Latest / Financial Planner Life Podcast / Paul Jackson from Invesco on Investment Strategy & Career Lessons

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Paul Jackson from Invesco on Investment Strategy & Career Lessons · Financial Planner Life Podcast

• 0:00
  Speaker 1: If you're an individual investor, don't get caught up trying to time the market, because that's a sure way to make bad decisions.
• 0:08
  Speaker 1: You enjoy economics.
• 0:10
  Speaker 1: If you enjoy the markets, you will never be bored.
• 0:13
  Speaker 1: First person in my family to go to school beyond the age of 14.
• 0:17
  Speaker 1: So it was never really imagined that I would go to university.
• 0:21
  Speaker 1: You've got to learn to celebrate what you have yourself and enjoy your life, enjoy your family.
• 0:27
  Speaker 1: That is a much better road to happiness and satisfaction than constantly striving to have the things that you don't have.
• 0:37
  Speaker 2: Do you think that helped you?
• 0:38
  Speaker 2: Do you think it set you back?
• 0:40
  Speaker 1: The concentration comes down, the weighting of those top ten companies the top five or ten companies ten years later is always a lot lower than it was at the peak concentration.
• 0:49
  Speaker 1: I do not buy a world index because it's way too skewed to the US.
• 1:02
  Speaker 2: Welcome.
• 1:02
  Speaker 2: Thank you very much for agreeing to come on, paul.
• 1:05
  Speaker 2: It's been really good to have you down and really excited to delve into your career so far and also, if we get some time towards the end, it'd be great to ask you some market questions, because I know you have quite a lot of views on where you think the market's going Contrarian uh, some might say as well which I think would be really interesting to delve a bit into.
• 1:25
  Speaker 2: So, first off, you started off your life with morgan stanley, but before that, obviously you went to university.
• 1:36
  Speaker 2: Um, I say obviously not a lot of people do go to university, uh, or not, not a lot of people, but uh, not as many people go to university now as maybe they did previously.
• 1:47
  Speaker 2: But talk me through your background in terms of your family.
• 1:53
  Speaker 2: Did you come from an investment family, you know, was investment in your blood or was it something that you picked up and you learned later?
• 2:03
  Speaker 1: Great Well first of all, it's really nice to be here.
• 2:05
  Speaker 1: Thanks for having me.
• 2:06
  Speaker 1: No, investment was certainly not in the blood my parents.
• 2:13
  Speaker 1: I would say it was a typical working class background.
• 2:17
  Speaker 1: My father actually had no education.
• 2:19
  Speaker 1: He had polio when he was 18 months old and so never went to school.
• 2:23
  Speaker 1: Had polio when he was 18 months old and so never went to school.
• 2:30
  Speaker 1: My mother started working in a stately home, you know in the kitchens.
• 2:32
  Speaker 1: She would always tell me about skinning eels and doing things like that, and when I, by the time I was born, I think they had met working in the laundry at a local hospital.
• 2:42
  Speaker 1: So no, there was certainly no sort of history of the financial world.
• 2:49
  Speaker 1: There was no history of further education either.
• 2:53
  Speaker 1: I was the first person in my family to go to school beyond the age of 14.
• 2:57
  Speaker 1: My siblings, who were a reasonable amount older than me, all left at the age of 14.
• 3:04
  Speaker 1: One went straight into a factory, one joined the army and stayed in for 26 years.
• 3:10
  Speaker 1: And my sister, she worked in sort of local factories and those sorts of jobs.
• 3:19
  Speaker 1: So it was never really imagined that I would go to university.
• 3:23
  Speaker 1: I didn't have that idea.
• 3:25
  Speaker 1: I thought, well, okay, I'll be lucky if I get an apprenticeship, maybe as an electrician or a plumber, something like that.
• 3:32
  Speaker 1: But I think at some stage the teachers probably said well, actually you should think about carrying on and doing A-levels.
• 3:40
  Speaker 1: So I kind of fell into doing A-levels.
• 3:43
  Speaker 1: Then I thought I was going to join the Air Force.
• 3:47
  Speaker 1: I wanted to be a pilot, and I guess my doctor said well, that's never going to happen because you have a history of sinus problems.
• 3:55
  Speaker 1: So what about engineering?
• 3:56
  Speaker 1: So I looked at that.
• 3:57
  Speaker 1: But when I was doing my A-level exams I realized I was enjoying economics much more than the physics, and so I changed my plans, took a year off and went to study economics at the London School of Economics.
• 4:13
  Speaker 1: And in the meantime, in that year out, I did probably the most valuable work that I have ever done, the thing that probably brought most joy to people.
• 4:22
  Speaker 2: I was packing Smarties at the Round Trees factory in York.
• 4:27
  Speaker 1: And yeah, I studied economics, did postgrad at Oxford, and at that stage you either went into investment banking or management consultancy.
• 4:36
  Speaker 1: So I ended up in investment banking, so that was my route into the world of finance.
• 4:42
  Speaker 2: That's really interesting, and you studied philosophy, didn't you?
• 4:45
  Speaker 1: No, I studied economics, but I got a world of finance.
• 4:48
  Speaker 1: That's really interesting.
• 4:48
  Speaker 1: And you studied philosophy, didn't you?
• 4:49
  Speaker 1: No, I studied economics, but I got a master of philosophy.
• 4:51
  Speaker 1: So that's just a quirk of the Oxford and Cambridge system that they call their master's degrees masters of philosophy.
• 5:01
  Speaker 2: That's quite some story.
• 5:02
  Speaker 2: I mean, coming from a real working class background to ending up with a Masters from Oxford is obviously fantastic.
• 5:11
  Speaker 2: And how did your parents take it?
• 5:14
  Speaker 2: What did they think of it all?
• 5:15
  Speaker 2: Because obviously you know they're very prestigious institutions.
• 5:19
  Speaker 1: Yeah, well, I presume there was a lot of pride.
• 5:23
  Speaker 1: I remember, actually, when I was at Oxford I'd been at Oxford for two years and I went back home and I was up at the British Legion Club where my father actually, and I was a member there as well, so it's like the local working man's club and stood there having a pint at the bar with my dad and he said, well, paul, what's it like in London these days?
• 5:42
  Speaker 1: I said, well, dad, I've been in Oxford for two years.
• 5:45
  Speaker 1: And so, yes, I think there was an element of pride, but not necessarily following exactly the path and knowing what I was doing.
• 5:55
  Speaker 1: But you mentioned earlier about the number of people that went to university.
• 5:59
  Speaker 1: You have to bear in mind also, in those days maybe 5% of kids went went to university, whereas these days it's more like 50.
• 6:07
  Speaker 1: So it was a.
• 6:08
  Speaker 1: It was a much less usual path and certainly for kids from my background it was really unusual.
• 6:18
  Speaker 1: These days, I think it's it is more common would you recommend people to go to university now?
• 6:24
  Speaker 1: Well, I think it's a tough one, because I had the good fortune to be part of a very limited cohort who had everything paid, so we didn't have to pay fees.
• 6:36
  Speaker 1: These days, students have to take out loans to pay for fees, and so they finish university with a lot of debt.
• 6:44
  Speaker 1: I also, apart from having the fees paid, I got a grant, so it was like a bursary that the government gave to all students in those days.
• 6:52
  Speaker 1: So I think going to university now puts you in a financial position that may not feel that stable by the end of the course.
• 7:03
  Speaker 1: So I think you have to think very carefully about it.
• 7:06
  Speaker 1: And university doesn't work for everybody.
• 7:08
  Speaker 1: Like I said, you know I was thinking about doing an apprenticeship, so I think there are far too few people who do apprenticeships these days.
• 7:18
  Speaker 1: So getting a good skill set, you know plumbing, electrician, carpentry, and these are all professions that are really well paid as well, so you don't have to go to university.
• 7:31
  Speaker 1: But I think if you are academically oriented, then it can be a game changer and for me it made a massive difference in my life.
• 7:41
  Speaker 1: I think it is the great kind of equalizer sort of bringing Denzel Washington into the conversation, but not in that sense, but it really makes a big difference.
• 7:55
  Speaker 1: It changes your possibilities in a way that very few other things can.
• 8:02
  Speaker 1: So from that perspective perspective, yes, I would recommend going to university, but only if you are comfortable with academic work and don't force yourself to do it and don't force yourself into that financial position.
• 8:15
  Speaker 2: Yeah, I think a lot of people now don't know.
