WEBVTT - How This Hedge Fund Manager Finds ‘Diamonds in the Dust’ 0:00:03.160 --> 0:00:08.920 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:10.240 --> 0:00:12.600 Welcome to Maren Talks Money, the podcast in which people 0:00:12.600 --> 0:00:15.320 who know the markets explain the markets. I'm Maren zum 0:00:15.400 --> 0:00:18.000 zet Web. This week we've beat with Sean Pesh, portfolio 0:00:18.120 --> 0:00:20.680 manager and founder at rand Moore Fund Management. Pest has 0:00:20.680 --> 0:00:23.840 been in the investment industry since nineteen ninety seven, working 0:00:23.840 --> 0:00:27.120 at a variety of institutions. He established ran More Fund Management, 0:00:27.200 --> 0:00:29.360 his own company, in two thousand and eight. It's worth 0:00:29.400 --> 0:00:32.960 noting he has a fairly stellar record of outperformance, outperforming 0:00:33.000 --> 0:00:36.640 the index since inception and over pretty much every time 0:00:36.680 --> 0:00:39.360 period since, except for the last twelve months, which we'll 0:00:39.400 --> 0:00:48.599 discuss as we go. Sean, welcome, thanks for joining us. 0:00:49.040 --> 0:00:50.520 Thanks Miren, lovely to be here. 0:00:50.760 --> 0:00:54.640 Now listen, you have achieved fairly spectacular, as I said, 0:00:54.720 --> 0:01:00.000 outperformance over the last decade plus, despite being a value 0:01:00.320 --> 0:01:02.960 fund manager in a period when being a value fund 0:01:03.000 --> 0:01:06.000 manager has been an absolutely terrible thing to be. This 0:01:06.080 --> 0:01:09.120 has been a time for growth. Yeah, somehow you've succeeded 0:01:09.240 --> 0:01:11.280 as a value manager. So let's talk a little bit 0:01:11.280 --> 0:01:12.680 about how on earth you've done that. 0:01:13.360 --> 0:01:16.520 I guess if we'd had this interview back in the 0:01:16.560 --> 0:01:19.000 middle of the pandemic, when everybody was sitting at home 0:01:19.080 --> 0:01:21.640 buying Apple iPhones and ordering stuff on Amazon will be 0:01:21.680 --> 0:01:25.200 a different conversation. But we just try and invest in 0:01:25.480 --> 0:01:29.240 decent companies that are generating cash with management on our 0:01:29.319 --> 0:01:33.120 side and not paying too much for them. And it has, 0:01:33.160 --> 0:01:36.560 as you rightly say, been a challenging time for value managers, 0:01:36.600 --> 0:01:39.039 and I guess, I guess there are three reasons for that. 0:01:39.120 --> 0:01:42.760 The first is, if you go back to nineteen seventy four, 0:01:42.800 --> 0:01:46.600 when these indices first started, value outperformed growth with a 0:01:46.600 --> 0:01:48.920 couple of hiccups along the way, pretty much in a 0:01:48.960 --> 0:01:51.200 straight line up to the end of two thousand and seven. 0:01:51.320 --> 0:01:54.280 And then you had the global financial crisis, and what 0:01:54.400 --> 0:01:57.360 happened after that was quantitative easing, and that meant interest 0:01:57.480 --> 0:02:02.120 rates collapsed and until late twenty one or so, and 0:02:02.200 --> 0:02:04.800 so during that period, if you plot the if you 0:02:04.880 --> 0:02:08.720 overlay those two average interest rates and value versus growth, 0:02:08.840 --> 0:02:12.119 you'll see that value underperformed in during quantitative easing. That's 0:02:12.120 --> 0:02:15.119 the first reason. The second reason is you had these 0:02:15.240 --> 0:02:19.720 fast growing companies Microsoft, Amazon, those kind of guys at 0:02:19.720 --> 0:02:21.480 the same time as you had low interest rates, and 0:02:21.520 --> 0:02:24.400 so that meant their growth rates were discounted at lower rates, 0:02:24.800 --> 0:02:29.639 and they became hugely huge companies in the markets. And 0:02:29.680 --> 0:02:31.880 the third reason is at that very time that you 0:02:32.000 --> 0:02:36.280 had these massive companies with huge market caps, passive investing 0:02:36.680 --> 0:02:38.680 just exploded. When I started the business, I think it 0:02:38.720 --> 0:02:41.680 was a trillion in dollars in passive investing is awfter 0:02:41.720 --> 0:02:44.800 something nearly twelve, And so you had this wall of 0:02:44.840 --> 0:02:48.560 money just moving into these companies, propelling them ever further. 