Latest / Merryn Talks Money / There’s a Stock Picker’s Paradise Waiting for You

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There’s a Stock Picker’s Paradise Waiting for You · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to Meron Talks Money,
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Speaker 1: the podcast in which people who know the markets explain
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Speaker 1: the markets. I'm Meren sumsat Web. This week I'm speaking
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Speaker 1: with Alex Wood, chief investment officer of Kerno Asset Management.
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Speaker 1: Kerno describes itself as a contrarian investment manager, specializing exclusively
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Speaker 1: in UK equities, currently about one hundred million pounds in
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Speaker 1: assets under management. Before co founding Kerno in twenty seventeen,
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Speaker 1: Alex worked as a fund manager at Downing, a vice
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Speaker 1: president at Deutsche Bank, and a management consultant at KPMG.
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Speaker 1: Welcome Alex to Merin Talks Money.
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Speaker 2: It's a pleasure, Miron. Thank you very much for your time.
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Speaker 2: It's a bit surreal, little bit of a career highlight
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Speaker 2: for me because I've listened to your show and I'm
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Speaker 2: on it so and I just found out you're half
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Speaker 2: your cornished as well, So this is this is perfect.
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Speaker 1: I mean, this is a career highlight for me as well,
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Speaker 1: and that so far we have never yet had a
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Speaker 1: cornish person on who is a value orientated contrarian who
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Speaker 1: specializes in the UK. It looks like hitting every single
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Speaker 1: button for this podcast. So we're more excited than you are.
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Speaker 2: Gott to tell you hopefully certain quality. But yes, I agree.
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Speaker 1: Okay, so listen. Tell me about why you started this fund.
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Speaker 1: What's the key behind it?
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Speaker 2: Oh, it's been my lifelong dream since I've been investing
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Speaker 2: since fifteen. I enjoy it. I love it. The opportunity
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Speaker 2: set is amazing in the UK. The number of decent
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Speaker 2: jobs and places you can practice this craft has been
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Speaker 2: declining because of the growth of index hugging and businesses
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Speaker 2: merging and forgetting how to make money. So the opportunity
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Speaker 2: aligned got big enough and ivy enough to go for it,
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Speaker 2: and so I did.
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Speaker 1: Let's go back to the beginning of what you said
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Speaker 1: that there aren't very many markets left where you can
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Speaker 1: be properly active because the rise of passive are slightly
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Speaker 1: destroyed the ability to do that. Can you talk a
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Speaker 1: little bit more around that.
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Speaker 2: It's more the index hugging. You know, it's a disease.
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Speaker 2: You know, ten years ago there were four hundred U
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Speaker 2: came up exaggerating ums a little bit, but the four
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Speaker 2: hundred UK managers that were doing plus and minus ten percent.
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Speaker 2: Now you've got forty guys probably doing decent job and
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Speaker 2: everyone else's plus and minus two on the index, and
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Speaker 2: that index hugging that lack of conviction makes it very
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Speaker 2: hard to find a job because if you go join
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Speaker 2: a big house or a medium house, you're tracked against that,
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Speaker 2: and if you go too far away, you get fired.
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Speaker 2: So you know, it's better to fail conventionally rather than
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Speaker 2: win unconventionally, and you have to follow someone else's philosophy
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Speaker 2: to have your own philosophy and come out of an
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Speaker 2: investment bank in your twenties that doesn't exist anymore to join.
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Speaker 2: I'm not going to use names, but some of the
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Speaker 2: great training programs that still exists, they just don't give
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Speaker 2: you that career exposure anymore. There are places the multi
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Speaker 2: straps are doing a pretty good job of the young
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Speaker 2: people today, but the dearth of talent and opportunity is
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Speaker 2: kind of frightening. The flip side of that, it creates
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Speaker 2: huge opportunity and trend following now is massive. The wisdom
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Speaker 2: of crowd don't exist of ais to the same extent,
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Speaker 2: so fundamentals and reality are getting a long way from
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Speaker 2: each other. And there's a lot of crazy, interesting things,
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Speaker 2: fascinating things going on today. And I'm chomping at the
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Speaker 2: bitch on to capsule this and share it with people.
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Speaker 1: Okay, that's very interesting. So what you're saying is something
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Speaker 1: we have heard quite a lot on the part of
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Speaker 1: the last few years, which is that the closet tracker
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Speaker 1: never disappeared. There was a period when we all read
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Speaker 1: a lot about closet trackers and we were infuriated by
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Speaker 1: what they charged, et cetera, etc. And then there was
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Speaker 1: a view that gradually that would disappear. But from what
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Speaker 1: you're saying, the most of the funds left in the
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Speaker 1: UK that call themselves active funds are really closet trackers,
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Speaker 1: and that's maybe one of the reasons why active has
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Speaker 1: such a difficult time in theory. But the other thing
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Speaker 1: that we have looked at recently is the performance of
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Speaker 1: genuinely active funds. So if you look at funds with
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Speaker 1: a very high active share, you tend to find a
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Speaker 1: much more and much higher likelihood that they will.
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Speaker 2: Outperform exactly, I would just caveat that. It's the larger
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Speaker 2: funds have got larger as opposed to there aren't good
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Speaker 2: There's still plenty of active, good high quality managers out there.
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Speaker 2: It's just that the marketing machine has sucked it all
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Speaker 2: up into the say, the twenty largest, and that proportion
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Speaker 2: of assets has then flown in. And then you also
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Speaker 2: have fun flows from interlashal investors pulling from small caps
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Speaker 2: and all the rest of it. So you have this
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Speaker 2: quite interesting distortion and Carlstone flows out of acting markets
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Speaker 2: and all this.
