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Cheap, Unloved, Profitable: The Case for Value Investing Today? · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Welcome to Maren Talks Money,
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Speaker 1: the podcast and with people who know the markets explain
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Speaker 1: the markets. I am Meren sum sub Web and this
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Speaker 1: week I am speaking with Ian Lance, who as a
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Speaker 1: manager at Temple Bar Investment Trust. Ian, Welcome to Marin
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Speaker 1: Talks Money.
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Speaker 2: Thank you, Mary.
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Speaker 1: Right, we have a lot to talk about. It's been
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Speaker 1: exciting times for you. Right. This year is the one
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Speaker 1: hundredth anniversary of the Temple Bar Investment Trust, Right, it is, indeed, Yeah,
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Speaker 1: it's also the I was going to say the end
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Speaker 1: of a period, but I hope it's part of an
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Speaker 1: ongoing period of spectacular performance from the Temple Bar Investment Trust,
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Speaker 1: which I will say, by the way, I'm particularly pleased
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Speaker 1: to have you on because I've been a long term
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Speaker 1: holder of the trust, so I keep very close eye
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Speaker 1: on what you do now. Your company, Red Whale, appointed
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Speaker 1: to take over the investment Trust assets at late twenty twenty.
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Speaker 2: Right, that's correct.
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Speaker 1: Yeah, and since then it's been extraordinary. Your performance has
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Speaker 1: really been absolutely marvelous. NYV in shareholder total returns have
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Speaker 1: not far off well two hundred percent for NYV and
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Speaker 1: well over two hundred percent for shareholder total returns, and
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Speaker 1: you're pretty much top of the peer group and every
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Speaker 1: single time frame since they're in very very much ahead
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Speaker 1: of the benchmark. And also interestingly, I noticed in one
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Speaker 1: of the reports I was reading in the run up
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Speaker 1: to talking to you that even in this period where
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Speaker 1: everyone thinks that you can only outperform if you go
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Speaker 1: to America, the temple Bar performance has been head of
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Speaker 1: the SMP composite. So that's really quite something given you
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Speaker 1: are not entirely but almost entirely UK invested. I think
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Speaker 1: you can have thirty percent invested outside the UK, is
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Speaker 1: that right.
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Speaker 2: That's correct?
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Speaker 1: Yeah, okay, So let's start by talking about how you
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Speaker 1: did that, and then we'll talk a little bit about
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Speaker 1: whether sustainable or not. I mean, I think the important
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Speaker 1: thing to say for investors and listeners who do not
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Speaker 1: know the temple Bar Investment Trust is that you are
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Speaker 1: very much value investors, always have been, and even when
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Speaker 1: the manager was changed in twenty twenty, one of the
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Speaker 1: interesting things at the board thought then was it was
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Speaker 1: not the right time to move away from the value
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Speaker 1: of strategy, and they continued with it, just with a
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Speaker 1: different manager. So let's talk a little bit about what
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Speaker 1: value means to you and how you have created that
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Speaker 1: really fantastic performance. Over the last six years, we've.
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Speaker 2: Stuck to our value philosophy, and I think the first
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Speaker 2: thing that we would say is that the timing of
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Speaker 2: us taking on the assets were in some ways fortuitors. Ie,
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Speaker 2: we started the clock ticking at the end of October
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Speaker 2: twenty twenty. You cast your mind back then, we were
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Speaker 2: right in the middle of the pandemic. You know, people
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Speaker 2: were wondering how long lockdowns were going to go on.
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Speaker 2: A lot of share prices had done very very badly,
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Speaker 2: And simply what that means for a value investor is
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Speaker 2: your opportunity set Suddenly it becomes incredibly interesting. So, yeah,
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Speaker 2: you know, the market is offering you marks and spend
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Speaker 2: below a pound, and you know, and Nat West Bank
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Speaker 2: at the same price. It was in the middle of
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Speaker 2: the financial crisis and so on and so forth, and
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Speaker 2: so you know what we did was we basically use
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Speaker 2: that to buy lots of those very very cheap stocks
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Speaker 2: and then stuck with them by and large. And I
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Speaker 2: suppose if you look at the things that have done
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Speaker 2: best over that period of the time, financials would be
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Speaker 2: a big one of them, you know, UK banks, which
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Speaker 2: some people were saying you should never invest in a
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Speaker 2: UK bank. UK banks performed very very well. So have
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Speaker 2: insurance companies. Lots of other sectors that people you know,
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Speaker 2: say you should never really touch. Airlines would be another example,
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Speaker 2: again perform very very well. So really it was it
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Speaker 2: was buying what we thought were sort of decent companies
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Speaker 2: at a time when they were offered at very very
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Speaker 2: low valuations, and then and then keeping hold of them.
