267 00:16:12,360 --> 00:16:15,400 Speaker 1: least they're more objective than forecasts, which of course the 268 00:16:15,640 --> 00:16:18,640 Speaker 1: subject to buy it, So they're doing research. Trying to 269 00:16:18,720 --> 00:16:22,040 Speaker 1: value companies for us is a mixture of looking backwards 270 00:16:22,080 --> 00:16:26,960 Speaker 1: for objective facts and looking forward making forecasts, but recognizing 271 00:16:27,040 --> 00:16:30,360 Speaker 1: that those forecasts are subjects very heavily to buy at 272 00:16:30,440 --> 00:16:35,760 Speaker 1: these quite quite interesting. So Simon, you're the majority owner 273 00:16:35,840 --> 00:16:39,360 Speaker 1: of the Plymouth Argyle football club. This raises a question, 274 00:16:39,760 --> 00:16:42,720 Speaker 1: why buy a soccer team? Is this an investment or 275 00:16:42,760 --> 00:16:45,560 Speaker 1: a labor of love? It's certainly not an investment barrier, 276 00:16:45,640 --> 00:16:47,480 Speaker 1: or if it is, it's the worst one I've ever made. 277 00:16:48,400 --> 00:16:51,400 Speaker 1: It's the labor of clubs. It's not just any football club. 278 00:16:51,480 --> 00:16:53,800 Speaker 1: This is the football club that I supported as a kid. 279 00:16:54,640 --> 00:16:58,360 Speaker 1: I first stood on the terraces in six when I 280 00:16:58,880 --> 00:17:01,280 Speaker 1: my family moved to Plymouth. So this is the team 281 00:17:01,320 --> 00:17:04,600 Speaker 1: that I've been a fan of for most of my life, 282 00:17:04,800 --> 00:17:08,480 Speaker 1: for fifty four years. So it's a labor of love 283 00:17:08,720 --> 00:17:12,200 Speaker 1: and it's really a little bit of giving back to 284 00:17:12,560 --> 00:17:16,720 Speaker 1: the community in Plymouth. The role of the football club 285 00:17:16,960 --> 00:17:23,679 Speaker 1: in local communities is probably greater than sports teams in America. 286 00:17:24,200 --> 00:17:26,560 Speaker 1: They're deeply embedded, they have a long history. We have 287 00:17:26,600 --> 00:17:29,960 Speaker 1: a community trust which is very active doing good works. 288 00:17:30,080 --> 00:17:34,359 Speaker 1: And it's important to me that Plymouth Argyle be a 289 00:17:34,440 --> 00:17:36,359 Speaker 1: vehicle for me to give back to the community in 290 00:17:36,400 --> 00:17:39,800 Speaker 1: which I was raised and frankly that the community that 291 00:17:40,760 --> 00:17:44,400 Speaker 1: paids my education. You know, I've turned my education into 292 00:17:44,880 --> 00:17:48,520 Speaker 1: you know, it's successful business that I've read the rewards 293 00:17:48,520 --> 00:17:51,359 Speaker 1: off and the rate payers of Plymouth paid to my 294 00:17:51,440 --> 00:17:54,920 Speaker 1: high school education and for my university education. So it's 295 00:17:54,920 --> 00:17:57,560 Speaker 1: a way of giving back. And I should say that 296 00:17:58,400 --> 00:18:00,880 Speaker 1: I don't like the idea that subs so entrepreneurs who 297 00:18:00,880 --> 00:18:02,960 Speaker 1: make a fortune should get back. There's usually done it 298 00:18:03,000 --> 00:18:06,000 Speaker 1: by selling bos and services the prices that people want 299 00:18:06,000 --> 00:18:08,000 Speaker 1: to pay. It seems crazy to me that people say 300 00:18:08,000 --> 00:18:10,119 Speaker 1: that Bill Gates should get back when you think of 301 00:18:10,119 --> 00:18:12,639 Speaker 1: all the good that his product has done in the world, 302 00:18:13,240 --> 00:18:15,199 Speaker 1: so it should be a voluntary act. But for me, 303 00:18:15,680 --> 00:18:19,199 Speaker 1: you know, I generated a return on the investment that 304 00:18:20,440 --> 00:18:25,199 Speaker 1: the ratepayers, the taxpayers of Plymouth pay made, and I 305 00:18:25,240 --> 00:18:28,760 Speaker 1: think some payback is appropriate. But it's also so it's 306 00:18:28,800 --> 00:18:31,639 Speaker 1: a happy coincidence that it's also my boyhood club. So 307 00:18:31,680 --> 00:18:35,520 Speaker 1: it's been great fun. So I understand, I'm a World 308 00:18:35,520 --> 00:18:41,679 Speaker 1: Cup fan. I understand generally how U K soccer clubs 309 00:18:41,760 --> 00:18:45,479 Speaker 1: move up and down the different leagues. But for US 310 00:18:45,560 --> 00:18:49,200 Speaker 1: ugly Americans who may not really understand first year, second yer, 311 00:18:49,240 --> 00:18:52,959 Speaker 1: third year, can you give a little explanation. Lay In 312 00:18:53,000 --> 00:18:56,960 Speaker 1: the US we have professional football teams, and we have 313 00:18:57,040 --> 00:18:59,760 Speaker 1: college teams, we have Major League Baseball teams, and there 314 00:18:59,800 --> 00:19:03,520 Speaker 1: are minor league teams and nary the twain shall meet. 315 00:19:04,000 --> 00:19:07,359 Speaker 1: But UK cycer clubs they can move up and down 316 00:19:07,600 --> 00:19:10,080 Speaker 1: from from league to league. Can you give that a 317 00:19:10,080 --> 00:19:15,080 Speaker 1: little explanation? Sure, So leagues here are closed systems, and 318 00:19:15,240 --> 00:19:17,720 Speaker 1: the divisions within a league the mostly closed systems. You know, 319 00:19:17,720 --> 00:19:20,240 Speaker 1: it's very unusual for a team to move from the 320 00:19:20,280 --> 00:19:23,400 Speaker 1: American League East to the American League West, so obviously 321 00:19:23,720 --> 00:19:26,840 Speaker 1: has happened in the past, but so they're closed systems. 322 00:19:27,480 --> 00:19:31,159 Speaker 1: Leagues in professional sports throughout the world, not just in 323 00:19:31,200 --> 00:19:34,080 Speaker 1: soccer and not just in England, are much more open. 324 00:19:34,800 --> 00:19:38,240 Speaker 1: So let's say that let's talk about the four divisions 325 00:19:38,240 --> 00:19:40,840 Speaker 1: of English football. They're actually about a hundred divisions, but 326 00:19:40,920 --> 00:19:44,840 Speaker 1: let's just talk about the top four divisions. If you 327 00:19:44,880 --> 00:19:47,359 Speaker 1: think about divisions in the league being horizontal with no 328 00:19:47,520 --> 00:19:51,680 Speaker 1: movements between central and western, in English football the leagues 329 00:19:51,720 --> 00:19:55,040 Speaker 1: are hierarchical, so there's a progression from let's say the 330 00:19:55,040 --> 00:19:58,040 Speaker 1: fourth tier up to the first tier, which is the 331 00:19:58,080 --> 00:20:00,720 Speaker 1: English Premier League that people have prom really heard of. 332 00:20:01,320 --> 00:20:03,199 Speaker 1: So at the end of every season, teams in the 333 00:20:03,240 --> 00:20:06,760 Speaker 1: division are ranked by their results and the best show 334 00:20:06,920 --> 00:20:09,560 Speaker 1: go up to the next division and the bottom shoes 335 00:20:09,680 --> 00:20:13,640 Speaker 1: go down. So it's terrified. So you know, the pip 336 00:20:14,480 --> 00:20:17,520 Speaker 1: in football is not just about winning the division. It's 337 00:20:17,520 --> 00:20:20,240 Speaker 1: about being in the top top few, so you get 338 00:20:20,240 --> 00:20:23,560 Speaker 1: promoted and avoiding being in the bottom shows so you 339 00:20:23,600 --> 00:20:28,760 Speaker 1: get relegated. And getting relegated has a massive emotional impact 340 00:20:29,480 --> 00:20:32,600 Speaker 1: as well as a financial impact. And you know, as 341 00:20:32,760 --> 00:20:35,880 Speaker 1: as we know, losses, losses count more than gains, so 342 00:20:36,119 --> 00:20:38,560 Speaker 1: in some ways the fear of relegation is greater than 343 00:20:38,600 --> 00:20:43,600 Speaker 1: being glory associated with getting promoted. But it's a terrifying system. 344 00:20:43,720 --> 00:20:46,800 Speaker 1: But the impact is that it makes almost every game meaningful. 345 00:20:47,640 --> 00:20:50,639 Speaker 1: Loss of version applies not just to investors but the 346 00:20:50,720 --> 00:20:54,240 Speaker 1: football clubs. That's that's quite fascinating. So in the US 347 00:20:54,359 --> 00:20:57,720 Speaker 1: there were complaints that you know, the perennial favorites for 348 00:20:57,720 --> 00:21:01,320 Speaker 1: a long time, the Dallas Cowboy Ways in football, the 349 00:21:01,400 --> 00:21:04,720 Speaker 1: New York Yankees in baseball. It was the teams that 350 00:21:04,840 --> 00:21:08,639 Speaker 1: spent the most money. And even with the salary cap, 351 00:21:09,440 --> 00:21:13,640 Speaker 1: the big market teams had an advantage because they could 352 00:21:13,640 --> 00:21:18,840 Speaker 1: attract players that potentially would earn all these marketing um 353 00:21:18,920 --> 00:21:22,159 Speaker 1: and advertising endorsements. You're more likely to get that in 354 00:21:22,240 --> 00:21:24,720 Speaker 1: New York or l A than you are and let's 355 00:21:24,760 --> 00:21:30,080 Speaker 1: say Cleveland. How important is finances to the success of 356 00:21:30,119 --> 00:21:32,520 Speaker 1: a team and is there any limitation on what the 357 00:21:32,560 --> 00:21:35,679 Speaker 1: teams can spend other than how much their owners are 358 00:21:35,680 --> 00:21:39,160 Speaker 1: willing to write checks for. There are limitations, but they 359 00:21:39,240 --> 00:21:42,600 Speaker 1: can be got around by owners willing to write checks. 