Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg
Speaker 1: Radio this weekend. On the podcast, I have an extra
Speaker 1: special guest. His name is Simon Howett and he is
Speaker 1: the co chief investment officer at Harding Lovener, which is
Speaker 1: a firm that's been around for about forty years and
Speaker 1: manages about seventy three billion dollars. He also is the
Speaker 1: majority owner of Plymouth Argyle of football club in the
Speaker 1: uk UH. He has a fascinating background and has been
Speaker 1: running money on an international basis for many decades. He
Speaker 1: is uniquely insightful to discuss how to pick stocks, what
Speaker 1: the difference between growth and value is, and how to
Speaker 1: use both in order to identify companies most likely to
Speaker 1: perform the market. The track record of Harding Lovener's international
Speaker 1: funds has just trounced the ms c I innchmarked by
Speaker 1: two hundred and fifty basis points annually over decades. So
Speaker 1: this isn't somebody speaking theoretically. They have actually put processes
Speaker 1: to work that have allowed them to dramatically outperform with
Speaker 1: no further ado. My conversation with Simon Howett, this is
Speaker 1: Master's in Business with Barry Ridholts on Bloomberg Radio. My
Speaker 1: special guest this week is Simon Howett. He is the
Speaker 1: co chief investment officer at Harding Lovener, a firm that
Speaker 1: manages about seventy three billion dollars in assets. He is
Speaker 1: also the majority owner of Plymouth Argyle of football club,
Speaker 1: located in the UK. Simon Hallett, Welcome to Masters in Business.
Speaker 1: Thank you for having me. Very so, let's talk a
Speaker 1: little bit about your background. You earn your b A
Speaker 1: at Oxford and then you begin working in the financial
Speaker 1: services industry in London in the early nineteen eighties. Tell
Speaker 1: us about that era. It was actually the late seventies.
Speaker 1: I graduated in nineteen seventy seven and went to work
Speaker 1: for the Midland Bank, which was then one of the
Speaker 1: big four clearing banks in England. UM in the early
Speaker 1: eighties I moved to investment management financially investing, let's say
Speaker 1: in Hong Kong. In London, that was an era of
Speaker 1: high interest rates. We were just coming off to financial
Speaker 1: crisis and the mid seventies, and when I moved to
Speaker 1: Hong Kong, we were just beginning in a property collapse.
Speaker 1: I moved there in nine one and the property market
Speaker 1: collapsed in ninety. In some of that year, um the
Speaker 1: oil price was thirty two. It was about to go
Speaker 1: fall in half as well, So it was an era
Speaker 1: really of continuous crisis as far as far as I
Speaker 1: was concerned. Hong Kong in the nineteen eighties, that had
Speaker 1: to be a house a fire though, because Hong Kong
Speaker 1: was really ramping up there with a gateway to Asia,
Speaker 1: not just Japan, but China and a lot of the
Speaker 1: rest of it. What was your experiences like in Hong Kong. Well,
Speaker 1: it was the first time I've traveled anywhere other than
Speaker 1: to France, so everything about it was tremendously exciting. As
Speaker 1: you say, it was a great time to be in
Speaker 1: Hong Kong. It was a few years before the reservation
Speaker 1: began to open up, but Hong Kong itself had just
Speaker 1: had a massive expansion in population as a result of
Speaker 1: immigration from China after the misery of England in the
Speaker 1: nineteen seventies. It was just amazing to be surrounded by
Speaker 1: people who often lived in great poverty, having just arrived
Speaker 1: from China, but being left to their own devices to
Speaker 1: better their lives, almost always successfully. So you know, all
Speaker 1: the cliches about Hong Kong about it's you know that
Speaker 1: it's a culture of independence, it's a culture of trying
Speaker 1: hard to personal success were true, and I just found
Speaker 1: it tremendously exciting. So what do you make of what's
Speaker 1: been going on with Hong Kong the past few years,
Speaker 1: not only since the handover from UK, but increasingly aggressive
Speaker 1: Beijing policy towards Tanka. I find it horrifying. You know,
Speaker 1: Hong Kong was very much left to its own devices.
Speaker 1: I thought that the sign a British Joint Declaration in
Speaker 1: the mid was going to be a treaty that guaranteed
Speaker 1: the independence of Hong Kong. Clearly that's being overcome, and
Speaker 1: I think it's not going to be good for Hong
Speaker 1: Kong is a place, and I worry about the future
Speaker 1: of the people that I know who are still there
Speaker 1: and the rest of the population. I don't think it's
Speaker 1: going to be healthy for for Hong Kong. Quite interesting,
Speaker 1: So let's talk a little bit about your investing style.
Speaker 1: You're essentially your bottoms up fundamental stock picker. Since we're
Speaker 1: talking about the macro landscape, do you ignore what's going
Speaker 1: on in the background, Does it not enter the calculus
Speaker 1: or does that force you to modify the sectors and
Speaker 1: companies you're considering. No, we try very hard to ignore it.
Speaker 1: We're investment people, so you know, we're kind of curious
Speaker 1: about the world, and we're opinionates, so we have opinions
Speaker 1: about the macroeconomic environment, but we tried very hard not
Speaker 1: to let it influence our portfolios. I actually like to
Speaker 1: quite something that you wrote four or five years ago,
Speaker 1: when you're asked about the economy and what you think
Speaker 1: you know, I think you your basic answer is, you know,
Speaker 1: why would you ask me, why do you think that
Speaker 1: my forecasts have any value? And why do you think
Speaker 1: forecasts themselves have any value? And that's pretty much the
Speaker 1: view that we take. You know, the academic studies suggest
Speaker 1: there's very little correlation between let's say GDP and stock
Speaker 1: market returns. I think it's interesting to discuss, you know,
Speaker 1: why there's little covariance between GDP growth and stock market returns,
Speaker 1: but in fact this there's not um Secondly, you can't
Speaker 1: forecast GDP, so it distresses me that the financial services
Speaker 1: industry devote so many resources to try and make forecast
Speaker 1: that it inaccurate and have no bearing upon as cust
Speaker 1: customers returns. So you know, I look upon macro economic
Speaker 1: forecasting as damaging too good investment returns. So no, we don't,
Speaker 1: we don't, We don't bother with them at all. Having
Speaker 1: said that, we do think about them a little bit
Speaker 1: and thinking about expectations for how we should expect our
Speaker 1: portfolios to perform. So, you know, a good example what
Speaker 1: would be after the financial crisis, where you know, our
Speaker 1: expectations to the economy, such as they were, were that
Speaker 1: it was based upon Reinhardt and Rogoff. We thought it
Speaker 1: would be a long, hard slog to recover fully from
Speaker 1: the financial crisis. We thought that, knowing a bit about
Speaker 1: people's psychology, that they'd start the year optimistic, they end
Speaker 1: the year pessimistic, and that that would lead to more
Speaker 1: market volatility. But we thought it would be a good
Speaker 1: environment for our kind of investing in high quality, long
Speaker 1: duration growth companies, and we were We were right about that. Interestingly,
Speaker 1: we were comply wrong with our forecast of stock market volatility,
Speaker 1: and we're actually right with relying on the Reinhardt Rockoff
Speaker 1: forecast of the macro economy. So it's quite ironic that
Speaker 1: the thing that you know, we think we can't forecast
Speaker 1: at tour was the one we actually got right. I recall,
Speaker 1: I want to say it was December of oh seven
Speaker 1: that ran Hardt and Rogu came out with a short
Speaker 1: white paper that looked at five previous financial crises. Now,
Speaker 1: remember the market peaked in oh seven. To come out
Speaker 1: with something like that in two thousand and seven was
Speaker 1: um was way way ahead of its time, and that
Speaker 1: white paper not only was prescient, it became the basis
Speaker 1: of eight hundred years of this time. It's different. They
Speaker 1: really had a handle on what financial crises due to
Speaker 1: stocks and economies. Did their research really influence how you
Speaker 1: look at at the recovery from a financial crisis like
Speaker 1: OH eight or nine? Absolutely, I mean that view, but
Speaker 1: it would be a long, hard slog. Was entirely based
Speaker 1: upon their work, and I have to say that this
Speaker 1: is something that I look upon as typical of my
Speaker 1: entire career. I've been very open about things. We have
Speaker 1: relied very heavily on other people's work, on other people's
Speaker 1: academic work informing our own views. Um. You know, I
Speaker 1: always say that I haven't had an original sort in
Speaker 1: my entire career, but I've been very very good at
Speaker 1: identifying useful thoughts from other people and implementing them in investing.