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Speaker 1: Yes, but we still need to say it.
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Speaker 2: It just creates pockets of opportunity. And you know how
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Speaker 2: many people really do all the fundamental work and take
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Speaker 2: a different view out of consensus. You're just not going
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Speaker 2: to get paid for it. And I love it, so,
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Speaker 2: you know, looking silly and being ridiculed making money doesn't
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Speaker 2: go out of fashion. So that's what I'm going to
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Speaker 2: stick to.
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Speaker 1: Okay, And how's performance been.
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Speaker 2: It's been good, it's been pleasing. I would have liked
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Speaker 2: to have made more, but we've we've beaten the pack
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Speaker 2: by a decent margin. That means we're starting to be
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Speaker 2: taken seriously. Now we've got to do another five years
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Speaker 2: of that before we have we earn any sort of reputation.
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Speaker 2: So yeah, I can ask for more, given how important
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Speaker 2: it is to beat the competitors. But this buck sustaining
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Speaker 2: that and have been maintaining that edge is the important thing.
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Speaker 1: Okay, so you found that you're in a position where
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Speaker 1: you could start your own fund. Fantastic, and of all
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Speaker 1: the markets in the world, you chose possibly the most
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Speaker 1: unpopular one there is and still is. I would likely
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Speaker 1: I keep looking at the numbers and thinking this will
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Speaker 1: come back. People are going to become interested in this again,
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Speaker 1: It's going to happen. But even the most recent numbers,
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Speaker 1: the calistone numbers that you're talking about, So where money
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Speaker 1: is flowing to. We've seen one of the biggest movements
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Speaker 1: out of UK stocks in record in January and hopefully
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Speaker 1: that will have turned around a little in February March.
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Speaker 1: But it hasn't become any more popular in the last
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Speaker 1: five years. But this is the market that you chose.
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Speaker 2: Yes, the causality is probably the other way. I used
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Speaker 2: to invest in everything since I was fifteen. Then I
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Speaker 2: specialize in twenty twelve and UK only because I get
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Speaker 2: the culture of a very fortunate accounting background. I can
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Speaker 2: get in front of anyone in terms of network, So
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Speaker 2: it's an area where you can really build an area
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Speaker 2: of specialism, and part of my philosophy is I spend
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Speaker 2: as much time analyzing shit sareholders as I do companies.
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Speaker 2: So my specialism is I understand the flows and a
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Speaker 2: makeup of a shareholder base very very well. And I'm
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Speaker 2: buying off to stress sellers and selling to greedy buyers,
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Speaker 2: and I almost don't need to know about the company
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Speaker 2: to make money. I do because it's a safety thing
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Speaker 2: and that's actually the core of what I find interesting
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Speaker 2: and so it's a product of history why I specialize
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Speaker 2: in the UK and just quickly touched on the UK.
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Speaker 2: You know, there's more ten bagglers in the UK than
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Speaker 2: there's a percentage market cap than in the US. The
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Speaker 2: distribution of curve, the flatness of the curve means you've
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Speaker 2: got a lot of high quality, amazingly rated, great businesses,
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Speaker 2: you know, experience games works, and then you've got a
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Speaker 2: lot of dogs to make that work. The net result
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Speaker 2: is you have a pedestrian, frankly boring market that does
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Speaker 2: four to six percent, but the tails, you know, it's fantastic.
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Speaker 2: It's a stock picker's paradise. Which is the weird dichotomy
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Speaker 2: of this situation that when the discounters and closes, you
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Speaker 2: are articulated earlier.
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Speaker 1: I know that you are both long and short and
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Speaker 1: will come to short later. But what kind of companies
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Speaker 1: are looking for you? Mainly large caps, small medium cap
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Speaker 1: I'm guessing down the bottom end of the market cap spectrum.
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Speaker 2: We go where the value is, where the biggest opportunity is.
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Speaker 2: So we have large caps, we have medium and small
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Speaker 2: today with a bias and medium because of the high
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Speaker 2: quality business of dominant positions. I imaginedent teams sent out
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Speaker 2: in a big chunk, and still sometimes we found ERUs.
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Speaker 2: You've been doing a lot recently on investment trusts. We've
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Speaker 2: got two investment trust trades on that disappear now. So
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Speaker 2: we just move where the biggest gap is. Small cap
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Speaker 2: is currently still I think primed to you talk about turning.
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Speaker 2: Small cap does turn. That's the best returning asset class
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Speaker 2: in the world. If it doesn't, then we won't do
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Speaker 2: a big proportion of it. There's some great large cap businesses,
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Speaker 2: you know, global businesses on the UK discount. We'll do
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Speaker 2: them as well, so you know, we paid less for
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Speaker 2: something and then we trade the catalyst and we'll move
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Speaker 2: wherever the value is. That's why we call the fund
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Speaker 2: the navigator and Okay.
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Speaker 1: So many questions I want to didn't we start Let's
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Speaker 1: go back to the first thing you said about it
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Speaker 1: recently getting into doing vestment trust and you're right, listener,
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Speaker 1: the very interested investment trust, and so we what what
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Speaker 1: are the two that you've brought into.