360 00:21:42,640 --> 00:21:45,760 Speaker 1: So we have financial fair play rules, but they're not 361 00:21:45,840 --> 00:21:50,280 Speaker 1: terribly effectively enforced, and financial fragility of clubs in the 362 00:21:50,359 --> 00:21:53,040 Speaker 1: lower divisions is quite a feature of the last twenty years, 363 00:21:53,040 --> 00:21:56,440 Speaker 1: many have gone bankrupts, including my own eleven years ago, 364 00:21:56,480 --> 00:22:00,439 Speaker 1: almost went went out of business. So it's a very 365 00:22:00,520 --> 00:22:03,200 Speaker 1: interesting question about the role of money in success though, 366 00:22:03,359 --> 00:22:06,879 Speaker 1: And here's where it's like investing. You know, I mentioned 367 00:22:06,920 --> 00:22:09,280 Speaker 1: that there's a lot of behavioral finance that's relevant to 368 00:22:09,680 --> 00:22:13,359 Speaker 1: managing a football club, in particular when it comes to 369 00:22:13,560 --> 00:22:17,720 Speaker 1: getting players. So what's clear And this sounds obvious, but 370 00:22:17,760 --> 00:22:21,960 Speaker 1: it's not immediately obvious because football is a game like investing, 371 00:22:22,400 --> 00:22:25,920 Speaker 1: where short term outcomes results for combination of luck and skill. 372 00:22:26,840 --> 00:22:30,760 Speaker 1: But it's pretty clear that over a long long period, 373 00:22:31,200 --> 00:22:35,639 Speaker 1: skill dominates luck and the most skillful players generate the 374 00:22:35,640 --> 00:22:39,560 Speaker 1: best results. Also, it's a reasonably efficient market, and the 375 00:22:39,600 --> 00:22:44,480 Speaker 1: most skillful players tend to cost the most, but it's 376 00:22:44,520 --> 00:22:48,040 Speaker 1: not at the edge it's a completely inefficient market. And 377 00:22:48,119 --> 00:22:51,960 Speaker 1: there are all sorts of things that you'd recognize from 378 00:22:51,960 --> 00:22:55,399 Speaker 1: the field of behavioral finance, where people make errors in 379 00:22:55,520 --> 00:23:00,639 Speaker 1: over over paying for players. So people associate good players. 380 00:23:00,680 --> 00:23:04,080 Speaker 1: There's repleentative touristic people associated good players with good clubs. 381 00:23:04,440 --> 00:23:06,960 Speaker 1: They assume that he's good players, he's played for a 382 00:23:07,000 --> 00:23:10,480 Speaker 1: successful team, and they assume that he's a bad player 383 00:23:10,760 --> 00:23:16,359 Speaker 1: if he's played for an unsuccessful team. So a player 384 00:23:16,440 --> 00:23:20,680 Speaker 1: of equal ability who played for a top team will 385 00:23:20,720 --> 00:23:24,040 Speaker 1: be more expensive than one who pays plays for a 386 00:23:24,119 --> 00:23:29,600 Speaker 1: bottom team. So similarly, people will extrapolate it's astonishing how 387 00:23:29,640 --> 00:23:33,160 Speaker 1: often a guy will come out and score an unusual 388 00:23:33,240 --> 00:23:36,639 Speaker 1: number of goals for for his long term record, and 389 00:23:36,680 --> 00:23:40,640 Speaker 1: then we'll get traded following, which he means reverts and 390 00:23:40,960 --> 00:23:42,720 Speaker 1: that you know, the price that was paid looks to 391 00:23:42,760 --> 00:23:45,920 Speaker 1: be irrelevant. So when we're thinking about managing Plymouth Harker, 392 00:23:46,040 --> 00:23:48,600 Speaker 1: we're thinking very very hard about these inefficiencies in the 393 00:23:48,640 --> 00:23:52,360 Speaker 1: market and how we can best use our resources. So 394 00:23:52,400 --> 00:23:55,040 Speaker 1: I think that there is a role for thinking about 395 00:23:55,119 --> 00:23:59,240 Speaker 1: market inefficiencies, thinking about how those inefficiencies are created by 396 00:23:59,280 --> 00:24:02,639 Speaker 1: youth and behavior, and then exploiting them so that you 397 00:24:02,680 --> 00:24:07,280 Speaker 1: can outperform essentially your financial resources. So is there any 398 00:24:07,320 --> 00:24:11,320 Speaker 1: sort of moneyball for football yet? For for soccer? Have 399 00:24:11,520 --> 00:24:16,560 Speaker 1: people come up with different ways to quantify the performance 400 00:24:16,600 --> 00:24:21,239 Speaker 1: of players that perhaps are non standard and provide an 401 00:24:21,320 --> 00:24:24,320 Speaker 1: edge until everyone else figures it out? To me, the 402 00:24:24,320 --> 00:24:27,199 Speaker 1: moneyball for soccer is moneyball. You know, the lessons in 403 00:24:27,240 --> 00:24:30,760 Speaker 1: moneyball are applicable, not just too investing. It was a 404 00:24:30,800 --> 00:24:34,560 Speaker 1: book that we sent to our clients. But also also 405 00:24:34,640 --> 00:24:37,560 Speaker 1: in football, and there's been a progression in the use 406 00:24:37,560 --> 00:24:41,600 Speaker 1: of data analytics from baseball to basketball, where they said 407 00:24:41,600 --> 00:24:43,560 Speaker 1: it could never happen, it's now kind of beginning to 408 00:24:43,560 --> 00:24:48,240 Speaker 1: creep into hockey and American football the NFL. So it's 409 00:24:48,359 --> 00:24:52,000 Speaker 1: it's at the very beginning stages of being used in 410 00:24:52,600 --> 00:24:56,440 Speaker 1: um in soccer. And it's very very interesting to me 411 00:24:57,160 --> 00:25:00,520 Speaker 1: that the two clubs that are most associated in England 412 00:25:00,520 --> 00:25:05,320 Speaker 1: anyway with the use of data analytics are one very small, 413 00:25:05,359 --> 00:25:09,680 Speaker 1: low budget club called Brentford, which actually in a couple 414 00:25:09,720 --> 00:25:13,280 Speaker 1: of hours will know whether it's been promoted from the 415 00:25:13,359 --> 00:25:16,960 Speaker 1: second tier to the Premier League, which is owned by 416 00:25:17,119 --> 00:25:19,200 Speaker 1: a hedge fund manager who made his money out of 417 00:25:19,280 --> 00:25:24,800 Speaker 1: sports betting, and he basically gathered data on soccer matches 418 00:25:24,960 --> 00:25:28,800 Speaker 1: throughout the world and was able to assess the odds 419 00:25:28,800 --> 00:25:31,639 Speaker 1: of team may beating Team B and best on it. Accordingly, 420 00:25:31,880 --> 00:25:36,880 Speaker 1: so he bought Brentford and has used data analytics essentially 421 00:25:36,880 --> 00:25:39,200 Speaker 1: for recruiting in the way that I was describing previously, 422 00:25:39,359 --> 00:25:42,000 Speaker 1: very very effectively. At the other end of the scale, 423 00:25:42,040 --> 00:25:44,680 Speaker 1: Liverpool Football Club, who at the moment are as they 424 00:25:44,720 --> 00:25:48,240 Speaker 1: like to say, Champions of Everything are owned by John 425 00:25:48,280 --> 00:25:50,600 Speaker 1: Henry from New England Sports Group, which is also the 426 00:25:50,640 --> 00:25:57,560 Speaker 1: owner of the And there's the link straight back to 427 00:25:57,760 --> 00:26:02,560 Speaker 1: Moneyball with c O Stein, you know, being Billy beings 428 00:26:03,320 --> 00:26:06,520 Speaker 1: number two at the Oakland Days. So the moneyball effect, 429 00:26:06,640 --> 00:26:09,080 Speaker 1: I mean people refer to the moneyball effect on football. 430 00:26:09,480 --> 00:26:12,640 Speaker 1: But again what's fascinating is that it's just like as 431 00:26:12,680 --> 00:26:16,960 Speaker 1: described in Moneyball, and just as I described in the 432 00:26:17,080 --> 00:26:21,359 Speaker 1: changes in our investment process Harding Lubna. The use of 433 00:26:21,440 --> 00:26:24,879 Speaker 1: data analytics is a way of becoming more objective in 434 00:26:24,920 --> 00:26:29,000 Speaker 1: assessing players and overcoming biases in the same way that 435 00:26:29,119 --> 00:26:32,119 Speaker 1: the use of objective data is a way of assessing 436 00:26:32,200 --> 00:26:36,560 Speaker 1: let's saying, corporate management and overcoming your biases. But the people, 437 00:26:36,680 --> 00:26:41,719 Speaker 1: the practitioners resisted, And just as Billy being described with 438 00:26:41,760 --> 00:26:46,600 Speaker 1: the scouts, I've experienced with my colleagues Harding Luvna, and 439 00:26:46,680 --> 00:26:52,080 Speaker 1: I'm now experiencing with football people at FORMATAGA. We don't 440 00:26:52,080 --> 00:26:55,399 Speaker 1: know about these things, but actually turning them into process 441 00:26:55,440 --> 00:26:59,040 Speaker 1: and applying them. Richard Sailor Michael Momson was telling me 442 00:26:59,160 --> 00:27:02,560 Speaker 1: that Richards say Learn was observing at a Sports Analytic 443 00:27:02,640 --> 00:27:08,600 Speaker 1: Conference recently that that everybody knew that three points is 444 00:27:08,600 --> 00:27:12,040 Speaker 1: more than two points in basketball, and everybody can calculate 445 00:27:12,119 --> 00:27:16,080 Speaker 1: your success rate. Yet it took the Golden State Warriors, 446 00:27:16,119 --> 00:27:19,520 Speaker 1: i'd believe, to start shooting three points. You know, Larry 447 00:27:19,560 --> 00:27:22,439 Speaker 1: Bird would concentrate on two points, whereas he could have 448 00:27:23,280 --> 00:27:26,200 Speaker 1: increased the results for the Boston Celtics if you take 449 00:27:26,200 --> 00:27:30,119 Speaker 1: a more more three point shots. So turning what we 450 00:27:30,280 --> 00:27:35,240 Speaker 1: know into practice is your key competitive advantage, in my view, 451 00:27:35,320 --> 00:27:38,359 Speaker 1: is not the knowledge itself. And again at our go 452 00:27:38,640 --> 00:27:40,280 Speaker 1: as I'd like to say, one of the things that 453 00:27:40,320 --> 00:27:43,720 Speaker 1: I think it will help us is that we have 454 00:27:43,960 --> 00:27:47,440 Speaker 1: a football management team that's young, it's fairly in experience, 455 00:27:47,520 --> 00:27:50,879 Speaker 1: it's very very willing to learn, so they are fully 456 00:27:50,880 --> 00:27:55,560 Speaker 1: prepared to embrace data analytics in helping them recruit players. 