Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have an extra special guest.
Speaker 1: His name is Regiev Jane, and he has quite the
Speaker 1: fascinating background. UM. He is currently chairman and Chief Investment
Speaker 1: Officer at his own firm, g q G Partners, which
Speaker 1: manages about twenty four billion dollars. Previously, UH, he was
Speaker 1: co CEO and and c i O at Vante Bell
Speaker 1: Asset Management. UH. If you are at all interested in
Speaker 1: a wealth of things from global and international and E
Speaker 1: M investing two portfolio management and the process that goes
Speaker 1: in uh to putting together a portfolio, You're gonna find
Speaker 1: this conversation to be absolutely fascinating. Rajiv Is is both
Speaker 1: humble and soft spoken, but is filled with all sorts
Speaker 1: of inside and wisdom. UM. I know I got a
Speaker 1: ton out of the conversation. I just found lots and
Speaker 1: lots of things that he said to be intriguing and fascinating,
Speaker 1: and I think you will also so, with no further ado,
Speaker 1: my conversation with Regive Jane. This is Masters in Business
Speaker 1: with Barry Ridholts on Bloomberg Radio. I'm Barry Ridholts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My extra
Speaker 1: special guest this week is Regieve Jane. He is the
Speaker 1: chairman and chief investment officer of g q G Partners
Speaker 1: affirm with over twenty four billion dollars in assets under management.
Speaker 1: Regiev was the morning Star International Manager of the Year.
Speaker 1: He runs a number of different funds, the Goldman Sacks,
Speaker 1: g q G Partners International Opportunities Funds, the Partners Emerging
Speaker 1: Market Equity Fund, and the Partners US Select Equity Funds.
Speaker 1: Last year, his Global fund was positive while the benchmark
Speaker 1: was down nine percent. Over the past twenty years, we've
Speaker 1: seen our performance in all of the areas Regeeve works
Speaker 1: in between three hundred and four hundred basis points. Rajiv Jane,
Speaker 1: Welcome to Bloomberg. Thanks verty, thanks for having me. I've
Speaker 1: been looking forward to this conversation because you're one of
Speaker 1: these people who have been shooting the lights out. Uh
Speaker 1: and I think most of the investing public is not
Speaker 1: very familiar with you or your background, which is quite fascinating.
Speaker 1: Tell us about your personal history and how you got
Speaker 1: to running a large asset management firm. Yeah, thanks, Betty,
Speaker 1: So I think first of all, I was born in India,
Speaker 1: grew up in India. Uh, and I got hooked onto
Speaker 1: stocks when I was in high school. Uh. I guess
Speaker 1: my dad wanted to keep me busy doing summer so
Speaker 1: he gave me some those days you get old, you know,
Speaker 1: stock certificates and dividend checks. He is that, why don't
Speaker 1: tell you those and dividen haven't come in? And I
Speaker 1: used to go remember going to broker and he was
Speaker 1: an ex army guy, and he said, look, I need
Speaker 1: to talk to a dad. Why they live He allows
Speaker 1: a high school kid to come to this broker's house.
Speaker 1: He looks, you see the average around hub, other people
Speaker 1: sitting here. So that's how I ended up getting hooked.
Speaker 1: Came to us when I was you know two, and
Speaker 1: and yeah, I ever, I've been doing the same thing
Speaker 1: ever since. I guess I can't do anything else. So
Speaker 1: let's talk a little bit about your background at Vontabelle
Speaker 1: Asset Management. You were there for a good couple of years.
Speaker 1: Tell us what that shop was like and how that
Speaker 1: led to the decision to launch your own firm. Yes,
Speaker 1: so it was it was a part of a large
Speaker 1: Swiss bank and it was kind of a small boutique
Speaker 1: where first seven eight years that we couldn't even afforded trader.
Speaker 1: So I I used to put in my own trades. Uh.
Speaker 1: So I joined as a CopM for global and emerging
Speaker 1: markets uh in international Actually, And what's the most interesting
Speaker 1: experience I would say, UM would be the I began
Speaker 1: the CEE IO and two thousand two and quickly seventy
Speaker 1: person of the client's virtus. Really yeah, why was that?
Speaker 1: Well because the past performance wasn't great and there was
Speaker 1: a change in PM. So that's my view of saying
Speaker 1: it that I wasn't want to blame. So, so you
Speaker 1: were did you begin as an analyst? Also? How did
Speaker 1: how did you work your way up to portfolio managers? Yeah? Yeah,
Speaker 1: so um, I started at at the U B S
Speaker 1: or Swiss Band Corporation, then as an analyst, and I
Speaker 1: did become a CopM and after a couple of years.
Speaker 1: So what this is a question that I've had people
Speaker 1: asked me. You're the person perfect person to ask this.
Speaker 1: What is the difference when you're looking at stocks as
Speaker 1: an analyst and trying to take an individual equity apart
Speaker 1: versus making the buy or cell decision as a portfolio manager.
Speaker 1: Very different approaches, aren't they. Yeah. Look, I think I
Speaker 1: think the abster right, there's a big difference between the two,
Speaker 1: and I would categorize in two parts of that. The
Speaker 1: first is, as an analyst, you expect to know as
Speaker 1: much as you can, but as a portfolio manager, you
Speaker 1: really don't have that luxury are waiting for getting let's say,
Speaker 1: of the information which is norble. You can't get to
Speaker 1: that level of a certainty. But as an analyst you
Speaker 1: are expected to know more. That's a big difference, and
Speaker 1: I think that sometimes when analysts become pms, they sort
Speaker 1: of missed that. They keep ending looking for more and
Speaker 1: more information, which you know can can can be you know, paralyzing.
Speaker 1: The second part is when you're looking at a portfolio,
Speaker 1: the risk management of the part of the portfolio construction
Speaker 1: part become paramount. You may love the name, and you
Speaker 1: actually tend to love all the names you want the portfolio,
Speaker 1: but when you're constructing portfolio the the you may end
Speaker 1: up taking too much risk in a particularly area. And
Speaker 1: I mean, if you go back to two thousand crises,
Speaker 1: a lot of folks blew up because they had too
Speaker 1: much in an area, because consider risk because we love
Speaker 1: this area and got cheaper and we love it, do
Speaker 1: more and it kept getting cheaper. So oh, you've got
Speaker 1: to be careful about you know. And and most time
Speaker 1: it's the things that we love that kill us. So
Speaker 1: let's talk a little bit about that and portfolio construction.
Speaker 1: I think a lot of individual investors, to them, portfolio
Speaker 1: construction is really just the stocks they've collected over the years.
Speaker 1: You obviously approach it very differently. How do you think
Speaker 1: about portfolio construction in terms of what you're holdings are,
Speaker 1: in terms of how they're diversified by either sector or geography,
Speaker 1: and and lastly about the risk you just mentioned. So um,
Speaker 1: the first part is that you've got to make sure
Speaker 1: that the business would be around for long term, right.
Speaker 1: I mean, if you're not sure how the business gonna
Speaker 1: look like five years out, you probably not shouldn't. Shouldn't
Speaker 1: be invested. Doesn't mean you want for five years. But
Speaker 1: you've got to be careful because markets anticipate deturing fundamental
Speaker 1: a lot faster than than we we like to think.
Speaker 1: If if if the drug is expiring in three years,
Speaker 1: guess what, markets started discounting a lot sooner, and you
Speaker 1: see a bunch of names which are selling it very
Speaker 1: low multiples because oh it's still a few years out,
Speaker 1: and it's it's a low multiple, so and so for
Speaker 1: the market is already discounting deterioration, right, So that's part
Speaker 1: of the first risk management. Is that a little bit
Speaker 1: of a value trap situation for people exactly, And I think,
Speaker 1: I think if you look at what has happened last year,
Speaker 1: is the reason why a lot of folks have underperformed.
Speaker 1: And I feel investing is nothing but a journey of
Speaker 1: learning from a mistakes. If you're not willing to evolve
Speaker 1: an adapt you won't survive long term. It's very easy
Speaker 1: to say, look, I found this mouse trap, and how
Speaker 1: wonderful it has worked in nineteen thirties. So my question
Speaker 1: of how many anelets around in nineteen eighties level or
Speaker 1: nineteen thirties maybe the market become a little more efficient.
Speaker 1: So the the low multiple trap is is essentially markets
Speaker 1: being much more forward looking than we would be gave
Speaker 1: it credit for. So you sound a little bit like
Speaker 1: Ray Dalio who talks about mistakes and the learning process
Speaker 1: and improving. How long should an investor expect that journey
Speaker 1: to take before they have some degree of components or
Speaker 1: even um actual skill in managing assets. That that's a
Speaker 1: hard question to answer because it's a function of a
Speaker 1: are you truly trying to look at in on a
Speaker 1: verny broad spectrum, the broader the spectrum chance that you
Speaker 1: will learn a little bit faster. In other words, if
Speaker 1: you if you're focusing on one specific sector only, you're
Speaker 1: too natrowly focused. When you operate in the silo, you
Speaker 1: really don't know the you know the there's no cross pollination.
