WEBVTT - Cheap, Unloved, Profitable: The Case for Value Investing Today? 0:00:02.720 --> 0:00:18.480 Bloomberg Audio Studios, podcasts, radio News. Welcome to Maren Talks Money, 0:00:18.520 --> 0:00:21.279 the podcast and with people who know the markets explain 0:00:21.320 --> 0:00:23.439 the markets. I am Meren sum sub Web and this 0:00:23.520 --> 0:00:25.360 week I am speaking with Ian Lance, who as a 0:00:25.400 --> 0:00:28.520 manager at Temple Bar Investment Trust. Ian, Welcome to Marin 0:00:28.520 --> 0:00:29.120 Talks Money. 0:00:29.520 --> 0:00:30.080 Thank you, Mary. 0:00:31.760 --> 0:00:33.839 Right, we have a lot to talk about. It's been 0:00:33.960 --> 0:00:36.080 exciting times for you. Right. This year is the one 0:00:36.120 --> 0:00:41.480 hundredth anniversary of the Temple Bar Investment Trust, Right, it is, indeed, Yeah, 0:00:41.520 --> 0:00:44.440 it's also the I was going to say the end 0:00:44.479 --> 0:00:46.159 of a period, but I hope it's part of an 0:00:46.200 --> 0:00:50.120 ongoing period of spectacular performance from the Temple Bar Investment Trust, 0:00:50.120 --> 0:00:52.800 which I will say, by the way, I'm particularly pleased 0:00:52.800 --> 0:00:54.240 to have you on because I've been a long term 0:00:54.240 --> 0:00:56.960 holder of the trust, so I keep very close eye 0:00:57.240 --> 0:01:00.720 on what you do now. Your company, Red Whale, appointed 0:01:00.720 --> 0:01:03.760 to take over the investment Trust assets at late twenty twenty. 0:01:03.560 --> 0:01:04.319 Right, that's correct. 0:01:04.400 --> 0:01:09.840 Yeah, and since then it's been extraordinary. Your performance has 0:01:10.040 --> 0:01:13.280 really been absolutely marvelous. NYV in shareholder total returns have 0:01:13.360 --> 0:01:16.319 not far off well two hundred percent for NYV and 0:01:16.360 --> 0:01:19.480 well over two hundred percent for shareholder total returns, and 0:01:19.520 --> 0:01:21.600 you're pretty much top of the peer group and every 0:01:21.640 --> 0:01:25.640 single time frame since they're in very very much ahead 0:01:25.840 --> 0:01:29.640 of the benchmark. And also interestingly, I noticed in one 0:01:29.680 --> 0:01:31.200 of the reports I was reading in the run up 0:01:31.200 --> 0:01:33.560 to talking to you that even in this period where 0:01:33.600 --> 0:01:36.800 everyone thinks that you can only outperform if you go 0:01:36.920 --> 0:01:41.080 to America, the temple Bar performance has been head of 0:01:41.560 --> 0:01:45.039 the SMP composite. So that's really quite something given you 0:01:45.080 --> 0:01:48.680 are not entirely but almost entirely UK invested. I think 0:01:48.720 --> 0:01:51.600 you can have thirty percent invested outside the UK, is 0:01:51.600 --> 0:01:52.040 that right. 0:01:52.040 --> 0:01:52.560 That's correct? 0:01:52.600 --> 0:01:56.640 Yeah, okay, So let's start by talking about how you 0:01:56.720 --> 0:01:59.360 did that, and then we'll talk a little bit about 0:01:59.560 --> 0:02:02.080 whether sustainable or not. I mean, I think the important 0:02:02.120 --> 0:02:04.680 thing to say for investors and listeners who do not 0:02:04.840 --> 0:02:06.640 know the temple Bar Investment Trust is that you are 0:02:06.800 --> 0:02:09.480 very much value investors, always have been, and even when 0:02:09.480 --> 0:02:11.920 the manager was changed in twenty twenty, one of the 0:02:12.080 --> 0:02:14.000 interesting things at the board thought then was it was 0:02:14.040 --> 0:02:15.960 not the right time to move away from the value 0:02:15.960 --> 0:02:18.520 of strategy, and they continued with it, just with a 0:02:18.560 --> 0:02:22.000 different manager. So let's talk a little bit about what 0:02:22.080 --> 0:02:25.200 value means to you and how you have created that 0:02:25.320 --> 0:02:28.800 really fantastic performance. Over the last six years, we've. 0:02:28.600 --> 0:02:31.720 Stuck to our value philosophy, and I think the first 0:02:31.760 --> 0:02:34.000 thing that we would say is that the timing of 