457 00:27:55,680 --> 00:27:59,120 Speaker 1: I have one last soccer question for you, and it's 458 00:27:59,160 --> 00:28:04,440 Speaker 1: about Theater of the Greens, the park where the Argyles play, 459 00:28:04,760 --> 00:28:09,200 Speaker 1: destroyed in World War Two by German bombers during the Blitz. 460 00:28:10,080 --> 00:28:15,400 Speaker 1: How closely located is the current stadium to where the 461 00:28:15,440 --> 00:28:21,320 Speaker 1: original I think it was late nineteenth century stadium was erected. 462 00:28:21,680 --> 00:28:24,920 Speaker 1: It's on the same site we're we've been at home 463 00:28:25,000 --> 00:28:31,440 Speaker 1: park Um since nineteen Actually, Plymouth is a naval port 464 00:28:31,720 --> 00:28:34,480 Speaker 1: and Plymouth and Portsmouth are the two big naval ports 465 00:28:34,480 --> 00:28:37,119 Speaker 1: on the south coast of Britain. So Plymouth was completely 466 00:28:37,200 --> 00:28:40,280 Speaker 1: destroyed during the war. You know, it's very heavily bombed. 467 00:28:40,640 --> 00:28:43,600 Speaker 1: And the the Argur Stadium is only a couple of 468 00:28:43,640 --> 00:28:45,840 Speaker 1: miles from the city center. In fact, it's on a 469 00:28:45,920 --> 00:28:47,800 Speaker 1: hill in the park and if you look out you 470 00:28:47,800 --> 00:28:51,160 Speaker 1: can see the what's called Plymouth Sound, which is where 471 00:28:51,160 --> 00:28:54,160 Speaker 1: the ships live. So actually it's quite funny in a 472 00:28:54,320 --> 00:28:59,520 Speaker 1: not particularly funny way. We've just completely refurbished our very 473 00:28:59,760 --> 00:29:02,560 Speaker 1: his or at Grandstand, which dated from the early fifties 474 00:29:03,240 --> 00:29:06,719 Speaker 1: and was getting very dilapidated. And when we were doing that, 475 00:29:06,800 --> 00:29:09,920 Speaker 1: one of our warriors was that we would do unexploded bombs. 476 00:29:10,560 --> 00:29:14,400 Speaker 1: Luckily we didn't. Wow, that's quite amazing. Let's talk a 477 00:29:14,400 --> 00:29:18,760 Speaker 1: little bit about your process. I read in an interview 478 00:29:18,880 --> 00:29:20,560 Speaker 1: you did some years ago, I think it was with 479 00:29:20,640 --> 00:29:25,880 Speaker 1: Kate Welling that you were quote relentlessly bottoms up. What 480 00:29:25,960 --> 00:29:29,480 Speaker 1: does that mean? Relentlessly bottom up? And is that a 481 00:29:29,520 --> 00:29:34,840 Speaker 1: way for investors to get better than market returns? Well, 482 00:29:34,840 --> 00:29:37,600 Speaker 1: we think. So by relentlessly bottoms up, I mean that 483 00:29:37,640 --> 00:29:41,760 Speaker 1: we don't allow beliefs and our forecasts or other people's 484 00:29:41,760 --> 00:29:45,480 Speaker 1: forecasts about the macro economic environment to effect stop selection 485 00:29:45,680 --> 00:29:48,840 Speaker 1: or portfolio construction. So, as I said before, we do 486 00:29:49,040 --> 00:29:52,200 Speaker 1: let it. We do think about the macro economic environment 487 00:29:52,280 --> 00:29:55,920 Speaker 1: and how we should expect our portfolios to behave in 488 00:29:56,040 --> 00:30:00,920 Speaker 1: certain regimes. But our core belief is that I focusing 489 00:30:00,920 --> 00:30:03,120 Speaker 1: on high quality companies that can grow their own ins 490 00:30:03,120 --> 00:30:05,960 Speaker 1: over long periods of time, and paying attention to the 491 00:30:06,000 --> 00:30:09,000 Speaker 1: price you pay for them, you're going to generate reasonable 492 00:30:09,080 --> 00:30:11,440 Speaker 1: returns that have a good probability of being in a 493 00:30:11,560 --> 00:30:15,600 Speaker 1: set of the market if you can control poor investing behavior. 494 00:30:16,000 --> 00:30:18,959 Speaker 1: We believe that there's a difference between price and value, 495 00:30:19,320 --> 00:30:22,760 Speaker 1: and that price converges on value over time, but that 496 00:30:22,760 --> 00:30:27,320 Speaker 1: that convergence is at an unpredictable pace. We also believe 497 00:30:27,360 --> 00:30:31,200 Speaker 1: that it's important to assess value, but that it's very, 498 00:30:31,320 --> 00:30:35,320 Speaker 1: very difficult. We all know that the value of security 499 00:30:35,480 --> 00:30:39,840 Speaker 1: is the discounting present value of the cashalists associated, where 500 00:30:39,880 --> 00:30:43,240 Speaker 1: the appropriate rate for discounting as some combination of risk 501 00:30:43,280 --> 00:30:46,160 Speaker 1: free rate and equity wrist premium. But we don't really 502 00:30:46,200 --> 00:30:48,440 Speaker 1: know what the proper rest free rate is, or what 503 00:30:48,480 --> 00:30:52,040 Speaker 1: the proper equity risk premium is. Let alone can we 504 00:30:52,720 --> 00:30:57,400 Speaker 1: accurately forecast cash flows. So assessing value is very, very difficult, 505 00:30:57,440 --> 00:31:00,120 Speaker 1: but we think we have to do it. Always reminds 506 00:31:00,160 --> 00:31:02,800 Speaker 1: me of that line from ken Arrow about his weather 507 00:31:02,880 --> 00:31:05,800 Speaker 1: forecast during World War Two when he told the general 508 00:31:05,880 --> 00:31:09,400 Speaker 1: his weather forecasts were useless and he should ignore them, 509 00:31:09,440 --> 00:31:13,240 Speaker 1: and the general staff told ken Arrow that the general 510 00:31:13,440 --> 00:31:16,280 Speaker 1: knew that his forecasts were useless, but he needed them 511 00:31:16,320 --> 00:31:20,280 Speaker 1: for planning purposes. So, you know, we recognize that our 512 00:31:20,360 --> 00:31:24,080 Speaker 1: valuations are inaccurate, but we need them. And our essential 513 00:31:24,160 --> 00:31:26,520 Speaker 1: belief is that if you get the valuation wrong and 514 00:31:26,560 --> 00:31:29,920 Speaker 1: therefore the price you pay for a company is too high, 515 00:31:30,160 --> 00:31:32,200 Speaker 1: that growth will fail you out and give you a 516 00:31:32,280 --> 00:31:35,920 Speaker 1: return over a long holding period. So that that's why 517 00:31:35,960 --> 00:31:38,840 Speaker 1: we want growth, That's why that's how we think about value. 518 00:31:39,280 --> 00:31:42,800 Speaker 1: And then quality for us is partly a function of 519 00:31:42,800 --> 00:31:47,920 Speaker 1: our personalities. We tend to be rather conservative risk reverse people, 520 00:31:48,560 --> 00:31:51,920 Speaker 1: and you know, we recognize that if a return is 521 00:31:51,960 --> 00:31:54,000 Speaker 1: minus a d percent in any series, then your long 522 00:31:54,080 --> 00:31:57,120 Speaker 1: term return is going to be zero. So for us, 523 00:31:57,200 --> 00:32:01,400 Speaker 1: high quality means you know something about high margins. It 524 00:32:01,480 --> 00:32:04,680 Speaker 1: also means about ability to send those margins. It means 525 00:32:04,680 --> 00:32:08,840 Speaker 1: something about management and corporate governance, as we've discussed, But essentially, 526 00:32:09,000 --> 00:32:12,840 Speaker 1: it means that the riskiness in a company is relatively 527 00:32:12,920 --> 00:32:15,800 Speaker 1: low and we're not going to get scared out of 528 00:32:15,920 --> 00:32:18,800 Speaker 1: setting it at the wrong time. What we didn't recognize 529 00:32:19,360 --> 00:32:21,960 Speaker 1: thirty years ago when the firm started was that quality 530 00:32:22,160 --> 00:32:25,080 Speaker 1: was a factor that was going to be recognized by 531 00:32:25,160 --> 00:32:29,440 Speaker 1: the academics as a permanent or allegedly permanent source of return. 532 00:32:29,760 --> 00:32:31,600 Speaker 1: We just thought it was something that appealed to us 533 00:32:31,640 --> 00:32:34,400 Speaker 1: and would help us generate the returns that we needed 534 00:32:34,400 --> 00:32:37,000 Speaker 1: for our clients. So you guys were farmer French before 535 00:32:37,040 --> 00:32:41,160 Speaker 1: farmer French discovered quality. That's that's kind of interesting. Let's 536 00:32:41,200 --> 00:32:44,880 Speaker 1: stick with the topic of growth. How do you define 537 00:32:45,000 --> 00:32:49,520 Speaker 1: sustainable growth and how can you identify that in advance. 