Latest / Merryn Talks Money / Buy and Hold is Dead. Billionaire Michael Spencer on Why Good Investors Trade A Lot.

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Buy and Hold is Dead. Billionaire Michael Spencer on Why Good Investors Trade A Lot. · Merryn Talks Money

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  Speaker 1: Bloomberg subscribers only linkage in the show notes. Now onto
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  Speaker 1: the show. Welcome to Maren Talks Money, the podcast in
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  Speaker 1: which people who know the markets explain the markets.
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  Speaker 2: I am Maren Somerset Web.
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  Speaker 1: This week I was speaking with British billionaire Lord Michael Spencer.
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  Speaker 1: Michael is arguably one of the UK's most successful entrepreneurs.
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  Speaker 1: He's best known for ICAP, which you founded in nineteen
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  Speaker 1: eighty six and built into one of the world's biggest
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  Speaker 1: broken dealers, putting him among the City of London's most
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  Speaker 1: prominent figures, and later became an ex Group. Next Group
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  Speaker 1: which spends the sold to CME Group Inc. In twenty
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  Speaker 1: eighteen in a deal that valued the UK firm at
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  Speaker 1: three point nine billion pounds. In this conversation, Michael and
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  Speaker 1: I speak about a new venture he's passionate about, Nutshell
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  Speaker 1: Asset Management.
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  Speaker 2: Nutshell was founded in twenty nineteen.
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  Speaker 1: Last year Michael increased his stake in the operating company
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  Speaker 1: from twenty five percent to just over forty percent and
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  Speaker 1: took on the role of chairman. He's also a big
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  Speaker 1: investor in the growth fund itself, having put in twenty
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  Speaker 1: million pounds doing last year alongside a significant equity investment
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  Speaker 1: in the management company has now put sixty million pounds
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  Speaker 1: into this business. So we talk about why why is
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  Speaker 1: he so confident in nutshell strategy and so confident in
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  Speaker 1: Mark Ellis, who is the CEO. I also ask him
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  Speaker 1: about the other investment opportunity CCS at the moment and
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  Speaker 1: what do you think is the government needs to change
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  Speaker 1: to make the city of London more competitive.
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  Speaker 2: Hello Michael, thank you so much for joining us today.
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  Speaker 3: Thank you, it's a pleasure to be here.
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  Speaker 1: The first thing I want to talk about is this
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  Speaker 1: fund management business Nutshell. So you own part of the company.
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  Speaker 1: You are heavily invested in the fund that the company runs,
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  Speaker 1: and your chairman of it. So obviously this is a
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  Speaker 1: fund management style that means quite a lot to you.
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  Speaker 1: So I wonder if we could start by talking about Nutshell.
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  Speaker 2: What is it that brought you to that.
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  Speaker 4: I built my careerity though starting a company called ye
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  Speaker 4: Caap and it finished up as a very good story.
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  Speaker 4: But I've always followed the stock markets to the world,
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  Speaker 4: and really I guess that's my passion. And in recently
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  Speaker 4: traditional investing has become profoundly out of fashion as everyone
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  Speaker 4: wants to go towards index linking and passive management as
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  Speaker 4: opposed to active management. There's too much criticism of active
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  Speaker 4: managers taking two bigger fees and not generating performance. And
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  Speaker 4: four or five years ago I met Mark Ellis, who
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  Speaker 4: set up Nutshell. It's been formally a derivative trader RBS.
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  Speaker 4: Although I didn't know him personally, he was quite a
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  Speaker 4: big client to ICAP, the firm that I then ran,
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  Speaker 4: and he had a very very.
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  Speaker 3: Good track record as a deprivative.
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  Speaker 4: Trade But he was also likely passionate about the stock
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  Speaker 4: market and one people develop an analytical system that can
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  Speaker 4: process a lot of data over thousands of companies, not
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  Speaker 4: just in one market, but in the global market, to
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  Speaker 4: be able to access data on a huge basis, to
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  Speaker 4: give an analytical scoring to large numbers of very you know,
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  Speaker 4: thousands upon shares on a real time basis, and to
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  Speaker 4: create a matrix that would score stocks that when they
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  Speaker 4: got to a very high score, you bought them. But
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  Speaker 4: even because you bought them didn't mean you then owned
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  Speaker 4: them forever. If they went from having a very a
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  Speaker 4: very cheap rating, so you start buying them.
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  Speaker 3: He also took the view that if those stocks then.
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  Speaker 4: Became expensive because the statistics had changed or the share
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  Speaker 4: price had changed, that you could actually sell your holding
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  Speaker 4: as well. So it is actually a genuine active asset
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  Speaker 4: manager which has, relatively speaking, compared with many active as
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  Speaker 4: is quite a high stock turnover. Buy things when they
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  Speaker 4: are cheap, seldom when they become expensive, and process the
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  Speaker 4: data of literally tens of thousands of stocks worldwide from
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  Speaker 4: Japan through to the United States, obviously the very biggest market,
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  Speaker 4: and the performance of his project speaks for itself to me.
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  Speaker 4: In past six years it has had only one down year.
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  Speaker 3: The up years have been generous.
