Speaker 1: This is Masters in Business with very Ridholts on Bloomberg
Speaker 1: Radio this weekend. On the podcast, I have a special guest.
Speaker 1: His name is Matt Benkendorff, ce IO of Von Toble
Speaker 1: Quality Growth, which runs about thirty five billion dollars UH
Speaker 1: in equities. This is really a fascinating conversation about a
Speaker 1: very specific way to manage equities UH that seems to
Speaker 1: differ from how a lot of different people approach UH investing.
Speaker 1: VON the group that Matt works with is specifically an
Speaker 1: active manager. He oversees six different areas including Asia, Global,
Speaker 1: European US, and Global means go anywhere, as well as
Speaker 1: emerging markets. They have a very unique approach. A single
Speaker 1: team puts money to work in all those areas. A
Speaker 1: lot of UH firms do not operate that way. They
Speaker 1: have amassed quite an outstanding track record beating comparable firms
Speaker 1: and their benchmark for quite a long number of years.
Speaker 1: And if you're at all interested in how to manage assets,
Speaker 1: how to run a high conviction UH portfolio, how to
Speaker 1: think about a process for stock selection and risk management UH,
Speaker 1: then you're going to find this to be an absolutely
Speaker 1: fascinating conversation. So with no further ado. My interview of
Speaker 1: Matt Benkendorf of n Toble Quality Growth. This is Masters
Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. My special
Speaker 1: guest this week is Matt Benkendorf. He is the CEO
Speaker 1: of Untoble Quality Growth, a thirty five billion dollar global
Speaker 1: growth equity boutique division of investment giant Von Toble out
Speaker 1: of Switzerland's. Matt joined the firm in He became deputy
Speaker 1: portfolio manager in two thousand and six, lead portfolio manager
Speaker 1: of the European Equity Strategy and OH eight and since
Speaker 1: two thousand and twelve he has been lead portfolio manager
Speaker 1: for US Equity Strategy. Matt Benkendorff, Welcome to Bloombark. Thanks Barry,
Speaker 1: thanks for having me. Did I did I get your
Speaker 1: name right? I feel like I'm mispronouncing It's a tough one,
Speaker 1: but you got it right. There's been many variations over
Speaker 1: the years, but you got the best one there, I
Speaker 1: think so so. Von Tobol has been around since nine
Speaker 1: eight four. You joined the firm in How was your
Speaker 1: investment philosophy shaped by those years? That was quite a
Speaker 1: era of equity investing. Yeah, he could, UH say, I
Speaker 1: was very much brought up and steeped within Von Tobel.
Speaker 1: You know. I came to Von Toba lad of undergraduate,
Speaker 1: which is a little bit rare in this business, you know.
Speaker 1: And I think if you even take a further step
Speaker 1: back and look at the longer arc of my life,
Speaker 1: you know, I'm sitting here today doing what I always
Speaker 1: wanted to do as a kid. Now, So the journey
Speaker 1: started a long time ago. I grew up in a
Speaker 1: family business. I was always interested in business. I always
Speaker 1: thought in terms of what works in business, what doesn't profitability?
Speaker 1: And then when I was a kid, I found the
Speaker 1: stock market to be an interesting outlet for that because
Speaker 1: so as a kid, you you if I'm guessing your
Speaker 1: age is right. So you're talking about late seven of
Speaker 1: these early eighties, So that was the beginning of what
Speaker 1: ended up being an eighteen year bull market. How did
Speaker 1: that thousand percent down increase affect uh the way you
Speaker 1: look at equities. Yeah, it's interesting if you look at
Speaker 1: my upbringing to uh. You know, my father was a
Speaker 1: farmer from New Jersey at a landscaping business. We had
Speaker 1: a garden center, uh in northwestern New Jersey. So I
Speaker 1: wasn't around the markets at all, you know, it wasn't
Speaker 1: something we talked about at all at home. I don't
Speaker 1: know how I found it. I just sort of stumbled
Speaker 1: upon it once I got into high school. Really and uh,
Speaker 1: that backdrop you know, of what was going on then,
Speaker 1: as you described, that wasn't you know, as close to me,
Speaker 1: which is actually interesting, and that it was more about
Speaker 1: the process itself. It wasn't the results, you know, it
Speaker 1: was the It was the item of being able to
Speaker 1: invest in a business via stock. So I was actually disconnected,
Speaker 1: which is kind of back to I think what ends
Speaker 1: up successful today not focusing on that aspect of it,
Speaker 1: the forward thinking, what the numbers, it's the fundamentals. So
Speaker 1: it's a very fundamental basis too, so less of a
Speaker 1: stock market investor, more of a specific company that happens
Speaker 1: to be public investors. That a fair That's exactly it.
Speaker 1: You know I I you know I as a kid
Speaker 1: and even now today, you know, and on my way
Speaker 1: up here to the studio, I just am wired that
Speaker 1: way that I'm always looking around at things wondering how
Speaker 1: they work, and then generally looking at businesses and wondering
Speaker 1: how they work. And it kind of gets to you
Speaker 1: asked about the philosophy what we describe as quality quality growth.
Speaker 1: Today it's always breaking down businesses quantitatively and qualitatively into
Speaker 1: what makes certain it's great and what makes most businesses
Speaker 1: quite frankly average. And why would you want to get
Speaker 1: out of bed in the morning, you know, to sort
Speaker 1: of engage in something. What's in it for you as
Speaker 1: an owner of the business. So coming into midtown Manhattan today,
Speaker 1: it's a lovely September morning. What did you notice what
Speaker 1: caught your eye that you started thinking of in terms
Speaker 1: of is this particular business doing well? What what businesses
Speaker 1: aren't doing well? I've noticed a lot of the retail
Speaker 1: shops around Manhattan seemed to be closing their doors. Yeah. Yeah,
Speaker 1: that's the interesting thing when you get into this city
Speaker 1: and you realize sort of the commoditized nature of most
Speaker 1: of the businesses here, particularly restaurants. Right, You just wonder
Speaker 1: you drive up any of the avenues, you wonder how
Speaker 1: how all these places stay in business? You know, what
Speaker 1: are the margins on certain areas of their business? What
Speaker 1: is it about certain locations that make them thrive? So
Speaker 1: I see a lot of average, you know, businesses that
Speaker 1: I wonder, you know, what, what why would you be
Speaker 1: in that business? Not the denigrade the business by any means,
Speaker 1: but I'm always sort of ranking and contrasting, and I
Speaker 1: think of it in a lot of ways in terms of,
Speaker 1: you know, even though my upbringing wasn't a different business,
Speaker 1: would you want to own this business? I think that's
Speaker 1: the foundation that people miss a lot in stocks and
Speaker 1: in stock market investing when they think about purchasing something,
Speaker 1: you should really think about it in terms of, you know,
Speaker 1: if I was born or had the good fortune to
Speaker 1: be in a wealthy family that came from generations of
Speaker 1: owning a business, is this the one business I would
Speaker 1: want to own? You know? That would critically achieve the
Speaker 1: two goals. You're looking for capital preservation over the long
Speaker 1: term and then an attractive rate of capital compounding. And
Speaker 1: I think when you scrutinize businesses at that higher level
Speaker 1: and think about it generationally, that really helps you when
Speaker 1: you get down to even a short term vehicle like
Speaker 1: the stock market, because you then really dig down into
Speaker 1: what it is that, as I said, makes you want
Speaker 1: to get out of bed in the morning and operate
Speaker 1: that business. And that gets into basic things that play
Speaker 1: out in financial analysis, cash flow returns on invested capital,
Speaker 1: incremental returns invested capital, why you want a strong balance sheet,
Speaker 1: aspects like that. So how do those actors play And
Speaker 1: I should really be careful about the word factors, But
Speaker 1: how do they play into the philosophy of quote quality growth? Yeah,
Speaker 1: and and and it's interesting, you know, we've been exercising
Speaker 1: this investment philosophy for twenty years now very consistently, and
Speaker 1: as I talked about it today, I always have to
Speaker 1: sort of smile and chuckle because twenty years ago, what
Speaker 1: we're saying now, quality and growth, they really weren't a
Speaker 1: style by any means. They weren't a box that now
Speaker 1: investors are sort of put in a little bit in mimicking,
Speaker 1: And I think that's important to recognize because you know,
Speaker 1: one of the important lessons you learn in this business
Speaker 1: too is financial products are sold and not bought. So
Speaker 1: a lot of people use that nomenclature now because that's
Speaker 1: what's worked and it sells well. But I think when
Speaker 1: you peel back a layer of the onion, you find
Speaker 1: when talking to a number of managers who describe themselves
Speaker 1: either as growth or as in now a lot more
Speaker 1: describing them as quality growth. There's a big differentiation in
Speaker 1: terms of how people see businesses. What are they attracted to,
Speaker 1: you know, and an alogy I use a lot as
Speaker 1: you know, business attraction or investment attraction is a lot
Speaker 1: like personal attraction, right, individuals, We are attracted to certain
Speaker 1: other individuals with certain characteristics, and it's very similar I
Speaker 1: think in the investment world those characteristics you're asking about, right,
Speaker 1: we tend to have an affinity and and magnetize towards
Speaker 1: generally less cyclical businesses. Those businesses are just more attractive
Speaker 1: to us on the margin. Less capital intensity in general
Speaker 1: is something that sort of we magnate towards, you know,
Speaker 1: the pre cash flow conversion, the stronger balance sheets, very
Speaker 1: basic principles, but at high standards. I think that's a
Speaker 1: differentiation as well. You know, we life is you know,
Speaker 1: full of as they are, average people and average businesses. Right,
Speaker 1: that's just the nature. There's a lot of us, and
Speaker 1: it's a law of numbers. But when you crank up
Speaker 1: scrutiny to a much smaller subsegment of either highly successful
Speaker 1: people or highly successful businesses, there's a great divergence and
Speaker 1: that divergence, quite frankly, in today's world has gotten even wider.
Speaker 1: Let's talk little bit about your process for selecting stocks.
Speaker 1: Are you purely bottoms up? Do you think about any
Speaker 1: other top down sort of stuff? Tell us a little
Speaker 1: bit about how you approach stock selection. Yeah, I think
Speaker 1: this is also you know what's a common misnomer, uh
Speaker 1: in investing, Uh? That you know you have to get
Speaker 1: the top down right, you know, you have to predict things.
Speaker 1: I think it's just general human nature, you know. I
Speaker 1: think one of the greatest advantages in investing is typically
Speaker 1: behavior management of that's the key of it all. Really.
Speaker 1: You know, the financial analysis, the investment philosophy we're talking
Speaker 1: about today and that i'll describe is one piece. But
Speaker 1: you know, also another powerful analogy I use and explaining
Speaker 1: it is investing is a lot like dieting. Uh. You
Speaker 1: know a lot of people know the keys to living
Speaker 1: typically a longer, healthier, happier life, right, what you should eat,
Speaker 1: what you shouldn't eat, how you should exercise, and those elements.
Speaker 1: The key is discipline, right, and investing I think is
Speaker 1: very similar to that. It comes down to discipline. The
Speaker 1: roadmap is fairly clear and it's been well haide out
Speaker 1: by Warren Buffett years ago. Uh In the roadmap really
Speaker 1: needs to be centered on the business. It's all about
Speaker 1: the business. How good is the business, How will that
Speaker 1: business grow? And how is that sustainable? How that business
Speaker 1: will grow, how will that business endure through economic cycles
Speaker 1: which you inherently will not be able to predict. So
Speaker 1: I think ignoring the top down, while is easier said
Speaker 1: than done, is a key. So we do that. I
Speaker 1: think we really do when we think about businesses and
Speaker 1: as I as I mentioned earlier businesses you'd want to own,
Speaker 1: it sort of forces you we we sort of have
Speaker 1: a private business owner I would say somewhat private equity mentality,
Speaker 1: but we happen to be operating in the listed equity sphere,
Speaker 1: which gives us a liquidity advantage, you know. So it
Speaker 1: also allows us to own great businesses which we choose
Speaker 1: bottom up. But we can wake up every day and
Speaker 1: look at the screens and see what values the market
Speaker 1: is striking on those businesses and improve the quality of
Speaker 1: what we own for our investors, which is something as
Speaker 1: a dynamic a private investor can't do, or a private
Speaker 1: equity investor can't do. As quickly. So, so let's talk
Speaker 1: about that bottoms up approach. When you're thinking about stock selection,
Speaker 1: how does that process begin? Are you screening things based
Speaker 1: on value? What tell us what what the process is
Speaker 1: like of ultimately saying we're gonna buy this but not that. Yeah,
Speaker 1: I think the key as you start quant and you
Speaker 1: go than heavy qualitative after that, and I think, so
Speaker 1: what's the plant screen to begin with? The quant piece
Speaker 1: is key, and that I think first where you should
Speaker 1: approach quant is first from an elimination standpoint, negative screening.