538 00:32:49,560 --> 00:32:52,040 Speaker 1: It's easy to say, you look at how much Amazon 539 00:32:52,120 --> 00:32:56,120 Speaker 1: and Google have grown their earnings for the past twenty years, 540 00:32:56,160 --> 00:32:58,640 Speaker 1: but how do you do that in two thousand and 541 00:32:58,680 --> 00:33:02,840 Speaker 1: two or two thousand and ten looking out a couple 542 00:33:02,840 --> 00:33:05,960 Speaker 1: of decades. Well, we didn't, you know. Now, we we 543 00:33:06,200 --> 00:33:10,240 Speaker 1: invest on the kind of spectrum from value to growth. 544 00:33:11,000 --> 00:33:14,160 Speaker 1: And at one end of the spectrum, deep value is 545 00:33:14,160 --> 00:33:17,520 Speaker 1: buying companies, you know, the kind of Ben Graham security 546 00:33:17,520 --> 00:33:20,840 Speaker 1: analysis way where you're getting you know, you're paying pennies 547 00:33:20,960 --> 00:33:23,560 Speaker 1: in the pound or cents in the dollar for assets. 548 00:33:24,080 --> 00:33:26,600 Speaker 1: And at the other end, high growth is where a 549 00:33:26,600 --> 00:33:30,320 Speaker 1: company goes public with just a great idea. For us, 550 00:33:31,200 --> 00:33:34,480 Speaker 1: growth is the mixture of quality and growth is neither 551 00:33:34,800 --> 00:33:37,000 Speaker 1: at the extreme of one end nor at the extreme 552 00:33:37,040 --> 00:33:40,040 Speaker 1: of the growth end. So we do own the companies 553 00:33:40,040 --> 00:33:42,200 Speaker 1: such as Amazon which don't have earnings, but they have 554 00:33:42,720 --> 00:33:45,160 Speaker 1: massive cash flows, but we haven't earned it for twenty years. 555 00:33:45,440 --> 00:33:48,040 Speaker 1: I think we've earned it for several years, but not 556 00:33:48,040 --> 00:33:51,400 Speaker 1: not several decades. So no, if companies just have a 557 00:33:51,440 --> 00:33:53,600 Speaker 1: bright idea, we're not going to be able to forecast 558 00:33:54,080 --> 00:33:55,840 Speaker 1: and we're going to say they're not going to meet 559 00:33:55,880 --> 00:33:59,920 Speaker 1: our financial strength criterion, where financial strength doesn't just mean 560 00:34:00,680 --> 00:34:04,200 Speaker 1: low leverage, but it means having access to capital in 561 00:34:04,240 --> 00:34:07,200 Speaker 1: a way that sustained. And we look upon bank capital 562 00:34:07,200 --> 00:34:10,160 Speaker 1: as being rather volatile. Let's say, you know, there's the 563 00:34:10,160 --> 00:34:13,160 Speaker 1: old story about a bank, bank or something who lends you, 564 00:34:13,480 --> 00:34:15,879 Speaker 1: lends you an umbrella when the sunshine takes it away 565 00:34:15,920 --> 00:34:17,920 Speaker 1: when it starts to rain. I think there's an element 566 00:34:17,960 --> 00:34:21,920 Speaker 1: of truth in there. So we like companies that are 567 00:34:21,960 --> 00:34:25,919 Speaker 1: relatively that have financial strength of generating their own cash flow, 568 00:34:26,080 --> 00:34:29,319 Speaker 1: or at least have sufficient reserves to tide them over 569 00:34:29,320 --> 00:34:31,799 Speaker 1: the time when they're going to be generating cash flows. 570 00:34:31,800 --> 00:34:34,160 Speaker 1: But look, this is we So we tend not to 571 00:34:34,239 --> 00:34:39,239 Speaker 1: try to identify the massively fast growing companies, but to 572 00:34:39,600 --> 00:34:42,600 Speaker 1: generate high returns, and to generate the type of returns 573 00:34:42,840 --> 00:34:46,919 Speaker 1: we've we've generated over three decades. You don't need to 574 00:34:47,080 --> 00:34:50,520 Speaker 1: have port photos that are exclusively in those kinds of 575 00:34:50,560 --> 00:34:53,919 Speaker 1: companies that they've been very fashionable over the last two 576 00:34:53,960 --> 00:34:57,680 Speaker 1: years and particularly over the last three or four months. 577 00:34:57,719 --> 00:35:01,640 Speaker 1: But the classic company for us is I always say 578 00:35:01,640 --> 00:35:04,760 Speaker 1: in Nest Late. We've owned nest Late for thirty years. 579 00:35:04,760 --> 00:35:10,560 Speaker 1: It never um very rarely grows earnings in more than 580 00:35:10,600 --> 00:35:14,920 Speaker 1: fifteen He usually grows earnings at seven or eight percent um. 581 00:35:15,120 --> 00:35:18,520 Speaker 1: It reinvests its cash flows in the thirty years. Annual 582 00:35:19,200 --> 00:35:22,280 Speaker 1: thirty years, the annualized returns on Nest Late are about, 583 00:35:23,680 --> 00:35:26,359 Speaker 1: you know, massively more than our portfolios, by the way, 584 00:35:27,520 --> 00:35:31,400 Speaker 1: and much more than the market. So it's that ability 585 00:35:31,480 --> 00:35:35,880 Speaker 1: to compound reasonable growth over long periods of time that 586 00:35:36,160 --> 00:35:40,000 Speaker 1: never gets dramatically over priced in the market. And it's 587 00:35:40,080 --> 00:35:43,399 Speaker 1: really where the core of our returns have been. And 588 00:35:43,920 --> 00:35:47,880 Speaker 1: again it comes back to behavior behavioral issues. One of 589 00:35:47,880 --> 00:35:51,480 Speaker 1: our clients asked one of my colleagues once why we 590 00:35:51,760 --> 00:35:54,080 Speaker 1: should pay us an investment teed for thirty years to 591 00:35:54,320 --> 00:35:57,400 Speaker 1: just sit on nest late and my my colleagues answer 592 00:35:57,520 --> 00:35:59,840 Speaker 1: was what you wouldn't have done. And I think that 593 00:36:00,239 --> 00:36:04,279 Speaker 1: restraint in behavior whenever he's yelling at you to trade, 594 00:36:04,280 --> 00:36:07,040 Speaker 1: trade trade has been a key to our success. Our 595 00:36:07,040 --> 00:36:11,120 Speaker 1: holding period is over five years and that's consistent across 596 00:36:11,160 --> 00:36:15,280 Speaker 1: all our strategies. You know. So for us, successful investing 597 00:36:15,400 --> 00:36:18,480 Speaker 1: is Charlie Mander said, it is a matter of finding 598 00:36:18,480 --> 00:36:21,840 Speaker 1: a bunch of good companies and sitting on your behind 599 00:36:22,320 --> 00:36:24,320 Speaker 1: trouble as most people can't sit on there behind for 600 00:36:24,440 --> 00:36:27,000 Speaker 1: so long. Yeah, to say the very least. So let's 601 00:36:27,000 --> 00:36:30,720 Speaker 1: talk a little bit about the current macro environments, which 602 00:36:30,840 --> 00:36:35,040 Speaker 1: is somewhat unique in in at least the past centuries 603 00:36:35,080 --> 00:36:38,520 Speaker 1: investing history. I guess you have to go back to 604 00:36:38,520 --> 00:36:42,920 Speaker 1: to find something similar. How do you look at the 605 00:36:42,960 --> 00:36:48,240 Speaker 1: pandemic the lockdown, how well certain countries like South Korea 606 00:36:48,360 --> 00:36:52,080 Speaker 1: or Japan or Germany have managed it, and how poorly 607 00:36:52,239 --> 00:36:56,040 Speaker 1: certain countries like the US or Brazil have been managing it. 608 00:36:56,120 --> 00:37:00,600 Speaker 1: Does that impact where you think about putting capital or 609 00:37:00,920 --> 00:37:04,719 Speaker 1: the type of companies you might want to investment in 610 00:37:04,400 --> 00:37:06,520 Speaker 1: m in the short term. When the pandemic hit and 611 00:37:06,560 --> 00:37:08,880 Speaker 1: it looked like we were possibly going to be tasting 612 00:37:08,880 --> 00:37:12,399 Speaker 1: our depression, we did do a kind of relook at 613 00:37:12,440 --> 00:37:15,040 Speaker 1: all the companies in our portfolio to make sure that 614 00:37:15,160 --> 00:37:17,759 Speaker 1: they had the financial strength, just to double check that 615 00:37:17,800 --> 00:37:21,719 Speaker 1: they had the financial strength to withstand a period of 616 00:37:21,840 --> 00:37:26,560 Speaker 1: let's say two years of zero positive cashlows, so that 617 00:37:26,560 --> 00:37:30,600 Speaker 1: that was one immediate impact. In the longer term, I 618 00:37:30,600 --> 00:37:34,319 Speaker 1: guess for us, the issue is about valuation and how 619 00:37:34,360 --> 00:37:38,280 Speaker 1: we should think about interest rates approaching the zero bound. 620 00:37:38,760 --> 00:37:40,600 Speaker 1: You know, as I mentioned, we do care about price, 621 00:37:40,680 --> 00:37:44,560 Speaker 1: We do calculate value, and interest rates that are closed 622 00:37:44,600 --> 00:37:47,319 Speaker 1: to zero do very strange things for value, particularly, do 623 00:37:47,520 --> 00:37:51,440 Speaker 1: strange things for the value of growth of growth stops. 624 00:37:51,480 --> 00:37:54,719 Speaker 1: And I think that part of the justification for what 625 00:37:54,760 --> 00:37:58,520 Speaker 1: we've seen happened in market since the pandemic really took 626 00:37:58,520 --> 00:38:01,680 Speaker 1: hold has been about you know, the revaluation of cash 627 00:38:01,680 --> 00:38:04,600 Speaker 1: flows that many many years into the future. But you know, 628 00:38:04,680 --> 00:38:08,239 Speaker 1: you know perfectly well and your listeners will understand the 629 00:38:08,560 --> 00:38:10,800 Speaker 1: base of the arithmetic that when interest rates to zero, 630 00:38:10,840 --> 00:38:14,040 Speaker 1: you're indifferent between a cash flow pash flow now and 631 00:38:14,040 --> 00:38:17,080 Speaker 1: a cash flow in the future. The difference, of course, 632 00:38:17,160 --> 00:38:20,440 Speaker 1: is in riskiness. The actual value if you can if 633 00:38:20,480 --> 00:38:22,640 Speaker 1: you can poecast it will be will be the same. 634 00:38:22,760 --> 00:38:26,960 Speaker 1: So we we've seen this massive revaluation of growth stops. 