0:02:49.200 --> 0:02:53.640 Now what's changed. Quantitative easing is over. Okay, we saw 0:02:53.680 --> 0:02:56.520 that reference to that in the FED statement last week. 0:02:56.639 --> 0:02:59.040 The second thing is these companies are getting hard. It's 0:02:59.040 --> 0:03:02.760 harder for them to grow. Microsoft grew revenue ten grew 0:03:02.800 --> 0:03:08.000 earning specially ten percent last quarter. Costco grew revenue one 0:03:08.080 --> 0:03:11.240 percent last quarter the other day. You've seen Nike falling 0:03:12.000 --> 0:03:14.240 the other day. So you know, it's just getting harder 0:03:14.240 --> 0:03:17.120 and harder for these giant companies to carry on out 0:03:17.120 --> 0:03:19.880 performing in the way they have. And so we think 0:03:19.919 --> 0:03:22.280 that's a really good time to focus and turn the 0:03:22.320 --> 0:03:24.440 attention to value investing. You've got to be you've got 0:03:24.480 --> 0:03:26.200 to go where the puck is going to be. This 0:03:26.240 --> 0:03:28.200 is what way in Gretzky said, not where the puck's been. 0:03:28.560 --> 0:03:31.280 The puck has been in quality and growth. The puck 0:03:31.360 --> 0:03:33.000 is going to value. We firmly believe that. 0:03:33.400 --> 0:03:35.680 But nonetheless you haven't been in those companies. I want. 0:03:35.720 --> 0:03:37.720 The thing that really strikes me when I look at 0:03:37.760 --> 0:03:41.040 your fact sheet is the very very small level of 0:03:41.040 --> 0:03:43.000 exposure you have to the US. So if we look 0:03:43.040 --> 0:03:47.160 at the MSCI world, that's seventy three percent US, right, 0:03:47.280 --> 0:03:49.200 and an awful lot of that, of course is the 0:03:49.760 --> 0:03:52.880 megasavan is the huge technology stocks in the US, but 0:03:53.120 --> 0:03:55.680 you don't have that. You're about seventeen percent in the US. 0:03:55.680 --> 0:03:58.200 And if I spin my eye over to your sector 0:03:58.280 --> 0:04:02.839 exposure information technology three percent, that's against bround twenty five 0:04:02.840 --> 0:04:06.440 percent in the MSCI. So you are very very far 0:04:06.480 --> 0:04:08.120 away from the index, which is great, by the way, 0:04:08.120 --> 0:04:09.680 and nothing we love more than a fund that doesn't 0:04:09.720 --> 0:04:11.400 touch the index. If we wanted the index, we just 0:04:11.400 --> 0:04:13.200 buy the index, right, So we love a fund that's 0:04:13.240 --> 0:04:15.840 far away from it. But you know, you're you've really 0:04:15.880 --> 0:04:17.440 differentiated yourself, then. 0:04:17.640 --> 0:04:20.720 We have, and and I guess you know there are 0:04:20.720 --> 0:04:22.880 a couple of points, So how we managed to generate 0:04:22.920 --> 0:04:27.760 those returns well? The first is that we will typically 0:04:27.800 --> 0:04:31.359 go where people are less interested because that's where we 0:04:31.360 --> 0:04:34.000 find the value. So, you know, we made good money 0:04:34.040 --> 0:04:36.359 in Japan in recent years. We were quite early in 0:04:36.520 --> 0:04:40.040 moving into Japan. When the world was focused in Japan 0:04:40.160 --> 0:04:42.520 with Warren Buffett and all of that, you know, we 0:04:42.520 --> 0:04:47.160 were actually selling and redeploying those assets into China. And 0:04:47.240 --> 0:04:49.240 so even last month, you know, we had more in 0:04:49.400 --> 0:04:53.280 China than the US Hong Kong listed stocks. So what 0:04:53.320 --> 0:04:55.080 we so, I guess there's two ways to make money. 