Speaker 1: Rein hot Rogoff was was a classic case. You know,
Speaker 1: we read the book, book became popular, it was available
Speaker 1: for fifteen bucks on Amazon, and it helped us with
Speaker 1: our expectations and our client communications for a decade. People
Speaker 1: underestimate the power of the written word. I think it
Speaker 1: depend is mightier than the swords, and it's certainly true
Speaker 1: in the world of finance. And I think there's this
Speaker 1: relentless pursuit of originality. We all feel the pressure to
Speaker 1: be original, to be original thinkers, and I don't think
Speaker 1: it's necessary. I think, you know, there's so much good
Speaker 1: advice about how to behave how to invest out there,
Speaker 1: and what's what's the key to success in investing is
Speaker 1: taking that advice and are using it for the benefit
Speaker 1: of your clients. I couldn't possibly agree more. Let's talk
Speaker 1: a little bit about the track record that Hardy Lovener
Speaker 1: has put together. The Global Equity portfolio since inception has
Speaker 1: outperformed ms CI by two d and fifty basis points annually.
Speaker 1: That's pretty interesting. Is this still the same methodology or
Speaker 1: philosophy that was used when you joined the firm back
Speaker 1: in what was um. The philosophy has not changed, but
Speaker 1: the methods of the investment process has a lot. Our
Speaker 1: investment process today is much more structured, it's much more disciplined.
Speaker 1: We're much more objective about how we define the characteristics
Speaker 1: of the companies we followed, and the result has been
Speaker 1: a gradual shrinking of the freedom that portfolio manager has.
Speaker 1: I think that's one of the interesting things about the
Speaker 1: lessons from behavioral finance. What we've learned is that people
Speaker 1: need to control their behavior, but they find it difficult
Speaker 1: to do so. So one of my roles as co
Speaker 1: chief investment Officer and previously chief equity officer has been
Speaker 1: that I've had to set out the rules and then
Speaker 1: make sure we stick to them. Of course, that's going
Speaker 1: against the financial services culture that a portfolio manager is
Speaker 1: the top dog in an investment process, and people don't
Speaker 1: like having their freedom restricted. So the methodology has changed,
Speaker 1: and it's been a methodology that has been disciplined, it's
Speaker 1: been objective, and it's been reducing the autonomy of individuals.
Speaker 1: But the philosophy has been constant that we will focus
Speaker 1: exclusively on long duration, growth growth companies, and pay attention
Speaker 1: to the price at which there stops trade. So so
Speaker 1: let's talk a little bit about the methodology. Your firm
Speaker 1: references four qualities for a company to be a potential
Speaker 1: portfolio holding, competitive advantage, quality management, financial strength, and sustainable growth.
Speaker 1: How do you quantify these? Some of them are kind
Speaker 1: of squishy, like like quality management. How do you determine
Speaker 1: who's a quality manager or not? And is that a subjective,
Speaker 1: squishy rating or do you come up with a way
Speaker 1: to make it much more quantifiable. Yeah, the the squishi
Speaker 1: is that these four criteria isn't doubtedly the one that
Speaker 1: assess his management. And again, you know, thinking about how
Speaker 1: the process has changed over the last thirty years, we
Speaker 1: used to think we knew quality management when we saw it,
Speaker 1: and often that simply meant meant that we've met them
Speaker 1: and we like them. And you know, there's very little
Speaker 1: correlation between whether we like people and whether they're good
Speaker 1: managers of corporations on behalf of their shareholders. So you know,
Speaker 1: we are today much more active in how we assess management.
Speaker 1: And just to give a little bit of detail on
Speaker 1: that particular one, we quite early on started using cash
Speaker 1: flow return on investment based on the work of people
Speaker 1: like Michael Mobson, not just to value companies, but to
Speaker 1: assess assess the abilities of management, not just to generate
Speaker 1: free cash flow, about how they allocate it. We actually
Speaker 1: used to hold valuation system with some adjustments for our
Speaker 1: own beliefs, but we can use that to look at,
Speaker 1: for example, how management allocates capital, and for us that
Speaker 1: that's a very very important way of looking objectively at
Speaker 1: their track record. I think when you're investing for the
Speaker 1: long term in quality growth companies, obviously a lot of
Speaker 1: the value is in the future cash flows, but the
Speaker 1: past has to be some guide. You have to believe
Speaker 1: that the past is some guide to the future. So
Speaker 1: a good track record is something that we like to
Speaker 1: see and we will use that to assess management. The
Speaker 1: other aspect of high quality management for US is corporate governance,
Speaker 1: which is essentially how those high returns on capital end
Speaker 1: up with shareholders. Are they retained in the company, are
Speaker 1: they paid out as dividends, are they distributed via buybacks,
Speaker 1: or are they used to further the interests of other stakeholders,
Speaker 1: most noticeably, of course, the executives of the company. So
Speaker 1: corporate governance for us again is more than just a
Speaker 1: matter of sticking a finger in the air making a judgment.
Speaker 1: It's we have a series of checklists which have identified
Speaker 1: the factors that we think we are important in assessing
Speaker 1: overall levels of corporate governance. And I'm not going to
Speaker 1: pretend that all the companies in which we invest are perfect.
Speaker 1: One of the checklists, for example, asked questions about um
Speaker 1: record of integrity, and they will be exclusionary. So if
Speaker 1: companies don't need a minimum standards, we won't. We won't,
Speaker 1: we won't follow them. So we have got more disciplined,
Speaker 1: we have got more structures, and I think when it
Speaker 1: comes to allocating capital, we've got much more objective. But
Speaker 1: I will say that when it comes to assessing management,
Speaker 1: we also have an element of assessing their strategic vision,
Speaker 1: and that really would be from analysts making judgments, from
Speaker 1: reading transcripts, from interviewing managers and so on and so on.
Speaker 1: So the ark at Harding Lavena really has been from
Speaker 1: qualitative judgment towards objective judgment, and that that applies to
Speaker 1: the four criteria that we use as well. So so
Speaker 1: I can certainly see financial strength being totally quantifiable and
Speaker 1: even sustainable growth. You can track that over time. What
Speaker 1: about competitive advantage? That's one of those sort of Warren
Speaker 1: Buffet Mote type things that also sounds a little subjective.
Speaker 1: How do you make that less squishy? We make it
Speaker 1: less squishy by again being structured and disciplined. So we
Speaker 1: rely very heavily, not just on analyzes of competitive advantage,
Speaker 1: which is really an answer to the question what is
Speaker 1: it in this company does well that gives it an
Speaker 1: advantage in the industry in which which it competes, But
Speaker 1: we also look at the Michael Porter four forces structure
Speaker 1: of an industry to make sure that the company is
Speaker 1: operating in an industry where high margins can be protected.