Speaker 1: I feel I'm a better US manager because I do
Speaker 1: emerging markets and vice versa. I'm Barry rid Halts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My special
Speaker 1: guest today is Ragief Jane. He is the chairman and
Speaker 1: chief investment officer of the twenty four billion dollar firm
Speaker 1: g q G Partners. So let's talk a little bit
Speaker 1: about the launch of of the firm. You co invest
Speaker 1: alongside with your clients. I think you've you've said previously
Speaker 1: something like your own assets are in your funds. To
Speaker 1: discuss the idea behind eating your own cooking. My personal
Speaker 1: belief is that managing somebody else's money as a privilege
Speaker 1: it's an order to manage somebody else's money and our
Speaker 1: decision to impact how our clients do and whether they
Speaker 1: have a dignified retirement or not. Right. So when we
Speaker 1: talk about if you have to ask things, I personally
Speaker 1: feel if you have to ask a single question anybody,
Speaker 1: the question would be what percent of your network are
Speaker 1: you willing to put in your own funds? Restless talk
Speaker 1: because that that that gives you a very good view
Speaker 1: of a how they think about investing, because you become
Speaker 1: much more absolute oriented, right, whether you think about taxes
Speaker 1: or you know, after tax returns, uh, the fees and
Speaker 1: so on, so forth. So it's sort of encompasses almost everything.
Speaker 1: And I have vast majority of my wealth. I don't
Speaker 1: have money in any other long only manager longshore private degree.
Speaker 1: If we don't allow only personal trading a GQG, for example,
Speaker 1: every employees and investor. And I'm quite proud of the
Speaker 1: fact that we have quite a bit of skin in
Speaker 1: the game. That's quite interesting. The the expression I recall
Speaker 1: from years ago was I can't hear what you're saying
Speaker 1: because what you're doing is speaking so loudly. That seems
Speaker 1: to apply dead center to this doesn't it. Thank you, guys,
Speaker 1: it does. So, so let's talk a little bit about um,
Speaker 1: about how you go about selecting stocks and making the
Speaker 1: decision to to get rid of them. You've described your
Speaker 1: quote clinical approach to shedding positions when they no longer
Speaker 1: fit your thesis. Explain that there's been plenty of evidence
Speaker 1: and I can tell you with my own experience that
Speaker 1: buying is easy. Selling is whether where the trouble starts.
Speaker 1: And there has been recently been academic you know, work
Speaker 1: on that that portfolio managed to do a pretty good
Speaker 1: job buying. It's just selling. When when when things tend
Speaker 1: to go wrong, and and and and and people describe
Speaker 1: me as a kind of a ruthless seller, I'm happy
Speaker 1: to go back again and revisit. And sometimes I would
Speaker 1: sell just to clear up my mind and revisited. Um.
Speaker 1: When when we talk about selling, it's the best selling
Speaker 1: happens when things are subtle, not when they are in papers.
Speaker 1: And when things that are subtle, it means does the
Speaker 1: thesis actually hold or has beginning to shift a little bit?
Speaker 1: And I think, I think, I think that's where you
Speaker 1: almost have to be willing to be wrong and admitted
Speaker 1: you're wrong. In fact, one of the tests I feel
Speaker 1: for for my analysis is have you found new ways
Speaker 1: of losing money? Explain that new ways of losing money,
Speaker 1: like investing is said, is a journey of learning from mistakes.
Speaker 1: How do we expand our investing horizon horizon means you're
Speaker 1: our brand, our breadth, not time horizon, and that means
Speaker 1: that you have to experiment sometimes in areas that you're
Speaker 1: not invested before. If you've wily invest in financials, you
Speaker 1: keep investing financial guests forward. Last decade hasn't been too
Speaker 1: good for you in the nineties, if you didn't know
Speaker 1: how to invest in financials in tech, you wouldn't have
Speaker 1: done well in the next decade. If you only did that,
Speaker 1: you probably wouldn't have done well either. So you need
Speaker 1: to be able to experiment, and many talk about experimentation.
Speaker 1: Losses have to be small, But that's how you would learn,
Speaker 1: because the only way you really learn is by putting
Speaker 1: some some money on, you know, on on on on
Speaker 1: on on those stocks. Paper trading doesn't get it done.
Speaker 1: Paper trading doesn't get it done. It overstays the reality because,
Speaker 1: as somebody has said, the money is made by the
Speaker 1: how thick is your stomach aligning rather than now how
Speaker 1: much i Q you have? That's really interesting. What about
Speaker 1: the selection process you You seem to have come up
Speaker 1: with the process that's a little different from everybody else,
Speaker 1: as the results have shown, What are you doing, um,
Speaker 1: when you're thinking about building a portfolio and making individual
Speaker 1: stock selections. First of all, um, balance sheet matters, right,
Speaker 1: so so so that this you need to eliminate weaker
Speaker 1: companies worst. In other words, that's an easy one negative
Speaker 1: screen get exactly. So it is not about trying to
Speaker 1: find the best company, is avoiding the worst. In fact, investing,
Speaker 1: like a lot of things in life, it's sometimes easier
Speaker 1: to to identify what shouldn't be done rather than or
Speaker 1: it should be done, because that just increases the odds
Speaker 1: of success. So you avoid mistakes, and even if everything
Speaker 1: else is okay, you're way ahead of people whose portfolios
Speaker 1: are filled with mistakes. Exactly. In fact, I've kind of
Speaker 1: joked around the reason why I've survived over the longer
Speaker 1: run is because you just avoid blowing up, and enough
Speaker 1: people blow up and you'll be top quartile just because
Speaker 1: you don't blow up. So I think I think from
Speaker 1: a process of perspective. First of all, you take out
Speaker 1: the weaker balance sheets, and the second part is think
Speaker 1: about the capital allocation decisions managements have made. In other words,
Speaker 1: how much what returns have degenerate on intremental instremental capital
Speaker 1: that they put in the business? Return capital is probably
Speaker 1: the single biggest you know measure that that that I
Speaker 1: feel one has to look at. Valuations comes distant second
Speaker 1: or third really, So so let's start with that first piece,
Speaker 1: screening out the negative the weaker companies. What are you
Speaker 1: looking for? Are you looking for lots of dat Are
Speaker 1: you're looking for no real growth in revenue and income
Speaker 1: or you're looking at the management team themselves or all
Speaker 1: the above and more management team is is second. First
Speaker 1: would be numbers. In other words, you know, leverage is
Speaker 1: an easy one, but also in terms of, you know,
Speaker 1: the sicklicality of earning stream relative to their own sector,
Speaker 1: the returns that the generating related their own space, because
Speaker 1: you can't compare a bank and and and a European utility, right,
Speaker 1: And I think I think when people talk us talk
Speaker 1: about quality, they look at much more on an absolute
Speaker 1: based across the board. But banks the best time to
Speaker 1: buy banks is actually when the numbers don't look good, right,
Speaker 1: that's not necessitude for staples. In fact, if you look
Speaker 1: at even technology last forty year, if you back test
Speaker 1: the numbers, the most expensive dis style has outperformed the
Speaker 1: cheapest DECIDL in tech and in pharma. So, in other words,
Speaker 1: momentum is much more powerful than value in those sectors. Okay,
Speaker 1: so I want to be over you know you're overstating
Speaker 1: the momentum issue. It's not momentum issue. It's much more
Speaker 1: about well, first of all, it is the balance she
Speaker 1: it good. And the second thing is the growth coming through.
Speaker 1: So growth is important. But but but but you need
Speaker 1: the combination of those, and then you look at the
Speaker 1: management and then you look at the valuations a lot
Speaker 1: of because think about this face if if if, if,
Speaker 1: if you're moving to Florida, would you call a realtor
Speaker 1: say get you know, give me the cheapest neighborhood? No,
Speaker 1: of course not. Why do you do that in stocks? Well,
Speaker 1: because there's this belief that UM on average, if you're
Speaker 1: um pe ratio or price to book or whatever your
Speaker 1: preferred metric is, UM, the cheaper stocks over long periods
Speaker 1: of time should outperform the most expensive stocks. That at
Speaker 1: least is the common belief that's out there. Well, see that,
Speaker 1: I've a lot of problem with averages. Averages like your
Speaker 1: foot might be enough on, your head might be in freezer,
Speaker 1: and on average you're dead. That's that's a fair um,
Speaker 1: that's a fair description. So so so I think I
Speaker 1: think you gotta be careful about averages because in especially
Speaker 1: this day and age, there isn't enough appreciation that how
Speaker 1: many how many bison alis of operating thirty years ago
Speaker 1: verses today? If that amount exactly? And what about fifties
Speaker 1: and sixty And you see managers showing how well priced
Speaker 1: to book at work in ninet thirties, Well, it's wonderful.
Speaker 1: You're fooling yourselves. You're not fooling anybody else. That doesn't
Speaker 1: work anymore. It didn't work in the seventies, in the seventies,
Speaker 1: So Marcus, do get efficient. I mean, let's not kill ourselves.
Speaker 1: The question how are you evolve to incorporate that? I mean,
Speaker 1: you can buy dozens of ETFs to you know WHI
Speaker 1: should run on quality. So if you're backward looking quality,
Speaker 1: it has stopped working. I'm Barry ritolts. My extra special
Speaker 1: guest this week is Regiev Jane. He is chairman and
Speaker 1: chief investment officer of the twenty four billion dollar firm
Speaker 1: g q G Partners. He runs a number of different
Speaker 1: funds UM, all of which have outperformed. Over the past
Speaker 1: UH twenty years, he has handily beaten his benchmark. Last year,
Speaker 1: his global funds UH was about nine hundred basis points
Speaker 1: above the benchmark, which was down about nine percent for
Speaker 1: the year. Uh. Let's talk a little bit about international investing.