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Speaker 1: Okay, and how are we defining lower valuations? How are
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Speaker 1: we defining cheap? What do you look at?
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Speaker 2: We defined cheap by looking at where we think of
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Speaker 2: company's earnings potentially is not where its earnings is today.
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Speaker 2: We think that people typically focus too much on short
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Speaker 2: term earnings. So COVID is brilliant example of that. Obviously,
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Speaker 2: you know, we'd gone into this lockdown, the economy had
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Speaker 2: gone into a downturn, Lots of companies, their earnings went
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Speaker 2: down the past, the dividends, et cetera, et cetera, And
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Speaker 2: what people have a tendency to do is basically anchor
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Speaker 2: off that they and they just kind of can't see
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Speaker 2: how things are ever going to recover. What we tend
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Speaker 2: to do is say, right, look, at some stage this
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Speaker 2: will end, earnings will recover, where do we think they
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Speaker 2: can get back to? And we kind of try to
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Speaker 2: look three to five years out and then basically value
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Speaker 2: the business off where we think the earnings can get
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Speaker 2: back to.
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Speaker 1: It really sounds very straightforward, quite obvious. Why doesn't everybody
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Speaker 1: investate this?
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Speaker 2: Because it's simple, not easy. There's actually a book called simple,
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Speaker 2: not Easy and Perfectly Some Value Investing, which is you're
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Speaker 2: absolutely right. The mechanics of doing that are not particularly difficult.
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Speaker 2: The difficult bit is the psychological bit. It's the buying
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Speaker 2: stocks which the share price has probably just gone down
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Speaker 2: a lot. Everyone hates them. Everyone tells you you're an
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Speaker 2: absolutely clown to be buying those you need. Do you
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Speaker 2: not know that? You know we're in the middle of
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Speaker 2: a recession and YadA, YadA yadda. I often say, you
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Speaker 2: know when we when we put up our top ten holdings,
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Speaker 2: people often feel slightly nauseous looking at the companies that
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Speaker 2: we own. But you don't get bargains unless you buy
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Speaker 2: things that have some sort of controversy around them. That's
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Speaker 2: the reason that it works.
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Speaker 1: And when you look at the top ten holdings. It's
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Speaker 1: actually it's a very concentrated portfolio, isn't it that There
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Speaker 1: are sixty five odd holdings across the portfolio, but the
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Speaker 1: top ten make up a very significant proportion.
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Speaker 2: Yeah, that's correct.
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Speaker 1: How much is the top ten now?
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Speaker 2: I think top tens are around fifty percent of the portfolio. Yeah.
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Speaker 1: Yeah, so this is very focused. So when you find it,
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Speaker 1: when do you find a bargain, you really go for it.
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Speaker 2: We do, although although actually you might be surprised to
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Speaker 2: find that. Actually sometimes we put you know, three percent
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Speaker 2: or so into the portfolio. But I think the important
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Speaker 2: thing is letting it run, so basically not being too quick,
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Speaker 2: you know, to take your profits on things. I mean,
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Speaker 2: I keep going back to the banks. But the banks
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Speaker 2: will be a fantastic example of that. You would have
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Speaker 2: had lots of opportunities to have sold banks as they
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Speaker 2: went up and buy and large. We just kind of
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Speaker 2: like and run, let them run, and of course then
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Speaker 2: they end up becoming a sort of five six percent position.
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Speaker 1: Okay, So what makes a stock a good value stock
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Speaker 1: as opposed to a value trap. I mean, it's the
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Speaker 1: standard question, right, There's a lot of stuff that looks
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Speaker 1: very cheap, but in fact, maybe it's got an awful
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Speaker 1: lot of debt, or it is obvious to you that
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Speaker 1: its profits may remain low and definitely etc. How are
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Speaker 1: we dis distinguishing between a great value buy and a
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Speaker 1: value trap.