• 8:17
  Speaker 2: They tend to fall into the trap where, well, I'll just go because that's what it's expected.
• 8:21
  Speaker 2: Um, I think you know going to university is very I have mixed views.
• 8:26
  Speaker 2: I didn't go to university, so I left school at 18.
• 8:28
  Speaker 2: And I went on a financial services almost apprenticeship with KPMG where I studied as an accountant, as a tax advisor and you as a financial planner.
• 8:39
  Speaker 2: You don't have to go to university to be a financial planner, but I do.
• 8:43
  Speaker 2: You know, sam and I actually talk about this a lot and it's actually to us.
• 8:48
  Speaker 2: It shows that you can study up to a certain level and to an employer and that you do have the discipline to see something through and hopefully get a good result at the end of it.
• 8:57
  Speaker 2: So, yeah, it's a tough one, but also I believe that if you're not really interested in doing it, then you should pursue something that you are really interested in in doing and not go for the sake of it.
• 9:10
  Speaker 2: So it's, uh, it's, it's, it's an interesting one.
• 9:13
  Speaker 2: So you left Oxford, you then went to Morgan Stanley and you worked there for nine years before you went on a bit of a mini retirement, which maybe we'll come to in a minute, um, but yeah, keen to hear because you was.
• 9:24
  Speaker 2: You started off as a portfolio manager or you said you know how did your career with uh, mongolian sanity start?
• 9:28
  Speaker 2: Well?
• 9:30
  Speaker 1: I would say I think my whole career, including my education, has been a sort of like, one sort of misstep after another in a sense that it was never planned um.
• 9:40
  Speaker 1: And yes, I agree with you entirely that you should focus on things that you enjoy because, if you do things that you enjoy, you will do them well, and I happened to just get lucky in that I fell into doing something that I really enjoyed when I'd finished my master's degree.
• 9:56
  Speaker 1: I'd been studying economics, including school and university, for probably a good eight years and I was fed up with it.
• 10:05
  Speaker 1: I just wanted to get away from economics and the thought of doing a doctorate just didn't appeal.
• 10:14
  Speaker 1: Now it does, but back in those days it didn't.
• 10:17
  Speaker 1: So I went into that sort of typical investment banking path where I became an analyst in the corporate finance department, which sounded really attractive but basically meant I was doing photocopying at two o'clock in the morning and those sorts of things.
• 10:33
  Speaker 1: And after a few months I realized I was really missing the economics and the politics stuff.
• 10:40
  Speaker 1: And I just got lucky that I was at because I was on the Scandi desk.
• 10:44
  Speaker 1: I was asked to do a presentation, put a presentation together for a new strategist who was making a presentation in Stockholm, so that was the only link.
• 10:54
  Speaker 1: I was on the Scandi desk, he was doing it in Stockholm, but in putting this presentation together for him, I actually really enjoyed it and I said to him afterwards I said god, this is really interesting the stuff that you do.
• 11:04
  Speaker 1: And he said, well, funny, you should say that I'm looking for somebody to come and work with me.
• 11:08
  Speaker 1: So I ended up switching into the research department and really never looked back.
• 11:14
  Speaker 1: And when people young people ask you know, should I think about doing something like what you do, I always say, well, if you enjoy economics, economics, if you enjoy the markets you will never be bored, because the good thing is, we're always learning.
• 11:32
  Speaker 1: We never understand everything, we're always being surprised and, uh, you just never reach that point where you've mastered it.
• 11:39
  Speaker 1: So it's a total learning experience.
• 11:41
  Speaker 1: Uh, and yeah, I just never have a day when I could say, oh god, I'm bored with this I think it's really interesting because a lot of what you've said so far and I'm assuming well.
• 11:51
  Speaker 2: Having talked to you as well previously, I know that you know it's like you said, one misstep after another, but so many people now believe that they need to have everything mapped out to the nth detail of what they need to do and where they need to to go, and actually that's not really how life works in general, and actually if you get opportunities that come up, you should grasp them with both hands and go from there.
• 12:16
  Speaker 2: So how, after being at Morgan Stanley for nine years, did you then decide that you wanted to retire and go and live in the south of france?
• 12:27
  Speaker 1: well the time at morgan stanley.
• 12:28
  Speaker 1: So I was, I started in london, yeah, and morgan stanley in london.
• 12:32
  Speaker 1: This, this is in the mid 1980s was a fairly young operation.
• 12:36
  Speaker 1: Uh, it was a bit like a frontier activity for morgan stanley, and it was.
• 12:45
  Speaker 1: It was great, fun, fun.
• 12:46
  Speaker 1: And I worked on the sell side in the research department.
• 12:51
  Speaker 1: But my ultimate boss was Barton Biggs, who was a great Wall Street icon based in New York, and he was the chairman of Morgan Stanley Asset Management, and he asked me if I would go over to New York to join the asset management team.
• 13:06
  Speaker 1: So I did.
• 13:07
  Speaker 1: We moved over to New York.
• 13:08
  Speaker 1: My eldest daughter, eleanor, was, I guess, about 15 months when we moved to New York and then we had another two children, philippe and Louise, arrived.
• 13:21
  Speaker 1: They were born in New York and we had three children within three and a half years.
• 13:25
  Speaker 1: And I was working as an asset manager and every year we would go to Barbados on holiday and we'd very often be laid on the beach and saying you know, well, you know, should we just live a different lifestyle?
• 13:39
  Speaker 1: And no, no, let's carry on with what we're doing.
• 13:42
  Speaker 1: Let's carry on with what we're doing.
• 13:49
  Speaker 1: Well, we hit in 94 and 95, we had the phase when the Fed raised interest rates by a surprising amount and that kicked off like a chain reaction through the markets.
• 13:54
  Speaker 1: That finished with the tequila crisis, which wasn't that we couldn't find tequila anywhere, it was that the Mexican peso plummeted and bond yields went up and the emerging markets got into a real crisis.
• 14:06
  Speaker 1: And so it was a really hard time to be a portfolio manager, so I was exhausted from, I guess, having three young children.
• 14:14
  Speaker 1: It was really stressful.
• 14:16
  Speaker 1: The Japanese market was plummeting, I was managing international equities and it was a little bit like the US market today, which is 70% of the world index.
• 14:26
  Speaker 1: The Japanese market was 70% of the IFA index in those days.
• 14:30
  Speaker 1: So it was critical to get that decision right, and it was very difficult when the market was moving all over the place.
• 14:35
  Speaker 1: So in I guess it was March of 1995, when we were laid on that beach in Barbados again, we actually said, well, okay, let's go for it, and we already had a house in the south of France.
• 14:50
  Speaker 1: My wife at the time, the the mother of my children, her grandparents had lived in this village in the south of France, or they had a house there, and we ended up buying a house in that village and that was where we moved to when I decided to go and live a very different lifestyle and live a different life, and so the aim was to go and get out of the industry and do something very different.
• 15:18
  Speaker 2: Wow, so it wasn't proper a time and it was kind of I've had enough of financial services, the stress, the all the other bits that you associate with it and and in a high pressured, uh job, and you decided to to take a step back.
• 15:32
  Speaker 2: Would you say that was more the role that you were in within financial services and would you say it was.
• 15:38
  Speaker 2: If you would have truly loved it, would you say that you would have still had that, you know, still had that thought um, no, I think I was enjoying it, but um, it may have been something.
• 15:52
  Speaker 1: You know.
• 15:52
  Speaker 1: New york was a fantastic time and I think my children have never forgiven me for for leaving new york but, uh, it was a great place, but maybe there's an element of being a little bit like a fish out of water Do we want to be in the US versus being in Europe?
• 16:08
  Speaker 1: Do we want to raise the kids in the States versus raising them in Europe?
• 16:12
  Speaker 1: So there was that consideration that was in there as well, but I would say it wasn't because I wasn't enjoying the work, but I think I had reached a point of exhaustion and maybe it was just too stressful at that moment in time, and so I guess, looking back with hindsight, it may have been a bit of a circuit break in terms of the stress, but we genuinely thought we were going to move down there.
• 16:42
  Speaker 1: I was maybe going to have my own little research boutique doing research about Mediterranean economies and markets, sort of the whole Southern Europe but also Northern Africa thing, and we were going to set up an agency to find properties in the area for Anglo-Saxons, because it wasn't a part of France that was well-known to Anglo-Saxons, because it wasn't a part of France that was well known to Anglo-Saxons.