0:04:55.120 --> 0:04:56.960 The one is you can buy a company that you 0:04:57.040 --> 0:04:59.720 think is a fabulous business and hold it forever, and 0:04:59.760 --> 0:05:03.280 that company will compound its earnings. What we prefer to 0:05:03.279 --> 0:05:07.160 do is find an undervalued business, invest at the right time, 0:05:07.240 --> 0:05:11.560 ideally the right time, and when the value is fully realized, 0:05:11.600 --> 0:05:15.440 we will then sell that and compound the capital. Okay, 0:05:15.480 --> 0:05:18.080 because sometimes you can be stuck in these businesses. You 0:05:18.080 --> 0:05:20.320 think it's a great business, and look at Nike, look 0:05:20.320 --> 0:05:23.839 at st Order, look at you know, Diageo or Unilever 0:05:23.920 --> 0:05:26.200 in recent years, and things come unstuck. And so we 0:05:26.279 --> 0:05:29.120 prefer to compound the capital and we move the capital around. 0:05:29.160 --> 0:05:32.120 So we really don't shy away from from moving our 0:05:32.240 --> 0:05:34.799 assets around the world based on where we find value, 0:05:34.960 --> 0:05:37.520 and we're not scared of our turnover either. You know, 0:05:37.560 --> 0:05:39.520 if I look at some of my some of the 0:05:39.520 --> 0:05:43.960 best money managers in the world, the likes who've survived 0:05:44.040 --> 0:05:47.240 and got fantastic crack records over multi decades, not just 0:05:47.360 --> 0:05:49.880 in in recent years. You know, the likes of Paul 0:05:49.880 --> 0:05:54.119 Tudor Jones and Bruce Kovner and David Tepper and those guys. 0:05:54.160 --> 0:05:56.919 I've never ever seen a single quote from them about 0:05:56.960 --> 0:05:58.240 low turnover being an answer. 0:05:59.200 --> 0:06:01.360 That's intering because as a big part of the industry 0:06:01.400 --> 0:06:04.360 that believe exactly that your buffet style you buy great 0:06:04.400 --> 0:06:07.040 companies and you keep them in definitely, and you let 0:06:07.120 --> 0:06:10.400 them compound until you're super rich. But of course I'm 0:06:10.600 --> 0:06:13.719 the answer to that. Your answer might be, well, companies change. 0:06:13.760 --> 0:06:16.320 A great company doesn't stay a great company, and you 0:06:16.360 --> 0:06:17.640 have to be prepared to move out of it as 0:06:17.680 --> 0:06:19.800 soon as you see signs that it's not great anymore. 0:06:19.920 --> 0:06:23.120 Absolutely, And Warren Buffett said, my favorite holding periods wherever 0:06:23.440 --> 0:06:25.400 you didn't say, I'm my only holding periods wherever, and 0:06:25.400 --> 0:06:27.640 he sold half his apple every day. You know he's 0:06:27.640 --> 0:06:30.840 selling bank of America. He's sold many positions along the way, 0:06:30.880 --> 0:06:33.520 So I think people confuse that, I mean take it 0:06:33.560 --> 0:06:36.640 to the extreme. Some of the early good businesses that 0:06:36.680 --> 0:06:40.760 everybody knew about and loved were railroads and you know 0:06:40.800 --> 0:06:43.560 those steel manufacturing et cetera. Where would you be today 0:06:43.600 --> 0:06:46.560 if you'd own those forever. So, you know, we think 0:06:46.640 --> 0:06:50.039 the right business at the right time, and we very 0:06:51.000 --> 0:06:53.800 you know, things change. So we are not in that 0:06:53.880 --> 0:06:56.160 camp where you think you can find a great business 0:06:56.160 --> 0:06:58.400 and hold it forever, because we don't know what the 0:06:58.400 --> 0:07:00.200 future is. And as I said, you can use look 0:07:00.240 --> 0:07:02.799 at Nike. You know, Nike had the lunch to themselves. 0:07:02.920 --> 0:07:06.360 Now you've got competitors with on Running and Hokka and 0:07:06.440 --> 0:07:09.039 Sketches and those kind of guys. So the environment is 0:07:09.080 --> 0:07:10.920 always changing and you have to be alert to that. 0:07:11.520 --> 0:07:14.440 And so we're not in the sit in the zide 0:07:14.480 --> 0:07:15.400 and do nothing camp. 0:07:16.120 --> 0:07:18.080 Well, let's step back a little bit because you mentioned 0:07:18.160 --> 0:07:20.040 Japan earlier, and I know a lot of our listeners 0:07:20.160 --> 0:07:22.600 are very interested investing in Japan, have been for a while, 0:07:22.640 --> 0:07:24.680 and John and I were like you very on it 0:07:24.720 --> 0:07:27.120 when it was very cheap. You know, this is value etc. 0:07:27.560 --> 0:07:29.160 I'm going to Tokyo next week, by the way, I'll 0:07:29.200 --> 0:07:31.600 report back. But in the meantime, you say you're no 0:07:31.640 --> 0:07:33.920 longer really invested in Japan, do you not consider that 0:07:33.960 --> 0:07:35.520 to be a value opportunity anymore? 