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  Speaker 4: I mean thirty five percent, four percent, twenty five, twenty
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  Speaker 4: six percent, twenty seven percent five out of those six years,
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  Speaker 4: and the down year was twenty two percent. Over the
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  Speaker 4: past three years, Nutshell is in the top one and
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  Speaker 4: a half percent of active funds. So it is possible
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  Speaker 4: you might say either this is a good project or
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  Speaker 4: it's just a lucky project. And I've watched Dick cafln
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  Speaker 4: have to really believe that what Market's done, what he
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  Speaker 4: has built here is a superior active management system for
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  Speaker 4: a platform, and I backed it with quite a lot
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  Speaker 4: of my money investing in the fund and also in
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  Speaker 4: taking an equity state and also becoming chairman.
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  Speaker 1: And when you look at the numbers so far, the
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  Speaker 1: fund is outperformed well, I guess you would see it
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  Speaker 1: its main compatitive Fundsmith. And because you had a bat
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  Speaker 1: withan all the papers, a bat with Terry Smith that
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  Speaker 1: Nutshell without form Fundsmith and Dean it did and you
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  Speaker 1: donated twenty thousand pounds to.
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  Speaker 2: Charity as a result.
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  Speaker 1: Blue Whale, who we've had on the podcast from the
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  Speaker 1: past and again has this quality growth bias, but one
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  Speaker 1: where you hold the stocks for a long time, and
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  Speaker 1: same of course with the nick Train, who also hasn't
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  Speaker 1: behaved particularly well recently. Blue Well by the Way had
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  Speaker 1: but nick Train again a similar kind of idea. Let's
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  Speaker 1: find these these quality growth companies, let's buy them when
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  Speaker 1: they're cheap, and let's hold them untill they're expensive, but
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  Speaker 1: over a long period of volatility. Whereas what appears to
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  Speaker 1: be happening in at Nutshell is you take that idea,
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  Speaker 1: buy good companies when they're cheap, sell them when the expensive,
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  Speaker 1: but you do it over a much shorter time period.
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  Speaker 3: And we're much more opportunity to stay, yeah.
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  Speaker 2: Much more atenistic. And then you have very very high turnover.
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  Speaker 1: And of course, one of the things that I've written
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  Speaker 1: about for decades and everyone else writes about too, is
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  Speaker 1: it one of the greatest killers of performance is turnover
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  Speaker 1: and the costs that come with turnover. So what Nutshell
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  Speaker 1: is doing is something that journalists, wealth managers, IFAs, etc.
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  Speaker 1: Have been explicitly avoiding for a long time. Very high turnover.
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  Speaker 4: Yes, but I think there is a slight change, if
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  Speaker 4: I might say, in the market structure today. A lot
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  Speaker 4: of the Nutshell transactions are done at close of day
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  Speaker 4: market auctions, so there isn't a bit off a spread,
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  Speaker 4: and execution commissions today are microscopic actually compared with what
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  Speaker 4: they wear several years ago, and pure execution commissions are
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  Speaker 4: really very low friction cost. So I think that the
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  Speaker 4: arguments against transaction costs are less powerful today than no where,
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  Speaker 4: certainly decade or twenty years ago. When I started at
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  Speaker 4: the stock market, commission rates were more than one percent,
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  Speaker 4: and if the modeling outperforms that friction, we grain alpha.
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  Speaker 4: And hitherto that has been the case, and I believe
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  Speaker 4: and hope it will continue to be interesting.
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  Speaker 1: Well, we talk a lot about activersive passive on this podcast,
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  Speaker 1: and we tend to have a bit of a bias
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  Speaker 1: towards active.
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  Speaker 2: We try not to be biased, but of course we always.
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  Speaker 1: Are, and I'm very pro the idea that there will
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  Speaker 1: come a point when there will be a return towards
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  Speaker 1: active And some of the research that we've looked at
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  Speaker 1: over the last couple of years is suggested to us
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  Speaker 1: that the genuinely active do outperform on average over most
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  Speaker 1: periods of time. It's just that inside what we consider
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  Speaker 1: to be active funds, there are an awful lot of
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  Speaker 1: funds that remain to a degree closet trackers. If you
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  Speaker 1: look at funds and you look at their active share
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  Speaker 1: you will more often than not find that funds with
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  Speaker 1: a very high active shareer with something else that makes
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  Speaker 1: them genuinely active do unperform passive.
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  Speaker 4: And I think that's a fair criticism because obviously, if
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  Speaker 4: you're running very big active funds, one thing you're terrified
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  Speaker 4: about doing falling anywhere, you know, far away from your
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  Speaker 4: benchmark indices, and that drags you all this psychologically towards
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  Speaker 4: being a closet tracker, whereas Nutshell absolutely is not in
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  Speaker 4: that category at all. We don't attach ourselves to any
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  Speaker 4: particular benchmark.
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  Speaker 3: That we represent we beat.