• 17:06
  Speaker 1: It wasn't the Riviera, it was more down towards Spain and, frankly though, we were down there for two years, but I always joked that I had this feeling that my human capital was withering away.
• 17:21
  Speaker 1: But of course the financial capital was disappearing as well, and I just happened to get a phone call from an ex-colleague and got back into the industry working in Paris.
• 17:33
  Speaker 2: Because that was Sock Gen.
• 17:35
  Speaker 2: You went to at that point and then what was so you'd had?
• 17:39
  Speaker 2: Was it two years out?
• 17:41
  Speaker 2: Yes, how did you find going back?
• 17:42
  Speaker 2: Because a lot of people as well talk around now.
• 17:44
  Speaker 2: I mean, there's a very famous book called the Four-Hour Workweek and other books that encourage mini-retirements or early retirements and things like this to have throughout your career.
• 17:55
  Speaker 2: Do you think that helped you?
• 17:57
  Speaker 2: Do you think it set you back?
• 17:59
  Speaker 2: What advice would you give to others who are considering something like that?
• 18:03
  Speaker 1: Well, I think it helped in the sense that it gave me that break at a time, maybe when I needed it.
• 18:09
  Speaker 1: Yeah, but in some ways it's daunting because you think, two years away, what has changed?
• 18:16
  Speaker 1: But in reality not a lot had changed.
• 18:19
  Speaker 1: And it's still looking at the same things, considering.
• 18:24
  Speaker 1: The numbers may change, but the stories are still pretty much the same, the narratives are the same, and so it took a little while to get back into some of the detail, but very quickly you're into it.
• 18:36
  Speaker 1: Did it help with my career?
• 18:41
  Speaker 1: Well, like I say, yes, maybe that it gave me that circuit break, but also it may have handicapped me because it was that break and maybe my career would have advanced even more rapidly.
• 18:56
  Speaker 1: But you can never have regrets and I'm really happy with where I am in my life and my career now.
• 19:02
  Speaker 1: Good, good.
• 19:04
  Speaker 2: I think, like you said, it's understanding what you need at different points, isn't it?
• 19:07
  Speaker 2: And then going on your own intuition, because everyone's got an opinion.
• 19:11
  Speaker 2: But with something like that, if you do need a break and you need to take some time out for yourself to reset, then actually it can.
• 19:17
  Speaker 2: It can propel you forward more, giving yourself time to think.
• 19:20
  Speaker 2: Um, it's interesting that you you were working in the south of france helping um, helping people find uh property.
• 19:29
  Speaker 2: We actually work for a business that introduces uh clients to us, um, who actually come from the us, who are specifically looking for help with things like their visas, um and getting set up.
• 19:40
  Speaker 2: So it seems that that need is still very much there.
• 19:43
  Speaker 2: Yeah, um, in, in, in at the moment.
• 19:45
  Speaker 2: Interesting.
• 19:47
  Speaker 2: So you obviously, um, you was obviously a sock doing.
• 19:50
  Speaker 2: You was there for quite a long time, wasn't you?
• 19:51
  Speaker 2: Was it 17 or 18 years?
• 19:53
  Speaker 2: Yeah, 17 years.
• 19:54
  Speaker 2: And then, out of the roles that you did there because I know you did various roles what was your favorite role?
• 19:58
  Speaker 2: And you know how did you transition again?
• 20:01
  Speaker 2: Was it kind of this missed that opportunity?
• 20:03
  Speaker 2: Come up, you took hold of that and then move forward.
• 20:08
  Speaker 1: I guess.
• 20:08
  Speaker 1: Yes, I did do a variety of roles and probably the things that I enjoyed the most were the thing that I did when I first joined, which I was the European strategist, so doing research, and I went back to doing research towards the end of my stint at SOC Gen.
• 20:29
  Speaker 1: The intervening period had a lot of different roles and I got away from actually doing research because I was made the global head of research and with hindsight that was just too early in my career.
• 20:44
  Speaker 1: I think most people who are a head of research will tell you that it's a really challenging job and you're responsible for maybe 300 analysts throughout the world and I had never realized, when I was an analyst myself or a strategist, all of the problems that were going on in a research department.
• 21:06
  Speaker 1: But when you become the head of research, all of these problems come to you and all of the bickering and what have you, and so that was a really challenging role that I didn't necessarily enjoy.
• 21:17
  Speaker 1: But there are other things.
• 21:19
  Speaker 1: After I decided to get away from being the head of research, they asked me to stay on to help the head of equities, and one of the things that I did was a recruitment program for graduates to come in as research associates and that was actually a really rewarding thing, doing the recruitment itself.
• 21:40
  Speaker 1: And you were saying earlier about people planning their careers.
• 21:43
  Speaker 1: And you were saying earlier about people planning their careers and, gosh, it was an eye opener about when you looked at CVs of young graduates, literally from the age of 15, it looked as though they'd had this career path planned to get into the financial industry.
• 21:59
  Speaker 1: So you looked at all of the internships that they'd been doing from a very early age and I was like wow, all of the internships that they'd been doing from a very early age.
• 22:05
  Speaker 1: And I was like wow, and I was never quite sure whether to be impressed or put off by that sort of approach.
• 22:12
  Speaker 1: But we hired from throughout the world and got everybody together for a couple of months and it was fascinating seeing all of the different cultures come together.
• 22:24
  Speaker 1: And it was fascinating seeing all of the different cultures come together.
• 22:26
  Speaker 1: For example, when you're in a classroom situation, typically students from North America are very vocal and will challenge what they're being told, Whereas at the other extreme, maybe the French students have always been brought up in a system where it's right because I say it's right, and so they don't challenge and then by the end of it you see that you kind of get a more uniform approach.
• 22:53
  Speaker 1: They're all learning from each other.
• 22:54
  Speaker 1: So that was really interesting bringing them together and then seeing them through the first couple of years of their careers.
• 22:58
  Speaker 1: So there are interesting things and enjoyable things in many different types of activities but at the end of the day I think what I really enjoy is the research.
• 23:10
  Speaker 1: There's a bit of a maybe there's a bit of the introvert in me and although I have to go out and meet a lot of people, do presentations, do podcasts, go on TV.
• 23:23
  Speaker 1: You know I enjoy all of these things, but I think I'm a bit introverted as well.
• 23:26
  Speaker 1: So sitting and doing research in my own corner, I really enjoy that and I've always had a fascination with numbers.
• 23:33
  Speaker 2: And, in terms of you mentioned, you've obviously been on a lot of podcasts, you've been in front of TVs I know after this you're going over to Qatar for six hours then to come back so obviously you've had a.
• 23:46
  Speaker 2: You've probably spoken to a lot of influential people and, um, interesting people, probably a lot along the way.
• 23:56
  Speaker 2: Who was the most interesting and who was the most influential person that you've, uh, presented your ideas to?
• 24:02
  Speaker 1: oh, my goodness.
• 24:02
  Speaker 1: Well, I think, rather than thinking about who I've presented ideas to, maybe, if I talk about influential people that I've worked with, that's maybe easier.
• 24:16
  Speaker 1: And yeah, I think there are probably you know I've worked with many people, many talented people, and so I don't want to offend by choosing a couple, but I will name a couple of them.
• 24:28
  Speaker 1: I've mentioned Barton Biggs already.
• 24:30
  Speaker 1: He was an icon of Wall Street and Barton actually was really interesting.
• 24:36
  Speaker 1: He was very good.
• 24:40
  Speaker 1: To me personally, he was the biggest franchise that morgan stanley had and despite that aura he was actually a a very quiet person.
• 24:55
  Speaker 1: In many ways he you put him into a cocktail party situation and he's kind of uncomfortable and I I hate that situation of being thrown into a room of strangers.
• 25:04
  Speaker 1: Barton was a little bit like that, but he had this fantastic ability to write and every Monday he would publish just two sides, no charts, no tables, just text.
• 25:17
  Speaker 1: And I could always, when reading it, imagine him sitting there in front of his fire on a Sunday evening with a piece of paper and a pencil and writing this stuff, and so he had a wonderful writing style.
• 25:28
  Speaker 1: He was a really nice guy and really successful in what you would imagine is the cutthroat world of Wall Street.
• 25:37
  Speaker 1: The other one who was actually my boss in London before I went over to New York was David Roach, and David was this Irish guy, maybe a little bit eccentric but very outgoing, spoke any number of languages and could.