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Speaker 2: One the other one is Amadeo, which is an airline
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Speaker 2: craft fleecing company. So this nearly went bust and COVID
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Speaker 2: just for reasons. You can imagine the two clients. One
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Speaker 2: was very safe and the other one was actually in bankruptcy,
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Speaker 2: but then that got bailed out, so then the covenants
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Speaker 2: became good. We got interested in the asset class because
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Speaker 2: you're trading at a eighty sixty percent discount and the
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Speaker 2: cash flows are good. The catalyst there was the board
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Speaker 2: and governments and the other shareholders Metage and Elliott are
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Speaker 2: incredibly smart investors. And that discount has closed and you've
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Speaker 2: we were collecting a twenty two percent dividend, it's now
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Speaker 2: down to thirteen and they've been doing terrific buybacks. So
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Speaker 2: it's a pretty great assets story, good managed governance, change
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Speaker 2: and a wind down of the business over eight years
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Speaker 2: that will hopefully double our money okay.
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Speaker 1: That was an example of looking at the other shareholders
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Speaker 1: the business to find the catalyst for the value to
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Speaker 1: be released. Yes, yeah, okay. And then the next thing
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Speaker 1: you said was about large caps and the global UK discount,
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Speaker 1: and it's interesting, you know, the idea that the UK
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Speaker 1: has a discount is not generally accepted. Everyone refers to it.
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Speaker 1: What do you think that discount comes from.
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Speaker 2: It's a natural oscillation of markets, of perception of reality.
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Speaker 2: That's how prices work and story. So the UK out
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Speaker 2: of two thousand and eight twos and I actually came
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Speaker 2: up pretty good relatively speaking. And from twenty eleven to
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Speaker 2: twenty fourteen the UK he was doing incredibly well. You
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Speaker 2: have to ignore my Eco because it's been absolutely fantastic
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Speaker 2: in India and China. Those are the outlies if you
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Speaker 2: were Jim Rodgers picking Macro. But the the Brexit haze,
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Speaker 2: as I should to be kindly called it, essentially was
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Speaker 2: a middle finger to the rest of the world, and
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Speaker 2: that perception caused money to essentially start flighting. And then
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Speaker 2: you had a Woodford scandal which would have hurt people
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Speaker 2: having a go cavid and so it's just a general
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Speaker 2: you know, the natural buyers of UK equities has been
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Speaker 2: declining and pension funds don't buy it. So the retail
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Speaker 2: market in the UK's are lower than in terms of
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Speaker 2: active buying as a percentage is lower than other countries.
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Speaker 2: So you have to ask if the liquidities are not there,
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Speaker 2: and then the companies have perception of lack of liquidity
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Speaker 2: and then they don't ipo. It then starts self fulfilling.
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Speaker 2: So we're in this self fulfilling, self harmed situation. At
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Speaker 2: the moment, the companies are amazing. Some of the companies
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Speaker 2: are still amazing, and it just means you have a
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Speaker 2: better opportunity to get and it will turn because things
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Speaker 2: always change. We just don't know when.
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Speaker 1: Aw where you still when?
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Speaker 2: Yeah?
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Speaker 1: What are you holding?
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Speaker 2: In the large caps, we've got hiscocks phrases these probably
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Speaker 2: more than the mid cap ones. We recently come out
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Speaker 2: of a viva. We've got Burbery, Okay, took us through that.
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Speaker 2: Burbery went from an embarrassing stock last year to hold
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Speaker 2: to having a change of management. And that's interesting. So
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Speaker 2: then you look at the luxury market and well, actually
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Speaker 2: that's growing and globalization is going to get bigger. It
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Speaker 2: doesn't feel like it but there's more people and wealth's
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Speaker 2: going up, and there's more millionaires every day than there's
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Speaker 2: the day before. Status and security. They don't sell clothes,
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Speaker 2: they're selling status and that only goes up with globalization.
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Speaker 2: So the setup is great. The best luxury goods ban's
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Speaker 2: obviously in Europe, but I don't trade that, so Birbury
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Speaker 2: happens to be the highest luxury factor company in the
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Speaker 2: UK for two one hundred. I can't buy Mold because
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Speaker 2: it's too small than there's a shareholder problem. So the
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Speaker 2: setups are very very interesting. New management team, great tailwind asset.
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Speaker 2: Then you're saying, well, they need to make money, and
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Speaker 2: what's the normal basis for their cash flow, what does
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Speaker 2: the business valuation look like, and all the fundamentals and
11:48
Speaker 2: all of that, and you get to about a ten
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Speaker 2: or twelve billion valuation and the market cap I think
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Speaker 2: was two and a half or three, which is quite
11:55
Speaker 2: a big gap. So then you need the setup to
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Speaker 2: realizing that value, which is essentially what we're trading. It's
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Speaker 2: the time value of money because this could take five
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Speaker 2: or eight years to do two three hundred percent and
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Speaker 2: the stretching might be wrong, and you have to recycle
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Speaker 2: it once or twice. I've been watching Birbray for fifteen
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Speaker 2: years and this is the only time I've ever been
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Speaker 2: able to buy it, that trench coat in that brand.
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Speaker 2: It's been arounded a long time. And if you can
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Speaker 2: make me for thirty quid a scarf and select for
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Speaker 2: one thousand pounds, that's a very high quality business.
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Speaker 1: Yeah, we do all like to do that. So this
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Speaker 1: is the way you look at it on your website.
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Speaker 1: When you look at your process, it's value, the equity
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Speaker 1: acquired at the acquired a discount, which is something that
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Speaker 1: you know everybody wants to do. But then the difficult
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Speaker 1: bit is finding the catalyst. So what was the catalyst here?
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Speaker 1: The change of management or a change in the shareholder structure.
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Speaker 2: So when I get in, I want to know who
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Speaker 2: I'm going to sell it to. Birbury's my new games workshop.