0:02:34.080 --> 0:02:37.400 us taking on the assets were in some ways fortuitors. Ie, 0:02:37.560 --> 0:02:39.920 we started the clock ticking at the end of October 0:02:40.400 --> 0:02:42.320 twenty twenty. You cast your mind back then, we were 0:02:42.600 --> 0:02:44.720 right in the middle of the pandemic. You know, people 0:02:44.800 --> 0:02:46.960 were wondering how long lockdowns were going to go on. 0:02:47.720 --> 0:02:50.440 A lot of share prices had done very very badly, 0:02:51.200 --> 0:02:53.080 And simply what that means for a value investor is 0:02:53.080 --> 0:02:57.959 your opportunity set Suddenly it becomes incredibly interesting. So, yeah, 0:02:58.000 --> 0:03:00.000 you know, the market is offering you marks and spend 0:03:00.240 --> 0:03:03.399 below a pound, and you know, and Nat West Bank 0:03:03.440 --> 0:03:05.000 at the same price. It was in the middle of 0:03:05.000 --> 0:03:07.799 the financial crisis and so on and so forth, and 0:03:07.840 --> 0:03:10.399 so you know what we did was we basically use 0:03:10.480 --> 0:03:13.520 that to buy lots of those very very cheap stocks 0:03:14.280 --> 0:03:16.400 and then stuck with them by and large. And I 0:03:16.440 --> 0:03:17.960 suppose if you look at the things that have done 0:03:18.040 --> 0:03:21.000 best over that period of the time, financials would be 0:03:21.040 --> 0:03:23.640 a big one of them, you know, UK banks, which 0:03:23.880 --> 0:03:25.760 some people were saying you should never invest in a 0:03:25.880 --> 0:03:28.880 UK bank. UK banks performed very very well. So have 0:03:29.160 --> 0:03:32.600 insurance companies. Lots of other sectors that people you know, 0:03:32.639 --> 0:03:35.040 say you should never really touch. Airlines would be another example, 0:03:35.080 --> 0:03:38.040 again perform very very well. So really it was it 0:03:38.080 --> 0:03:40.080 was buying what we thought were sort of decent companies 0:03:40.160 --> 0:03:42.240 at a time when they were offered at very very 0:03:42.320 --> 0:03:44.680 low valuations, and then and then keeping hold of them. 0:03:44.760 --> 0:03:47.840 Okay, and how are we defining lower valuations? How are 0:03:47.880 --> 0:03:49.560 we defining cheap? What do you look at? 0:03:49.960 --> 0:03:52.240 We defined cheap by looking at where we think of 0:03:52.320 --> 0:03:55.000 company's earnings potentially is not where its earnings is today. 0:03:56.040 --> 0:03:59.320 We think that people typically focus too much on short 0:03:59.400 --> 0:04:03.280 term earnings. So COVID is brilliant example of that. Obviously, 0:04:03.360 --> 0:04:06.480 you know, we'd gone into this lockdown, the economy had 0:04:06.480 --> 0:04:09.600 gone into a downturn, Lots of companies, their earnings went 0:04:09.640 --> 0:04:12.040 down the past, the dividends, et cetera, et cetera, And 0:04:12.040 --> 0:04:14.520 what people have a tendency to do is basically anchor 0:04:14.520 --> 0:04:16.320 off that they and they just kind of can't see 0:04:16.320 --> 0:04:19.200 how things are ever going to recover. What we tend 0:04:19.200 --> 0:04:21.760 to do is say, right, look, at some stage this 0:04:21.800 --> 0:04:24.400 will end, earnings will recover, where do we think they 0:04:24.440 --> 0:04:25.760 can get back to? And we kind of try to 0:04:25.760 --> 0:04:28.000 look three to five years out and then basically value 0:04:28.040 --> 0:04:29.880 the business off where we think the earnings can get 0:04:29.880 --> 0:04:30.120 back to. 0:04:31.240 --> 0:04:33.919 It really sounds very straightforward, quite obvious. Why doesn't everybody 0:04:33.920 --> 0:04:34.600 investate this? 0:04:34.680 --> 0:04:37.440 Because it's simple, not easy. There's actually a book called simple, 0:04:37.520 --> 0:04:41.080 not Easy and Perfectly Some Value Investing, which is you're 0:04:41.120 --> 0:04:44.120 absolutely right. The mechanics of doing that are not particularly difficult. 