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Why Holding For the Long Term Is For Amateurs · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: Hello, it's Maren sums up web here. If you are
0:13
Speaker 2: a regular listen to the show, and I'm sure you are,
0:16
Speaker 2: you'll already know. But this is just a reminder. I
0:18
Speaker 2: will be at the Fringe Festival in Edinburgh once again
0:20
Speaker 2: this year, hosting four very interesting conversations in Adam Smith's
0:24
Speaker 2: old home, Panma House. I'll be there August the seventeenth
0:27
Speaker 2: to August the twentieth. You can get your tickets by
0:30
Speaker 2: heading to the main Fringe website and searching for Maren.
0:33
Speaker 2: We have some brilliant guests this year. Normally I don't
0:35
Speaker 2: tell you who the guests are until you know the
0:37
Speaker 2: absolute last minute, but I will reveal that we do
0:40
Speaker 2: have the marvelous Ed Conway.
0:42
Speaker 1: This year.
0:42
Speaker 2: We've got the fantastic Russell Napier, and we have James
0:45
Speaker 2: Ferguson who was on the podcast last week and had
0:48
Speaker 2: a lot more to say, and other wi guests I
0:51
Speaker 2: will reveal as the time gets closer.
0:53
Speaker 1: All the way, I should tell you, of course, that
0:55
Speaker 1: John will be on.
0:56
Speaker 2: One day now back to our regular programming twodays. Actual, John,
0:59
Speaker 2: Are you gonna come in two days?
1:01
Speaker 3: Yeah?
1:01
Speaker 4: Unless you get anyone better.
1:03
Speaker 2: That's what usually happens, jacksone better and chuck you off
1:06
Speaker 2: that of course that's not going to happen. Right back
1:08
Speaker 2: to our regular programming. This week on the show, I
1:11
Speaker 2: speak with Adam Ragley. It's the fund manager at Cape
1:13
Speaker 2: Wrath Capital rather the fund manager at Case for a Capital,
1:16
Speaker 2: a UK equity boutique with a deep value investment philosophy.
1:19
Speaker 1: We like deep value.
1:21
Speaker 2: Dowgate Wealth integrated the Cape Wrath investment team late last year.
1:24
Speaker 2: We talked about all sorts of things, including why small caps,
1:28
Speaker 2: why the UK, and what he would buy if I
1:30
Speaker 2: wouldn't let him buy either of those things. But first,
1:34
Speaker 2: as a senior reporter and author of Money Distilled newsletter,
1:37
Speaker 2: John Staffer gets with me.
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Speaker 4: John, Hello, Maden. Isn't it great to have the adults
1:42
Speaker 4: back in the room. I feel that's the traditional way
1:44
Speaker 4: to open a podcast at this point.
1:46
Speaker 1: Yes. And isn't it great to live in a beacon
1:48
Speaker 1: of stability? Oh?
1:50
Speaker 4: Fantastic?
1:51
Speaker 1: I know that's the thing we say.
1:52
Speaker 2: If I read one more article that starts with the
1:54
Speaker 2: UK is now speacon of stability in a volatile world,
1:59
Speaker 2: it might get quite at Although I think I might
2:01
Speaker 2: have said it and possibly even have written it myself.
2:03
Speaker 2: And you know what's going to be awful if it
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Speaker 2: turns out that we are not a beacon of stability.
2:09
Speaker 1: What if this goes wrong?
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Speaker 2: You know, we're really bigging up the stability here and
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Speaker 2: I can't really see any reason why we go drastically
2:16
Speaker 2: wrong in the short term, but none of the else.
2:17
Speaker 2: It's going to be really really embarrassing if something something
2:20
Speaker 2: happens that makes the UK look not stable again.
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Speaker 4: We'd be embardison to be if your expectations are fairy
2:27
Speaker 4: law or have been.
2:28
Speaker 1: No, they're not low.
2:29
Speaker 2: Expectations are very high for stability, maybe not very high
2:33
Speaker 2: for other stuff, but very very high for nothing happening.
2:36
Speaker 1: They might scare the horses.
2:37
Speaker 2: True, Okay, right, fingers crossed, everything crossed, because we don't
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Speaker 2: want to have to start these podcasts with, oh my god, volatility.
2:46
Speaker 1: Don't want that.
2:47
Speaker 2: Right, You've been writing this week about the amount of
2:52
Speaker 2: tax that the government is managed to get from something
2:55
Speaker 2: they really shouldn't be able to get it from.
2:57
Speaker 4: Right, Yes, the interest on your savings I've got. I
3:01
Speaker 4: really found this number quite shocking simply because of the
3:06
Speaker 4: size of it. So Before we do this, I just
3:09
Speaker 4: want to say, like, so, for context, in twenty three
3:12
Speaker 4: twenty four tax year, inheritance tax which everyone hates and
3:17
Speaker 4: understand why, raised about seven point five billion pounds for HMRC,
3:23
Speaker 4: and stamp duty on property raised about eleven and a
3:27
Speaker 4: half billion pounds. So that's the context for this number.
3:32
Speaker 4: So savan's interest in twenty twenty one to twenty two,
3:35
Speaker 4: when basically interest rates were at zero and so no
3:39
Speaker 4: one was getting paid interest, and also the amount of
3:42
Speaker 4: interest you could earn before you paid income tax on
3:44
Speaker 4: it was higher. HMRS made one point three billion from
3:50
Speaker 4: tax on that income. This year.
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Speaker 1: The expense is killing me. Jump, the suspense is literally
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Speaker 1: killing me. Just give us the number. Give us the number.
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Speaker 4: Ten four billion this year there's more than the inheritance
4:03
Speaker 4: tax take. It's almost as much as the property transaction
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Speaker 4: tax take. It's a significant number. Yeah, And.
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Speaker 2: Imagine I'm interrupting, Sorry to interrupt, but imagine how many
4:15
Speaker 2: people don't know that they have to pay tax on
4:19
Speaker 2: the income from their savings because they haven't had to
4:21
Speaker 2: for so long, and people brought up in a very
4:23
Speaker 2: low income environment.
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Speaker 3: You may I.
4:25
Speaker 2: Suddenly have savings because of course a lot of people
4:27
Speaker 2: have savings. Now they may suddenly have savings on which
4:30
Speaker 2: tax should be paid and they're not aware of it.
4:31
Speaker 2: So I bet there's a bigger tax gap there than
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Speaker 2: you'd expect.
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Speaker 4: As well, there probably is stuff that people should be
4:38
Speaker 4: declared on their self assessment forms that then not yeah, we.
4:41
Speaker 1: Don't have self assessment forms.
4:43
Speaker 2: Yeah.
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Speaker 4: But the point this is a lot of money, and
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Speaker 4: given the ser size of the allowances that we have
4:51
Speaker 4: to avoid paying this quite you know above broadly, it
4:56
Speaker 4: just surprises me that there is this much going to HMRC,
5:01
Speaker 4: and it feels like it's probably largely a voluntary tax
5:04
Speaker 4: on an apathy tax.
5:05
Speaker 2: That is interesting, isn't it? Because you don't have to
5:07
Speaker 2: do this. You can put your money inside a sick
5:09
Speaker 2: You can put it inside and I say, you can
5:12
Speaker 2: get one of the national savings accounts that does not
5:14
Speaker 2: attract tax, et cetera. There is absolutely no reason unless
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Speaker 2: you really have maxed all that stuff out, there's very
5:20
Speaker 2: little reason to have savings that attract tax.