Speaker 1: So it's not always objective and quantitative, but it is
Speaker 1: structured and consistent across across the various sectors and geographies
Speaker 1: in which we invest, and you know, ultimately competitive advantage
Speaker 1: is seen in high margins and strong Peschelor return on investment,
Speaker 1: which are sustainable over long periods of time. So again
Speaker 1: it's a mixture of trying to be disciplined and structured
Speaker 1: about where you're making judgments and trying to be objective
Speaker 1: about where you don't make judgments, and I think you
Speaker 1: know in some ways this is a feature of all research.
Speaker 1: We We are not ashamed that a lot of the
Speaker 1: inputs we use are backward looking, but backward the inputs
Speaker 1: are the ones that are facts subjects cause to an
Speaker 1: opinion about the value of accounting rules. I think that
Speaker 1: people have described them as opinions, not facts. But at
Speaker 1: least they're more objective than forecasts, which of course the
Speaker 1: subject to buy it, So they're doing research. Trying to
Speaker 1: value companies for us is a mixture of looking backwards
Speaker 1: for objective facts and looking forward making forecasts, but recognizing
Speaker 1: that those forecasts are subjects very heavily to buy at
Speaker 1: these quite quite interesting. So Simon, you're the majority owner
Speaker 1: of the Plymouth Argyle football club. This raises a question,
Speaker 1: why buy a soccer team? Is this an investment or
Speaker 1: a labor of love? It's certainly not an investment barrier,
Speaker 1: or if it is, it's the worst one I've ever made.
Speaker 1: It's the labor of clubs. It's not just any football club.
Speaker 1: This is the football club that I supported as a kid.
Speaker 1: I first stood on the terraces in six when I
Speaker 1: my family moved to Plymouth. So this is the team
Speaker 1: that I've been a fan of for most of my life,
Speaker 1: for fifty four years. So it's a labor of love
Speaker 1: and it's really a little bit of giving back to
Speaker 1: the community in Plymouth. The role of the football club
Speaker 1: in local communities is probably greater than sports teams in America.
Speaker 1: They're deeply embedded, they have a long history. We have
Speaker 1: a community trust which is very active doing good works.
Speaker 1: And it's important to me that Plymouth Argyle be a
Speaker 1: vehicle for me to give back to the community in
Speaker 1: which I was raised and frankly that the community that
Speaker 1: paids my education. You know, I've turned my education into
Speaker 1: you know, it's successful business that I've read the rewards
Speaker 1: off and the rate payers of Plymouth paid to my
Speaker 1: high school education and for my university education. So it's
Speaker 1: a way of giving back. And I should say that
Speaker 1: I don't like the idea that subs so entrepreneurs who
Speaker 1: make a fortune should get back. There's usually done it
Speaker 1: by selling bos and services the prices that people want
Speaker 1: to pay. It seems crazy to me that people say
Speaker 1: that Bill Gates should get back when you think of
Speaker 1: all the good that his product has done in the world,
Speaker 1: so it should be a voluntary act. But for me,
Speaker 1: you know, I generated a return on the investment that
Speaker 1: the ratepayers, the taxpayers of Plymouth pay made, and I
Speaker 1: think some payback is appropriate. But it's also so it's
Speaker 1: a happy coincidence that it's also my boyhood club. So
Speaker 1: it's been great fun. So I understand, I'm a World
Speaker 1: Cup fan. I understand generally how U K soccer clubs
Speaker 1: move up and down the different leagues. But for US
Speaker 1: ugly Americans who may not really understand first year, second yer,
Speaker 1: third year, can you give a little explanation. Lay In
Speaker 1: the US we have professional football teams, and we have
Speaker 1: college teams, we have Major League Baseball teams, and there
Speaker 1: are minor league teams and nary the twain shall meet.
Speaker 1: But UK cycer clubs they can move up and down
Speaker 1: from from league to league. Can you give that a
Speaker 1: little explanation? Sure, So leagues here are closed systems, and
Speaker 1: the divisions within a league the mostly closed systems. You know,
Speaker 1: it's very unusual for a team to move from the
Speaker 1: American League East to the American League West, so obviously
Speaker 1: has happened in the past, but so they're closed systems.
Speaker 1: Leagues in professional sports throughout the world, not just in
Speaker 1: soccer and not just in England, are much more open.
Speaker 1: So let's say that let's talk about the four divisions
Speaker 1: of English football. They're actually about a hundred divisions, but
Speaker 1: let's just talk about the top four divisions. If you
Speaker 1: think about divisions in the league being horizontal with no
Speaker 1: movements between central and western, in English football the leagues
Speaker 1: are hierarchical, so there's a progression from let's say the
Speaker 1: fourth tier up to the first tier, which is the
Speaker 1: English Premier League that people have prom really heard of.
Speaker 1: So at the end of every season, teams in the
Speaker 1: division are ranked by their results and the best show
Speaker 1: go up to the next division and the bottom shoes
Speaker 1: go down. So it's terrified. So you know, the pip
Speaker 1: in football is not just about winning the division. It's
Speaker 1: about being in the top top few, so you get
Speaker 1: promoted and avoiding being in the bottom shows so you
Speaker 1: get relegated. And getting relegated has a massive emotional impact
Speaker 1: as well as a financial impact. And you know, as
Speaker 1: as we know, losses, losses count more than gains, so
Speaker 1: in some ways the fear of relegation is greater than
Speaker 1: being glory associated with getting promoted. But it's a terrifying system.
Speaker 1: But the impact is that it makes almost every game meaningful.
Speaker 1: Loss of version applies not just to investors but the
Speaker 1: football clubs. That's that's quite fascinating. So in the US
Speaker 1: there were complaints that you know, the perennial favorites for
Speaker 1: a long time, the Dallas Cowboy Ways in football, the
Speaker 1: New York Yankees in baseball. It was the teams that
Speaker 1: spent the most money. And even with the salary cap,
Speaker 1: the big market teams had an advantage because they could
Speaker 1: attract players that potentially would earn all these marketing um
Speaker 1: and advertising endorsements. You're more likely to get that in
Speaker 1: New York or l A than you are and let's
Speaker 1: say Cleveland. How important is finances to the success of
Speaker 1: a team and is there any limitation on what the
Speaker 1: teams can spend other than how much their owners are
Speaker 1: willing to write checks for. There are limitations, but they
Speaker 1: can be got around by owners willing to write checks.
Speaker 1: So we have financial fair play rules, but they're not
Speaker 1: terribly effectively enforced, and financial fragility of clubs in the
Speaker 1: lower divisions is quite a feature of the last twenty years,
Speaker 1: many have gone bankrupts, including my own eleven years ago,
Speaker 1: almost went went out of business. So it's a very
Speaker 1: interesting question about the role of money in success though,
Speaker 1: And here's where it's like investing. You know, I mentioned
Speaker 1: that there's a lot of behavioral finance that's relevant to
Speaker 1: managing a football club, in particular when it comes to
Speaker 1: getting players. So what's clear And this sounds obvious, but
Speaker 1: it's not immediately obvious because football is a game like investing,
Speaker 1: where short term outcomes results for combination of luck and skill.
Speaker 1: But it's pretty clear that over a long long period,
Speaker 1: skill dominates luck and the most skillful players generate the
Speaker 1: best results. Also, it's a reasonably efficient market, and the
Speaker 1: most skillful players tend to cost the most, but it's
Speaker 1: not at the edge it's a completely inefficient market. And
Speaker 1: there are all sorts of things that you'd recognize from
Speaker 1: the field of behavioral finance, where people make errors in
Speaker 1: over over paying for players. So people associate good players.