635 00:38:26,960 --> 00:38:29,440 Speaker 1: So I had to say, I think that to some extent, 636 00:38:29,560 --> 00:38:34,040 Speaker 1: that's the post hoc narrative that's woven around um you 637 00:38:34,080 --> 00:38:36,840 Speaker 1: know what what In many ways ways there's aroundomness. You know, 638 00:38:37,200 --> 00:38:42,040 Speaker 1: we're extraordinarily good producing stories to explain something that's already happened. 639 00:38:42,520 --> 00:38:46,479 Speaker 1: Yet those same stories that tend to have no predicted value. So, 640 00:38:46,800 --> 00:38:49,640 Speaker 1: you know, I thought it was interesting as we think 641 00:38:49,680 --> 00:38:52,680 Speaker 1: about the value of growth stops and the relationship between 642 00:38:52,719 --> 00:38:55,680 Speaker 1: price and value. Paper that I think hu R came 643 00:38:55,680 --> 00:38:57,640 Speaker 1: out with a month or so ago looking at the 644 00:38:57,680 --> 00:39:03,279 Speaker 1: influence of interest rates on the whole value growth dichotomy, 645 00:39:03,320 --> 00:39:06,560 Speaker 1: and they found that value stops did not respond to 646 00:39:06,680 --> 00:39:09,480 Speaker 1: higher interest rates. As we all fear so you know, 647 00:39:09,560 --> 00:39:12,480 Speaker 1: we are thinking about the current economic environment, we're thinking 648 00:39:12,480 --> 00:39:16,520 Speaker 1: about the impact with the pandemic, but we are apart 649 00:39:16,560 --> 00:39:20,160 Speaker 1: from no just checking our belts embraces, we haven't taken 650 00:39:20,239 --> 00:39:24,799 Speaker 1: any action. Quite fascinating. So looking at value, looking at 651 00:39:24,920 --> 00:39:29,200 Speaker 1: international over the past decade, this is both before the 652 00:39:29,239 --> 00:39:33,040 Speaker 1: pandemic and in the recovery since the markets bottomed in 653 00:39:33,320 --> 00:39:36,680 Speaker 1: at the end of the first quarter, value has been 654 00:39:36,719 --> 00:39:40,319 Speaker 1: getting trounched by growth. Growth is the big winner, and 655 00:39:40,400 --> 00:39:44,640 Speaker 1: the US has more or lessment beating not only emerging 656 00:39:44,680 --> 00:39:49,920 Speaker 1: markets but developed x US. Do you see that continuing? 657 00:39:50,040 --> 00:39:53,520 Speaker 1: What what is more likely to reverse the past decade? 658 00:39:54,239 --> 00:39:57,879 Speaker 1: Growth beating value or the US beating international. Well, we're 659 00:39:57,960 --> 00:40:00,280 Speaker 1: you know, we're global, we're global investors, and we're global 660 00:40:00,320 --> 00:40:03,279 Speaker 1: growth investors. So I want growth to out the form 661 00:40:03,320 --> 00:40:05,240 Speaker 1: and I want the world to do at least well 662 00:40:05,280 --> 00:40:08,920 Speaker 1: relative to the US. So I'm hopelessly biased, and I 663 00:40:09,000 --> 00:40:12,239 Speaker 1: must say that over my now forty year career, my 664 00:40:12,360 --> 00:40:15,880 Speaker 1: biggest flaw that I recognized quite early but didn't understand 665 00:40:15,920 --> 00:40:20,839 Speaker 1: what the reasons. My biggest flaw is that, um yeah, 666 00:40:20,880 --> 00:40:23,880 Speaker 1: I'm very optimistic about the future, but I'm very pessimistic 667 00:40:23,880 --> 00:40:27,080 Speaker 1: about that the current and we know we now know 668 00:40:27,320 --> 00:40:30,520 Speaker 1: from the kind of behavior or evolutionists. Why why Why 669 00:40:30,600 --> 00:40:33,280 Speaker 1: that is that all of us are risk averse about 670 00:40:33,440 --> 00:40:39,520 Speaker 1: the present and risk takes about the future. So again 671 00:40:40,239 --> 00:40:44,640 Speaker 1: I find the ability to time these things zero. So 672 00:40:44,920 --> 00:40:48,360 Speaker 1: my my guts tell me, and I have very little 673 00:40:48,360 --> 00:40:51,719 Speaker 1: confidence in my guts to be worn, is that the 674 00:40:51,760 --> 00:40:53,759 Speaker 1: rest of the world will turn around relative to the 675 00:40:53,800 --> 00:40:57,319 Speaker 1: US before growth turns around relatives to value. And the 676 00:40:57,360 --> 00:40:59,960 Speaker 1: reason is that I do think that the value grow 677 00:41:00,000 --> 00:41:02,120 Speaker 1: of things at least something to do with the economic 678 00:41:02,200 --> 00:41:04,960 Speaker 1: cycle and interest rates, and I think that the economic 679 00:41:05,000 --> 00:41:08,560 Speaker 1: cycle is poor. I think that for obvious reasons, and 680 00:41:08,600 --> 00:41:10,960 Speaker 1: I think that interest rates is going to stay lower 681 00:41:11,200 --> 00:41:12,920 Speaker 1: for longer, which is, by the way, it's something that 682 00:41:12,960 --> 00:41:17,640 Speaker 1: we've believed without too much conviction since the financial crisis. 683 00:41:18,120 --> 00:41:21,560 Speaker 1: So you know, once again, the pandemic is revealed as 684 00:41:21,719 --> 00:41:25,080 Speaker 1: continuing or accelerating trends that were already in place, which 685 00:41:25,120 --> 00:41:28,040 Speaker 1: is an interesting issue when it comes to the rest 686 00:41:28,040 --> 00:41:30,799 Speaker 1: of the world versus the US. I think one of 687 00:41:30,840 --> 00:41:32,799 Speaker 1: the issues that the US has had, of the U 688 00:41:32,880 --> 00:41:35,480 Speaker 1: S stock market or publicly traded stock market has had, 689 00:41:36,080 --> 00:41:38,880 Speaker 1: is that many of the world's great growth companies are Americans, 690 00:41:39,280 --> 00:41:43,560 Speaker 1: and increasingly they're they're what's driven overall market aggregates. So 691 00:41:43,680 --> 00:41:46,760 Speaker 1: it's important to note that things like American small caps 692 00:41:46,760 --> 00:41:50,120 Speaker 1: have also done pretty well over the last few years. 693 00:41:50,160 --> 00:41:53,640 Speaker 1: So I think what we're going to see is that 694 00:41:54,280 --> 00:41:57,360 Speaker 1: the broad market in the US will underperform the broad 695 00:41:57,400 --> 00:42:00,800 Speaker 1: market outside the US, but that we may well continue 696 00:42:00,840 --> 00:42:03,240 Speaker 1: to see the dominance and some of these big market 697 00:42:03,280 --> 00:42:06,960 Speaker 1: cap cap names. But I have to say at some point, 698 00:42:07,160 --> 00:42:09,640 Speaker 1: it's just a gut field that you know, it's been 699 00:42:09,680 --> 00:42:13,759 Speaker 1: down so long it feels like up to me. So 700 00:42:13,840 --> 00:42:16,520 Speaker 1: let me ask you a quick question about emerging markets. 701 00:42:17,239 --> 00:42:20,480 Speaker 1: When you first started e M was a lot of 702 00:42:20,560 --> 00:42:25,719 Speaker 1: materials and energy. Today that's transition to consumer brands and 703 00:42:25,800 --> 00:42:30,520 Speaker 1: big Chinese technology companies. Talk about this transition a little 704 00:42:30,520 --> 00:42:33,480 Speaker 1: bit and tell us what it might mean for investors 705 00:42:33,719 --> 00:42:39,280 Speaker 1: going forward. I think it's for investors, it's a little 706 00:42:39,280 --> 00:42:41,960 Speaker 1: bit dangerous, and it's something that we're worrying about at 707 00:42:41,960 --> 00:42:46,160 Speaker 1: the moment and trying to formulate policies. You know, the 708 00:42:46,160 --> 00:42:49,879 Speaker 1: the If you want to diversified global emerging market portfolio, 709 00:42:51,000 --> 00:42:54,200 Speaker 1: you have to be careful at this stage because Chinese 710 00:42:54,800 --> 00:42:58,840 Speaker 1: stocks dominate the market benchmarks, and the direction is that 711 00:42:58,840 --> 00:43:00,880 Speaker 1: they're going to come to dominate it even more. So 712 00:43:00,960 --> 00:43:04,480 Speaker 1: we're already at over and it looks like we're headed 713 00:43:04,520 --> 00:43:09,480 Speaker 1: to towards sixties six five maybe even as the Chinese 714 00:43:09,520 --> 00:43:13,320 Speaker 1: market that is available to foreigners invests in the benchmarks 715 00:43:13,440 --> 00:43:17,440 Speaker 1: continues to broaden and deepen. So I think that for 716 00:43:17,560 --> 00:43:21,279 Speaker 1: investors you have to be very careful about, you know, 717 00:43:21,480 --> 00:43:25,480 Speaker 1: how you consider a diversified emerging market exposure. We're very 718 00:43:25,560 --> 00:43:29,360 Speaker 1: much at the stage that we were at in Japan 719 00:43:29,680 --> 00:43:33,000 Speaker 1: in the late eighties, where Japan dominated the non US 720 00:43:33,080 --> 00:43:36,800 Speaker 1: bench marks. At one point, the Japanese market was six 721 00:43:36,920 --> 00:43:40,280 Speaker 1: of six five percent. I think of the non US 722 00:43:40,280 --> 00:43:43,320 Speaker 1: equity in debt and of the Japanese market, about a 723 00:43:43,400 --> 00:43:47,360 Speaker 1: quarter was Japanese banks, which were poorly managed and trading 724 00:43:47,400 --> 00:43:51,560 Speaker 1: at fifteen times book value. So a diversified exposure to 725 00:43:52,520 --> 00:43:55,000 Speaker 1: non US markets was a very risky one. You know, 726 00:43:55,320 --> 00:43:58,680 Speaker 1: I think that there are parallels