5:23
Speaker 4: No, And even then, if you've got so much money
5:25
Speaker 4: you've been able to max that, you can start looking
5:27
Speaker 4: at things that are even you know, whack your light
5:30
Speaker 4: enterprise investment schemes and venture capital trusts. If you really
5:32
Speaker 4: do have that amount of money, Yeah.
5:34
Speaker 2: If you've maxed all that out, what are you doing
5:36
Speaker 2: with your cat sitting around in a savings count of
5:39
Speaker 2: Barkley's in the first place.
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Speaker 4: Exactly in the weird kind of way, this tax just
5:42
Speaker 4: shouldn't exist, This tax take shouldn't exist. And so yeah,
5:48
Speaker 4: get your finger out and sort of your personal finances
5:50
Speaker 4: if you're one of these people. And it is mostly
5:53
Speaker 4: additional rate tax payers, by the way, so the vast
5:56
Speaker 4: majority of this is coming from people in the forty
5:58
Speaker 4: five percent tax ban. So you know, go and have
6:02
Speaker 4: a look at billion money as and if it's somewhere
6:05
Speaker 4: it's paying that amount e tax on your interest income,
6:09
Speaker 4: then find something to do with it.
6:11
Speaker 2: On the other hand, I suppose what you might say is,
6:13
Speaker 2: if you don't pay tax this way, you're definitely going
6:15
Speaker 2: to pay it another way. You know, you can pay
6:18
Speaker 2: your interest, but something else is going to come. I'm
6:20
Speaker 2: quite internested in this idea by the way of means
6:22
Speaker 2: testing the state pension. It came up last week and
6:26
Speaker 2: we haven't heard much more about it this week, but
6:28
Speaker 2: it seems like one of those things that you would
6:30
Speaker 2: constantly say, if you're in the treasury.
6:32
Speaker 1: Why don't you mean Texas state beensine?
6:33
Speaker 3: What do you mean?
6:34
Speaker 1: Says the state pension? And then you look at it
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Speaker 1: more closely and you think, well, this is really hard.
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Speaker 2: This is really hard because if you means test a
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Speaker 2: state pension, what is it you mean touched?
6:43
Speaker 1: Do you look at just.
6:44
Speaker 2: Someone's pension income so you look at their dB and
6:46
Speaker 2: their DC and you look at what they're getting from that,
6:48
Speaker 2: or do you look at their income outside that?
6:50
Speaker 1: And if you start looking at.
6:51
Speaker 2: Them their income outside their pension assets, then you have
6:55
Speaker 2: to look not just at the income that they have,
6:57
Speaker 2: but the assets that they have that could be used
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Speaker 2: to generate income. Right, So if you're can look at
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Speaker 2: someone's pension and you say, well, I'm just looking at
7:06
Speaker 2: their income and then everyone immediately shifts everything over it
7:08
Speaker 2: to growth stocks that they don't have an income, then
7:11
Speaker 2: you think, well, hang on, that's not okay. So now
7:12
Speaker 2: we need to tax it as though they were in
7:15
Speaker 2: dividend producing socks. Now that doesn't work, So how do
7:18
Speaker 2: you do it? So suddenly what is it?
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Speaker 1: Oh, it's a wealth tax.
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Speaker 2: Because the only thing you can do is look at
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Speaker 2: the absolute value of the potentially income generating assets people have,
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Speaker 2: and tax on the base of that.
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Speaker 1: I was thinking about this that there's no way that
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Speaker 1: you can means.
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Speaker 2: Test the state pension without effectively introducing a wealth tax.
7:42
Speaker 2: And I give that to you, Rachel Reeves, for free.
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Speaker 4: I think that's a really good point law. And I
7:50
Speaker 4: think actually there is something then that which points to
7:53
Speaker 4: the thing that you are always talking about, which is
7:56
Speaker 4: that rather than having inheritance tax, we should have a
7:59
Speaker 4: gift tax. And that sort of encourages it both encourages
8:05
Speaker 4: wealth transferils. You only get tax when they've are something's crystallized,
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Speaker 4: so you don't have all the evaluation golf hartening. And
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Speaker 4: it is a wealth tax, but it's a wealth a
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Speaker 4: wealth tax that has got far fewer skewed incentives than
8:20
Speaker 4: anything else.
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Speaker 1: Yep, make it easy, make it easy, Make it easy.
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Speaker 2: I mean, when we talk about growth, and there's new government,
8:28
Speaker 2: and all credit to them for this, at least they
8:30
Speaker 2: talk about nothing but growth, How to generate growth. I'm
8:32
Speaker 2: not sure they're going about it the right way, but
8:34
Speaker 2: we'll find out that over the next couple of years.
8:36
Speaker 2: But they talk about it all the time. But one
8:38
Speaker 2: of the things that you and I often talk about.
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Speaker 2: One thinks that would make it easier for the economy
8:44
Speaker 2: to grow would be for the tax system to be
8:47
Speaker 2: more simple. I mean I had a little example myself
8:50
Speaker 2: this week, a boy with the details, but a little
8:52
Speaker 2: tax thing, and the admin neally defeated me. And I
8:55
Speaker 2: looked at it and I thought, I just don't think
8:57
Speaker 2: I'll bother with that. But we'll do that thing again
9:00
Speaker 2: because I can't deal with the admin.
9:02
Speaker 1: Now take that tiny.
9:05
Speaker 2: Little personal problem up to large companies, to small companies,
9:08
Speaker 2: to medium size companies all the time dealing with endless,
9:11
Speaker 2: relentless complications. If you just make it easier, I think
9:16
Speaker 2: you would find that growth would follow simplicity, and you
9:19
Speaker 2: might not need the endless parade of new institutions that
9:23
Speaker 2: we're hearing about at the moment, which moves me very
9:25
Speaker 2: nicely to the National Wealth Fund, yes, which is not
9:31
Speaker 2: really a national wealth fund.
9:33
Speaker 4: Well no, because that would imply that we hid some
9:36
Speaker 4: wealth and that as opposed to mass of debts on
9:41
Speaker 4: the public balance sheet. So deally, it's just it's basically
9:45
Speaker 4: it's fine. Look, I mean, we've both been trying to
9:48
Speaker 4: work what there says, But it's basically a seed capital
9:52
Speaker 4: fund for projects that the private sector is not investing
9:57
Speaker 4: in because they don't offer every tourns that match the risk. Yeah,
10:04
Speaker 4: and I mean that's whatever kind of discussion we have
10:07
Speaker 4: about it is that's sort of the fundamental problem that
10:10
Speaker 4: you're going to come back to, is that no one
10:13
Speaker 4: is doing this stuff in the first place because it
10:16
Speaker 4: doesn't offer decent enough returns and therefore it needs a
10:20
Speaker 4: public subsidy some way. That subsidy doesn't need to necessarily
10:25
Speaker 4: be directly financial, but it's you know, if it's in
10:29
Speaker 4: the form of a guarantee or in the form of
10:32
Speaker 4: you know, favoritizing legislation or allowing you.
10:36
Speaker 2: To raise capital, lower rate or anything like that, anything
10:39
Speaker 2: that takes some of the sting out of the risk.
10:42
Speaker 1: But however you cut it, if they call it a.
10:44
Speaker 2: Public private partnership, it's a subsidy of some kind. And
10:49
Speaker 2: it talks about catalytic capital, which is a very nice
10:52
Speaker 2: phrase and when he use a lot of these days,
10:54
Speaker 2: but it also talks about crowding in private investment.