0:04:44.160 --> 0:04:47.440 The difficult bit is the psychological bit. It's the buying 0:04:47.520 --> 0:04:49.840 stocks which the share price has probably just gone down 0:04:49.880 --> 0:04:52.800 a lot. Everyone hates them. Everyone tells you you're an 0:04:52.800 --> 0:04:54.920 absolutely clown to be buying those you need. Do you 0:04:54.960 --> 0:04:56.480 not know that? You know we're in the middle of 0:04:56.520 --> 0:04:59.640 a recession and YadA, YadA yadda. I often say, you 0:04:59.680 --> 0:05:02.640 know when we when we put up our top ten holdings, 0:05:02.680 --> 0:05:05.159 people often feel slightly nauseous looking at the companies that 0:05:05.200 --> 0:05:08.040 we own. But you don't get bargains unless you buy 0:05:08.040 --> 0:05:10.280 things that have some sort of controversy around them. That's 0:05:10.320 --> 0:05:11.480 the reason that it works. 0:05:12.040 --> 0:05:13.680 And when you look at the top ten holdings. It's 0:05:13.680 --> 0:05:16.520 actually it's a very concentrated portfolio, isn't it that There 0:05:16.520 --> 0:05:19.640 are sixty five odd holdings across the portfolio, but the 0:05:19.680 --> 0:05:21.880 top ten make up a very significant proportion. 0:05:22.080 --> 0:05:22.960 Yeah, that's correct. 0:05:23.240 --> 0:05:24.520 How much is the top ten now? 0:05:24.640 --> 0:05:28.080 I think top tens are around fifty percent of the portfolio. Yeah. 0:05:28.440 --> 0:05:30.919 Yeah, so this is very focused. So when you find it, 0:05:31.000 --> 0:05:33.479 when do you find a bargain, you really go for it. 0:05:33.520 --> 0:05:36.560 We do, although although actually you might be surprised to 0:05:36.560 --> 0:05:39.520 find that. Actually sometimes we put you know, three percent 0:05:39.600 --> 0:05:42.120 or so into the portfolio. But I think the important 0:05:42.120 --> 0:05:45.040 thing is letting it run, so basically not being too quick, 0:05:45.680 --> 0:05:47.400 you know, to take your profits on things. I mean, 0:05:47.960 --> 0:05:49.400 I keep going back to the banks. But the banks 0:05:49.400 --> 0:05:51.720 will be a fantastic example of that. You would have 0:05:51.720 --> 0:05:54.320 had lots of opportunities to have sold banks as they 0:05:54.360 --> 0:05:56.320 went up and buy and large. We just kind of 0:05:56.320 --> 0:05:57.960 like and run, let them run, and of course then 0:05:58.000 --> 0:06:00.520 they end up becoming a sort of five six percent position. 0:06:01.120 --> 0:06:05.559 Okay, So what makes a stock a good value stock 0:06:05.680 --> 0:06:07.680 as opposed to a value trap. I mean, it's the 0:06:07.760 --> 0:06:10.279 standard question, right, There's a lot of stuff that looks 0:06:10.400 --> 0:06:13.119 very cheap, but in fact, maybe it's got an awful 0:06:13.160 --> 0:06:15.880 lot of debt, or it is obvious to you that 0:06:15.960 --> 0:06:19.360 its profits may remain low and definitely etc. How are 0:06:19.400 --> 0:06:24.360 we dis distinguishing between a great value buy and a 0:06:24.440 --> 0:06:25.040 value trap. 0:06:25.839 --> 0:06:28.919 Unfortunately, buying value traps it's almost an occupational hazard. If 0:06:28.960 --> 0:06:31.000 you spend your entire time saying, now, I'm going to 0:06:31.040 --> 0:06:33.000 avoid companies that I think might be a value trap, 0:06:33.080 --> 0:06:36.000 then you are going to miss the ones that actually aren't, 0:06:36.080 --> 0:06:39.279 the ones which actually it turns out that the market 0:06:39.279 --> 0:06:42.880 has just overreacted in the downturning earnings. But by and large, 0:06:42.960 --> 0:06:45.160 we do stay away from companies with too much debt, 0:06:45.320 --> 0:06:47.440 and I think that's myself and they could be running 0:06:47.440 --> 0:06:50.360 money for thirty years. When we look back at the 0:06:50.400 --> 0:06:54.200 things that have gone the worse for us, often it's 0:06:54.240 --> 0:06:57.239 just companies with weak balance sheets because when things went down, 0:06:57.400 --> 0:06:59.920 they didn't have the ability to basically stay the call. 0:07:00.320 --> 0:07:02.599 So you got to buy something with a decent balance cheap. 