• 25:59
  Speaker 1: It was a great eye-opener that he could go to many countries in Europe and just present in the local opener that he could go to many countries in Europe and just present in the local language.
• 26:09
  Speaker 1: And he was just brilliant.
• 26:16
  Speaker 1: His mind was very active.
• 26:17
  Speaker 1: Sometimes when you're working for him, just too active, but very active, brilliant, challenging to work for.
• 26:20
  Speaker 1: But he really got me going in my career.
• 26:23
  Speaker 1: So I guess I would highlight Barton and David and when I think of things that have stuck with me when meeting with clients, perhaps the thing that stuck with me the most was, again, very early in my career.
• 26:36
  Speaker 1: I guess you know you're in your formative years and therefore you can be molded, did.
• 26:48
  Speaker 1: But at a meeting in London and sort of really being concerned about the situation in Japan, what you do with weightings, you know saying it's really difficult If you've not got Japan in your portfolio at the moment.
• 26:54
  Speaker 1: This is when the market was shooting through the roof.
• 26:56
  Speaker 1: You're suffering and this portfolio manager said to me he said, paul, you don't need to worry about what is not in your portfolio, only worry about what is in there, and I think that's true for investment.
• 27:12
  Speaker 1: Don't be looking at what other people have got and worrying because it's going up that sort of trying to keep up with the Joneses type of idea worrying because you've not got Bitcoin when you don't believe that you should have it.
• 27:25
  Speaker 1: But also, I think, in life, don't be looking at other people and worrying about what they've got and what you've not got.
• 27:34
  Speaker 1: You've got to learn to celebrate what you have yourself and enjoy your life, enjoy your family and and I think that is a is a is a much better road to happiness and satisfaction than constantly striving to have the things that you don't have?
• 27:53
  Speaker 2: yeah, definitely, and again, I think that's a trait that we see with, you know, maybe younger people, maybe it's built into them, um, now, um, more so, but it is that constant need for more, that constant unhappiness with what you've got, and maybe that's the culture that we live in with things like Instagram and Facebook, where you constantly have it thrust upon you what other people are doing and where they are.
• 28:14
  Speaker 2: But that's a really, you know, a really nice, a really nice quote and a really nice, really nice takeaway how important would you say that mentors have been in shaping your career?
• 28:24
  Speaker 2: You've obviously been extremely successful.
• 28:26
  Speaker 2: You know global head of research and asset allocation at Invesco.
• 28:31
  Speaker 2: You know it's a $1.8 trillion manager, but you take it back and you still remember people from early in your career that no doubt helped shape you.
• 28:39
  Speaker 2: Not many people get to work with a Wall Street icon.
• 28:43
  Speaker 2: You know that closely.
• 28:46
  Speaker 2: But would you say early on in your career, would you say, pay highest paid?
• 28:53
  Speaker 2: Or would you say experiences that you should be looking for, the people that you're learning from?
• 28:58
  Speaker 1: Oh listen, if you talk about my early career, I'm from Yorkshire, so money is always important and you know the reason why, when I was at university and you looked at things like investment banking and management consulting, is that you know that they paid quite a lot.
• 29:16
  Speaker 1: And so you know, I would never deny that money was important.
• 29:21
  Speaker 1: But I think the ideal thing is you obviously you don't want to be, uh, making a lot of money and being miserable, yeah, so I've been fortunate that I've been able to make a good living.
• 29:37
  Speaker 1: I wouldn't say, you know, I'm not in elon musk's category by any means.
• 29:41
  Speaker 2: I think there's not many people that are there.
• 29:43
  Speaker 1: um, you know I've made a comfortable living and, while doing that, been able to enjoy what I do.
• 29:52
  Speaker 1: It was a big lesson for me.
• 29:55
  Speaker 1: When I was working at Roundtree, I mentioned packing Smarties, and the first job that I did there was sitting on this machine where the bags of Smarties that go in Easter eggs would come along.
• 30:06
  Speaker 1: You take four, put them in a box, put 15 rows of four, then put a layer of cardboard, then another 15 rows of four, another layer of cardboard, another 15 rows of four, and I was doing that for six weeks and I went to the foreman at the end of it and I said, can I change job?
• 30:22
  Speaker 1: And he said why?
• 30:22
  Speaker 1: What's the problem?
• 30:23
  Speaker 1: I don't know, it's just so boring.
• 30:25
  Speaker 1: And he said, really, and I think seeing the things that people have to do to make a living has made me appreciate so much more that I'm actually able to do something that I enjoy, so much more that I'm actually able to do something that I enjoy.
• 30:48
  Speaker 1: And you know, we have to be humble and realize that not everybody has that choice in life.
• 30:50
  Speaker 1: So doing things that you enjoy is a great bonus and, you know, being able to earn a decent living is a godsend as well.
• 31:02
  Speaker 1: You know, doing both together is, you know, I think, has been, has been wonderful, and I've got to say that it, you know it depends also, obviously, on your home life and everything mixes in and comes together and has an influence the home life and my wife, carol, who is a big supporter of what I do and, by the way, she's the inspiration behind the shirts.
• 31:35
  Speaker 2: Yeah, very nice to come on to that.
• 31:40
  Speaker 1: And I couldn't do all the traveling that I do without the forbearance of Carol.
• 31:47
  Speaker 1: And I mentioned my three children and Carol has a son, harvey, and you know I think as a unit it all has to work together and you know, here we are recording podcasts.
• 32:02
  Speaker 1: Harvey has trodden a very different path.
• 32:04
  Speaker 1: None of my children have gone into finance and Harvey is actually a filmmaker.
• 32:10
  Speaker 2: Oh, wow.
• 32:11
  Speaker 1: So does this sort of thing as well.
• 32:12
  Speaker 1: So you know, and that's his passion, Everybody has to go with their passion.
• 32:16
  Speaker 2: Yeah, yeah, it's important to follow your passion, isn't it?
• 32:18
  Speaker 2: And it's important not just to do something for pay.
• 32:20
  Speaker 2: Clearly, pay is a good.
• 32:24
  Speaker 2: You don.
• 32:28
  Speaker 2: Clearly, pay is a is a good.
• 32:29
  Speaker 2: Um, you, you don't want to be, you don't want to be living on the breadline, quite clearly, but at the same time, you don't want to do something that makes you miserable and go from there and you know, to come on to the point of mentors as well, it's really important to make sure.
• 32:38
  Speaker 2: I personally believe I I would, if I was telling my 20 year old self something again be interesting to get your take on.
• 32:44
  Speaker 2: What you would tell your 20 year old self something again be interesting to get your take on what you would tell your 20 year old self.
• 32:47
  Speaker 2: But I would always say, actually to go and work with someone who's starting up to try and get a breadth of experience, initially which will actually come on to with your, with your venture after a sock gem, which I actually found really interesting um, and you know to.
• 33:02
  Speaker 2: To try and get as much experience as you can when you're younger across a real broad, a broad scope of different things, to actually understand what you do like and what you don't, because it is really difficult to know what you want to do at 18 for the rest of your life, and the likelihood is is that life evolves and you change and you can change your opinions and you can change what matters to you, and you know the other point that you said about your wife, carol having a supportive partner is massively important as well, isn't it?
• 33:25
  Speaker 2: You know that that is not to be underestimated, because if you don't have the support at home, it makes everything very difficult, and normally what happens is either your work will suffer or you will end up not being with the partner that you were meant to.
• 33:39
  Speaker 2: So yeah, so just on that question then.
• 33:47
  Speaker 2: Um, so yeah, so just on that question then.
• 33:48
  Speaker 2: So one snippet then.
• 33:48
  Speaker 2: A piece of advice that you would give your 20 year old self, now having had the illustrious career that you've had so far oh, my goodness, um.
• 33:54
  Speaker 1: Well, I think anybody who works with not to be too dark on this but anybody who works with people who are in the final stages of their life will say I've never heard anybody say I wish I'd worked more in my life.
• 34:07
  Speaker 1: And so I guess, if you go back to your earlier self, maybe to say, and again now to quote from Spinal Tap, anybody who knows the film, this is tap is, you know, have a good time all of the time, um, um.
• 34:28
  Speaker 1: But you, you've got to find that balance and and maybe, um, find the balance and maybe I didn't always do this in my life find the balance between work, family and doing the things outside that you enjoy as well.
• 34:45
  Speaker 1: So, yeah, I guess, don't take things too seriously and and in a sense, things do work out.