10:58
Speaker 4: Yes, that's a lovely phrase.
11:00
Speaker 1: And this is this is an interesting phrase that I
11:02
Speaker 1: don't think we've already seen used in this kind of
11:04
Speaker 1: context before.
11:05
Speaker 2: If you're crowding in private investment, what are you doing?
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Speaker 4: I guess If you're crowding, then then you either have
11:12
Speaker 4: to have something extremely appealing for them to crowd down too,
11:16
Speaker 4: or you need to be running behind them with a
11:17
Speaker 4: cattle proude to force them crowed into the thing. So
11:21
Speaker 4: it's either a sold out tail, a swift coincert or
11:24
Speaker 4: a Japanese subway train. What about a board?
11:27
Speaker 1: Very good, John, that's very good, very thank you. It
11:30
Speaker 1: feels to me a little more like a subway train.
11:33
Speaker 4: Yeah, I didn't think it was going to be swifty. Unfortunately.
11:36
Speaker 1: Well, it kind of depends on the projects, I bet.
11:37
Speaker 1: But I do worry. I do worry that.
11:39
Speaker 2: You know, when we talk about who are going to
11:41
Speaker 2: be the co investor here, who is it going to
11:43
Speaker 2: be that it might be our pension funds. And how
11:46
Speaker 2: does our pension fund money get from a Viva legal
11:49
Speaker 2: in general whatever into the national welfund?
11:51
Speaker 1: How does that work? What is the incentive or what
11:54
Speaker 1: is the problem.
11:54
Speaker 2: We don't know that yet and hopefully we'll find that
11:56
Speaker 2: out over the next few weeks. But the key thing
11:59
Speaker 2: to remember is that one way or another you'll be paying.
12:07
Speaker 1: Welcome to Maren Talks.
12:08
Speaker 2: Money, the podcast in which people who know the markets
12:10
Speaker 2: explain the markets. I'm mere in Sunset Web and here
12:12
Speaker 2: is my conversation with Adam Ragley.
12:14
Speaker 1: Fund manager with Cape Breath Capital, a UK equity.
12:17
Speaker 2: Boutique with deep value investment philosophy.
12:22
Speaker 1: Adam, thank you so much for joining us today. Very
12:24
Speaker 1: kind of you.
12:25
Speaker 3: Thanks for having me.
12:26
Speaker 1: Now.
12:27
Speaker 2: The last time we spoke, we were in Hey on
12:28
Speaker 2: why right, at the Financial Festivals of Mistakes.
12:32
Speaker 3: That's right.
12:32
Speaker 1: Yeah, a lot of fun and Adam.
12:34
Speaker 2: By the way listeners, was extremely kind because I'd been
12:37
Speaker 2: on how many panels had I'd been on by then?
12:38
Speaker 1: Or paneled out?
12:40
Speaker 2: So I felt I thought, I'm taking audience members in
12:43
Speaker 2: for my next panel, and Adam was was dragged from
12:46
Speaker 2: obscurity onto the stage, well not exactly obscurity, and we
12:49
Speaker 2: had it. We had a great conversation.
12:50
Speaker 1: Then, and we're going to have another one now, right,
12:53
Speaker 1: y ah.
12:54
Speaker 3: Yeah, that was a lot of fun. I enjoyed it.
12:56
Speaker 2: It was I'm sad we don't have a live audience
12:59
Speaker 2: today to heckle and ask questions, but you know that's
13:01
Speaker 2: something comments. So, Adam, let's start by talking about how
13:05
Speaker 2: you invest. You run a pretty focused fund that invests
13:09
Speaker 2: in UK small caps, So let's start by asking why
13:13
Speaker 2: the UK? Why small caps? Why then when you started
13:16
Speaker 2: the fund and why now?
13:18
Speaker 5: Sure, so I've always invested, or most of my career,
13:24
Speaker 5: I've been involved in small cap investing, either in the
13:28
Speaker 5: UK or kind of UK and Europe. I think small
13:31
Speaker 5: caps a really interesting market because it's generally less well
13:38
Speaker 5: covered than larger companies. Smaller companies generally have fewer analysts
13:43
Speaker 5: looking at them, fewer people interested in them, and that
13:45
Speaker 5: makes it a less efficient market, and so I think
13:50
Speaker 5: there's a bigger opportunity in small caps as an active
13:54
Speaker 5: manager to generate alpha.
13:57
Speaker 3: So that's kind of why small cap is that.
13:59
Speaker 2: More the case now then it was even a decade ago,
14:02
Speaker 2: And that regularly change in the UK has meant that
14:04
Speaker 2: there are even fewer analysts following a lot of our
14:06
Speaker 2: small cap companies and they were ten to fifteen years ago.
14:09
Speaker 5: With a kind of whole unbundling thing. There's definitely less
14:13
Speaker 5: research coverage around than there was, and so there are
14:17
Speaker 5: many reasonable site well for it. For us a reasonable
14:20
Speaker 5: sized company, there are kind one hundred two undred million
14:22
Speaker 5: pound companies that might have just the house broker covering them,
14:26
Speaker 5: and in those situations, the housebroker you know, is working
14:31
Speaker 5: very closely with the management team and so their forecast
14:34
Speaker 5: may reflect more what the management team would like them
14:37
Speaker 5: to say than what you know, necessarily the kind of
14:39
Speaker 5: independent view of the of the analysts. So there's all
14:42
Speaker 5: sorts of things kind of going on there. But what
14:44
Speaker 5: it means is, yes, I think the coverage is probably
14:47
Speaker 5: not as good as it was ten years ago, and
14:49
Speaker 5: that can create more opportunities for active So.
14:53
Speaker 2: Small caps make sense because of that risen But why
14:56
Speaker 2: UK small caps?
14:57
Speaker 5: So I think that plenty to go for in the
15:01
Speaker 5: UK basically, I mean I have looked at European small
15:05
Speaker 5: caps in the past. I think there is a benefit
15:10
Speaker 5: from operating kind of in your in your home market
15:13
Speaker 5: in terms of understanding the culture and the language. And
15:16
Speaker 5: I think, you know, investing in Europe some countries probably
15:21
Speaker 5: worse than others. There was always a sense that there
15:23
Speaker 5: was a local cabal of investors who probably had you know,
15:27
Speaker 5: an edge versus us sitting in the UK because they
15:31
Speaker 5: were that much closer to the management or you know,
15:34
Speaker 5: the information flow is was you know, it was easier.
15:37
Speaker 5: So I think there is a benefit to investing in
15:39
Speaker 5: UK companies if you're sitting in the UK.
15:42
Speaker 1: But there's also value in the UK, A.
15:44
Speaker 3: Lot of value. Yeah, huge amount of value in the UK.
15:47
Speaker 5: I mean, this is the I mean I've been investing
15:50
Speaker 5: in the UK for kind of twenty odd years. I've
15:52
Speaker 5: been running a kind of deep value strategy for fifteen
15:57
Speaker 5: years or so, and I'd say this is, you know,
16:00
Speaker 5: post COVID, we are in a fantastic market for value
16:04
Speaker 5: in the UK, particularly in smaller companies. Over the last
16:08
Speaker 5: five years, smaller companies in the UK and globally have
16:12
Speaker 5: underperformed their larger peers, and I think that's not surprising
16:15
Speaker 5: given the environment we've been in. If you're expecting a recession,
16:19
Speaker 5: then you don't invest in small caps because generally they're
16:21
Speaker 5: kind of more more volatile, more leveraged into economic growth.