Speaker 1: When most people think of quant and screening use the
Speaker 1: word screening typically it sort of has a connoctation that
Speaker 1: you're looking for something when actually what you should be
Speaker 1: doing is eliminating things. First and foremost, you want to
Speaker 1: really narrow the world down because one, there's only so
Speaker 1: many hours in a day, there's a much, so much
Speaker 1: so much firepower you have it or bring to bear
Speaker 1: in the research process. But also you want to just
Speaker 1: fishing a riper pond of opportunity because that greatly reduces
Speaker 1: risk as well over the long run by eliminating as
Speaker 1: I've described, average or lower quality businesses. So we squat
Speaker 1: screen to begin with it's not highly complicated. I'd say
Speaker 1: in terms of variables, you're looking for returns on invested capital,
Speaker 1: returns on equity, stability and operating margins, strength of balance sheet.
Speaker 1: I think the basic variables are easy. You then, though,
Speaker 1: improve it by looking for levels of those variables, so
Speaker 1: cranking up the scrutiny of the levels of variables you're
Speaker 1: willing to accept. But also then critically, what's key is
Speaker 1: the track record, So you want clean track records as well,
Speaker 1: and I think that's glossed over once again going back
Speaker 1: to this human element, right, and when you say track record,
Speaker 1: you're not referring to the stock performance. You're referring specifically
Speaker 1: to the performance of the underlying business exactly. You want
Speaker 1: to start with businesses that have been great, that have
Speaker 1: proven to be great, and are demonstrating that in numbers,
Speaker 1: and that's what you're looking for. You're eliminating the poor numbers,
Speaker 1: and you're critically looking for the clean track record of
Speaker 1: good numbers because that's not a perfect predictor of future SESS,
Speaker 1: it does get you over a one ft hurdle and
Speaker 1: points you in the right direction and makes your future
Speaker 1: looking decision much higher. Probability that Sh'll be right about that.
Speaker 1: So I think that's that's a big key track record,
Speaker 1: and that's where I'd say go back to this human
Speaker 1: element or behavioral aspect. A lot of people don't want
Speaker 1: to do that because we have a human tendency to
Speaker 1: try to want to be smart or smarter. Right. We
Speaker 1: want to try to predict what's going to be great
Speaker 1: tomorrow that wasn't great yesterday, Right, But we try to
Speaker 1: start in a good place, things that have been great,
Speaker 1: and then make an easier, albeit still difficult decision. I
Speaker 1: can they keep doing it. Let's talk a little bit
Speaker 1: about high conviction. How does that come into play. You've
Speaker 1: gone through the negative screen, remove the names you're not
Speaker 1: interested in. Now you've done the positive work, and you've
Speaker 1: identified fundamentally what you like. How do you take that
Speaker 1: somewhat lengthy list I would imagine, and reduce it down
Speaker 1: to a smaller concentrated high conviction list. Yeah. I think
Speaker 1: the sort of genesis of that is two things. You know,
Speaker 1: if I look back at you know, college, I sort
Speaker 1: of learned two things, one related to your question and
Speaker 1: one that comes before it. I think one the power
Speaker 1: of protecting capital and down markets and then being long
Speaker 1: though consistently through markets to participateate and and really be
Speaker 1: able to compound capital over the long term. You know,
Speaker 1: the classic numbers of you don't want to miss out
Speaker 1: the biggest updates and markets by trying to time the
Speaker 1: market once again, trying to get away from this top
Speaker 1: down you know, pitfall that most people fall into. So
Speaker 1: I learned that very valuable lesson about preservation, but staying
Speaker 1: long through the market, and you do that. I think
Speaker 1: through quality you can do that, uh. And I think
Speaker 1: the second aspect then of it, UH is risk management.
Speaker 1: You know, you learn to throw out a lot of
Speaker 1: unfortunately what you learn in college about classic risk management
Speaker 1: because at the heart of your question about concentration, that's
Speaker 1: really about risk management, and that flies in the face
Speaker 1: of classic risk management theory right of owning smaller pieces
Speaker 1: of more things to be diversifated, diversified to be lower risk. Actually,
Speaker 1: I think that's completely wrong. What you want to do
Speaker 1: is more own more of less things, but better things
Speaker 1: to reduce risk. And that's something we really capitalize on
Speaker 1: and our portfolios just make sure we are concentrated with
Speaker 1: capital with much larger positions behind just inherently much better businesses,
Speaker 1: much more stable, predictable, higher economic return businesses, better cash
Speaker 1: flow profiles. If you put more money behind them, it
Speaker 1: is much lower risk than buying smaller slivers of relatively
Speaker 1: lower quality companies. And then what goes hand in hand
Speaker 1: with that, as you build that portfolio bottom up, you
Speaker 1: end up looking what's now called a new term that's
Speaker 1: been coined more recently benchmark agnostic or benchmarking different. You
Speaker 1: end up looking a whole lot different than the market
Speaker 1: by as a byproduct of your concentration and bottom up
Speaker 1: stock picking, which people are also finding adds a whole
Speaker 1: lot of value to in terms of delivering outphit and
Speaker 1: avoiding mistakes. So you have a lot of institutional investors.
Speaker 1: They're measured by a benchmark, and I would imagine they
Speaker 1: have pressure to measure you by a benchmark. What are
Speaker 1: those conversations like when one says, hey, you're either beating
Speaker 1: or under performing a benchmark, how do you explain, well,
Speaker 1: we're kind of indifferent to the benchmark. What are those
Speaker 1: conversations like, Yeah, this is UH. I think there's two
Speaker 1: keys to this. UH number one. And then since we're
Speaker 1: in you know, new York City. I'll use the great
Speaker 1: Billy Joel quote. You know, when we spend a lot
Speaker 1: of time bringing our investors on board, I say, you know,
Speaker 1: you might think we're crazy, but we might. We just
Speaker 1: might be the lunatic you're looking for, as a classic
Speaker 1: quote goes, because you've got to really see risk as
Speaker 1: we see it, and it's a binary thing. Some people
Speaker 1: don't buy into that, you know, they can't wrap their
Speaker 1: head around it, or they just fundamentally don't believe it.
Speaker 1: They believe more in the classic risk theory we've talked about.
Speaker 1: But if you can get people to buy into that
Speaker 1: and understand it, and it really helps to show them
Speaker 1: the past success of utilizing a strategy like that, I
Speaker 1: think that's step one. Step two is your question is
Speaker 1: right on point. You know, you're managing people who all
Speaker 1: have constituents, and your constituents have constituents, and that's what's
Speaker 1: made this business generally more complicated over time, more people watching,
Speaker 1: with more visibility and more numbers. How do you how
Speaker 1: do you explain things over the short term where benchmark
Speaker 1: in different can cause meaningful relative underperformance. Right, But that's
Speaker 1: the price of admission, you know, that's the price to
Speaker 1: be paid. For great long term out performance, you have
Speaker 1: to absolutely underperform in certain certain shorter periods. And the
Speaker 1: key to that is education and communication, you know. So
Speaker 1: it's the buying and the client institutional or retail on
Speaker 1: the onset. So we are that we are the person
Speaker 1: they're looking for. We are the match because our strategy
Speaker 1: in terms of what we want to own, what we
Speaker 1: won't own, and how we view risk resonates with them.
Speaker 1: And then once they are on board, you know, I
Speaker 1: also say there's two pieces of the job from an
Speaker 1: investing standpoint. One is to deliver the returns on paper,
Speaker 1: which is important, but the second aspect, which is equally
Speaker 1: as important, is getting the client to realize those returns
Speaker 1: by staying on board with you for that journey. And
Speaker 1: that's why the client journey is very important to us.
Speaker 1: And you manage that through a lot of transparency, a
Speaker 1: lot of open communication, a lot of hand holding. That's
Speaker 1: that's half of your job as an investment manager, you know,
Speaker 1: not just to put the returns on the paper, but
Speaker 1: to keep the person on the bus over that journey.
Speaker 1: And the key to that is less volatility. Typically, you know,
Speaker 1: it's good it's by products of equality growth style, whereby
Speaker 1: your downside capture protection is high, right, you preserve capital
Speaker 1: much better when things fall apart recession comes about. And
Speaker 1: then also your overall volatility is dampened over time because
Speaker 1: your businesses are just better and they're not subject to
Speaker 1: wild swings of volatility. So if you can keep the
Speaker 1: ride less bumpy, you definitely have a much better chance
Speaker 1: of keeping your investor in their seat over the ride,
Speaker 1: and then you can accomplish the two key features the
Speaker 1: returns and having the client there at the end point.
Speaker 1: So so let's address that concept of client journey, because
Speaker 1: I find that very fascinating. There have been a number
Speaker 1: of del Bar studies and other studies that look at
Speaker 1: investor behavior here, and the most common takeaway seems to
Speaker 1: be investors underperform their own investments, meaning they'll join the
Speaker 1: bus at the top of the hill and they'll jump
Speaker 1: out at the first move down, but it might just
Speaker 1: be a little dip and then we're back heading up
Speaker 1: the hill. Meaning they buy high, they sell low. They
Speaker 1: don't write it out for a full cycle. They don't
Speaker 1: give a manager an opportunity to demonstrate, hey, if you
Speaker 1: bind the philosophy, here's where you should end up over
Speaker 1: five or ten years. How do you deal with that
Speaker 1: client journey aspect. Is it just education and communication from
Speaker 1: the beginning or is that an ongoing issue that requires
Speaker 1: regular reinforcement. I think it's two things. It's one the
Speaker 1: piece you just mentioned, the ladder, the communication. But one
Speaker 1: it's via this investment philosophy and style that's critical. And
Speaker 1: I'll explain that because at the heart of it is
Speaker 1: what you mentioned. You know this these old studies, and
Speaker 1: I actually haven't seen the study in a while, but
Speaker 1: I'm sure that the numbers are quite similar those classic
Speaker 1: studies of US mutual fund investors. As you pointed out,
Speaker 1: the returns of look great over the long term on paper,
Speaker 1: but most investors have never achieved those returns because of
Speaker 1: the dynamic you're talking about. And quite frankly, for average
Speaker 1: or lower quality businesses, and often a benchmark, you might
Speaker 1: need to have a higher timing element because those businesses
Speaker 1: can be mean reverting. If you have a portfolio of
Speaker 1: lower quality businesses, whether benchmark or an active manager with
Speaker 1: just lower quality businesses, your timing is very important. Right
Speaker 1: The businesses themselves are going to be mean reverting in
Speaker 1: their economics. If you're in the energy space or bastion
Speaker 1: materials ships, those are commodity industries and those commodity prices
Speaker 1: are going to fluctuate, so you better buy low and
Speaker 1: sell high to make your money. What we want to
Speaker 1: do alongside the communication is with higher quality businesses that
Speaker 1: have these elements we've talked about, lesstality, more durability, a
Speaker 1: real long tail or runway of growth not just one year,
Speaker 1: but five, seven, ten, fifty. When you have those types
Speaker 1: of businesses, you really can hold through downturns. It's a
Speaker 1: it's a it's a slight nuanced to understand. Right, it's
Speaker 1: a fallacy to hold a really great business when when
Speaker 1: a cycle turns, because it is going to mean reverting.
Speaker 1: So the buy and hold strategy actually, as it's sort
Speaker 1: of taught and sold. If you have the wrong businesses,
Speaker 1: it shouldn't be aplical. Actually you're you're following the wrong approach.
Speaker 1: But if you have great businesses where you can put
Speaker 1: your head on your pillow at night and no, look,
Speaker 1: not only are they not going out of business even
Speaker 1: in this recession for reasons of A, B and C,
Speaker 1: they're going to continue to grow their underlying earnings power.
Speaker 1: Those type businesses one you can hold onto and sleep well,
Speaker 1: but two you should add to them because the market
Speaker 1: is starting to give you a gift there. But in
Speaker 1: the mean reverting business that we're with, most businesses that
Speaker 1: most investors hold by nature their average and you better
Speaker 1: buy low and sell high to make a return. You know,
Speaker 1: what we're trying to capture is long term earnings compounding.