0:07:02.920 --> 0:07:05.280 And then we do try to buy things where we 0:07:05.320 --> 0:07:08.160 think that the earnings can be higher on a five 0:07:08.240 --> 0:07:10.280 year basis, and we're not always going to be right 0:07:10.320 --> 0:07:13.080 about that, but it is our starting point. So we're 0:07:13.120 --> 0:07:15.360 not just buying cheap rubbish. We are buying things which 0:07:15.440 --> 0:07:18.559 we think have suffered temporary dislocation. That might be because 0:07:18.600 --> 0:07:21.400 of something the company has done wrong, it might be 0:07:21.400 --> 0:07:23.520 because of an economic downtown, might be because of the business 0:07:23.520 --> 0:07:26.080 cycle or commodity cycle or something like that, but where 0:07:26.080 --> 0:07:28.720 we can see some sort of route to the earnings 0:07:28.760 --> 0:07:29.720 recovering in the future. 0:07:30.400 --> 0:07:32.840 Okay, so very much an art form it is. 0:07:32.840 --> 0:07:34.480 And as I say, you do have to just sort 0:07:34.520 --> 0:07:37.520 of be fairly pragmatic about it and just admit yourself 0:07:37.560 --> 0:07:39.040 that occasionally you're going to get one in the one 0:07:39.080 --> 0:07:41.320 or two of these wrong took us through. 0:07:41.160 --> 0:07:42.800 The top ten at the moment. What's in that high 0:07:42.840 --> 0:07:44.200 convection part of the portfolio? 0:07:44.680 --> 0:07:47.560 Energy is quite a big part of it for obvious reasons, 0:07:47.640 --> 0:07:49.840 and actually they're a great example that you know, they 0:07:49.960 --> 0:07:52.680 obviously were much smaller holdings starts of the year. Energy 0:07:52.720 --> 0:07:53.800 stocks have done very well. 0:07:54.440 --> 0:07:56.440 Yeah, so you've got both BP and SHELL at the. 0:07:56.400 --> 0:07:58.880 Top, right, BP and Shell. Let's be honest, this was 0:07:58.920 --> 0:08:00.440 not a call on the old price of all to 0:08:00.440 --> 0:08:02.480 a certain extent, it was almost the opposite. Actually, as 0:08:02.480 --> 0:08:05.120 we came into the year some of the investment banks 0:08:05.120 --> 0:08:06.760 for falling over themselves to tell you that the old 0:08:06.760 --> 0:08:08.600 price is going to be forty dollars this year, and 0:08:08.640 --> 0:08:12.120 that immediately gives you recently high conviction. But actually there 0:08:12.160 --> 0:08:15.160 are some stock specific stories here as well. Probably the 0:08:15.200 --> 0:08:17.880 one I would highlight there is BP, where I'm sure 0:08:17.880 --> 0:08:20.080 I'm sure you and lots of the listeners know the 0:08:20.120 --> 0:08:23.440 story here that strategically they just went in a completely 0:08:23.440 --> 0:08:27.200 different trajectory over the last few years, decided that they 0:08:27.240 --> 0:08:28.680 were going to sort of walk away from their core 0:08:28.840 --> 0:08:31.640 or in gas business and invest lots of money in transition. 0:08:31.880 --> 0:08:35.199 Didn't go so well for their shareholders, and they've had 0:08:35.200 --> 0:08:38.040 a change of management. You've got an activist investor in 0:08:38.080 --> 0:08:40.000 the form of Veliot has come in and taken a stake, 0:08:40.200 --> 0:08:42.040 and there's a bit of u turn going on in 0:08:42.120 --> 0:08:45.320 terms of the strategy. And we think therefore you've not 0:08:45.440 --> 0:08:48.160 just got the recent rising oil prices, you've got actually 0:08:48.200 --> 0:08:49.960 a self help story going on there as well. 0:08:50.280 --> 0:08:53.320 Okay, and then after you've still got a lot of financials. 0:08:53.600 --> 0:08:56.040 We have, although I should say we have been trimming 0:08:56.160 --> 0:08:59.320 the banks, not because we necessarily think that they're expensive, 0:08:59.360 --> 0:09:01.680 but you go back a few years, they were very, 0:09:01.840 --> 0:09:04.559 very cheap. I mean you literally could buy UK banks 0:09:04.559 --> 0:09:08.560 on five times earnings half book six or seven percent 0:09:08.600 --> 0:09:12.320 dividend yield. Those days are gone. So now now they're 0:09:12.360 --> 0:09:14.240 more like ten times earnings one times book, you know, 0:09:14.280 --> 0:09:16.640 slightly over, so that they're no longer cheap. And I 0:09:16.640 --> 0:09:18.280 think the second thing is when we look at the 0:09:19.360 --> 0:09:22.360 dynamics of the industry, things are pretty much as good 0:09:22.360 --> 0:09:24.880 as they could be at the moment in terms of interest. 