# Sir Chris Hohn | Podcast | In Good Company | Norges Bank Investment Management

https://www.youtube.com/watch?v=M01NZc2QlDk

[00:01] Hi everyone, I'm Nikolai Tangan and today we are joined by one of the best investors of all time actually.
[00:08] So Chris Horn, not only is this fund TCI one of the best and most successful funds that Europe has ever seen, but also the charity is one now one of the largest in the world.
[00:18] So uh Chris, you continue to have a immense positive impact on the world.
[00:22] Thanks for coming.
[00:24] Good luck.
[00:24] Let's start with um the investment world.
[00:25] What makes a good investment?
[00:27] I think this is uh something a lot of people uh get wrong.
[00:29] They that's they think it's about growth often.
[00:36] Okay.
[00:36] Or something new.
[00:41] Neither of them those things in themselves are to us um uh matter by themselves.
[00:52] The most important thing and without which it's um in in um for the let's say the types
[01:03] of investing that we do is high barriers to entry the moes that Warren Buffett has talked about.
[01:13] Now can before we dig into that the can a distressed asset of a you know a piece of real estate that selling at half price because of a liquidation also be a good investment?
[01:24] Yes.
[01:25] So, can there be a role for cheap average assets?
[01:27] Yeah, let's call them lowquality assets which are trading at big discounts to replacement cost.
[01:33] Yes, that that's the that's the type of investing that can work.
[01:37] Yeah. That I've I've done in my time.
[01:41] Yeah. Cheap average businesses or cheap bad businesses.
[01:45] But I'm I don't feel that I can have any confidence in that type of investing.
[01:52] um because the um the earnings power of those averages businesses is unpredictable.
[01:58] Well, so
[02:04] what are good modes?
[02:06] The most important answer is ones that are sustainable.
[02:08] Okay, a lot of people uh and ideally you would have multiple moes, multiple ar pieces of defense and there are many ways is is basically something that means that the business is difficult to replace.
[02:19] Yeah. uh difficult to compete with.
[02:21] Yes. And replace two two substitution risk and competition risk.
[02:27] Y those long-term become different very difficult because why is it so important?
[02:32] Competition kills profits.
[02:34] Yep. That's as simple as that.
[02:35] Substitution eliminates your business.
[02:38] So we look at um um there there are many many modes.
[02:44] one which most people don't look at uh most investors don't really look at actually interestingly is irreplaceable physical assets.
[02:52] Okay, we're in a world where people uh just look at earnings.
[02:58] They don't look at uh asset value or physical assets and and uh
[03:06] Um and so we like quite a bit of infrastructure.
[03:09] Um airports for example um one of our investments which uh has been um the airport group in Spain where the government privatized.
[03:20] Yes.
[03:23] Ayena and um you just can never they'll never build a second airport at Madrid or any other places.
[03:29] These are, you know, natural monopolies and um so but that also applies to toll roads and railroads and um telecom towers.
[03:45] Um so uh there are many forms of infrastructure transmission towers that um um are hard to compete with because they're natural monopolies where um where um of course some of these things can be overbuilt like cable.
[04:00] So there's a form of infrastructure but it
[04:06] it's it's it's it's usually you have to look at the details of case by case very unusual to try to and usually go and get the planning uh to build a second airport.
[04:18] No economic case to it.
[04:20] I mean I can't remember how long they struggled to get a an extra runway at Heathro.
[04:23] Right.
[04:25] So planning exactly planning and then uh roads there's no economic case to build a second road or you don't have the land.
[04:31] for different uh literally no so so infrastructure is physical assets is one a second is IP intellectual property that's right and uh which is so advanced okay that it's very difficult to replicate well so what kind of intellectual property are you thinking um one space we like is aircraft engines um and uh there it is a very complicated
[05:07] product because the um materials complexity the the the the engines run at such high temperatures that metals melt and so many different things have to come together.
[05:21] Yeah. Thousands and thousands of complex parts.
[05:23] So that's one where that's a business where there are only two players in narrow body engines and two in widebody and there have been no new entrance for more than 50 years.
[05:35] The last new entrance was DE and so that tells you something.
[05:38] Yeah, it's a big industry but it's so complex very hard to enter.
[05:44] Another uh barrier to entry is um uh installed base.
[05:47] Okay, which applies to the aircraft engine business.
[05:53] Once those engines are there, they um for various reasons, you get the spare parts business on it.
[06:00] And um uh another um of uh barriers to entry is scale, although that's that's not a
[06:09] uh a guarantee of of uh um of uh competitive uh moat.
[06:20] Network effects is another important barrier to entry.
[06:27] You can see this in assets like Visa, Meta.
[06:32] Yeah, two examples of um network effects and brands are another barrier to entry.
[06:37] But I'm not saying every brand is is powerful.
[06:42] But you know, you think about a McDonald's, it's a it has a value.
[06:45] There are some brands which are powerful and sustainable, but not all.
[06:50] And I'll mention one more uh moat which is customer switching costs.
[06:56] Take missionritical software once it's installed.
[07:03] Uh companies are very reluctant to to mess with it and and and switch because of the complexity.
[07:05] How important are recurring revenue streams for you when you look at businesses?
[07:10] It's important.
[07:13] Um, but the predictability of when they recur is not okay.
[07:21] Let me give you an example.
[07:21] So what's most important for us is something slightly different, which is essential product or service.
[07:29] We don't like things which are discretionary.
[07:31] Okay.
[07:31] So one space we've invested in for a long time is rating agencies.
[07:40] And here, these are the people who basically give kind of character to different types of, yeah, they say, is it good or bad?
[07:48] Yeah.
[07:48] Yeah.
[07:51] To people who invest in bonds, uh, they say, is it investment grade, non-investment grade?
[07:55] Give for research and, uh, if you like, bless it.
[08:01] And there you can actually defer an issuer pays for the rating, but they don't have to, um, refinance their bonds, which is a big.
[08:11] Part of it in any given year.
[08:14] M they can delay and defer but eventually the debt has to be refinanced and and and and rated and so there's a there's a and so I think essential need is is is is uh the the the bigger point but uh usually our companies have uh yeah recurring and predictable revenue streams of essential products I yeah and so do they have to grow depending on valuation not necessarily um and uh or not not necessarily at a fast rate.
[08:48] Okay?
[08:52] And you and growth can come from two forms, volume and price.
[08:54] So you have to break it down.
[08:57] Now why isn't growth as important as people investors usually assume it to be um because you can have profitless growth.
[09:05] The airline industry over a hundred years has had a lot of growth.
[09:09] Airline travel has grown at 5% a year.
[09:13] Yep.
[09:13] Continues to grow uh consistently.
[09:16] But airlines as a business cumulatively and collectively have made almost you know minimal profits.
[09:23] Yeah.
[09:23] Despite growth because the very low barriers to entry and so um so I I I would say growth without barriers to entry is is not a combination that you you want.
[09:37] Some of these businesses are quite uh capital intensive like it's not cheap to build an airport.
[09:42] Yeah.
[09:42] Does that matter for you?
[09:46] Well, you have to look at like everything into the detail and some airports uh are um well all airports have regulation on landing charges but some the non-landing charges are unregulated.