Speaker 1: You know, stock returns and earnings growth are correlated over
Speaker 1: the long term. Interestingly enough, stock returns and GDP growth
Speaker 1: aren't very correlated over the long term. But if you
Speaker 1: get the business right and the earnings compounding right, and
Speaker 1: you own a portfolio and aggregate that has a collective
Speaker 1: weighted average rate of earnings compounding, that's attractive. That's what
Speaker 1: your investment returns will be, and that's real add value.
Speaker 1: Let's talk a little bit about the investment industry. It's
Speaker 1: been going through a lot of changes. Your firm has
Speaker 1: been around since nine four, uh. Let's let's discuss some
Speaker 1: of these changes. We'll start with active management. It's been
Speaker 1: a rough couple of years. What has for active as
Speaker 1: a lot of the money flows have gone towards passive indexing.
Speaker 1: What's your experience been like over the past, let's call
Speaker 1: a decade. Yeah, I think, as first, our investment experience
Speaker 1: has been very good, you know, owning great businesses that
Speaker 1: grow faster than the benchmark, that are durable and predictable,
Speaker 1: you know, has worked and will continue to work. We're
Speaker 1: highly confident of that. The industry though, Look, I think
Speaker 1: one I always have a sort of split personality on
Speaker 1: on this in that you know, I hunt, and I
Speaker 1: don't think I should defend most active managers, right because
Speaker 1: I think the numbers are what they are. I think
Speaker 1: a lot of active managers and most don't add value
Speaker 1: quite frankly. So the carnage that goes on and what
Speaker 1: should be a meritocracy of an industry is absolutely proper
Speaker 1: and corrective carnage. The word carnage. Yeah, Look, it's it's
Speaker 1: an industry that's probably had, like a lot of other
Speaker 1: industries along come up and right we've seen you know,
Speaker 1: all the other classic industries hollowed out by either tech
Speaker 1: or new iterations. Right, but this industry, it took a
Speaker 1: while to get to it. You know, there's a lot
Speaker 1: of honey there and it took a while to people
Speaker 1: to focus in on and start squeezing, but it's there
Speaker 1: a lot of complacency for decades, absolutely, so that's coming.
Speaker 1: And if you are you know, average or lower quality
Speaker 1: like the businesses we look at, you just you shouldn't
Speaker 1: be on the playing field, right, So that part I
Speaker 1: think is do and proper and there is no defense
Speaker 1: for that, right you have to add value. And the
Speaker 1: great thing about this this is a performance oriented business,
Speaker 1: just like sports, but unlike sports. Actually we play the
Speaker 1: game every day and our score is there every day
Speaker 1: and the long term. So if you can't deliver, you
Speaker 1: shouldn't be there. That's one part. But to the passive side,
Speaker 1: you know, there's there's two elements that that are driving
Speaker 1: it and one I think is a little more questionable.
Speaker 1: One lower cost and technology certain has helped right e
Speaker 1: t s different vehicles. There's been good innovation there, you know,
Speaker 1: as uh Volker said, you know, the best innovation the
Speaker 1: financial industry has been the A t M. Only probably
Speaker 1: technology has really helped would investment products too. For a
Speaker 1: vehicle to get passive even cheaper, that's good. I think.
Speaker 1: The other thing though, people need to be a little
Speaker 1: bit cautious about when they look at this huge swing
Speaker 1: we've had to passive over the last decade, roughly has
Speaker 1: been monetary policy. Right? If I always ask it, and
Speaker 1: when we look at a business, even I I often
Speaker 1: ask either my members of my team or or I
Speaker 1: asked myself with this business through all your analysis, if
Speaker 1: I could ask you or give you access to, just
Speaker 1: the answer to one question that would really help you
Speaker 1: with this business when you look forward, what would it be?
Speaker 1: Try to synthesize and boil things down into a list
Speaker 1: of things you would like to know but maybe can't
Speaker 1: because they're unpredictable. But try to get to the crux
Speaker 1: of the matter. What's the most important issue that will
Speaker 1: help this business or drive its future growth or success.
Speaker 1: I think when you look at the overall investing landscape,
Speaker 1: you can ask yourself that similar question about monetary policy. Right.
Speaker 1: If I was going to give you the access to
Speaker 1: a magic lamp with just one wish, right, and it
Speaker 1: would help you to to set the landscape investing wise
Speaker 1: for the next decade. You know, if I had that
Speaker 1: crystal ball, I'd probably ask the genie, you know, what's
Speaker 1: monetary policy for the That's a pretty powerful variable you
Speaker 1: can compound and build a whole lot of decisions around. Right,
Speaker 1: and look at the backdrop we've had. We had a
Speaker 1: FED policy that was at zero, with absolute visibility and
Speaker 1: certainty of where it wasn't going for so long. That's
Speaker 1: a pretty good backdrop for passive. I think you know
Speaker 1: now that we've had some at least uncertainty and volatility
Speaker 1: and what I would call normalcy back in monetary policy.
Speaker 1: Some people might differ with that opinion, but I think
Speaker 1: this is actually what should be normal. Is it going
Speaker 1: towards well? I think people think I'm normal. I think
Speaker 1: I have to be careful in two terms, normal terms
Speaker 1: of where the rate should be, but I'm talking about
Speaker 1: normal more in terms of you just shouldn't know exactly
Speaker 1: where it's going. There should be a little bit of uncertainty,
Speaker 1: is it going up down? Staying the same? A little
Speaker 1: bit of uncertainty, not probability, Right, I think that's kind
Speaker 1: of normal. That That goes back to Bernanke during the
Speaker 1: financial crisis saying the way we'll stabilize this is to
Speaker 1: give people enough guidance that they become comfortable that there's
Speaker 1: a liquidly backstop. However, that certainty seems to have carried
Speaker 1: forward far beyond the crisis. I totally agree with the concept. Hey,
Speaker 1: a little uncertainty is not a bad thing when it
Speaker 1: comes to monetary policy. Yeah, I think and and I
Speaker 1: think good for us. Would we kind of agree on that.
Speaker 1: You're starting to hear some murmurs of that of people
Speaker 1: kind of talk about this. You know, it is maybe
Speaker 1: the FED talking a little bit too much, right that
Speaker 1: that I think that should be a part of the
Speaker 1: conversation now a little bit. You know, they went to
Speaker 1: this strategy you know, a while ago of more transparency
Speaker 1: and maybe less transparency is a little bit healthier for
Speaker 1: risk and risk in the markets. I actually, you know,
Speaker 1: I I differ on this maybe generally with with my
Speaker 1: opinion too. And Paul, you know, I think Pal is
Speaker 1: doing a great job. Quite frankly, I think there's a
Speaker 1: lot of criticism of him, but if you step back,
Speaker 1: he's probably the right guy at the right point in
Speaker 1: time for the job. In terms of his background, we
Speaker 1: always wanted this sort of pragmatic, business oriented guy sort
Speaker 1: of clamored for it versus non economists. And then it's
Speaker 1: like life, you know, then you finally get what you
Speaker 1: want and everybody change their mind. I'll take it a
Speaker 1: step further. I think you can make the argument that
Speaker 1: this could very well be the single best appointment from
Speaker 1: the Trump administration. Yeah, I think I think there's a
Speaker 1: lot of credibility in that, you know, definitely, I think Paul,
Speaker 1: you know, as the other quote I'd like to share,
Speaker 1: I think he's trying to do the impossible for the ungrateful, right.
Speaker 1: I mean, you're gonna he's gonna get a whole lot
Speaker 1: of criticism no matter what. He doesn't matter what. But
Speaker 1: I I respect, you know, the steadfastness he's he's falling through,
Speaker 1: he's doing what he said. Maybe he could die by communication,
Speaker 1: but I'm not here to micro manage. But I and
Speaker 1: he's he's doing the best to get us back to normalcy,
Speaker 1: which is very hard, right, I mean, getting off that
Speaker 1: emergency footing is it's taken much longer than anyone could
Speaker 1: have expected. And it's not just monetary policy, right. I think.
Speaker 1: I think the world we live in today, as much
Speaker 1: as you know, the hypersensitivity of the news cycle and
Speaker 1: the mediums of delivering news have made it, I actually
Speaker 1: think what we are in is a normal world, right,
Speaker 1: now right, the world is supposed to be uncertain. We're
Speaker 1: supposed to be have geopolitical issues, even physical conflict, right,
Speaker 1: monetary policy uncertainty, difficulty for businesses. That's what the world's
Speaker 1: largely been like for a long period of time. We're
Speaker 1: just adjusting and adapting out of an abnormal period, which
Speaker 1: is why people are kicking and screaming a little bit
Speaker 1: more so here, let me bring this back to the
Speaker 1: active versus passive question. The thing that I find astonishing
Speaker 1: over the past decade is there are a whole slew
Speaker 1: of funds I can think of one of two fidelity
Speaker 1: I could think of without naming fund names or managers
Speaker 1: or whatever. There is a run of funds that I
Speaker 1: have watched shoot the lights out for a decade and
Speaker 1: they're still seeing outflows. That's sort of hard to reconcile. Yeah,
Speaker 1: I think, you know, that's the one part that I think,
Speaker 1: uh As I mentioned, you know, technology is gonna bring
Speaker 1: about cheaper vehicles as there's been a tremendously difficult asset
Speaker 1: allocation questions people have had to, you know, answer as well.
Speaker 1: As you have an aging population and you have to
Speaker 1: shift towards fixed income, you have actually the wrong time.
Speaker 1: You want those sorts of coupons and yields and fixed
Speaker 1: income as the assets are shifting that way. So I
Speaker 1: think that's that's a bit of the element I think
Speaker 1: you're you're seeing explaining there in that even if you've
Speaker 1: done a good job, you're still seeing outflows because there
Speaker 1: is great at your asset allocation equation going on outside
Speaker 1: of us. But I don't mean equity to fixed income.
Speaker 1: You're seeing outflows from outperforming equity net of fees, even
Speaker 1: after fees towards passive. I'm kind of perplexed by that. Yeah,
Speaker 1: it's a baby with the bathwater sort of them. Yeah,
Speaker 1: you know, I think there's there's probably a little bit
Speaker 1: of element of that. I think, you know, they also
Speaker 1: maybe slightly underappreciated thing to that. You know, I also
Speaker 1: have to remind myself and point out to people sometimes
Speaker 1: as if we actually do our job for our clients,
Speaker 1: they're going to take all their money because that's the job.
Speaker 1: Our job is to take their money from point A
Speaker 1: to point B and then they take it all from you. Right,
Speaker 1: But they don't do it because you didn't do your
Speaker 1: your job, or they're unhappy with you. It's because you
Speaker 1: actually accomplished the goal and there you actually should take
Speaker 1: some great satisfaction. You know, we've had some clients like that, particularly,
Speaker 1: you know in the last couple of years where they've
Speaker 1: made now they've reached their goals in terms of their
Speaker 1: pension fund you know, uh, targeted returns, and now they
Speaker 1: need to shift and ask allocation to a different mode
Speaker 1: or a different time horizon or fitting their liability Matt,
Speaker 1: you know, match now and we've just done our jobs.
Speaker 1: So thank you very much. We've we've delivered what we
Speaker 1: had to do. So you you you're gonna always get
Speaker 1: a constant ooment of that too, even with great managers,
Speaker 1: I think losing money. So along those lines, I know
Speaker 1: some people are focused on demographics as an input into markets.
Speaker 1: I don't know if I've been especially persuaded by it,
Speaker 1: but some people really buy into that thesis. Do you
Speaker 1: think this generational shift into retirement from equities to fixed
Speaker 1: income is going to have an impact on the market
Speaker 1: overall or is it just all built in and people
Speaker 1: are are stressing over that shift generational shift way too much. Yeah,
Speaker 1: I think it's people were a little bit hyper sensitive
Speaker 1: into near term issues. You know, I think sort of
Speaker 1: the more things changed, the more they stay the same
Speaker 1: in the long run, you know. So I'm not hypersentive
Speaker 1: to you shift there, and in fact, even if you
Speaker 1: look at your options, I think as an investor, and
Speaker 1: here maybe i'll sound a little bit biased as an
Speaker 1: equity guy, I'm actually happy I'm an equity investor and
Speaker 1: not a fixed income investor right now, because I think
Speaker 1: that's a hard job. Seven percent is an appealing that's
Speaker 1: very hard job. So call me lazy, but I just
Speaker 1: think I have an easier job right now as an
Speaker 1: equity investor versus fixed income. To be fair, they've had
Speaker 1: a really easy thirty years and now that seems to
Speaker 1: be coming to its end um, whereas equity investors have
Speaker 1: had a little more challenging couple of decades with between
Speaker 1: the dot com and the financial crisis. I would say
Speaker 1: the roles are now starting to reve No, I agree,
Speaker 1: So that's you know, that's that So maybe yes, now
Speaker 1: it's time for them to pay a little bit of
Speaker 1: a price of admission, right and us to have a
Speaker 1: little easier time. But if you look at the two
Speaker 1: against each other, to your question of whether people will
Speaker 1: or should continue to shift out of equities. I mean,
Speaker 1: if you look at the prospect in the right equity strategy,
Speaker 1: still the yield even you're getting there on a coupon.