0:07:35.880 --> 0:07:39.520 Oh? No, we are definitely still in Japan, and we 0:07:39.640 --> 0:07:41.720 a little overweight there. What I'm saying is we've taken 0:07:41.760 --> 0:07:45.160 profits on many of our positions and redeployed those. So no, 0:07:45.240 --> 0:07:47.680 we still like Japan. In fact, I know we bought 0:07:47.720 --> 0:07:50.080 some Mazda the other day. That again, you've got to 0:07:50.080 --> 0:07:53.000 look at the second level thinking that hard Marks talks about. 0:07:53.960 --> 0:07:56.360 You know, a lot of the Japanese companies fell in 0:07:56.400 --> 0:07:59.640 a heap when the yen rallied and the exporters, et cetera. Well, 0:07:59.640 --> 0:08:03.160 you get businesses that have used the week in and 0:08:03.200 --> 0:08:06.080 that's how they've generated revenue and profit growth, and some 0:08:06.160 --> 0:08:09.200 businesses that are growing. And you know, you look at 0:08:09.480 --> 0:08:12.400 the company like Mazda, I mean it's US sales of 0:08:12.440 --> 0:08:16.600 its current range is up thirty percent in the last months, 0:08:16.760 --> 0:08:18.760 you know, and that's been like that for a little while, 0:08:18.840 --> 0:08:21.160 with huge amounts of cash on the balance sheet. So 0:08:21.480 --> 0:08:24.400 there's still lots of value to be unlocked. In Japan, 0:08:24.720 --> 0:08:27.160 some of our companies had just we felt had run 0:08:27.200 --> 0:08:29.800 the course and reached fair value, and so we redeployed 0:08:29.800 --> 0:08:31.080 it to compound their capital. 0:08:31.240 --> 0:08:33.240 Okay, let's move on to China, then, where you did 0:08:33.240 --> 0:08:36.320 deploy some of that capital. There's one of the ongoing 0:08:36.320 --> 0:08:39.880 conversations John and I always have about something maybe cheap, 0:08:39.880 --> 0:08:42.720 but is it investable? Can you invest some webs of China, 0:08:42.920 --> 0:08:46.520 like China where you don't necessarily have the same kind 0:08:46.559 --> 0:08:49.880 of regulatory security that you might have somewhere else. And 0:08:49.960 --> 0:08:52.320 John and might have this conversation around Russia and I said, 0:08:52.400 --> 0:08:54.160 yes you can, and he said no you can't, and 0:08:54.200 --> 0:08:57.120 he was right. And on China, I say yes you can, 0:08:57.200 --> 0:08:59.480 he says, no, you can't. And this week at least, 0:09:00.000 --> 0:09:00.439 I'm right. 0:09:03.280 --> 0:09:06.760 I love the dynamic between you guys. Yeah, and I mean, 0:09:06.840 --> 0:09:09.880 unfortunately included in our track record, we lost just over 0:09:09.920 --> 0:09:13.240 ten percent in Russia, but we recovered in twenty twenty two, 0:09:13.360 --> 0:09:16.200 you know, And that's our process. And those stocks are 0:09:16.240 --> 0:09:18.280 still in the portfolio, but written down to zero. So 0:09:18.800 --> 0:09:21.920 sometimes we get it wrong. In fact, portfolio managers, you 0:09:22.040 --> 0:09:25.520 often get it wrong. And so we China, we thought, 0:09:25.640 --> 0:09:27.200 and it's an interesting point. I think there was a 0:09:27.360 --> 0:09:30.120 there was a conference in feb two thy or twenty 0:09:30.400 --> 0:09:35.160 twenty four at a Goldman Sachs conference, and they surveyed 0:09:35.559 --> 0:09:39.320 the participants and forty percent said China was uninvestable. Now, 0:09:39.360 --> 0:09:41.840 when people tell us some market's uninvestable, you know, that 0:09:41.880 --> 0:09:45.240 peaks our interest because there's got to be some diamonds 0:09:45.240 --> 0:09:48.959 in the dust. And what's interesting is, you know, government 0:09:49.040 --> 0:09:51.560 interference and regulation and all of that. And then you 0:09:51.600 --> 0:09:53.520 stand back and think about it and you go, well, 0:09:53.880 --> 0:09:57.719 when natural gas prices rallied Ireland and the UK and 0:09:57.800 --> 0:10:02.680 posed windfall taxes on you know, oil companies here just 0:10:02.720 --> 0:10:07.520 the other day, President Macron is in favor of of 0:10:07.600 --> 0:10:10.800 taxes on large French companies. You've got the US Department 0:10:10.840 --> 0:10:14.560 of Justice and you know, attacking the US tech companies. 