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Speaker 2: So when it's toasted the town and it's winning awards
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Speaker 2: and all, and they're paying back the normal progressive dipogrant,
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Speaker 2: we will exit because then the normal buyers are back in.
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Speaker 2: If you think about the register, you want to have
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Speaker 2: a proportion of blackwork x X and if the register
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Speaker 2: is close to what the normal register should look like
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Speaker 2: it can't move very much. If the register is a
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Speaker 2: long way and they deliver, then you the share price
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Speaker 2: can move along towards it. It's a pretty much turnaround,
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Speaker 2: classic turnaround story. And so you then come out at
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Speaker 2: the back of that. You need two or three good
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Speaker 2: years of numbers going up, and then the greed comes
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Speaker 2: back in, and then you exit and you get the
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Speaker 2: multiple expansion and the growth.
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Speaker 1: In earnings, and you're happy to come out a little
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Speaker 1: before the top. Leave it for everyone else.
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Speaker 2: I would love to be able to time tops and
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Speaker 2: bottoms perfectly. I've never figured a way to do that
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Speaker 2: without activism.
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Speaker 1: Without activism, so that I mean, it's interesting because you're
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Speaker 1: that's not something that you're going to be able to do.
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Speaker 1: So when you join, when you join the shareholder register
13:47
Speaker 1: of a company, you may be joining one where mcdike
13:51
Speaker 1: take their investment Cruss. We've just been talking about where
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Speaker 1: you might have Elliot, etcetera. On the share register, but
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Speaker 1: they're the activists. You might come in behind them, but
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Speaker 1: not necessarily of a science to be activist, you're I.
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Speaker 2: Think people prefer the quality of argument as opposed to
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Speaker 2: strong arguing as long as you get past one or
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Speaker 2: three percent, if there's an activist involved and it's important.
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Speaker 2: In Burby's case, it's not that important. I'll give you
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Speaker 2: a live examples. I'm looking at BP now, I'm not
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Speaker 2: trading it. I don't think it's good enough. But you've
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Speaker 2: got an activist in there. The CEO will get fired
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Speaker 2: and maybe the Roles Royce CEO will come along and
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Speaker 2: take over the BP roll. He's literally at the top.
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Speaker 2: Can't go any bed at rolls Royce. He must not
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Speaker 2: take over a BP, which is actually what he wants
14:26
Speaker 2: to do. That becomes very interesting because BP can be
14:29
Speaker 2: tidied up and double in value without too much effort
14:32
Speaker 2: and shouldn't be ashamed of what it is. That setup
14:36
Speaker 2: is right there and looking that's the stuff that we
14:38
Speaker 2: look up and we just we wait for these things
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Speaker 2: to become real where they can hit enough trade ticks.
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Speaker 2: That wouldn't happen without the activist involving BP being strong
14:48
Speaker 2: enough to basically get the board to do that. And
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Speaker 2: I probably won't. It probably won't. Just I'm giving it
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Speaker 2: you know.
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Speaker 1: Won't happen. Yes, So that's that's an examp something that
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Speaker 1: you would look at and you recognize the value, recognize
15:03
Speaker 1: the discount, but aren't convinced that there will be a
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Speaker 1: catalyst in reasonable timescale.
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Speaker 2: Yeah, there's hundreds of these and you just watch them.
15:11
Speaker 2: For me, it's like gardening. So the shorting is the weeds,
15:13
Speaker 2: the oaks, things that make money, and then it's the
15:15
Speaker 2: change of weather and what's flowering and what's not, and
15:17
Speaker 2: just how do you spend your time on the day.
15:18
Speaker 2: It's about a time. You have to swing at everything
15:21
Speaker 2: you've put to use your time effectively. And you know,
15:22
Speaker 2: if I hold Burberry, there's no point me looking at
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Speaker 2: too many other retailers. I'll get more value go looking
15:27
Speaker 2: at some pharmaceutical businesses or something.
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Speaker 1: Yeah, so there aren't very many of you. I mean
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Speaker 1: you're the only investment managers like analyst at the company, right,
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Speaker 1: So how many how many storms can you look at?
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Speaker 2: I don't know if we'll no. My co founder was
15:41
Speaker 2: an ex head of extity research that an investment bank.
15:44
Speaker 2: We use four different outsourced research company. We use to
15:48
Speaker 2: referencing companies, we use a background check company. We have
15:51
Speaker 2: a quant outsourced product model. So it's a full offering.
15:55
Speaker 2: I don't our team and research depth. I hope is
16:00
Speaker 2: an inch wide and a mile deep.
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Speaker 1: Do you worry about the operating environment in the UK
16:07
Speaker 1: in general? Awful lot of smaller companies in particular are
16:10
Speaker 1: going to have increasing troubles operating in a high tax,
16:15
Speaker 1: at high cost of employment, high regulation economy, and that
16:20
Speaker 1: doesn't look like it's going to turn around at any
16:22
Speaker 1: time soon, which may limit the universe in which you
16:26
Speaker 1: can invest.
16:28
Speaker 2: Am I concerned? I guess I'm a personal level. It's
16:30
Speaker 2: a bit disheartening. But then I take you know, do
16:33
Speaker 2: you want to be Singapore and Dubai or do you
16:35
Speaker 2: want to be Switzerland and Norway? And both of those,
16:38
Speaker 2: you know, ones heavily regulated, high tax, and the others aren't.