Speaker 1: If you have real cash flow and real access cash
Speaker 1: flow to distribute to your owners of the business, your shareholders,
Speaker 1: you know, you can get growth which gives you some
Speaker 1: inflation protection plus a coupon. You know. I think equities
Speaker 1: are still very compelling, and that's why. Actually, you know,
Speaker 1: when people ask me about the market now recently, my
Speaker 1: my word for the market, you know, where I was
Speaker 1: a bit more concerned at the beginning of the years.
Speaker 1: I think this market has potential. And I use that
Speaker 1: word very carefully because it is the word deliberately. I
Speaker 1: think you used to describe often a bad sports team
Speaker 1: or an unruly child. Right, here's all these bad things
Speaker 1: you see, But hey, this kid's got potential, right. I
Speaker 1: think the markets a little bit like that. In a
Speaker 1: lot of the issues are correctable that we're concerned about
Speaker 1: or weighing down economics or geopolitics or you know, in
Speaker 1: the way of monetary policy. So people should be a
Speaker 1: little bit careful on the equity side to not swing
Speaker 1: too far in sentiment particularly too far negative, because this
Speaker 1: market could have a lot of potential when you look
Speaker 1: at what you can buy, what you pay, and what
Speaker 1: you get still when you pay for it in terms
Speaker 1: of a coupon and growth, it's still quite attractive. And
Speaker 1: then particularly when you start to look at some of
Speaker 1: your alternatives for your capital. Let's talk about markets today
Speaker 1: a little bit. Um. You mentioned earlier equities have potential.
Speaker 1: Where do you think we are in the overall equity
Speaker 1: cycle and does that impact the way you construct a portfolio? Yeah?
Speaker 1: I think, uh, you know, now we're digging into the
Speaker 1: trillion dollar question right right where is the world going? Uh?
Speaker 1: You know, and and not to dodge it in classic faction,
Speaker 1: but you know, we want to build a portfolio where
Speaker 1: I don't need to know the answer to the question
Speaker 1: number one. I think that's the key to investment success,
Speaker 1: not having to answer these trillion dollar questions. And you can,
Speaker 1: remarkably you can invest that way without having to need
Speaker 1: to know that answer. But putting that aside, and just
Speaker 1: which by the way, is arguably unknowable. Yeah, exactly, you know,
Speaker 1: the the the unknown owns or however the Rumsfeld and
Speaker 1: you know quote goes Uh, but if I think if
Speaker 1: you step back, you know, honestly, in terms of looking
Speaker 1: at the data and the facts, you know, uh, the
Speaker 1: economic cycle you know has still good underpinnings if you
Speaker 1: look at the fundamentals of the U. S economy. But
Speaker 1: we gotta say we're later stage at an earlier stage, right,
Speaker 1: I mean, I think just having some context of where
Speaker 1: you are is the only thing you can kind of
Speaker 1: get down to if you are top down. And I
Speaker 1: think even that can help though as well. And that
Speaker 1: I say that too in that you know, you've seen
Speaker 1: this little fits and start around the market and in
Speaker 1: this concern of well people shift out of growth to
Speaker 1: value again. You know, we've also we've talked a little
Speaker 1: about fixed income equity and passive active, but there's also
Speaker 1: been this other battle going on or raging between styles
Speaker 1: and growth and value. And value had had a long
Speaker 1: period of success and then has now been in the
Speaker 1: dulgrums and people are just waiting with bated breath for
Speaker 1: this big rotation back. And the problem there I have
Speaker 1: to your you know, sort of where are we in
Speaker 1: the cycle question is the only place where you find
Speaker 1: a bit of rel to cheapness comes with a lot
Speaker 1: more commisure at risk in terms of cyclicality. So if
Speaker 1: you want to wade into those waters here, you better
Speaker 1: know the answer to the question you're asking me, because
Speaker 1: that's the danger in investing when you look at a
Speaker 1: p that might look relatively cheaper, but the E disappears.
Speaker 1: So actually you thought you underpaid, but you ended up
Speaker 1: overpaying because your E wasn't predictable and disappeared, which is
Speaker 1: also a big piece of the risk you want to
Speaker 1: mitigate with better quality businesses as a starting point, as
Speaker 1: long as you know where the E is or should
Speaker 1: roughly be, you can actually can start to strike a
Speaker 1: more appropriate approximation of what that business is worth. But
Speaker 1: when the E is uncertain, you've got to know where
Speaker 1: you are in the cycle. And as I said in context,
Speaker 1: you have to think we're later rather than earlier. So
Speaker 1: if you can identify a company with a predictable, reliable E,
Speaker 1: a reliable earning stream, does that company demands a premium
Speaker 1: as an investor? Is it a higher valuation for that
Speaker 1: earning stream? Yeah? I think that's you know, the other
Speaker 1: human nature element. You know, we capitalize on, and I
Speaker 1: think people need to capitalize on right we're, as people were,
Speaker 1: sort of generally a bit cheap. Right. We're always looking
Speaker 1: for a deal. Right. That's why sales work, signs work,
Speaker 1: advertising works. Deal deal, deal x per cent off. It's
Speaker 1: like a magnet, right, we are attracted to that. That's
Speaker 1: human nature and what you miss and that when you
Speaker 1: take that behavior aspect to the finance world into investing
Speaker 1: is the reality that you get what you pay for
Speaker 1: in life, very much so in investing. So to your question, yes,
Speaker 1: you should pay more for a better business with a
Speaker 1: longer tale of earnings growth. Because also one problem we
Speaker 1: have in investing in the finance world is we're as
Speaker 1: many smart people are in this industry and as sophisticated
Speaker 1: as the industry is, it's actually still pretty rudimentary when
Speaker 1: we look at important things like valuation. Right, people often
Speaker 1: are looking at pe simplistically pe one or f y
Speaker 1: one p out one year. There's a real lack of
Speaker 1: imagination right in that in that analysis, right, because the
Speaker 1: earnings where they are in five years should be what
Speaker 1: really matters. Where they are in ten years should be
Speaker 1: where what really matters. Right, So, if you're myopically stuck
Speaker 1: in this world where you're looking at current p or
Speaker 1: even just f y one or f y two p E,
Speaker 1: you're really missing the forest for the trees there. You
Speaker 1: need that E five and ten years out. And that's
Speaker 1: where quote unquote paying up for it or paying more
Speaker 1: for it today actually is delivering you a lot of
Speaker 1: inherent investment value because that embedded value is out in
Speaker 1: the tail, the tail of the growth of the business
Speaker 1: and the sustainability of the business. That so, in other words,
Speaker 1: you're a long term investor, is what you're saying here.
Speaker 1: It's one of the only advantages you can have, right,
Speaker 1: it's the basics. And when we stick to the basics,
Speaker 1: and look, you know, call us you know, or say
Speaker 1: maybe we have a lack of imagination because like all
Speaker 1: great things, often great business is great fortunes. Right, we
Speaker 1: we stole it from someone else. We we took it
Speaker 1: from Warren Buffett. Right, we took the playbook and we
Speaker 1: just try to apply discipline with a great team and
Speaker 1: a stable team to that. I think that's where you
Speaker 1: add a lot of value to and continuity knowledge is cumulative.
Speaker 1: Having a great team intact for a long period of time.
Speaker 1: All buying in buying into the investment religion being disciplined.
Speaker 1: You have to be long term to your question, it's
Speaker 1: it's the one basic advantage you need to exercise. Yet
Speaker 1: we live in a world in an investment construct where
Speaker 1: everything is happening to fight that right, Everything is trying
Speaker 1: to break you down from the long term right. And
Speaker 1: that's also why when people look about you're talking about
Speaker 1: investing today, you know, has it gotten harder, easier? Actually,
Speaker 1: you know, the dynamics are are quite similar. Once again,
Speaker 1: you know, the more they change, the more they stay
Speaker 1: the same. The environment has probably gotten more volatile and
Speaker 1: more violent. So the advantage of buying hold or patience
Speaker 1: is as prevalent, I think as it ever was. I
Speaker 1: think the distractions are greater today and faster today than
Speaker 1: ever before. But I have to ask you a question,
Speaker 1: Um that you alluded to with um predictions. And I'm
Speaker 1: not asking you to make a prediction. I'm asking you,
Speaker 1: how do you, as a portfolio manager deal with what
Speaker 1: seems like a never ending stream of geopolitical events occurring
Speaker 1: in real time. So earlier in the fall, we had
Speaker 1: the impeachment inquiry begin in the House of Representatives, you
Speaker 1: had the Brexit slash. Um UK Supreme Court eleven two. Oh, repudiate,
Speaker 1: Boris Johnson. You've been a global investor, a European investor,
Speaker 1: now a US investor. Do you look at or even
Speaker 1: think about these geopolitical events or are they just background
Speaker 1: noise that do not affect the E five years out?
Speaker 1: I think there's two pieces, you know. One, you really do,
Speaker 1: as we've talked a lot about, have to be just
Speaker 1: focused on the business, business, business. But on the other hand,
Speaker 1: you do have to have a pulse, a finger on
Speaker 1: the pulse you know, of the market where they're at,
Speaker 1: because that's what can bring you greater opportunity, right understanding
Speaker 1: what the general feeling and sentiment is and where that's
Speaker 1: detached from real long term reality. So you do as
Speaker 1: a portfolio manager and as investor. I think I have
Speaker 1: to have your hand in both of those buckets, right,
Speaker 1: the most important one though, still being get the business
Speaker 1: right and the key to managing as you've said, and
Speaker 1: we've done it quite successfully fortunately, all this as I
Speaker 1: called it earlier, to this return to normalcy and volatility,
Speaker 1: uncertainty with tariffs and trades and and and and political shifts.
Speaker 1: You know, the best way we've been prepared for that
Speaker 1: is having businesses that wouldn't be largely affected by that,
Speaker 1: and that sort of shocked people sometimes, Yeah, you can
Speaker 1: do that. Actually, you know, you you can have businesses
Speaker 1: that are much less affected by the macro, much less
Speaker 1: affected by the geopolitics, you know, much better, less affected
Speaker 1: by shifts in disruption in certain industries. That's been your
Speaker 1: best game plan over the last couple of years versus
Speaker 1: trying to predict the next tweet and where tariffs are
Speaker 1: going or the next outcome of the next election. Right,
Speaker 1: that has been your road to success. But having your
Speaker 1: finger on the pulse, as I mentioned though, does help
Speaker 1: when you realize people are getting a bit mannic about it.
Speaker 1: You know, we are we are people, and we get
Speaker 1: frenzied and we get manic. So if you do follow this,
Speaker 1: and we do, you know you follow closely. I read
Speaker 1: three newspapers a day. I think you you have to
Speaker 1: keep keep your finger in the flow of how public
Speaker 1: sentiment is moving because you can use that to your advantage.
Speaker 1: Back in the investment world, even with quality companies taking
Speaker 1: advantage of excessive pestimism or optimism. What about something that
Speaker 1: UH started regionally and now is looking like it might
Speaker 1: become global something like negative interest rates. Japan has had
Speaker 1: them for a while, they seem to be now expanding.
Speaker 1: In Europe they are literally trillions of dollars with a
Speaker 1: negative coupon. Can this come to the United States? Do
Speaker 1: you worry about whether or not this will have an
Speaker 1: impact on your portfolio? Yeah? I'm much more worried longer
Speaker 1: term about binary events, you know, than I need to
Speaker 1: because of our style of day to day or cyclical events.