[10:04] the shops, the advertising, the the VIP lounges, the parking.
[10:07] Yep.
[10:11] And um the so-called dual till
[10:13] Regulation. One till is regulated, one till is unregulated.
[10:19] And those are very low capital in in in intensity.
[10:22] Yep. It's it's it's uh in effect.
[10:27] Yep. And uh and high returns on capital.
[10:30] They grow um because there's more and more demand for travel.
[10:36] And uh so um so and again capital intensity by itself it's part of the equation.
[10:47] Okay. But it's still um um um and it it it tells you how valuable growth is.
[10:55] Okay. But what trumps, if you don't mind that expression, what trumps the uh the all of this?
[11:06] Still, it's still a valid expression, don't Yes.
[11:07] What trumps all of this is the the the the the Barry century.
[11:10] Okay. What about regulation?
[11:12] You've been you've been big in things
[11:13] electric.
[11:13] Yeah.
[11:13] Yeah.
[11:15] I'll go into that, but I I I want to go back to the the point about growth can come from two forms, price and volume.
[11:20] Okay.
[11:23] And most companies don't have pricing power.
[11:26] They can only price if they're lucky at inflation.
[11:28] And that's why people don't focus on it.
[11:31] They don't even look at where growth comes from.
[11:32] They just assume it's volume plus inflation.
[11:37] But there is a special group of super companies that can price above inflation.
[11:44] And that's as Buffett taught the test of whether you have the moat.
[11:52] Okay.
[11:52] And this real pricing power above inflation can be very valuable because if you can price 1% above inflation and and you have a 20% profit margin, your profits will grow 5% faster than revenue.
[12:05] And um people don't go into it or analyze it because there's so few companies that that have it.
[12:12] But but
[12:16] Um, this is something we have, you know, a lot of our investments have this.
[12:21] Because incremental pricing is pretty much all profits.
[12:23] That's right.
[12:25] And it's very potent if you have the lower your margin is.
[12:26] So this is why you asked about growth and is it how important if it's if you're asking about volume growth?
[12:33] But I and I have low volume growth, but I have a lot of pricing growth, that's actually more important because of the leveraged effect of there's no cost associated with it.
[12:41] M, regulation.
[12:43] Yes.
[12:46] Um, you have been in a lot of regulated businesses.
[12:47] So you mentioned airports, but you've been in Red Electric, which is like electricity transmission company.
[12:53] You have done quite a few of these things.
[12:54] Yes, I have.
[12:58] And actually, it's a general risk.
[13:02] Um, because if you have barriers too low, competition or substitution eliminates your business and your investment.
[13:06] Barriers too high, regulators may come knocking on your door.
[13:09] Yep.
[13:12] M, every case is different.
[13:15] Yeah.
[13:15] And um, the ideal case is you that there is
[13:21] competition but weak competition.
[13:24] And apparent competition.
[13:26] Okay.
[13:29] So tell me what is apparent competition?
[13:29] Yeah.
[13:33] Well it it's really weak competition and rational competition.
[13:34] Okay.
[13:36] So the um take some water examples.
[13:43] um um uh Pratt and Whitney competes with GE and Saffron.
[13:49] It has a 25% share of new orders.
[13:53] It's it can as a product, but it's not nearly as as good.
[13:55] Yeah.
[13:59] It's it's got 35% of its engines grounded, multiple technical problems.
[14:04] just has lost a lot of trust, but it's it's there competing um and uh for new engines.
[14:05] Yeah.
[14:11] But price isn't the most important thing in this industry.
[14:16] Reliability is.
[14:19] Yeah.
[14:22] so you um and so and as it struggles it has to raise prices because it's got to you know lots of difficulties and sometimes where there is competition that competition chooses uh not to compete you know generally speaking not a specific industry um decides to be rational yeah and and and and compete on you know non-pricbased uh uh approach.
[14:51] Okay.
[14:54] And then the detail matters.
[14:57] So you might have looked at Heathrow airport and see oh that airport is fully regulated.
[15:02] Airports can't be good.
[15:05] But if you look into the detail of Aena it's a different animal.
[15:07] It has a piece that's regulated and and and a much bigger piece 70% of the value maybe more which is unregulated.
[15:15] Yeah.
[15:15] And so uh maybe the unregulated business the regulated business will give you a bond-like return 7% but the unregulated
[15:22] give you a much higher return.
[15:25] Do do you see now the other group of businesses?
[15:26] you've been uh very big in has been the stock exchanges.
[15:29] you know you both do stock exchange and so on in the past.
[15:35] Yes.
[15:35] Yes.
[15:37] Why are they why were they so good?
[15:40] In the case of uh Deutsche Borsa starting with that they had a derivative business called Eur which was a natural monopoly.
[15:44] It was a network effect.
[15:46] This was the barrier to entry that liquidity uh of a marketplace um for uh trading bond futures European bond futures.
[15:58] it the the network effect of getting best prices in in in the most uh liquid market meant it became what it's termed a winner takes all or natural monopoly.
[16:09] and once you have that liquidity very hard to move people away price you can never compete on best price and London stock exchange has that for LCH clearet.
[16:23] business a clearing business and
[16:27] So where an exchange can CME has it on US uh futures
[16:34] establish this natural monopoly by being the first mover.
[16:37] Okay, the winner takes all.
[16:42] Then the these exchanges can be be very good.
[16:45] But of course they've changed now.
[16:47] London stock exchanges in many different businesses sells data and half their earnings are from data and that's non-proprietary data reselling non-proprietary data.
[16:59] So it has a vulnerability on that piece.
[17:01] They're no longer just what they used to be.
[17:07] Um and then there was a lot of growth without capital.
[17:08] Yeah, as people came and traded more, as capital markets grew, you grew without capital, which was uh was was very valuable.
[17:18] What are the type of companies you would never invest in?
[17:20] Type of industries.
[17:22] Yeah, that's a good question.
[17:22] We have a long list of
[17:23] Companies we don't invest in.
[17:26] We're very focused and we call them the risky and bad industries.
[17:29] Uh and that's and I have invested in some of these in the past, but I've learned.
[17:34] Banks.
[17:37] Sorry for that.
[17:37] There's a bank.
[17:40] We are not the banks.
[17:40] We hate the central bank.
[17:42] Central bank is good.
[17:44] Yes, central banking can be good.
[17:45] But uh we don't like banks.
[17:48] And why not?
[17:51] Why not?
[17:51] Why not the low quality of earnings?
[17:53] Because they're very leveraged.
[17:55] Um and um uh uh much more than people think, you know, because people look at oh equity to risk weighted assets, but equity to total assets.
[18:03] Many banks have been have run it a hundred times and and so two they're opaque ah you can't look into them you can't yeah you can't uh I remember.
[18:15] Pre-financial crisis I had a look at Credit Suisse and I sat down with the the
[18:24] then CEO Brady Dugan and and said put his balance sheet in front of him from the the the annual accounts and said you have uh multi- trillion uh dollar balance sheet.
[18:37] Can we walk through the line items cuz I don't understand it.
[18:42] He said I don't either.