Speaker 1: There's repleentative touristic people associated good players with good clubs.
Speaker 1: They assume that he's good players, he's played for a
Speaker 1: successful team, and they assume that he's a bad player
Speaker 1: if he's played for an unsuccessful team. So a player
Speaker 1: of equal ability who played for a top team will
Speaker 1: be more expensive than one who pays plays for a
Speaker 1: bottom team. So similarly, people will extrapolate it's astonishing how
Speaker 1: often a guy will come out and score an unusual
Speaker 1: number of goals for for his long term record, and
Speaker 1: then we'll get traded following, which he means reverts and
Speaker 1: that you know, the price that was paid looks to
Speaker 1: be irrelevant. So when we're thinking about managing Plymouth Harker,
Speaker 1: we're thinking very very hard about these inefficiencies in the
Speaker 1: market and how we can best use our resources. So
Speaker 1: I think that there is a role for thinking about
Speaker 1: market inefficiencies, thinking about how those inefficiencies are created by
Speaker 1: youth and behavior, and then exploiting them so that you
Speaker 1: can outperform essentially your financial resources. So is there any
Speaker 1: sort of moneyball for football yet? For for soccer? Have
Speaker 1: people come up with different ways to quantify the performance
Speaker 1: of players that perhaps are non standard and provide an
Speaker 1: edge until everyone else figures it out? To me, the
Speaker 1: moneyball for soccer is moneyball. You know, the lessons in
Speaker 1: moneyball are applicable, not just too investing. It was a
Speaker 1: book that we sent to our clients. But also also
Speaker 1: in football, and there's been a progression in the use
Speaker 1: of data analytics from baseball to basketball, where they said
Speaker 1: it could never happen, it's now kind of beginning to
Speaker 1: creep into hockey and American football the NFL. So it's
Speaker 1: it's at the very beginning stages of being used in
Speaker 1: um in soccer. And it's very very interesting to me
Speaker 1: that the two clubs that are most associated in England
Speaker 1: anyway with the use of data analytics are one very small,
Speaker 1: low budget club called Brentford, which actually in a couple
Speaker 1: of hours will know whether it's been promoted from the
Speaker 1: second tier to the Premier League, which is owned by
Speaker 1: a hedge fund manager who made his money out of
Speaker 1: sports betting, and he basically gathered data on soccer matches
Speaker 1: throughout the world and was able to assess the odds
Speaker 1: of team may beating Team B and best on it. Accordingly,
Speaker 1: so he bought Brentford and has used data analytics essentially
Speaker 1: for recruiting in the way that I was describing previously,
Speaker 1: very very effectively. At the other end of the scale,
Speaker 1: Liverpool Football Club, who at the moment are as they
Speaker 1: like to say, Champions of Everything are owned by John
Speaker 1: Henry from New England Sports Group, which is also the
Speaker 1: owner of the And there's the link straight back to
Speaker 1: Moneyball with c O Stein, you know, being Billy beings
Speaker 1: number two at the Oakland Days. So the moneyball effect,
Speaker 1: I mean people refer to the moneyball effect on football.
Speaker 1: But again what's fascinating is that it's just like as
Speaker 1: described in Moneyball, and just as I described in the
Speaker 1: changes in our investment process Harding Lubna. The use of
Speaker 1: data analytics is a way of becoming more objective in
Speaker 1: assessing players and overcoming biases in the same way that
Speaker 1: the use of objective data is a way of assessing
Speaker 1: let's saying, corporate management and overcoming your biases. But the people,
Speaker 1: the practitioners resisted, And just as Billy being described with
Speaker 1: the scouts, I've experienced with my colleagues Harding Luvna, and
Speaker 1: I'm now experiencing with football people at FORMATAGA. We don't
Speaker 1: know about these things, but actually turning them into process
Speaker 1: and applying them. Richard Sailor Michael Momson was telling me
Speaker 1: that Richards say Learn was observing at a Sports Analytic
Speaker 1: Conference recently that that everybody knew that three points is
Speaker 1: more than two points in basketball, and everybody can calculate
Speaker 1: your success rate. Yet it took the Golden State Warriors,
Speaker 1: i'd believe, to start shooting three points. You know, Larry
Speaker 1: Bird would concentrate on two points, whereas he could have
Speaker 1: increased the results for the Boston Celtics if you take
Speaker 1: a more more three point shots. So turning what we
Speaker 1: know into practice is your key competitive advantage, in my view,
Speaker 1: is not the knowledge itself. And again at our go
Speaker 1: as I'd like to say, one of the things that
Speaker 1: I think it will help us is that we have
Speaker 1: a football management team that's young, it's fairly in experience,
Speaker 1: it's very very willing to learn, so they are fully
Speaker 1: prepared to embrace data analytics in helping them recruit players.
Speaker 1: I have one last soccer question for you, and it's
Speaker 1: about Theater of the Greens, the park where the Argyles play,
Speaker 1: destroyed in World War Two by German bombers during the Blitz.
Speaker 1: How closely located is the current stadium to where the
Speaker 1: original I think it was late nineteenth century stadium was erected.
Speaker 1: It's on the same site we're we've been at home
Speaker 1: park Um since nineteen Actually, Plymouth is a naval port
Speaker 1: and Plymouth and Portsmouth are the two big naval ports
Speaker 1: on the south coast of Britain. So Plymouth was completely
Speaker 1: destroyed during the war. You know, it's very heavily bombed.
Speaker 1: And the the Argur Stadium is only a couple of
Speaker 1: miles from the city center. In fact, it's on a
Speaker 1: hill in the park and if you look out you
Speaker 1: can see the what's called Plymouth Sound, which is where
Speaker 1: the ships live. So actually it's quite funny in a
Speaker 1: not particularly funny way. We've just completely refurbished our very
Speaker 1: his or at Grandstand, which dated from the early fifties
Speaker 1: and was getting very dilapidated. And when we were doing that,
Speaker 1: one of our warriors was that we would do unexploded bombs.
Speaker 1: Luckily we didn't. Wow, that's quite amazing. Let's talk a
Speaker 1: little bit about your process. I read in an interview
Speaker 1: you did some years ago, I think it was with
Speaker 1: Kate Welling that you were quote relentlessly bottoms up. What
Speaker 1: does that mean? Relentlessly bottom up? And is that a
Speaker 1: way for investors to get better than market returns? Well,
Speaker 1: we think. So by relentlessly bottoms up, I mean that
Speaker 1: we don't allow beliefs and our forecasts or other people's
Speaker 1: forecasts about the macro economic environment to effect stop selection
Speaker 1: or portfolio construction. So, as I said before, we do
Speaker 1: let it. We do think about the macro economic environment
Speaker 1: and how we should expect our portfolios to behave in
Speaker 1: certain regimes. But our core belief is that I focusing
Speaker 1: on high quality companies that can grow their own ins
Speaker 1: over long periods of time, and paying attention to the
Speaker 1: price you pay for them, you're going to generate reasonable
Speaker 1: returns that have a good probability of being in a
Speaker 1: set of the market if you can control poor investing behavior.