16:25
Speaker 5: And in the last five years we've had you know,
16:28
Speaker 5: the whopper of all recessions with COVID in the UK.
16:31
Speaker 5: We had a short kind of technical recession at the
16:33
Speaker 5: end of last year. So it's not been a kind
16:35
Speaker 5: of fantastic economic environment and that's reflected in the underperformance
16:40
Speaker 5: of small versus large. So I think over the last
16:42
Speaker 5: five years in the UK, small's probably underperformed large by
16:45
Speaker 5: about twenty percent. But if you look over kind of
16:48
Speaker 5: longer time frames, I mean, smaller companies generally have high
16:51
Speaker 5: growth rates, and if you go back, say over a
16:55
Speaker 5: twenty five year timeframe, there's significant our performance of small
16:58
Speaker 5: versus large in the.
16:59
Speaker 3: UK and globally.
17:01
Speaker 5: So you know, looking at some numbers in front of me,
17:03
Speaker 5: you know about two hundred and fifty percent out performance
17:05
Speaker 5: of UK small cap indu cries and the UK versus
17:09
Speaker 5: UK large cap in the Sea. So I think there's
17:12
Speaker 5: there's a strong argument, a very compelling argument for holding
17:16
Speaker 5: smaller companies for the long term. If you've got a
17:19
Speaker 5: more tactical approach, then it will depend on your outlook
17:22
Speaker 5: for the economic environment. But if there was a market
17:24
Speaker 5: I wanted to be being for my career and I
17:27
Speaker 5: could choose small versus large, I'd chose small every day.
17:30
Speaker 2: And do you think that that's still the case for
17:31
Speaker 2: the UK given the regular outflows we've seen from the
17:34
Speaker 2: UK market, you know, month after month after month for
17:37
Speaker 2: so many months now, it's getting ridiculous. So there are
17:39
Speaker 2: hints that we're beginning to see some domestic inflows again,
17:41
Speaker 2: But there are so many reasons that we given on
17:44
Speaker 2: this podcast and all over the place as to why
17:46
Speaker 2: the UK market is a continuing mess.
17:49
Speaker 5: Yeah, I mean, I think as a value invests in,
17:52
Speaker 5: one of the key things you believe in is mean reversion,
17:57
Speaker 5: and the question always is when, and that's the answer
18:00
Speaker 5: that you can't you could rarely provide with much accuracy.
18:06
Speaker 5: So you know, I think that these things go in cycles.
18:09
Speaker 5: And also, I mean a bit more kind of anecdotally
18:12
Speaker 5: the types of conversations I've been having, I think there's
18:14
Speaker 5: a lot more interest, a growing interest from outside of
18:17
Speaker 5: the UK in the UK market and talking to global
18:20
Speaker 5: managers for example, based in the US. There is a
18:24
Speaker 5: very kind of wariness around the valuations in the US market,
18:28
Speaker 5: and people look over to the UK and it's extremely
18:31
Speaker 5: cheap relative to other markets, relative to its own history.
18:35
Speaker 5: And so if you do, you know, believe in that
18:37
Speaker 5: mean reversion argument, then there's got to be a fantastic
18:41
Speaker 5: opportunity in the UK. And in terms of catalysts, I mean,
18:44
Speaker 5: obviously there's there's a lot of discussion about takeovers in
18:49
Speaker 5: the UK market, things very cheap, things getting taken private.
18:53
Speaker 5: There's a lot more buybacks happening in the UK. I've
18:55
Speaker 5: noticed the last six to twelve months or so companies,
19:00
Speaker 5: more and more companies have been coming out buying back
19:01
Speaker 5: their own shares. So I think there are a few
19:04
Speaker 5: possible catalysts there, certainly, you know, on a case by
19:08
Speaker 5: case basis.
19:09
Speaker 2: Yeah, And it is there's less the buybacks and more
19:12
Speaker 2: of the takeovers that might attract international attention and make
19:14
Speaker 2: people think, well, you know, if they're prepared to go
19:17
Speaker 2: into the UK and take over those companies and I
19:18
Speaker 2: actually go have a.
19:19
Speaker 1: Look at it.
19:20
Speaker 3: Yeah, yeah, I think so.
19:21
Speaker 1: And what about politics?
19:23
Speaker 2: Does this idea that the UK is now a beacon
19:25
Speaker 2: of stability, as people keep saying in a volatile world,
19:29
Speaker 2: is that a positive or is that just a short
19:32
Speaker 2: term nonsense?
19:33
Speaker 3: Yeah?
19:34
Speaker 5: I think it's a positive. Look is much going to
19:36
Speaker 5: change under a Labor government. I don't think a huge
19:39
Speaker 5: amount is going to change. But the more important than
19:43
Speaker 5: actually what changes is that perception of stability. And you know,
19:47
Speaker 5: the market hates uncertainty, love certainty. And with the election
19:51
Speaker 5: out of the way and Labor with a decent majority,
19:54
Speaker 5: it feels like we're in for a period of stability,
19:57
Speaker 5: and all sorts of people have got their kind of
19:59
Speaker 5: own own gripes and their own expectations. But I think
20:02
Speaker 5: the key thing is that there is, you know, a
20:05
Speaker 5: period of optimism and a sense of stability, and those
20:08
Speaker 5: are things that the market likes.
20:10
Speaker 2: Yeah, and an awful lot of talk about going for
20:12
Speaker 2: growth and endless new organizations being set up to help
20:15
Speaker 2: us go for growth, most of which haven't quite got
20:17
Speaker 2: to grips with yet.
20:18
Speaker 3: Yes, I mean I doubt the sense, yes, exactly, the.
20:22
Speaker 2: Feeling that this would be a nice thing is there,
20:25
Speaker 2: and maybe there'll be some money and maybe maybe the
20:27
Speaker 2: National Wealth Fund really is a fund of some kind.
20:30
Speaker 2: We'll find out every time, won't we. But so there
20:32
Speaker 2: is a sense of optimism around that. So let's talk
20:35
Speaker 2: about how you invest, because you're a value investor, but
20:39
Speaker 2: you look for particular turning points. And then one of
20:42
Speaker 2: the things that jumped out to me in your literature
20:44
Speaker 2: is that the shorter that the shorter the time you
20:47
Speaker 2: can hold a stock for the better for you, which
20:49
Speaker 2: is not what most of fun managers to say to us.
20:50
Speaker 1: Mostly to us, you know, I'm.
20:52
Speaker 2: In for the long term, I buy at the right
20:54
Speaker 2: price and then I hold, and I'm not a trader, etc.
20:57
Speaker 1: So as a phrase, it slightly jumps up your fax sheet.
21:01
Speaker 3: Absolutely.
21:01
Speaker 5: I mean, I think there's a lot of preconceptions out
21:04
Speaker 5: there about what the right way to invest in, and
21:06
Speaker 5: I think, you know, it's it's all part of this
21:09
Speaker 5: kind of Warren Buffett's school. So Warren Buffett said, our
21:12
Speaker 5: favorite holding period is forever, and I think that's ingrained
21:16
Speaker 5: in the mindset of a lot of fun managers and
21:19
Speaker 5: a lot of people who allocate the fund managers that
21:21
Speaker 5: that is the right way to invest. So you know,
21:24
Speaker 5: that idea of Nick Train sitting in his library and
21:27
Speaker 5: making one investment decision a year, that kind of thing, And.