0:09:24.960 --> 0:09:27.600 Margins are high, you know, loan defaults are low, et cetera, 0:09:27.600 --> 0:09:29.839 et cetera, and so you just say to yourself, look, 0:09:30.320 --> 0:09:32.720 they've done well. You know, they're now more fully valued 0:09:32.760 --> 0:09:35.679 and conditions probably don't get much better than this, so 0:09:35.920 --> 0:09:39.680 we have been trimming those. I think another interesting story 0:09:39.800 --> 0:09:42.160 where we do seem to be quite contrarian here is WPP. 0:09:42.640 --> 0:09:45.280 Yeah, I saw that tenth biggest holding. Now that is 0:09:45.360 --> 0:09:47.400 that's definitely controlling, but that's what you're supposed to do. 0:09:48.120 --> 0:09:52.319 WPP is definitely contrarian. So obviously WPP is the advertising 0:09:52.360 --> 0:09:55.199 agency was put together by Martin Sorel for a series 0:09:55.200 --> 0:09:59.480 of acquisitions. It's definitely lost its way in the last 0:09:59.520 --> 0:10:03.520 few years. But again you've got management change about six 0:10:03.559 --> 0:10:05.720 months or so ago. And I think what gives us 0:10:05.760 --> 0:10:08.720 conviction here is that their peers are still growing. So 0:10:08.760 --> 0:10:11.040 going back to your question about value traps, how do 0:10:11.080 --> 0:10:13.520 you know a value trap? Well, their biggest peer is 0:10:13.679 --> 0:10:16.360 a French company called Publicists. Publicists are still growing at 0:10:16.400 --> 0:10:19.440 five cent pranum, so you know there are definitely structural 0:10:19.480 --> 0:10:23.319 forces going on within the industry. And despite that, Publicists 0:10:23.320 --> 0:10:25.959 is still growing at five percent parandum. So that, I 0:10:26.000 --> 0:10:28.960 suppose makes us think that it's probably a WPP issue, 0:10:29.080 --> 0:10:31.920 not an industry issue. And we can see what the 0:10:32.000 --> 0:10:34.360 WPP issue is, which is its still run as a 0:10:34.360 --> 0:10:37.679 series of fiefdoms. So all those different advertising agencies are 0:10:37.960 --> 0:10:40.240 and may the J Walter Thompson, etc. That were put 0:10:40.280 --> 0:10:43.319 together through a series of acquisitions, Were never really fully 0:10:43.320 --> 0:10:45.839 integrated and they're still run as separate businesses to the 0:10:45.880 --> 0:10:48.760 extent they sometimes they will picture against each other for 0:10:48.840 --> 0:10:49.559 the same account. 0:10:49.920 --> 0:10:50.760 Well, that's absurd. 0:10:51.080 --> 0:10:53.959 We think the challenge is basically to integrate those different 0:10:53.960 --> 0:10:58.040 businesses into one company. And the valuation is just crazy. 0:10:58.080 --> 0:11:01.440 The valuation is absolutely crazy. The shehad today, I suppose 0:11:01.480 --> 0:11:04.280 about two pounds seventy something like that, they are forecast 0:11:04.320 --> 0:11:05.120 to do fifty p of. 0:11:05.120 --> 0:11:08.800 Earnings, but that rather rather reflects lack of confidence in 0:11:08.880 --> 0:11:12.480 the management team being able to amalgamate things in the 0:11:12.480 --> 0:11:13.720 way you've just been talking about. 0:11:14.080 --> 0:11:16.760 It absolutely does, which which funny enough, we like. Actually, 0:11:16.800 --> 0:11:21.200 so the market is giving new management zero percent probability 0:11:21.240 --> 0:11:24.120 of improving things. We would say they could just stabilize 0:11:24.120 --> 0:11:27.320 earnings at fifty p right, what do you put that 0:11:27.360 --> 0:11:29.880 on ten times or something that would be a five 0:11:29.920 --> 0:11:32.320 quid shower price from kind of two pounds sixty today. 