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Why Emerging Markets Can Still Be a Good Bet · Merryn Talks Money

• 0:00
  Speaker 1: John Melton, how do you enjoy that king speech? There
• 0:03
  Speaker 1: were no tax cuts in it, so I figured it
• 0:05
  Speaker 1: might not have been for you.
• 0:06
  Speaker 2: It's true I had my popcorn ready, but all I
• 0:09
  Speaker 2: was doing was throwing it at the screen.
• 0:11
  Speaker 1: Oh all the disappointing, wasn't it. I'll tell you it's
• 0:14
  Speaker 1: really disappointed the leasehold lobbyists. You know, there's been this
• 0:19
  Speaker 1: big pilara, and.
• 0:19
  Speaker 3: Quite rightly about the way that the UK still has
• 0:22
  Speaker 3: this absurdly feudal type of property ownership, whereby instead of
• 0:27
  Speaker 3: instead of buying your house and then actually owning your house,
• 0:31
  Speaker 3: you think you buy your house, but instead of.
• 0:32
  Speaker 1: Actually owning it, all you have is a very very
• 0:35
  Speaker 1: long tenancies at lease hold, and then you have the
• 0:38
  Speaker 1: right to live, to occupy the house, live in, occupy
• 0:41
  Speaker 1: the house for maybe ninety nine years, maybe twenty five years.
• 0:44
  Speaker 1: You're really really lucky nine hundred and ninety nine years,
• 0:46
  Speaker 1: but you don't actually own it. The building and the
• 0:49
  Speaker 1: land belongs to somebody else. Nuts.
• 0:51
  Speaker 2: This always baffled me because obviously, coming from Scotland, that's
• 0:56
  Speaker 2: not the system up.
• 0:58
  Speaker 4: There, and things better in Scotland.
• 1:00
  Speaker 2: Modelly superior, yes, but no, but's it was weird kind
• 1:04
  Speaker 2: of coming down and then I mean, thankfully, by the
• 1:07
  Speaker 2: time I ended up buying a property down here, there
• 1:10
  Speaker 2: was the share of freehold saying in their first flat
• 1:13
  Speaker 2: in Kent was a share of freehold one in a
• 1:17
  Speaker 2: thwld block and that was absolutely fine because it was
• 1:19
  Speaker 2: basically the same as when we had the tenement in Glasgow.
• 1:23
  Speaker 2: It was a similar kind of arrangement. You all own
• 1:26
  Speaker 2: your bet and your chap in for the running course.
• 1:29
  Speaker 2: So the police hold things always seemed so just ridiculous,
• 1:35
  Speaker 2: and also nobhere else in the world has it. I
• 1:37
  Speaker 2: don't think no.
• 1:38
  Speaker 1: I mean, it's just it's a sort of hangover of
• 1:40
  Speaker 1: a feudal system, right, but it's really unpleasant for people
• 1:44
  Speaker 1: who think that they actually own their house or the flat,
• 1:47
  Speaker 1: and as many flats are lease hold the houses although
• 1:50
  Speaker 1: actually you know there are there are five million plus
• 1:52
  Speaker 1: houses homes should I say in the UK the release
• 1:55
  Speaker 1: old twenty percent of the housing stock and thirty percent
• 1:58
  Speaker 1: of those houses. So people think they own a house,
• 2:01
  Speaker 1: but they don't own a house. And then you get
• 2:03
  Speaker 1: stuck with all these things. You're at the mercy of
• 2:05
  Speaker 1: someone else when it comes to service charges and you know,
• 2:07
  Speaker 1: one of the things I noticed. One of the things
• 2:10
  Speaker 1: in the king speech about making things less horrible for
• 2:13
  Speaker 1: leaseholders is that the freeholder or managing agent, assuming this
• 2:16
  Speaker 1: all goes through, when they manage the building insurance, they're
• 2:19
  Speaker 1: not allowed to take a commission.
• 2:22
  Speaker 4: Can you they can take a commission.
• 2:23
  Speaker 1: In the first place.
• 2:24
  Speaker 2: Just incredible, I know.
• 2:26
  Speaker 1: And then there's ground rent. And obviously people have been
• 2:28
  Speaker 1: talking about ground rent for a while now because during
• 2:30
  Speaker 1: the very low interest rate period, the housing developers found
• 2:33
  Speaker 1: there's an absolutely amazing way to create a stream of income.
• 2:37
  Speaker 1: So you make new houses, build new houses, horrible new
• 2:40
  Speaker 1: houses in the main, or horrible new flats, whatever, and
• 2:43
  Speaker 1: then you make the leasehold. Then you attach a ground
• 2:45
  Speaker 1: rent to them, and you say that that ground rent
• 2:47
  Speaker 1: is going to escalator, is going to double every ten
• 2:49
  Speaker 1: years or whatever it is, or it's going to go
• 2:51
  Speaker 1: up with with TPI or RPI, etc. And then a
• 2:54
  Speaker 1: very low interest rate environment, that stream of cash is
• 2:57
  Speaker 1: incredibly valuable, so you flog it onto an investor somewhere,
• 3:01
  Speaker 1: and then when the lease holder suddenly wakes up and goes,
• 3:03
  Speaker 1: oh my god, this cost is outrageous and what do
• 3:05
  Speaker 1: you mean, I don't own the land, et cetera, et cetera.
• 3:08
  Speaker 1: They have to go and negotiate with some random investor
• 3:10
  Speaker 1: rather than with the housebuilder who sold them house. So
• 3:12
  Speaker 1: a lot of things that absolutely scandal has been for years.
• 3:16
  Speaker 1: So there is provision in the King speech to try
• 3:19
  Speaker 1: and improve it, but extraordinarily not to get rid of it,
• 3:23
  Speaker 1: just to improve it.
• 3:25
  Speaker 2: Yeah, I mean, I'm assuming that the it's because obviously
• 3:29
  Speaker 2: this has been going on for a while, and they
• 3:31
  Speaker 2: have stopped houses from being built with leasehold, haven't they,
• 3:35
  Speaker 2: Because it was a big that was a massive scandal
• 3:37
  Speaker 2: a few years ago.
• 3:38
  Speaker 1: Not Yet's that's in there, that's in the King speech
• 3:41
  Speaker 1: that they will prevent houses from being sold le sold.
• 3:47
  Speaker 1: And last year I think about one percent of new
• 3:48
  Speaker 1: built houses were sold lease sold.
• 3:50
  Speaker 4: At the peak.
• 3:51
  Speaker 1: In twenty sixteen, twenty seventeen something like that. It was
• 3:55
  Speaker 1: well over ten percent now.
• 3:58
  Speaker 4: But it's not possible.
• 3:59
  Speaker 5: Yeah, the.
• 4:02
  Speaker 1: It's speechless again. It doesn't happen very often.
• 4:07
  Speaker 2: It's just ragion. I mean, especially the house thing. The
• 4:10
  Speaker 2: house I mean people people generally have been aware that
• 4:14
  Speaker 2: flats can be lease hold, and there's an element there
• 4:17
  Speaker 2: where I guess you know a lot of people they
• 4:19
  Speaker 2: think that a flat isn't going to be there, you know,
• 4:21
  Speaker 2: place for life and all that sort of stuff. But
• 4:24
  Speaker 2: I do seem to remember the houses generally we're not
• 4:29
  Speaker 2: sold lease hold, and obviously there's something about the house.
• 4:31
  Speaker 2: It's different because basically houses are self contained unit. So
• 4:34
  Speaker 2: you're kind of like, how on earth can it be
• 4:36
  Speaker 2: the case that I only own the house for you know,
• 4:41
  Speaker 2: and in these cases it was one hundred and twenty
• 4:42
  Speaker 2: five years rather than the nine hundred ninety nine year least.
• 4:46
  Speaker 2: I mean, some British should have, you know. I mean
• 4:50
  Speaker 2: it comes back to this thing where you've got more
• 4:51
  Speaker 2: consumer rights if you buy a Telly than you do
• 4:54
  Speaker 2: when you buy a house. It's absolutely unbelievably wrong.
• 4:59
  Speaker 1: But you know, we're not long now and we're going
• 5:02
  Speaker 1: to be in a situation where an ordinary tenant has
• 5:07
  Speaker 1: more rights than a lease holder.
• 5:09
  Speaker 2: Yeah, that's good if you look.
• 5:12
  Speaker 1: At the other stuff that was in the king speech.
• 5:14
  Speaker 1: But the Rental Reform Bill et cetera says that do
• 5:16
  Speaker 1: you know, we get to that landlords aren't going to
• 5:19
  Speaker 1: be able to refuse, families aren't going to be able
• 5:21
  Speaker 1: to refuse.
• 5:21
  Speaker 4: Pets, et cetera.
• 5:22
  Speaker 1: Et cetera. But I was reading a Witch magazine report
• 5:25
  Speaker 1: on leasehold from a few years ago, which said that
• 5:28
  Speaker 1: sometimes there's a clause in the lease your long least
• 5:31
  Speaker 1: that you think in the house that you think you own,
• 5:34
  Speaker 1: that says that you can't have a pet. And what
• 5:37
  Speaker 1: they found a case where someone was charged two hundred
• 5:39
  Speaker 1: and fifty four pounds to be allowed to keep their
• 5:42
  Speaker 1: dog in what they believed to be their own house.
• 5:45
  Speaker 2: Yeah, no, I've seen that. I was recently helping Someboday
• 5:48
  Speaker 2: host and that is that exact thing came up. The
• 5:53
  Speaker 2: person had pets, and this was the buyer properly. Again,
• 5:57
  Speaker 2: it was a kin, a sort of a houts rather
• 6:00
  Speaker 2: than a fly, and you'd be allowed to and in
• 6:03
  Speaker 2: the terms of the lease. But then there's also things
• 6:05
  Speaker 2: like not being able to hang out washing it when
• 6:07
  Speaker 2: the in certain parts, you know, especially with fly. I mean,
• 6:12
  Speaker 2: I get that there's a sort of old fashion thing
• 6:15
  Speaker 2: about having you know, jumples hanging on your balcony and
• 6:17
  Speaker 2: this looks a bit you know, scruffy or whatever, but yeah, exactly,
• 6:23
  Speaker 2: it's it's just unbelievable.