21:31
Speaker 2: I mean it's worked very well, very well for Warren Buffett,
21:33
Speaker 2: by the way, Yeah, pretty well for Nick Train, or
21:35
Speaker 2: then maybe not so well recently, but long term pretty well.
21:38
Speaker 3: Yeah.
21:38
Speaker 5: There are many different investment approaches which can work fantastically
21:41
Speaker 5: well if applied with discipline, with a good process. So
21:45
Speaker 5: you know, I'm not saying that value is better than growth.
21:48
Speaker 5: I'm saying that you have to choose the investment style
21:51
Speaker 5: that best fits your personality and then you need to
21:54
Speaker 5: go away and deliver a process and a philosophy around
21:57
Speaker 5: that to deliver returns. But I think that, yeah, there
22:00
Speaker 5: are a lot of rules of thumbs, so you know,
22:02
Speaker 5: holding period only, buying quality, looking for low volatility, all
22:07
Speaker 5: these things are kind of really chime, I guess if
22:10
Speaker 5: you're a quality growth investor, because if you're a quality
22:13
Speaker 5: growth investor, you make one fantastic decision to buy that
22:18
Speaker 5: high quality business at the right price, and then your
22:20
Speaker 5: returns come from the compounded earnings growth of that business
22:23
Speaker 5: over time. Whereas as a value investor, you're more interested
22:27
Speaker 5: in buying at a discount to fair value and then
22:29
Speaker 5: selling it fair val Valuation is absolutely key to your
22:33
Speaker 5: perspective and to your calculation. And so if we can
22:37
Speaker 5: achieve fair value in a shorter time period rather than
22:40
Speaker 5: a longer time period, than that is a better IRR.
22:43
Speaker 5: And we generate our returns by taking the profits we've
22:47
Speaker 5: made from you know, selling at a discount to fair value, sorry,
22:51
Speaker 5: buying a discount to fair valuance and selling it a
22:53
Speaker 5: fair value and reinvesting that in the next opportunity. So
22:56
Speaker 5: that's how we achieve our returns rather than through the
23:00
Speaker 5: long term compounded returns of the underlying company.
23:05
Speaker 2: You see, you explain it like that, and it sounds
23:07
Speaker 2: like any good value investors should also be looking to
23:10
Speaker 2: have the shortest possible time as a holder in that
23:13
Speaker 2: if you get the catalyst correct, then everything should happen
23:17
Speaker 2: very quickly.
23:18
Speaker 1: So if you turn into a long term holder.
23:20
Speaker 2: Of your stocks, then you've got it wrong.
23:23
Speaker 1: Somewhere along the line.
23:24
Speaker 5: This should be quick, I would say so, but I
23:26
Speaker 5: have some sympathy for other and value investors who perhaps
23:31
Speaker 5: manage very large portfolios. So if you've got a one
23:33
Speaker 5: hundred stock portfolio, it's impossible to turn that over, you know,
23:38
Speaker 5: in twelve months or our average holding period is twelve months,
23:40
Speaker 5: and with twenty to twenty five holdings, we can realistically
23:43
Speaker 5: turn that portfolio over in twelve months. If you've got
23:46
Speaker 5: one hundred holdings, there's just no way that you can
23:49
Speaker 5: cover have conviction enough companies to pursue that kind of strategy. So,
23:54
Speaker 5: you know, I think what we do is quite a
23:55
Speaker 5: pure approach to it. But we're able to do that
23:58
Speaker 5: because we have have low capacity, a small number of holdings,
24:04
Speaker 5: and of course the trade off is that if you
24:06
Speaker 5: want to become fabulously wealthy as a farm manager, you
24:10
Speaker 5: know that's not the way to do it.
24:11
Speaker 3: You want to go out.
24:12
Speaker 5: You want to build a strategy that has huge capacity
24:14
Speaker 5: because you're making your money from the fees you charge
24:18
Speaker 5: for investors, and the more assets you manage, the higher
24:21
Speaker 5: those fees. But my view is that, you know, if
24:23
Speaker 5: a manager gets wealthy, it should be from eating their
24:26
Speaker 5: own cooking rather than from the fees they charge their investors.
24:28
Speaker 5: And so that's how we've structured our fund.
24:31
Speaker 2: Let's go back a little bit and talk about what
24:34
Speaker 2: fair value means to you. What makes a stop cheap
24:38
Speaker 2: and what makes it fair value? What are the signals
24:41
Speaker 2: you're using.
24:42
Speaker 5: Yeah, so there's a bunch of different stuff that we're
24:45
Speaker 5: looking at when we're selecting our investment opportunities, and valuation
24:51
Speaker 5: is one piece of this, and then we're also thinking
24:53
Speaker 5: about the risks attached to that upside and the potential
24:57
Speaker 5: catalysts to achieve that upside, And the valuation itself is
25:03
Speaker 5: probably the most kind of quantitative part of it, in
25:07
Speaker 5: so far as we build out a model on every
25:12
Speaker 5: company that we invest in. We can do that because
25:14
Speaker 5: we've got a relatively small number of holdings, we generate
25:19
Speaker 5: some short term earnings forecasts, and often the types of
25:25
Speaker 5: companies we invest in our in these turnaround situations or
25:29
Speaker 5: at trough earnings, and so we need to have a
25:32
Speaker 5: view on what the profile of an earnings recovery might
25:34
Speaker 5: look like. And then we apply those earnings forecasts across
25:38
Speaker 5: a variety of different valuation metrics. So we've got around
25:42
Speaker 5: twenty five different valuation metrics in our model, and we'll
25:44
Speaker 5: select the ones of the most appropriate. And typically, I mean,
25:49
Speaker 5: if I look at our portfolio today, so the way
25:51
Speaker 5: to the average upside across the portfolio is around seventy
25:54
Speaker 5: seven percent, So that gives you an idea of what
25:57
Speaker 5: we're looking for in terms of ups and the types
26:00
Speaker 5: of companies we invest in may often have fallen seventy
26:04
Speaker 5: eighty ninety percent from their recent highs. So typically we're
26:09
Speaker 5: not looking for companies to regain their former glory, but
26:12
Speaker 5: we're looking for situations where other investors have become too
26:16
Speaker 5: pessimistic about what's happened around a company.
26:20
Speaker 1: But still it's very subjective, isn't it.
26:22
Speaker 2: In the end, As you say, you have twenty five
26:24
Speaker 2: metrics and you choose ones which are most appropriate.
26:27
Speaker 1: Any one time. This is extremely subjective.
26:29
Speaker 5: Yeah it is. Yeah, yeah, So you know, investing is
26:32
Speaker 5: a whole thing about investing being as much an art
26:35
Speaker 5: as a science. And you know, we have our we
26:38
Speaker 5: have our process, and I think it's important to have
26:40
Speaker 5: a process to kind of keep you honest. But the
26:42
Speaker 5: fact is the best computer that we have is the
26:45
Speaker 5: human brain, and the process will only ever be a
26:49
Speaker 5: kind of shadowy reflection of you know, all the things
26:51
Speaker 5: that are happening behind the scenes in the brain. And
26:54
Speaker 5: the process you know, should, should and does develop over
26:58
Speaker 5: time as you become more experienced an investor, as an
27:01
Speaker 5: investor and you develop your intuition whilst also kind of
27:05
Speaker 5: working to guard you against your biases. So there's you know,
27:08
Speaker 5: there's BIOSes which try and trip you up, there's intuition
27:10
Speaker 5: which tries and help you make the right decisions, and
27:13
Speaker 5: the process kind of sits there as a bit of
27:14
Speaker 5: an arbiter between between the two. So valuation is and
27:18
Speaker 5: all investing is an art as well as the science.