Speaker 1: One of your biggest holdings is India makes up about
Speaker 1: twenty seven percent of the fund bullpark. Uh. Why are
Speaker 1: you still enthusiastic about India? What do you think is
Speaker 1: happening there and what companies have caught your attention in
Speaker 1: that country? Yes, so India is big only in the
Speaker 1: emerging market fund and internactionally you only have five percent,
Speaker 1: And similarly in global I think I think, I think
Speaker 1: the couple of things one is well, first of all,
Speaker 1: there's a risk of me being biased, so I think
Speaker 1: I think gotta be careful. So you have home country bias.
Speaker 1: Even after you leave the country, they like you, you
Speaker 1: feel you know it better, right, So that's one saying
Speaker 1: you gotta be careful. You you should surprise folks over
Speaker 1: France chance, so they would have more in France. So
Speaker 1: home country bias excess. But I think in this case, um,
Speaker 1: there's a differences, particularly now. India wasn't always that big.
Speaker 1: The reason is because if you look at what's happening
Speaker 1: around the world, there's earnings pressure. So domestic oriented businesses
Speaker 1: are actually delivering better earnings growth. And India is a
Speaker 1: very large domestic market. China is two, and so in
Speaker 1: Brazil in the within the emerging market context, the same
Speaker 1: in US actually right, I mean multinational rejects for a
Speaker 1: lot of China are not exactly doing that well. For
Speaker 1: domestic orientage stocks are just doing better. So India is
Speaker 1: a big domestic market and you can get fairly high,
Speaker 1: high quality, predictable businesses which are still selling it reasonable
Speaker 1: valuations UM. And hence we have higher exposure in the
Speaker 1: E M punt. So so let's talk about Russia. You
Speaker 1: were quote massively underweight Russia for eighteen or so years.
Speaker 1: Now you say you're overweight Russia. What has changed, um,
Speaker 1: either in your view or in Russia itself to have
Speaker 1: that big shift. But first of all, from a philosophical perspective,
Speaker 1: investing is all about change, is not about static. In
Speaker 1: other words, Singapore might be wonderful place, but if it's
Speaker 1: deteriorting that's not you know, that's a problem in Russia.
Speaker 1: I'm not saying it's going to be next with de
Speaker 1: Land or anything like that, but it's improved quite a
Speaker 1: bit compared to it it was five, ten, fifteen years ago.
Speaker 1: Corporate governance has improved, um. And they talked about managing
Speaker 1: companies which are actually very well positioned and as selling
Speaker 1: for very attractive prices, so that there's a big difference
Speaker 1: for let's say ten twenty years ago, and that's I
Speaker 1: was very better rush. I'm talking about twenty years now,
Speaker 1: uh till a few years ago. Uh and today it
Speaker 1: looks actually reasonably attractive. Some of the folks who have
Speaker 1: have pointed out that Russia is always cheap, But the
Speaker 1: concern is rule of law, and how do you know
Speaker 1: that the state isn't just gonna arrest your CEO or
Speaker 1: or capture assets. How confident can you be investing in
Speaker 1: Russia that the normal rules apply. I thought you were
Speaker 1: describing China. See you gets arrested in stock collapses, right,
Speaker 1: I guess it happens in other countries. It happens happened
Speaker 1: here also, we've had people arrested and the stocks haven't
Speaker 1: done that well, but it seems to be a little
Speaker 1: more endemic to certain countries. Now, you're absolutely right, I think.
Speaker 1: I think first of all, that's where you got to
Speaker 1: see whether the business interests are aligned with the with
Speaker 1: the government policy and what the you know, what the
Speaker 1: outlook would be longer term. So um So, one interesting fact,
Speaker 1: if you do the last twenty years, Russia has been
Speaker 1: one of the best performing markets versus China and mostly
Speaker 1: other markets, by the way, and which is not how
Speaker 1: people think about it. Uh. And the reason is that
Speaker 1: you can get some really high battered true businesses which
Speaker 1: are very well aligned with what the government policy is.
Speaker 1: And and and ironically because of the capital flight issues,
Speaker 1: actually a lot of companies pay a lot of dividends,
Speaker 1: so you basically getting dividend return on business that are
Speaker 1: still growing at reasonable you know, at regional prices. So
Speaker 1: I think I think it's a combination of the two.
Speaker 1: Um So, if you can buy a business where the
Speaker 1: bond heels are, foreigners are willing to buy bonds of
Speaker 1: the same company at four and four and a half percent.
Speaker 1: Why the stocky link twelve percent? That's a question, right,
Speaker 1: I mean, the corporate governors should apply as much as
Speaker 1: the bond site. But but but if you can get
Speaker 1: truly good business like spur Bank for example, uh it
Speaker 1: has sixty pc deposit franchise in in a deposit market
Speaker 1: share in Russia and the banking system is consolidating rapidly,
Speaker 1: I mean, it's it's meaningful consolidation. Over the last five years.
Speaker 1: The central banker and Ubulina has done a very good job.
Speaker 1: But it's yielding almost eight percent growing plus rows selling
Speaker 1: at six time mornings. So it is I think. I think,
Speaker 1: I think you can do a lot worse in other places.
Speaker 1: So do you bring a different sort of fundamental analysis
Speaker 1: to different countries? Do you have to think about stock
Speaker 1: selection and let's say China or Russia differently than you
Speaker 1: would think about Singapore or Vietnam? How do you look
Speaker 1: at each country with their own unique political situation You
Speaker 1: mentioned aligning the interests of the company with the government.
Speaker 1: Is it the same approach country to country or do
Speaker 1: you have to adapt depending on the local politics. Yes,
Speaker 1: so I think, I think there's clearly a little bit
Speaker 1: of adaptation needed. I mean, if you're investing only in
Speaker 1: the US, if, for example, if you're running a user
Speaker 1: refund um, there a lot of things you wouldn't necessarily
Speaker 1: have to think about, right, I mean, some country companies
Speaker 1: have currency theres but most don't have that. On the
Speaker 1: other side, if you're investing in emerging markets, you know,
Speaker 1: country risk matters. So what I call a macro switch off,
Speaker 1: you don't look for a good macro You can't say
Speaker 1: China is ring. I'm gonna try to find companies there.
Speaker 1: That doesn't work. However, if this political risk in a company,
Speaker 1: if the if the company is getting contracts from the government,
Speaker 1: off they are they are as For example, last summer
Speaker 1: there was increased risk in Chinese tech companies. Now that
Speaker 1: seemed to have gone down a little bit. I'm not
Speaker 1: saying you sell out because of that, but you've got
Speaker 1: to be aware of the macro switches. And by the way,
Speaker 1: that if I take a five year review, I think
Speaker 1: the political risk is increasing in some of the largest
Speaker 1: U S companies too. It is not here or now,
Speaker 1: but it's not zero risk that you could see you know,
Speaker 1: you could see some some antitrust investigation and in some
Speaker 1: of the larger companies, the Amazons of the world. So
Speaker 1: it is not a factor today, but it will be
Speaker 1: naive to assume it's not a factor if you're taking
Speaker 1: five plus year of view. I'm very rich Helts. You're
Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
Speaker 1: today is Rajiv Jane. He is chief investment Officer and
Speaker 1: chairman at g q G Partners, at twenty four billion
Speaker 1: dollar firm. Let's talk a little bit about your strategies.
Speaker 1: You're long only, so what are your goals? Is it
Speaker 1: to beat the benchmark or you or are you targeting
Speaker 1: higher risk adjusted returns? What what is the goals of
Speaker 1: of your specific strategies for each of your funds. So
Speaker 1: the official activists outperformed the benchmark by a few hundred
Speaker 1: based point with less risk, so losing lesson down markets
Speaker 1: is important. So it's much more conservative compounding and the
Speaker 1: fact that every employee and an investor, that's where the
Speaker 1: alignment of interest matters, right, So we're not talking about
Speaker 1: acid girl. There's all about can we compound our money
Speaker 1: along with our client's money, and that means that it's
Speaker 1: much more absolute oriented rather than relative focused. And just
Speaker 1: as an example, in eighteen um the international benchmark was
Speaker 1: down about nine your fund was positive slightly positive for
Speaker 1: the year. So there's an example of managing into a downturn.
Speaker 1: I have to think clients are pretty happy about that
Speaker 1: sort of situation. Yeah, And I think I think that's
Speaker 1: that's the reason why we've seen we continue to see,
Speaker 1: you know, reasonable influence from some of the most sophisticated institutions.
Speaker 1: Is that it's all about I think. Look, I think
Speaker 1: I think you've got to be careful about relative returns.
Speaker 1: You can't focus on too much. And it doesn't matter
Speaker 1: whether it's a pension fund or an individual. Right, if
Speaker 1: there kets down and you're only down, you're still down.