Speaker 1: We believe that there's a difference between price and value,
Speaker 1: and that price converges on value over time, but that
Speaker 1: that convergence is at an unpredictable pace. We also believe
Speaker 1: that it's important to assess value, but that it's very,
Speaker 1: very difficult. We all know that the value of security
Speaker 1: is the discounting present value of the cashalists associated, where
Speaker 1: the appropriate rate for discounting as some combination of risk
Speaker 1: free rate and equity wrist premium. But we don't really
Speaker 1: know what the proper rest free rate is, or what
Speaker 1: the proper equity risk premium is. Let alone can we
Speaker 1: accurately forecast cash flows. So assessing value is very, very difficult,
Speaker 1: but we think we have to do it. Always reminds
Speaker 1: me of that line from ken Arrow about his weather
Speaker 1: forecast during World War Two when he told the general
Speaker 1: his weather forecasts were useless and he should ignore them,
Speaker 1: and the general staff told ken Arrow that the general
Speaker 1: knew that his forecasts were useless, but he needed them
Speaker 1: for planning purposes. So, you know, we recognize that our
Speaker 1: valuations are inaccurate, but we need them. And our essential
Speaker 1: belief is that if you get the valuation wrong and
Speaker 1: therefore the price you pay for a company is too high,
Speaker 1: that growth will fail you out and give you a
Speaker 1: return over a long holding period. So that that's why
Speaker 1: we want growth, That's why that's how we think about value.
Speaker 1: And then quality for us is partly a function of
Speaker 1: our personalities. We tend to be rather conservative risk reverse people,
Speaker 1: and you know, we recognize that if a return is
Speaker 1: minus a d percent in any series, then your long
Speaker 1: term return is going to be zero. So for us,
Speaker 1: high quality means you know something about high margins. It
Speaker 1: also means about ability to send those margins. It means
Speaker 1: something about management and corporate governance, as we've discussed, But essentially,
Speaker 1: it means that the riskiness in a company is relatively
Speaker 1: low and we're not going to get scared out of
Speaker 1: setting it at the wrong time. What we didn't recognize
Speaker 1: thirty years ago when the firm started was that quality
Speaker 1: was a factor that was going to be recognized by
Speaker 1: the academics as a permanent or allegedly permanent source of return.
Speaker 1: We just thought it was something that appealed to us
Speaker 1: and would help us generate the returns that we needed
Speaker 1: for our clients. So you guys were farmer French before
Speaker 1: farmer French discovered quality. That's that's kind of interesting. Let's
Speaker 1: stick with the topic of growth. How do you define
Speaker 1: sustainable growth and how can you identify that in advance.
Speaker 1: It's easy to say, you look at how much Amazon
Speaker 1: and Google have grown their earnings for the past twenty years,
Speaker 1: but how do you do that in two thousand and
Speaker 1: two or two thousand and ten looking out a couple
Speaker 1: of decades. Well, we didn't, you know. Now, we we
Speaker 1: invest on the kind of spectrum from value to growth.
Speaker 1: And at one end of the spectrum, deep value is
Speaker 1: buying companies, you know, the kind of Ben Graham security
Speaker 1: analysis way where you're getting you know, you're paying pennies
Speaker 1: in the pound or cents in the dollar for assets.
Speaker 1: And at the other end, high growth is where a
Speaker 1: company goes public with just a great idea. For us,
Speaker 1: growth is the mixture of quality and growth is neither
Speaker 1: at the extreme of one end nor at the extreme
Speaker 1: of the growth end. So we do own the companies
Speaker 1: such as Amazon which don't have earnings, but they have
Speaker 1: massive cash flows, but we haven't earned it for twenty years.
Speaker 1: I think we've earned it for several years, but not
Speaker 1: not several decades. So no, if companies just have a
Speaker 1: bright idea, we're not going to be able to forecast
Speaker 1: and we're going to say they're not going to meet
Speaker 1: our financial strength criterion, where financial strength doesn't just mean
Speaker 1: low leverage, but it means having access to capital in
Speaker 1: a way that sustained. And we look upon bank capital
Speaker 1: as being rather volatile. Let's say, you know, there's the
Speaker 1: old story about a bank, bank or something who lends you,
Speaker 1: lends you an umbrella when the sunshine takes it away
Speaker 1: when it starts to rain. I think there's an element
Speaker 1: of truth in there. So we like companies that are
Speaker 1: relatively that have financial strength of generating their own cash flow,
Speaker 1: or at least have sufficient reserves to tide them over
Speaker 1: the time when they're going to be generating cash flows.
Speaker 1: But look, this is we So we tend not to
Speaker 1: try to identify the massively fast growing companies, but to
Speaker 1: generate high returns, and to generate the type of returns
Speaker 1: we've we've generated over three decades. You don't need to
Speaker 1: have port photos that are exclusively in those kinds of
Speaker 1: companies that they've been very fashionable over the last two
Speaker 1: years and particularly over the last three or four months.
Speaker 1: But the classic company for us is I always say
Speaker 1: in Nest Late. We've owned nest Late for thirty years.
Speaker 1: It never um very rarely grows earnings in more than
Speaker 1: fifteen He usually grows earnings at seven or eight percent um.
Speaker 1: It reinvests its cash flows in the thirty years. Annual
Speaker 1: thirty years, the annualized returns on Nest Late are about,
Speaker 1: you know, massively more than our portfolios, by the way,
Speaker 1: and much more than the market. So it's that ability
Speaker 1: to compound reasonable growth over long periods of time that
Speaker 1: never gets dramatically over priced in the market. And it's
Speaker 1: really where the core of our returns have been. And
Speaker 1: again it comes back to behavior behavioral issues. One of
Speaker 1: our clients asked one of my colleagues once why we
Speaker 1: should pay us an investment teed for thirty years to
Speaker 1: just sit on nest late and my my colleagues answer
Speaker 1: was what you wouldn't have done. And I think that
Speaker 1: restraint in behavior whenever he's yelling at you to trade,
Speaker 1: trade trade has been a key to our success. Our
Speaker 1: holding period is over five years and that's consistent across
Speaker 1: all our strategies. You know. So for us, successful investing
Speaker 1: is Charlie Mander said, it is a matter of finding
Speaker 1: a bunch of good companies and sitting on your behind
Speaker 1: trouble as most people can't sit on there behind for
Speaker 1: so long. Yeah, to say the very least. So let's
Speaker 1: talk a little bit about the current macro environments, which
Speaker 1: is somewhat unique in in at least the past centuries
Speaker 1: investing history. I guess you have to go back to
Speaker 1: to find something similar. How do you look at the
Speaker 1: pandemic the lockdown, how well certain countries like South Korea
Speaker 1: or Japan or Germany have managed it, and how poorly
Speaker 1: certain countries like the US or Brazil have been managing it.
Speaker 1: Does that impact where you think about putting capital or
Speaker 1: the type of companies you might want to investment in
Speaker 1: m in the short term. When the pandemic hit and
Speaker 1: it looked like we were possibly going to be tasting
Speaker 1: our depression, we did do a kind of relook at
Speaker 1: all the companies in our portfolio to make sure that
Speaker 1: they had the financial strength, just to double check that
Speaker 1: they had the financial strength to withstand a period of
Speaker 1: let's say two years of zero positive cashlows, so that
Speaker 1: that was one immediate impact. In the longer term, I
Speaker 1: guess for us, the issue is about valuation and how
Speaker 1: we should think about interest rates approaching the zero bound.
Speaker 1: You know, as I mentioned, we do care about price,
Speaker 1: We do calculate value, and interest rates that are closed
Speaker 1: to zero do very strange things for value, particularly, do
Speaker 1: strange things for the value of growth of growth stops.
Speaker 1: And I think that part of the justification for what
Speaker 1: we've seen happened in market since the pandemic really took
Speaker 1: hold has been about you know, the revaluation of cash
Speaker 1: flows that many many years into the future. But you know,
Speaker 1: you know perfectly well and your listeners will understand the
Speaker 1: base of the arithmetic that when interest rates to zero,
Speaker 1: you're indifferent between a cash flow pash flow now and
Speaker 1: a cash flow in the future. The difference, of course,
Speaker 1: is in riskiness. The actual value if you can if
Speaker 1: you can poecast it will be will be the same.