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Speaker 2: Unfortunately, buying value traps it's almost an occupational hazard. If
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Speaker 2: you spend your entire time saying, now, I'm going to
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Speaker 2: avoid companies that I think might be a value trap,
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Speaker 2: then you are going to miss the ones that actually aren't,
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Speaker 2: the ones which actually it turns out that the market
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Speaker 2: has just overreacted in the downturning earnings. But by and large,
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Speaker 2: we do stay away from companies with too much debt,
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Speaker 2: and I think that's myself and they could be running
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Speaker 2: money for thirty years. When we look back at the
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Speaker 2: things that have gone the worse for us, often it's
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Speaker 2: just companies with weak balance sheets because when things went down,
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Speaker 2: they didn't have the ability to basically stay the call.
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Speaker 2: So you got to buy something with a decent balance cheap.
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Speaker 2: And then we do try to buy things where we
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Speaker 2: think that the earnings can be higher on a five
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Speaker 2: year basis, and we're not always going to be right
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Speaker 2: about that, but it is our starting point. So we're
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Speaker 2: not just buying cheap rubbish. We are buying things which
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Speaker 2: we think have suffered temporary dislocation. That might be because
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Speaker 2: of something the company has done wrong, it might be
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Speaker 2: because of an economic downtown, might be because of the business
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Speaker 2: cycle or commodity cycle or something like that, but where
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Speaker 2: we can see some sort of route to the earnings
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Speaker 2: recovering in the future.
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Speaker 1: Okay, so very much an art form it is.
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Speaker 2: And as I say, you do have to just sort
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Speaker 2: of be fairly pragmatic about it and just admit yourself
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Speaker 2: that occasionally you're going to get one in the one
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Speaker 2: or two of these wrong took us through.
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Speaker 1: The top ten at the moment. What's in that high
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Speaker 1: convection part of the portfolio?
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Speaker 2: Energy is quite a big part of it for obvious reasons,
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Speaker 2: and actually they're a great example that you know, they
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Speaker 2: obviously were much smaller holdings starts of the year. Energy
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Speaker 2: stocks have done very well.
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Speaker 1: Yeah, so you've got both BP and SHELL at the.
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Speaker 2: Top, right, BP and Shell. Let's be honest, this was
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Speaker 2: not a call on the old price of all to
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Speaker 2: a certain extent, it was almost the opposite. Actually, as
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Speaker 2: we came into the year some of the investment banks
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Speaker 2: for falling over themselves to tell you that the old
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Speaker 2: price is going to be forty dollars this year, and
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Speaker 2: that immediately gives you recently high conviction. But actually there
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Speaker 2: are some stock specific stories here as well. Probably the
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Speaker 2: one I would highlight there is BP, where I'm sure
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Speaker 2: I'm sure you and lots of the listeners know the
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Speaker 2: story here that strategically they just went in a completely
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Speaker 2: different trajectory over the last few years, decided that they
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Speaker 2: were going to sort of walk away from their core
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Speaker 2: or in gas business and invest lots of money in transition.
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Speaker 2: Didn't go so well for their shareholders, and they've had
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Speaker 2: a change of management. You've got an activist investor in
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Speaker 2: the form of Veliot has come in and taken a stake,
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Speaker 2: and there's a bit of u turn going on in
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Speaker 2: terms of the strategy. And we think therefore you've not
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Speaker 2: just got the recent rising oil prices, you've got actually
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Speaker 2: a self help story going on there as well.
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Speaker 1: Okay, and then after you've still got a lot of financials.
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Speaker 2: We have, although I should say we have been trimming
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Speaker 2: the banks, not because we necessarily think that they're expensive,
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Speaker 2: but you go back a few years, they were very,
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Speaker 2: very cheap. I mean you literally could buy UK banks
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Speaker 2: on five times earnings half book six or seven percent
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Speaker 2: dividend yield. Those days are gone. So now now they're
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Speaker 2: more like ten times earnings one times book, you know,
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Speaker 2: slightly over, so that they're no longer cheap. And I
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Speaker 2: think the second thing is when we look at the
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Speaker 2: dynamics of the industry, things are pretty much as good
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Speaker 2: as they could be at the moment in terms of interest.
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Speaker 2: Margins are high, you know, loan defaults are low, et cetera,
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Speaker 2: et cetera, and so you just say to yourself, look,
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Speaker 2: they've done well. You know, they're now more fully valued
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Speaker 2: and conditions probably don't get much better than this, so
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Speaker 2: we have been trimming those. I think another interesting story
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Speaker 2: where we do seem to be quite contrarian here is WPP.
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Speaker 1: Yeah, I saw that tenth biggest holding. Now that is
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Speaker 1: that's definitely controlling, but that's what you're supposed to do.