Speaker 1: And there's two I worry about one. I think, you know,
Speaker 1: there is no such thing as a free lunch in
Speaker 1: this this this these experiments and exaggeration and extremism and
Speaker 1: monetary policy, they have a payback, right, and we all
Speaker 1: we all kind of have an idea of what it
Speaker 1: could be, but we won't guess it exactly and will
Speaker 1: probably miss out on the magnitude of it. But there
Speaker 1: will be a payback for the negative interest rate environment, right.
Speaker 1: There is no free lunch on that. So that going
Speaker 1: to be you know, I think in the bond market
Speaker 1: it's going to be very difficult because you know, this
Speaker 1: is often where we don't sort of see around the corner, right,
Speaker 1: We're focused on the near term goals. You know, a
Speaker 1: major central banking goal, right is to spur inflation, right,
Speaker 1: and let's you know, if if God forbid, they're successful
Speaker 1: in that, you're going to decimate coupon investors, right. So
Speaker 1: it's in order to achieve their goal, they're actually going
Speaker 1: to cause the great damage at the end of the day.
Speaker 1: So I think that is clearly still the problem. You know,
Speaker 1: there is this tendency, and I know it's sort of
Speaker 1: been like the you know, screaming fire in a crowded
Speaker 1: movie theater for a while. You know, fear of inflation,
Speaker 1: fear of inflation, fear of inflation. I can't tell you
Speaker 1: when it's going to happen, but I can tell you
Speaker 1: there's great effort to do it, and there are tools
Speaker 1: to really do it if you want to go to
Speaker 1: extreme end. So that will end up in a poor payback,
Speaker 1: I think for investors who are in negative yielding security,
Speaker 1: and I think that's a problem. The other issue I think,
Speaker 1: aside from that in the Interest rate Act drop is
Speaker 1: what we're facing in terms of I call it this
Speaker 1: sort of Balkanization of the world. You know, what we
Speaker 1: see and playing out in geopolitics is not about terrorists
Speaker 1: it's not about a current account deficit, you know, has
Speaker 1: wider framifications. If we continue, we're sort of pushing this world.
Speaker 1: And I'm not saying continue in terms of a political
Speaker 1: sense of being right or wrong, but just the path
Speaker 1: we're on generally speaking, which I think doesn't have to
Speaker 1: do with just one present or one admits, meaning deglobalization
Speaker 1: or something more special, not necessarily a total deglobalization. But
Speaker 1: you you split the world into two spheres, you know,
Speaker 1: they'll be the US Western sphere, and then they'll be
Speaker 1: the Chinese sphere, right, and they'll be people who have
Speaker 1: to make a choice or countries that have to make
Speaker 1: a choice of which sandbox you want to play in? Right,
Speaker 1: the rules are going to be different in the two
Speaker 1: different sandboxes, which is where the tension is today. Right,
Speaker 1: the the US and the Lightheisers are saying, look, you're
Speaker 1: in our sandbox. There's rules to playing in our sandbox,
Speaker 1: and you haven't been following the rules. You know, we
Speaker 1: let you go for a while, but now you need
Speaker 1: to follow the rules or you gotta get out of
Speaker 1: the sandbox. As the extreme sort of outcome, and the outcome,
Speaker 1: as I said, the extreme result could be a balkanization
Speaker 1: where they say, look, we'll get out of your sandbox.
Speaker 1: Who wants to come in our sandbox? You know? And
Speaker 1: and then you have this whole ecosystem around Asia, word
Speaker 1: becomes a bigger shoe. Like Taiwan. They're in a pickle, right,
Speaker 1: which sandbox are you in there? South Korea? Which sandbox
Speaker 1: are you in there? That's alongside interest rates, that's a
Speaker 1: These are both longer term issues, clearly, but those are
Speaker 1: longer term binary issues that if anything, worry me a
Speaker 1: little bit, right. It makes the world a bit more complicated.
Speaker 1: It makes the success or collective success a lot of
Speaker 1: us could have had a lot harder to achieve. Uh,
Speaker 1: it's very disruptive and and and in the downside, as
Speaker 1: I said, mostly is we just miss out on what
Speaker 1: we could have had, you know, in a collective world.
Speaker 1: But it look at it's life. It is what it is.
Speaker 1: I in a passing judgment whether it's good or about
Speaker 1: it either, you know, I think it's just the reality.
Speaker 1: And that's investing what we have to deal with reality,
Speaker 1: not hopes and dreams. Hope isn't a strategy, as they say,
Speaker 1: We've got to deal with reality and the reality is
Speaker 1: we're fracturing. So so let's talk about strategies. Since you
Speaker 1: mentioned that Von Tobel has six broad investment strategies, what
Speaker 1: areas do you focus on within those six and how
Speaker 1: much of this is global, European, Asian and US or
Speaker 1: more specifically different approaches by style. This is where we're
Speaker 1: actually a little bit unique. You know, it's hard to
Speaker 1: say you're unique and different in the asset management industry.
Speaker 1: Poor fully managers analysts products. It seems pretty homogeneous, right,
Speaker 1: But our team is is sort of rare and unique
Speaker 1: in that the same team manage manages those six strategies,
Speaker 1: you know, not just myself sitting at the head of it.
Speaker 1: I have a collective group of really talented individuals who
Speaker 1: support all these products simultaneously and as analysts. And there's
Speaker 1: a lot of investment value in that having the same
Speaker 1: analyst work on a US equity fund and an emerging
Speaker 1: market's equity fund. And it's the way we've been doing
Speaker 1: it for two decades. Same skill sets can apply anywhere
Speaker 1: in the world, and the world in the businesses compete
Speaker 1: across geography surprise surprise, right, and and analyzing a fundamental
Speaker 1: business of whether it's a great business and average or
Speaker 1: a poor quality business. Perspective is the key to that, right.
Speaker 1: Life is all about perspective, and invest things about perspective too,
Speaker 1: you know, as the old saying goes, Also, you know,
Speaker 1: to a man with a hammer, everything looks like a nail.
Speaker 1: So you don't want to pigeonhole people, right. You need
Speaker 1: them to see a lot of nails. You need to
Speaker 1: see broad perspective. So being global and structure as analysts
Speaker 1: really helps the scrutinization of what's a great business because
Speaker 1: we can look at one in Indonesia, and we can
Speaker 1: look at one in Ohio and try to figure out
Speaker 1: what are the nuts and bolts that make these great businesses,
Speaker 1: And then we're totally agnostic to where it is because
Speaker 1: we have a group of portfolios where that name will
Speaker 1: then try to compete to get entrance into and all
Speaker 1: of our portfolios from a regional basis, our competitions for
Speaker 1: capital our universe eliminates. It creates a smaller pond. Out
Speaker 1: of the pond comes a smaller subsegment of names. Out
Speaker 1: of those names, we build regional portfolios. The best of
Speaker 1: those investment opportunities compete up the pyramid up to the
Speaker 1: top to our global portfolio. So it's not just an
Speaker 1: amalgamation of the geographic portfolios, but it's the best of
Speaker 1: the best of those names competing for each other and
Speaker 1: having the proper you know, risk diversification alongside of it.
Speaker 1: What the businesses do where they do it, so the
Speaker 1: fundamental risk is contained and managed. That that's absolutely fascinating.
Speaker 1: The one question I have to ask about that are
Speaker 1: there any particular geographic regions around the world that you
Speaker 1: find are either misunderstood by investors or for reasons that
Speaker 1: aren't especially clear, significantly underinvested. When you look around the world,
Speaker 1: I think the emerging markets is the class quite frankly,
Speaker 1: and uh, you know, I've been actually talking to some
Speaker 1: clients recently about this. I'm gonna bring up a name
Speaker 1: you might know, the name Elmer Wheeler, right, I don't
Speaker 1: know if you've ever familiar. You know, he was around
Speaker 1: in the nineteen thirties and the depression. He was a
Speaker 1: newspaper reporter in a near and dear to your heart,
Speaker 1: and he was fired in the depression as a newspaper
Speaker 1: reporter because his boss said, I don't need any reporters.
Speaker 1: Amore I needs salespeople, and Elmer Wheeler, you know, as
Speaker 1: a pragmatic guy, said all right, I'm gonna be a
Speaker 1: great salesperson, and he coined the term that sort of
Speaker 1: a lot of us know today is an old fashioned
Speaker 1: marketing term. Don't sell the stake, sell the sizzle, right,
Speaker 1: And it's sort of a classic you think about how
Speaker 1: marketing has evolved, a classic thought, right, don't sell the stake,
Speaker 1: sell the sizzle. And I think the misunderstanding to your
Speaker 1: question on emerging markets is largely because there's been a
Speaker 1: lot of sizzle sold. You know, emerging markets has a
Speaker 1: great sizzle story. You know, people consume less of this
Speaker 1: and they'll consume more of that. You know, they're they're
Speaker 1: these poor people, they'll get richer, you know, all these elements.
Speaker 1: It's a great sizzle right on top of everything else.
Speaker 1: The new expensive world. It plays right into it. And
Speaker 1: I think that's been fundamentally wrong in that not that
Speaker 1: emerging markets aren't attractive, but it should be about the
Speaker 1: stake of emerging markets, and that you should go to
Speaker 1: emerging markets, and you really should because there are great
Speaker 1: businesses there. I forget the sizzle story. And and let's
Speaker 1: also take the fact into consideration that if you bought
Speaker 1: the sizzle story, which if you sort of play that
Speaker 1: out in a number in GDP growth, right, the emerging
Speaker 1: markets take out China and India over the last two decades,
Speaker 1: basically their composition or percentage of GDP has been flat.
Speaker 1: So you haven't seen the sizzle sizzle, sizzle story outside
Speaker 1: of India and China. So if you bought the sizzle,
Speaker 1: you've been disappointed. Good news, as I mentioned earlier, as
Speaker 1: GDP growth isn't necessarily correlated with stock returns. So if
Speaker 1: you've got the steak right, if you've got the great
Speaker 1: businesses right, and what's unique and misunderstood about emerging markets
Speaker 1: I think is there's actually steak there you can't get
Speaker 1: in the developed markets. There's actually businesses and business models
Speaker 1: you can't get back in the developed markets, And that
Speaker 1: to me is why you should be in emerging markets.
Speaker 1: It should be about the businesses, as all investing I
Speaker 1: think should be, as we've talked about today. So go
Speaker 1: to emerging markets for the steak, not the sizzle. Go
Speaker 1: there because there's great businesses you can't get in the
Speaker 1: SMP five hundred, or you can't get elsewhere. I think
Speaker 1: that's a big misunderstanding, stiff, quite fascinating. Can you stick
Speaker 1: around a little bit. I have a few more questions
Speaker 1: for you. Absolutely, we have been speaking with Matt Benkendorf,
Speaker 1: ce IO of Untomble Quality Growth. If you enjoy this conversation,
Speaker 1: be sure and come back for the podcast extras, where
Speaker 1: we keep the tape rolling and continue discussing all all
Speaker 1: things quality growth. You can find that at Apple iTunes,
Speaker 1: Google podcast stitchers, Spotify, wherever your final podcasts are sold.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at Bloomberg dot net. Be sure
Speaker 1: to give us a review on Apple iTunes. You can
Speaker 1: check out my weekly column on Bloomberg dot com. Sign
Speaker 1: up from my daily reads at Rid Halts dot com.
Speaker 1: Follow me on Twitter at Rid Halts. I'm Barry Ritolts.
Speaker 1: You are listening to Masters in Business on Bloomberg Radio.
Speaker 1: Welcome to the podcast, Matt. Thank you so much for
Speaker 1: doing this. I have to tell you, I find your
Speaker 1: approach and what Untable Quality Growth does to be kind
Speaker 1: of unique and interesting. I know everybody thinks they're unique,
Speaker 1: but really, the the approach you guys take especially with
Speaker 1: a single investment committee investing all around the world Europe, Asia,
Speaker 1: Global and US that it's kind of rare. How has
Speaker 1: this structure worked out in terms of your your various
Speaker 1: UM funds performances? Yeah, I think you know, two keys
Speaker 1: there were quite proud of our results, right, and we're
Speaker 1: quite proud one and what we've achieved in terms of
Speaker 1: annualized out performance of a couple hundred basis points across
Speaker 1: different geographies, so that the style and philosophy has achieved
Speaker 1: alpha generation in places like Europe and the US and
Speaker 1: emerging markets and global equity simultaneously. That's you've maybe surprising, right,
Speaker 1: one mouse trap does work. Actually, you don't need a
Speaker 1: different emerging markets mouse trap, which is also I think
Speaker 1: a bit of a fallacy. Sometimes you don't need a
Speaker 1: different mouse trap for this market. You need one good
Speaker 1: style approach. You just need discipline then in a good team.