[18:43] He was a very honest guy.
[18:45] I really like very yeah very honest and okay so banks you don't do it.
[18:48] What else do you do?
[18:49] And the other reason for banks is very important.
[18:51] You know that sooner or later you may find someone without a lot of intelligence comes to run them and then it can be toxic.
[19:03] Yeah.
[19:03] People going for growth.
[19:05] AngloIrish bank if you remember that one.
[19:08] Yeah.
[19:08] Of course.
[19:12] And they just uh can destroy the shareholders.
[19:14] Yeah.
[19:16] uh
[19:18] by getting uh bonuses, you know, bare sterns, you know, and non-alignment of interests
[19:26] with leverage and uh opacity.
[19:29] and uh and uh so what are the other others?
[19:33] Oh.
[19:33] Oh.
[19:35] Many the auto industry is obviously a commodity, retail, you know, um insurance.
[19:42] um the um commodities, the uh commodity manufacturing, tobacco, the the truth is uh yeah, anything in in in most things in manufacturing.
[19:53] Okay.
[19:53] So So most industries most industries are bad industries.
[19:57] Yeah.
[19:57] So Chris, it doesn't leave it doesn't leave a big universe.
[20:02] Correct.
[20:02] We say maybe there's 200 companies that we consider to be um high quality and investable.
[20:13] Um and um I mean I'll list you a couple more.
[20:15] Traditional asset managers, bad businesses.
[20:18] Yeah, speaking as one.
[20:18] Um uh fossil fuel utilities, bad businesses.
[20:24] Airlines, bad businesses.
[20:24] Um wireless telecom, bad
[20:26] businesses. We think media is bad. um
[20:30] advertising agencies, you know, it's a
[20:32] very long list. Why? Because it's
[20:36] competitive and with existing players
[20:40] and new technologies. And the one
[20:44] important thing that um I've learned in
[20:47] my time in investing is investors
[20:49] underestimate the forces of competition
[20:52] and disruption because they just look
[20:55] today. Maybe there's a new company which
[20:58] has a first mover
[20:59] advantage but then competition comes
[21:02] in. Yeah. substitution and and uh um
[21:09] where does it where does it leave the
[21:10] big US tech companies now? Yeah. So
[21:12] there's a lot of power of incumbency.
[21:13] This is another important point. So
[21:17] let's take a company um Microsoft. Okay.
[21:21] Which we've invested in um and uh one of
[21:25] their barriers to entry is
[21:29] um bundling. Okay. or the or or maybe
[21:35] because of it's it's it's it it um it
[21:38] creates a customer switching cost. What
[21:40] what do I mean by this? So, the office
[21:43] franchise which we're all familiar with
[21:46] has many um products in it, you know,
[21:49] your your applications, word processing,
[21:52] Excel, your email,
[21:55] um
[21:56] security, different things. And they and
[21:59] they sell it as a bundle. Yep. they
[22:00] don't disagregate it.
[22:04] And when a new
[22:08] um product or a potential competitor
[22:11] enters
[22:13] um they can add it to the bundle. So
[22:15] Zoom came out with video
[22:19] conferencing and they could have
[22:21] potentially you know added all the
[22:23] things Microsoft does to that. So,
[22:25] Microsoft had to respond and they
[22:27] launched
[22:27] Teams and they were able to distribute
[22:30] it through the bundle. Yeah. free to
[22:33] everybody. And even though
[22:37] Zoom some people believe it was a better
[22:39] product or is a better
[22:41] product, Microsoft won that
[22:44] battle because they had the installed
[22:47] base, the incumbency which we talked
[22:49] about and high switching costs for um
[22:52] because once people are using their
[22:55] their office software, they don't want
[22:56] to switch and so people started using
[22:59] Teams. Okay.
[23:01] something given to you free. Why?
[23:03] Because it was good enough. Yeah. It
[23:06] didn't have to be the best if
[23:09] I if it's free. Yeah. What about the
[23:11] other tech companies? We have a a
[23:14] position in Alphabet and uh which is um
[23:19] maybe our most risky investment
[23:22] um um where there clearly the company
[23:27] it's just one of our smallest
[23:29] investments as a result. It's it's um
[23:31] and where we have some level of
[23:33] protection because it there are
[23:34] businesses like YouTube and and and
[23:36] their cloud business which represent
[23:38] half the market cap today and the cash
[23:40] and and other things. So um it isn't all
[23:44] search but search is is critical and uh
[23:47] and so can they out innovate um
[23:51] competition? Yeah there's a risk of
[23:53] search fragmenting you know as
[23:56] competitors come in uh and try to but um
[24:00] it's a question mark. Yeah we don't
[24:04] think so. We think they have a lot of
[24:05] advantages of their data to have to uh
[24:10] offer higher quality um search
[24:14] results and
[24:16] um but competition is increasing.
[24:18] Talking of which how do you think AI
[24:20] will change the investment landscape
[24:21] here? It's going to increase uh
[24:24] disruption in in in in ways we can't
[24:27] even predict. But there are uh things
[24:30] like call centers un will will all go
[24:34] bankrupt. And uh another segment is
[24:38] Indian outsourcing companies. Yep. Who
[24:42] do coding and and and uh things like
[24:45] that. um demand for those
[24:49] services could
[24:51] collapse because AI can do coding you
[24:54] know at at w with half the people. Yeah.
[24:58] Mhm. Yep. So, so there are but AI will
[25:02] will increase the productivity and lower
[25:03] the cost base of all all companies
[25:07] and so if you have a company with these
[25:10] barriers to entry it's going to be worth
[25:12] more I think uh for generally
[25:15] competitive businesses if you don't lead
[25:18] you could become uncompetitive
[25:21] and be disrupted. Yeah. So now um we
[25:24] have identified one of these companies
[25:25] let's say I don't know Ayena or
[25:27] Rolls-Royce or Microsoft. How do you
[25:29] value these companies? What what is your
[25:31] valuation tool? Are you we don't even
[25:33] look at that until we get comfortable
[25:37] that the barriers are so strong it will
[25:39] be around now. Okay. So barriers fine we
[25:44] think it will be around. Yeah. We think
[25:45] it'll be around. We think there will
[25:46] continue to be an airport in Madrid.
[25:48] Right. We'll do reference checks on
[25:52] um relevant people. Okay. So, and see if
[25:57] we're missing something. So, we when we
[26:01] were looking at investing in aircraft
[26:02] engines with uh we spoke to the a CEO of
[26:06] a former CEO of one of the the the
[26:09] competitive companies and he confirmed
[26:11] their thesis and and and actually said
[26:14] the margins should be much much higher.
[26:16] Okay. Okay. And over time they they will
[26:18] go there. So that that's uh one of the
[26:21] pieces of diligence. Um we will assess
[26:26] management where I think it's important
[26:30] but not critical if you have the right
[26:32] assets. Um through ideally through
[26:35] through meeting them um uh the the uh
[26:40] talk to
[26:41] competitors get their view.