Speaker 1: So we we've seen this massive revaluation of growth stops.
Speaker 1: So I had to say, I think that to some extent,
Speaker 1: that's the post hoc narrative that's woven around um you
Speaker 1: know what what In many ways ways there's aroundomness. You know,
Speaker 1: we're extraordinarily good producing stories to explain something that's already happened.
Speaker 1: Yet those same stories that tend to have no predicted value. So,
Speaker 1: you know, I thought it was interesting as we think
Speaker 1: about the value of growth stops and the relationship between
Speaker 1: price and value. Paper that I think hu R came
Speaker 1: out with a month or so ago looking at the
Speaker 1: influence of interest rates on the whole value growth dichotomy,
Speaker 1: and they found that value stops did not respond to
Speaker 1: higher interest rates. As we all fear so you know,
Speaker 1: we are thinking about the current economic environment, we're thinking
Speaker 1: about the impact with the pandemic, but we are apart
Speaker 1: from no just checking our belts embraces, we haven't taken
Speaker 1: any action. Quite fascinating. So looking at value, looking at
Speaker 1: international over the past decade, this is both before the
Speaker 1: pandemic and in the recovery since the markets bottomed in
Speaker 1: at the end of the first quarter, value has been
Speaker 1: getting trounched by growth. Growth is the big winner, and
Speaker 1: the US has more or lessment beating not only emerging
Speaker 1: markets but developed x US. Do you see that continuing?
Speaker 1: What what is more likely to reverse the past decade?
Speaker 1: Growth beating value or the US beating international. Well, we're
Speaker 1: you know, we're global, we're global investors, and we're global
Speaker 1: growth investors. So I want growth to out the form
Speaker 1: and I want the world to do at least well
Speaker 1: relative to the US. So I'm hopelessly biased, and I
Speaker 1: must say that over my now forty year career, my
Speaker 1: biggest flaw that I recognized quite early but didn't understand
Speaker 1: what the reasons. My biggest flaw is that, um yeah,
Speaker 1: I'm very optimistic about the future, but I'm very pessimistic
Speaker 1: about that the current and we know we now know
Speaker 1: from the kind of behavior or evolutionists. Why why Why
Speaker 1: that is that all of us are risk averse about
Speaker 1: the present and risk takes about the future. So again
Speaker 1: I find the ability to time these things zero. So
Speaker 1: my my guts tell me, and I have very little
Speaker 1: confidence in my guts to be worn, is that the
Speaker 1: rest of the world will turn around relative to the
Speaker 1: US before growth turns around relatives to value. And the
Speaker 1: reason is that I do think that the value grow
Speaker 1: of things at least something to do with the economic
Speaker 1: cycle and interest rates, and I think that the economic
Speaker 1: cycle is poor. I think that for obvious reasons, and
Speaker 1: I think that interest rates is going to stay lower
Speaker 1: for longer, which is, by the way, it's something that
Speaker 1: we've believed without too much conviction since the financial crisis.
Speaker 1: So you know, once again, the pandemic is revealed as
Speaker 1: continuing or accelerating trends that were already in place, which
Speaker 1: is an interesting issue when it comes to the rest
Speaker 1: of the world versus the US. I think one of
Speaker 1: the issues that the US has had, of the U
Speaker 1: S stock market or publicly traded stock market has had,
Speaker 1: is that many of the world's great growth companies are Americans,
Speaker 1: and increasingly they're they're what's driven overall market aggregates. So
Speaker 1: it's important to note that things like American small caps
Speaker 1: have also done pretty well over the last few years.
Speaker 1: So I think what we're going to see is that
Speaker 1: the broad market in the US will underperform the broad
Speaker 1: market outside the US, but that we may well continue
Speaker 1: to see the dominance and some of these big market
Speaker 1: cap cap names. But I have to say at some point,
Speaker 1: it's just a gut field that you know, it's been
Speaker 1: down so long it feels like up to me. So
Speaker 1: let me ask you a quick question about emerging markets.
Speaker 1: When you first started e M was a lot of
Speaker 1: materials and energy. Today that's transition to consumer brands and
Speaker 1: big Chinese technology companies. Talk about this transition a little
Speaker 1: bit and tell us what it might mean for investors
Speaker 1: going forward. I think it's for investors, it's a little
Speaker 1: bit dangerous, and it's something that we're worrying about at
Speaker 1: the moment and trying to formulate policies. You know, the
Speaker 1: the If you want to diversified global emerging market portfolio,
Speaker 1: you have to be careful at this stage because Chinese
Speaker 1: stocks dominate the market benchmarks, and the direction is that
Speaker 1: they're going to come to dominate it even more. So
Speaker 1: we're already at over and it looks like we're headed
Speaker 1: to towards sixties six five maybe even as the Chinese
Speaker 1: market that is available to foreigners invests in the benchmarks
Speaker 1: continues to broaden and deepen. So I think that for
Speaker 1: investors you have to be very careful about, you know,
Speaker 1: how you consider a diversified emerging market exposure. We're very
Speaker 1: much at the stage that we were at in Japan
Speaker 1: in the late eighties, where Japan dominated the non US
Speaker 1: bench marks. At one point, the Japanese market was six
Speaker 1: of six five percent. I think of the non US
Speaker 1: equity in debt and of the Japanese market, about a
Speaker 1: quarter was Japanese banks, which were poorly managed and trading
Speaker 1: at fifteen times book value. So a diversified exposure to
Speaker 1: non US markets was a very risky one. You know,
Speaker 1: I think that there are parallels with the dominance of
Speaker 1: China in the emerging market benchmarks, but they're not you know,
Speaker 1: his history, Rymes, it doesn't it doesn't repeat itself. One
Speaker 1: difference is that Chinese stops are not dramatically over priced
Speaker 1: as they were in Japan in the late So you know,
Speaker 1: a lot of what's happened in China for China to
Speaker 1: become such a large part of the benchmark hasn't been
Speaker 1: through price rising crisis rising. It's been through you more
Speaker 1: opportunities for investors, and that that's actually something that we've
Speaker 1: tried to take advantage of our hard in Luve America
Speaker 1: last two years. So I think that transition is important
Speaker 1: for investors when they're thinking about the riskiness of global
Speaker 1: emerging markets. What what that transition actually means for emerging
Speaker 1: markets is a much more difficult question, I think, And
Speaker 1: I just note that, you know, back in the early eighties,
Speaker 1: when I started investing in emerging markets before they were
Speaker 1: actually called emerging markets, you're looking at companies like Malaysia,
Speaker 1: the Philippines by the late eighties, Indonesia, but outside of
Speaker 1: Southeast Asia, it was South Africa, and you were just
Speaker 1: beginning to invest in a couple of Latin American countries,
Speaker 1: and we all thought of emerging markets as being warrants
Speaker 1: on the West. You know that if U s GDP
Speaker 1: grew a little bit more than expected, emerging markets would
Speaker 1: sort and obviously it was resources and resource consumptions that
Speaker 1: was the the common thread that tied the two together.
Speaker 1: We hoped in the two thousands that the rise of
Speaker 1: the emerging market middle class would mean that emerging markets
Speaker 1: would be less solitile, that they'd be less financially leveraged,
Speaker 1: and that the rise of spending of the expense of
Speaker 1: consumption would be helpful in broadening exposure to non non commodities.