• 6:27
  Speaker 1: Well, the one that I'm interested in and at the moment,
• 6:29
  Speaker 1: in terms of you know, is that does a tenant
• 6:32
  Speaker 1: have more power than a leaseholder? Is it? One of
• 6:33
  Speaker 1: the things that Labor has been talking about is saying
• 6:36
  Speaker 1: that under rental reform, landlords won't be able to prevent
• 6:42
  Speaker 1: tenants making alterations to the interiors of houses. And I
• 6:46
  Speaker 1: don't know about the exteriors, but you know, of course
• 6:48
  Speaker 1: leaseholders can't probably walls around the place, can't build conservatory,
• 6:53
  Speaker 1: cutbul is, shed, cant or anything like that without going
• 6:55
  Speaker 1: to the freeholder and adultsking. So you know, here's that
• 6:59
  Speaker 1: really interesting and shift in balance anyway, scandalous, remain scandalous,
• 7:04
  Speaker 1: that things are getting better, will get better, but surely
• 7:07
  Speaker 1: a much better thing to do, listen to me, governments,
• 7:10
  Speaker 1: A much better thing to do would be simply to
• 7:11
  Speaker 1: get rid of the whole thing and replace it with
• 7:13
  Speaker 1: common hold or as John says, share freeholder of share freehold,
• 7:17
  Speaker 1: which works perfectly well, and why wouldn't it.
• 7:20
  Speaker 2: And obviously, if you're a buyer, just don't buy one
• 7:22
  Speaker 2: any these things.
• 7:23
  Speaker 1: Just don't buy one, literally, don't buy one. And whatever
• 7:27
  Speaker 1: you do, don't buy one without or don't buy anything
• 7:30
  Speaker 1: without really asking all these questions, because of course people
• 7:33
  Speaker 1: don't know the questions to ask, do they? I mean,
• 7:35
  Speaker 1: why would you think when you went by a new
• 7:37
  Speaker 1: help that would not really belong to you? And why
• 7:40
  Speaker 1: would you think that your ground that would be this
• 7:41
  Speaker 1: thing called ground rent that would go up and up
• 7:43
  Speaker 1: onever every year? And why would it ever occur to
• 7:46
  Speaker 1: you that the person who old the land underneath you
• 7:50
  Speaker 1: was also the person taking commission on your insurance premians.
• 7:53
  Speaker 1: I mean, for heaven's sake, you know you have to
• 7:55
  Speaker 1: know the questions to ask, right, why would you know
• 7:57
  Speaker 1: to ask those? So you know, ask a lot of questions.
• 8:00
  Speaker 1: But in the end, don't buy the stuff. Don't buy
• 8:02
  Speaker 1: the stuff. And as ever, the way to change things
• 8:05
  Speaker 1: is to put pressure on the providers to produce something different, Right, John,
• 8:11
  Speaker 1: give me a personal finance tip for the week gone. Well,
• 8:14
  Speaker 1: it's a good one, a really good one.
• 8:16
  Speaker 2: This is one of your classic ones. It's uh. People
• 8:19
  Speaker 2: are the house builders are offloading those sticky last few
• 8:24
  Speaker 2: houses on the plot, then they need to get read
• 8:26
  Speaker 2: off and they offer massive incentives. In fact, call the
• 8:29
  Speaker 2: one for a bloomberg, colleagues. I think one in five
• 8:32
  Speaker 2: houses now up from one in ten about a year ago,
• 8:36
  Speaker 2: is coming with a free bet and among those freebies
• 8:38
  Speaker 2: occasionally as much as a Tesla get a free car
• 8:43
  Speaker 2: when you buy a house, John, Yes.
• 8:47
  Speaker 1: Do you want to rethink the word freebies?
• 8:50
  Speaker 2: No, it's a free car. I mean what I'm just
• 8:52
  Speaker 2: I'm buying a house and you know I'm getting like
• 8:55
  Speaker 2: forty grand worth of Tesla throwing in surely because the
• 8:58
  Speaker 2: house builders are nice people.
• 9:00
  Speaker 1: Yeah, I don't like the house builders, so I don't
• 9:02
  Speaker 1: believe that. Do you know what I think?
• 9:06
  Speaker 2: What do you think, ma'am?
• 9:07
  Speaker 1: I think you should say no, thank you very much.
• 9:10
  Speaker 1: I don't want a Tesla. I have a perfectly good
• 9:12
  Speaker 1: car of my own already, but I would like it's
• 9:14
  Speaker 1: for you to take forty grand off the price of
• 9:16
  Speaker 1: La Grabbians. Thank you very much.
• 9:19
  Speaker 2: That's genius.
• 9:21
  Speaker 1: Yeah, yeah, keep your Tesla.
• 9:26
  Speaker 4: I'll take you the discount.
• 9:28
  Speaker 5: It's true.
• 9:29
  Speaker 2: Why would you ever buy a Tesla with our mortgage?
• 9:31
  Speaker 4: Exactly?
• 9:32
  Speaker 1: That's exactly it. What you're doing is buying a Tesla
• 9:35
  Speaker 1: with a market I suppose some people do do that. Now, look,
• 9:37
  Speaker 1: this is not the first time this has happened. Right,
• 9:39
  Speaker 1: we predicted this. We said you and I in that
• 9:42
  Speaker 1: podcast a while back were possibly in the column or something.
• 9:44
  Speaker 1: We said, you'll know that things are getting nasty for
• 9:47
  Speaker 1: the housebuilders when they start to offer you a free
• 9:50
  Speaker 1: car because it happened. It happened. I was just checking
• 9:54
  Speaker 1: to see when it last happened, to make sure that
• 9:56
  Speaker 1: you and I don't weren't making stuff up because we
• 9:58
  Speaker 1: don't like to do that. That's absolutely true that in
• 10:02
  Speaker 1: two thousand and eight, the obvious year, several developers were
• 10:05
  Speaker 1: giving giving away, giving away free coas with houses, and
• 10:10
  Speaker 1: it was also the case in the US. For a
• 10:12
  Speaker 1: found a particular case in the Midwest where if you
• 10:16
  Speaker 1: bought one of their horrible houses or maybe nice houses,
• 10:18
  Speaker 1: I don't know. American houses often look much nicer than
• 10:20
  Speaker 1: our houses, you got a free Toyota Prius. Welcome to
• 10:32
  Speaker 1: Maren Talk to Money, the podcast in which people who
• 10:34
  Speaker 1: know the markets explain the markets, and marin Sunset Web.
• 10:37
  Speaker 1: This week my conversation with Jonathan and Sante, fund manager
• 10:39
  Speaker 1: at Chakara Investments. Jonathan started with Jacara Investments this year
• 10:43
  Speaker 1: after taking a break from the industry in twenty nineteen.
• 10:46
  Speaker 1: Before that, if you worked at Stewart Investors for fifteen
• 10:49
  Speaker 1: years now Jakara, if you've not heard of. It used
• 10:51
  Speaker 1: to be called Coopland Cardiff until August of this year.
• 10:55
  Speaker 1: I spoke to Jonathan few days before the launch for
• 10:57
  Speaker 1: his new fund, the Jakara Global Emerging Markets Opportunity Fund,
• 11:01
  Speaker 1: which he is going to have hold twenty to thirties
• 11:03
  Speaker 1: dogs and long term growth opportunities, hy quality growth opportunities.
• 11:07
  Speaker 1: He's going to manage that along with the team of
• 11:09
  Speaker 1: Paul that he brought over with him from Stuart Investor.
• 11:12
  Speaker 1: So here is our conversation.
• 11:15
  Speaker 4: Jonathan, thank you so much for joining us today.
• 11:18
  Speaker 5: Oh thanks for asking me.
• 11:19
  Speaker 1: Now.
• 11:20
  Speaker 4: You and I haven't talked for a long time because
• 11:22
  Speaker 4: you've been out of the industry for a while. So
• 11:25
  Speaker 4: I wonder if we can just start by talking about
• 11:27
  Speaker 4: why you've come back. Yeah, we'll put you back into
• 11:30
  Speaker 4: this rather grubby industry.
• 11:32
  Speaker 5: It's interesting for me personally because I love the job
• 11:35
  Speaker 5: of analyzing and looking at companies, and I love that
• 11:37
  Speaker 5: aspect and I always enjoyed it. I think when you've worked,
• 11:40
  Speaker 5: or i'd worked before, you have to be quite careful
• 11:42
  Speaker 5: about where you end up looking after clients' money. So
• 11:46
  Speaker 5: I was looking, certainly for a couple of years for
• 11:50
  Speaker 5: a place where I thought that I could fit. And secondly,
• 11:53
  Speaker 5: my old team became available, and I know I've known
• 11:56
  Speaker 5: these people for a long time, and that was really
• 11:59
  Speaker 5: what entice because I thought we could do something really
• 12:01
  Speaker 5: very good for our closky.
• 12:02
  Speaker 4: It was finding somewhere where you felt that you could fit.
• 12:05
  Speaker 4: And also you could bring your old team with you,
• 12:07
  Speaker 4: so no need to get to know what train any
• 12:09
  Speaker 4: new people anything dull like that.
• 12:11
  Speaker 5: Yeah, we've been together for fifteen years, some of us,
• 12:14
  Speaker 5: and we know each other, we know our strengths and
• 12:17
  Speaker 5: our weaknesses, and we just hit the ground running, which
• 12:21
  Speaker 5: was very important. But also I think the place was
• 12:23
  Speaker 5: very important. I think I prefer small groups of people
• 12:25
  Speaker 5: to large institutional setups, and that's what we had my
• 12:29
  Speaker 5: last job, although we were inside a very large institutional setup,
• 12:33
  Speaker 5: and so it had to be a place where you
• 12:34
  Speaker 5: felt that you could preserve that or where we felt
• 12:36
  Speaker 5: or I felt we could preserve that and just you know,
• 12:38
  Speaker 5: be given autonomy to invest.
• 12:41
  Speaker 4: Okay, so a team will work autonomously and inside the
• 12:44
  Speaker 4: structure of Chakara.
• 12:46
  Speaker 5: Yes, and Chika is a very small company, and so
• 12:49
  Speaker 5: that is what was very attractive to me. You know,
• 12:51
  Speaker 5: the owners, there's you know, three or four main owners.
• 12:54
  Speaker 5: I sit a meter away from them. You know, if
• 12:56
  Speaker 5: we've got any issues, I can ask and we will
• 12:59
  Speaker 5: be come owners too. And I contrast that with a
• 13:02
  Speaker 5: very large organization, which you know is fine for other people,
• 13:05
  Speaker 5: but for me, I find that sort of personal interaction
• 13:07
  Speaker 5: a lot more meaningful.
• 13:09
  Speaker 4: Okay, well, let's talk down about what type of investing
• 13:12
  Speaker 4: you and your team are going to bring to Chikara.
• 13:15
  Speaker 4: I know a little bit about your history as an investor.
• 13:17
  Speaker 4: What is it that makes what you and your team
• 13:19
  Speaker 4: do slightly different to what other people do?
• 13:21
  Speaker 5: Yeah, well, I think the background has We've been fortunate
• 13:24
  Speaker 5: enough to learn from people that are very.