Speaker 1: That that's true. But if you're long older, you can't
Speaker 1: manage that. And and there's no free lunch. So if
Speaker 1: you're trying to manage it too much, you leave the
Speaker 1: upside and seeing on the hedge fund site, right, ivan, yes,
Speaker 1: they didn't lose that much and maybe two thou eight,
Speaker 1: but you gave more plus some or the next decade
Speaker 1: because the markets, you know, tend to go up over
Speaker 1: the long run. Right, So let's talk about capacity. You
Speaker 1: you recently announced one of your funds was going to
Speaker 1: be capped at ten billion dollars? Is that is that right?
Speaker 1: Was it a fund or was it a separate managed
Speaker 1: to counts? So it's a uh did the multiple vehicles,
Speaker 1: So it's a product issue. I've run thirty billion in
Speaker 1: emerging markets before. Performance was fine, but I did lose
Speaker 1: a lot of flexibility. So we've you know, we've said
Speaker 1: bild soft claws. In other words, existing clients can add
Speaker 1: at ten billions, but you won't take into new clients
Speaker 1: once you hit that ten billion dollars. You will keep
Speaker 1: maybe that some of the mutual funds open, uh for
Speaker 1: technical reasons. But but we'll we'll we'll start hitting the
Speaker 1: brakes as we get to ten. So so when emerging
Speaker 1: only but global internationally, we have a lot of capacity
Speaker 1: because they're very large liquid. So what is it about
Speaker 1: emerging market that limits the capacity? Is it there's just
Speaker 1: not that many big companies or what what specifically puts
Speaker 1: a cap on on that? You know, I was just
Speaker 1: mentioning that that around thirty billion and e M and
Speaker 1: probably was the largest pool under single manager. Uh. How
Speaker 1: and the performance was okay, uh, but you clearly lose nimbleness.
Speaker 1: Emerging markets actually much larger space than than than the perception.
Speaker 1: Seems to be a lot of very large that could names.
Speaker 1: And I think I think, I mean, for example, the
Speaker 1: Chinese tex space itself is probably a trillion and a
Speaker 1: half dollars didn't exist a decade ago pretty much so,
Speaker 1: and it's China. Is China still technically? E M? Have
Speaker 1: we when does that get moved? Didn't M s C
Speaker 1: I just do a whole thing with China and e
Speaker 1: M do we still think of China as an emerging
Speaker 1: market or or have they graduated yet? Now? Look, I think,
Speaker 1: I think, I think if you look at any sort
Speaker 1: of um common sensical wave from in terms of rule
Speaker 1: of law, in terms of you know right to you know,
Speaker 1: you know you're properly right, and so in the full,
Speaker 1: China is clearly in emerging market emerging market. It's not
Speaker 1: a now some Shanghai developed more developed in New York.
Speaker 1: It feels that way if you go there, but it
Speaker 1: doesn't mean the whole country as such. M quite quite interesting.
Speaker 1: So so let's talk a little bit about how you
Speaker 1: um think about entering positions. I know, some managers do
Speaker 1: a pre mortem where they right out with their full
Speaker 1: explanation of why they're making the investment, so afterwards they
Speaker 1: can look back and say, this is exactly, um, what
Speaker 1: they were thinking, whether it works well or goes bad.
Speaker 1: What what do you do when you're in the midst
Speaker 1: of adding a new name to a portfolio. First of all,
Speaker 1: you need true diversity, and we talk about diversity, but
Speaker 1: if you look at our team, there are folks who
Speaker 1: have done long short equity long short credited investigative journalists, uh,
Speaker 1: you know, um, forensic accountants you want to be You
Speaker 1: want to have a true devil's advocacy, right um. And
Speaker 1: And that means that multiple pairs of ice will look
Speaker 1: at the name. And I work as a full time
Speaker 1: analyst and a part time PM. There's no name that
Speaker 1: will go that has gone in over the last twenty
Speaker 1: five years without me actually working on a name, you know,
Speaker 1: having some sense. Obviously some of the analysts will do
Speaker 1: a lot deeper work on those names. And then we
Speaker 1: want to have a separate pairs of eyes, whether from
Speaker 1: an accounting perspective or from an investigative journalists, which is
Speaker 1: more to sort of get a sense of where, um,
Speaker 1: you know, are there any sort of grassroot issue that
Speaker 1: we are missing, for example, if there's any governance issues.
Speaker 1: So we don't talk to existing employees, but are there
Speaker 1: any governance issue that we should be aware of? Any
Speaker 1: regulator is that we should be aware of, uh sort
Speaker 1: of you know, kind of e s g um hygiene,
Speaker 1: if if if you if you will. So what that
Speaker 1: does is is that again, the idea is to reduce
Speaker 1: the chance of a blow up. The idea is not
Speaker 1: to find the best name. The idea is to eliminate
Speaker 1: the weakest name. So you mentioned investigative journalists. You hired
Speaker 1: Carolyn Q from the Wall Street Journal. What was the
Speaker 1: thinking behind saying, I know, I need an investigative reporter
Speaker 1: on my team. It's interesting if you think about what
Speaker 1: we do, it is it is kind of investigated journalism anywhere.
Speaker 1: I mean, it's it's actually what a good analyst should be.
Speaker 1: Is very similar to making sure you're getting the facts right,
Speaker 1: being more objective. So you want to have devil's advocacy
Speaker 1: within the team and investigator journalist kind of work as
Speaker 1: a separate team. They're basically there to find faults with
Speaker 1: our existing names. So what I call them internal critics. Ah,
Speaker 1: And as you can see, a lot of anils get
Speaker 1: pretty uncomfortable with that internally I'm talking about. But I
Speaker 1: think the idea is my view is I would rather
Speaker 1: have internal debate and discussion rather than the markets criticizing you.
Speaker 1: When the markets criticize you, that's expensive to say, to
Speaker 1: say the very least. Um, so something else you said previously, Um,
Speaker 1: it seems most investors and evaluate managers just by looking
Speaker 1: at their past performance. You suggest that that's the wrong approach.
Speaker 1: How should an investor evaluate a potential manager they're interested
Speaker 1: in hiring? But you can't undermine the past performance? It
Speaker 1: matters because I mean, that's that's a good starting point.
Speaker 1: But that's all it is. It's a starting point. And
Speaker 1: I feel that, um, the other way to look at it,
Speaker 1: which is actually more important, provided there's a good past
Speaker 1: tract recker, because as somebody said, past performance not a
Speaker 1: good indicator past performance? Right now? Why is that? As
Speaker 1: I say, I'm I'm contracting myself. So I like the
Speaker 1: ying and yang debate in every very discussion. So the
Speaker 1: reason is decision makers can change, so you know, firm
Speaker 1: self past performance. But you know, but who took the
Speaker 1: decisions ten years ago, maybe totally different guys. So you've
Speaker 1: got to be careful about because you know people said
Speaker 1: teams and so ons of forth, but it's not an
Speaker 1: indy cator of decision maker and who was a decision maker.
Speaker 1: So you've got to be careful and look at long
Speaker 1: term track records. Is the same individual or individuals who
Speaker 1: are taking the decision and if it's a one individual
Speaker 1: like a PM, you know if somebody might have changed,
Speaker 1: but the firm might be selling the track record of
Speaker 1: the firm, right, So you've got to be careful that.
Speaker 1: But more importantly, I think the way to look at
Speaker 1: or to assess a portfolio manager our track record is
Speaker 1: how did they do in different environments? So for example,
Speaker 1: if you look at growth Magic today, most of them
Speaker 1: look like geniuses right right now, most of these won't
Speaker 1: have a good track record going back to if you
Speaker 1: go back two thousand two three era, how many actually
Speaker 1: them did well? So this whole growth and value debate
Speaker 1: is is kind of I personally feel it's it's it's
Speaker 1: it's nonsensical in a way because why would you consciously
Speaker 1: overpay for anything. So so you've mentioned previously, Um, what
Speaker 1: you've described as quality growth, what is that and how
Speaker 1: does that relate to the value growth debate? So, first
Speaker 1: of all, nobody construally looks for bad quality. I don't
Speaker 1: know if you have somebody come across here and said, look,
Speaker 1: we buy low quality, high prices, right, growth manager, value manager.
Speaker 1: That's all wonderful. In fact, one of the things I've
Speaker 1: observed is people, The more disciplined people sound, the more
Speaker 1: rigid they are and more chance of than blowing up steps.
Speaker 1: Stability is a close cousin of stagnation, and discipline is
Speaker 1: a close cousin cousin of rigidity. So how they adapted
Speaker 1: to changing environments. Look at Buffett, I mean he's adapted dramatically,
Speaker 1: even a low low you know, classic low multiple, you know,
Speaker 1: cigar but kind of investor. And then do you know,
Speaker 1: moved to to a different area in terms of quality
Speaker 1: you know, you know high you know big more high
Speaker 1: bad gentry businesses, and and I was buying tech. And
Speaker 1: on top of that, he's done a whole bunch of
Speaker 1: private deals on the side, which are all nothing but cyclicals.
Speaker 1: By them, I mean, can you tell me one name
Speaker 1: one one large part maybe except sees candies in Berkship,
Speaker 1: which is not cyclical? I mean, his guy could not cyclical?
Speaker 1: Is some of the you know, boot companies, insurance, reinsurance,
Speaker 1: home building, what brick companies, railroad? What is not cyclical? Right?