• 34:52
  Speaker 1: And you know, as I've said, it's been like my education and career has been one accident after another, um, things that were never planned.
• 35:00
  Speaker 1: So things do, as we used to say in yorkshire, things kind of do come out in the wash and and things do turn out okay.
• 35:07
  Speaker 1: Yeah, but enjoy the things outside of work as well, particularly family.
• 35:13
  Speaker 1: Yeah, at the end of the day, work may or may not be there, but your family is always going to be there and you've really got to cherish those relationships and nurture and and I guess I've realized later in life that you have to nurture relationships.
• 35:33
  Speaker 1: So I guess that's what I would tell my younger self is nurture relationships, don't take them for granted and, um, maybe just don't work quite so much.
• 35:44
  Speaker 2: Yeah, yeah, interesting.
• 35:45
  Speaker 2: I think that would be very useful to a lot of people listening.
• 35:48
  Speaker 2: And so you was at SocGen.
• 35:53
  Speaker 2: You was there for 17, 18 years.
• 35:56
  Speaker 2: Then you left to go to Source, which was an ETF.
• 36:00
  Speaker 2: Was it a manufacturer ETF?
• 36:02
  Speaker 2: How would you describe it?
• 36:03
  Speaker 1: Yes, it was a small ETF provider and it was actually quite an innovative provider because it provided synthetic ETFs, so it was swap-backed ETFs.
• 36:19
  Speaker 1: So there was a lot of suspicion about them in the early days, especially because the firm started during the financial crisis, so there was the whole thing about derivatives blowing up.
• 36:28
  Speaker 1: But it's proven, been proven over time, that actually it was very, it was a very secure way of doing things.
• 36:36
  Speaker 1: But, yes, it actually, funnily enough, it started as a joint venture between Morgan Stanley and Goldman Sachs.
• 36:42
  Speaker 1: Believe it or not, they worked together and so the teams originally the management teams came from both of those investment banks.
• 36:50
  Speaker 1: So, yes, it was a small ETF provider and when I started talking to them, it was still around about 45 employees, so it was limited scope and I think you said that that was one of your favourite jobs.
• 37:04
  Speaker 2: There wasn't, I think, out of all the jobs that you'd, that you've had or had, it was one that you really managed to get your teeth in because it was quite you know it was.
• 37:13
  Speaker 2: It was obviously a young business.
• 37:15
  Speaker 2: It was in huge amounts, maybe, of the politics that you described earlier that you get at bigger institutions.
• 37:20
  Speaker 2: Would you say that that you know?
• 37:22
  Speaker 2: Would you say that's true?
• 37:22
  Speaker 2: Would you say that, sir?
• 37:23
  Speaker 1: yeah, absolutely.
• 37:25
  Speaker 1: If I think about the phases of my career, obviously the very early stage at Morgan Stanley you're young people all together, it's fantastic, you're working really hard but there's a lot of social life, so that was good.
• 37:37
  Speaker 1: But in terms of the job satisfaction, those years at Source small organization, entrepreneurial I personally was given a lot of freedom to do pretty much whatever I wanted, and so that was fantastic.
• 37:56
  Speaker 1: Yeah, and and it's rare to have that much uh freedom in a job, so it was, it was ideal and what was?
• 38:07
  Speaker 2: what was the transition like from big institution to smaller institution?
• 38:13
  Speaker 2: Because you, you know, you've been at Morgan Stanley a couple years break, obviously, working for yourself.
• 38:19
  Speaker 1: Then, at such a large institution, it must have, it must have felt quite weird yeah, I think when I was at Morgan Stanley there were maybe about 5,000 people 400 in London when I joined so Morgan Stanley itself wasn't massive, but it had a decent number of people.
• 38:37
  Speaker 1: Remember it was the mid-'80s when investment banking was really taking off.
• 38:41
  Speaker 1: At SocGen, as an entity, it was 150,000 people.
• 38:47
  Speaker 1: Because of course, they had a big retail network in France.
• 38:50
  Speaker 1: They had an investment bank and an asset management business, so it was a very large organization and you're always going to be running into somebody who's doing the same thing as you and treading on each other's toes.
• 39:04
  Speaker 1: So, to go from 150 000 down to 45, it was like, wow, this is a big, big change.
• 39:11
  Speaker 1: Yes, obviously, with 150 000 there is a certain solidity and and size of balance sheet and and and revenues that that gives that solidity.
• 39:23
  Speaker 1: Going to a much smaller organisation it's much more precarious.
• 39:28
  Speaker 1: So it was good in the sense that it was entrepreneurial, lots of freedom, but, yeah, a little bit it was like take a deep breath before diving because there was no longer that financial security.
• 39:44
  Speaker 2: And Invesco bought Source.
• 39:47
  Speaker 2: Yes, what was the reasoning behind that?
• 39:50
  Speaker 2: Because, as I see it, I know Invesco, a huge asset management business, and we said like $1.8 trillion of assets that they manage.
• 39:57
  Speaker 2: It's an insane number to kind of get your head around.
• 40:00
  Speaker 2: But what interest did they have in a much smaller provider of ETFs?
• 40:06
  Speaker 2: I know that was what eight years ago now, but you know where did the interest come and how did that impact you?
• 40:12
  Speaker 2: Because you was happily working away in a smaller business and then Invesco approaches and now you're part of Invesco.
• 40:18
  Speaker 1: Yeah, Well, I think the interest was Invesco already had anf business that was largely based in the states.
• 40:29
  Speaker 1: So the power shares business they had struggled to build in europe and source was, to all intents and purposes, a european business.
• 40:43
  Speaker 1: So it was providing etfs that were investing maybe in the s&p 500, in gold and in a range of.
• 40:49
  Speaker 1: So it wasn't european assets exclusively, it was assets across the globe, yeah, but the client base was largely, I would say, an emir client base Europe, middle East, a bit of Asia as well and so I think that from Invesco's perspective, it filled a gap that they had in their ETF business.
• 41:13
  Speaker 1: Also, invesco's ETF business was largely, you know, the traditional full replication sort of physically backed ETFs, where a source brought in the synthetic expertise and so it brought regional diversification, but also diversification in terms of the way that the ETFs were being built.
• 41:39
  Speaker 1: And you know, if you look today in Vesco's ETF assets, it's I don't know the latest exact number, but it's somewhere between, I think, $700 and $800 billion.
• 41:49
  Speaker 1: Wow.
• 41:49
  Speaker 1: So the ETF business worldwide is enormous and Source, since being at Invesco, has grown a lot.
• 42:03
  Speaker 1: I'm guessing that the assets have grown maybe fivefold in that time.
• 42:11
  Speaker 2: Well, it's definitely an area that's really topical.
• 42:15
  Speaker 2: Even from financial planning through to asset management, everyone's vying for the same dollars, pounds of clients' funds, and then we kind of get brought into this debate, which is active investing versus passive investing.
• 42:28
  Speaker 2: How do you see active and passive and where do you see a place for them in clients' portfolios?
• 42:41
  Speaker 1: I guess there's always going to be a place for both.
• 42:42
  Speaker 1: It's tempting to believe that everything will just become passive, but, frankly, if everything becomes passive, then that opens up opportunities for somebody to be active and doing something different.
• 42:54
  Speaker 1: You're never going to be 100% passive, just as we know we're not going to.
• 42:59
  Speaker 1: We've gone way beyond the idea of being 100% active.
• 43:04
  Speaker 1: So I think both things are going to be there the there are perhaps some asset categories that do need the active.
• 43:18
  Speaker 1: You know, when you think about direct real estate, I think by its very nature it's active.
• 43:23
  Speaker 1: So there are asset categories that will always be active.
• 43:29
  Speaker 1: But I think most asset categories could be either.
• 43:35
  Speaker 1: And it's a question of whether you as an investor can find a portfolio manager who will add enough value over time to justify the fees and justify the active fees, and that is the challenge for active managers.
• 43:58
  Speaker 1: Um, but you know, the interesting thing is that when it comes to etfs, you can do both.
• 44:04
  Speaker 1: You can have both active etfs and passive etfs.
• 44:07
  Speaker 1: An etf is just a wrapper, yeah, it's just a way of delivering an investment outcome.
• 44:15
  Speaker 1: So, as an etf business, we don't strictly have to make that choice.
• 44:20
  Speaker 1: Yeah, um, but you know, I I think the trend around the world obviously it started in the states and in north america has gone through europe and I think it's now coming through, you know, middle east and asia.