0:11:32.679 --> 0:11:34.560 And actually we think that they can do better than 0:11:34.600 --> 0:11:37.360 just stabilize the earnings. So at the moment, the market 0:11:37.360 --> 0:11:39.679 doesn't agree with us, so we will see you. 0:11:39.679 --> 0:11:41.840 Don't want the market to agree with you for a while. 0:11:41.720 --> 0:11:44.920 Right, well not yeah, not yeah no, but eventually, yeah, 0:11:45.000 --> 0:11:45.480 let me ask. 0:11:45.400 --> 0:11:46.840 You about another one on the top ten. Foint we 0:11:46.880 --> 0:11:49.080 move on to two different things. Cheers, K, you've got 0:11:49.080 --> 0:11:51.880 there at number five. Yep, that seems to keep coming 0:11:51.960 --> 0:11:53.800 up when I talk to fund managers and listen to 0:11:54.080 --> 0:11:56.439 dot pickers SPEAKSK is very popular at the moment. 0:11:56.880 --> 0:11:59.200 Yeah, although funny enough, actually not, I wouldn't say that 0:11:59.240 --> 0:12:01.959 there was a that's not really a sort of recovery story. 0:12:01.960 --> 0:12:06.600 I think that's just a situation where within healthcare, the 0:12:06.640 --> 0:12:09.960 market just became very very negative on healthcare companies. And 0:12:10.000 --> 0:12:12.440 actually that you know, these are reasonably good companies. They're 0:12:12.440 --> 0:12:15.760 not uber growth companies, but you know they can normally 0:12:15.840 --> 0:12:17.880 knock out sort of five percent or so earning's growth. 0:12:18.520 --> 0:12:21.360 And that's absolutely the case with GSK. Their record in 0:12:21.600 --> 0:12:23.679 terms of new drug discovery has not been fantastic over 0:12:23.679 --> 0:12:25.480 the last few years. But you know, there are some 0:12:25.640 --> 0:12:28.360 very good businesses within the company, and yet it just 0:12:28.400 --> 0:12:31.320 got down to a very very lay multiple. So and 0:12:31.360 --> 0:12:33.720 actually in the last year or so, actually the stock 0:12:33.760 --> 0:12:36.440 has begun to rerate, hence again why it's ended up 0:12:36.440 --> 0:12:37.040 in the top ten. 0:12:38.360 --> 0:12:43.360 So what we've got here is relatively inexpensive portfolio, pretty 0:12:43.440 --> 0:12:48.319 high conviction, and very pragmatic in terms of where you 0:12:48.400 --> 0:12:49.840 look in the market. Right. 0:12:50.400 --> 0:12:53.240 You know, you mentioned at the start that the trust 0:12:53.280 --> 0:12:54.760 is up sort of I think two hundred and forty 0:12:54.800 --> 0:12:57.280 percent or something since we took it over. It's on 0:12:57.320 --> 0:13:00.000 a pe of less than ten today, which is amazing. 0:13:00.160 --> 0:13:03.240 No you think, oh, that almost sounds impossible, doesn't it. 0:13:03.320 --> 0:13:06.719 And of course that that's I suppose the good thing 0:13:06.720 --> 0:13:09.079 about being a value investor is you rotate around the 0:13:09.120 --> 0:13:12.360 market to where the value is. You're not locked into 0:13:12.440 --> 0:13:15.280 sort of one set of companies, and that's exactly what 0:13:15.280 --> 0:13:16.959 we've done. So despite the fact that the trust has 0:13:16.960 --> 0:13:20.760 gone up, we've basically been able to continually rotate around 0:13:20.760 --> 0:13:23.920 the market, and thus you've still got a low valuation today, 0:13:24.080 --> 0:13:27.480 which hopefully, you know, is an indicator of you know, 0:13:27.520 --> 0:13:29.600 that the returns can continue in the future. 