• 13:25
  Speaker 4: Good at it, yeah, from the grades, and we were able.
• 13:28
  Speaker 5: To absorb that and evolve it in some small measure ourselves.
• 13:32
  Speaker 5: And we have very strong beliefs about what we're doing.
• 13:35
  Speaker 5: We're very long term. We're very focused on the evolution
• 13:39
  Speaker 5: of hundreds of millions of people in the developing world
• 13:42
  Speaker 5: and then getting richer. It's something you don't hear about
• 13:45
  Speaker 5: then getting access to more opportunities, and that's still happening
• 13:48
  Speaker 5: and probably will happen in the next ten or twenty years.
• 13:51
  Speaker 5: And then we're very focused on the sorts of companies
• 13:54
  Speaker 5: that we will give our clients money to in our
• 13:56
  Speaker 5: own money to in the long term, and they are
• 13:58
  Speaker 5: a very small number of companies that we feel comfortable
• 14:01
  Speaker 5: in that area giving our clients money to. So I
• 14:04
  Speaker 5: think the difference is this very small number of companies
• 14:07
  Speaker 5: and the fact and the beliefs that we have about investing.
• 14:10
  Speaker 4: Yeah, I want to talk a lot about those companies,
• 14:12
  Speaker 4: but let's talk briefly first about the emerging markets background.
• 14:16
  Speaker 4: Today we don't talk enough about how much richer people
• 14:19
  Speaker 4: are getting in this huge variety of countries. Actually, people
• 14:22
  Speaker 4: talk about emerging markets are kind of a morphous blob,
• 14:24
  Speaker 4: and of course there's absolutely nothing of the sort. So
• 14:27
  Speaker 4: let's talk about a little bit about the background of
• 14:28
  Speaker 4: that and why is it emerging markets as so much
• 14:30
  Speaker 4: more attractive to you than developed markets.
• 14:34
  Speaker 5: I think the distinction has broken down to some degree
• 14:36
  Speaker 5: and between developed and emerging. So that may not be
• 14:39
  Speaker 5: very helpful, but the last twelve years I've spent telling
• 14:42
  Speaker 5: clients that the distinction was breaking down because at the
• 14:45
  Speaker 5: company level, some of the best emerging market companies are
• 14:48
  Speaker 5: in the developed world, and some of the best developed
• 14:49
  Speaker 5: book but guess what they realize is growth over there,
• 14:52
  Speaker 5: so they've gone in. So I think that distinction emerging
• 14:56
  Speaker 5: markets was a marketing idea penned by the investment industry.
• 15:00
  Speaker 5: Often you find that those are not very good investment ideas,
• 15:03
  Speaker 5: and what we tried to do was make them a
• 15:05
  Speaker 5: good of it, impose the sort of investment discipline that
• 15:07
  Speaker 5: would kind of ensure that ensure that they would be
• 15:10
  Speaker 5: that it could make acceptable returns for our clients. So
• 15:13
  Speaker 5: I think that the distinction is breaking down. Firstly. Secondly, though,
• 15:15
  Speaker 5: emerginy markets had a pretty bad, pretty mediocre decade, and
• 15:20
  Speaker 5: we think, we have written a paper and why we
• 15:22
  Speaker 5: think that is we think it was a governance failure
• 15:24
  Speaker 5: and we think that the index emerginy Market INDETS was
• 15:27
  Speaker 5: never built for investors. It's built as a unit of measurement.
• 15:30
  Speaker 4: When you say governance failure, what do you mean.
• 15:32
  Speaker 5: Well, you noticed back in really twenty ten eleven that
• 15:36
  Speaker 5: at the top level the leaderships were changing. So the
• 15:38
  Speaker 5: emerging market pitch, if you like, was in the eighties,
• 15:41
  Speaker 5: has said pen by the funds management industry, was that
• 15:45
  Speaker 5: essentially governance improves in some of these countries after the
• 15:48
  Speaker 5: Second World War, and.
• 15:49
  Speaker 4: When you say governance you referring to political governance or
• 15:51
  Speaker 4: corporate governance.
• 15:52
  Speaker 5: A good question. I think the first leads to the second.
• 15:55
  Speaker 5: So there's an improvement in governance after the Second World War,
• 15:58
  Speaker 5: the end of communism are eyed and the Dangiopling Report
• 16:03
  Speaker 5: reforms in China, and you get better growth, and so
• 16:06
  Speaker 5: there's an opportunity all of a sudden, you get better governance.
• 16:10
  Speaker 5: So there's more companies that might actually be able through
• 16:13
  Speaker 5: which you might be able to access that or opportunity.
• 16:16
  Speaker 5: And that improvement means that you should buy equities, because
• 16:19
  Speaker 5: equities are a growth. That was the idea behind it.
• 16:22
  Speaker 5: That was the marketing pitch, if you like. There's a
• 16:25
  Speaker 5: number of problems with that. First, the history doesn't go
• 16:28
  Speaker 5: in five year fu management bonus cycles. It seems to
• 16:30
  Speaker 5: operate in centuries and millennia. And so you've got you've
• 16:34
  Speaker 5: got countries that with very interested in history, that are
• 16:36
  Speaker 5: re emerging actually in many cases from being having been
• 16:39
  Speaker 5: very dominant countries a thousand years ago. And those processes
• 16:42
  Speaker 5: are a lot slower than the average from manager would like,
• 16:44
  Speaker 5: and they're cyclical, they don't go in the straight line.
• 16:46
  Speaker 5: And the second, as the seven twenty ten was that
• 16:48
  Speaker 5: we noticed that governance was going backwards at the top level,
• 16:50
  Speaker 5: so he had changes of leadership in places like Turkey
• 16:54
  Speaker 5: and South Africa for a few and then ultimately in
• 16:58
  Speaker 5: China where you had to question whether the rights of
• 17:02
  Speaker 5: shareholders were going to be more or less undermined going
• 17:06
  Speaker 5: forward in the next ten years. So we had a
• 17:08
  Speaker 5: problem that far back with it, and what that meant
• 17:11
  Speaker 5: at the company level is that the companies that we
• 17:13
  Speaker 5: would find to be acceptable, they're refewering them. The other
• 17:16
  Speaker 5: beauty of emerging markets was that if you had this
• 17:18
  Speaker 5: governance improvement, there would be more and more companies to
• 17:21
  Speaker 5: invest in that would be listing. You'd have a very
• 17:23
  Speaker 5: dynamic sort of positive But because if the governance at
• 17:25
  Speaker 5: the top level is deteriorating, then the companies available become
• 17:29
  Speaker 5: fewer and fewer for us. So we had to do
• 17:30
  Speaker 5: a number of things about that told everybody we started
• 17:33
  Speaker 5: looking more globally for businesses because of the world is
• 17:35
  Speaker 5: merging anyway, so you might have the governance and the
• 17:37
  Speaker 5: brands in a global company that has been in emerging
• 17:41
  Speaker 5: in developing economies for decades, and we found them all
• 17:45
  Speaker 5: over the place. Actually and we close their funds as well.
• 17:48
  Speaker 5: So in twenty thirteen we put a front end load
• 17:52
  Speaker 5: on our pool funds, which were very popular, and we
• 17:55
  Speaker 5: started to give the money back. And part of that
• 17:58
  Speaker 5: was that the opportunities are gett less. The obviousies are more.
• 18:02
  Speaker 5: I'd love to run more money for you, but we're
• 18:04
  Speaker 5: not going to go down the quality scale in terms
• 18:06
  Speaker 5: of companies are going to buy and the opportunity. We
• 18:08
  Speaker 5: think that the government's getting worse. So I think that's
• 18:11
  Speaker 5: been the problem for ten years.
• 18:12
  Speaker 4: And it's an interesting when, isn't it, Because the industry
• 18:14
  Speaker 4: had to learn again that GDP growth doesn't automatically transfer
• 18:18
  Speaker 4: into an equity bill market. And I'm still reading even
• 18:22
  Speaker 4: now after I don't know how many cycles of this,
• 18:24
  Speaker 4: I'm still reading papers that tell us tell me but
• 18:26
  Speaker 4: because there's economic growth in the country, there will be
• 18:29
  Speaker 4: a top market boom and said country and it's simply
• 18:31
  Speaker 4: not true, because of governance issues, because of evaluation issues,
• 18:34
  Speaker 4: with all these things that we've been discussing.
• 18:36
  Speaker 5: Yeah, the pie gets bigger, but who benefits? Yeah, so
• 18:38
  Speaker 5: if you're not going to be one of the people
• 18:39
  Speaker 5: that benefits, so your clients are going to benefit. It
• 18:41
  Speaker 5: doesn't matter how big the pie is. Yeah, some societies
• 18:43
  Speaker 5: are set up for reasons of history, to benefit a
• 18:46
  Speaker 5: very small number of people. In fact, arguably the whole
• 18:50
  Speaker 5: reason countries are poor. And I've spent my whole life,
• 18:53
  Speaker 5: having grown up in Ghana in the seventies, I've spent
• 18:55
  Speaker 5: my whole life wondering about this. The whole reason people
• 18:57
  Speaker 5: these countries are poor after the Second World War is
• 18:59
  Speaker 5: because a small group of people decided not to share
• 19:02
  Speaker 5: opportunity with the rest. It's sufficient opportunity, right, You give opportunity,
• 19:06
  Speaker 5: then the economy grows bigger. If you give access to education,
• 19:09
  Speaker 5: access to the jobs market, access to healthcare, and guess what,
• 19:13
  Speaker 5: You're going to have more people that are viable and
• 19:15
  Speaker 5: are productive. So I think that that the emergency markets.
• 19:18
  Speaker 5: Although the initial said marketing pitch where the things are
• 19:21
  Speaker 5: getting better and they it appeared to be, Actually it
• 19:23
  Speaker 5: was a failure post World War two and post the
• 19:26
  Speaker 5: colonial sort of the era that led to that opportunity.
• 19:30
  Speaker 5: So the park can be as big as you like,
• 19:31
  Speaker 5: but you might not have access to it in many
• 19:34
  Speaker 5: of these countries. And that's why we spend so much
• 19:36
  Speaker 5: time thinking about the who we're giving our money to
• 19:39
  Speaker 5: in these countries.
• 19:39
  Speaker 4: And you feel you're part of you coming back to
• 19:42
  Speaker 4: the market now, do you feel that there's an improvement
• 19:44
  Speaker 4: in governance across the board that you can now open
• 19:46
  Speaker 4: up opportunities for funds like kills.
• 19:48
  Speaker 5: I feel like the deterioration stopped, so that's something. And
• 19:51
  Speaker 5: there are a very small number of companies where I
• 19:53
  Speaker 5: think we can make acceptable returns for ourselves and our clients.