16:42
Speaker 2: And there's what you want to do is find a
16:44
Speaker 2: place in society that works. So I think I was
16:46
Speaker 2: very proud of the UK when I worked in London
16:49
Speaker 2: because there was a globalization hotbed between great art and
16:51
Speaker 2: media and business and I'm so close largest city in Europe.
16:54
Speaker 2: It was like combining the East and West, the time
16:57
Speaker 2: zone in the immigration and accept It's felt really good
17:00
Speaker 2: to me. I really enjoyed that narrative as the UK,
17:04
Speaker 2: you know, grown up. It was a nice place to
17:05
Speaker 2: be where I've kind of become a bit upset. I
17:08
Speaker 2: don't want to move into politics. Is that's kind of
17:10
Speaker 2: less feels less now and we've sort of lost a
17:14
Speaker 2: bit of the golden goose. If I'm interpreting what you're saying,
17:18
Speaker 2: and you know, I go abroad a lot and I
17:20
Speaker 2: hear oh UK's instructural decline. It's not very nice. It's
17:24
Speaker 2: one on the numbers. But my life would be easier
17:27
Speaker 2: if more great companies listed Quantum, Cambridge Quantum and we
17:31
Speaker 2: lost armholdings to America and things. So I'd love to
17:34
Speaker 2: be part of the next revolution and the great companies
17:37
Speaker 2: of the future and be able to have that story
17:38
Speaker 2: over the next ten twenty years. Let's all find a way.
17:42
Speaker 2: And it's been talking about. This is all very marginal
17:45
Speaker 2: from an investment perspective. It makes no difference.
17:48
Speaker 1: Only must make a difference to profit to earnings. If
17:52
Speaker 1: employment costs go up and if taxes go.
17:54
Speaker 2: Up, oh yeah, But if it's priced in or if
17:56
Speaker 2: I'm shorting it, then I'll make money on that side.
17:57
Speaker 2: If the multiple goes from you might you all share
18:00
Speaker 2: multiple stays fifteen If the market multiple taxes go up
18:03
Speaker 2: to your point should actually be ten. Then I'll price
18:06
Speaker 2: everything off ten. So you know, if we have a
18:09
Speaker 2: dot com boom, then I can do fifty to one
18:11
Speaker 2: hundred percent a year. If we have an income driven
18:14
Speaker 2: five percent market, then I might be able to do
18:16
Speaker 2: fifteen percent per year. So the opportunity to deliver and
18:20
Speaker 2: the dispersion definitely changes, and I can control that. Would
18:23
Speaker 2: I like a crazy market, I think not every year.
18:27
Speaker 2: A stable one makes my job frankly easier. It means
18:30
Speaker 2: I can keep up and hopefully develop ahead of everybody.
18:34
Speaker 1: Let's talk about shorting, so presumably that's that works in
18:38
Speaker 1: exactly the opposite way. Find something that's overvalued and wait
18:42
Speaker 1: for a catalysts and then short.
18:44
Speaker 2: Yeah, preferably zero. So we do fads, failures, and frauds.
18:48
Speaker 2: The frauds are the sexy fun one. Our big win
18:50
Speaker 2: was Wan Disco. We discovered that billion pound forward. We've
18:54
Speaker 2: got a couple of others or seven others today that
18:56
Speaker 2: we've identified these criminal enterprises. I feel a bit like man.
19:00
Speaker 2: I like going after them. We don't do activism, we
19:03
Speaker 2: don't make them public apart from our investors, and we
19:06
Speaker 2: just take the money off the table and typically we
19:08
Speaker 2: wait for them to run out of money, to not
19:10
Speaker 2: be too clever with it.
19:10
Speaker 1: Hang on, does this mean that you are not going
19:12
Speaker 1: to tell me what your criminal enterprises are.
19:17
Speaker 2: I can tell you past case studies, but I will
19:19
Speaker 2: be shot by my CEO and compliance department. If you're
19:22
Speaker 2: an investor and you come in, I will tell you.
19:28
Speaker 1: Only where you can find out what's the minimum investment?
19:32
Speaker 1: Why do our listeners have to pay to hear the stuff?
19:35
Speaker 2: Fifty? We put out fifty rather than the traditional million pounds.
19:39
Speaker 2: We wanted to be big enough but not be completely
19:41
Speaker 2: impossible for people to pretty much invite only on the
19:44
Speaker 2: platforms that might pass. Some money's in it via a
19:46
Speaker 2: j bell and we can go direct and it's a
19:49
Speaker 2: non shore fund as opposed to offshore. We take many
19:53
Speaker 2: regulation boxes we were physically able to.
19:56
Speaker 1: We talked earlier about large caps and the long you
20:00
Speaker 1: held there, but our listeners are really interested in smaller companies.
20:04
Speaker 1: Have you bought any new small company positions recently? Small
20:07
Speaker 1: On mid.