0:10:14.600 --> 0:10:18.800 You've got the Fair Trade commit Trade Commission FTC attacking 0:10:19.200 --> 0:10:22.240 or trying to prevent mergers and takeovers. So I think 0:10:22.520 --> 0:10:25.360 I think this government interference and regulation all the rest 0:10:25.400 --> 0:10:28.200 is overplayed. It's around the world. It's not just in China. 0:10:28.720 --> 0:10:31.960 And so that's our point to that. And in fact, 0:10:32.000 --> 0:10:34.080 what you don't have in many of these Asian markets, 0:10:34.080 --> 0:10:38.640 you don't have greedy management teams taking huge, you know, 0:10:39.000 --> 0:10:43.800 swaths of share options and diluting shareholders, and you don't 0:10:43.800 --> 0:10:45.400 have the short term thinking that you have in many 0:10:45.400 --> 0:10:48.240 of the Western markets. So one needs to balance the 0:10:48.679 --> 0:10:52.080 pros and the cons And when you get companies I mean, 0:10:52.080 --> 0:10:55.520 I'll give you an example. In early September, we I 0:10:55.559 --> 0:10:57.640 mean we owned Ali, Baba and Bider. You see those 0:10:57.679 --> 0:11:00.959 in the top ten last month's fact sheet. But in 0:11:00.960 --> 0:11:04.000 early September were buying ping An and ping An here 0:11:04.080 --> 0:11:07.280 at five times earnings, with an eight percent dividend yield, 0:11:07.320 --> 0:11:10.200 and trading below tangible book value for pretty much the 0:11:10.240 --> 0:11:12.760 first time ever. You know, that's how deeply out of 0:11:12.800 --> 0:11:15.160 favor it was. And we were buying it at thirty 0:11:15.200 --> 0:11:16.760 three and you know we're selling it the other day 0:11:16.760 --> 0:11:19.440 at fifty five. You make sixty percent in a month. Now, 0:11:19.600 --> 0:11:21.640 we would quite happily hold it. We didn't want it 0:11:21.720 --> 0:11:24.280 only hold ping An for a month. But when when 0:11:24.320 --> 0:11:27.679 you've had this kind of move, you've been over awarded 0:11:27.679 --> 0:11:30.400 in a short space of time, we are happy to 0:11:30.480 --> 0:11:30.800 move on. 0:11:31.200 --> 0:11:34.280 Okay, And the other market that until very recently we 0:11:34.400 --> 0:11:37.120 kept being told was uninvestable, I kept being told, particularly 0:11:37.160 --> 0:11:40.640 by American investors in the odd unreconciled remainer, that the 0:11:40.760 --> 0:11:43.920 UK was an uninvestable market. We don't hear that so 0:11:44.000 --> 0:11:46.960 much anymore. We're hearing much more positivity around the UK. 0:11:47.080 --> 0:11:48.160 You invested here. 0:11:48.160 --> 0:11:50.880 We are and you know we meaningfully overweight. I think 0:11:50.880 --> 0:11:54.840 we're at six percent versus just less than four. Not 0:11:54.960 --> 0:11:56.679 that we worry, as I said, we worry too much 0:11:56.679 --> 0:12:01.600 about the benchmark. And you know we we bottom up investors, 0:12:01.600 --> 0:12:04.880 so we less worried about the top down and interest 0:12:04.960 --> 0:12:08.480 rates and you know, those kind of put political goings on. 0:12:08.600 --> 0:12:10.640 I suppose that's the other thing is that China's had 0:12:10.679 --> 0:12:12.199 quite a stable It's one of the few places in 0:12:12.240 --> 0:12:14.199 the world that hasn't had an election this year. But 0:12:15.240 --> 0:12:19.560 some of the companies there meren which might be of interest. 0:12:20.640 --> 0:12:22.679 And again my compliance office or shot of me if 0:12:22.679 --> 0:12:25.120 I don't say this is obviously not advice. But where 0:12:25.120 --> 0:12:29.240 we do have some positions is in the and what's 0:12:29.320 --> 0:12:31.720 deeply out of favor are the UK asset managers. 