• 19:56
  Speaker 5: I won't go further than that. I'm not I said
• 19:59
  Speaker 5: I was fashioned in Scottish fund management. I'm not a
• 20:02
  Speaker 5: person that we're not the people that go out there
• 20:04
  Speaker 5: and buying this drum. I think for me, I can
• 20:07
  Speaker 5: put my own money into it now because there's accepta
• 20:09
  Speaker 5: and I don't have to look as much globally for businesses.
• 20:13
  Speaker 5: So I think there's an acceptable set of returns that
• 20:16
  Speaker 5: can be made in the next decade with quite. We
• 20:19
  Speaker 5: don't with quite, you know, with not too much improvement.
• 20:22
  Speaker 5: We try not to make investment decisions for clients and
• 20:25
  Speaker 5: ourselves on the basis that politicians are going to act
• 20:28
  Speaker 5: in the interests of the whole. We try not to
• 20:31
  Speaker 5: do that because we haven't seen that for decades anywhere,
• 20:34
  Speaker 5: actually almost anywhere, So we try not to do that,
• 20:38
  Speaker 5: but just with the deterioration stopping. For example, you know,
• 20:42
  Speaker 5: a few years ago you had the head of Samsung
• 20:44
  Speaker 5: and the leader of Samson going to prison. That is
• 20:47
  Speaker 5: an improvement. You've had the replacement of leadership in South Africa.
• 20:52
  Speaker 5: You've had a leader in India who is able to
• 20:54
  Speaker 5: galvanize some aspects of that society so that the opportunity
• 20:58
  Speaker 5: that was always present in India might be realized. Although
• 21:01
  Speaker 5: there's always risk. So there are some improvements going on
• 21:04
  Speaker 5: and there are some that are standing still. I think
• 21:07
  Speaker 5: people have the idea that an authoritarian regime will allow
• 21:12
  Speaker 5: you to make very good returns over the long term
• 21:15
  Speaker 5: in an index of equity. I think that's been put
• 21:18
  Speaker 5: to bed again in many countries. I remember going to
• 21:21
  Speaker 5: Ukraine fifty eight years ago and it was a huge country,
• 21:25
  Speaker 5: huge resource opportunity, but there was no governance at all.
• 21:29
  Speaker 5: And you know places that I guess like Russia has
• 21:31
  Speaker 5: shown that time and time again that it doesn't matter
• 21:34
  Speaker 5: that if the governance is bad so and authoritarian regimes
• 21:37
  Speaker 5: tend to act in their own interest even more than
• 21:39
  Speaker 5: democratic politicians because the downside for the mcgraty arguably. So
• 21:43
  Speaker 5: I think there's recognition of those things, which is great
• 21:46
  Speaker 5: because that's something that what didn't exist five years ago.
• 21:49
  Speaker 5: There was too much optimism about authoritarianism, and there are
• 21:53
  Speaker 5: even some apologies for it now. It's not that I'm
• 21:58
  Speaker 5: criticizing those regimes per se. They have their own history,
• 22:01
  Speaker 5: they have their own path that they've taken. I fortunately
• 22:04
  Speaker 5: have to ask a much more narrow question, easier question
• 22:07
  Speaker 5: to answer, which is how will I benefit from my clients?
• 22:10
  Speaker 5: So it's much it's a much simpler question to answer
• 22:12
  Speaker 5: than sort of judging and analyzing westernized subjective on a
• 22:16
  Speaker 5: history that's thousands of years old. It's more how will
• 22:19
  Speaker 5: I benefit in the next ten.
• 22:21
  Speaker 4: What happens to the companies? Before we start talking about
• 22:23
  Speaker 4: the types of companies that you look for, because I
• 22:25
  Speaker 4: think that's probably the most interesting bit, Let's just zoom
• 22:27
  Speaker 4: out a little to the global economy, because this is
• 22:29
  Speaker 4: a pretty brave time to be coming back into the market,
• 22:32
  Speaker 4: to look at the global markets and the global economic environment,
• 22:35
  Speaker 4: global geopolitical environment in January and say, you know what
• 22:39
  Speaker 4: I'm going I'm going to dive right back into this
• 22:41
  Speaker 4: now probably what is one of the biggest inflection points
• 22:44
  Speaker 4: that markets and economies have seen in our lifetimes. Right,
• 22:47
  Speaker 4: it's with the inflation environment, the interest rate environment, deglobalization,
• 22:52
  Speaker 4: all these things that we talk about constantly on this podcast.
• 22:55
  Speaker 4: Right the next and ten years, look they look tough.
• 22:58
  Speaker 5: Yeah, said, there's a number of things. Firstly, are our
• 23:00
  Speaker 5: approach to investing means that we always do better when
• 23:02
  Speaker 5: things are tough for clients. So I always say to clients,
• 23:07
  Speaker 5: our business was built off of misery. So the first
• 23:09
  Speaker 5: of the tech bust in two thousand, where Angus was,
• 23:12
  Speaker 5: as far as I understood, was the only prime manager,
• 23:15
  Speaker 5: it didn't lose significant amounts of client capital.
• 23:17
  Speaker 4: Angus Tunneck by the way, for listeners not familiar with
• 23:20
  Speaker 4: the history.
• 23:20
  Speaker 5: Here, yeah sorry. And the global financial crisis where we
• 23:24
  Speaker 5: once again showed that we lost capital, but far less
• 23:26
  Speaker 5: than everybody else. So bad times aren't necessarily the way
• 23:29
  Speaker 5: that we approach investment aren't necessarily bad times for us.
• 23:33
  Speaker 5: There are times to you know, not prove that you
• 23:36
  Speaker 5: know the good companies, and good companies do better in
• 23:38
  Speaker 5: tough times because they tend to have not been near
• 23:40
  Speaker 5: bankruptcy and they have more capital to expand they tend
• 23:44
  Speaker 5: to have a mindset where they understand that. The second
• 23:46
  Speaker 5: thing to say is that you talk about all of
• 23:48
  Speaker 5: these problems their globals, but we're emerging market people. We
• 23:51
  Speaker 5: see a crisis every other year somewhere, right. It's so
• 23:55
  Speaker 5: for us, this is quite normalized inflation going from zero
• 23:58
  Speaker 5: to twenty percent. It's for us, it's not a difficult
• 24:02
  Speaker 5: The finding says we've been very skeptical about the global
• 24:07
  Speaker 5: policy framework, monetary policy framework for decades, and I think
• 24:10
  Speaker 5: it started with LTCM personally, where they bailed out the
• 24:14
  Speaker 5: hedge fund and gave the message to everybody that you
• 24:16
  Speaker 5: can take the gloves off, you can take as much
• 24:18
  Speaker 5: risk as you like, and we're going to underwrite credit.
• 24:21
  Speaker 5: So we've been expecting inflation quite a long time as
• 24:24
  Speaker 5: if to prove that we're not our forecasts. You know,
• 24:27
  Speaker 5: we're not a good time as a forecast. So a
• 24:29
  Speaker 5: lot of the companies that we invest in, because they
• 24:32
  Speaker 5: are in volatile environments anyway, tend to be ones that
• 24:35
  Speaker 5: should do okay in a higher inflation or a higher
• 24:38
  Speaker 5: inflation low growth environment. You see all these consumer staples
• 24:42
  Speaker 5: companies moaning about about cost of the cost of living.
• 24:45
  Speaker 5: All this stuff. That's fine, but they are the cost
• 24:48
  Speaker 5: of living. You do sometimes wonder whether they are, whether
• 24:54
  Speaker 5: they mean what they say. They quite like inflation. I
• 24:55
  Speaker 5: remember a company we used to invest in for many
• 24:58
  Speaker 5: years in South Africa, So Africa always had inflation about
• 25:01
  Speaker 5: four or five percent, and I remember meeting the gentleman
• 25:04
  Speaker 5: that ran it. It was a consumer stables coming, and he
• 25:06
  Speaker 5: just said, look to me, he said, inflation makes us
• 25:07
  Speaker 5: look like geniuses. I don't have to do anything. I
• 25:11
  Speaker 5: just put my prices up. Five percent of my costplace
• 25:13
  Speaker 5: is relatively fixed. They've got a bunch of warehouses, and
• 25:16
  Speaker 5: so those sorts of companies should do better. Some of
• 25:20
  Speaker 5: the other tailwinds around global growth have always been questionable
• 25:24
  Speaker 5: as well for years. I mean, the West is hugely indebted,
• 25:27
  Speaker 5: both at the government level and at the private sector level,
• 25:30
  Speaker 5: and essentially's creating inflation. I would argue to remove debt
• 25:33
  Speaker 5: or to reduce debt. So those have been present for
• 25:37
  Speaker 5: I'd say at least fifteen years those issues.
• 25:39
  Speaker 4: So you've been expecting the environment that we're in now
• 25:42
  Speaker 4: for a while, and you'd expect this relatively high inflation
• 25:45
  Speaker 4: dynamic across the West to continue.
• 25:48
  Speaker 5: It's a normalized situation for me, And if I think
• 25:52
  Speaker 5: about the themes and mac Creek enormous, if you want
• 25:55
  Speaker 5: to call it, I would have thought inflation would have
• 25:57
  Speaker 5: read its head earlier. They just had a huge tail
• 26:00
  Speaker 5: in from the gains from trade and from technology. So
• 26:02
  Speaker 5: I think this is a normal situation. I think it's
• 26:05
  Speaker 5: just that some of those chickens have come home to roos.
• 26:07
  Speaker 4: There's no.
• 26:10
  Speaker 5: Politicians aren't and populations aren't. But in emerging economies it's
• 26:16
  Speaker 5: a slightly different story. I mean, populations are used to
• 26:18
  Speaker 5: the idea that a bank will go bust and take
• 26:20
  Speaker 5: all your money. For example, they used to this right
• 26:23
  Speaker 5: because they've seen it within living memory. It's wiped out
• 26:26
  Speaker 5: middle classes across Latin America and also in Africa, so
• 26:30
  Speaker 5: they're used to the idea that there's a predatory elite.
• 26:34
  Speaker 5: When you look at Transparency International's work and corruption perceptions,
• 26:38
  Speaker 5: these are normalized expectations and they're used to very volatile
• 26:42
  Speaker 5: operating environments. So I think it's again just coming from
• 26:46
  Speaker 5: our corner of the world, well many billion people in
• 26:49
  Speaker 5: the world. I don't think it's necessarily something that's unusual
• 26:52
  Speaker 5: for us. It's more unusual for in the West.