[26:44] Um and um
[26:47] um look at competitive companies, look
[26:50] at the track record of the company and
[26:53] usually you don't understand everything
[26:56] and usually the things you find out are
[26:57] are bad things and um I think we'll
[27:02] discuss it with our team and we want to
[27:04] hear
[27:05] competing views. Yeah, we have some
[27:08] members of team are just inherently
[27:10] bearish. Yeah. And they're they're good
[27:13] for testing the bare case. We always
[27:15] want to hear how could technology
[27:17] disrupt. Yeah. And and just what
[27:21] competition and um are you a bearish
[27:23] guy?
[27:25] Um not particularly. No, I I've um Yeah.
[27:30] What but what kind of valuation metrics
[27:31] do you do you look at PS cash flows? Do
[27:33] you do DCFS? So you have like 50 page
[27:36] spreadsheets, all of those, right? All
[27:38] of those, but not 50 pages, you know,
[27:41] that's that's uh uh but a very But
[27:45] really honestly um one of the things we
[27:48] learned is there's a really important
[27:51] point is that we can have an advantage
[27:54] through long- termism. Mhm. Okay. Which
[27:58] is the average stock is held by an
[28:01] institutional investor by under a year
[28:02] or the stock market in the US. How long
[28:05] do you hold it? Average holding period
[28:07] of our port current
[28:09] portfolio is eight years. Eight years.
[28:12] Yeah. That's Yeah. Eight years. I'm not
[28:14] saying that's the limit. It's just
[28:17] uh
[28:18] the we've on average some we've held for
[28:22] 13 years. Some new investments like G
[28:25] aerospace two years but the average
[28:28] weighted average holding period is eight
[28:30] years. Yeah. So but it could be 10, it
[28:33] could be 20. So I I love long term,
[28:37] right? But how do you install that type
[28:38] of thinking into your organization? I
[28:41] mean we don't straight out of business
[28:43] school out of business school. You want
[28:45] to hey I mean you know went to Harvard
[28:47] like you did or whatever. It's just like
[28:49] hey let's do some stuff. Come on let's
[28:50] do some stuff. Yeah. And it's just like,
[28:52] hey, okay, let's buy something and hold
[28:53] it for 8 years, right? You come home to
[28:55] your partner every day. It's just like
[28:57] they do nothing. Then you we really um
[29:01] you know, if you are in the private
[29:02] equity world, that's normal. Yeah. A
[29:07] private equity fund would hold an
[29:10] investment for their 10-year life funds
[29:12] normally. Yeah. Or longer. 12 years.
[29:13] Yeah. As as you know. And
[29:17] so and so we we it's a it's an overused
[29:22] expression for some or misused. We take
[29:25] a private equity approach i.e. that we
[29:27] have to hold the company forever because
[29:30] you you the stock market maybe at at
[29:33] very uh bad prices when you want to
[29:36] sell. Yeah. if you need to sell and and
[29:38] and so I really think you you need to
[29:41] have that approach and um and so the way
[29:45] we we really like a long-term valuation
[29:48] is
[29:48] DCF the most important
[29:52] things and here's the thing DCF you take
[29:54] the cash flow and you discount it today.
[29:56] Yeah. But here's the thing is is and the
[29:58] the
[30:00] um the longer you can look out if you've
[30:03] got a great company the more valuable
[30:06] value there is. Take a company we own
[30:09] Moody's.
[30:11] Moody's a rating a rating agency. So
[30:14] it's been around 100 years. What do you
[30:16] think the average I can ask you a
[30:18] question. Make it fun. What do you think
[30:20] the average revenue growth over that 100
[30:22] years has been? Uh I'm going to look
[30:24] like a total fool, but uh 100 years is
[30:27] long time. 7%. 10. Wow. Yeah. You know,
[30:31] a very that's a very unusual number over
[30:33] a very long time period. And so
[30:35] investors have always underestimated his
[30:37] value, including myself. Yeah. And um I
[30:40] bought the stock during the financial
[30:43] crisis at 10 times earnings and then and
[30:45] then I even bought shares Warren Buffett
[30:47] was selling a and reduced his stake from
[30:50] 25% to I think he's got 15% and um
[30:54] butcher and uh the are you kind of are
[30:59] you kind of secretly pleased having
[31:00] bought something cheap from Warren
[31:02] Buffett? Yeah, but then I sold it. I
[31:04] doubled I doubled my money. I went from
[31:06] 10 times earnings to 20 and I and I sold
[31:08] it. uh at $100, bought it at 50, sold at
[31:11] 100. I thought I was clever and then but
[31:14] the earnings kept compounding. So you
[31:16] buy back I bought it back at $150. So
[31:18] now it's recently $500, now $400. So
[31:21] it's it's it's because actually the
[31:25] intrinsic value compounding matters more
[31:27] than the stock price. If you have a
[31:28] great company, it will grow intrinsic
[31:31] value. Absolutely. And the multiple
[31:33] here's the thing about the multiples.
[31:34] they matter
[31:36] less than the growth when
[31:39] you look at it over a longer period. But
[31:41] most
[31:42] investors are unwilling or unable to
[31:45] invest on a long-term time horizon
[31:48] because either they don't know what
[31:50] they're doing, which
[31:53] interestingly goes uh back to what War
[31:55] they think it's risky, which goes back
[31:58] to what Warren Buffett was when he was
[31:59] asked what the definition of risk was.
[32:02] You know what he said? not knowing what
[32:04] you're doing. So really good nugget here
[32:07] is that if you buy something which is
[32:08] really good, it doesn't quite matter
[32:10] what you pay for it because it will grow
[32:14] and secondary over a long uh well I say
[32:17] the let's just say it like this the
[32:18] multiple to a point. Yeah. Whether you
[32:21] buy buy it at if it's growing it's all
[32:24] maths. Yep. You've got to look at the
[32:26] growth rate the terminal multiple the
[32:28] all the mult things. But if it's
[32:30] increasing intrinsic value at a at a at
[32:32] a at a good rate, you will undervalue it
[32:34] if you look at it over a short horizon.
[32:37] Yep. I can be saying it like that. And
[32:39] if you're if you're willing to hold it
[32:41] for a long term and extract that
[32:42] intrinsic value growth, it'll be worth
[32:44] to me more to you than other people.
[32:46] I've heard you say that there are more
[32:47] good companies in the public market than
[32:49] in the private market. Yes. Why do you
[32:51] say that?
[32:52] because the companies that that um that
[32:57] are sold
[32:59] by to private
[33:01] equity are the ones that aren't as good.
[33:04] Yeah. People Are you sure? I mean, how
[33:06] do you how do you what do you base what
[33:07] you say? Not that I don't Let's dig into
[33:09] it. Let's dig into it. I know it upsets
[33:11] people who are private equity at all. I
[33:13] mean, we actually uh I'm pretty
[33:15] pragmatic about this, but why do you
[33:16] where do you get
[33:18] back? I happen to think that large
[33:22] companies are more likely to beat small
[33:26] companies in an industry. They have more
[33:28] money to compete. Y and um a a and
[33:35] um in R&D. Yep. And scale. We talked
[33:39] earlier about scale being key and
[33:41] incumbency being key
[33:44] um a and switching costs. So
[33:49] um yeah, we we we
[33:52] we think it's an a small company that
[33:56] invents something
[33:57] new. We talked about Zoom. I it can be
[34:00] crushed by a large company reasonably
[34:02] easily. They can copy and large
[34:04] companies are usually, you know, too big
[34:07] for private equity. private equity can't
[34:09] buy
[34:10] Visa, you know, they they they it's too
[34:14] big for them. Yep. So that that's size
[34:17] excludes private equity from large
[34:19] companies. Um and
[34:25] um and if a public company is selling
[34:27] something to private equity, usually
[34:30] they're not selling their best
[34:31] businesses. Yep. A and I'd say um um
[34:36] private
[34:38] equity like all asset
[34:41] management is prone to
[34:45] um uh the principal agency problem where
[34:49] they are incentivized to gather assets.