• 44:33
  Speaker 1: The trend has been towards more passive because we started has gone through Europe and I think it's now coming through Middle East and Asia.
• 44:35
  Speaker 1: The trend has been towards more passive because we started from zero passive and 100% active and are making that transition to a mix.
• 44:45
  Speaker 1: The US is ahead of where everybody else is, europe is catching up and now I think Asia and the Middle East will tread down that path as well.
• 44:58
  Speaker 1: So I think the direction of travel is towards is towards um passive, but it by no means suggests that that there will be no active.
• 45:08
  Speaker 2: Active is still going to be really important it's interesting, isn't it and someone was describing it to me the other day that things like, like you said, real estate, private credit, emerging market debt, these things play really well to an active manager because maybe the markets aren't as efficient, there's not as much information that's available, whereas where markets tend to be more efficient, then actually a more passive approach could be deemed better.
• 45:34
  Speaker 2: Um, I suppose ultimately it's for clients and planners and and asset managers to argue and decide.
• 45:40
  Speaker 2: Um, but it is interesting that whole cost base, because that does impact a lot on the investments and having that real low cost, uh, you know you, what, what you're paying for effectively and how can you drive cost down?
• 45:52
  Speaker 2: Because we know that doesn does as a big impactor.
• 45:55
  Speaker 2: And you said it, with the active managers, they have to be able to outperform the cost.
• 45:59
  Speaker 2: And then the market, and it's also interesting in trying to find an, a manager that can.
• 46:05
  Speaker 2: Obviously there's a huge amount of managers out there and trying to pick which ones are good over the others is is a task in itself.
• 46:12
  Speaker 2: Yeah, and I suppose there's that age-old saying which is why buy the needle when you can buy the whole haystack, which also rings true.
• 46:22
  Speaker 2: I can definitely see that there's a place for both with people, and ultimately it's just picking which ones suit you best, isn't it?
• 46:30
  Speaker 1: I mean, the research that I've done suggests that it is actually really difficult.
• 46:33
  Speaker 1: Let's be honest when you choose an asset manager, you're not going to choose somebody who's been underperforming for the last five years.
• 46:41
  Speaker 1: You're always going to go with one who's outperformed for the last five years and the chances are that you're getting in just at the moment that they start underperforming.
• 46:49
  Speaker 1: Yeah, so it's partly a sort of behavioral process that you have to try and correct.
• 46:58
  Speaker 1: When you're making manager selection, you've got to put a lot of emphasis on their style, on their strategy.
• 47:04
  Speaker 1: Do they execute in the way that they say they will?
• 47:07
  Speaker 1: And then, if you believe that that style makes sense, you go with the ones who are successful in that style, even if that style has been underperforming in recent years.
• 47:17
  Speaker 1: But I did a piece of research a number of years ago when I was at Source looking at the performance of a large number of asset managers, and the first conclusion was that I know that we all have the idea that you suggested that somewhere like the US that passive makes sense because it's an efficient market, whereas maybe emerging markets you should be active because it's not so efficient.
• 47:49
  Speaker 1: But actually you find that there's no greater tendency to outperform in emerging markets by active managers than there is in the US.
• 47:59
  Speaker 1: And the other conclusion was that when you're looking at well I was looking at global equity managers and if you look at well, how many?
• 48:09
  Speaker 1: And so you get the obvious conclusion that in any given year, more than 50% usually tend to underperform.
• 48:16
  Speaker 1: It's not every year, but that's the usual pattern.
• 48:19
  Speaker 1: But when you then ask the question, well, you look at the first year, let's take the managers who outperformed, then let's take those outperforming managers into the second year how many of them then outperformed?
• 48:32
  Speaker 1: And then into the third year, how many of the ones that had outperformed in two years outperformed in a new career?
• 48:37
  Speaker 1: And say, okay, how many are left after successive years who've outperformed in each successive year?
• 48:44
  Speaker 1: And by the time you get to year six and seven, there are none left.
• 48:47
  Speaker 1: Wow, so it's actually a really tough job to be an active manager, outperforming year in, year out.
• 48:55
  Speaker 1: So as a selector of portfolio managers, you have to be modest in what you're or reasonable in what you're demanding and set your expectations uh, accordingly.
• 49:10
  Speaker 1: Um, for me, what determines whether you're going to get outperformance or not?
• 49:16
  Speaker 1: And very often it is said well, when there's more volatility, it's easier to outperform.
• 49:21
  Speaker 1: No, I don't think that's right.
• 49:22
  Speaker 1: What is important is the dispersion of returns.
• 49:25
  Speaker 1: So if you've got some stocks doing really well and some doing really poorly, that gives you the opportunity to outperform.
• 49:33
  Speaker 1: That gives you the opportunity to outperform.
• 49:38
  Speaker 1: But you will only outperform if you've got the ability to choose the strong performers and avoid the weak performers.
• 49:42
  Speaker 1: And so it's really a multiplicative process of what's the opportunity, and for me that is defined by dispersion, is defined by dispersion multiplied by the ability to choose the right outcomes.
• 49:57
  Speaker 1: And so people might focus on the dispersion, but you've also got to focus on that ability, and that's really the tricky one to find somebody who consistently has that ability.
• 50:14
  Speaker 2: And do you think that exists at the moment on the basis that we're in a market let's take the US, for instance seven stocks that have performed amazingly well?
• 50:21
  Speaker 2: We've seen a bit of a, you know, I obviously read your notes, which we'll come on to, but I think actually now is quite a good time to discuss it a bit more.
• 50:30
  Speaker 2: What's your view on that?
• 50:31
  Speaker 2: Because there is quite a big disparity at the moment.
• 50:35
  Speaker 2: I think you, you know, you quoted the price to earnings ratios are over 40 on us stocks.
• 50:40
  Speaker 2: Um.
• 50:41
  Speaker 2: The mean, I think, was somewhere like 25, 26, um, which is, you know, which is, which is which is high.
• 50:49
  Speaker 2: Dividend yields seem to be quite low as well.
• 50:51
  Speaker 2: Do you think that there is a great chance that active managers at the moment, with the way things are priced, could outperform in the US?
• 51:01
  Speaker 1: Yes, because I would imagine that most active managers would be underweight though the magnificent seven.
• 51:09
  Speaker 2: Okay.
• 51:10
  Speaker 1: Because it's almost by definition.
• 51:12
  Speaker 1: I think it's hard as an active manager If you're choosing amongst S&P 500 companies and that's your benchmark.
• 51:15
  Speaker 1: It's almost by definition.
• 51:16
  Speaker 1: I think it's hard as an active manager If you're choosing amongst S&P 500 companies and that's your benchmark.
• 51:19
  Speaker 1: I think it's quite difficult to justify being overweight because the level of concentration is so high Huge, yeah.
• 51:25
  Speaker 1: You then have to have an even more concentrated portfolio to be overweight those companies.
• 51:33
  Speaker 1: So, on the presumption that they will at some stage underperform and I would go as far as to say they will underperform, if you look far enough ahead, if you look at history, when you get these moments of peak concentration, that peak concentration doesn't persist.
• 51:52
  Speaker 1: The concentration comes down.
• 51:54
  Speaker 1: The weighting of those top ten companies, the top 5 or 10 companies, 10 years later is always a lot lower than it was at the peak concentration.
• 52:02
  Speaker 1: And the concentration doesn't come down because the other if you're looking at the S&P 500, because the other 493 companies rise up to the same level, it's because the seven stopped concerned come down to a more reasonable level.
• 52:17
  Speaker 1: So I think that active managers who are underweight, those will outperform over the next few years and um so that just in the same way that they will have struggled to outperform in recent years.
• 52:34
  Speaker 1: I think it will make it easier in the coming years.
• 52:36
  Speaker 1: But so long as they stick to their guns and continue to be underweight those stocks and they don't fall for the, you know that thing of thinking about well, oh my goodness, I've missed out on that.
• 52:46
  Speaker 1: I've got to get in there.
• 52:47
  Speaker 1: The pain has become too much.
• 52:48
  Speaker 1: I've got to get into these stocks.
• 52:49
  Speaker 1: As long as they stick to their disciplines, then I would imagine that they would outperform over the coming years.
• 52:55
  Speaker 2: And do you think it all comes out in the wash Because most of the investors that we talk to 20, 30 years.
• 53:00
  Speaker 2: They're not looking over the next couple of years as to whether they should be invested or not.