• 26:54
  Speaker 4: Perhaps in the last to say you're more equipped. Let's
• 26:58
  Speaker 4: talk then about the types of companies that you're looking
• 27:00
  Speaker 4: up for. You said, there's a very small number of
• 27:03
  Speaker 4: these companies. What are they like?
• 27:04
  Speaker 5: We tried to describe it with three words, which is who,
• 27:08
  Speaker 5: what and how? Who is who are giving your money to?
• 27:11
  Speaker 5: So we look at the history of often families, sometimes
• 27:14
  Speaker 5: managers are people that we giving up money to. And
• 27:16
  Speaker 5: some of these histories go back hundreds of years, which
• 27:18
  Speaker 5: is remarkable, and we tried to weigh up evidence of
• 27:22
  Speaker 5: wrongdoing and evidence of stewardship, and we try to take
• 27:27
  Speaker 5: a view on who we're going to give the money to.
• 27:29
  Speaker 4: So you're looking at the long term history of the
• 27:31
  Speaker 4: company on the basis that creates the current culture of
• 27:34
  Speaker 4: the company.
• 27:35
  Speaker 5: For a number of reasons, we're often investing with families.
• 27:38
  Speaker 5: You know, families have done something bad to minority shaholders
• 27:41
  Speaker 5: or other stakeholders in the society twenty or thirty years ago.
• 27:45
  Speaker 5: They can do it again quite easily under stress. And
• 27:48
  Speaker 5: the biggest issue in emerging markets is having to sell
• 27:51
  Speaker 5: after your share price falls, and if you have a
• 27:53
  Speaker 5: low quality, what we call a low quality company and
• 27:55
  Speaker 5: the share price falls fifty percent and something terribles happened,
• 27:57
  Speaker 5: You have to sell and destroy your client's capital, whereas
• 28:00
  Speaker 5: if you have a very good company, you have confidence
• 28:02
  Speaker 5: in in which you have confidence, so you can buy
• 28:04
  Speaker 5: more and you can be happy. We can't forecast the future,
• 28:06
  Speaker 5: but we it's this having to sell emerging markets when
• 28:09
  Speaker 5: it's already lost to you a lot of money. We
• 28:11
  Speaker 5: would hope that most of our companies, as we were
• 28:13
  Speaker 5: in two thousand and nine, we were very happy because
• 28:17
  Speaker 5: we knew that we could buy more and we had
• 28:18
  Speaker 5: a good chance of making a sceptable return. So we're
• 28:21
  Speaker 5: going to make fear of those mistakes. So that but
• 28:23
  Speaker 5: who is most important for that? It's really interesting work
• 28:26
  Speaker 5: because I said, we're going back into history and we're
• 28:30
  Speaker 5: looking at all kinds of information that the financial markets
• 28:34
  Speaker 5: tends to often ignore.
• 28:35
  Speaker 4: I suspect, can you give us an example if.
• 28:38
  Speaker 5: You look at the Tartar Group, for example, in India,
• 28:40
  Speaker 5: If you really want to think about why that company
• 28:42
  Speaker 5: operates as best it can, and there's no such thing
• 28:45
  Speaker 5: as a perfect company, of course, in as ethical way
• 28:47
  Speaker 5: as it can, you actually have to go back to
• 28:49
  Speaker 5: zoroast the Zoroastrian religion, which goes back thousands of years.
• 28:52
  Speaker 5: The Majei in the Nativity story was Zoastrian priests, and
• 28:55
  Speaker 5: there's a metaphor there about handing over a religious idea
• 28:59
  Speaker 5: of of looking after people looking after others in that story.
• 29:03
  Speaker 5: So if you really want to go back, you can
• 29:04
  Speaker 5: go back all that way and then you can see
• 29:06
  Speaker 5: how that plays out today. Now that doesn't mean that
• 29:09
  Speaker 5: the company doesn't make mistakes, but behind it, what you
• 29:12
  Speaker 5: have is a confidence in that group that if the
• 29:14
  Speaker 5: wrongdoing happens, that it will be addressed, or that if
• 29:17
  Speaker 5: fundamentally it's built on an ethical system that's trying to
• 29:20
  Speaker 5: take advantage of a huge growth environment India, but not
• 29:24
  Speaker 5: in a way that is undesirable from a legal point
• 29:27
  Speaker 5: of view, from an ethical point of view. So something
• 29:29
  Speaker 5: goes wrong in a company and it falls fifty percent,
• 29:32
  Speaker 5: if you have that knowledge, you're more likely to be
• 29:36
  Speaker 5: able to buy that company. So that's the most obvious.
• 29:38
  Speaker 5: But there are many groups in long histories, and sometimes
• 29:41
  Speaker 5: I was looking at a Brazilian company the other day,
• 29:43
  Speaker 5: which goes back to nineteen sixties, for example, and that's
• 29:47
  Speaker 5: a fair amount of it's not thousands of years, but
• 29:49
  Speaker 5: that's when the company was founded.
• 29:50
  Speaker 4: And get a sense of the culture.
• 29:52
  Speaker 5: It's the and the same families are running it now
• 29:54
  Speaker 5: and it's decisions that they made. Brazil's a pretty dirty pond,
• 29:58
  Speaker 5: as was exposed by the petrop our scandal. And so
• 30:02
  Speaker 5: if you're sitting owning a share in a company which
• 30:04
  Speaker 5: could be exposed for let's say, corruption and bribery and
• 30:08
  Speaker 5: fall seventy percent as a result within a week, you
• 30:11
  Speaker 5: want to be pretty sure that the company you own
• 30:13
  Speaker 5: is not one of those. And so that means there's
• 30:15
  Speaker 5: a very small number of companies that you can be
• 30:17
  Speaker 5: sure that that or you can have a high degree
• 30:18
  Speaker 5: of confidence. So that's not the case.
• 30:20
  Speaker 4: And will that Brazilian company make it into the portfolio?
• 30:22
  Speaker 5: It Well, it became rather popular. We owned it for
• 30:25
  Speaker 5: a decade. It became rather popular. But it's becoming less
• 30:27
  Speaker 5: popular now, which is why I'm not giving you the name.
• 30:29
  Speaker 4: I know, gearing up to trying to make it tell me.
• 30:34
  Speaker 5: But it's it became very popular and it's it's becoming
• 30:36
  Speaker 5: less popular.
• 30:37
  Speaker 4: That is a listener's guess is on a postcard, please
• 30:40
  Speaker 4: go see that's the who and then there's the what.
• 30:43
  Speaker 5: So the what is is the franchise good enough to
• 30:46
  Speaker 5: make acceptable returns for its owners? And how do we
• 30:50
  Speaker 5: think about that? We think about that in terms of
• 30:53
  Speaker 5: pricing power. So if you're an environmental inflation go from
• 30:55
  Speaker 5: zero to twenty percent, you better have pricing power because
• 30:58
  Speaker 5: if you don't, you don't have any profit left. So
• 31:02
  Speaker 5: I remember being in Ghana talking to the women that
• 31:05
  Speaker 5: ran Unilever there. They actually have a list of so
• 31:07
  Speaker 5: they had delicious subsidiary in garner tiny and Ghanan inflation,
• 31:12
  Speaker 5: as it often does, have gone through the roof. And
• 31:14
  Speaker 5: I remember sitting and she telling me that her most
• 31:16
  Speaker 5: difficult decision was when to raise prices for their products.
• 31:19
  Speaker 5: It wasn't if, it was when and how, because she
• 31:21
  Speaker 5: was keenly aware that, you know, this was going to
• 31:23
  Speaker 5: hurt the pockets of the poor, and how you can
• 31:26
  Speaker 5: do that. But what that showed me was partly about
• 31:29
  Speaker 5: the ethical side of union, but also that they had
• 31:31
  Speaker 5: pricing power. They can do it. Imagine if you can't.
• 31:34
  Speaker 5: If you're a commodity where the you know whether your
• 31:37
  Speaker 5: inputs go up fifty percent or twenty percent. So this
• 31:39
  Speaker 5: idea of pricing perier I think is important, and that
• 31:41
  Speaker 5: tends to take us towards consumer staples types, companies with brands,
• 31:45
  Speaker 5: and some industrial companies with intellectual property and trust. The
• 31:48
  Speaker 5: other side of it is how did they get the
• 31:50
  Speaker 5: license to operate in the first place, which overlaps with
• 31:52
  Speaker 5: the who. Sometimes if there's an original sin there, it
• 31:56
  Speaker 5: can come back to bite you quite badly in emerging markets.
• 31:58
  Speaker 4: What do you mean by original sin?
• 32:00
  Speaker 5: If the business was given by license by a government
• 32:04
  Speaker 5: or a dictatorship to a company, when the regime changes,
• 32:08
  Speaker 5: you can find your supposedly strong franchise disappearing into the
• 32:12
  Speaker 5: dark seconds. Yeah, so I think that's part of the
• 32:14
  Speaker 5: what is that? And we try to stay as far
• 32:17
  Speaker 5: away from government as we can, although let's face it,
• 32:21
  Speaker 5: in any economy, the government can interfere with you in
• 32:24
  Speaker 5: any way it likes. But we try we try to
• 32:26
  Speaker 5: stay as far away from those sorts of licenses, having
• 32:30
  Speaker 5: made those mistakes over the years in the past. So
• 32:32
  Speaker 5: that's really that's another part of the what really that's
• 32:34
  Speaker 5: that's quite important. The final part is what you might
• 32:36
  Speaker 5: is now called ESG, but it's more we just think
• 32:38
  Speaker 5: of it in times of tailors and headwinds. Have the
• 32:41
  Speaker 5: management positioned the business to benefit from things that might
• 32:44
  Speaker 5: go right in the next ten years, and not suffer
• 32:47
  Speaker 5: from things that headwinds that might go wrong in the
• 32:50
  Speaker 5: next ten years, such as governments deciding to price environmental
• 32:54
  Speaker 5: externalities in a way that they should, in a way
• 32:56
  Speaker 5: that would that would and with that removed profit. Give
• 33:00
  Speaker 5: an example, we used to have an organization look at them.
• 33:02
  Speaker 5: We're talking fifteen years ago. Look at the carbon footprint
• 33:05
  Speaker 5: of businesses. That's right, maybe more fashionable now, but the
• 33:08
  Speaker 5: point was that there were some businesses, often related to
• 33:11
  Speaker 5: ther and gas industry, whereas if they had to pray
• 33:13
  Speaker 5: even a sort of half decent price for the government
• 33:16
  Speaker 5: with they wouldn't make any profit. So again, your license
• 33:20
  Speaker 5: to operate depends on governments, and it depends on deals
• 33:24
  Speaker 5: done you know in places that I will never visit,
• 33:27
  Speaker 5: allowing that not to happen or it to happen gradually.