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  Speaker 4: We're out there just to beat the market and hopefully
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  Speaker 4: outperform as many of our competitors as we can. And
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  Speaker 4: of course there is a sort of an interesting intellectual
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  Speaker 4: mathematical contradiction here if everyone became only invested on a
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  Speaker 4: passive basis, and there'd be very little discrimination about evaluating
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  Speaker 4: them what's the right share price for a company?
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  Speaker 3: Because obviously, if you're a passive.
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  Speaker 4: Fund manager, you treat everything on an equal basis, and
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  Speaker 4: you only allocate your gap in relation to the market gap.
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  Speaker 4: You don't ever at any point have a discussion whether
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  Speaker 4: you think Nvidia is cheap or expensive, or what are
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  Speaker 4: the parameters will make it worth buying or not worth buying,
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  Speaker 4: or for a stotl like obviously Tesla another interesting one.
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  Speaker 1: So there comes a point when passive destroys the price
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  Speaker 1: discovery of the market.
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  Speaker 4: It undermines it dramatically. Yes, of course it does. It
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  Speaker 4: means the investors who are impassive effectively not taking a
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  Speaker 4: view whatsoever about any individual stock at all. They're just
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  Speaker 4: saying we want market exposure, and to an extent, also
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  Speaker 4: reinforces markets when they become overvalued and undervalued. When people
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  Speaker 4: are all piling in because it seems like a good
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  Speaker 4: thing to do, you can get the extremities of bull
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  Speaker 4: market runs taken to have a greater heights because momentum
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  Speaker 4: effect of investors piling in is exaggerated. They make no
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  Speaker 4: effort to ask themselves are stocks expensive or cheap at
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  Speaker 4: the moment?
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  Speaker 1: And is this where we are at the moment? Oh,
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  Speaker 1: we had a point perhaps with the US market where
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  Speaker 1: the constant inflows are passive. And again these unquestioned flows
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  Speaker 1: into the US market via passive fund that's given us
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  Speaker 1: this situation it's incredible concentration at the top of the
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  Speaker 1: market thirty seven percent of the US market top ten shares, etc.
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  Speaker 1: Which we hear about all the time. Do you think
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  Speaker 1: this is a function of genuine quality and value whatever
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  Speaker 1: their evaluations, Messa, but value at the top of the market,
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  Speaker 1: or is it a function in part of these passive
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  Speaker 1: flows and hand liable to severe disruption.
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  Speaker 4: I think the answer is that the predominance of passive
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  Speaker 4: investing has been an exacerbator on market valuations. Yes, in
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  Speaker 4: some instances, you obviously them get into the specifics world
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  Speaker 4: which ones and clearly the US has undoubtedly being dramatically
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  Speaker 4: and be normally successfully dynamic in being the crucible of
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  Speaker 4: so many of these great companies that have emerged in
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  Speaker 4: the United States in the past twenty years, all the
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  Speaker 4: names that are familiar to it, Magnificent seven and many
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  Speaker 4: others do and we haven't seen that really mirrored in
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  Speaker 4: the European markets and to a lesser extent elsewhere in
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  Speaker 4: the world. But yes, I do think it has probably
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  Speaker 4: lifted evaluations. And I'm taking personally a fairly cautious few
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  Speaker 4: on the markets right now. I think our valuations have
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  Speaker 4: been lifted to very high numbers.
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  Speaker 3: And obviously we're in a complete new.
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  Speaker 4: Political paradigm with the arrival of President Trump and is
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  Speaker 4: approach to global trade and commercial issues, particularly his attitude
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  Speaker 4: toward terarists, which I personally think are ultimately damage to
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  Speaker 4: the United States as well as other countries around the
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  Speaker 4: world and global trade certainly.
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  Speaker 1: Yeah, and this brings us into an environment where there's
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  Speaker 1: much more volatility across markets, which probably plays into the
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  Speaker 1: way Nutshelle operates for starters. But it does mean that
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  Speaker 1: what the thing at the moment is this shift from
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  Speaker 1: US equities over into European equities and maybe a little
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  Speaker 1: into UK equities, etc. We might be at the point
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  Speaker 1: where this shift away from American exceptionalism or what we
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  Speaker 1: have perceived as American exceptionalism, is beginning, possibly a decade
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  Speaker 1: or turning point.
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  Speaker 4: I mean to a degree, I actually think the United
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  Speaker 4: States does deserve a degree of credit for exceptionalism. It
• 11:47
  Speaker 4: has to been a nation that has had a wonderful
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  Speaker 4: culture of innovation, creativity, money making. You know, going to
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  Speaker 4: the United States, you notice that people are very, very
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  Speaker 4: successful and make lots of money, a widely shared by
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  Speaker 4: society and as a whole, whereas that's not really true
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  Speaker 4: in the United Kingdom. And I think indeed, when we
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  Speaker 4: get to talking about the success of investing in the
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  Speaker 4: United Kingdom companies that list here, and entrepreneurship, this is
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  Speaker 4: one of the issues that separates the United States from
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  Speaker 4: the many countries, particularly uken European countries in terms of
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  Speaker 4: the dynamism that people want to go out there and
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  Speaker 4: build their own companies and become rich and famous, and
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  Speaker 4: that has considered a great thing in the United States,
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  Speaker 4: whereas in the United Kingdom a lot of people think
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  Speaker 4: that if you've made a lot of money, you probably
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  Speaker 4: made it dishonestly, and.