20:09
Speaker 2: Last month we purchased Kistos. This is actually our smallest
20:13
Speaker 2: position on the crity wisely, it's only one hundred million
20:15
Speaker 2: market cap, which is on the CUSP of what I
20:17
Speaker 2: can physically buy, tell us about it. So Kistos is
20:20
Speaker 2: a well and gas company. What's interesting is I think
20:22
Speaker 2: they're worth three hundred and fifty million and the market
20:25
Speaker 2: was one hundred. So I did some work, happened to
20:27
Speaker 2: know the management team for a decent time. Very savvy
20:30
Speaker 2: op operators own twenty the business. They forty two bagged
20:35
Speaker 2: the previous similar art incarnation on the previous company called
20:38
Speaker 2: rock Rose. The old shareholders and here have ridden this
20:41
Speaker 2: share price down from six quid to a quid. The
20:43
Speaker 2: shareholder rotation told me that it was near the end
20:48
Speaker 2: the fundamentals of the business. It's going to double its
20:50
Speaker 2: production this year, its profits are going to not quite
20:53
Speaker 2: a double, but get to one hundred million free cash flow,
20:55
Speaker 2: which is the value of the market cap of the company,
20:58
Speaker 2: and then the cat lists are getting paid. Is the
21:01
Speaker 2: reserves they have for the worlds that they're plugging into
21:04
Speaker 2: will also they regrade them to basically how probable they're
21:09
Speaker 2: going to get them out, but they put them into
21:11
Speaker 2: the best bucket, which means they can double their cash
21:14
Speaker 2: flow between twenty seven and twenty thirty, which hopefully the
21:17
Speaker 2: market will value in some way and so we should
21:21
Speaker 2: double our money.
21:22
Speaker 1: If that's the case, what's your average holding period? How
21:25
Speaker 1: long do you give things to come to fruition.
21:28
Speaker 2: It's all different, but to averages three years, so it's
21:32
Speaker 2: further enough away that it's too far for and listener
21:35
Speaker 2: once you know, yea, at the beginning of the year,
21:36
Speaker 2: everything's in years, and I'm sure you feel this, you know,
21:40
Speaker 2: eighteen months is the furthest the brain kind of works.
21:43
Speaker 2: Three years for us kind of is enough for perceptions
21:46
Speaker 2: of reality to change and new magical things to happen,
21:50
Speaker 2: So that works very well. Ten years it is just
21:54
Speaker 2: too long for my tension span to make money out
21:57
Speaker 2: of the catalyst. And if you're wrong, you're holding something
21:59
Speaker 2: for too long.
21:59
Speaker 1: Then, but it can also happen very quickly. And one
22:03
Speaker 1: of the things that we have been talking about on
22:05
Speaker 1: the pod recently is the extent to which it's now
22:08
Speaker 1: possible to have much higher turnover than you used to. So,
22:11
Speaker 1: you know, even five ten years ago, the general idea
22:14
Speaker 1: was that you should trade as little as possible because
22:16
Speaker 1: those expenses agent to your performance. But now that it
22:20
Speaker 1: is really so cheap to trade, that's not really a
22:22
Speaker 1: thing anymore. And maybe there is a case for much
22:25
Speaker 1: higher levels of turnover inside active funds, and so instead
22:28
Speaker 1: of looking at that as a negative, now we should
22:30
Speaker 1: start looking at as a positive.
22:32
Speaker 2: It just depends on the edge you're trading, what value
22:34
Speaker 2: you're trying to capture. What's your edge? If you're I
22:36
Speaker 2: will use into training because there are a great manager
22:38
Speaker 2: that's having a difficult time, but his trading period is
22:41
Speaker 2: very long and his edge has to work on that
22:44
Speaker 2: because in your eighty percent of a return in a
22:46
Speaker 2: year is a rating return. If you're trading incremental growth
22:51
Speaker 2: of compounding of profit, you need to give it five
22:55
Speaker 2: ten years become a significant portion of the shareholder return.
22:58
Speaker 2: Is this impossible to do any the way? If you're
23:01
Speaker 2: a multi strat, their long term for them is a
23:03
Speaker 2: week and they're very good at upgrading on downgraded earnings
23:07
Speaker 2: into news reports every day and that's what they do,
23:10
Speaker 2: so it makes sense for them to have extreme extreme turnover.
23:13
Speaker 1: And Alex, have we've got any gold miners in there?
23:16
Speaker 2: Are? We used to doing sentiment which was a Egyptian
23:18
Speaker 2: guide gold miner that got taken over four months ago,
23:22
Speaker 2: which was actually pretty good timing on reflection, so I'd
23:24
Speaker 2: probably be selling it now a new gold high.
23:26
Speaker 1: Speed selling gold miners buying them at this point, Yes.
23:29
Speaker 2: I'm short to gold miner. Now we're shut. AI were
23:32
Speaker 2: short copper and gold mining, anything that's really popular, we're
23:35
Speaker 2: probably short.
23:36
Speaker 1: So Alex. When I look at gold, which I've been
23:38
Speaker 1: keen on for years, I mean decades actually, at this
23:40
Speaker 1: point tally embarrassingly, it looks like the rest of the
23:44
Speaker 1: media has suddenly discovered gold as a thing. Central banks
23:47
Speaker 1: are suddenly replacing their treasuries with gold, etc. But when
23:51
Speaker 1: you look at the investment situation, retail investors, particularly in
23:54
Speaker 1: the US haven't really moved into golden Institutional investors certainly haven't.
23:58
Speaker 1: You're just not seeing those big flows in to the
24:00
Speaker 1: ETFs beginning, but not really there. So it doesn't look
24:03
Speaker 1: to me like gold is suddenly super popular. It feels
24:07
Speaker 1: like it's more at the beginning than the end.
24:09
Speaker 2: I think it's a fair observation. So i'm gold physically personally,
24:14
Speaker 2: because you know, it's a bet on government's collapse every
24:17
Speaker 2: hundred years. I think gold probably close should be five
24:21
Speaker 2: or ten thousand pounds if you look at the what
24:23
Speaker 2: it brings, and it's been replaced by perceptions of other
24:26
Speaker 2: safe assets and other extremes. Bitcoin. Where we are with
24:33
Speaker 2: it is it's an enduring asset that that's great, but
24:37
Speaker 2: it doesn't do very much apart from protect and over
24:40
Speaker 2: the last given the last five years, you would have
24:42
Speaker 2: thought there would be a lot more protection going on
24:44
Speaker 2: and it hasn't really been that bashion of safety, and
24:48
Speaker 2: then we'd have the inflation boom. So you know, there's
24:52
Speaker 2: definitely an argument to have it as a balanced portfolio,
24:55
Speaker 2: and it would be strange not to particularly a family office.