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Speaker 2: WPP is definitely contrarian. So obviously WPP is the advertising
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Speaker 2: agency was put together by Martin Sorel for a series
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Speaker 2: of acquisitions. It's definitely lost its way in the last
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Speaker 2: few years. But again you've got management change about six
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Speaker 2: months or so ago. And I think what gives us
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Speaker 2: conviction here is that their peers are still growing. So
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Speaker 2: going back to your question about value traps, how do
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Speaker 2: you know a value trap? Well, their biggest peer is
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Speaker 2: a French company called Publicists. Publicists are still growing at
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Speaker 2: five cent pranum, so you know there are definitely structural
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Speaker 2: forces going on within the industry. And despite that, Publicists
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Speaker 2: is still growing at five percent parandum. So that, I
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Speaker 2: suppose makes us think that it's probably a WPP issue,
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Speaker 2: not an industry issue. And we can see what the
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Speaker 2: WPP issue is, which is its still run as a
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Speaker 2: series of fiefdoms. So all those different advertising agencies are
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Speaker 2: and may the J Walter Thompson, etc. That were put
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Speaker 2: together through a series of acquisitions, Were never really fully
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Speaker 2: integrated and they're still run as separate businesses to the
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Speaker 2: extent they sometimes they will picture against each other for
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Speaker 2: the same account.
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Speaker 1: Well, that's absurd.
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Speaker 2: We think the challenge is basically to integrate those different
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Speaker 2: businesses into one company. And the valuation is just crazy.
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Speaker 2: The valuation is absolutely crazy. The shehad today, I suppose
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Speaker 2: about two pounds seventy something like that, they are forecast
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Speaker 2: to do fifty p of.
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Speaker 1: Earnings, but that rather rather reflects lack of confidence in
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Speaker 1: the management team being able to amalgamate things in the
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Speaker 1: way you've just been talking about.
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Speaker 2: It absolutely does, which which funny enough, we like. Actually,
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Speaker 2: so the market is giving new management zero percent probability
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Speaker 2: of improving things. We would say they could just stabilize
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Speaker 2: earnings at fifty p right, what do you put that
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Speaker 2: on ten times or something that would be a five
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Speaker 2: quid shower price from kind of two pounds sixty today.
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Speaker 2: And actually we think that they can do better than
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Speaker 2: just stabilize the earnings. So at the moment, the market
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Speaker 2: doesn't agree with us, so we will see you.
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Speaker 1: Don't want the market to agree with you for a while.
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Speaker 2: Right, well not yeah, not yeah no, but eventually, yeah,
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Speaker 2: let me ask.
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Speaker 1: You about another one on the top ten. Foint we
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Speaker 1: move on to two different things. Cheers, K, you've got
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Speaker 1: there at number five. Yep, that seems to keep coming
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Speaker 1: up when I talk to fund managers and listen to
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Speaker 1: dot pickers SPEAKSK is very popular at the moment.
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Speaker 2: Yeah, although funny enough, actually not, I wouldn't say that
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Speaker 2: there was a that's not really a sort of recovery story.
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Speaker 2: I think that's just a situation where within healthcare, the
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Speaker 2: market just became very very negative on healthcare companies. And
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Speaker 2: actually that you know, these are reasonably good companies. They're
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Speaker 2: not uber growth companies, but you know they can normally
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Speaker 2: knock out sort of five percent or so earning's growth.
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Speaker 2: And that's absolutely the case with GSK. Their record in
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Speaker 2: terms of new drug discovery has not been fantastic over
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Speaker 2: the last few years. But you know, there are some
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Speaker 2: very good businesses within the company, and yet it just
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Speaker 2: got down to a very very lay multiple. So and
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Speaker 2: actually in the last year or so, actually the stock
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Speaker 2: has begun to rerate, hence again why it's ended up
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Speaker 2: in the top ten.
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Speaker 1: So what we've got here is relatively inexpensive portfolio, pretty
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Speaker 1: high conviction, and very pragmatic in terms of where you
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Speaker 1: look in the market. Right.
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Speaker 2: You know, you mentioned at the start that the trust
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Speaker 2: is up sort of I think two hundred and forty
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Speaker 2: percent or something since we took it over. It's on
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Speaker 2: a pe of less than ten today, which is amazing.
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Speaker 2: No you think, oh, that almost sounds impossible, doesn't it.