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  Speaker 2: You should certainly give it a lord for the government.
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  Speaker 4: You should certainly the government should be entitled to take
• 12:38
  Speaker 4: ever larger amounts on it because you have very broad shoulders.
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  Speaker 4: And I think that is if you are talking about
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  Speaker 4: the United Kingdom specifically. I think those subliminal factors matter
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  Speaker 4: hugely in the long run, and the success of an
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  Speaker 4: economy is whether we really celebrate economic systems or we
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  Speaker 4: sniff it.
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  Speaker 1: Well, let's look at the UK then, and let's look
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  Speaker 1: at the UK market something again. We talk about it
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  Speaker 1: and write about a lot on this pot about how
• 13:07
  Speaker 1: can we make the UK market more attractive? And we've
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  Speaker 1: talked about what makes America so attractive, and we're seeing
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  Speaker 1: this shift in investor interest away from the US into
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  Speaker 1: other markets at the moment. But in the UK things
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  Speaker 1: really still look quite miserable, don't they. What can we
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  Speaker 1: do to bring the UK back from the brink?
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  Speaker 4: They are sadly bleak, And of course the answer is
• 13:29
  Speaker 4: this can't be sorted out in a quick period of time.
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  Speaker 4: It takes a whole cultural and ecosystem change, and there
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  Speaker 4: are several factors that need to be addressed first and foremost.
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  Speaker 4: I've always found it laughable that we are the only
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  Speaker 4: major stock market still has stamp duty. And as I've
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  Speaker 4: explained to Chancellor after Chancellor, if you say you're in
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  Speaker 4: favor of the stock market being a thriving stock market
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  Speaker 4: in the UK, why are we the only market in
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  Speaker 4: the world that has stamp duty. It's a tax on transaction,
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  Speaker 4: And as I said to very simply, if you have
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  Speaker 4: a tax on action that lowers the volume of turnover,
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  Speaker 4: of course it does. If you lower the volume of turnover,
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  Speaker 4: that means the stock is less liquid. Investors will pay
• 14:09
  Speaker 4: a premium to have liquid stocks. So what you are
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  Speaker 4: saying is, for fourth, the London market is less liquid,
• 14:15
  Speaker 4: therefore we're going to have lower rated stocks. And they
• 14:18
  Speaker 4: all look so well, is that really the only thing
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  Speaker 4: that matters? And then it's not the only thing. But
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  Speaker 4: if you are not prepared to abolish that duty, then
• 14:25
  Speaker 4: stop pretending that you're in favor of the London market
• 14:29
  Speaker 4: regaining some of its global power and global reach. That
• 14:33
  Speaker 4: is at the very beginning, that is a necessary condition.
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  Speaker 4: It's not a sufficient condition, but it is a totally
• 14:40
  Speaker 4: necessary condition.
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  Speaker 2: Why can't they see that, Michael?
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  Speaker 1: I mean there are people involved in the industry at
• 14:45
  Speaker 1: every level who going constantly and say to them it's
• 14:48
  Speaker 1: got to go. You don't raise that much money from it,
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  Speaker 1: and all it does is bit by bit destroy our
• 14:54
  Speaker 1: stock market. It would be the most wonderful signal to
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  Speaker 1: the world that the UK is really open to business
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  Speaker 1: to get rid of it. But they won't.
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  Speaker 4: Why because they say there's no votes in us at all.
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  Speaker 4: All those on the left will say, we're looking after
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  Speaker 4: our rich friends, we're looking after the investment bankers, we're
• 15:14
  Speaker 4: looking after the stockbrokers, and we need to rediscover the
• 15:18
  Speaker 4: narrative of actually making a long term argument. You know
• 15:21
  Speaker 4: what we are because London's an important financial center of
• 15:24
  Speaker 4: financial services are our larger single generator of revenue and
• 15:31
  Speaker 4: we need to be efficient and compete globally instead of
• 15:34
  Speaker 4: which I sadly I think the quality of our politicians
• 15:37
  Speaker 4: for a long time now has been that there are
• 15:40
  Speaker 4: no votes in this. It brings in a quite a
• 15:43
  Speaker 4: few billion into the treasury and we'll keep it because
• 15:47
  Speaker 4: it won't make any difference next week. We'll do it
• 15:50
  Speaker 4: in the future when things are better. It's always let's
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  Speaker 4: defer this decision. And all it has meant is there's
• 15:55
  Speaker 4: been a slow drag on the London market that no
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  Speaker 4: really exciting company wants to list in the UK. Klan
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  Speaker 4: is not going to list in the UK, revolute as
• 16:05
  Speaker 4: to when it lists, when list in the UK, Lots
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  Speaker 4: of companies are now moving their listing from the UK
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  Speaker 4: to elsewhere, and this slow corrosion has now It really
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  Speaker 4: is sad to see it. And respectively, I think the
• 16:18
  Speaker 4: chance of Rachel Reeve's doing this is non existent, but
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  Speaker 4: the Conservatives had a chance and it's a chance they've squandered.