24:58
Speaker 2: In terms of trading it, we just look at the company,
25:00
Speaker 2: so you know, if the company's got a catalyst and
25:02
Speaker 2: they're overvalued on it or they're undervalued, then great. In
25:04
Speaker 2: terms of the commodity price, we can just hedge it out,
25:06
Speaker 2: so I actually don't need to worry about the price.
25:09
Speaker 2: We are actually shorter gold mine today, which kind of
25:12
Speaker 2: sort of makes sense because they're currently in the high
25:14
Speaker 2: part of the cycle. The ball case I've just given
25:17
Speaker 2: you in gold in general that has then taken multiple
25:21
Speaker 2: expansion and the gold prices their outputs aren't going to
25:23
Speaker 2: go up and if anything, they've got some problems. So
25:25
Speaker 2: really really interesting situation. I suspect our spilly looking at
25:28
Speaker 2: it in ten years times. It's one that's worth spending
25:31
Speaker 2: some time on. It's one of the easier assets to
25:34
Speaker 2: keep a track of.
25:35
Speaker 1: Alex. I'm just going to guess here, but are you
25:38
Speaker 1: holding bitcoin too?
25:40
Speaker 2: No, I wouldn't hold bitcoin.
25:43
Speaker 1: You wouldn't.
25:43
Speaker 2: It's not a listen on the UK stock market and
25:45
Speaker 2: it's a massive No.
25:46
Speaker 1: I meant personally you said you hold gold. You said
25:48
Speaker 1: you hold gold personally, it is Bitcoin is something that
25:50
Speaker 1: you would hold personally.
25:52
Speaker 2: So I did buy it in twenty twelve, and I
25:56
Speaker 2: did buy a house with the money. So I'm probably
25:59
Speaker 2: a bit of a hypocrite here, but I did it
26:01
Speaker 2: knowing that it was worthless and it was a bit
26:03
Speaker 2: of fun. It's a fascinating example of I spent every month.
26:08
Speaker 2: I used to buy one thousand pounds and whatever from
26:09
Speaker 2: trainers and if her can find invest in it, I
26:11
Speaker 2: used to put a thousand pounds in it to take everything.
26:14
Speaker 2: It's a good way to find new things. If I've
26:16
Speaker 2: heard about it, probably a bit late. It's a young
26:19
Speaker 2: person thing early if it's an old person thing. And
26:21
Speaker 2: so it's a fascinating way to plug in and pay
26:23
Speaker 2: attention to the world, and bitcoin is a fantastic It's
26:27
Speaker 2: putably a bit deep here, but example of how story
26:30
Speaker 2: can be the entire valuation of something. It's not prices
26:33
Speaker 2: of perception of reality, and story can have the and
26:36
Speaker 2: religion have infinite value.
26:38
Speaker 1: Okay, so bitcoin is all story, but that doesn't make
26:40
Speaker 1: it not valid.
26:41
Speaker 2: That's a much quicker, more particularly worth of putting it.
26:45
Speaker 1: Let's just talk a little about the difficulties of investing
26:48
Speaker 1: like this, because, as you said earlier, it makes you
26:50
Speaker 1: feel a bit silly a lot of the time. It
26:52
Speaker 1: makes you feel unpopular, makes you feel like you're not
26:54
Speaker 1: with the crowd. And here you are sitting in what
26:57
Speaker 1: I think and I hope you think as well as
26:59
Speaker 1: once in a gener origin an opportunity to buy into
27:01
Speaker 1: a rather amazing market at a very low price. But nonetheless,
27:04
Speaker 1: no one has agreed with you for years. It's tough.
27:07
Speaker 1: So a lot of being a good fan manager is
27:09
Speaker 1: really about being able to sort of weather that emotional difficulty,
27:13
Speaker 1: isn't it.
27:14
Speaker 2: I totally agree, and it's something that it took me
27:16
Speaker 2: a long time to fully appreciate. Part of the reason
27:19
Speaker 2: why Ed and I own the business is to defend
27:23
Speaker 2: against that. Partly when I live in Cornwall, it's probably
27:26
Speaker 2: overdoing it, but it is to manage the lifestyle and fitness.
27:30
Speaker 2: Like an athlete, You've got to look after your brain.
27:32
Speaker 2: There's only so many decisions you need to make as
27:33
Speaker 2: a decision based business. Those decisions need to be very good.
27:36
Speaker 2: There aren't many of them that need to be very good.
27:38
Speaker 2: You need to be in the best headspace possible to
27:40
Speaker 2: do that, and to defend yourself from because you're going
27:45
Speaker 2: to be wrong a lot and ask you and contrain
27:47
Speaker 2: the way I do things. Actually I'm wrong most of
27:50
Speaker 2: the time in terms of going to a party, so
27:53
Speaker 2: that that can't get you and make you a negative person.
27:57
Speaker 2: Triumph for the optimist. So I've set it up in
27:59
Speaker 2: a way to protect to myself and I think that's
28:01
Speaker 2: to apply in different ways for different personalities. And really
28:04
Speaker 2: it comes down to is the performance and the game
28:07
Speaker 2: more important to you? Is it making money and looking
28:09
Speaker 2: clever and safe more important? And I think most people
28:12
Speaker 2: will be risk averse and should go for the second.