Speaker 1: But that was all turned over with the rise of
Speaker 1: China and the massively rapid industrialization of China, and instead
Speaker 1: of the West being the common thread to commodities that
Speaker 1: drove the emerging markets, it was China. So you know,
Speaker 1: we haven't really seen the broadening of emerging markets that
Speaker 1: we'd hoped, we'd hope to see. I think that we
Speaker 1: are beginning to see it. I think that it will.
Speaker 1: It is something that's still still on become, but that
Speaker 1: the rise of China has to some extent masked what's
Speaker 1: happening elsewhere. But at the moment, you know, with the
Speaker 1: pandemic coming on, I think that you know, it's going
Speaker 1: to be a while before we see the good values
Speaker 1: that the apparent in some of the consumption stops in
Speaker 1: emerging markets being turned into stock market returns. So I
Speaker 1: have to get to my speed round questions. But before
Speaker 1: I do, a quick question. Outside of China, you mentioned Malaysia,
Speaker 1: What other countries are intriguing, India, Vietnam, Turkey? Does any
Speaker 1: specific country call out as well? This could be the
Speaker 1: If China is the new US, what's the new China.
Speaker 1: I've always thought that it would be Vietnam. You know,
Speaker 1: I first went to Vietnam to do investment work over
Speaker 1: twenty years ago, and I've followed it. It's got a
Speaker 1: large population, it's got a lot of the characteristics of
Speaker 1: underlying dynamism with a large or largeish internal market. But
Speaker 1: you know, governance has been an issue, Politics has been
Speaker 1: an issue. It's very unusual that you get this mixture
Speaker 1: that you get in China of top down government that
Speaker 1: where you may hate the politics, you may hate, you know,
Speaker 1: the lack of individual freedom, but where at the local
Speaker 1: level the ability to be an entrepreneur generate profits for
Speaker 1: yourself is really quite intense. I don't think there's anywhere
Speaker 1: else in the world like it that also has the
Speaker 1: ability to put the infrastructure that enables you know, economic
Speaker 1: growth and wealth creation at the same pace. I obviously
Speaker 1: can't think of another parallel quite quite fascinating. All right,
Speaker 1: so let's jump to our favorite questions are speed round.
Speaker 1: These are what we ask all our guests and hopefully
Speaker 1: it provides a little inside into the the man behind
Speaker 1: the portfolio. Um, tell us what you're streaming these days?
Speaker 1: What are you watching on Netflix or Amazon or whatever
Speaker 1: podcast you might be listening to? What what's keeping you
Speaker 1: entertained during lockdown? Um? Well, probably enough, the same things
Speaker 1: that keep me entertained, not during lockdown. I mean, it's
Speaker 1: a terrible thing to say, but you know, I live
Speaker 1: in the countryside in Buck's County, Pennsylvania, and I've got
Speaker 1: a large house, plenty of room for me and my wife.
Speaker 1: We miss our grandkids, but our life is mostly unchanged,
Speaker 1: our idea of an exciting times to sit in our
Speaker 1: arm chairs with our kindles. So but I did miss
Speaker 1: podcast and actually, in the last couple of weeks, which
Speaker 1: I used to listen to in the car on the
Speaker 1: way to it work. So in the last couple of
Speaker 1: weeks I've started going for an hour's walk every day
Speaker 1: and my favorite of the new Ones is the second
Speaker 1: series by Michael Lewis Um where he's from coaching coaching Yes,
Speaker 1: theories on refereeing. But apart from that, I'm just and too.
Speaker 1: You know, I listened to this podcast. I listened to
Speaker 1: Ted Sideyes, I listened to Patrick O'Shaughnessy. I listened to
Speaker 1: the standard behavioral finance or oriented type financial ones. I
Speaker 1: also listened to ones about sports, and I'm particularly interested
Speaker 1: in data analytics and football, so you know that overlap
Speaker 1: between sports and investment that I find so fascinating. I
Speaker 1: don't watch very much Netflix, don't watch very much TV.
Speaker 1: And it's not because I don't like it. I actually
Speaker 1: love it. I haven't got the self discipline, my attention wonders,
Speaker 1: and my kids used to get driven mad when I'd say,
Speaker 1: who's that guy? And they have to explain. I also,
Speaker 1: that's very funny bias against net Netflix for behavioral reasons.
Speaker 1: So it's an interesting thing. I used to love the
Speaker 1: idea of Netflix when you used to get posted DVDs
Speaker 1: and I was one of these people who, you know,
Speaker 1: would order my DVDs on a Sunday and I'd order,
Speaker 1: you know, nineteen sixties Strench movies with subtitles or you know,
Speaker 1: Japanese directors again with subtitles. But on Friday night, when
Speaker 1: it came to watching a movie, I wanted to watch
Speaker 1: Love Actually or some romantic comedy. And again I think
Speaker 1: you tend to see everything through behavioralized once you know
Speaker 1: about about this. This is the classic. In the short
Speaker 1: in the short term we want pats and sugars. That
Speaker 1: there are long term self once fruits and vegetables. So again,
Speaker 1: you know, in the in the short terms you want
Speaker 1: to watch a romantic comedy, your long term stulps says,
Speaker 1: watch something in intellectual. So I don't have as much Netflix.
Speaker 1: The only show I've watched in the last month has
Speaker 1: been something called The Great, which is a kind of
Speaker 1: rather surreal mixture between kind of dark comedy about Katherine
Speaker 1: the Great, which I think is on I forget. I
Speaker 1: think it's on Netflix. Huh. I'll definitely check that out.
Speaker 1: Tell us about your early mentors, who who influenced the
Speaker 1: way your career developed, who helped shape your investing philosophy. Well,
Speaker 1: I don't I don't mean to be I don't need
Speaker 1: to be dismissive, but the people that I worked with
Speaker 1: and for in the early stage of my career was
Speaker 1: during that time when investment management was about individual genius.
Speaker 1: It was about you know, people being smart, smarter than
Speaker 1: other people not being you know that you had to
Speaker 1: know more, you had to speed, be smarter, you had
Speaker 1: to you know. It wasn't about structure and discipline. So
Speaker 1: the people that I worked with that really were examples,
Speaker 1: and they were great people and I enjoyed them very
Speaker 1: much and they're treated me very very well. But everything
Speaker 1: I learned from them we've overturned at Harding Lovena. You know,
Speaker 1: I often say that if you look at anything about
Speaker 1: one of those firms that I worked at, which were
Speaker 1: successful firms, we do it the opposite at Harding Loveness.
Speaker 1: So they were kind of negative mentors, and I don't
Speaker 1: mean that to be rude about them. So I've very
Speaker 1: heavily relied on book learning and what what we've learned
Speaker 1: Hardy Lovena. And my longest standing relationship is with David Lovener,
Speaker 1: who has been a friend of mine since the eighteen
Speaker 1: and you know, business partner, close collaborator now for thirty years.
Speaker 1: So David, David would deny it, but I've learned a
Speaker 1: lot from David over the years. You mentioned you enjoy
Speaker 1: sitting in your easy chairs with a kindle in your hand.
Speaker 1: What what are some of the books you're reading now
Speaker 1: and what are some of your favorite books? Um? Well,
Speaker 1: I a lot of my favorite books will have been
Speaker 1: mentioned on your podcast before. I do need to mention
Speaker 1: that we are a great debt to Michael Morison. Um.