Speaker 1: How how rare is that approach where one team is
Speaker 1: doing US and the same team is doing emerging market
Speaker 1: and Asia and Europe and global investing from the same
Speaker 1: group of analysts. I think it was extremely rare. Two
Speaker 1: decades ago, I think more of started to move that
Speaker 1: way A little it in more recent years, probably the
Speaker 1: last five or seven years, just because businesses have launched
Speaker 1: and then they've launched simultaneous products, so they've just sort
Speaker 1: of had technology has to admit it easier to sit
Speaker 1: in the US and be global as opposed to the
Speaker 1: old days where boots on the ground were required. Yeah. Absolutely,
Speaker 1: And as you know, businesses have developed now, and those
Speaker 1: analysts found this false wall between you know, the Asian
Speaker 1: tech analysts and the US tech analysts to be a
Speaker 1: little bit, you know, lower than the wall used to seem.
Speaker 1: I think that's led people towards our model, but I
Speaker 1: think I still think the model is more rare. I
Speaker 1: think it does add a lot of value for investors
Speaker 1: at the end of the day, particularly as I always
Speaker 1: have to be careful with our investment philosophy, you know.
Speaker 1: I think that's something people often misunderstood. You misunderstand rather,
Speaker 1: you know, they can find something that works, but certain
Speaker 1: things that work work in the right situation, right and
Speaker 1: and people often try to take that what works and
Speaker 1: put it in the wrong situation and they wonder why
Speaker 1: it failed. So when you are very narrow and restrictive
Speaker 1: in what you're trying to look at and what you're
Speaker 1: only willing to ever buy. You know, when you think
Speaker 1: about risk the way we think about it, when you
Speaker 1: think knowledge is cumulative, when you have longer term holding periods,
Speaker 1: when you have lower turnover, right, you can really then
Speaker 1: do this successfully with one team. You know, we have
Speaker 1: across all of our portfolios, you know, a hundred and
Speaker 1: sixty odd names right in the turnover of names annually
Speaker 1: is maybe so with a team of twenty one, you
Speaker 1: don't need a whole lot of new idea generation. We
Speaker 1: do have good new idea generation. You do have to
Speaker 1: sell in harvest names. We have evaluation sensitivity and a
Speaker 1: strict valuation approach, so you do have to replace names
Speaker 1: that do reach fair value. But the process and the
Speaker 1: philosophy is what enables us to have success on a
Speaker 1: global basis with the structure. I don't know if that
Speaker 1: necessarily would work for people who are more benchmark oriented,
Speaker 1: right they just want to plus or mind us the
Speaker 1: benchmark wade in country and sector. They might need a
Speaker 1: whole lot more people, and they might need to be
Speaker 1: a little more focused from a strategic standpoint of certain products.
Speaker 1: I don't know, it's not it's not my you know approach,
Speaker 1: but I think for us it works very well. So
Speaker 1: so a hundred and sixty names, constantly servicing new names,
Speaker 1: how do you make the determination? And so we went earlier,
Speaker 1: we went over negative screen, get rid of stuff you
Speaker 1: don't want to look at, a handful of fundamental bottoms
Speaker 1: up approach to narrow your list. And and I'm assuming
Speaker 1: that the top of that list is still a pretty
Speaker 1: big grouping how do you make the determination? This is
Speaker 1: the best idea of that group because it feels like
Speaker 1: some of that is quantitative, but a lot of it
Speaker 1: is subjective and a little squishy. Yeah, there's two elements.
Speaker 1: I think. One that's often underappreciated when people think about
Speaker 1: what you buy, and they often think of it very
Speaker 1: much in a clean slate approach, right. But one is
Speaker 1: perspective once again in that we have a live portfolio,
Speaker 1: and that live portfolio isn't sort of an organic organism, right,
Speaker 1: It's an accumulation of thousands of decisions already that have
Speaker 1: been built upon each other. Why we own what we
Speaker 1: own today and what size is a consequence of millions
Speaker 1: of interacting things. So that I think is im and
Speaker 1: to understand as your litmus tests or starting point be
Speaker 1: meaning the new new idea has to be a fit relative.
Speaker 1: You don't want excess concentration geographically, sector, whatever, or how
Speaker 1: does the existing portfolio help decide what the next idea
Speaker 1: that comes in is. That's what you mentioned is the
Speaker 1: latter I would mention before that, though, the key determinant
Speaker 1: is this new idea or business, how is it better
Speaker 1: than what we already own? That's the first litmus test.
Speaker 1: We've accumulated over time via several decisions, this group of
Speaker 1: concentration of these businesses that we like for these reasons.
Speaker 1: So now when we evaluate this next business there, how
Speaker 1: is it better than the weaker links in the current
Speaker 1: portfolio in terms of their relative lower quality versus the
Speaker 1: highest quality names in the portfolio? That is a litmus
Speaker 1: test is very important to the long term investment journey,
Speaker 1: you know, holding yourself to get over that hurdle over time.
Speaker 1: I think that's one piece first, and then the other
Speaker 1: pieces you point out then is okay, if you hold
Speaker 1: that first hard crew test there where you've got to
Speaker 1: replace a name if it's going to gain entrance, right,
Speaker 1: Maybe sometimes it isn't about replacement. This business is equally
Speaker 1: as good as a name we already owned, but it
Speaker 1: offers something else from a risk dynamic, which is nice.
Speaker 1: And that's where we think about risk very fundamentally. I
Speaker 1: think there's way too much focus on the Greek letters
Speaker 1: as I as I call them the bait as, the
Speaker 1: standard deviations, et cetera. I think they're a byproduct or
Speaker 1: they fall out of a good risk management process and approach.
Speaker 1: They're not the starting point. The starting point of a
Speaker 1: good rich management appross is fundamental, good old fashioned risk management.
Speaker 1: What is the business, What drives the business? What are
Speaker 1: the economics of the business, what does it do? Where
Speaker 1: does it do it? Forget the statistics first that and
Speaker 1: then the accumulation of several businesses together as you own them,
Speaker 1: having if you can get there, some idiosyncratic drivers, right,
Speaker 1: equally good businesses. But what drives this horse is different
Speaker 1: from what drives this horse over here. That's great risk
Speaker 1: management if you can achieve that over time. So in
Speaker 1: your question, you know the decision to get into the portfolios,
Speaker 1: you need to upgrade the quality of the portfolio if
Speaker 1: you do it, or to hand in hand with that,
Speaker 1: how do you improve the fundamental risk dynamics the portfolio
Speaker 1: by giving your investors a collective group of business which
Speaker 1: is still growing attractively, still durable and predictable, but maybe
Speaker 1: has a slightly different of syncratic driver, whereby you do
Speaker 1: have some diversification benefits. So I'm gonna ask you a question.
Speaker 1: I suspect I know the answer, but I'm compelled to
Speaker 1: ask it. Anyway, Most investors have a tendency to swap
Speaker 1: out something that is just suffering a temporary price setback,
Speaker 1: not necessarily a decrease in business quality, for whatever the
Speaker 1: shiny new thing of the day happens to be. How
Speaker 1: do you avoid that sort of process where something maybe
Speaker 1: is just you know, under performing for a quarter or two,
Speaker 1: but there's nothing along with the fundamental business, and yet
Speaker 1: here comes is the pretty new thing. How do you
Speaker 1: avoid that temptation? Yeah? I think one element is certainly
Speaker 1: human temperament, right, I think that's the skill that you
Speaker 1: add as a portfolio manager, on top of being a
Speaker 1: good analyst over time. It's temperament. Temperament comes with experience,
Speaker 1: but temperament is somewhat chemically wired in you as a being.
Speaker 1: As you said, you know that tendency to not jump
Speaker 1: for the next shiny object. You you have to have
Speaker 1: a temperament for that, or at least develop a good
Speaker 1: temperament for that. And I think, as you describe properly,
Speaker 1: a lot of times, particularly with great businesses, you need
Speaker 1: a little bit of patients rights. Even the greatest businesses
Speaker 1: with even as Buffett has described them, the widest moats,
Speaker 1: face threats. There's people always trying to sack the castle,
Speaker 1: you know, and cross the moat of the best businesses
Speaker 1: with the biggest moats, and you can't be too hyper
Speaker 1: sensitive to that. Over time, you have to realize that
Speaker 1: what seems like a crack on the wall of your castle,
Speaker 1: when you get a cloth and start to wipe it,
Speaker 1: it's just a blemish, right, and it wipes away. So
Speaker 1: I think you do need to balance great sound decision
Speaker 1: making with good temperament and patients perspective, experience and also
Speaker 1: some innate chemical composition helps so that. But the other
Speaker 1: piece then you have to appreciate is your own limitations too,
Speaker 1: right and where you can fall into these classic pitfalls.
Speaker 1: So you do have to know yourself too as an investor,
Speaker 1: and they're one element that also makes us different a
Speaker 1: little bit as a team and as a firm, we know,
Speaker 1: with all these good things I've just talked about, the
Speaker 1: single biggest risk with our style over time is complacency
Speaker 1: with patients. Patients can easily be synonymous with complacency sometimes also,
Speaker 1: so what we've done very successfully to combat complacency, which
Speaker 1: is the single biggest investment risk with great businesses complacency
Speaker 1: is we have three members of our twenty one member
Speaker 1: investment team that are former investigative journalists. They're not classic
Speaker 1: investment analysts. They're not your classic NBA's or come out
Speaker 1: of consultancy or business. They don't have sector coverage, they
Speaker 1: don't have stock responsibility, they don't pick stocks, value stocks.
Speaker 1: They're there to fight complacency. They're there as former instigative
Speaker 1: journalists from you know, from New York. We it's like
Speaker 1: I always use the analogy here too. It's like if
Speaker 1: you're getting married and you you wanted the dossier on
Speaker 1: your spouse before you got married. You want to know
Speaker 1: everything just you want to face it, accept it, you know.
Speaker 1: Kind of That's kind of where we want to be
Speaker 1: as investors, right. We want to know everything bad about
Speaker 1: the business, large or small, and then The success in
Speaker 1: investing then ultimately comes with calibrating the sensitivity to those
Speaker 1: large and small negative aspects. But every business, like every person,
Speaker 1: has some negative things to be learned or gleamed. The
Speaker 1: key as an investors just to make sure you know them,
Speaker 1: make sure you know all available information. So you have
Speaker 1: you have three people looking at all the individual names
Speaker 1: in the portfolio or the possible adds to the portfolio.
Speaker 1: Were both constantly challenging from a devil's advocacy position, weaknesses
Speaker 1: in our businesses when anything new comes up, digging deeper
Speaker 1: and into those issues and ferreting out the real facts
Speaker 1: of the matter so we can accumulate at least determine
Speaker 1: our own, you know, our own view of the issue,
Speaker 1: rather than just read the headline of the issue which
Speaker 1: someone else built upon their own facts. So they're fact finders,
Speaker 1: their devil's advocates. They're there to challenge us day to day.
Speaker 1: They're there to challenge even great businesses over the long term,
Speaker 1: and then very specifically where they've also been able to
Speaker 1: help us. A lot is looking into narrower issues with
Speaker 1: the business which might not be negative, could be positive,
Speaker 1: but a fundamental analyst maybe when they prioritize their time.
Speaker 1: It could be smaller yet important. But we can dedicate
Speaker 1: a journalist to dig deeper on a singular issue rather
Speaker 1: than the analyst, you know, get Meyer down in the
Speaker 1: fog of war in this one small issue, while they
Speaker 1: accumulate the bigger, broader picture of the underlying company. That's
Speaker 1: where they can add a lot of value too. So
Speaker 1: here's the question, and really it's how do you deal
Speaker 1: with this? It's very tempting to get sucked in by
Speaker 1: some of the negative narratives. They seem to be much
Speaker 1: more resonant emotionally. It's what sells right, they're compelling. You know,
Speaker 1: someone wrote a piece sometime ago, and I don't want
Speaker 1: to quote the wrong author, about when when the Right
Speaker 1: brothers did their first flight, there was no newspaper story,
Speaker 1: No one paid attention. You guys have going around with flight.