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  Speaker 4: And although I am a lifelong Conservative, that angers me considerably,
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  Speaker 4: and I will continue to make the argument in the
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  Speaker 4: case so that hopefully at some point of not two
• 16:34
  Speaker 4: days of future, if we're back in power, that whoever's
• 16:36
  Speaker 4: are a new leader prime minister at the time will
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  Speaker 4: address that there are other things that need to be done.
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  Speaker 4: And the other one is the cultural issue of actually
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  Speaker 4: supporting the idea that listed companies and people getting wealthy
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  Speaker 4: is something that we want as opposed to looking only
• 16:50
  Speaker 4: at ways of taking their money, often by taxation. If
• 16:53
  Speaker 4: we don't celebrate our business success people nearly enough in
• 16:57
  Speaker 4: this country, those are the biggies that really damaged. It's
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  Speaker 4: the wrong culture, the taxation of the government on corporate dividends,
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  Speaker 4: stamp duty and generally just really celebrating entrepreneurship.
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  Speaker 1: So, my god, I totally agree with you on all
• 17:15
  Speaker 1: those things, but it's hard to grow back and that
• 17:17
  Speaker 1: it would be I think pretty difficult politically at this
• 17:19
  Speaker 1: point to reverse that action of Gordon Browns, despite the
• 17:22
  Speaker 1: fact it's one of the things that obviously we write
• 17:23
  Speaker 1: and talk.
• 17:24
  Speaker 2: About all the time. What else could be done.
• 17:27
  Speaker 1: There was talk before the election about a bridge, I said,
• 17:30
  Speaker 1: but that was done pretty quickly, and now there's talk
• 17:32
  Speaker 1: about cutting the cash I said, down to maybe four
• 17:34
  Speaker 1: or five pounds from twenty to try and encourage people
• 17:37
  Speaker 1: to push their money into the stock market. Of course,
• 17:40
  Speaker 1: who could know if that would be the UK stock market.
• 17:43
  Speaker 1: And then of course there is discussion about mandating UK
• 17:47
  Speaker 1: pension funds to push up the amount of money that
• 17:49
  Speaker 1: they put into the UK market from its current kind
• 17:52
  Speaker 1: of four percent of to maybe something more like ten.
• 17:55
  Speaker 1: Would you be approving of any of those ideas.
• 17:58
  Speaker 4: I'm uncomfortable about mandatory struck. I think I would really
• 18:01
  Speaker 4: only consider that a feasible one if the government reversed
• 18:05
  Speaker 4: the position of the taxation of dividends, but they're not
• 18:08
  Speaker 4: going to do that, and the ice a debate. I
• 18:13
  Speaker 4: don't really know enough to be honest with you. I
• 18:15
  Speaker 4: guess it would be helpful, but it's not going to
• 18:18
  Speaker 4: be enough. Addressing one of those issues or turf those
• 18:22
  Speaker 4: issues is not going to reverse a sort of fundamental
• 18:28
  Speaker 4: The stock market used to be important in London. Now
• 18:31
  Speaker 4: nobody really cares, and we pretend to care, but we
• 18:35
  Speaker 4: don't really and that is a sad and ultimately very
• 18:40
  Speaker 4: bad thing for our economy.
• 18:42
  Speaker 1: So when we talk about pretending to care, let's talk
• 18:44
  Speaker 1: about the current government and the extent which it talks
• 18:48
  Speaker 1: constantly about growth and how it's a mission to drive
• 18:51
  Speaker 1: economic growth in the UK. But when you look at
• 18:56
  Speaker 1: the policies of the current government, do you see growth
• 18:59
  Speaker 1: ahead or no.
• 19:00
  Speaker 4: Sadly, they have got no concept of what it takes
• 19:06
  Speaker 4: to generate economic growth. They genuinely feel that the taxation
• 19:13
  Speaker 4: of corporations and individuals makes little difference to economic growth.
• 19:19
  Speaker 4: They believe that government are better at allocating resources than
• 19:24
  Speaker 4: the private sector, and they think that we are really
• 19:30
  Speaker 4: fine upstand, the good honorable left of center people. We
• 19:34
  Speaker 4: can allocate the money of the country's got, after all,
• 19:37
  Speaker 4: a rich country really in the right direction that will
• 19:40
  Speaker 4: bootstrap the economy outputs and generate fair, widely spread, great growth.
• 19:45
  Speaker 4: And all they're doing is taking money away from a
• 19:47
  Speaker 4: higher productivity part of the private sector to the public
• 19:52
  Speaker 4: sector where the productivity output is woeful. And the things
• 19:56
  Speaker 4: that shocked me about the first budget was not realizing
• 19:59
  Speaker 4: that a massive increase in national insurance on companies, by
• 20:03
  Speaker 4: the way, would not have an impact on employment or
• 20:06
  Speaker 4: employment decisions. A decision of such extraordinary, I mean naivety
• 20:11
  Speaker 4: would be a polite way of putting such a degree
• 20:14
  Speaker 4: of astonishing naivety that this would not backfire by a
• 20:18
  Speaker 4: significant change in employment structures, which consequently mean that they
• 20:23
  Speaker 4: backfired completely as a fundraising mechanism, on top of which
• 20:27
  Speaker 4: then proposing to introduce employment regulations which on their own
• 20:32
  Speaker 4: admission added five to seven billion a year onto the
• 20:35
  Speaker 4: cost of the corporate sector for no other purpose really
• 20:39
  Speaker 4: than to satisfy the trade union, their trade union paymasters.