• 33:31
  Speaker 4: But you say that's ESG. But that's just G, isn't it.
• 33:33
  Speaker 4: Which just environmental social governance. That's only the governance bit.
• 33:38
  Speaker 5: The idea is that good stewards of our client's money
• 33:41
  Speaker 5: will they'll get things wrong and get things right, but
• 33:44
  Speaker 5: they will look at these issues, and they should be
• 33:46
  Speaker 5: better at it than we should in their businesses. And
• 33:48
  Speaker 5: they should be looking long term at the issues and
• 33:50
  Speaker 5: trying to address them before they become fatal. And the
• 33:54
  Speaker 5: idea that a fund manager turns up and this has
• 33:57
  Speaker 5: happened to many times and then tells the management of
• 33:59
  Speaker 5: a company what's good for that company? How on earth
• 34:03
  Speaker 5: would you own shares in a company where you have
• 34:05
  Speaker 5: to tell them you haven't.
• 34:08
  Speaker 6: Spotted these five risks. So if you believe that about
• 34:11
  Speaker 6: the company you're investing it, there's something wrong with that company,
• 34:14
  Speaker 6: and we can engage with the company. But if they
• 34:16
  Speaker 6: really haven't, then you probably on the long term shouldn't
• 34:19
  Speaker 6: give your clients money to that company. So we want
• 34:21
  Speaker 6: people that will navigate all the uncertainty for us.
• 34:23
  Speaker 4: Thank you. So when other vund managers talk about ESG,
• 34:26
  Speaker 4: for example, they talk about divesting or about having very
• 34:29
  Speaker 4: clear divestment rules, areas they won't invest in, types of
• 34:32
  Speaker 4: companies they won't invest in. They have lots of box
• 34:35
  Speaker 4: sticking readlines around all sorts of things, and a constant conflict,
• 34:39
  Speaker 4: to my mind and lots of other people's minds between
• 34:42
  Speaker 4: the E and the S and the G in the
• 34:44
  Speaker 4: overlay that they give themselves. But it sounds to me
• 34:47
  Speaker 4: like you don't really have any of those breadlines or
• 34:51
  Speaker 4: box sis. You just have a general sense of wanting
• 34:54
  Speaker 4: to invest in companies that provide good long term stewardship.
• 34:58
  Speaker 4: And that definition is fairly yeah, I have gray areas
• 35:02
  Speaker 4: in it.
• 35:03
  Speaker 5: I think it overlaps with the ESG. But we can
• 35:05
  Speaker 5: step back in the finance and drives training economics, and
• 35:08
  Speaker 5: we all, like a lot of people in finance are
• 35:10
  Speaker 5: trained in mathematics and statistics and economics, and they like
• 35:14
  Speaker 5: right answers. So price and quantity is determined by supply
• 35:18
  Speaker 5: and demand. There's a right answer. So, but the world
• 35:20
  Speaker 5: is much more gray than that. And people that often
• 35:23
  Speaker 5: do quite well in what we do are trained as
• 35:25
  Speaker 5: lawyers or historians, and they're weighing up probabilities that here's
• 35:28
  Speaker 5: five pieces of evidence four and two pieces against and
• 35:31
  Speaker 5: the balance of probability, And if you're training finance, that's
• 35:34
  Speaker 5: completely alien to you this way of thinking. But this
• 35:37
  Speaker 5: is the way that we that we have approached investing.
• 35:40
  Speaker 5: So the ESG in a way is adding to the
• 35:43
  Speaker 5: list of points four. It's more like being a detective
• 35:45
  Speaker 5: in a way as well, if we think it's credible.
• 35:47
  Speaker 5: And that is some of the worst companies in emerging markets.
• 35:49
  Speaker 5: I was king one last yesterday. I won't mention they've
• 35:53
  Speaker 5: got the best greenwashing efforts.
• 35:55
  Speaker 4: To mention some names for us we names, Actually.
• 35:59
  Speaker 5: I wouldn't dare, but they've got some of the best
• 36:01
  Speaker 5: greenwashing efforts. Now you know that. For example, we spotted
• 36:04
  Speaker 5: many years ago who were them the oil companies and
• 36:06
  Speaker 5: the sustainability indices.
• 36:08
  Speaker 6: So yeah, we don't know what say about that, but
• 36:12
  Speaker 6: it's different.
• 36:13
  Speaker 4: And I remember the Warren your Grain began that we
• 36:16
  Speaker 4: found that there were some Russian oil companies that were
• 36:18
  Speaker 4: very high up the sustainability precisely. Well, this is mad.
• 36:23
  Speaker 5: Yeah, I remember having a meeting one with one many
• 36:25
  Speaker 5: years ago and a lot and I'll never forget it
• 36:28
  Speaker 5: because we asked them about global warming. This would have
• 36:30
  Speaker 5: been like two thousand and six, and he said, actually
• 36:33
  Speaker 5: it's good because our Siberian permafrost will become farmland. That's
• 36:37
  Speaker 5: as far as they got.
• 36:38
  Speaker 6: Then.
• 36:38
  Speaker 5: The actually wanted global warming to happen and change the
• 36:41
  Speaker 5: work the climate.
• 36:41
  Speaker 4: So they very fed off farmland, haven't they.
• 36:44
  Speaker 5: Yeah, Well, you know you know, this is as far
• 36:46
  Speaker 5: as they got, so I'm sure that their efforts and
• 36:48
  Speaker 5: sort of you know, have moved further on at least
• 36:51
  Speaker 5: they think they have to present it. But back then
• 36:53
  Speaker 5: they didn't even have to pretend to give it down.
• 36:56
  Speaker 5: So it doesn't surprise me in that. So, yes, I
• 37:00
  Speaker 5: think that what is it has the CSGY aspect to it,
• 37:02
  Speaker 5: But we tend to sort of weigh up pros and
• 37:05
  Speaker 5: cons because there's no such thing as a perfect company,
• 37:08
  Speaker 5: and there are areas that we find very difficult to
• 37:10
  Speaker 5: invest in. They are I've always been tobacco. It's called defense,
• 37:14
  Speaker 5: but we I think that's to call it the attack industry,
• 37:18
  Speaker 5: and we found that difficult, especially and we actually don't
• 37:21
  Speaker 5: have many of that.
• 37:21
  Speaker 4: It's hard to argue that is not a social good
• 37:25
  Speaker 4: in some ways, I mean defense. I can see that
• 37:27
  Speaker 4: a lot of our managers have said historically, as you say,
• 37:31
  Speaker 4: defense slash attack, this is not something we want to
• 37:33
  Speaker 4: be involved in. But in an environment such as this, yes,
• 37:37
  Speaker 4: it's very hard to say that's something that isn't required.
• 37:41
  Speaker 5: I can see the point absolutely. And it's one of
• 37:43
  Speaker 5: these it gets greyer and actually the next one is.
• 37:45
  Speaker 4: Going to be it's a very gray one.
• 37:48
  Speaker 5: And we don't have many we don't have many possibilities
• 37:52
  Speaker 5: to do so.
• 37:53
  Speaker 4: And you said there's another even grayer area that which.
• 37:56
  Speaker 5: Is an area that a lot of people ask me
• 37:57
  Speaker 5: about now, is we found it very difficult and again
• 37:59
  Speaker 5: we haven't had much chance to invest in them. We
• 38:01
  Speaker 5: found it very difficult to invest over the years in
• 38:03
  Speaker 5: luxury goods companies, and that's an even grayer area. And
• 38:07
  Speaker 5: on the one hand, it's very aspirational and you know,
• 38:09
  Speaker 5: people striving for material, to gain pleasure for material. On
• 38:13
  Speaker 5: the other hand, we associate it and we have some
• 38:16
  Speaker 5: evidence that it's also linked to political economies or an
• 38:19
  Speaker 5: elite is stealing capital flight when.
• 38:21
  Speaker 4: It centered money not being shared.
• 38:24
  Speaker 5: You know, ending up in London or Singapore. And it's
• 38:26
  Speaker 5: interesting that Singapore government, i think, is thinking about this
• 38:29
  Speaker 5: now as well. And so what you're doing there is
• 38:31
  Speaker 5: you're trying to weigh up a number of gray areas.
• 38:34
  Speaker 5: You know, one is quite a positive sort of striving
• 38:36
  Speaker 5: and the other is actually there's a lot of capital
• 38:38
  Speaker 5: flight involved in the developing world in some of these goods,
• 38:41
  Speaker 5: and that's going against what we're trying to invest in.
• 38:44
  Speaker 5: The one thing you know is that as an African
• 38:46
  Speaker 5: is that one of the main differences between Asia and
• 38:50
  Speaker 5: Africa has been that the capital stayed in the country,
• 38:54
  Speaker 5: it stayed in sight in the country in Asia, and
• 38:57
  Speaker 5: in Africa it flew out at the first.
• 38:59
  Speaker 4: Time that's possible chance.
• 39:01
  Speaker 5: So so capital flight's a really big issue in terms
• 39:04
  Speaker 5: of those hundreds of millions of people getting richer. So
• 39:06
  Speaker 5: that's one we struggle with. But it's one that we
• 39:08
  Speaker 5: I thought I'd raise because.
• 39:09
  Speaker 4: It's even great, but we don't need it to do.
• 39:11
  Speaker 4: You don't need like triggers companies in your portfolio.
• 39:14
  Speaker 5: Firstly, there aren't that many unless globally, and even those
• 39:16
  Speaker 5: are not big emerging market businesses, and there were some
• 39:20
  Speaker 5: that tried to list in Hong Kong sort of as
• 39:22
  Speaker 5: exits I think a few years ago. So it's not
• 39:25
  Speaker 5: such a big issue, but it's something that we raised
• 39:26
  Speaker 5: to show the gray areas that we tried to that
• 39:28
  Speaker 5: we try to navigate.
• 39:30
  Speaker 4: Can I ask you have we done the where how?
• 39:34
  Speaker 1: Sorry?
• 39:35
  Speaker 5: How is it is now called the ESG. It's how
• 39:37
  Speaker 5: they're behaving. So if you've got a history of polluting
• 39:39
  Speaker 5: rivers or using child labor, or you know, illegal logging.
• 39:43
  Speaker 5: And it's so basically, if you're prepared to do that
• 39:46
  Speaker 5: to your own environment, your own.
• 39:47
  Speaker 7: People, what the hell you're going to do to your
• 39:48
  Speaker 7: front and already share already shareholder At some point we
• 39:52
  Speaker 7: used to call it how And I think that's partly
• 39:54
  Speaker 7: the risk that he's trying to capture as you say,
• 39:57
  Speaker 7: some people will say imperfectly, but it's a risk trying
• 39:59
  Speaker 7: to capture the health.