Speaker 1: You know I often said that it's remarkable that you
Speaker 1: can get his complete work for less than fifty bucks
Speaker 1: and you can learn everything that I've learned in forty
Speaker 1: years about decision making an investor. I give a shout
Speaker 1: out to Russaou and Shoemaker their book from two thousand
Speaker 1: and two. I think Winning Decisions, which I think is
Speaker 1: one of the best books about decision making and doing
Speaker 1: research and doesn't get a lot of attention. Um. I
Speaker 1: read a lot of novels, which is very personal. The
Speaker 1: best book I've read in the last few years, and
Speaker 1: probably the best book I've read in my life, was
Speaker 1: last year when I read Robert Carrow's four volume biography
Speaker 1: of L. B. J. Which sounds daunting. I think it
Speaker 1: must be three or four thousand pages in length. I
Speaker 1: read it on a Kindle, So I can't tell you
Speaker 1: exactly what it weighs, but it's a superbly written book
Speaker 1: which with often novelistic like descriptions of, for example, life
Speaker 1: in the Texas Hill Country in the early part of
Speaker 1: the twentieth century. But it's much more social and political
Speaker 1: history of the US in the first half of the
Speaker 1: twentieth century. It's brilliant on politics, it's brilliant on the
Speaker 1: political process. It's brilliant on corruption and the corruption of power.
Speaker 1: But above all, the third volume, Master of the Senate
Speaker 1: is brilliant on race and on the length that you know,
Speaker 1: twelve senators from the South went to keep institutionalized racism
Speaker 1: of the norm. So one book that I'm reading at
Speaker 1: the moment is actually I've started again and I've just
Speaker 1: finished the first volume, The Passage to Power. I think
Speaker 1: everybody should read it's it wasn't particularly topical when I
Speaker 1: read it, but I think it's topical now and I
Speaker 1: thoroughly recommend everybody read it. And if you can only
Speaker 1: bring yourself to read one, read Master of the Senate.
Speaker 1: And on the subject of institutionalized racism, I think everybody
Speaker 1: should read Dan Bower's book called American prison, which is
Speaker 1: so Dan Barrow's journalist who has a political point of view.
Speaker 1: I think he writes for Mother Jones, but he experienced
Speaker 1: incarceration in Iran for four years and then um put
Speaker 1: himself as a prison guard in the American penitentiary system.
Speaker 1: And the book has this very interesting structure of observations
Speaker 1: of the prison guard in the American penitentiary system today,
Speaker 1: and that's appalling, as you can imagine. But every other
Speaker 1: chapter is history of the penitentiary system, and I think
Speaker 1: that in itself is fascinating and it gives a lot
Speaker 1: of explanatory power as to you know, where we are
Speaker 1: today with mass incarceration in the United States, with incarceration,
Speaker 1: incarceration being dominated by African Americans. UM, and you know,
Speaker 1: I find that appalling. And I think that Carrows goes
Speaker 1: a long way to describing why racism is so institutionalized
Speaker 1: in this country, and Dan Bowert goes to explaining how
Speaker 1: it's reflected in our prison system. Quite quite fascinating. What
Speaker 1: what sort of advice would you give to a recent
Speaker 1: college graduate who was interested in a career in investment management. Well, firstly,
Speaker 1: I'd say, don't think that you know what career, what
Speaker 1: career you are going to be best at or have
Speaker 1: most fun out when you're a recent college graduate, so
Speaker 1: you know, give it a tribe, but be prepared to
Speaker 1: give it up. I think Van Eed or David David
Speaker 1: in Range talks a lot about about that business, a
Speaker 1: very good book on coreer planning. But if you are
Speaker 1: determined to be in investment investment management, I think you
Speaker 1: have to recognize that it's the industry that is both
Speaker 1: blessed and cursed. It's blessed by the fact that everything
Speaker 1: is relevant. So if you're great intellectual curiosity, which I
Speaker 1: think is necessary but not sufficient for being a good investor,
Speaker 1: everything is relevant. So you have license to go and
Speaker 1: find out anything anything you like. And I think that's
Speaker 1: a wonderful thing. But it's also a curse and that
Speaker 1: you don't know where to stop. And that's actually one
Speaker 1: of the lessons of that Rousseau and Shoemaker book, just
Speaker 1: finding out more. Just as the sake of finding out
Speaker 1: more makes you feel better about individual decisions, it gives
Speaker 1: you more confidence, but it doesn't help the accuracy or
Speaker 1: the validity of that decision. So be careful. But the
Speaker 1: most advice I can give you that I would give
Speaker 1: anybody is just stay honest. Don't let anyone compromise your integrity.
Speaker 1: You know, this is a fabulous industry to be and
Speaker 1: I've been very, very lucky that it's My career in
Speaker 1: time has been one where the investment industry was tiny
Speaker 1: to where it is today where it's huge. So you know,
Speaker 1: basically all you needed to do was to be sensible
Speaker 1: and stay honest. And I don't know that the industry
Speaker 1: is going to grow as much as it's grown over
Speaker 1: the last fourty years, but I do think it's going
Speaker 1: to be absolutely crystal just to stay honest and you
Speaker 1: at least give yourself a good chance of capitalizing on
Speaker 1: any success you may have. Quite quite fascinating and our
Speaker 1: final question, what do you know about the world of
Speaker 1: international investing today that you wish you knew when you
Speaker 1: were first starting out over three decades ago. The importance
Speaker 1: to me that the behavior of finance findings and or
Speaker 1: more generated decision making findings. It's a very very different
Speaker 1: world of investing today. You know, when when I started,
Speaker 1: I've had a good education. Um, you know, I was
Speaker 1: widely and I was kind of curious as a young guy,
Speaker 1: and I didn't know anything about stocks. Nothing nobody in
Speaker 1: my family had ever mentioned to stop, nobody had ever
Speaker 1: owned one. I barely knew how a bank worked. You know,
Speaker 1: today finances is finances per pervasive throughout the media and throughout,
Speaker 1: to some extent anyway, the education system. So you know,
Speaker 1: the world of investing is very, very different, but the
Speaker 1: world of human beings is very much the same. And
Speaker 1: I wish I'd known earlier on just how important it
Speaker 1: was not to be smarter and no more than everybody,
Speaker 1: but to be able to control your own behavior. But
Speaker 1: partly I found it fascinating, but also I think it's
Speaker 1: at the core of why why we've gone from being
Speaker 1: smart people who knew a lot to being intelligent investors.
Speaker 1: Huh makes a lot of sense. Thank you, Simon for
Speaker 1: being so generous with your time. We have been speaking
Speaker 1: with Simon Howard of Harding Love Nor which manages about
Speaker 1: seventy three billion dollars. If you enjoy this conversation, well,
Speaker 1: be sure to go to Apple, iTunes or Spotify, Overcast,
Speaker 1: stitcher wherever your finder pod are sold, and you can
Speaker 1: find any of the previous three hundred and fifty such
Speaker 1: conversations we've had over the past six years. It's it's
Speaker 1: actually this week is our six year anniversary. We love
Speaker 1: your comments, feedback and suggestions right to us at m
Speaker 1: IB podcast at Bloomberg dot net, Go to Apple iTunes,
Speaker 1: give us a review. Be sure to check out my
Speaker 1: weekly column on Bloomberg dot com slash Opinion. You can
Speaker 1: sign up for our daily reads at Rid Halts dot com.
Speaker 1: Follow me on Twitter at Rid Halts. I would be
Speaker 1: remiss if I did not thank our crack staff that
Speaker 1: helps put these conversations together each week. Maroufle is my
Speaker 1: audio engineer. Michael Boyle is my producer. Attica val Bround
Speaker 1: is our project manager. Michael Batnick is the head of research.
Speaker 1: I'm Barry Ritults. You've been listening to Masters in Business
Speaker 1: on Bloomberg Video