Speaker 1: So this whole debate is much more around I feel
Speaker 1: at the end is you expected compounding and sometimes a
Speaker 1: cyclical with the high berded entry could be very attractive,
Speaker 1: and sometimes a very steady, eaty business could be very attractive.
Speaker 1: So like in today's environment, if you look at most
Speaker 1: of the value oriented names, you're making a cyclical call.
Speaker 1: Mm hmm. In other words, if the economy really starts ripping,
Speaker 1: they would do very well. So it is not that
Speaker 1: they are being given away to you because people they
Speaker 1: are being misunderstood. There's a fear of downturn. Hence some
Speaker 1: of these names, whether it's car companies in Europe or
Speaker 1: hair or some of the financial why are the banks
Speaker 1: been underperforming in the U as well? The fear is
Speaker 1: that you know npls will go up. So it's a
Speaker 1: binary bet on on future economic performance, not necessarily a
Speaker 1: specific company exactly. And I think I think, I think
Speaker 1: I think that is it may be a perfect call
Speaker 1: to make by the way, so I'm not here to
Speaker 1: criticize that, but it is not something g they are
Speaker 1: totally misunderstood and you know they kind of um underappreciated
Speaker 1: assets as obviously market might be overestimating the downturn, if
Speaker 1: there is one. Uh, but I think I think, I
Speaker 1: think it's much more around what are the earnings trajectory
Speaker 1: and what are you paying for? So if you look
Speaker 1: at some of the tech names, for example, some of
Speaker 1: the SaaS names right, the cloud names which are some
Speaker 1: of them don't even have multiple because they are not
Speaker 1: earning any money. How much of they are investing in
Speaker 1: the business, and how much of that is and you
Speaker 1: really like business? Now what I call the Amazon in fact,
Speaker 1: that because you made money in Amazon despite it not
Speaker 1: making any sort of net pro of it, um, it's
Speaker 1: being extra poled. A lot of areas and a lot
Speaker 1: of areas companies would blow up because they're not Amazon. Right,
Speaker 1: Amazon did not have cash losses after I believe two
Speaker 1: thousand two or something, you know, because it's a negative
Speaker 1: working capital model, which is a very different model than
Speaker 1: than whole lots of other companies are looking at today.
Speaker 1: But it does mean that if businesses that are willing
Speaker 1: to take longer term view, are willing to invest chance
Speaker 1: that they probably would do better than folks were very
Speaker 1: focused on short to margin and you saccer with craft right.
Speaker 1: I mean, if you look at the whole three G model,
Speaker 1: why had that that has not done well well? Partially
Speaker 1: because they're too focused on profitability. They cut down everything
Speaker 1: through the bone. And guess what, You're not investing in
Speaker 1: the business. And there are not many people interested in
Speaker 1: chief spread anymore. Quite quite fascinating, and can you stick
Speaker 1: around a bit? I have a ton more questions for you.
Speaker 1: We have been speaking with Rage Jane, chairman and chief
Speaker 1: investment Officer of g q G Partners. If you enjoy
Speaker 1: this conversation, we'll be sure and come back for the
Speaker 1: podcast afters, where we keep the tape rolling and continue
Speaker 1: discussing all things international markets. You can find that at Apple, iTunes,
Speaker 1: Google Podcasts, Spotify, Overcast, wherever finer podcasts are sold. We
Speaker 1: love your comments, feedback and suggestions right to us at
Speaker 1: m IB podcast at Bloomberg dot net. Be sure and
Speaker 1: check out my daily column. You can find that at
Speaker 1: Bloomberg dot com slash Opinion. Follow me on Twitter at
Speaker 1: rid Holts. I'm Barry Riholts. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio. Welcome to the podcast for Geeve.
Speaker 1: Thank you so much for doing this. I've been looking
Speaker 1: forward to having this conversation. You know, there is a
Speaker 1: group of people who are significant and influential in the
Speaker 1: world of investing that forget the public half of the
Speaker 1: investing world. UM, may not be familiar with their background
Speaker 1: in history. UM, you're one of those people. You're You've
Speaker 1: been running a substantial amount of money for a long
Speaker 1: time and I followed your career for a while. I
Speaker 1: think a lot of people may not know who you are,
Speaker 1: and I hope this conversation helps more people learn about
Speaker 1: you and your background. Thank you so so, we missed
Speaker 1: a bunch of questions during the broadcast portion. Let let
Speaker 1: me um, let me go through some of the areas
Speaker 1: we didn't get to. We talked about quality growth, We
Speaker 1: did not talk about the shift from active to passive.
Speaker 1: So first, what does this mean going forward? Is this
Speaker 1: a temporary shift or is this more permanent? And I
Speaker 1: can't help but wonder does the move too as more
Speaker 1: and more people become passive investors, does that create opportunities
Speaker 1: for the remaining active investors. Yeah, like, I think that's
Speaker 1: that's obviously the most important debate, And frankly, I don't
Speaker 1: think there's a debate anymore. I think it's the reality
Speaker 1: and it's not a temporary issue. It's a permanent uh
Speaker 1: structural shift towards passive UH. And the reasons are beside
Speaker 1: the fact that active you know, hasn't add added value
Speaker 1: on an average UH, probably don't add value. But I
Speaker 1: think that you're being kind, But I think, I think,
Speaker 1: I think a couple of reasons where And the second
Speaker 1: part of a question was whether it helps active remaining active?
Speaker 1: It does because you know, if if you're paying attention
Speaker 1: over the longer run, and hopefully you should will add
Speaker 1: you should be able to add value. But I think,
Speaker 1: I think, I think the big reason why is is
Speaker 1: Number one, is active manager charged too much money? M hm.
Speaker 1: They are being boxed into into in you know, they
Speaker 1: boxed into their specific sandbox, and the market changes changes colors.
Speaker 1: So if you're a let's say mid cap value manager,
Speaker 1: that's wonderful to be compared. But is the is an
Speaker 1: incline really looking for a US MidCap value manager or
Speaker 1: you just talk about long term compounding, right, So the
Speaker 1: segmentation has made life more difficult. So if you're not
Speaker 1: able to break through that, it'll it's a problem. In fact,
Speaker 1: there was a time and people have accused me of
Speaker 1: being a value manager their time, and people accuse me
Speaker 1: of a growth manager, and I'm doing exactly the same thing.
Speaker 1: So I think you need to have the ability to
Speaker 1: not be labeled for rest of your life because yes,
Speaker 1: of course you won't buy higher quality sensible prices, but
Speaker 1: sometimes the market gives you very high quality business a
Speaker 1: very attractive evaluations. So why wouldn't you buy those? Right? Uh?
Speaker 1: And I think I think that if you are open
Speaker 1: minded and if you keep your costs low. And that's
Speaker 1: an important part because if you look at especially on
Speaker 1: the institutional side, institutions growth basis do actually our perform.
Speaker 1: The problem is on net basis they're nder perform the
Speaker 1: way Yeah exactly. So I mean the question why people
Speaker 1: still of charging hundred hundred ten based funds for US
Speaker 1: large mandates no sense. What's even more shocking is you
Speaker 1: can find SMP five index funds at a hundred and
Speaker 1: fifty basis points. That makes no sense whatsoever. That's hybrid Robert, right,
Speaker 1: So that that shouldn't be allowed actually because of misleading
Speaker 1: practice because typically institutions will not get would not get
Speaker 1: you know, would not pay for that. But it's a
Speaker 1: retail it's kind of misleading. I personally find misleading. So,
Speaker 1: I mean it's been around for a while, So I
Speaker 1: know you cut fees five basis points on a couple
Speaker 1: of your funds. What is your thinking and is this
Speaker 1: something that you're doing because you're comfortable with it? Are
Speaker 1: you responding to fee pressure in the industry? Do you
Speaker 1: plan on making more cuts in the future. How do
Speaker 1: you think about what's the appropriate level of fees relative
Speaker 1: to the size of the funds and the performance of
Speaker 1: the funds? So something you said at the tail in
Speaker 1: about the performance of the fund At the end of
Speaker 1: the day, clients care about net performance, not gross performance, right,
Speaker 1: and net performance means your fees matter. So what hedge
Speaker 1: funds problem is not lack of talent, is the fee structure. Right.
Speaker 1: There isn't that m juice in the game to have
Speaker 1: to or twenty and be able to add any value unfortunately, right,
Speaker 1: I mean, how many hedge funds around in late nineties
Speaker 1: let alone, you know, thirty four years ago, right one,
Speaker 1: from a hundred hedge funds to eleven exactly, So so
Speaker 1: I think, I think so that's why one of the
Speaker 1: things we have done consciously is that we want to
Speaker 1: make sure that our fees are below median and very comparedive.
Speaker 1: Why because I want to be you know, we want
Speaker 1: to be known as a firm to have added value,
Speaker 1: which is net performance. So you want to be you know,
Speaker 1: very cost competitive simply because you want to have better performance. Right.