with the dominance of 727 00:43:58,760 --> 00:44:02,920 Speaker 1: China in the emerging market benchmarks, but they're not you know, 728 00:44:03,080 --> 00:44:06,120 Speaker 1: his history, Rymes, it doesn't it doesn't repeat itself. One 729 00:44:06,200 --> 00:44:09,720 Speaker 1: difference is that Chinese stops are not dramatically over priced 730 00:44:09,920 --> 00:44:16,239 Speaker 1: as they were in Japan in the late So you know, 731 00:44:16,280 --> 00:44:19,160 Speaker 1: a lot of what's happened in China for China to 732 00:44:19,200 --> 00:44:21,960 Speaker 1: become such a large part of the benchmark hasn't been 733 00:44:21,960 --> 00:44:26,040 Speaker 1: through price rising crisis rising. It's been through you more 734 00:44:26,040 --> 00:44:29,040 Speaker 1: opportunities for investors, and that that's actually something that we've 735 00:44:29,040 --> 00:44:30,960 Speaker 1: tried to take advantage of our hard in Luve America 736 00:44:31,080 --> 00:44:34,920 Speaker 1: last two years. So I think that transition is important 737 00:44:34,920 --> 00:44:37,520 Speaker 1: for investors when they're thinking about the riskiness of global 738 00:44:37,520 --> 00:44:41,200 Speaker 1: emerging markets. What what that transition actually means for emerging 739 00:44:41,239 --> 00:44:44,520 Speaker 1: markets is a much more difficult question, I think, And 740 00:44:44,680 --> 00:44:47,280 Speaker 1: I just note that, you know, back in the early eighties, 741 00:44:47,880 --> 00:44:50,160 Speaker 1: when I started investing in emerging markets before they were 742 00:44:50,200 --> 00:44:53,759 Speaker 1: actually called emerging markets, you're looking at companies like Malaysia, 743 00:44:54,280 --> 00:44:58,080 Speaker 1: the Philippines by the late eighties, Indonesia, but outside of 744 00:44:58,239 --> 00:45:01,600 Speaker 1: Southeast Asia, it was South Africa, and you were just 745 00:45:01,680 --> 00:45:05,920 Speaker 1: beginning to invest in a couple of Latin American countries, 746 00:45:06,440 --> 00:45:09,040 Speaker 1: and we all thought of emerging markets as being warrants 747 00:45:09,040 --> 00:45:11,480 Speaker 1: on the West. You know that if U s GDP 748 00:45:11,680 --> 00:45:14,120 Speaker 1: grew a little bit more than expected, emerging markets would 749 00:45:14,120 --> 00:45:18,279 Speaker 1: sort and obviously it was resources and resource consumptions that 750 00:45:19,000 --> 00:45:22,960 Speaker 1: was the the common thread that tied the two together. 751 00:45:24,239 --> 00:45:28,000 Speaker 1: We hoped in the two thousands that the rise of 752 00:45:28,120 --> 00:45:31,880 Speaker 1: the emerging market middle class would mean that emerging markets 753 00:45:31,880 --> 00:45:35,920 Speaker 1: would be less solitile, that they'd be less financially leveraged, 754 00:45:36,640 --> 00:45:40,440 Speaker 1: and that the rise of spending of the expense of 755 00:45:40,800 --> 00:45:47,920 Speaker 1: consumption would be helpful in broadening exposure to non non commodities. 756 00:45:48,400 --> 00:45:50,239 Speaker 1: But that was all turned over with the rise of 757 00:45:50,400 --> 00:45:55,040 Speaker 1: China and the massively rapid industrialization of China, and instead 758 00:45:55,040 --> 00:45:57,600 Speaker 1: of the West being the common thread to commodities that 759 00:45:57,680 --> 00:46:00,880 Speaker 1: drove the emerging markets, it was China. So you know, 760 00:46:01,000 --> 00:46:04,120 Speaker 1: we haven't really seen the broadening of emerging markets that 761 00:46:05,040 --> 00:46:08,160 Speaker 1: we'd hoped, we'd hope to see. I think that we 762 00:46:08,239 --> 00:46:10,120 Speaker 1: are beginning to see it. I think that it will. 763 00:46:10,200 --> 00:46:13,600 Speaker 1: It is something that's still still on become, but that 764 00:46:13,680 --> 00:46:16,640 Speaker 1: the rise of China has to some extent masked what's 765 00:46:16,640 --> 00:46:18,880 Speaker 1: happening elsewhere. But at the moment, you know, with the 766 00:46:18,880 --> 00:46:21,279 Speaker 1: pandemic coming on, I think that you know, it's going 767 00:46:21,360 --> 00:46:24,040 Speaker 1: to be a while before we see the good values 768 00:46:24,080 --> 00:46:27,480 Speaker 1: that the apparent in some of the consumption stops in 769 00:46:27,560 --> 00:46:32,680 Speaker 1: emerging markets being turned into stock market returns. So I 770 00:46:32,719 --> 00:46:35,400 Speaker 1: have to get to my speed round questions. But before 771 00:46:35,440 --> 00:46:40,759 Speaker 1: I do, a quick question. Outside of China, you mentioned Malaysia, 772 00:46:41,360 --> 00:46:46,440 Speaker 1: What other countries are intriguing, India, Vietnam, Turkey? Does any 773 00:46:46,480 --> 00:46:51,480 Speaker 1: specific country call out as well? This could be the 774 00:46:51,920 --> 00:46:55,360 Speaker 1: If China is the new US, what's the new China. 775 00:46:57,320 --> 00:46:59,799 Speaker 1: I've always thought that it would be Vietnam. You know, 776 00:46:59,840 --> 00:47:02,719 Speaker 1: I first went to Vietnam to do investment work over 777 00:47:02,760 --> 00:47:05,880 Speaker 1: twenty years ago, and I've followed it. It's got a 778 00:47:05,960 --> 00:47:08,320 Speaker 1: large population, it's got a lot of the characteristics of 779 00:47:08,480 --> 00:47:13,960 Speaker 1: underlying dynamism with a large or largeish internal market. But 780 00:47:14,080 --> 00:47:16,759 Speaker 1: you know, governance has been an issue, Politics has been 781 00:47:16,800 --> 00:47:20,080 Speaker 1: an issue. It's very unusual that you get this mixture 782 00:47:20,440 --> 00:47:24,319 Speaker 1: that you get in China of top down government that 783 00:47:25,040 --> 00:47:27,960 Speaker 1: where you may hate the politics, you may hate, you know, 784 00:47:28,040 --> 00:47:31,200 Speaker 1: the lack of individual freedom, but where at the local 785 00:47:31,280 --> 00:47:35,120 Speaker 1: level the ability to be an entrepreneur generate profits for 786 00:47:35,160 --> 00:47:37,880 Speaker 1: yourself is really quite intense. I don't think there's anywhere 787 00:47:37,880 --> 00:47:40,080 Speaker 1: else in the world like it that also has the 788 00:47:40,160 --> 00:47:44,080 Speaker 1: ability to put the infrastructure that enables you know, economic 789 00:47:44,080 --> 00:47:48,240 Speaker 1: growth and wealth creation at the same pace. I obviously 790 00:47:48,280 --> 00:47:52,640 Speaker 1: can't think of another parallel quite quite fascinating. All right, 791 00:47:52,680 --> 00:47:55,479 Speaker 1: so let's jump to our favorite questions are speed round. 792 00:47:55,520 --> 00:47:57,880 Speaker 1: These are what we ask all our guests and hopefully 793 00:47:57,880 --> 00:48:02,600 Speaker 1: it provides a little inside into the the man behind 794 00:48:02,640 --> 00:48:06,600 Speaker 1: the portfolio. Um, tell us what you're streaming these days? 795 00:48:06,640 --> 00:48:10,720 Speaker 1: What are you watching on Netflix or Amazon or whatever 796 00:48:10,800 --> 00:48:13,640 Speaker 1: podcast you might be listening to? What what's keeping you 797 00:48:13,800 --> 00:48:18,879 Speaker 1: entertained during lockdown? Um? Well, probably enough, the same things 798 00:48:18,880 --> 00:48:20,960 Speaker 1: that keep me entertained, not during lockdown. I mean, it's 799 00:48:20,960 --> 00:48:23,359 Speaker 1: a terrible thing to say, but you know, I live 800 00:48:23,400 --> 00:48:26,640 Speaker 1: in the countryside in Buck's County, Pennsylvania, and I've got 801 00:48:27,040 --> 00:48:28,960 Speaker 1: a large house, plenty of room for me and my wife. 802 00:48:29,320 --> 00:48:32,239 Speaker 1: We miss our grandkids, but our life is mostly unchanged, 803 00:48:32,680 --> 00:48:34,680 Speaker 1: our idea of an exciting times to sit in our 804 00:48:34,760 --> 00:48:37,719 Speaker 1: arm chairs with our kindles. So but I did miss 805 00:48:37,760 --> 00:48:39,719 Speaker 1: podcast and actually, in the last couple of weeks, which 806 00:48:39,760 --> 00:48:41,000 Speaker 1: I used to listen to in the car on the 807 00:48:41,040 --> 00:48:43,279 Speaker 1: way to it work. So in the last couple of 808 00:48:43,280 --> 00:48:45,920 Speaker 1: weeks I've started going for an hour's walk every day 809 00:48:46,200 --> 00:48:49,880 Speaker 1: and my favorite of the new Ones is the second 810 00:48:50,320 --> 00:48:56,040 Speaker 1: series by Michael Lewis Um where he's from coaching coaching Yes, 811 00:48:57,360 --> 00:49:00,319 Speaker 1: theories on refereeing. But apart from that, I'm just and too. 812 00:49:00,520 --> 00:49:03,040 Speaker 1: You know, I listened to this podcast. I listened to 813 00:49:03,120 --> 00:49:07,640 Speaker 1: Ted Sideyes, I listened to Patrick O'Shaughnessy. I listened to 814 00:49:07,719 --> 00:49:14,279 Speaker 1: the standard behavioral finance or oriented type financial ones. I 815 00:49:14,360 --> 00:49:17,720 Speaker 1: also listened to ones about sports, and I'm particularly interested 816 00:49:17,719 --> 00:49:21,360 Speaker 1: in data analytics and football, so you know that overlap 817 00:49:21,400 --> 00:49:25,880 Speaker 1: between sports and investment that I find so fascinating. I 818 00:49:25,920 --> 00:49:28,840 Speaker 1: don't watch very much Netflix, don't watch very much TV. 819 00:49:29,200 --> 00:49:31,200 Speaker 1: And it's not because I don't like it. I actually 820 00:49:31,200 --> 00:49:34,280 Speaker 1: love it. I haven't got the self discipline, my attention wonders, 821 00:49:34,440 --> 00:49:37,480 Speaker 1: and my kids used to get driven mad when I'd say, 822 00:49:37,600 --> 00:49:41,719 Speaker 1: who's that guy? And they have to explain. I also, 823 00:49:41,960 --> 00:49:45,840 Speaker 1: that's very funny bias against net Netflix for behavioral reasons. 