27:22
Speaker 2: Okay, let's talk about some of the companies that you've
27:24
Speaker 2: got in their portfolio at the moment and what made
27:27
Speaker 2: them look like value to you.
27:29
Speaker 1: What's what's interesting do you think.
27:31
Speaker 5: Yeah, so we've recently took a position in the pub
27:36
Speaker 5: company Marston's. So Marsten's owns around thirteen one hundred pubs
27:43
Speaker 5: across the UK, and with a pub company, I mean,
27:47
Speaker 5: but pubs, it's a very liquid market in so far
27:51
Speaker 5: there's as there's historically been quite a lot of m
27:53
Speaker 5: and a around listed pub companies and then you know
27:58
Speaker 5: kind of individual prop companies are actively traded, so it's
28:01
Speaker 5: a very liquid market. So you can get a reasonable
28:03
Speaker 5: kind of view of what this pub portfolio is worth.
28:07
Speaker 5: And in the case of Marston's, if you look at
28:09
Speaker 5: the kind of tangible book value per share, so what
28:12
Speaker 5: the value of these properties is, basically you get a
28:14
Speaker 5: figure of around ninety five pence per share and that
28:19
Speaker 5: kind of triangulates quite nicely against the takeover offer that
28:23
Speaker 5: Marston's had in twenty twenty one, so about three years ago,
28:27
Speaker 5: for one hundred and five pence per share, And if
28:29
Speaker 5: you look at kind of transactions, it's normally kind of
28:32
Speaker 5: one to one point one times book value, so that
28:34
Speaker 5: kind of all will makes sense and stacks up quite
28:38
Speaker 5: nicely against Marston's current share price of around anyway, between
28:42
Speaker 5: kind of thirty thirty five pence a share of the
28:44
Speaker 5: last couple of weeks. So there's you know, there's plenty
28:47
Speaker 5: of upside there. It's always interesting to think what the
28:50
Speaker 5: kind of alternative angles might be. And for us, a
28:52
Speaker 5: nice angle was the fact that Marston still owns forty
28:56
Speaker 5: percent share of a JV, a Briwin Company JV with Carlsburg,
29:01
Speaker 5: Carlsburg Marston's Brewing Company, and we put in a value
29:06
Speaker 5: for that brewing business of anywhere between thirty and fifty
29:11
Speaker 5: p Actually two days ago, Marston's announced they were going
29:14
Speaker 5: to sell the JV to Carlsburg for thirty three pence
29:21
Speaker 5: per share. So that transaction is basically at the current
29:25
Speaker 5: share price of the business. The portfolio pubs has some
29:27
Speaker 5: debt against it, and so even if you were to
29:29
Speaker 5: take that portfolio of pubs, so we're going to write
29:30
Speaker 5: the value down to zero, we're going to hand them
29:32
Speaker 5: all back to the banks. That those thirteen hundred pubs
29:35
Speaker 5: you can still you know, get your money back purely
29:38
Speaker 5: through the sale of this brewery business. So we see
29:42
Speaker 5: a lot of a lot of value in Marston's and
29:45
Speaker 5: a couple of hundred percent upside.
29:47
Speaker 2: And how long you say that your your holding period
29:50
Speaker 2: is twelvemonths right roughly on average?
29:52
Speaker 3: Yeah, I mean there's a blu range around that.
29:55
Speaker 2: How long are you prepared to wait for a company
29:58
Speaker 2: to come to fair value? If you're sitting there and
30:01
Speaker 2: nothing happens with Marsden's for two years, three years, four years,
30:04
Speaker 2: when when do you call it a day?
30:05
Speaker 1: Was such just more portfolio?
30:08
Speaker 5: If the thesis doesn't change, then we are prepared to
30:12
Speaker 5: be patient. Situations where we will recognize we've made a
30:16
Speaker 5: mistake and sell out would be if over time we
30:19
Speaker 5: see that assessment of fair value coming down and there's
30:25
Speaker 5: a kind of death by a thousand cuts every time
30:28
Speaker 5: there's an update, you kind of knock down your fair
30:31
Speaker 5: value by ten percent, and you know, after you've had
30:34
Speaker 5: you know, four or five updates, suddenly you know, perhaps
30:37
Speaker 5: the share price and the fair value moving closer together,
30:40
Speaker 5: but for for all the wrong all the wrong reasons.
30:42
Speaker 5: But if nothing changes and our fair value remains or
30:46
Speaker 5: a bust or even goes up, but the share price
30:49
Speaker 5: doesn't move, then usually we're happy to hold on to it.
30:52
Speaker 5: But it does give us pause for you know, reflection.
30:55
Speaker 5: What is it that you know? Could it be that
30:57
Speaker 5: we've that we've missed something here and.
30:59
Speaker 2: Your last facts Muslins with your top Mustins, with your
31:02
Speaker 2: second holding, what kin Jones was your top holding?
31:04
Speaker 1: Is it still?
31:05
Speaker 3: Yes, that's right.
31:06
Speaker 5: I know you've got a strong view on the student
31:09
Speaker 5: student combinations sector, which is what kin Jones is historically
31:16
Speaker 5: has been has been their their core market.
31:19
Speaker 1: Okay, tell me where I'm wrong.
31:20
Speaker 5: Then, sokay, So what King Jones has got there effectively
31:26
Speaker 5: a house builder crossed with a contractor. So their business
31:30
Speaker 5: model is to go out and get sites, typically in
31:35
Speaker 5: in city centers, and then to find a partner a
31:42
Speaker 5: investment for an institutional investor to provide the capital to
31:45
Speaker 5: build out that site. And so they'll they'll kind of
31:49
Speaker 5: take take their margin on sourcing the land, they'll take
31:54
Speaker 5: their margin on the construction phase, and then they'll also
31:57
Speaker 5: provide the ongoing maintenance, facilities management kind of service that
32:04
Speaker 5: for that property going forward if required. And historically they've
32:08
Speaker 5: done very well during this kind of boom in purpose
32:11
Speaker 5: built student accommodation, and they've also got i mean, their
32:19
Speaker 5: purpose built studentccommodation business has been kind of stable to
32:23
Speaker 5: like in a a kind of gradual decline over the
32:25
Speaker 5: last seven eight years or so, what's been very fast
32:30
Speaker 5: growing has been their built to rent business. And essentially
32:33
Speaker 5: these are very similar to the same skill set, is
32:36
Speaker 5: often the same sites. It just depends on who the
32:39
Speaker 5: institutional investor is, who's who's kind of backing the project.
32:43
Speaker 5: Wakin Jones got hit particularly by the building safety regulations,
32:49
Speaker 5: so they kind of post Grenville building at a height
32:51
Speaker 5: kind of cladding issues because obviously they're building a lot
32:54
Speaker 5: of a lot of tall buildings in cities, and so
32:58
Speaker 5: that's had a signific can impact on the on the valuation,
33:02
Speaker 5: on sentiment around the stock. But that's something that you know,
33:06
Speaker 5: they've got cash to cover the provision. The provision seems
33:11
Speaker 5: to be fairly well figured out, and their remediation is
33:17
Speaker 5: kind of proceeding in line with plan according to provisions
33:21
Speaker 5: that they've made.