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Speaker 2: And of course that that's I suppose the good thing
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Speaker 2: about being a value investor is you rotate around the
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Speaker 2: market to where the value is. You're not locked into
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Speaker 2: sort of one set of companies, and that's exactly what
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Speaker 2: we've done. So despite the fact that the trust has
13:16
Speaker 2: gone up, we've basically been able to continually rotate around
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Speaker 2: the market, and thus you've still got a low valuation today,
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Speaker 2: which hopefully, you know, is an indicator of you know,
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Speaker 2: that the returns can continue in the future.
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Speaker 1: We were talking earlier before we came on about different
13:46
Speaker 1: investment styles, and you know, you call yourself a value investor,
13:50
Speaker 1: we call you investor a value investor, and let lot
13:52
Speaker 1: of people call themselves growth investors. And then we've been
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Speaker 1: through this lengthy period until quite recently when people talked
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Speaker 1: about investing in quality growth seemed to be an area
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Speaker 1: that massively outperformed, and people would talk about not worrying
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Speaker 1: about price so much because they were invested in a
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Speaker 1: quality company and it was growing. Therefore price was slightly
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Speaker 1: by the bye. Now that seems to be coming to
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Speaker 1: an end, or has come to an end, and a
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Speaker 1: lot of the quality growth investors have been having a
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Speaker 1: pretty torrid time, which slightly brings us back to the
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Speaker 1: idea that maybe all investing should be value investing, and
14:26
Speaker 1: in the end, if you buy something over priced, it's
14:28
Speaker 1: going to end up a valuestog.
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Speaker 2: One day, I would completely agree. The thing that always
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Speaker 2: puzzled me about it was that when I look at
14:36
Speaker 2: a company that the quality of it and the growth
14:38
Speaker 2: rate of it are both things that I consider when
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Speaker 2: I'm calculating the value of the business, and so is
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Speaker 2: actually right right? So why would you suddenly say, you know,
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Speaker 2: all I'm going to look at is the quality and
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Speaker 2: the quality and the growth and I'm not really going
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Speaker 2: to consider the valuation that That never really made sense
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Speaker 2: to me. What is interesting actually is that you're you're
14:57
Speaker 2: absolutely right. For about ten years. Actually, that style of
15:00
Speaker 2: investing work quite well twenty ten to twenty twenty.
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Speaker 1: Yeah, twenty ten to twenty twenty, right, which coincided amazingly
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Speaker 1: with guess what.
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Speaker 2: No interesting state of easing. And I'm sure that, I'm
15:12
Speaker 2: sure that had a big part of it. It's come
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Speaker 2: badly unstuck since then. And I think there are two
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Speaker 2: reasons for that. One is that it turns out that
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Speaker 2: a lots of these companies were not as high quality
15:24
Speaker 2: or not as fantastic growth as maybe people thought. You know,
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Speaker 2: I scribbled down a couple of examples later on night.
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Speaker 2: The share price has gone from one hundred and eighty
15:33
Speaker 2: dollars to forty dollars. One hundred and eighty dollars. It
15:36
Speaker 2: was doing four dollars of earnings, so people were paying
15:39
Speaker 2: forty times earnings for Nike, just ahead of a period
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Speaker 2: in which the earnings went from four dollars to one
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Speaker 2: pounds one dollar fifty. So and you know, that is
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Speaker 2: a fantastic example, isn't it, of where both of those
15:52
Speaker 2: bits went wrong. So, in other words, the earnings were
15:55
Speaker 2: not as great as you originally thought they were going
15:57
Speaker 2: to be, and you were paying too much for those
15:58
Speaker 2: earnings in the first place. You put the both of
16:01
Speaker 2: those things together and you just get this horrific in
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Speaker 2: a combination of de rating on their earnings. That's the
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Speaker 2: story across lots and lots of these. Another example, Starbucks
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Speaker 2: earnings has gone from three fifty dollars to two thirty.
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Speaker 2: People are still paying forty times earnings for that. There
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Speaker 2: are examples in the UK records records, did three twenty
16:21
Speaker 2: of earnings back in twenty eighteen, they forecast to do
16:24
Speaker 2: three this year. So again, you know, the earnings for
16:27
Speaker 2: a lot of these things have just not been nearly
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Speaker 2: as good as maybe people anticipated, and you paid the
16:32
Speaker 2: wrong price at the start.