0:12:32.000 --> 0:12:33.840 Why do you think that's out of favor? Why do 0:12:33.880 --> 0:12:35.360 you think you look at that and you see the 0:12:35.440 --> 0:12:36.680 value and other people do not. 0:12:37.400 --> 0:12:40.560 Well, I think if you've owned Aberdeen all the way 0:12:40.640 --> 0:12:44.000 for years and you've seen one corporate acquisition after another 0:12:44.160 --> 0:12:48.800 just go wrong. You are biased and trying to avoid 0:12:48.880 --> 0:12:51.280 biases is a key part of what we do. And 0:12:51.840 --> 0:12:54.000 so if you come in fresh and you know you 0:12:54.080 --> 0:12:57.199 haven't got that historic baggage, that helps you to look 0:12:57.200 --> 0:12:58.960 at things with a fresh pair of eyes. And so 0:12:59.040 --> 0:13:01.160 we'll do that. But we don't bet the ranch. We 0:13:01.360 --> 0:13:05.040 are not in the high conviction camp. You know, we 0:13:05.120 --> 0:13:07.840 are fully aware that stuff comes out of nowhere, but 0:13:07.920 --> 0:13:09.200 we think we're getting paid to wait. 0:13:09.559 --> 0:13:12.480 Now, the other back to traveling. Another stock that I 0:13:12.520 --> 0:13:14.320 see that you are now holding is Ryan Air. 0:13:15.000 --> 0:13:18.320 Yes, yes, yes, well Ryanair. I mean that's you know, 0:13:19.000 --> 0:13:21.720 I remember when I first got over here from South 0:13:21.760 --> 0:13:24.400 Africa in early two thousand and two thousand and one. 0:13:24.480 --> 0:13:26.439 I mean, here was this business. It was highly highly 0:13:26.520 --> 0:13:28.600 rated and we thought, goodness me, can you believe it? 0:13:28.800 --> 0:13:32.040 But look at what Michael Earliery and his team have done. 0:13:32.200 --> 0:13:34.720 And you know the interesting thing for us is we 0:13:34.760 --> 0:13:37.920 don't meet management. But you didn't have to meet management. 0:13:38.280 --> 0:13:40.640 You just have to look at the return on equity 0:13:40.920 --> 0:13:43.400 that here Michael O'Leary and his team have generated in 0:13:43.440 --> 0:13:47.360 the toughest of industries. That he's built this business from 0:13:47.360 --> 0:13:51.000 pretty much nothing to transporting something like two hundred and 0:13:51.040 --> 0:13:54.840 twenty five million passengers a year. It's just been phenomenal 0:13:54.960 --> 0:13:58.280 and that they didn't need, you know, lifelines from governments 0:13:58.360 --> 0:14:03.520 during the pandemic Etcter survived. So phenomenal management team in 0:14:03.559 --> 0:14:06.120 a great business. And I guess if the economy is tough, 0:14:06.520 --> 0:14:09.600 you know, people will trade down to Ryan Air. You 0:14:09.640 --> 0:14:11.959 might not be going on first class on some other 0:14:12.040 --> 0:14:15.160 airline but betrayed going on holiday on RHINEIR. So people 0:14:15.160 --> 0:14:18.960 want to go on holiday. Great great management team, strong 0:14:19.040 --> 0:14:21.840 balance sheet, reasonably priced, buying back shares because they've got 0:14:21.880 --> 0:14:24.840 excess capital. And the other thing which is interesting is 0:14:24.840 --> 0:14:28.000 there's capacity constraints because you know, Boeing and Airbus are 0:14:28.160 --> 0:14:29.760 struggling to get aircraft out the door. 0:14:30.760 --> 0:14:33.320 You say you don't meet management. Now, I find this 0:14:33.560 --> 0:14:36.160 very interesting and I think I understand why you do it. 0:14:36.200 --> 0:14:37.880 But I speak to an awful lot of fund managers 0:14:37.880 --> 0:14:41.160 who's usp is how many management teams they took to, 0:14:41.240 --> 0:14:43.760 and they tell me endlessly about well, this is what 0:14:43.800 --> 0:14:46.400 I do. I visit sixty companies a year. Or one 0:14:46.440 --> 0:14:48.680 hundred companies a year, and I look the management in 0:14:48.720 --> 0:14:50.920 the eye. I have conversations with them, and I can 0:14:50.960 --> 0:14:52.920 see if they're honest, and I can well, I'm not 0:14:52.960 --> 0:14:55.560 getting inside information. I can pick up bits and bobs 0:14:55.560 --> 0:14:58.320 of levels of confidence that other people can't see. And 0:14:58.440 --> 0:15:01.680 that is my value you as a fund manager. That's 0:15:01.720 --> 0:15:03.800 how they sell themselves, how a lot of the industry 0:15:04.080 --> 0:15:06.920 sells itself right, And you're just saying, Nah, I'm gonna 0:15:06.960 --> 0:15:08.520 bother with that. I'm again to set my office and 0:15:08.520 --> 0:15:09.480 play with spreadsheets. 