824 00:49:45,880 --> 00:49:47,920 Speaker 1: So it's an interesting thing. I used to love the 825 00:49:48,000 --> 00:49:51,560 Speaker 1: idea of Netflix when you used to get posted DVDs 826 00:49:51,680 --> 00:49:53,800 Speaker 1: and I was one of these people who, you know, 827 00:49:53,840 --> 00:49:57,040 Speaker 1: would order my DVDs on a Sunday and I'd order, 828 00:49:57,120 --> 00:50:00,560 Speaker 1: you know, nineteen sixties Strench movies with subtitles or you know, 829 00:50:00,640 --> 00:50:04,839 Speaker 1: Japanese directors again with subtitles. But on Friday night, when 830 00:50:04,840 --> 00:50:06,480 Speaker 1: it came to watching a movie, I wanted to watch 831 00:50:06,560 --> 00:50:11,759 Speaker 1: Love Actually or some romantic comedy. And again I think 832 00:50:11,920 --> 00:50:14,759 Speaker 1: you tend to see everything through behavioralized once you know 833 00:50:14,800 --> 00:50:17,680 Speaker 1: about about this. This is the classic. In the short 834 00:50:17,760 --> 00:50:19,680 Speaker 1: in the short term we want pats and sugars. That 835 00:50:19,800 --> 00:50:23,520 Speaker 1: there are long term self once fruits and vegetables. So again, 836 00:50:23,680 --> 00:50:25,759 Speaker 1: you know, in the in the short terms you want 837 00:50:25,800 --> 00:50:28,720 Speaker 1: to watch a romantic comedy, your long term stulps says, 838 00:50:28,719 --> 00:50:32,000 Speaker 1: watch something in intellectual. So I don't have as much Netflix. 839 00:50:32,239 --> 00:50:34,640 Speaker 1: The only show I've watched in the last month has 840 00:50:34,680 --> 00:50:36,640 Speaker 1: been something called The Great, which is a kind of 841 00:50:36,719 --> 00:50:41,840 Speaker 1: rather surreal mixture between kind of dark comedy about Katherine 842 00:50:41,880 --> 00:50:45,320 Speaker 1: the Great, which I think is on I forget. I 843 00:50:45,360 --> 00:50:48,520 Speaker 1: think it's on Netflix. Huh. I'll definitely check that out. 844 00:50:49,000 --> 00:50:52,440 Speaker 1: Tell us about your early mentors, who who influenced the 845 00:50:52,480 --> 00:50:58,359 Speaker 1: way your career developed, who helped shape your investing philosophy. Well, 846 00:50:59,600 --> 00:51:01,680 Speaker 1: I don't I don't mean to be I don't need 847 00:51:01,760 --> 00:51:04,359 Speaker 1: to be dismissive, but the people that I worked with 848 00:51:04,480 --> 00:51:07,120 Speaker 1: and for in the early stage of my career was 849 00:51:07,280 --> 00:51:10,920 Speaker 1: during that time when investment management was about individual genius. 850 00:51:11,000 --> 00:51:14,160 Speaker 1: It was about you know, people being smart, smarter than 851 00:51:14,160 --> 00:51:16,560 Speaker 1: other people not being you know that you had to 852 00:51:16,600 --> 00:51:19,160 Speaker 1: know more, you had to speed, be smarter, you had 853 00:51:19,200 --> 00:51:22,200 Speaker 1: to you know. It wasn't about structure and discipline. So 854 00:51:22,840 --> 00:51:25,680 Speaker 1: the people that I worked with that really were examples, 855 00:51:25,760 --> 00:51:28,359 Speaker 1: and they were great people and I enjoyed them very 856 00:51:28,400 --> 00:51:31,680 Speaker 1: much and they're treated me very very well. But everything 857 00:51:31,719 --> 00:51:34,960 Speaker 1: I learned from them we've overturned at Harding Lovena. You know, 858 00:51:34,960 --> 00:51:37,160 Speaker 1: I often say that if you look at anything about 859 00:51:37,160 --> 00:51:38,920 Speaker 1: one of those firms that I worked at, which were 860 00:51:39,160 --> 00:51:42,080 Speaker 1: successful firms, we do it the opposite at Harding Loveness. 861 00:51:42,080 --> 00:51:44,719 Speaker 1: So they were kind of negative mentors, and I don't 862 00:51:44,719 --> 00:51:48,000 Speaker 1: mean that to be rude about them. So I've very 863 00:51:48,000 --> 00:51:52,440 Speaker 1: heavily relied on book learning and what what we've learned 864 00:51:53,040 --> 00:51:57,680 Speaker 1: Hardy Lovena. And my longest standing relationship is with David Lovener, 865 00:51:57,719 --> 00:52:00,480 Speaker 1: who has been a friend of mine since the eighteen 866 00:52:01,200 --> 00:52:05,959 Speaker 1: and you know, business partner, close collaborator now for thirty years. 867 00:52:05,960 --> 00:52:08,440 Speaker 1: So David, David would deny it, but I've learned a 868 00:52:08,480 --> 00:52:12,480 Speaker 1: lot from David over the years. You mentioned you enjoy 869 00:52:12,560 --> 00:52:16,360 Speaker 1: sitting in your easy chairs with a kindle in your hand. 870 00:52:16,640 --> 00:52:18,720 Speaker 1: What what are some of the books you're reading now 871 00:52:19,120 --> 00:52:24,200 Speaker 1: and what are some of your favorite books? Um? Well, 872 00:52:24,880 --> 00:52:26,920 Speaker 1: I a lot of my favorite books will have been 873 00:52:26,920 --> 00:52:30,560 Speaker 1: mentioned on your podcast before. I do need to mention 874 00:52:30,960 --> 00:52:33,759 Speaker 1: that we are a great debt to Michael Morison. Um. 875 00:52:34,200 --> 00:52:36,000 Speaker 1: You know I often said that it's remarkable that you 876 00:52:36,000 --> 00:52:38,280 Speaker 1: can get his complete work for less than fifty bucks 877 00:52:38,600 --> 00:52:40,960 Speaker 1: and you can learn everything that I've learned in forty 878 00:52:41,040 --> 00:52:44,520 Speaker 1: years about decision making an investor. I give a shout 879 00:52:44,520 --> 00:52:47,880 Speaker 1: out to Russaou and Shoemaker their book from two thousand 880 00:52:47,960 --> 00:52:50,960 Speaker 1: and two. I think Winning Decisions, which I think is 881 00:52:50,960 --> 00:52:53,560 Speaker 1: one of the best books about decision making and doing 882 00:52:53,600 --> 00:52:56,759 Speaker 1: research and doesn't get a lot of attention. Um. I 883 00:52:56,800 --> 00:52:59,400 Speaker 1: read a lot of novels, which is very personal. The 884 00:52:59,440 --> 00:53:01,880 Speaker 1: best book I've read in the last few years, and 885 00:53:01,960 --> 00:53:04,920 Speaker 1: probably the best book I've read in my life, was 886 00:53:05,640 --> 00:53:09,279 Speaker 1: last year when I read Robert Carrow's four volume biography 887 00:53:09,480 --> 00:53:13,520 Speaker 1: of L. B. J. Which sounds daunting. I think it 888 00:53:13,600 --> 00:53:15,960 Speaker 1: must be three or four thousand pages in length. I 889 00:53:16,000 --> 00:53:17,360 Speaker 1: read it on a Kindle, So I can't tell you 890 00:53:17,400 --> 00:53:20,640 Speaker 1: exactly what it weighs, but it's a superbly written book 891 00:53:21,239 --> 00:53:25,920 Speaker 1: which with often novelistic like descriptions of, for example, life 892 00:53:26,040 --> 00:53:28,239 Speaker 1: in the Texas Hill Country in the early part of 893 00:53:28,280 --> 00:53:31,640 Speaker 1: the twentieth century. But it's much more social and political 894 00:53:31,719 --> 00:53:34,760 Speaker 1: history of the US in the first half of the 895 00:53:34,760 --> 00:53:38,200 Speaker 1: twentieth century. It's brilliant on politics, it's brilliant on the 896 00:53:38,200 --> 00:53:43,840 Speaker 1: political process. It's brilliant on corruption and the corruption of power. 897 00:53:44,440 --> 00:53:48,800 Speaker 1: But above all, the third volume, Master of the Senate 898 00:53:49,440 --> 00:53:53,680 Speaker 1: is brilliant on race and on the length that you know, 899 00:53:53,840 --> 00:53:58,800 Speaker 1: twelve senators from the South went to keep institutionalized racism 900 00:53:58,840 --> 00:54:02,000 Speaker 1: of the norm. So one book that I'm reading at 901 00:54:02,000 --> 00:54:05,120 Speaker 1: the moment is actually I've started again and I've just 902 00:54:05,239 --> 00:54:10,560 Speaker 1: finished the first volume, The Passage to Power. I think 903 00:54:10,560 --> 00:54:15,640 Speaker 1: everybody should read it's it wasn't particularly topical when I 904 00:54:15,640 --> 00:54:18,160 Speaker 1: read it, but I think it's topical now and I 905 00:54:18,160 --> 00:54:20,359 Speaker 1: thoroughly recommend everybody read it. And if you can only 906 00:54:20,360 --> 00:54:23,120 Speaker 1: bring yourself to read one, read Master of the Senate. 907 00:54:23,800 --> 00:54:26,520 Speaker 1: And on the subject of institutionalized racism, I think everybody 908 00:54:26,560 --> 00:54:30,719 Speaker 1: should read Dan Bower's book called American prison, which is 909 00:54:31,880 --> 00:54:34,560 Speaker 1: so Dan Barrow's journalist who has a political point of view. 910 00:54:34,560 --> 00:54:37,440 Speaker 1: I think he writes for Mother Jones, but he experienced 911 00:54:37,440 --> 00:54:42,359 Speaker 1: incarceration in Iran for four years and then um put 912 00:54:42,440 --> 00:54:46,919 Speaker 1: himself as a prison guard in the American penitentiary system. 