0:13:44.600 --> 0:13:46.720 We were talking earlier before we came on about different 0:13:46.720 --> 0:13:50.000 investment styles, and you know, you call yourself a value investor, 0:13:50.040 --> 0:13:52.160 we call you investor a value investor, and let lot 0:13:52.160 --> 0:13:54.600 of people call themselves growth investors. And then we've been 0:13:54.600 --> 0:13:58.240 through this lengthy period until quite recently when people talked 0:13:58.240 --> 0:14:01.400 about investing in quality growth seemed to be an area 0:14:01.480 --> 0:14:04.400 that massively outperformed, and people would talk about not worrying 0:14:04.440 --> 0:14:07.200 about price so much because they were invested in a 0:14:07.320 --> 0:14:11.520 quality company and it was growing. Therefore price was slightly 0:14:11.640 --> 0:14:15.679 by the bye. Now that seems to be coming to 0:14:15.720 --> 0:14:18.400 an end, or has come to an end, and a 0:14:18.440 --> 0:14:20.320 lot of the quality growth investors have been having a 0:14:20.320 --> 0:14:23.560 pretty torrid time, which slightly brings us back to the 0:14:23.600 --> 0:14:26.640 idea that maybe all investing should be value investing, and 0:14:26.680 --> 0:14:28.720 in the end, if you buy something over priced, it's 0:14:28.760 --> 0:14:29.920 going to end up a valuestog. 0:14:29.920 --> 0:14:33.840 One day, I would completely agree. The thing that always 0:14:33.840 --> 0:14:36.520 puzzled me about it was that when I look at 0:14:36.560 --> 0:14:38.880 a company that the quality of it and the growth 0:14:38.920 --> 0:14:41.040 rate of it are both things that I consider when 0:14:41.040 --> 0:14:44.760 I'm calculating the value of the business, and so is 0:14:44.800 --> 0:14:48.200 actually right right? So why would you suddenly say, you know, 0:14:48.560 --> 0:14:50.480 all I'm going to look at is the quality and 0:14:50.520 --> 0:14:52.680 the quality and the growth and I'm not really going 0:14:52.720 --> 0:14:55.080 to consider the valuation that That never really made sense 0:14:55.120 --> 0:14:57.720 to me. What is interesting actually is that you're you're 0:14:57.760 --> 0:15:00.440 absolutely right. For about ten years. Actually, that style of 0:15:00.480 --> 0:15:04.200 investing work quite well twenty ten to twenty twenty. 0:15:04.520 --> 0:15:07.800 Yeah, twenty ten to twenty twenty, right, which coincided amazingly 0:15:07.840 --> 0:15:08.360 with guess what. 0:15:09.120 --> 0:15:12.000 No interesting state of easing. And I'm sure that, I'm 0:15:12.000 --> 0:15:15.040 sure that had a big part of it. It's come 0:15:15.120 --> 0:15:17.640 badly unstuck since then. And I think there are two 0:15:17.640 --> 0:15:20.440 reasons for that. One is that it turns out that 0:15:20.920 --> 0:15:23.840 a lots of these companies were not as high quality 0:15:24.120 --> 0:15:27.360 or not as fantastic growth as maybe people thought. You know, 0:15:27.720 --> 0:15:31.120 I scribbled down a couple of examples later on night. 0:15:31.200 --> 0:15:33.080 The share price has gone from one hundred and eighty 0:15:33.080 --> 0:15:36.080 dollars to forty dollars. One hundred and eighty dollars. It 0:15:36.160 --> 0:15:39.240 was doing four dollars of earnings, so people were paying 0:15:39.280 --> 0:15:43.280 forty times earnings for Nike, just ahead of a period 0:15:43.320 --> 0:15:45.480 in which the earnings went from four dollars to one 0:15:45.480 --> 0:15:49.720 pounds one dollar fifty. So and you know, that is 0:15:49.760 --> 0:15:52.680 a fantastic example, isn't it, of where both of those 0:15:52.720 --> 0:15:55.160 bits went wrong. So, in other words, the earnings were 0:15:55.200 --> 0:15:57.040 not as great as you originally thought they were going 0:15:57.080 --> 0:15:58.920 to be, and you were paying too much for those 0:15:58.920 --> 0:16:01.560 earnings in the first place. You put the both of 0:16:01.560 --> 0:16:04.320 those things together and you just get this horrific in 0:16:04.360 --> 0:16:07.640 a combination of de rating on their earnings. That's the 0:16:07.680 --> 0:16:10.600 story across lots and lots of these. Another example, Starbucks 0:16:10.640 --> 0:16:13.560 earnings has gone from three fifty dollars to two thirty. 0:16:13.680 --> 0:16:16.920 People are still paying forty times earnings for that. There 0:16:16.920 --> 0:16:20.880 are examples in the UK records records, did three twenty 0:16:21.200 --> 0:16:24.160 of earnings back in twenty eighteen, they forecast to do 0:16:24.240 --> 0:16:27.000 three this year. So again, you know, the earnings for 0:16:27.040 --> 0:16:29.320 a lot of these things have just not been nearly 0:16:29.360 --> 0:16:32.320 as good as maybe people anticipated, and you paid the 0:16:32.320 --> 0:16:33.200 wrong price at the start. 