Speaker 1: So it's actually an odd interest. And then you can
Speaker 1: have a long term sustainable client base because the higher
Speaker 1: recharge the expectations go up on on a shorter term
Speaker 1: basis of our performance, which is not not possible. So
Speaker 1: I think, I think to build a sustainable investment managment shop,
Speaker 1: you have to be very cost competitive, and the lower
Speaker 1: the cost, better your net performance going to be. It's
Speaker 1: not about margins. So my personal view is that you
Speaker 1: can't build a business with a specific margin target. That
Speaker 1: makes absolutely no sense. That should be an that should
Speaker 1: be a fall out of what you're doing, not a
Speaker 1: target itself. Quite quite interesting. So you're you're known as
Speaker 1: an international manager, but you also run a US domestic fund.
Speaker 1: How do you balance the two? They're such different um environments,
Speaker 1: such different stocks. How do how do you go back
Speaker 1: and forth between thinking about equities in the US and
Speaker 1: thinking about international equities. I have I've done it for
Speaker 1: twenty years and now both developed an emerging markets and
Speaker 1: I feel I'm a better emerging market manager because I
Speaker 1: do developed advisive versa. So, for example, last year that
Speaker 1: the implication of trade we thought were clearly being underappreciated
Speaker 1: in a lot of Chinese companies, meaning the tariffs, the
Speaker 1: Tarifan trade ward. I mean it's not just putting tariff,
Speaker 1: but it also impacts Apple and a bunch of other
Speaker 1: companies here. So if you look at Nike, Starbucks, and Apple,
Speaker 1: I mean this, this, this, You've got to incorporate the
Speaker 1: potential risk coming from what's happening in China. So in fact,
Speaker 1: some of the names that we did cut back last summer,
Speaker 1: which added ultimately added value, was primarily because of read
Speaker 1: on ground in China. So I think there's a lot
Speaker 1: of cross pollination. In fact, I personally feel that if
Speaker 1: you're learning a large gap mandate in US on U
Speaker 1: S secretaries, I don't see how you would survive the
Speaker 1: long run without having good insights what's happening as of
Speaker 1: the world. So you you really need to have that
Speaker 1: level of sort of some understanding. You don't have to
Speaker 1: run emerging market portfolio, but you need to have some
Speaker 1: understanding what happened in some of these countries because that's
Speaker 1: where the growth might become a lot of large multinationals.
Speaker 1: Are you in these countries on a regular basis? Do
Speaker 1: you do a lot of traveling or does do you
Speaker 1: have your team um put boots on the ground or
Speaker 1: is that just not necessary these days? Yeah? You boots
Speaker 1: on the ground is not necessary. In fact, what I
Speaker 1: found is a little bit counterproductive. Really. Why is because
Speaker 1: people tend to become bias. It's like trees versus forests.
Speaker 1: It's so close to the three that you forget the
Speaker 1: forest maybe on fire, right and and by the way,
Speaker 1: it happens more often. Uh so, so you've gotta be
Speaker 1: careful of that. But yeah, if you do travel. But
Speaker 1: I think again that's part of the evolution. Corporate access
Speaker 1: to corporate management is a lot less valuable than you
Speaker 1: used to be. Changed a lot it's changed, and I
Speaker 1: think that's a lot of wild large shops struggling. You
Speaker 1: can talk to the CEO and say, look, the next
Speaker 1: coup is gonna great, and you load up on the stock.
Speaker 1: Lets just happened in nineties all the time. It doesn't
Speaker 1: work that way anymore, and which is why. And you
Speaker 1: just have to sort of adapt to say that that
Speaker 1: you know, corporate access is actually is important to understand
Speaker 1: how they think. But just because you happen to know
Speaker 1: a uccer Bruck doesn't mean you're gonna get the stock right. Right,
Speaker 1: So so you mentioned you do. Both US and international
Speaker 1: U S equities have outperformed international now for at least
Speaker 1: a decade, and by a substantial amount. Historically that's been
Speaker 1: a much shorter cycle. US leads and international leads. And
Speaker 1: it goes back and forth. Oh what what do you
Speaker 1: attribute this huge out performance over the past decade two?
Speaker 1: And and when do you suspect um global stocks and
Speaker 1: international stocks might take the leadership role again? Yeah? I
Speaker 1: mean if you take a very long tram view, these
Speaker 1: things tend to tend to go in cycles, right, I mean, Um,
Speaker 1: if you look at US corporate margins and by the
Speaker 1: why US are performed because ben't fastened rest of the world.
Speaker 1: I'm and simple as that, right, But all right, which
Speaker 1: raises the fundamental question, why have earnings growth been faster
Speaker 1: here than internationally? Was it the US response to the crisis?
Speaker 1: Is it just the nature of the economy? What is
Speaker 1: it that why US companies have been doing so well
Speaker 1: compared to their overseas piers. I think I think it's
Speaker 1: a combination of what some of what you said, because
Speaker 1: I look at the European banking system that did not
Speaker 1: sort of you know, clean up as fast as what
Speaker 1: happened here. I think one of the things there will
Speaker 1: just put everybody in the room and say everybody's gonna
Speaker 1: take capital and while you recappalize everybody, but right, I
Speaker 1: mean you forced capital down everybody's throats, which is the
Speaker 1: best thing that could have happened in hindsight. In Europe.
Speaker 1: Can be done, won't be done? Um, that's a problem.
Speaker 1: What what about austerity we've seen in the UK and
Speaker 1: the EU? Was that How much of a factor was
Speaker 1: that that they basically ignored everything keens toward us and
Speaker 1: try to tighten their belts in the middle of a downturn. Well,
Speaker 1: that's that's the whole problem in Europe. In general is
Speaker 1: you know, there's there's difference between what's happening or what
Speaker 1: was happening in Germany and what was happening in Spain
Speaker 1: and Italy and Portugal. Right, so they would big differences
Speaker 1: in terms of radar growth, unemployment, terms of fourth. And
Speaker 1: and that's why I've seen property price in Germany go
Speaker 1: up dramatically now because it's basically free money, UM. So
Speaker 1: I think that's a fundamental flaw in Europe. Um. Having
Speaker 1: said that, there are some really good companies um which
Speaker 1: can allow you to come only a wealth over the
Speaker 1: longer run. So if you take set of view, you
Speaker 1: get these cycles in between. It feels like, oh US
Speaker 1: always going to do well or internationals gonna do well.
Speaker 1: For example, if you're sitting here in two thousands, even
Speaker 1: you didn't make a dime, you didn't really make any
Speaker 1: money in US equities or the prior decade. That's why
Speaker 1: meaningful model of money was going in emerging markets and
Speaker 1: non US. Now fast forward another eight nine years, that's
Speaker 1: the opposite. So I think these these things go in cycles.
Speaker 1: One aspect I would say I would highlight but is
Speaker 1: not being appreciated, is the US corporate profitability has gone
Speaker 1: up dramatically since two thousand. I would argue a lot
Speaker 1: because of Chinese entry into w t O and this
Speaker 1: whole decoupling notion of decoupling with China means that Apple
Speaker 1: has to shift its manufacturing based to other areas out
Speaker 1: of China, outside of Chinnel just as an example, right
Speaker 1: ample Apple is just one example that has to be
Speaker 1: margin negative for margins or the longer run. So the
Speaker 1: corporate profitability US corporate margins are we seeing some sort
Speaker 1: of secular peak, not because of some cyclists such but
Speaker 1: because now you have to go somewhere else to set
Speaker 1: a manufacturing based So again, a lot of companies will
Speaker 1: not be IMPACTEDS software is it will not be impacted,
Speaker 1: but other companies will be impacted. So but that's you know,
Speaker 1: that's that's kind of what makes investing interesting. So you
Speaker 1: did an interview a couple of years ago with City
Speaker 1: wire over in in London, and your answer to one
Speaker 1: of the questions was, and I don't remember the question,
Speaker 1: but it doesn't even matter long term performance, long term performance,
Speaker 1: long term performance, explain I think. I think at the
Speaker 1: end of the day, it's longer term performance incorporates multiple cycles.
Speaker 1: And which is why I feel to do. To really
Speaker 1: judge an investor or portfolio managing, you've got to look
Speaker 1: at how they how they survived the inflection points, because
Speaker 1: if you think about it, what kills quants inflection points,
Speaker 1: it's almost a guarantee that the market cycles would turn
Speaker 1: into something else. I can't sit in forecast. So you
Speaker 1: need to able to navigate the inflection points. People did
Speaker 1: in late nineties got killed the cycle turned in March
Speaker 1: or two thousand, for example, right then there was a
Speaker 1: commodity super Bowl market people called commodity supercycle. Well, we
Speaker 1: don't discuss them anymore as such, right, And I'm sure
Speaker 1: there's super same in the text site, right. I mean
Speaker 1: there's a different breed of tech names that are doing well.
Speaker 1: You don't talk about Intel as much. You still talk
Speaker 1: about Microsoft when you talk about Intel as much. So
Speaker 1: I think that's why you need to be able to
Speaker 1: capture a few inflection points to be able to see
Speaker 1: whether the managers adapted or they keep bidding the drum off.