913 00:54:46,960 --> 00:54:50,440 Speaker 1: And the book has this very interesting structure of observations 914 00:54:50,440 --> 00:54:55,000 Speaker 1: of the prison guard in the American penitentiary system today, 915 00:54:55,480 --> 00:54:58,919 Speaker 1: and that's appalling, as you can imagine. But every other 916 00:54:59,000 --> 00:55:01,879 Speaker 1: chapter is history of the penitentiary system, and I think 917 00:55:01,920 --> 00:55:05,080 Speaker 1: that in itself is fascinating and it gives a lot 918 00:55:05,120 --> 00:55:08,200 Speaker 1: of explanatory power as to you know, where we are 919 00:55:08,280 --> 00:55:12,960 Speaker 1: today with mass incarceration in the United States, with incarceration, 920 00:55:13,760 --> 00:55:18,520 Speaker 1: incarceration being dominated by African Americans. UM, and you know, 921 00:55:18,760 --> 00:55:22,479 Speaker 1: I find that appalling. And I think that Carrows goes 922 00:55:22,600 --> 00:55:26,640 Speaker 1: a long way to describing why racism is so institutionalized 923 00:55:26,640 --> 00:55:30,600 Speaker 1: in this country, and Dan Bowert goes to explaining how 924 00:55:30,920 --> 00:55:36,880 Speaker 1: it's reflected in our prison system. Quite quite fascinating. What 925 00:55:36,880 --> 00:55:38,960 Speaker 1: what sort of advice would you give to a recent 926 00:55:39,040 --> 00:55:46,840 Speaker 1: college graduate who was interested in a career in investment management. Well, firstly, 927 00:55:46,880 --> 00:55:50,200 Speaker 1: I'd say, don't think that you know what career, what 928 00:55:50,280 --> 00:55:52,400 Speaker 1: career you are going to be best at or have 929 00:55:52,520 --> 00:55:56,000 Speaker 1: most fun out when you're a recent college graduate, so 930 00:55:56,560 --> 00:55:58,400 Speaker 1: you know, give it a tribe, but be prepared to 931 00:55:58,560 --> 00:56:01,080 Speaker 1: give it up. I think Van Eed or David David 932 00:56:01,800 --> 00:56:04,320 Speaker 1: in Range talks a lot about about that business, a 933 00:56:04,400 --> 00:56:07,880 Speaker 1: very good book on coreer planning. But if you are 934 00:56:07,960 --> 00:56:10,759 Speaker 1: determined to be in investment investment management, I think you 935 00:56:10,800 --> 00:56:14,239 Speaker 1: have to recognize that it's the industry that is both 936 00:56:14,239 --> 00:56:17,080 Speaker 1: blessed and cursed. It's blessed by the fact that everything 937 00:56:17,120 --> 00:56:20,880 Speaker 1: is relevant. So if you're great intellectual curiosity, which I 938 00:56:20,920 --> 00:56:24,719 Speaker 1: think is necessary but not sufficient for being a good investor, 939 00:56:25,000 --> 00:56:28,640 Speaker 1: everything is relevant. So you have license to go and 940 00:56:28,680 --> 00:56:30,799 Speaker 1: find out anything anything you like. And I think that's 941 00:56:30,800 --> 00:56:33,640 Speaker 1: a wonderful thing. But it's also a curse and that 942 00:56:33,719 --> 00:56:35,680 Speaker 1: you don't know where to stop. And that's actually one 943 00:56:35,680 --> 00:56:38,840 Speaker 1: of the lessons of that Rousseau and Shoemaker book, just 944 00:56:38,960 --> 00:56:41,080 Speaker 1: finding out more. Just as the sake of finding out 945 00:56:41,120 --> 00:56:44,239 Speaker 1: more makes you feel better about individual decisions, it gives 946 00:56:44,239 --> 00:56:47,279 Speaker 1: you more confidence, but it doesn't help the accuracy or 947 00:56:47,280 --> 00:56:50,960 Speaker 1: the validity of that decision. So be careful. But the 948 00:56:50,960 --> 00:56:53,080 Speaker 1: most advice I can give you that I would give 949 00:56:53,080 --> 00:56:57,640 Speaker 1: anybody is just stay honest. Don't let anyone compromise your integrity. 950 00:56:57,800 --> 00:57:00,080 Speaker 1: You know, this is a fabulous industry to be and 951 00:57:00,160 --> 00:57:04,080 Speaker 1: I've been very, very lucky that it's My career in 952 00:57:04,200 --> 00:57:09,080 Speaker 1: time has been one where the investment industry was tiny 953 00:57:09,239 --> 00:57:12,400 Speaker 1: to where it is today where it's huge. So you know, 954 00:57:12,480 --> 00:57:14,960 Speaker 1: basically all you needed to do was to be sensible 955 00:57:15,040 --> 00:57:17,480 Speaker 1: and stay honest. And I don't know that the industry 956 00:57:17,520 --> 00:57:19,120 Speaker 1: is going to grow as much as it's grown over 957 00:57:19,160 --> 00:57:21,960 Speaker 1: the last fourty years, but I do think it's going 958 00:57:22,000 --> 00:57:24,880 Speaker 1: to be absolutely crystal just to stay honest and you 959 00:57:24,960 --> 00:57:28,120 Speaker 1: at least give yourself a good chance of capitalizing on 960 00:57:28,200 --> 00:57:32,240 Speaker 1: any success you may have. Quite quite fascinating and our 961 00:57:32,280 --> 00:57:35,320 Speaker 1: final question, what do you know about the world of 962 00:57:35,480 --> 00:57:39,120 Speaker 1: international investing today that you wish you knew when you 963 00:57:39,200 --> 00:57:44,560 Speaker 1: were first starting out over three decades ago. The importance 964 00:57:45,200 --> 00:57:48,320 Speaker 1: to me that the behavior of finance findings and or 965 00:57:48,400 --> 00:57:52,480 Speaker 1: more generated decision making findings. It's a very very different 966 00:57:52,520 --> 00:57:56,320 Speaker 1: world of investing today. You know, when when I started, 967 00:57:56,440 --> 00:57:59,400 Speaker 1: I've had a good education. Um, you know, I was 968 00:57:59,440 --> 00:58:02,560 Speaker 1: widely and I was kind of curious as a young guy, 969 00:58:03,040 --> 00:58:06,160 Speaker 1: and I didn't know anything about stocks. Nothing nobody in 970 00:58:06,200 --> 00:58:08,240 Speaker 1: my family had ever mentioned to stop, nobody had ever 971 00:58:08,320 --> 00:58:11,600 Speaker 1: owned one. I barely knew how a bank worked. You know, 972 00:58:11,720 --> 00:58:18,160 Speaker 1: today finances is finances per pervasive throughout the media and throughout, 973 00:58:18,640 --> 00:58:22,040 Speaker 1: to some extent anyway, the education system. So you know, 974 00:58:22,080 --> 00:58:24,320 Speaker 1: the world of investing is very, very different, but the 975 00:58:24,320 --> 00:58:26,200 Speaker 1: world of human beings is very much the same. And 976 00:58:26,240 --> 00:58:29,560 Speaker 1: I wish I'd known earlier on just how important it 977 00:58:29,680 --> 00:58:32,640 Speaker 1: was not to be smarter and no more than everybody, 978 00:58:32,680 --> 00:58:35,320 Speaker 1: but to be able to control your own behavior. But 979 00:58:35,440 --> 00:58:37,920 Speaker 1: partly I found it fascinating, but also I think it's 980 00:58:37,960 --> 00:58:41,320 Speaker 1: at the core of why why we've gone from being 981 00:58:41,600 --> 00:58:45,240 Speaker 1: smart people who knew a lot to being intelligent investors. 982 00:58:46,560 --> 00:58:49,200 Speaker 1: Huh makes a lot of sense. Thank you, Simon for 983 00:58:49,240 --> 00:58:52,000 Speaker 1: being so generous with your time. We have been speaking 984 00:58:52,040 --> 00:58:56,000 Speaker 1: with Simon Howard of Harding Love Nor which manages about 985 00:58:56,000 --> 00:59:00,360 Speaker 1: seventy three billion dollars. If you enjoy this conversation, well, 986 00:59:00,400 --> 00:59:05,240 Speaker 1: be sure to go to Apple, iTunes or Spotify, Overcast, 987 00:59:05,320 --> 00:59:08,400 Speaker 1: stitcher wherever your finder pod are sold, and you can 988 00:59:08,440 --> 00:59:12,120 Speaker 1: find any of the previous three hundred and fifty such 989 00:59:12,160 --> 00:59:15,760 Speaker 1: conversations we've had over the past six years. It's it's 990 00:59:15,760 --> 00:59:18,680 Speaker 1: actually this week is our six year anniversary. We love 991 00:59:18,720 --> 00:59:22,640 Speaker 1: your comments, feedback and suggestions right to us at m 992 00:59:22,680 --> 00:59:26,160 Speaker 1: IB podcast at Bloomberg dot net, Go to Apple iTunes, 993 00:59:26,200 --> 00:59:28,720 Speaker 1: give us a review. Be sure to check out my 994 00:59:28,800 --> 00:59:32,400 Speaker 1: weekly column on Bloomberg dot com slash Opinion. You can 995 00:59:32,480 --> 00:59:36,160 Speaker 1: sign up for our daily reads at Rid Halts dot com. 996 00:59:36,280 --> 00:59:39,240 Speaker 1: Follow me on Twitter at Rid Halts. I would be 997 00:59:39,280 --> 00:59:41,920 Speaker 1: remiss if I did not thank our crack staff that 998 00:59:41,960 --> 00:59:45,560 Speaker 1: helps put these conversations together each week. Maroufle is my 999 00:59:45,600 --> 00:59:50,720 Speaker 1: audio engineer. Michael Boyle is my producer. Attica val Bround 1000 00:59:51,000 --> 00:59:54,600 Speaker 1: is our project manager. Michael Batnick is the head of research. 1001 00:59:55,200 --> 00:59:58,720 Speaker 1: I'm Barry Ritults. You've been listening to Masters in Business 1002 00:59:59,120 --> 01:00:00,320 Speaker 1: on Bloomberg Video