28:15
Speaker 2: To do the first one is kind of not worth it,
28:17
Speaker 2: like the return on headache in any business, And so
28:20
Speaker 2: there's something either wrong with you or you've got a
28:23
Speaker 2: point to prove.
28:24
Speaker 1: You make it sound really quite hard.
28:27
Speaker 2: The big change for me here is I never used
28:28
Speaker 2: to speak to the investors, so it was really obvious,
28:30
Speaker 2: just make money, do the best trades. Right now I
28:32
Speaker 2: have investors. I don't want to let people down. I
28:35
Speaker 2: talk to very very clever people who give me opinions
28:37
Speaker 2: that I have to try and.
28:38
Speaker 1: Ignore, and then you have to explain yourself to them
28:41
Speaker 1: when things go wrong.
28:42
Speaker 2: That's hard, Oh do we do. We're very transparent to
28:44
Speaker 2: the degree that we can. Actually, one of my best
28:46
Speaker 2: friends is despite us making loads of money, he's flat
28:50
Speaker 2: because every time the market goes up he buys more
28:52
Speaker 2: and every time it goes down herself, and it's you know,
28:55
Speaker 2: it might change our relationship. And I've actually not let
28:57
Speaker 2: a lot of my friends come in for this very
28:59
Speaker 2: reason and managing other people as well. You know, I
29:03
Speaker 2: come in the morning and I talked about Birbury earlier.
29:05
Speaker 2: I started buying Bibery at fifteen quid. I was buying
29:07
Speaker 2: it for a year and doubled it at seven quid. Fortunately,
29:10
Speaker 2: but along the way emotionally taking people on you that journey,
29:15
Speaker 2: you don't realize it until you have to do it.
29:18
Speaker 2: It's very on reflection, it's easy, but at the time
29:21
Speaker 2: it's incredibly hard. You really are running into a by
29:25
Speaker 2: I run into a burning building and then buy the
29:27
Speaker 2: lands to redevelop it the next day in effect. But
29:30
Speaker 2: telling someone whore running into a burning building is not
29:32
Speaker 2: that attractive to most people. Even so, But if you're
29:36
Speaker 2: going to change the world, and do you think special
29:38
Speaker 2: hard and it's got to be hard, you're so glad
29:41
Speaker 2: you did that. Yes, life dreaming, I'm very very lucky.
29:44
Speaker 2: And there's are so much more that we want to do,
29:46
Speaker 2: so so much more.
29:48
Speaker 1: But let me ask you one last question. And you
29:50
Speaker 1: didn't have time for bread for this, so if you
29:52
Speaker 1: haven't got an answer, it's all good. But are you
29:54
Speaker 1: reading anything at the moment that you would recommend to
29:57
Speaker 1: our listeners.
29:58
Speaker 2: Thinking in Bets is what I'm reading right now on
30:00
Speaker 2: my table. That's very good. It's it's an ex actually
30:04
Speaker 2: world series poker player lady who then started doing touring
30:07
Speaker 2: and speaking to fund managers and CEOs about making a
30:12
Speaker 2: good decision and the outcome. We're actually unrelated. So you
30:17
Speaker 2: make a decision and the outcomes bad, you feel like
30:19
Speaker 2: you've done something wrong. It's called resulting. Making a decision
30:22
Speaker 2: is the important part, and that's the process you want
30:24
Speaker 2: to work on. The outcome of probabilities is a separate point.
30:27
Speaker 2: But emotionally it's very hard because you focus on the
30:30
Speaker 2: outcome whenever you talk about a case study, not the
30:32
Speaker 2: quality of the decision. And it sort of reinforces poker
30:35
Speaker 2: players get this, and that's quite an interesting reinforcement idea.
30:40
Speaker 2: You want good quality idea, good quality decision and positive
30:44
Speaker 2: or you know, I like out If you have a
30:47
Speaker 2: bad quality idea and you get a positive result, actually,
30:50
Speaker 2: that can be a very dangerous situation because you then
30:53
Speaker 2: might try and repeat it.
30:55
Speaker 1: Yeah, okay, that sounds great. I haven't read that. I
30:57
Speaker 1: will get that, and I suspect a lot of the
31:00
Speaker 1: listeners well as well. Alex, thanks very much for coming up.
31:03
Speaker 2: It's been a real pleasure. I really enjoyed it. Thank
31:05
Speaker 2: you for the good questions, and I hopefully you'll meet
31:07
Speaker 2: you and call more next time.
31:09
Speaker 1: Yeah, that would be great. That would be great, but
31:11
Speaker 1: not at the Seale Sankstuary. Thanks for listening for this
31:15
Speaker 1: week's Maren Talks Money. If you like us, show, rate, review,
31:18
Speaker 1: and subscribe. Wherever you listen to podcasts, I keep sending
31:20
Speaker 1: questions or comments to Merron Money at Bloomberg dot net.
31:23
Speaker 1: You can also follow me and John on Twitter or x.
31:26
Speaker 1: I'm at marinas W and John is John Underscore STEPIC.
31:29
Speaker 1: This episode was hosted by Me Maren's Sunset webs, produced
31:32
Speaker 1: by Summersidi and Moses and our executive producers Brendan Francis,
31:36
Speaker 1: Newnan production supportant sound designed by Blake Maple's and special
31:39
Speaker 1: thanks of course to Alex Wood