Speaker 1: We do a B C D RNs repeat and don't
Speaker 1: worry about it that that actually makes me very nervous
Speaker 1: because you know that that typically It's like saying you're
Speaker 1: going to drive from New York to Washington a sixty
Speaker 1: miles an hour irrespective road conditions. Makes makes a lot
Speaker 1: of sense. So, so you mentioned quants don't do especially
Speaker 1: well at turning points. Arguably the past couple of years
Speaker 1: have not been too kind to the quants, especially the
Speaker 1: ones with an emphasis on factor investing. Um, are we
Speaker 1: in a turning point now or is this something different
Speaker 1: that's causing them to underperform? I think I think what's
Speaker 1: happening is part of that is a lot of the
Speaker 1: fact that everybody talks about factor investing, question how much
Speaker 1: that is an arbitrage away. I mean, there was a
Speaker 1: recent piece in you know, academia that once a study
Speaker 1: is published about a particular type, factor or style, how
Speaker 1: well it works historically the efficacy that goes down, right,
Speaker 1: So I think we sometimes if we get we are
Speaker 1: competing with ourselves. So once it is recognized eas to
Speaker 1: do well, the efficacy will be lore makes makes a
Speaker 1: lot of sense. You mentioned earlier the academic piece, UH
Speaker 1: that looked at fund managers who add value in buying
Speaker 1: on average, but generally do a terrible job selling. And
Speaker 1: and I recul seeing that in January Uh, and I
Speaker 1: had written about it, and the takeaway seemed to be
Speaker 1: that the two things the fund managers were very poor
Speaker 1: at selling were either stocks that had gone up a lot, UH,
Speaker 1: that were strong growth with momentum. They sold because look
Speaker 1: how much money we've made, or stocks that have gone
Speaker 1: down a lot and had become very cheap. Uh. How
Speaker 1: much of that is a fundamental misunderstanding of why stocks
Speaker 1: go up and down? And how much of that is
Speaker 1: just pure behavioral finance and the application of emotions to
Speaker 1: to the decision making process. But if you think about it,
Speaker 1: isn't the second one, i e. Behavior driving how much
Speaker 1: stock has gone and up and down? Sure, my view
Speaker 1: is that cost you bought the stock is irrelevant. In fact,
Speaker 1: somebody asked me the other day, what what's your price
Speaker 1: of stock x Y? You know excess? Look, I don't know,
Speaker 1: and it's not relevant because the moment you think about
Speaker 1: I bought it this price, you anchoring to that. And
Speaker 1: therefore it's because the market doesn't care where you bought it, right,
Speaker 1: so you don't. And I think that anchoring is the
Speaker 1: biggest issue, and frankly, be anchored to our own knowledge
Speaker 1: base because if you think about our knowledge is history,
Speaker 1: that makes perfect sense. The so so you're you're gonna say,
Speaker 1: behavior makes a great deal of difference obviously to now,
Speaker 1: why doesn't it have the same impact on buying? I
Speaker 1: guess there is no there, there's no endownment effect, there's
Speaker 1: no anchor. You don't own it previously, So it's a
Speaker 1: fresh sheet of paper when you're making a purchase. Is
Speaker 1: that thinking? Yeah? Exactly? And I think I think that's
Speaker 1: why I've done a number of times that I would
Speaker 1: just sell the stock to clear my own mind, because
Speaker 1: that this game is played inside, it's not outside. You're
Speaker 1: not fooling anybody, fooling yourself. So how do you how
Speaker 1: do you reboot your own mind? And sometimes you might
Speaker 1: well sort of take it off the table, And a
Speaker 1: lot of times you don't want to. You don't know
Speaker 1: why the name again, do you not anchor on your
Speaker 1: previous buy or sell when you're approaching a name. I'll
Speaker 1: give you my favorite example before the I when the
Speaker 1: iPod not iPhone iPod first came out, Apple was about
Speaker 1: fifteen bucks with thirteen cash dirt cheap. It ran up
Speaker 1: to about forty five dollars in a relatively cheap amount
Speaker 1: of short amount of time and then pulled back. And
Speaker 1: I remember selling that stock in the low forties, thinking
Speaker 1: there I tripled my money, and here it is. It's falling,
Speaker 1: and I said, if it ever gets back over forty five,
Speaker 1: I'm a buyer again. And of course it goes back
Speaker 1: over forty five, and I'm like, I paid fifteen dollars,
Speaker 1: how do I pay forty five? What is the thing
Speaker 1: to go even higher? And of course we know what
Speaker 1: happened that that was a classic anchoring trading error. How
Speaker 1: do you avoid doing that? When you do a clean
Speaker 1: sheet of paper and say, okay, I've sold this stock
Speaker 1: and I'm just forgetting about where I bought it or
Speaker 1: sold it. It's difficult. I think. I think I've been
Speaker 1: working on it forever and I still have you know,
Speaker 1: some of us, You know I still commit the same
Speaker 1: or similar mistakes. So I think you can only work
Speaker 1: on reducing that, which is where you want to have
Speaker 1: the diversity in terms of how people think about the names.
Speaker 1: You want to have a bull and bear case within
Speaker 1: the team, right, which is why we've actually hired folks
Speaker 1: who have good shorting experience. Um, We're not gonna launch
Speaker 1: long short How many long only folks are willing to
Speaker 1: entertain folks have shorting experience in the team. That's interesting.
Speaker 1: So the way you deal with behavioral issues is you
Speaker 1: make sure that a lot of people at the table
Speaker 1: have broadly different views and histories and perspective. I have
Speaker 1: had client meetings where a name, Um, I I said, look,
Speaker 1: this is a bull and this isn't bear, and I'm
Speaker 1: out of the room. We can talk to both of them.
Speaker 1: We don't own the stock right now we wanted before.
Speaker 1: So but look, I think I think, I think you
Speaker 1: just would work on reducing that. It's very hard to
Speaker 1: get over that, to say the very least. I know,
Speaker 1: I only have you for a finite amount of time. Him.
Speaker 1: So let's jump to our favorite questions that we ask
Speaker 1: all of our guests. Uh, tell us, what was the
Speaker 1: first car you owned? Your make and model? Uh it
Speaker 1: was Honda Civic ninety two. Right. It's hard to kill
Speaker 1: those and it will stick shift because I'm trying to
Speaker 1: save a little bit of money. Right, same same for me.
Speaker 1: Those cars are all but impossible to kill. They run forever. Uh.
Speaker 1: What's the most important thing that people don't know about
Speaker 1: regif Jane. Yeah, it's it's kind of hard to say
Speaker 1: because a lot of pretty much everything is public. But
Speaker 1: but maybe the fact that I've not been on a
Speaker 1: golf course will last ten years now. Uh So were
Speaker 1: you a big golfer? No? I was never a big golfer,
Speaker 1: So that's what I'm saying. But I live in Florida
Speaker 1: and I should drive through its golf course. So who
Speaker 1: are your early mentors who helped influence the way you
Speaker 1: think about stocks and investing? Um, I can't say I've
Speaker 1: worked with any individual ways sort who has mentored me.
Speaker 1: But obviously he learned a lot from reading Buffett, I think.
Speaker 1: Or there's a whole sloop you know Phil Fisher? Um,
Speaker 1: Phil Fisher? What the name is familiar where? Yeah? He
Speaker 1: wrote that, you know, the famous book in the fifties,
Speaker 1: and he has influenced you know a lot of folks,
Speaker 1: including including Buffett. Uh common Stocks? Sure? Yeah, Um that's
Speaker 1: not Ken Fisher's father, is it? I think it is.
Speaker 1: I think it is too. That's quite interesting. Speaking of books,
Speaker 1: what are some of your favorite books fiction, non fiction?
Speaker 1: What what do you like to read? So? Um, I
Speaker 1: I think the lessons for corporate America probably is one
Speaker 1: of the better from an investment perspective, I feel, and
Speaker 1: anything Buffett has written obviously is is what you know,
Speaker 1: definitely worth reading and rereading, meaning his annual letters or
Speaker 1: annual letters. Uh. And you know some of the transcripts
Speaker 1: from his and you know a g MS that kind
Speaker 1: of thing. I went to grad school with a guy
Speaker 1: named Lauren Cunningham who came up with a brilliant idea
Speaker 1: twenty five plus years ago of taking Buffett's annual letters
Speaker 1: and printing them in a book. And well, that's what
Speaker 1: I'm talking about lesson for Corporate America. So that's Karring
Speaker 1: Cunningham's book that that I went to school with him.
Speaker 1: And who would have known back years ago that was
Speaker 1: the thing. And it's become I think in a nuity
Speaker 1: any any of the books you want to mention, Yeah,
Speaker 1: like I think, I think, I think, I feel that
Speaker 1: it has to be a little more holistic. Um. So
Speaker 1: I do quite like the Art of Happiness. Why. I
Speaker 1: think it's about Howard Cutler or something. There's an interview
Speaker 1: of Dalai Lama really Yeah, and you know recently add
Speaker 1: that this book by and Duke on Betting that was
Speaker 1: book Thinking Bets. The other. Actually, I'm reading this book
Speaker 1: by Rory Sutherland, which I quite like. The Alchemy just
Speaker 1: came out. Um, the Alchemy, The Alchemy. Yeah, he's he's
Speaker 1: from the advertising side, so it's kind of colorful book.
Speaker 1: It's it's a fun read. So I I read rather eclectic.
Speaker 1: That's that's quite quite interesting. UM, tell us about a
Speaker 1: time you failed and what you learned from the experience.