Speaker 1: What is this gonna become some real industry? It was
Speaker 1: like a ten years before anyone really took notice. Positive
Speaker 1: stories sort of fall by the wayside because it requires
Speaker 1: some imagination. Here's how this could change the world. Negative stories,
Speaker 1: it's a genuine existential threat to yourself. It's a risk
Speaker 1: we're wired to respond to negative threats in a much
Speaker 1: more robust manner than we are to um respond to
Speaker 1: positive incentives, or so it seems sometimes, how do you
Speaker 1: avoid that? Hey, all this negative stuff is so easily
Speaker 1: emotionally compelling. Let's just get rid of this joke. Yeah,
Speaker 1: I think experience, you know, experience working in this way
Speaker 1: with the structure of a team with these individuals has
Speaker 1: been very important. It's been a learning curve from the beginning.
Speaker 1: So it was an idea at the beginning of how
Speaker 1: they could fit really well with how we invest and
Speaker 1: the idea was very simple, right one. Given that period
Speaker 1: you go back, you know, ten fifteen years ago, the
Speaker 1: carnage and the news industry had already started. You had
Speaker 1: read a great smart people there where the industry was
Speaker 1: being affected by technology, and they were now available, so
Speaker 1: to speak. Number one. Number two, what reporters clearly do
Speaker 1: very well, uh in their job is find a subject
Speaker 1: they often maybe know nothing about, and figure it out,
Speaker 1: you know, start the building blocks of what makes it tick,
Speaker 1: to figure out whether to you know, not to skip
Speaker 1: head to your end point, whether story is good or bad,
Speaker 1: or just what the story is. Number one. So that
Speaker 1: was a great analytical skill, and the other one that's
Speaker 1: most underappreciated. I think where you actually find a differentiation
Speaker 1: between good or bad or better or worse analysts is
Speaker 1: everybody can be smart. Everybody can find facts. Everybody can
Speaker 1: then maybe even put the story together. But can you
Speaker 1: actually then spit it out and regurgitate it so someone
Speaker 1: can do something with the information. And that's I think
Speaker 1: something that investors struggle with two and really smart people
Speaker 1: sometimes struggle with. Right, they just know so much and
Speaker 1: they can put it together in their own mind, but
Speaker 1: they either aren't in the position to make a decision
Speaker 1: or they can't make a decision because they just can't
Speaker 1: spit it out. And newspaper reporters obviously that's their job,
Speaker 1: right they need to put it into a sellable fashion,
Speaker 1: which means it's articulate, and you need the articulation to
Speaker 1: be able to make a decision and know what you're
Speaker 1: dealing with. So I know of a couple of hedge
Speaker 1: funds that do something very similar. Describe um Vannabelle's structure.
Speaker 1: How are you form investors? Are they s m A s?
Speaker 1: Are they funds? How are they putting dollars to work with?
Speaker 1: With your firm. Our business is roughly a mix I
Speaker 1: would say of half half, you know, between more institutional
Speaker 1: oriented investors and then more retail and oriented investors. And
Speaker 1: in that world, we're a manufacturer of an investment product
Speaker 1: where a style approach of discipline, we deliver an investment product.
Speaker 1: And then our partner, who in the u S is
Speaker 1: Vertus Investment Advisors. They're the distributor of the product to
Speaker 1: the end retail investors. So we're removed from them, but
Speaker 1: we help hold them along a journey. So the retail
Speaker 1: investor they buying s m A separately managed accounts, are
Speaker 1: they buying mutual funds? They're generally buying mutual funds. You know,
Speaker 1: we have a we actually as a firm and a
Speaker 1: well developed firm. We have the whole suite of structures
Speaker 1: products for our end investors. So we can manage subadvised accounts,
Speaker 1: we can subadvise mutual funds, we can manage mutual funds.
Speaker 1: And we have basically half half our business. And then
Speaker 1: also i'd cut our business also again another half half
Speaker 1: North America, US focused and international. We have quite a
Speaker 1: global business, right the parent company Switzerland based, is that right?
Speaker 1: And they've been around quite a long time. My assumption
Speaker 1: is institutions tend to be direct investments, not through a
Speaker 1: fund vehicles that accurate. Yeah, Typically they want to be
Speaker 1: registered locally, uh and and and they want to an
Speaker 1: account that maybe sometimes has some customization that they may need.
Speaker 1: We don't and won't accept a lot of customization. We
Speaker 1: need to be able to do what we promised we
Speaker 1: could deliver. You know, I think this business is about integrity.
Speaker 1: It's saying saying what you're going to do and sticking
Speaker 1: to it, you know, saying doing what you mean you
Speaker 1: mean to set out upon. I think integrity is very
Speaker 1: very important. So our clients, we need to make sure
Speaker 1: we can deliver with integrity the philosophy process that they
Speaker 1: bought into, they saw the results for. But sometimes at
Speaker 1: the institutional level, maybe there's a nuance where there's a
Speaker 1: market they can't be in for an institutional reason, et cetera.
Speaker 1: Sometimes we can we can allow that. Quite quite interesting.
Speaker 1: I want to get to my favorite questions, sort of
Speaker 1: our speed round that we ask all of our guests.
Speaker 1: Feel free to uh answer these as as long or
Speaker 1: as short as you like. Tell us the first car
Speaker 1: you ever owned, year, make and model. Yeah. As I said,
Speaker 1: I grew up from a farming family and a landscaping business.
Speaker 1: So my first car, not surprisingly, was a Chevy pickup truck.
Speaker 1: I got my license in New Jersey at fifteen because
Speaker 1: I got a farmer's license because you know, we had
Speaker 1: a farm, so to speak. And I drove around town
Speaker 1: with the name of our business and phone number plastered
Speaker 1: on the side, which could be a good or bad
Speaker 1: thing depending on how you're driving or where you're driving. What.
Speaker 1: What's the most important thing that people don't know about you? Uh? Boy? Uh? Look, Uh,
Speaker 1: I'm I'm a person who cares a lot about other people.
Speaker 1: You know, I think the other the other half of
Speaker 1: my job has been managing money, and half of my
Speaker 1: job has been managing people. And I really do care
Speaker 1: about the success of my people. Uh it would, And
Speaker 1: I'm not saying that sort of a way to promote myself.
Speaker 1: It's admittedly what makes me feel good. You know, people
Speaker 1: do things for self motivation, and I really do take
Speaker 1: a tremendous amount of personal satisfaction in the success and others.
Speaker 1: I've taken great lengths over the last three to four
Speaker 1: years to build a deeper broader team to build real
Speaker 1: lead capable portfolio managers. I think we should have a
Speaker 1: team for our investors where we're all redundant. I think
Speaker 1: that's a better situation for our investors. So I think
Speaker 1: maybe not a star system that is one person in
Speaker 1: the headlines, everybody else is, uh working behind the scene.
Speaker 1: And I think it's suboptimal for your clients, you know,
Speaker 1: And I think it's suboptimal for retaining great people longer term,
Speaker 1: because why do most of us change jobs is because
Speaker 1: we need opportunity, you know it. Financial is important, right,
Speaker 1: but people are people and they want self you know, achievement.
Speaker 1: And I take a lot of satisfaction and that half
Speaker 1: of my job of really I really smile and I
Speaker 1: really feel good when I see the accomplishment and achievement
Speaker 1: of others. And I'm saying that, like I said, not
Speaker 1: in a self promotional way, in a selfish way. It's
Speaker 1: what makes me feel good. Uh, let's talk about mentors.
Speaker 1: Who were your mentors who helped guide your career in law? Yeah, look,
Speaker 1: there's been several. I think, Uh, you know, you have
Speaker 1: to go back to your childhood clearly, you know, as
Speaker 1: most people do their parents. You know, I grew up
Speaker 1: in one of the traits I try to push once
Speaker 1: again today is just the the idea of hard work.
Speaker 1: You know, As I said, we had a small business.
Speaker 1: We had a business where we dug our hands in
Speaker 1: the dirt. We worked seven days a week. Uh, work
Speaker 1: ethic is extremely important to me. And my father in
Speaker 1: that way and my mother were very important, you know,
Speaker 1: And we worked when we were out of school. I
Speaker 1: was at work after school, and we're at work on
Speaker 1: the weekend, Saturday and Sunday. And I think hard work,
Speaker 1: that old puritanical work ethic, you know, is very important
Speaker 1: to me. So from a mentorship, definitely my father instilling
Speaker 1: that in me, and then from the investment side, which
Speaker 1: is key you know, to where I am today after
Speaker 1: that or subsequent to that. You know, there's been a
Speaker 1: litany of people. I think a lot of it has
Speaker 1: been read. To start with two. You know. One of
Speaker 1: the great piece of advice my co manager on our
Speaker 1: US equity product, did Walls, that gave me earlier in
Speaker 1: my career, was to read a lot of these money
Speaker 1: master's books, right, even if it wasn't just equities, Read
Speaker 1: how other people invest, how they make money. You know
Speaker 1: whether and fixed income, whether commodities, whether equities, because also
Speaker 1: the key to long term successful investing is finding something
Speaker 1: that fits for you. And maybe maybe then equities, maybe
Speaker 1: it's ficting Tom. Maybe in equities it's value, it's not growth.
Speaker 1: But a key to success is finding what fits for you.
Speaker 1: So reading a lot about how other people invest, how
Speaker 1: they think. Probably you know the nature of what your
Speaker 1: podcast audience is. I think that's all that's very important
Speaker 1: that where you can drive mentorship from in a lot
Speaker 1: of ways, you know how reading and learning from how
Speaker 1: they think. But then you know, the obvious key instruments
Speaker 1: in my life have been a lot of the investment
Speaker 1: professionals around me at the um. You know, it's my
Speaker 1: team and colleagues today, it's the d Walls as you know,
Speaker 1: the Henry Schlegel's who's a founding, you know, father of
Speaker 1: our firm. It's our former colleague, Regieve Jane. It's a
Speaker 1: number of people at our firm that have helped build
Speaker 1: me from this kid who came out of you know,
Speaker 1: university in and has has built his way, you know,
Speaker 1: like Michael J. Fox did in Secret to my success
Speaker 1: from the mail room to the top you know, I
Speaker 1: literally started at the bottom. I started trade processing and settlement,
Speaker 1: and I worked my way through the organization and along
Speaker 1: that journey. To your question, there's been people at every
Speaker 1: stage that have helped me, you know, that have really
Speaker 1: helped me in certain aspects that i've you know, now
Speaker 1: put together. You mentioned reading. Tell us some of your
Speaker 1: favorite books, be they investing related, nonfiction fiction. What do
Speaker 1: you like to read? You know, I'm boring in a
Speaker 1: way and that I like to read nonfiction. I like
Speaker 1: history a lot, you know, some sci fi like I liked.
Speaker 1: And it's funny the books you end up with, you know,
Speaker 1: sometimes you wonder how you ended up there. But the
Speaker 1: current book I'm reading is a biography of f DR
Speaker 1: from Gene Smith, and it's a really good piece of
Speaker 1: perspective as you read about that time period and related
Speaker 1: to the time period today, because I think a lot
Speaker 1: of investment success also, and why I read history is
Speaker 1: this element of perspective, getting out of the frenzy and
Speaker 1: flurry and and and feeling of this is also different
Speaker 1: and also wild of today to looking back at the
Speaker 1: way things have been and were, And I think FDRs
Speaker 1: period is actually quite interesting, right, I mean, you look
Speaker 1: at what was going on at geopolitical stage, you look
Speaker 1: at geopolitical missteps. You mentioned it earlier in terms of Powell,
Speaker 1: in terms of a cabinet committee nomination by Trump, but
Speaker 1: you know, look what past cabinets were filled with, right,
Speaker 1: the chrony ism and the lack of experience and capability
Speaker 1: or poor capability. Have some perspective that over time. You know,
Speaker 1: I'm not making indictment on a on a political you know,
Speaker 1: a party or group, but it's pervasive everywhere. Right, So
Speaker 1: just have that perspective of how decisions in history have
Speaker 1: played out. Maybe in the short term seemingly difficult or
Speaker 1: scary or risky. But as Buffett also pointed out to
Speaker 1: from that period, you know, as he's first investing in
Speaker 1: the forties, right, who would have ever invested in the
Speaker 1: environment in the face of you know, carnage in the
Speaker 1: South Pacific with World War Two? Right, But it was
Speaker 1: the time to invest. It's for the Yeah, for the
Speaker 1: long term, it's always a good time to invest. But
Speaker 1: you've got to have perspective then and sent and and
Speaker 1: sort of dampen your sensitivity through experience that this stuff
Speaker 1: we all see and read and hear about today. It
Speaker 1: has a lot of rhythm to what happened even you know,
Speaker 1: in the thirties and forties, for one example. So I
Speaker 1: read a lot of biographies like the FDR is one,
Speaker 1: give us another book or biography? Look the other one
Speaker 1: you know that I liked. Unfortunately. You know, this is
Speaker 1: like you know when you like sports teams and they
Speaker 1: were unpopular then become popular, right, you know, the the
Speaker 1: turn off. Hamilton's biography was awesome, Right, But Hamilton's now
Speaker 1: this global sensation because of the deserved success, right of
Speaker 1: the play. But Hamilton's, you know, was a character that I,
Speaker 1: long before all this recent success, had a lot of
Speaker 1: admiration for in his contribution to our country, which people
Speaker 1: now I'm proud and I'm glad they broadly learned more about.