• 40:00
  Speaker 5: And it also tells us quite a lot about the
• 40:02
  Speaker 5: who how they behave for us. Who how is very
• 40:04
  Speaker 5: important in trying to really eliminate lots of companies. That
• 40:08
  Speaker 5: becomes quite easy in GEM because, for example, a company
• 40:11
  Speaker 5: that's run for.
• 40:12
  Speaker 4: The government, GEM Global imagine my Global American.
• 40:14
  Speaker 5: Markets sorry, so in developing it, so if you have
• 40:16
  Speaker 5: there are very large companies run either owned by the
• 40:19
  Speaker 5: government or run for the government. And always ask people
• 40:22
  Speaker 5: to peris that thought. But if the NHS was listed,
• 40:24
  Speaker 5: would you ever invest in it? Because the more profit
• 40:26
  Speaker 5: it made, the fewer lives itself. So this is a
• 40:28
  Speaker 5: massive conflict there, right, So would you do this?
• 40:31
  Speaker 3: No?
• 40:32
  Speaker 5: Right, you wouldn't because it would be you don't know
• 40:34
  Speaker 5: that the government would be involved. You just don't know
• 40:35
  Speaker 5: how that would work out. We've got a lot of
• 40:37
  Speaker 5: those who's in GEM and then we've got a lot
• 40:40
  Speaker 5: of families who we can't get comfort with the history
• 40:43
  Speaker 5: of how the assets have been acquired and whether that
• 40:45
  Speaker 5: will come back to them at some point. And that's
• 40:47
  Speaker 5: the classic case for you lose sixty percent and you
• 40:49
  Speaker 5: have to sell. So we just can't. We find that
• 40:52
  Speaker 5: really difficult.
• 40:53
  Speaker 4: Let's add aware to your list. Yes, which markets? Which
• 40:57
  Speaker 4: economy is interesting? I know that you don't do it like,
• 41:00
  Speaker 4: but nonetheless I think our listeners will find it interesting
• 41:02
  Speaker 4: to know which particular economies are working for you at
• 41:05
  Speaker 4: the moment.
• 41:05
  Speaker 5: Can I reframe it? I conditioned slightly to answer your question,
• 41:08
  Speaker 5: which is where do we find the most companies that
• 41:11
  Speaker 5: meet our criteria?
• 41:12
  Speaker 4: Yeah, that was a much better question.
• 41:14
  Speaker 5: So because we are so bottom up focused, I'm talking
• 41:17
  Speaker 5: about macro and we've tended to find more companies over
• 41:22
  Speaker 5: the many years in India. And that's that's because there
• 41:25
  Speaker 5: are so many companies listed in India, and the proportions
• 41:28
  Speaker 5: are still quite low. But it's just that there are
• 41:29
  Speaker 5: just so many and the stock market has been allowed
• 41:32
  Speaker 5: to evolve in a sort of vibrant way. We would
• 41:34
  Speaker 5: have hoped twenty years ago that the Turkey would have
• 41:36
  Speaker 5: gone the same way, but under different leadership it hasn't.
• 41:38
  Speaker 5: So that's a place where we find lots of companies.
• 41:40
  Speaker 5: We can find a few in Latin America. We ran
• 41:42
  Speaker 5: a Latin American fund in two thousand and nine on
• 41:44
  Speaker 5: the basis that there were a bunch of privators that
• 41:46
  Speaker 5: a bunch of companies that had listed in two thousand
• 41:48
  Speaker 5: and four, five and six that had, you know, some
• 41:50
  Speaker 5: track records that we could long track as we could test.
• 41:53
  Speaker 5: So I'd say that India is a place where we
• 41:55
  Speaker 5: find find that most companies at feud our criteria, but
• 41:58
  Speaker 5: it's because it's a low proportion of a much larger number.
• 42:02
  Speaker 4: China.
• 42:04
  Speaker 5: China we struggled with, and we struggled simply because of
• 42:07
  Speaker 5: answering the who question, which often impacts the what we have.
• 42:11
  Speaker 5: In the past, we used to invest in Taiwanese listed companies, example,
• 42:15
  Speaker 5: businesses in the mainland Hong Kong companies with businesses on
• 42:18
  Speaker 5: the mainland that we're going that we're going to mainland.
• 42:20
  Speaker 5: But but that I think is with the way that the
• 42:23
  Speaker 5: political environment Hong Kong has evolved. I think that's slightly
• 42:26
  Speaker 5: more difficult. So we've got a list of four or
• 42:29
  Speaker 5: five companies that we think we can evidence our entrepreneurial
• 42:33
  Speaker 5: built far away from leadership and the government there. And
• 42:38
  Speaker 5: that's out of a very large number. So it's a
• 42:39
  Speaker 5: small number of companies that we can get comfort with.
• 42:42
  Speaker 5: And yeah, we'll keep looking. I think China. China is
• 42:44
  Speaker 5: a huge economy which has a lot of dynamism in it,
• 42:47
  Speaker 5: and we will just keep looking. We struggled because of
• 42:50
  Speaker 5: it because at some point it always kicks back to
• 42:52
  Speaker 5: the leadership and you always go back to the political
• 42:54
  Speaker 5: economy there and do you really own equity or is
• 42:58
  Speaker 5: it decided by some opaque sort of mechanism. But I
• 43:01
  Speaker 5: wouldn't certainly would never want to rule out. The thing
• 43:03
  Speaker 5: that gives me more hope is that these issues are
• 43:07
  Speaker 5: now widely recognized where it's really the only words and
• 43:11
  Speaker 5: they're widely talked about, and it's an evolution of history
• 43:15
  Speaker 5: really how the West response to the rise of a
• 43:16
  Speaker 5: different viewpoint is more widely understood.
• 43:20
  Speaker 4: Do you have a set valuation criteria.
• 43:22
  Speaker 5: I've got my own money in the fund, so I
• 43:24
  Speaker 5: need to earn and that's assuming inflation does come down
• 43:27
  Speaker 5: again to some reasonable level. Is not allowed to run
• 43:31
  Speaker 5: off globally, and I need to earn ten percent in
• 43:34
  Speaker 5: nominal terms around ten percent. Nine would be fine. To
• 43:37
  Speaker 5: compound that over ten years to reward me a terrible
• 43:42
  Speaker 5: risk that I'm taking in all the risks I'm taking
• 43:44
  Speaker 5: in imagery market. And that's something I've been saying to
• 43:46
  Speaker 5: clients for a long time. That was one of the
• 43:48
  Speaker 5: reasons why ten years ago we had to look more globally.
• 43:51
  Speaker 5: And I think that as more achievable now. It's not
• 43:53
  Speaker 5: a not a forecast, as things have happened, but those
• 43:55
  Speaker 5: are the sorts of returns that I need to own
• 43:56
  Speaker 5: the best quality companies.
• 43:58
  Speaker 4: And this is more ajevle now because emerging mine because
• 44:00
  Speaker 4: are historically speaking relatively.
• 44:02
  Speaker 5: Cheap, they're relatively unpopular, and there's still some very expensive
• 44:06
  Speaker 5: some good quality companies that we'd love to earn are
• 44:08
  Speaker 5: still too expensively.
• 44:09
  Speaker 4: And what do you mean by too expensive?
• 44:11
  Speaker 5: The returns that I can own and for them are
• 44:13
  Speaker 5: below the eight percent.
• 44:14
  Speaker 4: Threshold based on the valuations.
• 44:17
  Speaker 5: Yeah, the problem with valuation is just using a straight
• 44:19
  Speaker 5: p number.
• 44:20
  Speaker 4: Yeah, he always knows what. You always know what. I'm
• 44:22
  Speaker 4: trying to get you to say.
• 44:23
  Speaker 5: Just using a straight ignores the idea of firstly the
• 44:26
  Speaker 5: return you want to earn and the growth that you
• 44:28
  Speaker 5: think the company's going to We're not people that are
• 44:29
  Speaker 5: widely optimistic about about growth. So I prefer to talk
• 44:33
  Speaker 5: in terms of return because a pe of five four
• 44:37
  Speaker 5: I don't actually I don't know what the PEE of
• 44:39
  Speaker 5: some of the worst data owned companies in GM are,
• 44:40
  Speaker 5: but they're very cheap. And they're cheap because ultimately you
• 44:44
  Speaker 5: have to ask a question whether you actually own anything
• 44:45
  Speaker 5: by owning them. So I think a sort of very
• 44:48
  Speaker 5: sort of valuation focused approach and GEM can work for
• 44:51
  Speaker 5: two or three years, no doubt does when people get
• 44:54
  Speaker 5: really sort of bullish, but the long term has been
• 44:56
  Speaker 5: proven not to work, and that's because of the governance.
• 44:58
  Speaker 5: Do you own the thing or not? Or is it
• 45:00
  Speaker 5: being run for something completely different? So that's why I
• 45:03
  Speaker 5: prefer to talk in terms of returns. A low PEE
• 45:06
  Speaker 5: tends to indicate that you can make higher returns, but
• 45:08
  Speaker 5: then if the business is going to shrink for the
• 45:10
  Speaker 5: next ten years, then you're.
• 45:11
  Speaker 4: Not value traps.
• 45:13
  Speaker 5: Yes, absolutely, and Jem has got I would argue lots
• 45:17
  Speaker 5: of those, and I'm not here to say that I'm
• 45:19
  Speaker 5: not optimistic about owning state owned anything in GEM. They
• 45:23
  Speaker 5: can have a good two or three years, But we're
• 45:24
  Speaker 5: trying to make teny decisions, and I'm not. It's just
• 45:27
  Speaker 5: something a decision we just can't make. So those sorts
• 45:30
  Speaker 5: of returns we can find in companies that are going
• 45:33
  Speaker 5: to grow ten or fifteen percent on ADAM for the
• 45:34
  Speaker 5: next ten years. We can find them in companies that
• 45:36
  Speaker 5: are going to grow five percent per an in the
• 45:38
  Speaker 5: next ten years, or where we could reasonably think that
• 45:40
  Speaker 5: they will. But those are the sorts of returns we need,
• 45:44
  Speaker 5: and they are present. Otherwise I wouldn't be putting my
• 45:48
  Speaker 5: money into the fund. You know. Whether we end up
• 45:51
  Speaker 5: earnning seven percent or twelve, that's fine, but we're in
• 45:54
  Speaker 5: that right ballpark.
• 45:55
  Speaker 4: Now, can you give us a couple of examples of
• 45:57
  Speaker 4: the companies in your top five?
• 45:59
  Speaker 5: Yeah, I'm trying to give ones that because we were
• 46:02
  Speaker 5: about to launch our fund.