• 20:44
  Speaker 4: So you coupled their taxation approach and allocation of resources
• 20:50
  Speaker 4: approach and their unfriendliness towards employment, and you think, how
• 20:56
  Speaker 4: can you possibly generate a material level of economic growth?
• 21:01
  Speaker 4: And at the moment our GDP growth rate it stumbles
• 21:05
  Speaker 4: along at point one point two point three percent. By
• 21:08
  Speaker 4: the way, our population is growing by one.
• 21:10
  Speaker 3: Percent a year.
• 21:11
  Speaker 4: So GDP per capita at the moment is shrinking, and
• 21:15
  Speaker 4: that number will not go up on any long term basis.
• 21:19
  Speaker 4: So they review their taxation of employment, and they review
• 21:24
  Speaker 4: the ludicrous and actually totally counteractive employment regulations that they're
• 21:28
  Speaker 4: proposing to implement.
• 21:31
  Speaker 1: Yeah, now you have a record of being a very
• 21:33
  Speaker 1: strong sport obviously of the Conservative Party. When you look
• 21:35
  Speaker 1: at the current version of the Conservative party, what policies
• 21:39
  Speaker 1: would you support from them?
• 21:41
  Speaker 4: I have been a lifelong Conservative, and although I disengage
• 21:47
  Speaker 4: quite a lot in the past eight years because I
• 21:51
  Speaker 4: felt the party really drifted away from being conservative, and
• 21:57
  Speaker 4: it was genuinely quite true that at some point it
• 22:00
  Speaker 4: was difficult to discriminate between conservative policy of certain of
• 22:03
  Speaker 4: our governments and where the opposition stood. And I felt
• 22:06
  Speaker 4: that we were profoundly mistaken in not being prepared to
• 22:10
  Speaker 4: make the arguments about the importance of the private sector,
• 22:14
  Speaker 4: why welfare was costing us too much money, and the
• 22:18
  Speaker 4: Party got overly distracted. Immigration is a big issue, by
• 22:21
  Speaker 4: the way, I absolutely accepted as a big easy but
• 22:24
  Speaker 4: the party become overly obsessed about immigration, and absurdly I
• 22:28
  Speaker 4: do think about illegal immigration. I mean illegal immigration is
• 22:31
  Speaker 4: fifty thousand a year, not a good number, by the way,
• 22:33
  Speaker 4: I'm not saying it is. Legal immigration was up to
• 22:36
  Speaker 4: nine hundred thousand, and I cannot understand what the Tory
• 22:38
  Speaker 4: Party or the Story government that I was thinking and
• 22:41
  Speaker 4: allowing that to happen. But we didn't do the right
• 22:43
  Speaker 4: things economically on taxation or motivation, or what it was
• 22:47
  Speaker 4: doing about productivity in the public sector or any form
• 22:51
  Speaker 4: of discussion about reform of the National Health Service, the
• 22:55
  Speaker 4: reform of welfare. So the Tory Party was defeated, as
• 22:59
  Speaker 4: you all know, the biggest electoral defeat ever in the
• 23:01
  Speaker 4: history of the party last year. It wasn't a defeat
• 23:04
  Speaker 4: that surprised me at all, to be honest with you,
• 23:06
  Speaker 4: and we deserved it. I mean, let's be honest, we
• 23:09
  Speaker 4: deserved it. We've been in a power for fourteen years.
• 23:12
  Speaker 4: Our record, with a few exceptions maybe around education and
• 23:15
  Speaker 4: a few other things, our overall performance we won't fall,
• 23:18
  Speaker 4: particularly in the past six years of that. And so
• 23:20
  Speaker 4: the Tory Party is now really trying to reassemble itself
• 23:24
  Speaker 4: and it had been guilty of a huge level of
• 23:27
  Speaker 4: infighting over the last several years, which was not just
• 23:30
  Speaker 4: unedifying but also destructive and actually.
• 23:33
  Speaker 3: Getting their job done.
• 23:35
  Speaker 4: And we've got a new leader in the party, obviously
• 23:38
  Speaker 4: can be bad, not whom I personally support considerably, and
• 23:42
  Speaker 4: I am looking to spend time with her, as are
• 23:44
  Speaker 4: many others, to help her and her.
• 23:47
  Speaker 3: Team without rushing to conclusions.