Speaker 1: I think, I think from an investment perspective, UM, what
Speaker 1: if I go back in two thousand eight. You know,
Speaker 1: I actually pretty much ended up exiting all our financial
Speaker 1: exposure by two thousand seventh. Their bats, but I still
Speaker 1: a lot of exposure which could have an impacted negatively
Speaker 1: because of slowing economy and the fact that I was
Speaker 1: so nervous on the financial side. The question why didn't
Speaker 1: I connect the dots? And that actually led me to
Speaker 1: revamping the whole investment team over the years, how I
Speaker 1: thought about investment team. Uh and in fact, g k
Speaker 1: as you know, I didn't bring anybody from my prior team.
Speaker 1: This was really uh keeps using a clean sheet of paper.
Speaker 1: You started from scratch and launched with UM. Nobody from
Speaker 1: your prior firm. What was the thinking that the thinking
Speaker 1: is again, you know, what have I learned, I mean,
Speaker 1: over the years in terms of what works and doesn't work?
Speaker 1: How can create more diversity, And so tried to hide
Speaker 1: with a lot more diversity in terms of folks with long,
Speaker 1: short experience, credit, low credited experience, full capital structure analysis,
Speaker 1: so different type of investigative journalists. And I think I
Speaker 1: think that's part of learning evolving. In fact, there was
Speaker 1: again somebody who has covered a consultant, has covered this
Speaker 1: space for a while said to me something which is interesting.
Speaker 1: What they found was that the team that had no
Speaker 1: employee analyst turnover, the chance of then going under was
Speaker 1: the highest. Really, that's interesting, and that actually makes sense.
Speaker 1: This interesting does a very good job selling how everything
Speaker 1: is stable, everybody has been here since they were childhood
Speaker 1: and don't really batter kind of stuff. But that's misleading.
Speaker 1: That leads to group think. So how do you sort
Speaker 1: of read And by the way, I've done that kind
Speaker 1: of you know, restructuring before too, because I feel I'm
Speaker 1: better hiding now than I was twenty years ago, fifteen
Speaker 1: years ago, right, I mean, you got to learn from
Speaker 1: the mistakes. So sure that that's part and parcel of
Speaker 1: which is why I have a I thought I'll have
Speaker 1: a clean sheet of paper, and what would I redo?
Speaker 1: And and and one reason I think we've done better
Speaker 1: now is partship because of Okay, these are the mistakes.
Speaker 1: It's like tennis. If your back end is weak, the
Speaker 1: good news is you can im You know, in tennis
Speaker 1: you can add somebody else to play a back end.
Speaker 1: In this game, you can. So what how can I
Speaker 1: address my own weaknesses? Let me hire those rather than
Speaker 1: sort of saying, gee, this is the same group of
Speaker 1: people and we're all happy living ever after. So so
Speaker 1: you mentioned golf and now tennis. Tell us what you
Speaker 1: do for fun when you're not in the office. Unfortunately
Speaker 1: you need I needed. I tried everything, including golf and tennis.
Speaker 1: So I don't think so I would say that I'm
Speaker 1: good at tennis at all. Um, I like to read.
Speaker 1: I mean, you know, eclectically doesn't do investment at all.
Speaker 1: So I think my best day would be having a
Speaker 1: good book and a couple of coffee and sitting alone
Speaker 1: and reading on a Sunday morning. That probably be describe
Speaker 1: what I like. That That sounds like fun. So what
Speaker 1: is it these days that you're most optimistic about, and
Speaker 1: what are you most pessimistic about. I think that, um,
Speaker 1: there's still quite a bit of pessimism generally speaking on markets.
Speaker 1: I'm talking about equity markets. Uh. The focus on on
Speaker 1: what FED is going to do is and it's not
Speaker 1: an important don't get me wrong. But there's real corporate
Speaker 1: earnings picture, which is important, not is not unimportant, but
Speaker 1: it's separate from just where rates are to if rates
Speaker 1: go lowered, how much does that really help Apple or Amazon? Yeah,
Speaker 1: it won't. It won't make that big a difference, right,
Speaker 1: I mean Amazon has not done well because of rates
Speaker 1: collapsing or something. Right, It's it's a fundament They're fundamentally transformed.
Speaker 1: How we you know, how we transact um and that
Speaker 1: kind of transformation happening a lot of different areas. So
Speaker 1: I feel that we need to focus on that true
Speaker 1: to find the next group of winners um uh. And
Speaker 1: and some of the old companies have sort of restructure
Speaker 1: themselves in in a dramatic fashion too. That's a lot
Speaker 1: more important. So I'm actually pretty optimistic in terms of
Speaker 1: where the world is. I'm not saying the market is
Speaker 1: going to go up next year. Or something. But but
Speaker 1: because sometimes too much focus on FED policy and you know,
Speaker 1: and and other things that are wrong in the world. UM.
Speaker 1: And by the way, that's why The Factfulness by Rosaling
Speaker 1: is another fantastic book. UM. I think I think the
Speaker 1: world is a lot better place today than than than
Speaker 1: we give it credit for. Anywhere in the world. I mean,
Speaker 1: I've invested in frontier markets twenty years ago. I mean
Speaker 1: almost invested invest in Zimbabwe in ninety after visiting their
Speaker 1: thank god I didn't. Um. We've invested in Botswana and Bibia,
Speaker 1: Mouritius and all over the place. Generally, you go, things
Speaker 1: are better today than they were ten twenty three years ago,
Speaker 1: I mean, broadly speaking. So that's the optimistic side. What
Speaker 1: what are you pessimistic about? I think I think I
Speaker 1: think this um, the trade water issues, I feel a
Speaker 1: much more deeper rooted. Uh. This is a paradigm shift
Speaker 1: that is basically unfore Lygen tried it in front of
Speaker 1: our eyes. Um. And I think I think there will
Speaker 1: be a transition Peter needed, you know, because of because
Speaker 1: of what is happening. And I think I think if
Speaker 1: it's slow, I think we should really handle it. I
Speaker 1: hope it's not too fast transitions just a batter life.
Speaker 1: So I'm not saying it's gotta bad. They happen. Makes sense.
Speaker 1: So if a millennie all or recent college grad came
Speaker 1: up to you and said they were interested in a career,
Speaker 1: uh in investing, what sort of advice would you give them?
Speaker 1: First of all, I would say that you have the
Speaker 1: open minded and humble about about things. If you're not humble,
Speaker 1: because what arrogance leads to is you become dogmatic about
Speaker 1: to us, and that's the worst thing to doing investing
Speaker 1: is become arrogant. In fact, what I've seen is my
Speaker 1: worst losses came and I knew I thought I knew
Speaker 1: the most because you become dogmatic. So being open minded
Speaker 1: humble is important. The second part is you always have
Speaker 1: to think about giving back. So we for example, a
Speaker 1: GG launched our foundation, but then basically and have a
Speaker 1: launching with employee matching. We've you know, it's important to
Speaker 1: get back and this industry pays well, we need to
Speaker 1: think about how we sort of you know, from a
Speaker 1: societal perspective, how what are we actually about giving back
Speaker 1: to society? So so how does that work? You're you're
Speaker 1: matching if an employee makes it comes up to you
Speaker 1: with a UM, appropriate philanthropy or charity g q G
Speaker 1: will match whatever the eployee. Yeah, so there's yeah, so
Speaker 1: if you're trying to be thoughtful about it. So there's
Speaker 1: a separate committee. I'm not on the committee within the
Speaker 1: firm from different areas of the firm, who would approve that, uh,
Speaker 1: and then we would match. Ah. But but that foundation
Speaker 1: is also now started actively giving out for from a
Speaker 1: you know, education, health care, you know, especially kids, and
Speaker 1: and and a few other causes. And finally, what is
Speaker 1: it that you know about the world of investing today
Speaker 1: that you wish you knew thirty years or so ago
Speaker 1: when you were first ramping up That I that I
Speaker 1: know a lot less than what I think. I think
Speaker 1: you said. You begin to appreciate your own um uh
Speaker 1: yeah yeah. You let me rephrase that. As you grow older,
Speaker 1: you tend to appreciate what you don't know a lot
Speaker 1: more and that is part of the strength, and that
Speaker 1: actually makes you not only better invested, but a better
Speaker 1: human being. So I think I think it's important to
Speaker 1: and I feel light, I feel a no, a lot
Speaker 1: less today then I thought I knew thirty years ago. Um,
Speaker 1: and that's important part of not just investing, but life
Speaker 1: makes perfect sense. Reggiev, thank you so much for being
Speaker 1: so generous with your time. We have been speaking to
Speaker 1: Rajiv Jane. He is the chairman and chief Investment Officer
Speaker 1: of g q G Partners. If you enjoy this conversation,
Speaker 1: well look up an intro down in Intro on Apple
Speaker 1: iTunes and you can see any of the other two
Speaker 1: d and fifty such conversations we've had over the previous
Speaker 1: five years. Be sure and give us a review and uh,
Speaker 1: if you wanna make any suggestions comments, feedback right to
Speaker 1: us at m IB podcast at Bloomberg dot net. I
Speaker 1: would be remiss if I did not think the crack
Speaker 1: staff that helps put these podcasts together each week. Michael
Speaker 1: Batnick is my head of research. Attica val Bron is
Speaker 1: our project manager. Michael Boyle is my producer. I'm Barry results.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.
Speaker 1: H