0:16:34.080 --> 0:16:36.920 I mean, that doesn't necessarily tell you that you shouldn't 0:16:36.920 --> 0:16:39.880 look for high quality companies that you think will grow fus. 0:16:39.960 --> 0:16:41.920 That just tells you that it's very risky to overpay 0:16:41.960 --> 0:16:44.080 for them. I mean, the message is very simple. 0:16:43.880 --> 0:16:45.920 Yeah, it is. And actually coming back to this point 0:16:45.920 --> 0:16:47.800 about the fact that we rotate around the market to 0:16:47.840 --> 0:16:50.360 where the value is. People often laughed at the fact 0:16:50.400 --> 0:16:53.000 when we join our WC, as it was in twenty ten, 0:16:53.600 --> 0:16:56.840 we own Microsoft. We have a value investors to by Microsoft. 0:16:57.160 --> 0:16:59.840 Why because in twenty ten all the tech guys were 0:16:59.880 --> 0:17:02.280 tell you that Microsoft was basically it was like old 0:17:02.320 --> 0:17:04.720 technology was going to get disrupted by all the all 0:17:04.720 --> 0:17:07.200 the new entrants and so on and so forth. Microsoft 0:17:07.280 --> 0:17:09.920 was trading on eight times earnings back in twenty ten. 0:17:10.000 --> 0:17:12.359 It had net cash on the balance sheet. There's a 0:17:12.359 --> 0:17:14.400 fantastic example, I guess of what you're talking about. 0:17:14.600 --> 0:17:14.760 There. 0:17:14.800 --> 0:17:16.840 You had a what you might call a quality stock, 0:17:16.960 --> 0:17:19.280 but it was available at a really low valuation, which 0:17:19.320 --> 0:17:21.000 is just that's your nirvana, isn't it. 0:17:21.320 --> 0:17:23.399 Yeah? Are you seeing any of that now? As we 0:17:23.520 --> 0:17:26.600 move away from the idea that quality growth is it's 0:17:26.640 --> 0:17:29.159 okay to overpay, And there's some of the stocks they 0:17:29.160 --> 0:17:31.600 had badly or worse than expected it anyway, is there 0:17:31.600 --> 0:17:33.600 anything in there that you can pick up and say 0:17:33.600 --> 0:17:36.000 this is quality growth and value at the same. 0:17:35.840 --> 0:17:38.960 Time, I think the answer is no. One or two 0:17:39.000 --> 0:17:41.480 of them are starting to move down into interesting territory. 0:17:41.560 --> 0:17:45.159 So actually a stock which was it was almost the 0:17:45.200 --> 0:17:47.959 post child of sort of quality growth was Diagio. So 0:17:48.160 --> 0:17:50.080 we haven't owned I don't think we've ever owned Yasue. 0:17:50.200 --> 0:17:54.159 Actually we initiated a position recently on Diagio. Why because 0:17:54.200 --> 0:17:56.880 the earnings have come down, the dividend's been cut, You're 0:17:56.920 --> 0:18:00.280 now actually only paying twelve times lowered earnings. You've got 0:18:00.320 --> 0:18:02.720 a change of management every with Dave Lewis coming in, 0:18:03.400 --> 0:18:05.320 so you know it's got the ingredients there for a 0:18:05.359 --> 0:18:08.000 business that could do relatively well. To be honest with you, 0:18:08.000 --> 0:18:10.680 we haven't gone sort of gang busters on it. Why 0:18:11.359 --> 0:18:13.320 because actually I think there are potentially some quite deep 0:18:13.320 --> 0:18:16.000 structuring issues going on here. If you look at spirits 0:18:16.080 --> 0:18:18.760 volumes all around the world, spirits volumes are going down 0:18:18.800 --> 0:18:21.080 at the moment actually, and it's you know, there's a 0:18:21.119 --> 0:18:24.480 possibility that this industry is no longer the growth industry 0:18:24.480 --> 0:18:26.720 that people once thought. That just consumer tastes have been changing, 0:18:26.760 --> 0:18:29.960 people are consuming less alcohol. For a new management team, 0:18:30.080 --> 0:18:32.400 if you're facing those sorts of structural issues, that that's 0:18:32.400 --> 0:18:36.000 a big challenge. It's not just as simple as cutting costs. 0:18:36.160 --> 0:18:38.320