• 23:50
  Speaker 4: And I think she's right to not rush to a
• 23:54
  Speaker 4: co feast of policy out pourings. I mean, the Tory
• 23:58
  Speaker 4: Party still has a big job to do to re
• 24:00
  Speaker 4: establish its credibility. It's any form of dependability. I mean,
• 24:05
  Speaker 4: I know many many friends of mine who left the
• 24:08
  Speaker 4: party in the last election. Of many of them of
• 24:11
  Speaker 4: course the reform. And I can't be dishonest and say
• 24:15
  Speaker 4: I was surprised. The Tory Party has a long battle
• 24:18
  Speaker 4: ahead of it, but it is one that I have
• 24:21
  Speaker 4: certainly re engaged and will do my best to help
• 24:25
  Speaker 4: provide ideas, input and in any way that I can.
• 24:28
  Speaker 4: But it is a long journey ahead of us.
• 24:30
  Speaker 2: And you saw friends moved to reform, tempted at all.
• 24:34
  Speaker 3: No, no, I'm not.
• 24:37
  Speaker 4: I'm notwithstanding the recent facts in the party. I rather
• 24:41
  Speaker 4: agree with Rupert Lowe who said Reform at the moment
• 24:44
  Speaker 4: is effectively a protest party. And it doesn't mean to
• 24:48
  Speaker 4: say I don't respect Farage.
• 24:50
  Speaker 3: I mean, you know, he's.
• 24:51
  Speaker 4: Clearly a politician, has had a big impact on the
• 24:55
  Speaker 4: whole of the political spectrum of the United Kingdom, and
• 24:59
  Speaker 4: after all he won remarkably well in the last election.
• 25:02
  Speaker 4: But I still consider it's not it is still for
• 25:05
  Speaker 4: the Tory Party to recover and re establish their credentials,
• 25:09
  Speaker 4: but it's not going to happen overnight.
• 25:11
  Speaker 3: It's going to take several years and it's a long battle.
• 25:16
  Speaker 1: Should we move back to what we're supposed to be
• 25:18
  Speaker 1: talking about, to investment into companies. You said earlier that
• 25:23
  Speaker 1: you were even nervous about the market as a whole
• 25:26
  Speaker 1: and markets being overvalued, and we were really talking about
• 25:29
  Speaker 1: America at the time. We were talking about the American markets,
• 25:31
  Speaker 1: which are significantly more expensive than most other global markets.
• 25:34
  Speaker 1: Most there are very few markets around that are actively cheap,
• 25:38
  Speaker 1: but almost all outside the US and knocking around historical
• 25:41
  Speaker 1: averages rather than anything else where. Would you invest at
• 25:44
  Speaker 1: the moment obviously with not Shell, but not Shell aside.
• 25:48
  Speaker 4: Listen, if I have a negative bias about US equity
• 25:52
  Speaker 4: markets at the moment, and I do genuinely, this is
• 25:54
  Speaker 4: not a long term position. I mean the statistics are powerful.
• 25:59
  Speaker 3: In the long run.
• 26:00
  Speaker 4: Equity investing, well executed, well selected, produces superior returns to
• 26:07
  Speaker 4: fixed income or pretty much any other class. Obviously, there
• 26:12
  Speaker 4: are periods when you get remarkable things like Bitcoin getting
• 26:15
  Speaker 4: up to one hundred thousand bucks.
• 26:17
  Speaker 3: I've never invested in crypto. If I do, make sure
• 26:22
  Speaker 3: you sell.
• 26:23
  Speaker 1: Okay, so you have you're not a believer in crypto
• 26:29
  Speaker 1: and not a believer in any crypto, even bitcoin.
• 26:32
  Speaker 4: I am not a believer in it as an investment asset.
• 26:36
  Speaker 4: If you want to say, I just I quite like
• 26:40
  Speaker 4: a flutter at the horses every now and then.
• 26:42
  Speaker 3: We know that I quite enjoy going to a casino.
• 26:45
  Speaker 4: I don't go to casinos, by the way, but I'm
• 26:47
  Speaker 4: having bitcoin because I think that's fine if so long
• 26:49
  Speaker 4: as you accept that this is a gambling instrument, it's
• 26:52
  Speaker 4: not an investment instrument. As you very well, every long
• 26:55
  Speaker 4: term research is shown that actually equity investing in companies
• 27:00
  Speaker 4: that invest in growing and briefing is a better long
• 27:04
  Speaker 4: term way of building your pension fund or or whatever
• 27:09
  Speaker 4: it is. So I do feel that the US market
• 27:13
  Speaker 4: is having the froth blown off in it. I mean,
• 27:16
  Speaker 4: I think what is happening on world tariffs is genuinely
• 27:21
  Speaker 4: quite negative. I suspect that Trump will backtrack on that policy,
• 27:26
  Speaker 4: but he went and do it quickly. And in the meantime,
• 27:29
  Speaker 4: it's the whole process of what he's doing.
• 27:31
  Speaker 3: One day, one day in Mexico's having twenty five percent.
• 27:34
  Speaker 4: Next it's been postponed for a month, and in Canada
• 27:37
  Speaker 4: and then China. This is provides a sort of unpredictably
• 27:41
  Speaker 4: in disruption that makes investing by companies and or by
• 27:47
  Speaker 4: individuals much more difficult, and therefore it is broadly not
• 27:52
  Speaker 4: good for the global economy. And so the trade war
• 27:55
  Speaker 4: that Trump is starting I think is a misjudged project,
• 28:00
  Speaker 4: and I think it will backfire on the United States
• 28:04
  Speaker 4: in time, and people may well reverse it, but the
• 28:07
  Speaker 4: damage will then have been done.