[34:52] Let's just say say it like this. The
[34:54] very best businesses in the public
[34:56] markets I believe are better than the
[35:00] top 100 companies are better than the
[35:02] top 100 companies in private equity.
[35:04] Okay. Yep. Yep. When do you sell a
[35:06] company? When it's a view of intrinsic
[35:09] value is not as good as uh other things
[35:14] including including not just value but
[35:16] conviction. So our philosophy
[35:24] There are two components to it if you
[35:26] like intrinsic value. Yeah. So the price
[35:29] still has to be at or above at or below
[35:32] intrinsic value. But there's a second
[35:34] point which isn't
[35:38] um really um focused on by many
[35:42] investors which
[35:43] is conviction. So you so you lose faith
[35:47] you lose faith in them. No, I'm saying
[35:50] you need to have conviction when you
[35:51] invest in something at all times. Yeah.
[35:54] And what does that mean? You could call
[35:56] it confidence. What does that word mean?
[35:59] Because there there's a saying talk is
[36:01] cheap. You can say
[36:06] um the this
[36:09] uh and you can be wrong. Okay. And
[36:14] so my one of my first investments uh
[36:18] when I worked in New York for a hedge
[36:20] fund before starting TCI was in an
[36:22] Italian media company and uh Bane
[36:25] Capital bought control. It was like a
[36:27] billion euro
[36:28] valuation and it went to a 50 billion
[36:32] euro valuation and then went to zero. It
[36:34] was a yellow pages company which say it.
[36:36] Yeah, you remember it. And uh the the
[36:40] and when I first invested the internet
[36:42] didn't exist and uh people thought
[36:45] yellow pages were a monopoly and and and
[36:47] and they
[36:48] were a and
[36:51] so the point is you can be wrong and
[36:56] certain
[36:57] industries your risk of being wrong are
[37:00] higher. M technology is one of those
[37:03] areas. Absolutely. But if I own an
[37:04] airport y that is or a toll road, let's
[37:08] take a toll roads in that are
[37:10] unregulated which there there are there
[37:12] are uh some that we
[37:15] own. I'm less likely to be wrong than if
[37:19] I own a retailer. Yeah. My my chances of
[37:23] being wrong be are are less because I
[37:25] have physical asset backing substitution
[37:28] risk.
[37:29] So um the thesis is much more obvious.
[37:34] Yeah. Because so the
[37:39] um and so this uh this concept of
[37:44] conviction is is very important. One
[37:46] investor Yeah. Yeah. said to me, I have
[37:48] to be able to sleep at night. It has to
[37:50] be so sufficiently obvious.
[37:54] Um, which but you always have, you know,
[37:58] kind of sounds contradictory to to
[38:01] saying that you you you you can be wrong
[38:03] because what kills you as an investor is
[38:05] permanent loss of capital. Absolutely. I
[38:07] got a bit of a problem with the concept
[38:08] of uh intrinsic value as if there were
[38:11] some kind of objective truth. Yeah,
[38:13] you're you're right. You're right. It's
[38:15] it's it's you
[38:17] know, we can't tell the forecast the
[38:19] future. So to to a high degree of
[38:23] accuracy you can just say which is why
[38:29] um you can and the longer you look out
[38:32] the harder it is. Um and so we we look
[38:36] at more simpler tests sometimes. Will
[38:38] the business be around? Yep. Will we
[38:42] still fly airplanes in in in 30 years
[38:44] and and and and you know will we want
[38:47] airline travel? Will there be demand for
[38:49] it? And um so once you know so I agree
[38:55] with you. So I I think that valuation is
[38:58] is just approximate you know we can just
[39:00] say in truth with con with confidence we
[39:04] have a a good or great business okay and
[39:09] and as I'm saying only a small subset of
[39:11] businesses can be predicted
[39:14] which are the most powerful ones but
[39:16] exactly how they grow
[39:18] and you know unexpected events you're
[39:22] right there there's no um there's no
[39:26] certainty. Let's move on to from uh
[39:29] companies to investors. Uh and in terms
[39:31] of what makes a good investor, why are
[39:33] you a good investor? Well, I it's your
[39:37] words. Um it's important to have
[39:39] humility. Um but
[39:43] um there was
[39:45] uh someone I knew who took me aside once
[39:48] and he said,
[39:49] "Chris, you and I, he he did reasonably
[39:52] well." He said, "We weren't the best
[39:54] investors. we just took the most
[39:56] risk. So I just uh which is which is not
[40:00] true actually. Yeah, it was he was uh it
[40:04] was an interesting comment that makes
[40:05] you sometimes when people say a joke you
[40:08] or something you you wonder is it true?
[40:10] But uh
[40:12] um I was always willing to look at the
[40:15] company fundamentals and not the try to
[40:19] guess the stock market. Okay. and um and
[40:23] and focus on macro or trading. Yeah. So
[40:26] I was always fundamental. Most investors
[40:29] are not fundamental. They trade
[40:32] actively. They look at data points. They
[40:34] say what's the catalyst. They don't
[40:36] really know what the the company does.
[40:39] So I think the fundamental approach has
[40:43] been key. Long-termism is
[40:46] key. Okay. Uh um uh another thing we've
[40:51] done is concentration. We've owned a few
[40:54] things. Yeah. We may have 10% type
[40:57] holdings, 10 10 stocks, you know, 15
[41:00] stocks. We don't own a 100 things. And I
[41:02] think another key point is intuition. We
[41:04] work with intuition, which is something
[41:07] that is uh people find strange. How do
[41:10] you use intuition?
[41:13] It's
[41:14] uh it's been defined as thinking without
[41:18] thinking which is um the Buddhists would
[41:21] call a coan something that just doesn't
[41:24] make sense. We will come back to your
[41:26] Buddhist thoughts later
[41:29] on but
[41:30] it's a lot of people don't understand
[41:33] what intuition is. It's it's it's sort
[41:35] of uh well opposite I have I happen to
[41:38] have written my master's dissertation on
[41:40] this exact topic but so you're you're
[41:43] one who does then it's sort of the
[41:44] opposite of intellect and uh so well
[41:48] pattern recognition in a way you've seen
[41:50] it before. Yeah that's there's a word
[41:52] for it knowing. Okay it's it's it's all
[41:55] the opposite of intellect. Of course,
[41:56] we'll do analysis, but but then
[42:02] um it's a higher level of intelligence
[42:05] than just intellect. But do you what do
[42:08] you have intuition about? Do you have
[42:09] the intuition about the people, the
[42:11] situation? What is it? All of it. Okay.