Speaker 1: But that's obviously a great biography. I try to lead
Speaker 1: a lot of president, you know, sort of presidence. I
Speaker 1: think you learn a lot about it before you move
Speaker 1: off of Hamilton's. I have to say, there aren't a
Speaker 1: lot of authors that you could say, yeah, just grib
Speaker 1: Any chron out book, it'll be great. He's one of
Speaker 1: those authors that anything he's written is just spectacular. Fantastic too, right.
Speaker 1: You know the Jobs book was great, right, Isaacson too.
Speaker 1: So you get there's certain authors, right what they they
Speaker 1: what they write is just always great. But I tend
Speaker 1: to read about people in history and in periods too,
Speaker 1: so it's not just always people. You know, I've finished
Speaker 1: a book on the Crusades, you know, certain periods of history.
Speaker 1: What's the name of the book? Uh? That ish gosh,
Speaker 1: Now I can't remember the name of that one. Now,
Speaker 1: you got me? Because so I read a book email
Speaker 1: to me. I'll make the book I had um Jim
Speaker 1: Chanos recommended was a World Lit Only by Fire, which
Speaker 1: covers that sort of Crusades Enlightenment era. And it's just
Speaker 1: mind and I think visually, and I can picture the
Speaker 1: book now on my table and sitting there after I
Speaker 1: finished it. I'll have to come back to you with
Speaker 1: the name of it. But it wasn't that specific one.
Speaker 1: But also, you know, I'm not looking for carnage when
Speaker 1: I read about it the thirties and forties and in
Speaker 1: the Crusades. But there are lessons to be tremendous lessons
Speaker 1: to be learned longer term, and that's why I think
Speaker 1: reading is important. You know unfortunately. I think you know,
Speaker 1: first of all, radio versus TV isn't important as a
Speaker 1: medium because you have more time to be thoughtful and
Speaker 1: reading is time to be thoughtful, and we all need
Speaker 1: a little bit more of that than a hundred and
Speaker 1: thirty characters or whatever. We're um. If you ever get
Speaker 1: a chance to see Walter Isaacson speak in public, I
Speaker 1: believe it was the t D event their annual conference
Speaker 1: in June. They had Isaacson speak and I read the
Speaker 1: Jobs Book and I have UM I forgot what his
Speaker 1: most recent book was on UM innovators or inventors or
Speaker 1: whatever it was. I haven't gotten to it yet, but
Speaker 1: he is a fascinating person doing exactly what you're describing,
Speaker 1: taking the biography of people from today and using history
Speaker 1: as a context to show. I think you said this early.
Speaker 1: The more things change, the more it remains the same.
Speaker 1: That's the crucial lesson we all need to hold on to,
Speaker 1: you know, through all the turmoil we see every day
Speaker 1: on the news, right, that's why? And why is that
Speaker 1: because we're people right Where people we talked about certain
Speaker 1: elements where people were animals. We have animalists animalistic nature
Speaker 1: in certain ways to we really like the negative and
Speaker 1: and and we just need to step back and appreciate that.
Speaker 1: I think at the end of the day, and then
Speaker 1: I like to read also, as you can pick up
Speaker 1: in my books, leadership right, which is also something we
Speaker 1: wonder about the world today. Right, we need collective leadership
Speaker 1: rightly where maybe in a vacuum here where we're looking
Speaker 1: for real clear leadership, because historically there are times where
Speaker 1: leadership mattered a lot, you know, so I think reading
Speaker 1: about that's interesting. Tell us about a time you failed
Speaker 1: and what you learn from the experience. Yeah, you know, uh,
Speaker 1: when it comes to failure, I I have obviously all
Speaker 1: the classic pitfalls and investing. You know, we we all
Speaker 1: sell too early, even great businesses. We do it because
Speaker 1: we have some valuation sensitivity on top of that, you know,
Speaker 1: on the other side of the coin, you often hold
Speaker 1: on too long. But you know, I think my greater
Speaker 1: failures I hone in on our more personal failures, you know,
Speaker 1: not you know, not in interpersonal relationship speaking up or
Speaker 1: or stepping up you know, both in family or friends
Speaker 1: or things like that. You know, not to get too specific,
Speaker 1: but those are the failures that I think you hold
Speaker 1: a little bit closer. Uh, And those are ones that
Speaker 1: are more important to learn from, because I think the
Speaker 1: investment ones, they are critical and you do learn from
Speaker 1: what they are. The obvious ones. I think the real
Speaker 1: failures we all need to focus on, and I do
Speaker 1: are are ones where you've fallen short personally and we
Speaker 1: all we all need to do a better job. What
Speaker 1: do you do for fun? What do you do when
Speaker 1: you're not reading biographies or are in the office. Yeah,
Speaker 1: you know, I um a University of Denver alumni, So
Speaker 1: I ski. You know. I like to ski, certainly. I
Speaker 1: love the mountains. I'm a mountain person, even though I
Speaker 1: live in Fort Lauderdale, Florida, which is a little bit funny.
Speaker 1: But I got a little best best of both the
Speaker 1: worlds are in that way, I can live in in
Speaker 1: the worm and go skiing, and I can wander skiing.
Speaker 1: I guess that's one way to get it out of
Speaker 1: my system. The hills are a little lower there. Uh,
Speaker 1: So I do like to ski. Look, I'm a I'm
Speaker 1: a family person, you know, so I have two young kids.
Speaker 1: Quality of life is important for me too. We work hard,
Speaker 1: we work seven days a week. But I think you
Speaker 1: need to balance at and keep you know, faith and
Speaker 1: family and all those elements very very close to your life.
Speaker 1: They're important, is important. So let's talk about the industry.
Speaker 1: What are you most optimistic about? What are you most
Speaker 1: pessimistic about? In the investing industry, I think you've got
Speaker 1: to be optimistic that, you know, despite all the noise
Speaker 1: and change, you know, success and investing still comes back
Speaker 1: to the same playbook, you know, and if you can
Speaker 1: be disciplined around it. So that excites me, right, where
Speaker 1: other industries have gotten hollowed out, and they are fundamentally different. Right,
Speaker 1: if you're a taxi driver and your compete against Uber,
Speaker 1: your business is different. Right. If you're a restaurant and
Speaker 1: delivery has come in and delivery apps, your business is different.
Speaker 1: Our business has had a lot of technological change and influence,
Speaker 1: and people talk about AI and the snap. But I'm
Speaker 1: actually quite excited in that we have a we have
Speaker 1: an employable skill still here. That's kind of nice, right,
Speaker 1: We still have some value added to bring even as
Speaker 1: much as things have changed. So I'm really quite excited
Speaker 1: about that, you know, I'm I'm sort of you know,
Speaker 1: if I get in negative at all and downtrodden it
Speaker 1: is sort of around these sort of you know, fissures
Speaker 1: you know where and as I mentioned very briefly there,
Speaker 1: you know, community is important to me. We were supposedly
Speaker 1: living in an age where technology was enhancing community and
Speaker 1: creating a greater community. But in fact, I think what
Speaker 1: people are hopefully and seeing and recognizing as we're actually
Speaker 1: seeing a fracturing of community, you know, because of maybe
Speaker 1: technology perversely social media and all that. So that scares me, right,
Speaker 1: because you know, politics are politics, economics are economics, but
Speaker 1: you know, strong community is very important and locally and
Speaker 1: on a political stage as well. So I'm a bit
Speaker 1: negative on that, you know. I know though over the
Speaker 1: long term, as we said, it's never you know, paid
Speaker 1: to be a pessimist, as as Buffett also said, I believe,
Speaker 1: you know, investing is an optimist game and you have
Speaker 1: to be that and it's been the right way to be.
Speaker 1: So you don't want to be too near term pessimistic.
Speaker 1: But you know, a near term me, you get a
Speaker 1: little bit down. And as you see this, you know,
Speaker 1: this key element of life fracturing a bit interesting. So
Speaker 1: a recent college graduate comes to you and is looking
Speaker 1: for advice about a career in finance. What would you
Speaker 1: tell them, Yeah, I'd say a lot of things we've
Speaker 1: talked about. To say, I'll have to point them towards
Speaker 1: the podcast. But you know, I think you need to
Speaker 1: find the investment philosophy that works for you number one,
Speaker 1: because there are a million roads to heaven. You gotta
Speaker 1: pick the right one for you in the investing world,
Speaker 1: you know, I I have a mouse trap that works
Speaker 1: for me and my team and our firm and our
Speaker 1: temperament and our skill set and our investors. Critically, so
Speaker 1: you've got to find the right path for you. I
Speaker 1: think reading and perspective is critical. Being a little less sensitive,
Speaker 1: being a little bit patient. I think those are the
Speaker 1: basic things you tell them to work on, you know,
Speaker 1: be a voracious reader. Uh. And that you know, as
Speaker 1: we've talked about, there is a good future. You still
Speaker 1: have an employable skill set, you know. I think the
Speaker 1: human element is going to continue to create opportunity, continue
Speaker 1: to drive most people to make mistakes. That's just the
Speaker 1: law of numbers. And you can stand there ready to
Speaker 1: capitalize upon them and and and make money. But critically
Speaker 1: preserve capital, you know, preserve one compound Number two and
Speaker 1: our final question, what do you know about the world
Speaker 1: of investing today that you wish you knew twenty years
Speaker 1: ago or so when you were first starting out. Yeah,
Speaker 1: that's a good one. What would I have wanted to
Speaker 1: know twenty years ago today? Uh, you know, aside from
Speaker 1: the generic things that would leave to two general investment success,
Speaker 1: you know, you'd want to know how complicated the businesses
Speaker 1: outside of just the you know, the investing aspect, in
Speaker 1: the analytical aspect, right. I think it's why it's important
Speaker 1: for people, and it was helpful in my own background,
Speaker 1: as I mentioned my past, to know how the plumbing works, right,
Speaker 1: the plumbing is becoming even more important. You know how
Speaker 1: markets trade, how trades to element works, how that those
Speaker 1: elements work. I think that's twenty years ago. That was
Speaker 1: something that wasn't paris not taught in school. You know,
Speaker 1: you don't learn about the plumbing. You try to get
Speaker 1: a job, go to graduate school and come out and
Speaker 1: be an analyst or be a successful investor. You sort
Speaker 1: of skip ahead, you know. So I think that's an
Speaker 1: important aspect. Do you want to really know with investing
Speaker 1: or any thing, have that foundation of how things work first?
Speaker 1: Where generally people have a tendency to want to jump
Speaker 1: ahead and solve the problems, you know, or so go
Speaker 1: to the headline of the issue without backing down and
Speaker 1: understanding the plumbing. So I think that's the that's the
Speaker 1: advice I would have known. I want to know more
Speaker 1: of the plumbing, and I think I think we've done
Speaker 1: a decent job preparing for that, and I think we're
Speaker 1: ahead of that certainly where we are today, because that's
Speaker 1: another key element we didn't even get into today, you know,
Speaker 1: the mechanics and plumbing of the markets, and where we
Speaker 1: are now versus where we used to be in that
Speaker 1: interaction with investing is going to be more important, quite
Speaker 1: quite interesting. Matt, thank you for being so generous with
Speaker 1: your time. We have been speaking with Matt Benkendorff, ce
Speaker 1: IO of on Tobol Quality Growth. UH. If you enjoy
Speaker 1: this conversation, well be sure and look up an Inch
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Speaker 1: see any of the previous two hundred and sixty or
Speaker 1: so of these we've had over the past five plus years. UH.
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Speaker 1: be remiss if I did not thank the Crack staff
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Speaker 1: is my audio engineer. Michael Batnick is my head of research.
Speaker 1: I'm Barry Hults. You've been listening to Masters in Business
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