0:15:11.320 --> 0:15:13.560 Yeah, Maria, next time one of those fund managers tells 0:15:13.560 --> 0:15:15.560 you that, please ask them to send a scatter plot 0:15:15.880 --> 0:15:18.840 with the wire access showing our performance and the x 0:15:18.880 --> 0:15:21.080 acts is showing the number of meetings. And let's see 0:15:21.080 --> 0:15:23.800 if there's a direy correlation, because I suspect there probably isn't, 0:15:24.160 --> 0:15:26.920 just as there isn't a direct correlation between large teams 0:15:26.920 --> 0:15:29.600 and our performance. It sounds so good and it sounds 0:15:29.600 --> 0:15:31.800 so obvious. Oh, we meet management, I mean in many 0:15:31.880 --> 0:15:34.960 cases they're meeting investor relations. You know, we want management 0:15:35.000 --> 0:15:36.880 teams to be out there running the business, not speaking 0:15:36.880 --> 0:15:39.520 to fund managers all the time. Now that said you know, 0:15:39.560 --> 0:15:41.840 we read conference call transcripts. We read a lot of them. 0:15:41.880 --> 0:15:44.280 So it's not like we ignore what management say. We 0:15:44.400 --> 0:15:46.960 like to look and say, okay, well what are these 0:15:47.000 --> 0:15:51.400 What is management saying it quarterly reports, reporting portback periods 0:15:51.480 --> 0:15:55.080 or semi annual report back periods. But I don't want to. 0:15:55.280 --> 0:15:57.840 I don't want to meet management and then think oh 0:15:57.920 --> 0:15:59.960 they're a good guy and be more and more patient. 0:16:00.120 --> 0:16:02.920 We can evaluate management based on the numbers. We can 0:16:02.920 --> 0:16:05.680 see when did this management team take over, what we're 0:16:05.680 --> 0:16:08.240 return on assets and what we're operating margins? Then what 0:16:08.360 --> 0:16:10.640 was market share and what is it now? Have they 0:16:10.680 --> 0:16:13.840 added value? Have they detracted value? Have they done decent deals? 0:16:14.240 --> 0:16:17.520 Or have they destroyed value? You know, you and you 0:16:17.560 --> 0:16:20.160 look at that and you go, yeah, I mean it helps, 0:16:20.480 --> 0:16:23.560 it helps me. That's how we evaluate management. So if 0:16:23.560 --> 0:16:26.560 a company is doing a stupid deal and paying way 0:16:26.560 --> 0:16:28.680 over the odds for an acquisition, you know, look at 0:16:28.800 --> 0:16:33.720 Unilever acquiring Dollar Shave Club for a billion dollars was 0:16:33.720 --> 0:16:36.000 a loss making business. You know, you just go, this 0:16:36.080 --> 0:16:39.160 is going to destroy return on assets, is using company 0:16:39.200 --> 0:16:42.480 cash to go and overpay for an acquisition, and this 0:16:42.680 --> 0:16:46.240 indicates a management are you know, or not of the 0:16:46.280 --> 0:16:49.560 caliber we'd like. So that's how we evaluate management, the 0:16:49.600 --> 0:16:52.640 numbers and we leave the niceties to everybody else. 0:16:52.680 --> 0:16:55.040 And I suppose it helps you avoid being caught up 0:16:55.040 --> 0:16:58.240 in stories and that you know, really investing is just 0:16:58.280 --> 0:17:01.200 about stories, right, stories you believe, stories you don't believe. 0:17:01.440 --> 0:17:04.000 And the extent to which a charismatic CEO can tell 0:17:04.040 --> 0:17:06.640 a good story. I mean, that's that's the story of tech. 0:17:06.760 --> 0:17:10.040 For example, when the story lines up with the numbers, fantastic. 0:17:10.119 --> 0:17:12.879 But so often what will happen is, you know, you 0:17:12.960 --> 0:17:15.320 look at the numbers and you'll go, okay, things are tough, 0:17:15.320 --> 0:17:17.359 and you read the conference called transcript and you go, 0:17:17.400 --> 0:17:20.280 my goodness, am I reading this my quarter out? Is 0:17:20.280 --> 0:17:22.920 this the same period? You know? Is this the same company? 