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Speaker 1: I mean, that doesn't necessarily tell you that you shouldn't
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Speaker 1: look for high quality companies that you think will grow fus.
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Speaker 1: That just tells you that it's very risky to overpay
16:41
Speaker 1: for them. I mean, the message is very simple.
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Speaker 2: Yeah, it is. And actually coming back to this point
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Speaker 2: about the fact that we rotate around the market to
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Speaker 2: where the value is. People often laughed at the fact
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Speaker 2: when we join our WC, as it was in twenty ten,
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Speaker 2: we own Microsoft. We have a value investors to by Microsoft.
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Speaker 2: Why because in twenty ten all the tech guys were
16:59
Speaker 2: tell you that Microsoft was basically it was like old
17:02
Speaker 2: technology was going to get disrupted by all the all
17:04
Speaker 2: the new entrants and so on and so forth. Microsoft
17:07
Speaker 2: was trading on eight times earnings back in twenty ten.
17:10
Speaker 2: It had net cash on the balance sheet. There's a
17:12
Speaker 2: fantastic example, I guess of what you're talking about.
17:14
Speaker 1: There.
17:14
Speaker 2: You had a what you might call a quality stock,
17:16
Speaker 2: but it was available at a really low valuation, which
17:19
Speaker 2: is just that's your nirvana, isn't it.
17:21
Speaker 1: Yeah? Are you seeing any of that now? As we
17:23
Speaker 1: move away from the idea that quality growth is it's
17:26
Speaker 1: okay to overpay, And there's some of the stocks they
17:29
Speaker 1: had badly or worse than expected it anyway, is there
17:31
Speaker 1: anything in there that you can pick up and say
17:33
Speaker 1: this is quality growth and value at the same.
17:35
Speaker 2: Time, I think the answer is no. One or two
17:39
Speaker 2: of them are starting to move down into interesting territory.
17:41
Speaker 2: So actually a stock which was it was almost the
17:45
Speaker 2: post child of sort of quality growth was Diagio. So
17:48
Speaker 2: we haven't owned I don't think we've ever owned Yasue.
17:50
Speaker 2: Actually we initiated a position recently on Diagio. Why because
17:54
Speaker 2: the earnings have come down, the dividend's been cut, You're
17:56
Speaker 2: now actually only paying twelve times lowered earnings. You've got
18:00
Speaker 2: a change of management every with Dave Lewis coming in,
18:03
Speaker 2: so you know it's got the ingredients there for a
18:05
Speaker 2: business that could do relatively well. To be honest with you,
18:08
Speaker 2: we haven't gone sort of gang busters on it. Why
18:11
Speaker 2: because actually I think there are potentially some quite deep
18:13
Speaker 2: structuring issues going on here. If you look at spirits
18:16
Speaker 2: volumes all around the world, spirits volumes are going down
18:18
Speaker 2: at the moment actually, and it's you know, there's a
18:21
Speaker 2: possibility that this industry is no longer the growth industry
18:24
Speaker 2: that people once thought. That just consumer tastes have been changing,
18:26
Speaker 2: people are consuming less alcohol. For a new management team,
18:30
Speaker 2: if you're facing those sorts of structural issues, that that's
18:32
Speaker 2: a big challenge. It's not just as simple as cutting costs.
18:36
Speaker 2: The honest answer to you is no, we still think
18:38
Speaker 2: lots of these things, such a very very over valued
18:41
Speaker 2: Costco trades on fifty times earnings, Walmart trains on forty
18:44
Speaker 2: five times earnings. I mean, these things, they're good companies,
18:47
Speaker 2: but they're just they're just no way should you be
18:49
Speaker 2: paying that sort of valuation for them.
18:50
Speaker 1: Have you got a Costco card?
18:52
Speaker 2: I don't have a Costco card.
18:53
Speaker 1: No, it's great to Gosco strongly recommend nice day out.
18:57
Speaker 2: I'm sure, I'm sure it is, but I'm sure it is.
18:59
Speaker 2: Just think that makes the stock worth fifty times earning.
19:01
Speaker 1: Good day out with the kids. So where else are
19:06
Speaker 1: you looking at the moment? Where are you seeing value?
19:08
Speaker 1: I mean, I'd actually quite like to talk about the
19:10
Speaker 1: international compointment of the portfolio, so that is thirty percent, right, Well,
19:13
Speaker 1: where are you finding value abroad?
19:15
Speaker 2: Last year? Actually we actually found some interesting stocks in career.