33:22
Speaker 2: And they wouldn't be they wouldn't be dependent on them
33:24
Speaker 2: when going back to student housing, They wouldn't be dependent
33:26
Speaker 2: on this market.
33:26
Speaker 1: It sounds like that.
33:27
Speaker 5: Model works, Yeah, that's right, Like not like the kind
33:30
Speaker 5: of unite or or worker might be who are absolutely
33:33
Speaker 5: locked into that market.
33:34
Speaker 3: Now.
33:34
Speaker 5: I mean, these guys are absolutely kind of ambivalent about
33:38
Speaker 5: about who the who the person is who's moving into
33:41
Speaker 5: that accommodation. But it's just if you want to build
33:44
Speaker 5: lots of low cost flats in city centers, and then
33:50
Speaker 5: these guys are are they kind of go to And
33:54
Speaker 5: so I think you know that obviously, you know, we've
33:56
Speaker 5: spoken about politics, and you know how much may or
33:59
Speaker 5: may not change, But there's certainly a lot of appetite
34:02
Speaker 5: energy around hitting these you know, these housebuilding targets again.
34:06
Speaker 5: And and I think that you know that that's got
34:09
Speaker 5: to be an opportunity for what Kin Jones and and
34:12
Speaker 5: a lot of the housebuilders started to recover around Q
34:15
Speaker 5: four last year. You've seen a lot of them up
34:19
Speaker 5: what fifty sixty percent from their lows, and what can
34:22
Speaker 5: Jones really hasn't done. It hasn't done a great deal
34:24
Speaker 5: over that time period.
34:25
Speaker 2: You would have thought, Adam that the new government, in
34:27
Speaker 2: all the talk about house building under this government and
34:30
Speaker 2: changes to planning, except it would have been exactly the
34:32
Speaker 2: kind of thing that would have been your your catalytic
34:35
Speaker 2: shift for.
34:35
Speaker 1: What can Jones.
34:37
Speaker 3: Yeah, I think I think you're right, Marret.
34:39
Speaker 5: And actually, since you know, since the morning of when
34:43
Speaker 5: we all woke up with the new government things. What
34:46
Speaker 5: can Jones' share price has started to move, so I
34:49
Speaker 5: think you know that that could be something that's bringing
34:51
Speaker 5: more attention to the story.
34:53
Speaker 1: Okay, we don't we don't spend we've spent too much
34:55
Speaker 1: time on in with your stocks.
34:56
Speaker 2: But just tell me, is there anything new in their
34:58
Speaker 2: portfolio that you're particularly didn't in anything you come in recently?
35:02
Speaker 5: Well, those are those are two of our recent holdings.
35:05
Speaker 5: I mean, there's there's plenty of stuff on my on
35:07
Speaker 5: my desk. Some of your listeners might be familiar with
35:12
Speaker 5: you GOV.
35:14
Speaker 1: So they've everywhere everyone's familiar with you GOV.
35:17
Speaker 3: Couple of weeks.
35:18
Speaker 5: Yes, so they've had yeah, obviously had had a kind
35:20
Speaker 5: of whopper profit warning.
35:23
Speaker 3: And so that's you know, that's precisely the.
35:25
Speaker 5: Type of thing that falls into our into our screen,
35:28
Speaker 5: comes into our bucket. And so the work that you
35:31
Speaker 5: know that that we then do is to work out
35:34
Speaker 5: despite the share price declines, is it uh?
35:39
Speaker 3: Is it cheap?
35:40
Speaker 5: Because you can have companies that fall eighty percent and
35:42
Speaker 5: are actually not that cheap, and in the case of
35:45
Speaker 5: you GOV, actually it's probably it's probably not that cheap
35:49
Speaker 5: yet despite the declines, and then we you know, we
35:51
Speaker 5: have to also have a thing about the risk factors.
35:53
Speaker 5: So you Gov's got quite a lot of debt on
35:56
Speaker 5: the balance sheet. Bart's having said that they've been fantastically
35:59
Speaker 5: cash genitive historically, so that's you know, probably not an issue.
36:05
Speaker 5: They've still got their kind of quality growth investor base
36:10
Speaker 5: on the shelter register, and that's something that we look
36:12
Speaker 5: at because often the best situations for us aware the
36:16
Speaker 5: quality growth people are having to sell out because it
36:19
Speaker 5: no longer fits their profile, fits their mandate, and the
36:24
Speaker 5: value investors are just starting to get interested. In those situations,
36:27
Speaker 5: you've got a lot more sellers than buyers, and so
36:30
Speaker 5: you know, for us, that's the kind of classic capitulation
36:33
Speaker 5: event that we look for in terms of buying opportunities,
36:36
Speaker 5: where the outgoing investor might might say, well, look, you know,
36:39
Speaker 5: we recognize there is value here, but for you know,
36:43
Speaker 5: for emotional reasons or for reasons of our mandate or
36:45
Speaker 5: whatever it might be, we just have to get out
36:47
Speaker 5: of this at any price. And you have kind of
36:49
Speaker 5: you know, indiscriminate selling at those lows.
36:52
Speaker 2: And adam on a one macro level, so we were
36:55
Speaker 2: expecting interest rate cuts soon that as you we get
36:57
Speaker 2: across the board for small caps, right particularly, Yeah, yeah,
37:01
Speaker 2: so that's good. Is there anything that you look at
37:03
Speaker 2: and you think, well, Okay, the environment looks good, interest
37:06
Speaker 2: rates will for better stability in the UK, some signs
37:10
Speaker 2: from international investors that they might shift into UK small caps.
37:13
Speaker 1: This all looks great.
37:15
Speaker 2: Is there anything in your mind that you think could
37:17
Speaker 2: just derail that rather attractive story.
37:21
Speaker 5: I think that you know that the big the big
37:24
Speaker 5: car crashes are always the ones that you're not expecting.
37:26
Speaker 5: So you know, look at COVID or whatever it might be,
37:29
Speaker 5: and small caps they will always do better in an environment.
37:33
Speaker 5: Whether is that optimism whereas there is that economic growth.
37:38
Speaker 5: So if there was you know, something out of left
37:41
Speaker 5: field that came along and and you know, broke up
37:44
Speaker 5: that party, then then I think that we would see
37:46
Speaker 5: small caps underform large caps, and we would see probably
37:50
Speaker 5: some underperformance of value because value stocks are often seen
37:53
Speaker 5: as low quality. Then grows stocks, and you know, in
37:56
Speaker 5: tough environments, it's it's larger caps, and it's the it's
38:00
Speaker 5: the kind of grow more growthy stuff that that that performs,
38:03
Speaker 5: and the and the value stuff and the smaller stuff
38:05
Speaker 5: that's seen as riskier underperforms, and you.
38:08
Speaker 2: Very obviously avoid anything in any of the overpriced tech sectors.
38:12
Speaker 2: So I think AI in there, if there were, for example,
38:16
Speaker 2: the a lack of balance in the US market, which
38:20
Speaker 2: is already it's something of him extremely gets even more extreme,
38:22
Speaker 2: you end up with a proper AI bubble, or that
38:25
Speaker 2: you could argue it's definitely an AI bubble already, and
38:28
Speaker 2: then you end up with a crash in that sector
38:31
Speaker 2: that would spread out across the board, wouldn't it.