• 53:04
  Speaker 2: Do you think it all just balances out anyway over the longer run?
• 53:26
  Speaker 1: Yeah, I believe, I would believe that even looking at my pension pot and I'm coming up to 64, I'm optimistic enough to believe that I've got enough years tells you that riskier assets such as equities and, I would say, real estate, you know they're the place to be In the short term.
• 53:44
  Speaker 1: Who knows?
• 53:45
  Speaker 1: You know you get a lot of volatility, but over the longer term you get that risk premium that gives you the outperformance.
• 53:53
  Speaker 1: So, yes, I would say it does all come out in the wash.
• 53:56
  Speaker 1: You stick with those allocations.
• 53:59
  Speaker 1: If you're an individual investor, don't get caught up trying to time the market, because that's a sure way to make bad decisions and to give a lot of money to your broker.
• 54:12
  Speaker 2: Yeah, yeah, I keep trading.
• 54:14
  Speaker 2: And you're 64.
• 54:15
  Speaker 2: So how, and if you don't mind me asking, how would you structure, or how do you structure, your pension pot at the moment?
• 54:25
  Speaker 1: Me.
• 54:25
  Speaker 1: It is in terms of my own pension pot.
• 54:28
  Speaker 1: It is largely equities.
• 54:31
  Speaker 1: There's a bit of real estate in there, there's some because I've got a number of different pension pots from different places that I've worked.
• 54:43
  Speaker 1: There are some corporate bonds in this, there's some credit in there, but I would say a relatively small amount, say a relatively small amount when it comes to the equity portion.
• 55:01
  Speaker 1: I do not buy a world index because it's way too skewed to the US.
• 55:04
  Speaker 1: So I tend to go much more for a kind of an equally weighted approach.
• 55:07
  Speaker 1: I'll give the US the same weighting as I give to Europe, as I would give to emerging markets.
• 55:12
  Speaker 1: I like China a lot, so I'm sort of getting China in there, of course, because I'm based in the UK, there is a bit of a home buyer.
• 55:26
  Speaker 1: So I would give the UK the same weighting as I give the US, as I would give the rest of Europe, just because of the currency consideration.
• 55:35
  Speaker 1: And that's what I'm going to have to be spending as a pensioner, and you mentioned you like China.
• 55:43
  Speaker 2: Obviously you see that as undervalued at the moment, or you see there's a lot of value to be gained from China.
• 55:48
  Speaker 2: Does it not concern you with government interference in a place like China?
• 55:55
  Speaker 2: I suppose you could say the same about the US at the moment, but, you know, almost to the detriment of the businesses there, they will do what they believe is better for you, know better for the country.
• 56:12
  Speaker 1: You stole my punchline and sense, which is that if you're worried about that in china, then boy you.
• 56:17
  Speaker 1: Take a look at the us.
• 56:18
  Speaker 1: Yeah, um, and actually even during the biden era, you know there was all this industrial policy, um, the chips act, the inflation reduction act, which is government interference.
• 56:29
  Speaker 1: Yeah, um.
• 56:30
  Speaker 1: Now with uh donald trump, you don't know from one day to the next what is going on.
• 56:37
  Speaker 1: There's an expression in French that we don't know on which foot to dance.
• 56:46
  Speaker 1: It is a very difficult environment and I think if you look at consumer confidence surveys in the US, there was a dip in January.
• 56:53
  Speaker 1: Look at consumer confidence surveys in the US.
• 56:56
  Speaker 1: There was a dip in January.
• 56:57
  Speaker 1: The University of Michigan survey showed that there was a full percentage point jump in inflation expectations for the coming year.
• 57:01
  Speaker 1: So I think the consumer is starting to be impacted.
• 57:05
  Speaker 1: There is uncertainty there and some of that is going to be tariffs.
• 57:08
  Speaker 1: But I think also for the business community, when you're getting all of these changes, it's not obvious that you should be.
• 57:17
  Speaker 1: It makes it harder to make those investment decisions and if you look at the fourth quarter GDP number in the States, investment spending actually shrank a little bit and I think that was perhaps because of the uncertainty about what was to come.
• 57:32
  Speaker 1: So I think you have those issues pretty much everywhere.
• 57:37
  Speaker 1: But what you have in China and you quoted earlier my PE for the US, which is a cyclically adjusted PE, so it divides today's price by a 10-year moving average of earnings, it smooths out the earnings.
• 57:50
  Speaker 1: If you don't do that, pe ratios are useless.
• 57:52
  Speaker 1: They give you no or very little information about future performance.
• 57:57
  Speaker 1: So I use it on a cyclically adjusted basis.
• 57:59
  Speaker 1: In the US it's in the low 40s.
• 58:01
  Speaker 1: In China today it's 15.
• 58:03
  Speaker 1: Wow, below the historical norm In the US, you're well above the Chinese CAPE cyclically adjusted P-E ratio 12 months ago so in February of 2024, was 12.
• 58:23
  Speaker 1: It was at the same level as the US Cape in early March 2009, when we thought the world was coming to an end.
• 58:29
  Speaker 1: You know we had the financial crisis.
• 58:31
  Speaker 1: We were looking at global depression, banking systems collapsing and the S&P 500 at that moment bottomed at 666.
• 58:40
  Speaker 1: Now it's closer to 6,660.
• 58:44
  Speaker 1: You know that gives you an idea of where the Chinese market had been pushed to and that for me, was just too great an opportunity.
• 58:52
  Speaker 1: Despite whatever concerns you may have and there are, you know people say to me.
• 58:56
  Speaker 1: But yeah, you know the Chinese economy is struggling Well, is it?
• 59:00
  Speaker 1: You know its growth rate since the end of 2019 has been twice what you see in the US.
• 59:06
  Speaker 1: It's been very close to the growth of the Indian economy and when you adjust it on a per head basis, per capita basis, it's been far more impressive than India's growth.
• 59:16
  Speaker 1: So the Chinese economy doesn't look as though it's struggling that much to me.
• 59:20
  Speaker 1: And we have seen in the last 12 months that the Chinese market has now really started to outperform by quite some margin the US market.
• 59:28
  Speaker 1: And take a look at those Chinese tech stocks.
• 59:30
  Speaker 1: Tech stocks, I've got a chart from 1997 that comparing Chinese tech index to the US tech index, and they were in dollars.
• 59:44
  Speaker 1: They were pretty much in lockstep until early 2020.
• 59:47
  Speaker 1: And then, from early 2020, you had the Fangs thing and now we've had the Magnificent Seven, and so the US index shot through the roof and the Chinese index has gone down.
• 59:59
  Speaker 1: And I never felt that that divergence was sustainable.
• 1:00:03
  Speaker 1: And what we've seen, if you look at the last four or five months, the Chinese tech index has massively outperformed the US tech index and I think we're just at the early stages.
• 1:00:15
  Speaker 1: So, yes, I like Chinese stocks.
• 1:00:20
  Speaker 1: Yeah, is there anything else you particularly like at the moment?
• 1:00:22
  Speaker 1: European stocks, and I think, with everything that's going on in Europe Ukraine, europe clearly has to spend more on defence, but also I think that in doing so, europe will buy less from the US.
• 1:00:41
  Speaker 1: They will produce more of their military goods themselves, so it's kind of like we need a building out of the European military industrial complex, and I think that is going to help the European economy, but particularly the German economy, and European stocks have been doing really well recently as well, german stocks in particular, and that may be part of the reason and it's amazing that, despite all the threats of tariffs, european and Chinese stocks have been outperforming US stocks, and I published a piece about this the other day.
• 1:01:10
  Speaker 1: Basically, yes, china and the European Union have a big surplus with the US, but actually, when you compare that surplus to the size of their economies, it's actually quite small.
• 1:01:21
  Speaker 1: The countries that are most at risk on that basis are countries such as Vietnam and Cambodia, and even Ireland, believe it or not.
• 1:01:29
  Speaker 2: Well, interesting.
• 1:01:30
  Speaker 2: And what about the UK?
• 1:01:31
  Speaker 2: Because obviously there's quite a lot of negativity around the UK at the moment.
• 1:01:36
  Speaker 2: It doesn't feel like the government at present have won the hearts of the people that they got to vote for them.
• 1:01:44
  Speaker 2: It seems that it's quite unstable.
• 1:01:48
  Speaker 2: You see stats, however many millionaires and people of influence looking to vacate and leave, and we see that you know we in the Middle East or in Dubai are a benefactor of that and you know we actually physically seeing it, how do you think the UK looks short to medium term?