19:18
Speaker 1: Well, I mean I wrote about career a lot the
19:20
Speaker 1: last couple of years, and last year I suggested that
19:23
Speaker 1: if you'd missed out on everything that you saw in
19:25
Speaker 1: Japan that had been super cheap, maybe you should head
19:27
Speaker 1: for career. I'm quite pleased with that recommendation.
19:30
Speaker 2: Yeah, exactly, And that worked out well. And what we
19:32
Speaker 2: found amazing about career actually was that most of the time,
19:35
Speaker 2: as a value investor, you have to buy a stock
19:38
Speaker 2: where there's some sort of controversy. So something has gone wrong,
19:40
Speaker 2: the owned has gone down, you know, people hate it,
19:42
Speaker 2: and that that opportunity. And then we we looked at
19:46
Speaker 2: some Korean stocks and we thought, actually, there's no controversy
19:49
Speaker 2: here at all. It's just the fact that I think
19:50
Speaker 2: so much money had gone into US tech growth et cetera,
19:54
Speaker 2: et cetera, these things bit like Japan actually had become
19:57
Speaker 2: cheap by neglect. So we bought a couple of Korean
20:01
Speaker 2: banks called Hannah and Wooy last year and they were
20:05
Speaker 2: trading on sort of five times earnings half book and
20:08
Speaker 2: dividend yields of about eight percent. And then you looked
20:10
Speaker 2: at the history of the company, and actually, the history
20:12
Speaker 2: of the company is really good. For about a decade,
20:14
Speaker 2: they'd grown their earnings very consistently, they had very sensible
20:18
Speaker 2: lending policies. They actually already had very good shareholder return policies,
20:22
Speaker 2: so they were paying dividends, buying backstock, et cetera, et cetera.
20:26
Speaker 2: You're almost sitting there scratching your head, thinking what am
20:28
Speaker 2: I missing here? It turned out actually there wasn't There
20:31
Speaker 2: wasn't another thing we were missing. They had just become
20:33
Speaker 2: cheap by neglect.
20:34
Speaker 1: Yeah, okay, so career and is that still okay? I
20:37
Speaker 1: mean that market has really moved. No one would say
20:40
Speaker 1: career is neglected today.
20:41
Speaker 2: We still hold them. We've obviously taken a little bit
20:43
Speaker 2: of money out of them because they've done incredibly well.
20:45
Speaker 1: Okay, So where else are you saying cheap things? Either
20:47
Speaker 1: globally or at home.
20:48
Speaker 2: We're starting to see value in the US, which will
20:51
Speaker 2: all sort of potentially make you smile, because I think
20:54
Speaker 2: I think we would probably agree that US is a
20:56
Speaker 2: very expensive market, but it's also a very big market,
20:59
Speaker 2: and it's a very diverse market. There are pockets or
21:01
Speaker 2: value in the US. Laughably, in the US small cap
21:04
Speaker 2: is sort of zero to ten billion and ten billion
21:06
Speaker 2: to twenty billion. That's called small cat. We've been finding
21:10
Speaker 2: value in that sort of area. So again, tail end
21:13
Speaker 2: of last year, we've bought a couple of energy companies.
21:16
Speaker 2: One of them is called Devon Energy. One of them
21:18
Speaker 2: is called called Your Shale Producers, and as you can imagine,
21:21
Speaker 2: they have performed quite well. It's that sort of air.
21:24
Speaker 2: I just think you have to look outside of megacap,
21:27
Speaker 2: US tech and so on and so forth.
21:30
Speaker 1: You're clearly a stockpicker, a bottom up stockpickering. I would guess,
21:34
Speaker 1: try not to think too much about the macro environment,
21:37
Speaker 1: but that's getting increasingly difficult. What worries you at the moment,
21:40
Speaker 1: what's keeping you up at night? I mean, obviously, when
21:43
Speaker 1: you have a portfolio like this, you built in margins
21:45
Speaker 1: of error across the board, and so you will maybe
21:48
Speaker 1: feel safer than someone who's got a very expensive portfolio.
21:51
Speaker 1: But what wakes you up in the night.
21:53
Speaker 2: It's a conversation I think that yourself and John had
21:55
Speaker 2: about a week ago, which is it could loosely call
21:57
Speaker 2: it complacency in the market, which is the strait of
22:01
Speaker 2: Halbe's as we talk today, is still shut. The oil
22:03
Speaker 2: price is still a one hundred dollars. Airlines are starting
22:06
Speaker 2: to cancel flights. Some Asian countries have gone to a
22:08
Speaker 2: four day working week, and the S and P five hundred,
22:11
Speaker 2: you know, has just hit hit in the all time high.