• 28:09
  Speaker 1: One thing that you do yourself is invest in a
• 28:11
  Speaker 1: lot of private companies and unlisted companies. And one of
• 28:14
  Speaker 1: the concerns that many investors have had over the last
• 28:17
  Speaker 1: decade or so it's a lot of the growth now
• 28:19
  Speaker 1: happens off market, and so once companies are listed, possibly
• 28:23
  Speaker 1: not in the US, but nonetheless companies are listed on
• 28:25
  Speaker 1: much bigger size than they used to be, and so
• 28:28
  Speaker 1: a lot of the games that we used to get
• 28:30
  Speaker 1: from listed equity markets actually now come long before they're listed.
• 28:35
  Speaker 4: There's still plenty of good stuff out there in the
• 28:37
  Speaker 4: listed marketplace.
• 28:38
  Speaker 3: We at nutshell.
• 28:39
  Speaker 4: I think mark Ellis processes ten thousand companies on an
• 28:44
  Speaker 4: ongoing basive across the globe.
• 28:47
  Speaker 3: A portfolio is at largely.
• 28:49
  Speaker 4: US, but the UK, Denmark, Sweden, France, Netherland, Tenada, and Norway, Germany, Taiwan,
• 28:55
  Speaker 4: if you've got the capacity to process that, which, of course,
• 28:58
  Speaker 4: as an individual reading analyst reports, you've got no capacity
• 29:02
  Speaker 4: to handle anything like that scale.
• 29:04
  Speaker 3: Of course, there are good companies to look for out there.
• 29:07
  Speaker 3: That doesn't mean to say there's not a lot of
• 29:08
  Speaker 3: stuff that's good in private equity, do okay, And.
• 29:11
  Speaker 1: We're seeing at the moment, we're seeing a small decline
• 29:13
  Speaker 1: in private equity asset under management globally, which is the
• 29:16
  Speaker 1: first one for a long long time, which I suspect
• 29:19
  Speaker 1: is a function of rising interest rates.
• 29:21
  Speaker 4: Yes, rising interest rates a big component to the drive
• 29:25
  Speaker 4: of private equity in the nineties and of the early noughties.
• 29:29
  Speaker 1: I tell you what, why don't we finish on Nutshell
• 29:31
  Speaker 1: because you just mentioned it again and talked about the
• 29:33
  Speaker 1: amount of companies that it looks at, And of course
• 29:35
  Speaker 1: that is one of the obvious places where AI suddenly
• 29:39
  Speaker 1: comes into its own right going through all these reports,
• 29:41
  Speaker 1: pulling out the relevant data, making everything extremely quick. Said
• 29:45
  Speaker 1: the nut shall, I know, operates with very few employees.
• 29:47
  Speaker 1: We're always looking for use cases for AI that make
• 29:49
  Speaker 1: a real difference, and this looks like the obvious one.
• 29:52
  Speaker 3: Right it is.
• 29:53
  Speaker 4: It's a pretty obvious one, absolutely, and it is a
• 29:57
  Speaker 4: sector investing which is right for the correct application of AI.
• 30:01
  Speaker 4: By the way, I do not represent myself as an
• 30:03
  Speaker 4: expert in AI at all, but I'm sure AI would
• 30:06
  Speaker 4: be like all those things in technology, using it without
• 30:09
  Speaker 4: knowing how to drive it. You've got to know how
• 30:12
  Speaker 4: to use the information and use the system effectively to
• 30:15
  Speaker 4: generate outcomes and re economically valuable.
• 30:18
  Speaker 3: And so hopefully that is well.
• 30:20
  Speaker 4: We appear to be doing that well enough, and I
• 30:22
  Speaker 4: think that will be one of the things that we
• 30:24
  Speaker 4: need to make sure we can continue to do.
• 30:26
  Speaker 3: Right.
• 30:27
  Speaker 1: It seems to me that we should try and get
• 30:30
  Speaker 1: your manager, Marc Ellis, get him on as well, talk
• 30:32
  Speaker 1: us through some of the companies and why they're held
• 30:35
  Speaker 1: and not held and how that works.
• 30:36
  Speaker 3: Yeah, I do, Hil, Thank you so much. It's been
• 30:39
  Speaker 3: a pleasure to do this with you. Thank you very much.
• 30:45
  Speaker 2: Thanks for listening to this week's marrin Dogs Money.
• 30:47
  Speaker 1: If you like us, a rate review and subscribe wherever
• 30:49
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• 30:52
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• 30:53
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• 30:54
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• 30:57
  Speaker 1: w and John is John Underscore step Back. The episode
• 31:00
  Speaker 1: was hosted by Meat Marrit Somethings that Web. It was
• 31:02
  Speaker 1: produced by Someasadi and Moses and sound designed by Blake
• 31:05
  Speaker 1: Maples and of course very special thanks to Lord Michael
• 31:08
  Speaker 1: Spencer