• 1:02:07
  Speaker 1: I think from an investment perspective, fine.
• 1:02:10
  Speaker 1: Yeah, you know, gilt yields I think are relatively attractive.
• 1:02:14
  Speaker 1: I think sterling is a bit undervalued and I think the stock market is good value.
• 1:02:20
  Speaker 1: So when I talk about European stocks, I still think of the UK as being part of Europe, and so UK stocks I think are undervalued and certainly compared to US stocks.
• 1:02:33
  Speaker 1: But also in the UK market you get access to not only there's a lot of banks and UK and US banks tend to perform well when the yield curve is steepening, which is what's going on at the moment.
• 1:02:46
  Speaker 1: So you've got that exposure to banks and the broader financial sector but also, funnily enough, you get a lot of exposure to raw materials through metals and mining stocks and energy companies, which obviously they're not exploiting raw material resources in the UK, but they happen to be quoted there.
• 1:03:09
  Speaker 1: So I think if the global economy does accelerate this year, which I think it may do, then commodity prices go up and I think UK stocks would benefit from that the UK economy as a whole.
• 1:03:23
  Speaker 1: Listen, I think we've had a bit of a rough time.
• 1:03:25
  Speaker 1: We had 14 years of austerity and Brexit.
• 1:03:30
  Speaker 1: We really shot ourselves in the foot with that and I think there was a lot of mismanagement by the previous government, lots of chopping and changing.
• 1:03:42
  Speaker 1: So I think Labour inherited a really difficult task and I think they were getting a lot of unfair criticism.
• 1:03:50
  Speaker 1: At the end of the day, somebody has to pay the price.
• 1:03:53
  Speaker 1: Yeah, fair criticism.
• 1:03:55
  Speaker 1: At the end of the day, somebody has to pay the price.
• 1:03:57
  Speaker 1: You had to increase taxes somewhere and they didn't increase the taxes on consumers or on high income people.
• 1:04:04
  Speaker 1: What they did was they increased taxation on businesses, and so there's a lot of complaints about that.
• 1:04:10
  Speaker 1: But I think they're setting a more stable path for the future.
• 1:04:16
  Speaker 1: The decisions are being taken with a longer term viewpoint.
• 1:04:20
  Speaker 1: Whether that will pay off for them, I don't know.
• 1:04:23
  Speaker 1: They were.
• 1:04:24
  Speaker 1: The number of people who voted for Labour was not enormous, you know it was only a third of the population that voted for them, but they got a massive majority in Parliament voted for them.
• 1:04:36
  Speaker 1: But they got a massive majority in Parliament because the other two-thirds were split across a range of parties.
• 1:04:40
  Speaker 1: So, yes, they're unpopular now Not always deserved, I don't think.
• 1:04:44
  Speaker 1: But if they remain that unpopular, then we get a change in another four or five years' time and I hope that they get a good long run at it because they're trying to take decisions for the long term.
• 1:04:58
  Speaker 1: But from an investment perspective, I do like UK assets at the moment.
• 1:05:03
  Speaker 1: What else do I like?
• 1:05:04
  Speaker 1: I've mentioned commodities, but I also think bank loans, which normally you wouldn't favour when interest rates are coming down.
• 1:05:13
  Speaker 1: So these are leveraged loans, yeah, so it's in the private credit space.
• 1:05:17
  Speaker 1: Normally, when interest rates are coming down, you would favor longer duration assets.
• 1:05:24
  Speaker 1: Bank loans are short duration, yeah, but the current yield on bank loans is still really attractive and the longer that, particularly in the US, the longer the Fed hesitates to cut rates, the longer that those rates will remain attractive.
• 1:05:40
  Speaker 1: So, amongst all of the credit assets, I think bank loans are really attractive and amongst all assets, when you compare risk versus reward, I think it's quite a compelling argument Very interesting.
• 1:05:56
  Speaker 2: A couple of questions now to finish up with, then.
• 1:05:59
  Speaker 2: So, in terms of your favourite investors, who do you read, who do you look at and watch what they do and are impressed with what they do?
• 1:06:14
  Speaker 1: Listen, I've got to be honest, I don't have enough time to read what other people say.
• 1:06:19
  Speaker 1: But also and I think this comes down to my personal insecurities that if I read what other people say, I start to worry about my own views.
• 1:06:31
  Speaker 2: Okay.
• 1:06:33
  Speaker 1: And I start to question what I'm doing.
• 1:06:36
  Speaker 1: Doing so I don't know whether that's insecurities or whether it's my ego, but it's uh I I tend to avoid um reading too much about what other people are saying and doing.
• 1:06:50
  Speaker 1: I don't want to be influenced yeah and I don't want to be influenced, yeah, and I don't want to question what I'm doing, and also I prefer to be out of consensus.
• 1:07:00
  Speaker 1: And it's really difficult to be out of consensus if you're reading what everybody else is saying and what they're doing.
• 1:07:05
  Speaker 1: But you know, of course everybody would point to Warren Buffett because I think he does things.
• 1:07:11
  Speaker 1: You know he used to do things that were out of consensus.
• 1:07:13
  Speaker 1: It's hard for him to do it now because everybody sees what he's doing and then they jump on that bandwagon.
• 1:07:22
  Speaker 1: But he's got a, you know, obviously a very, you know, kind of serious approach to value and I would say buying real assets and that's kind of where I would fit.
• 1:07:32
  Speaker 1: And you know the people that have influenced me over the years.
• 1:07:41
  Speaker 1: If I go back to my days at Morgan Stanley Asset Management actually even before moving to New York, somebody like Stephen Butt, who was a value investor, you know his approach made a lot of sense to me.
• 1:07:50
  Speaker 1: I do like to read an old colleague of mine, albert Edwards, who's known as the perma bear, and when you read Albert's work he's still a strategist at Sock Gen.
• 1:08:01
  Speaker 1: But when you read his writings it gives you this sort of knot in your stomach, because it's always frightening.
• 1:08:08
  Speaker 1: There's always something, some disaster that's about to unfold, but that does make you think about things that could go wrong.
• 1:08:17
  Speaker 1: And you know, obviously I've got a range of colleagues now where we do exchange ideas and you know, my boss, christina Hooper, is a great boss to work with and actually very collegiate, and so there are a whole range of us that um, that get to to have input at the same time as me being given the freedom to say what I believe and and to set my allocations in line with my beliefs, which is great awesome.
• 1:08:48
  Speaker 2: Well, with that, I think we'll wrap up now.
• 1:08:51
  Speaker 2: Just the last thing is is where can people follow your views?
• 1:08:56
  Speaker 1: Well, I guess there are a range of areas.
• 1:09:01
  Speaker 1: I send out my research.
• 1:09:03
  Speaker 1: I actually do it, believe it or not, in this age of AI.
• 1:09:07
  Speaker 1: I send the stuff out myself, so I write it, put it together myself and on a Sunday, send it out to an email distribution list.
• 1:09:15
  Speaker 1: That's to professional investors only.
• 1:09:18
  Speaker 1: So unfortunately we can't send it to the average person in the street because it's not complied and I don't want to jump through all the hurdles that would enable it to be complied for that.
• 1:09:32
  Speaker 1: But for professional investors I have an email distribution list.
• 1:09:35
  Speaker 1: Talk to your contacts within Invesco and they can put you on that list.
• 1:09:41
  Speaker 1: Otherwise, there are Invesco websites where the research appears.
• 1:09:48
  Speaker 1: I believe it gets put on things like LinkedIn, but I'm really not on social media.
• 1:09:52
  Speaker 1: So I do have the marketing team set up an account on LinkedIn for me, but I really have not used it.
• 1:10:00
  Speaker 2: But I believe it is on there.
• 1:10:01
  Speaker 2: Great, perfect.
• 1:10:02
  Speaker 2: Well, thank you very much, paul.
• 1:10:03
  Speaker 2: Really, we appreciate you coming down and taking the time.
• 1:10:06
  Speaker 2: It's been great to have you when you're over on your whistle-top store of the Middle East.
• 1:10:09
  Speaker 2: And, yeah, we look forward to hopefully speaking to you again soon.
• 1:10:13
  Speaker 2: And and, yeah, we look forward to, uh, hopefully speaking to you again soon.
• 1:10:20
  Speaker 2: And and thank you very much for your time.
• 1:10:21
  Speaker 2: Thank you, great pleasure, thank you.