22:13
Speaker 2: I think the semiconductor index has just done eighteen consecutive
22:17
Speaker 2: up days. There just seems to be an awful lot
22:20
Speaker 2: of complacency. And you're absolutely right. We are not macro forecasters,
22:25
Speaker 2: but I don't think you have to be to say
22:27
Speaker 2: that eventually energy prices are those levels is going to
22:31
Speaker 2: have an impact on the economy. And if your starting
22:33
Speaker 2: point is some very very high levels of valuation, normally
22:36
Speaker 2: those two deep to putting those two things together don't
22:39
Speaker 2: work out well. And you're right, from where we sit,
22:42
Speaker 2: we can look at our portfolio and say, yep, it's
22:44
Speaker 2: lowly values and we think we've built in a margin
22:47
Speaker 2: of safety. But if the US market comes down, it's
22:49
Speaker 2: not going to sit there and just and be completely
22:51
Speaker 2: immune from that. So yeah, I do find I do
22:54
Speaker 2: found that sort of mildly, mildly worrying how people appear
22:59
Speaker 2: to have just become accustomed to buying and I think
23:01
Speaker 2: I think it's possible that people are buying this dip
23:04
Speaker 2: for the wrong reason, by which I mean historically it
23:07
Speaker 2: was right by the zip because whenever something happened, the
23:09
Speaker 2: central banks of the world wrote your rescue, either cut
23:12
Speaker 2: rates or printed money or whatever or you know, so
23:16
Speaker 2: they were going to do whatever it takes. I don't
23:18
Speaker 2: see how central banks can print money and open up
23:21
Speaker 2: the straight of hall moot and get the will price
23:23
Speaker 2: to come down, if anything, If they do, that's going
23:25
Speaker 2: to make the inflation problem worse, not not not not better.
23:29
Speaker 2: And so yeah, that I do find that. I do
23:31
Speaker 2: find that a bit worrying.
23:32
Speaker 1: Okay, So even even you're awake a little at night, Okay,
23:38
Speaker 1: So one last question, one last question, And what are
23:40
Speaker 1: you reading at the moment.
23:42
Speaker 2: I have just finished Lionel Barber's bol for You about
23:46
Speaker 2: Son or Son, and I have just started Jeremy Grantham's
23:51
Speaker 2: book The Diary of Perma Bear.
23:53
Speaker 1: Oh have you the new one? We had them on
23:54
Speaker 1: the podcast, you know, did you listen to that?
23:56
Speaker 2: I did? Indeed, I almost almost don't need to read
23:58
Speaker 2: the book.
23:59
Speaker 1: Actually yeah, and I I saw him again the other night.
24:01
Speaker 1: I mean, he's just so interesting, so interesting, and Lanel's
24:05
Speaker 1: book is as great. Tists of strong recommendations.
24:09
Speaker 2: Thank you, Ian, those are both good books. What I
24:11
Speaker 2: tend to do is have a I have a list
24:14
Speaker 2: of books. At Christmas time, my family just buy me
24:16
Speaker 2: investing books and then I'll basically spend the rest of
24:18
Speaker 2: the year reading them.
24:19
Speaker 1: So they're my investment books and the odd pair of socks.
24:21
Speaker 2: And that's that exactly here, ex actually right.
24:25
Speaker 1: Brilliant, And thank you so much for coming on today.
24:27
Speaker 2: Pleasure, good to talk to you.
24:35
Speaker 1: Thanks for listening to this week's marrin. Doalgs Money if
24:37
Speaker 1: you like, I share, rate, review, and subscribeerever you listen
24:40
Speaker 1: to your podcast and keep sending your questions or comments
24:42
Speaker 1: to merryorn Money at Bloomberg dot net. He's an Also
24:45
Speaker 1: follow me and John on Twitter or x I'm at
24:47
Speaker 1: maryness w and John is John Underscore Stepic. This episode
24:51
Speaker 1: was hosted by me Marren Sunset Web. It was produced
24:54
Speaker 1: by Sumer Sardi and Moses and Sad, designed by Blake
24:56
Speaker 1: Maples and Aaron Kasmer. As I think of course, to
24:58
Speaker 1: Ian Loos,