[42:14] All of it. Is someone trustworthy or not
[42:17] trustworthy? And uh the the patterns
[42:20] patterns are another thing. And uh so
[42:23] you know we were we don't do we rarely
[42:26] short but we were short wire cut. Yeah I
[42:28] know we're coming back to that. Yeah.
[42:29] And uh but the uh is your intuition now
[42:32] better than it was when you were
[42:34] younger? Yeah. I was not in
[42:36] intuition so much before the last 5 to
[42:39] 10 years. It's been a a a change. But I
[42:44] think I always operated with at a at an
[42:47] intuitive level and and it's not just
[42:49] stock picking. when I decided to start
[42:50] my own fund
[42:52] um you know 21 years ago I just had this
[42:56] intuition that um I was in the wrong
[42:59] place and uh not doing what I was meant
[43:02] to do and it wasn't about money or
[43:05] anything but it's it's it's when you
[43:07] know you when
[43:09] I met
[43:12] uh uh my my my wife Kylie you know you
[43:17] just you just there's a point where you
[43:19] just know. Yeah. It isn't an
[43:21] intellectual thing, you know. There is
[43:24] But Chris, this is called this is called
[43:25] love. This is something else.
[43:29] Well, yeah. Love is not in the mind, but
[43:32] love should be intuitive. Yeah. But it's
[43:34] an example. Yeah. Do you believe do you
[43:36] believe in So if I if I'm your
[43:38] colleague, so I work now for you. I'm a
[43:39] junior analyst. I came to I come to you
[43:41] and I say, "Hey, Chris, I got this
[43:42] intuition. I think this looks really
[43:44] good. Will you believe me?" No, I'll
[43:45] I'll uh the the u because the thing you
[43:48] said people have to to we don't work
[43:50] like here's the difference is I I I've
[43:51] been a stock picker. So a lot of
[43:54] portfolio managers aren't portfolio
[43:56] managers they're managers of managers.
[43:58] Oh and they say people like that say to
[44:01] me there's only two
[44:04] truths which is not the story that I
[44:07] hear but the P&L and the stop-loss.
[44:11] Yeah. Because they can't analyze the
[44:12] company themselves. M so no we never
[44:15] take anything from anybody at face value
[44:17] and we we work in a team that's
[44:19] something we didn't mention earlier but
[44:21] uh the um the point is just a story is
[44:25] just a story yeah what you have to focus
[44:29] on what matters okay
[44:32] because there was
[44:34] a a spiritual teacher actually said
[44:37] something that applies to investing he
[44:39] said very few things matter and most
[44:41] things matter don't matter at all. Okay.
[44:45] So, you can and investing it's actually
[44:49] similar. Yeah. You can you need to get
[44:51] out of the noise and just focus on the
[44:53] handful of things that matter. Is it is
[44:55] it talent or can it be trained to become
[44:57] a good investor?
[44:59] I think it can be trained. Yeah. There's
[45:02] a judgment element of it. I think it can
[45:03] be trained um for for sure. No, we have
[45:07] we both have taken inspiration from some
[45:10] of the same people, right? One of them
[45:12] is John who I worked with. Yes. I love
[45:15] John. I love John. He's I consider him a
[45:17] friend. Yeah. When I was just starting
[45:19] out, he he really uh he's a great
[45:22] investor and he took me under his wing a
[45:25] little bit and uh cuz I didn't know
[45:27] anything and uh we we had the same
[45:30] couple of same stocks. The energy group
[45:31] was one and I I I I I I didn't have the
[45:35] experience to know. and say you you
[45:38] would probably say you know that knowing
[45:41] and intuition comes with experience to
[45:43] to but um yeah and uh so yeah I'm I'm a
[45:48] fan of John's. Yeah because most of the
[45:51] things I know about investments I
[45:52] learned from him and his partner Bill
[45:54] Bullinger. So we have some of the we
[45:57] have some of the same teachers here. Uh
[45:59] moving on a bit. Uh so you are uh or you
[46:02] were you know perhaps more considered an
[46:04] activist investor. Yes. So what in your
[46:07] in your view what is an activist
[46:09] investor doing? It's it's a
[46:11] spectrum uh and
[46:14] from fullblown hardcore removing boards
[46:18] and CEOs and uh and uh demanding the
[46:22] sale of a company to
[46:24] um um call it uh soft activism, softer
[46:30] activism of trying to have relationship
[46:34] and dialogue with the company at a
[46:38] professional level a a and where you
[46:41] understand their their mindset and their
[46:44] thinking of the business. So so and um
[46:48] uh and engage okay and that could mean
[46:52] many things. It doesn't
[46:55] uh you know
[46:58] uh I'd say today our relationships are
[47:01] very uh generally very constructive with
[47:05] companies. So but it wasn't always that
[47:07] way. Yeah, it wasn't. We I I learned
[47:09] you've gone kind of from having been an
[47:11] aggressive tiger to becoming a bit more
[47:12] of a Yeah. you know big uh lion. Yeah.
[47:17] Though no one thought like that when we
[47:20] started the fund and when we named it
[47:23] the children's investment fund. We
[47:25] thought how are we going to compete with
[47:27] Tiger and Viking and more aggressive
[47:30] named funds. But um yeah it is true.
[47:34] I've learned that actually activism,
[47:37] hardcore
[47:38] activism is not a a a great thing. Uh
[47:43] why not? Yeah, it's very difficult to
[47:45] succeed because the vast proponents of
[47:49] today's investor base are you passive
[47:52] who don't actually
[47:54] uh to get them to vote for something is
[47:57] very difficult and uh um and all the
[48:02] power you know
[48:04] the and and so active management is
[48:07] dying and so when I started there was
[48:10] very little indexation and so there was
[48:13] a more engaged active share base and now
[48:15] indexation has
[48:17] um limited the power of of shareholders.
[48:21] But I mean you were one of the most
[48:22] fared people in Europe. Yeah.
[48:25] But I was buying bad businesses uh long
[48:29] ago like ABN AMRO putting up for sale uh
[48:34] through putting on the AGM of Oats to
[48:37] sell the company and we made a lot of
[48:40] money. who made a billion dollars
[48:41] forcing the sale of it. But in truth,
[48:44] the company was worthless, but was
[48:46] bought for hundred billion from three
[48:48] companies who all went bankrupt. Royal
[48:50] Bank of Scotland, Foris, and Onventtor.
[48:53] So, they didn't know what we they were
[48:54] doing. We didn't know what we were
[48:55] doing. And it was all
[48:57] um
[48:59] uh you know, a madness. It was a but it
[49:02] it made money.
[49:05] But for those who sold um but in
[49:10] truth the fundamentals were were
[49:13] were would trump everything. So a lot of
[49:16] activists end up being
[49:18] activists in in in bad businesses. Yeah.
[49:21] But are you have you stopped being an
[49:22] activist because you are more attracted
[49:24] to good companies or because you can't
[49:25] take control? The business always wins.
[49:28] Yeah. Okay.