38:34
Speaker 5: Yeah, I think there would be ripple ripple effects, yeah.
38:38
Speaker 2: Which would leave you a wonderful opportunity to pick up
38:40
Speaker 2: some value in tech areas where you wouldn't have gone
38:43
Speaker 2: over the last few years.
38:45
Speaker 3: Yeah. Absolutely.
38:46
Speaker 5: I mean, we're pretty agnostic about the sector that we
38:50
Speaker 5: that we invest in as long as we can, as
38:52
Speaker 5: long as we can understand it. And there are you know,
38:55
Speaker 5: there's a company called Alpha Wave, for example, which has
38:58
Speaker 5: come across our screen that serves that semiconductor market which
39:04
Speaker 5: is kind of arguably been kind of sliding into into
39:08
Speaker 5: value territory for kind of specific reasons. But yeah, we're yeah,
39:13
Speaker 5: we're if we can, if we can get our heads
39:14
Speaker 5: around the around the business model and and and the tech.
39:18
Speaker 5: Then we're pretty agnostic about sector.
39:20
Speaker 2: Okay, so you're not You're not not in any particular
39:24
Speaker 2: sector because well, you say there's things you don't understand,
39:27
Speaker 2: and you know, a good value investor always says, I
39:30
Speaker 2: never invest in what I don't understand.
39:33
Speaker 1: So there must be areas where you yea, as I
39:36
Speaker 1: couldn't go on that.
39:37
Speaker 5: Yeah, yeah, yeah, So I mean, I guess there are
39:40
Speaker 5: some more specialist things, like you know, kind of some
39:44
Speaker 5: some biotech type stocks. Perhaps we for us, you know,
39:48
Speaker 5: reats were an area that we decided a few years
39:50
Speaker 5: ago we wanted to do a bit more work on,
39:52
Speaker 5: So my colleague and I went off and spent a
39:54
Speaker 5: bit of time on various kind of training courses and
39:58
Speaker 5: talking to real estate invest so we could be comfortable
40:01
Speaker 5: that we had a way of kind of looking at
40:03
Speaker 5: reats and analyzing those business models. So that for us
40:06
Speaker 5: was a sector that we brought within our area of competence.
40:11
Speaker 5: So yeah, it's it's it's it's a question of working
40:14
Speaker 5: out whether the opportunity's big enough to make it worth
40:18
Speaker 5: going out.
40:19
Speaker 1: Understanding it skilling up.
40:20
Speaker 2: Yeah, Okay, what about Adam, what about cryptocurrencies? Because you
40:24
Speaker 2: know at the end of this podcast, I always ask
40:26
Speaker 2: if someone over a ten year period would hold gold
40:29
Speaker 2: or cryptocurrencies, and mostly people are ready for this one,
40:32
Speaker 2: and it just to warn you, we do now have
40:35
Speaker 2: a couple of very enthusiastic bitcoin people who follow us
40:38
Speaker 2: on Twitter and spend a lot of time explaining to
40:41
Speaker 2: me how stupid I am and how stupid all my
40:43
Speaker 2: guests are because they don't understand. If only we would
40:45
Speaker 2: educate ourselves or read this or read that, or read
40:47
Speaker 2: this or read this, then we would understand the amazing
40:50
Speaker 2: opportunity there. And of course it's don't I always say
40:52
Speaker 2: it's not. You know, we're not ideologically against cryptocurrencies or
40:56
Speaker 2: ideologically against bitcoin, and we've both owned bitcoin over over
41:00
Speaker 2: the general cycles, et cetera. Well, of course I keep
41:03
Speaker 2: losing my code, so I don't really count. Anyway, We're
41:05
Speaker 2: getting a lot of criticism for not understanding bitcoin. Probably,
41:08
Speaker 2: So here's the question to you, what would it be
41:10
Speaker 2: a Rotenia period? Would it be a bitcoin or would
41:13
Speaker 2: it be gold? You can't have anything else. You can't
41:15
Speaker 2: have any of your small caps. You're not allowed to
41:16
Speaker 2: take any of this value.
41:17
Speaker 1: In with you. You're only allowed one of these.
41:21
Speaker 3: I would have Gold.
41:25
Speaker 1: Doing this on purpose just to make me a hate target.
41:29
Speaker 3: Sorry, sorry, Marion.
41:31
Speaker 5: I totally get the argument for bitcoin, and you know,
41:34
Speaker 5: I think it's a kind of political kind of stance,
41:38
Speaker 5: isn't it about manipulation and money supply, about trust of governments,
41:44
Speaker 5: And you know, I think you know, bitcoin is because
41:46
Speaker 5: of the limited supply. Is you know, if you're going
41:50
Speaker 5: to buy a cryptocurrency needs to be one with limited
41:52
Speaker 5: supply basically, So you know, Bitcoin stacks up on that basis.
41:58
Speaker 5: And I also buy the argument that know that because
42:00
Speaker 5: of the because that limited supply, maybe you should just
42:03
Speaker 5: put a fraction of your net worth and the bitcoin
42:05
Speaker 5: because it could go exponential and you know in the
42:09
Speaker 5: hedge and all the rest of it. So I do
42:11
Speaker 5: get the kind of bitcoin argument. But I guess if
42:13
Speaker 5: you go to a kind of extreme, you know, end
42:17
Speaker 5: of civilization kind of point, which is kind of you know,
42:20
Speaker 5: where you get to if you if you believe that
42:23
Speaker 5: all currency is, you know, fear currency is really worthless,
42:27
Speaker 5: then I you know, I think I would rather have
42:29
Speaker 5: something that I didn't need to be able to log
42:30
Speaker 5: into the internet, you know, to to to access It's.
42:34
Speaker 2: Interesting that's where that is where I always end up
42:36
Speaker 2: when when I when I get into it. If these
42:40
Speaker 2: are if gold and bitcoin are both effectively designed for
42:43
Speaker 2: the same thing, designed to compensate you for the fact
42:46
Speaker 2: that fear currencies are of no use to anybody over
42:50
Speaker 2: the long term, then you probably want the one that
42:53
Speaker 2: doesn't require an infrastructure around it to work.
42:57
Speaker 3: I think so if you go bars in the basement, that's.
43:00
Speaker 1: The way to he you've got gold bars in your FACETK.
43:02
Speaker 1: I'm not going to tell anyone. I'm not going to
43:04
Speaker 1: tell anyone where you live. Adam, thank you so much
43:06
Speaker 1: for joining us today.
43:07
Speaker 3: Thanks Maren, really fun.
43:11
Speaker 2: This episode was hosted by me Maren Suset Whatever was
43:14
Speaker 2: produced by some ASIDI production support and sound designed by
43:17
Speaker 2: Moses and special thanks of course to Adam Raightley and
43:20
Speaker 2: as ever to John. One more thing I want to
43:22
Speaker 2: say to you This week from September, John and I
43:24
Speaker 2: are going to go a little bit more personal finance.
43:26
Speaker 2: We are going to once a week take one personal
43:28
Speaker 2: finance topic which we hope will be suggested to us
43:31
Speaker 2: by a listener and discusses for ten fifteen minutes, give
43:34
Speaker 2: our give our ideas on what you should do, or
43:36
Speaker 2: what you might want to think about a subject, be
43:38
Speaker 2: that taxes, mortgages, savings, SIPs, ices, anything personal finance related.
43:44
Speaker 1: Write in let us know what you want to hear
43:46
Speaker 1: about