• 46:04
  Speaker 4: I know, I understand this. It's a really difficult time
• 46:06
  Speaker 4: for me to We're asking you do name names. Anything
• 46:10
  Speaker 4: that's big enough that our conversation here can't hose the price.
• 46:14
  Speaker 5: It has to be a very big company. I'll tell
• 46:18
  Speaker 5: you about the last report I wrote. We write our
• 46:20
  Speaker 5: fund managers, we don't believe our analysts, so we write
• 46:23
  Speaker 5: do all our own work. We don't use The cell
• 46:25
  Speaker 5: side is full of very bright people, but we think
• 46:27
  Speaker 5: they're asking very short term questions because they're encouraging people
• 46:30
  Speaker 5: to buy in seal stock. So if a person buys
• 46:33
  Speaker 5: and wholes it ten years, it doesn't make the sell
• 46:34
  Speaker 5: side any money. So we do all our research. The
• 46:37
  Speaker 5: last company I wrote a report on which we were
• 46:40
  Speaker 5: going to discuss late this afternoon is a Japanese company
• 46:43
  Speaker 5: called unit Charm. We've owned it for many years and
• 46:47
  Speaker 5: many years and it is it's one of the leading
• 46:50
  Speaker 5: makers of diapers and sanitary neplins in the world. And
• 46:53
  Speaker 5: the interesting about the company is about forty years ago
• 46:56
  Speaker 5: when the Sun forty years ago, before the Sun took over,
• 47:01
  Speaker 5: it realized that Japan was shrinking and it started and
• 47:04
  Speaker 5: it started as an expansion into emerging markets. That would
• 47:08
  Speaker 5: has often been a recipe for disaster for companies all
• 47:11
  Speaker 5: over the world. Well, you know, we've got to get
• 47:12
  Speaker 5: some growth, but they did it very carefully and they
• 47:14
  Speaker 5: now have over sixty percent of their sales is outside
• 47:18
  Speaker 5: Japan and mostly.
• 47:19
  Speaker 4: In Okay, so this counts as the line of the companies.
• 47:23
  Speaker 4: It is global but very exposed for emerging.
• 47:25
  Speaker 5: I use it for a number of reasons. Firstly because
• 47:27
  Speaker 5: it's a global company exactly because it's a bigger liquid
• 47:31
  Speaker 5: but also it's the last report that I wrote, and
• 47:33
  Speaker 5: it's we've we've met the founder, saw the owner many times.
• 47:36
  Speaker 5: A run by the owner. We love companies are run
• 47:38
  Speaker 5: by owners with a long term view because they take
• 47:40
  Speaker 5: different sorts of risk to somebody that's on a three
• 47:42
  Speaker 5: year option program. So for example, it's balance sheet, it
• 47:45
  Speaker 5: has its balance sheet is ungeared, it has cash and
• 47:48
  Speaker 5: it's balance sheet, which a professional manager wouldn't do because
• 47:51
  Speaker 5: on a three year view, especially low interest rates, you
• 47:53
  Speaker 5: buy back shares and increase EPs. But a real steward
• 47:57
  Speaker 5: knows that the tough times come and maybe a bit
• 47:59
  Speaker 5: of cas should be good so that when the tough
• 48:01
  Speaker 5: times are here, you can make some acquisitions, you can
• 48:03
  Speaker 5: take market share. So that's the last company that I
• 48:05
  Speaker 5: wrote on, this company that we've owned for years. There's
• 48:08
  Speaker 5: some very interesting two or three companies in Latin America.
• 48:12
  Speaker 5: For example, that and JEM is one of the reasons
• 48:14
  Speaker 5: JEMs failed is some of the even the very well
• 48:17
  Speaker 5: strewarded companies fell on hard times and made mistakes. And
• 48:21
  Speaker 5: one of those companies is a company called Natura in Brazil,
• 48:24
  Speaker 5: which we owned for many years and then had to
• 48:25
  Speaker 5: sell because they were the founders had decided to go
• 48:29
  Speaker 5: on a debt funded acquisition spree, which essentially has caused
• 48:35
  Speaker 5: the company some problems in the last ten years. They
• 48:37
  Speaker 5: brought the body shop in the UK, which was an error,
• 48:41
  Speaker 5: and they bought even which may or may not be
• 48:42
  Speaker 5: an error. So we engaged the companies and sold many
• 48:45
  Speaker 5: years ago. We were very concerned about the company because
• 48:48
  Speaker 5: of the debt profile until they did something a few
• 48:51
  Speaker 5: months ago which they had incubated a business called ASoP.
• 48:55
  Speaker 5: We didn't realize the value in that business, so that's
• 48:58
  Speaker 5: our mistake in many ways. But they just sold that
• 49:01
  Speaker 5: to Laurel to It, which essentially removes all the debt
• 49:04
  Speaker 5: that we thought they had. And that deal has been done,
• 49:07
  Speaker 5: so what you now have is the same stewards who
• 49:09
  Speaker 5: are chastened.
• 49:10
  Speaker 4: There's been a change of chasing with cash.
• 49:12
  Speaker 5: Who were no longer indebted and have a much bigger
• 49:15
  Speaker 5: business and the stock prices sixty or seventy percent lower
• 49:20
  Speaker 5: than it was off the top of my head ten
• 49:22
  Speaker 5: years ago. It has they have brands, and they're one
• 49:25
  Speaker 5: of the only B corps in emerging markets for if
• 49:27
  Speaker 5: you like ESG. But I think they were doing it.
• 49:29
  Speaker 5: They were doing ESG before anybody even knew what it was,
• 49:32
  Speaker 5: so it was just part of the DNA of the
• 49:33
  Speaker 5: founders of the company essentially. And so yeah, so that's
• 49:36
  Speaker 5: a very interesting company because it's kind of the microcosm
• 49:38
  Speaker 5: of part of the reason why Emerjory Markets failed for
• 49:40
  Speaker 5: ten years, which is some even some of the really
• 49:42
  Speaker 5: good companies made mistakes. And if you can find companies
• 49:46
  Speaker 5: with those mistakes, they realized and clearly they didn't bet
• 49:49
  Speaker 5: that the ship because they had this business and they
• 49:52
  Speaker 5: knew then that might be quite an interesting company touring
• 49:55
  Speaker 5: for the next ten years. Yeah, So that's that's that's
• 49:58
  Speaker 5: another example, different type of example.
• 50:01
  Speaker 4: You gave all examples. Thank you. Yes, Now listen, Jonathan,
• 50:06
  Speaker 4: I have to ask you a question that you won't like.
• 50:08
  Speaker 4: You won't like, but I have to ask everybody at
• 50:10
  Speaker 4: the end of the podcast. We're watching the answers very closely,
• 50:13
  Speaker 4: so please be aware this is extremely important. Okay. I
• 50:19
  Speaker 4: am going to let you buy one asset, and one
• 50:22
  Speaker 4: asset only for the next ten years, and I'm going
• 50:25
  Speaker 4: to give you a choice of three all of which
• 50:26
  Speaker 4: you will hate, but one of which you must choose gold, Bitcoin,
• 50:32
  Speaker 4: or cash in a deposit account in the UK.
• 50:36
  Speaker 5: I have to answer as I personally have so apart
• 50:38
  Speaker 5: from my own fund, I have cash in a deposit account,
• 50:40
  Speaker 5: in a government deposit account in the UK percent So
• 50:45
  Speaker 5: it's my fun than that.
• 50:46
  Speaker 4: Okay, So you would take cash over gold over a
• 50:50
  Speaker 4: ten year period, we were very despite your your belief
• 50:53
  Speaker 4: that I share that there is a degree of financial
• 50:56
  Speaker 4: oppression underway.
• 50:59
  Speaker 5: I think if again, if I think you'd have asked
• 51:02
  Speaker 5: me fifteen years ago, I would have said, have a
• 51:04
  Speaker 5: bit of gold. I just never I've never felt comfortable
• 51:10
  Speaker 5: with gold, and I think that there are now alternatives
• 51:12
  Speaker 5: to it, and it hasn't it hasn't truly done what
• 51:17
  Speaker 5: we thought it would do fifteen years ago.
• 51:19
  Speaker 4: If I take cash out of the equation, this is
• 51:21
  Speaker 4: a supplementary question that I shouldn't ask, But if I
• 51:23
  Speaker 4: took cash out of the equation, would you choose gold
• 51:25
  Speaker 4: or bit core?
• 51:26
  Speaker 6: Oh?
• 51:26
  Speaker 5: Definitely gold yeah. Absolutely. I find the rise of these
• 51:31
  Speaker 5: alternative ways of storing and transacting wealth. I find them
• 51:35
  Speaker 5: to be partly technologically driven, but also partly a symptom
• 51:39
  Speaker 5: of the excessively loose monetary policy that we've had in
• 51:43
  Speaker 5: the last.
• 51:45
  Speaker 4: Take your pick years, forty years.
• 51:48
  Speaker 5: I don't blame I can see what they are, and
• 51:51
  Speaker 5: it's essentially in air mission that government is debasing your will.
• 51:55
  Speaker 5: But I don't believe that they are stable sources of
• 51:58
  Speaker 5: wealth and of capital preservation.
• 52:00
  Speaker 4: Okay, there we go, listeners, Gold. It is while actually
• 52:03
  Speaker 4: a sup pod count but secondary it's gold. Jonathan, thank
• 52:06
  Speaker 4: you so much for joining us today. There was really interesting.
• 52:09
  Speaker 5: Thank you, Thank you, Marion.
• 52:15
  Speaker 1: Thanks for listening to this week's Marin Talks Money. We
• 52:17
  Speaker 1: will be back next week. Catch our debrief on this
• 52:19
  Speaker 1: week's conversation on the Merin Talks Money after show in
• 52:22
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• 52:25
  Speaker 1: Apple News subscribers and to Bloomberg subscribers. Look out for
• 52:28
  Speaker 1: the after show online.
• 52:30
  Speaker 4: It's quite good actually.
• 52:32
  Speaker 1: In the meantime, if you like our show, rate review,
• 52:35
  Speaker 1: and subscribe wherever you listen to podcasts and do please
• 52:37
  Speaker 1: also tell your friends to listen. This episode was hosted
• 52:40
  Speaker 1: by me Maren Sunset Web. It was produced by Summer Sadi.
• 52:42
  Speaker 1: Additional editing by Blake Maple's bez Well thanks to Jonathan
• 52:46
  Speaker 1: Sante and John Steppek Is is You're to sign up
• 52:48
  Speaker 1: to John's daily newsletter Money Just still to the link
• 52:50
  Speaker 1: for that is in the show notes. And I say
• 52:52
  Speaker 1: that's quite good too,