[49:30] So it's pointless being an activist in a
[49:33] in a B be B
[49:35] business and
[49:38] um that said uh we we we still engage in
[49:43] it in in hardcore activism. We we're an
[49:45] investment where we we went on the board
[49:48] and um you know pushed out you know
[49:52] chairman and some directors and and and
[49:54] and uh the and and the company's doing
[49:56] much better now. And um but that's an
[50:00] exception and
[50:01] uh I'd say that was as a result of of a
[50:06] disastrous case in the company where
[50:08] they we weren't on the board and they
[50:09] they couldn't appoint a CEO. The board
[50:11] was divided and it it was a real mess.
[50:14] What kind of personal toll does it take
[50:16] on you to be in these fights? Yeah. Let
[50:19] me give you an example. A few years ago,
[50:21] we I don't know it was six years or or
[50:24] so, we own shares in Saffron, uh where
[50:28] we still own them. We've held them for
[50:29] 13 years. And um it's a great company,
[50:32] Aircraft Engines and uh joint venture
[50:34] with G Aerospace. And they announced
[50:38] they were buying a company called
[50:40] Zodiac.
[50:42] And we thought, French aerospace
[50:45] company, we thought the price was
[50:47] ridiculous, 10 billion euros. and they
[50:49] wanted to pay in shares and we thought
[50:51] that we we believe the shares were half
[50:54] price. So they were paying four or five
[50:56] times the the the intrinsic
[50:59] value and we undertook a very aggressive
[51:02] campaign and um threatened the
[51:05] litigation and demanded a vote. And in
[51:08] the in the end the company the target
[51:10] was adding multiple profit warnings and
[51:13] it became clear that we were right and
[51:16] Saffron went to
[51:18] Zodiac and said we have to cut the price
[51:21] in half and pay in cash because TCI are
[51:24] forcing us. Okay. And so and that's what
[51:27] happened. the stocks doubled and
[51:30] um a and but we were sued by the seller
[51:34] for a hundred million
[51:36] euros both me and my general counsel
[51:41] separately. He said Chris I'm not really
[51:44] sleeping much at night. Well, you can
[51:46] afford it. I I I I can't. And uh so
[51:50] yeah, I went into a Paris court and you
[51:53] it's not for the faint-hearted to do
[51:55] this. And do you enjoy a good argument?
[51:59] No, I don't really enjoy fighting people
[52:01] any anymore. I never really did. It was
[52:03] it was a um it was
[52:06] a something we began with Deutsche Borsa
[52:09] and and now really I'd say what people
[52:12] call activism is a is really an
[52:15] exception to us. So it's like why did we
[52:17] get involved in that zodiac? We were
[52:18] already a shareholder and something
[52:22] bad came out of the blue. It's like you
[52:25] walk home and someone attacks you. Yeah.
[52:28] To try to take your your wallet and you
[52:31] fight back. And I say, "Do you enjoy a
[52:33] fight, Nikolai?" No, but I'm not so sure
[52:34] I would fight back. Should you choose to
[52:38] I would ask you that question is you you
[52:40] would say, "No, I don't enjoy fighting.
[52:41] It's just I had no choice. I was
[52:43] fighting for my life." Yeah. So, I put
[52:45] it like this. We act as owners.
[52:48] We always act as owners. What does that
[52:50] mean? We we we're interested. We're
[52:53] engaged. We think we have a right to
[52:57] um appoint directors. We're a legal
[53:00] right to it. And and we'll Yeah. And so
[53:02] we teach, one thing we have learned is
[53:05] governance does matter. Which brings us
[53:07] to kind of the opposite wild card. Mhm.
[53:11] It's a bad company which you shorted.
[53:13] And shorting uh just for those people
[53:16] who don't know it's uh you borrow shares
[53:18] you sell it
[53:20] uh the goal is that the share price
[53:22] should go down and you buy them back
[53:23] cheaper and hand them back right and
[53:25] make a profit. So what's the what was I
[53:28] mean in a in a few words wild card what
[53:32] there is a very long and complicated
[53:34] high level we learned that shorting
[53:37] isn't a great business because you can
[53:38] be right but not be able to hold it or
[53:41] fund the losses. Okay. So, um, but wire
[53:45] card was because if you are short and
[53:47] the shepherd goes up, you basically
[53:49] unlimited downside. Yeah. And you have
[53:51] to fund the losses. This is what people
[53:52] don't realize. You're going to be
[53:54] eventually, right? So, the first guy to
[53:55] short Wire Guard 20 years ago was a guy
[53:57] from Bronte
[53:58] Capital. And the stock went up 20 30
[54:02] times and went to zero. But he was when
[54:05] that happened, he was interviewed by the
[54:07] media and they said, "Congratulations,
[54:10] you you were right." But he said, "No, I
[54:11] had to covid-19 years ago. I couldn't
[54:13] afford to to to to fund those losses."
[54:16] And so it's you have to understand
[54:19] investor psychology. Yeah, it's tough.
[54:21] Very tough. And uh I had a dinner once
[54:24] with Warren Buffett and he said he and
[54:26] Charlie looked at shorting. Yeah. They
[54:29] studied it and they just said it was too
[54:30] hard because of that point of
[54:33] understanding investor
[54:35] psychology
[54:36] and the um asymmetric risk and reward
[54:40] and and and um
[54:43] so it's an exceptional thing but uh we
[54:46] we we looked at Wire Card and uh and all
[54:49] the accounting games and and
[54:53] then the Financial Times came out with
[54:56] all these articles. Yeah.
[54:58] And I called the journalist, uh, good
[55:01] guy, and I said, "You're writing all
[55:02] this stuff." And, uh, he said, "It's all
[55:05] true." I said, "No one will listen to
[55:06] you." He said, "Everything's true. We
[55:09] stand by every word." And and and you
[55:11] just you could literally read it in the
[55:13] paper. And well, the whole German
[55:17] establishment went in and supported the
[55:19] company. That's right. That's right. In
[55:20] fact, the the the the chairman was a
[55:22] former CFO of Deutsche Bulser and uh um
[55:27] in in but there was a bit of pattern
[55:28] recognition where I remember uh at
[55:32] Harvard Business School an accounting
[55:34] course I took and there were red flags.
[55:37] Yeah. When you do this small auditor.
[55:39] Yeah.
[55:40] Um uh no cash flow. Yeah. Um and uh
[55:46] things like all their Asian
[55:49] businesses the office was empty. Yeah.
[55:51] Absolutely. So but I think to be a good
[55:54] investor you need a certain independence
[55:56] of thought. Totally. And probably to be
[55:58] a good journalist as well. And and
[56:00] that's why um the funny thing is that
[56:03] the fraud was there in plain sight. And
[56:07] I think
[56:10] um I learned to be an independent
[56:12] investor and uh the and so we went to
[56:16] see the CEO. Actually, I
[56:18] sent two of my team to meet him and uh
[56:22] and they came back incredulous at this
[56:26] like pathetic demonstrations of
[56:29] technology and uh that they were shown.