0:17:23.280 --> 0:17:26.000 So they often, you know, they can be quite a spin. 0:17:26.520 --> 0:17:31.040 And I mean even to the extent that that management 0:17:31.040 --> 0:17:36.480 teams know that that analysts and AI are trawling through 0:17:36.560 --> 0:17:39.640 conference called transcripts looking for those little you know, trying 0:17:39.680 --> 0:17:42.920 to work out of is the call positive or negative? 0:17:43.000 --> 0:17:47.840 Extracting positive phrases and negative phrases, so they gear things accordingly. 0:17:48.359 --> 0:17:51.600 If you attach yourself to a narrative to a story. Okay, 0:17:51.720 --> 0:17:53.960 how do you know when you're wrong? So if you'd 0:17:53.960 --> 0:17:56.960 said I want to buy wind because it's part of 0:17:57.000 --> 0:17:59.920 the energy transition, it's going to play an important part. Great, 0:18:00.880 --> 0:18:02.640 it's still going to play an important part. But you've 0:18:02.640 --> 0:18:05.040 lost seventy percent of you brought some of the go 0:18:05.040 --> 0:18:08.119 go windstocks, you know, the Vestus and those types of 0:18:08.160 --> 0:18:10.920 companies way back when, or the Solar. I mean, look 0:18:10.920 --> 0:18:14.359 at what a disaster solely is. So it's hard to 0:18:14.400 --> 0:18:17.240 identify when you're wrong. If you just focus on the story, 0:18:17.560 --> 0:18:20.000 the numbers will tell you when you're wrong. Margins are falling, 0:18:20.080 --> 0:18:22.840 revenue is falling, it's too overpriced, et cetera. You know, 0:18:23.320 --> 0:18:26.040 look at these obesity drugs at the moment, what's the story. 0:18:26.040 --> 0:18:29.239 The story is, we've got an obese population and there 0:18:29.240 --> 0:18:31.639 are only a couple of them that have been approved, 0:18:31.800 --> 0:18:34.880 and they're going to make a hundred billion of you know, 0:18:35.440 --> 0:18:39.919 in the next couple of years. In terms of like that, 0:18:40.080 --> 0:18:44.320 that basically is blue sky. Well, well, let's see, but 0:18:44.400 --> 0:18:47.480 there's one hundred and seventy competitors all trying to develop 0:18:48.480 --> 0:18:51.800 obesity drugs, and sooner or later that lunch will get 0:18:51.800 --> 0:18:53.720 eaten by the new competitors. And so if you're paying 0:18:53.760 --> 0:18:55.919 forty times earnings for the likes of Nova and ORDERSK, 0:18:56.320 --> 0:18:57.840 you know, it's going to be hard to make a return, 0:18:58.240 --> 0:18:59.000 we think, or. 0:18:59.200 --> 0:19:02.000 At some point everyone's going to be thin. The things 0:19:02.040 --> 0:19:04.919 work right, then that'll be that right. And then of 0:19:04.960 --> 0:19:06.960 course there are not one facts like that. The diet 0:19:07.000 --> 0:19:11.280 book industry collapses, maybe the gym business collapses. 0:19:10.960 --> 0:19:14.200 Well let's see. But you know, the problem is paying 0:19:14.200 --> 0:19:17.120 too much for stories is not a good thing, and 0:19:17.160 --> 0:19:19.639 it is hazardous to your health. And so we go 0:19:19.720 --> 0:19:23.000 to whatever steps we can to avoid over pain for strap. 0:19:23.040 --> 0:19:24.960 There's a lot of stories around around in the world 0:19:24.960 --> 0:19:28.320 of energy transition. You just mentioned that you've stayed stayed 0:19:28.359 --> 0:19:30.960 out of wind, stayed out of solar. How are you 0:19:30.960 --> 0:19:33.440 playing the transition or are you just sticking with oil? 0:19:33.840 --> 0:19:35.600 Well we've got a little bit of oil. But I mean, 0:19:35.640 --> 0:19:37.440 you know, one of the one of the stories is 0:19:37.520 --> 0:19:40.000 will go by the utilities because we're going to have 0:19:40.040 --> 0:19:41.679 to They're going to have to generate all the power 0:19:42.320 --> 0:19:46.199 that that is that these AI data centers are going 0:19:46.280 --> 0:19:48.200 to use. Until you look at the balance sheets of 0:19:48.240 --> 0:19:50.879 these utilities and see how much debt they've got from 0:19:51.040 --> 0:19:55.120 having you know, installed solar and wind farms at high prices, 0:19:55.200 --> 0:19:56.359