[56:31] And interestingly there there was a a
[56:34] potential catalyst which was the the the
[56:36] the report about their accounting and uh
[56:39] in the end they just said it's it's
[56:40] garbage and uh and then the stock went
[56:44] up a lot and uh so actually I tried to
[56:47] take
[56:48] um uh become an activist in this
[56:52] position. and I filed a a a a a formal
[56:54] criminal complaint for fraud in in in
[56:56] the uh at the Munich prosecutor's office
[56:59] because uh they said if I didn't wasn't
[57:01] public about it would be viewed as
[57:03] market manipulation. So we're
[57:05] transparent about it and um that created
[57:09] chaos but it
[57:12] forced some actions. Yeah. you you you
[57:16] know when it
[57:18] falls eventually an investigation and uh
[57:22] and so um because I didn't want to be
[57:27] like Bronty Capital where it just ran
[57:30] and ran and so at some point it really
[57:33] became obvious and it became a
[57:35] confidence game. I think that um people
[57:39] trust authority too much. Okay, that
[57:42] sounds a strange thing, but they trusted
[57:45] the German establishment. Yeah. That you
[57:47] had a a board with the the great and the
[57:50] good and and and they
[57:53] weren't willing to believe the the the
[57:56] journalist. So, but but I'm I'm really
[57:59] we had a we had a we had a very good
[58:01] team at uh at MBIM, you know, which was
[58:04] on the same who who were on the same
[58:05] side of that. So, so really good talking
[58:08] about trusting authority and so on. And
[58:10] moving on to corporate culture at TCI.
[58:12] What is a corporate culture like in TCI?
[58:14] How many people are you? You know in the
[58:16] investment team it it's it's it's you
[58:19] know seven eight people. We have a large
[58:22] back office but um how do you work
[58:24] together? The we want small very small
[58:27] and uh it's collegiate. Yeah. We've
[58:30] known each other a long time and there's
[58:33] something that we've built which is an
[58:36] intangible trust. Why don't you have a
[58:38] hundred fund managers?
[58:42] Good question. Firstly, my best people,
[58:45] you know, they would never stay. They
[58:47] just they don't want to um it would be
[58:51] too impersonal. There's a human aspect
[58:53] to work. Yeah.
[58:54] People don't come to
[58:58] work, you know, the best people for
[59:02] money.
[59:03] they come to because they they enjoy the
[59:08] environment. And so it's really
[59:09] important how we treat people, how
[59:12] everyone treats each other.
[59:14] And I'll never hire someone without the
[59:18] the the the blessing of my my my senior
[59:21] team. Um and because we we could destroy
[59:27] the the culture. And so I mean ice
[59:29] hockey teams are five and football teams
[59:31] are 11. And is there something magic
[59:32] with seven? No, but it's small enough.
[59:36] Yeah, it would above 10 it would be too
[59:38] too big. What do you look for when you
[59:39] hire? So now I'm I'm applying for a job.
[59:43] Everybody you meet everybody.
[59:46] I'm applying for a job at TCI. I'm here.
[59:48] You share the philosophy. You share the
[59:50] philosophy. What kind of questions you
[59:51] ask me? Yeah. What makes a good
[59:52] business? All the things you talked
[59:54] about it. It becomes Yeah. We we we ask
[59:56] for a case study, right, or
[59:58] two. And it becomes immediately obvious
[01:00:02] whether you know what you're doing.
[01:00:03] Yeah. Whether you share the philosophy,
[01:00:05] but also it's not enough just to be a
[01:00:07] good investor or you have to want to
[01:00:09] work in a team. Yeah. Not everybody
[01:00:12] wants that. And you have to be able to
[01:00:14] get on with with people in in in a way
[01:00:17] where you have to be open-minded to
[01:00:20] being wrong. You can't be too dog
[01:00:23] dogmatic because
[01:00:26] um so the personality does matter a lot.
[01:00:30] Now uh you have a big share of the
[01:00:33] profit of the firm goes to the
[01:00:35] charitable foundation right? Yes. How
[01:00:38] well actually I I give it to charities.
[01:00:40] A lot of philanthropy I do directly
[01:00:42] often I give it to the foundation um uh
[01:00:45] or co-invest with them. So yeah one way
[01:00:47] or another it goes to charity. Do you
[01:00:48] think it's important for your colleagues
[01:00:50] that you guys fund all this well
[01:00:52] charitable? No, I think they make a lot
[01:00:55] of money too. Or do you think it's
[01:00:57] irritating that you give away all the
[01:00:59] money? They they they
[01:01:01] they also earn uh you know good money
[01:01:05] and uh it's probably a positive thing. I
[01:01:08] I I I I don't know definitively. I um
[01:01:12] and
[01:01:14] um the
[01:01:16] um and um
[01:01:20] the but I can't you'd have to ask them.
[01:01:23] Uh I I can't say
[01:01:25] definitively. Um but I um I I I
[01:01:30] I yeah I I give away everything I earn.
[01:01:33] I I don't really care about money for uh
[01:01:37] because other than its value in helping
[01:01:40] people. When did when did you learn
[01:01:42] about philanthropy? Who taught you? When
[01:01:45] I was in New York working for a hedge
[01:01:48] fund uh one point after about three or
[01:01:52] four
[01:01:54] years it made I don't know two or three
[01:01:56] million. and they I had done well and
[01:02:00] they said, "You're going to get a $10
[01:02:01] million bonus." And I just, this is in
[01:02:05] intuition, said, "I don't want it. I I
[01:02:08] want to just give it to charity." And I
[01:02:10] created a a US foundation and gave it to
[01:02:12] it.
[01:02:14] Um,
[01:02:16] and I didn't really understand
[01:02:19] it what was driving
[01:02:22] me for 50 years.
[01:02:26] I would
[01:02:27] uh meet with Bill Gates, did a lot of
[01:02:30] charitable work with him over the years
[01:02:32] and he would ask me and I I couldn't
[01:02:33] answer the question and uh eventually I
[01:02:36] did understand it and uh better late
[01:02:39] than never as a as a soul urge that
[01:02:42] there's
[01:02:44] essence who we really are what we really
[01:02:47] are isn't the personality or the
[01:02:50] physical body but you know soul or
[01:02:52] consciousness and and that um some would
[01:02:56] call it life. Yep. That's something that
[01:02:58] gives us life and
[01:03:01] uh that
[01:03:04] um and will. Yep. Gave you, you know, in
[01:03:08] in the same way you uh Nikolai had a a
[01:03:12] desire, a will, a will to do something
[01:03:14] more with your life. Yeah. Than than
[01:03:16] than than just make money. And uh and
[01:03:19] that uh and that in the fundamental
[01:03:23] nature of that uh that that uh
[01:03:28] uh that's uh the soul is is service
[01:03:31] desire to help to to to help ultimately
[01:03:35] humanity and u where did that come from?
[01:03:37] It's innate within everyone that but the
[01:03:40] Yeah. Yeah. For sure. Everyone So if
[01:03:41] it's inate with everyone why why don't
[01:03:43] more people do it? Because they're
[01:03:49] um they identify with their
[01:03:52] personality a and less with the consider
[01:03:56] that like a unit as a user interface of
[01:03:58] the soul and uh and the personality's
[01:04:03] basic
[01:04:05] uh urge is
[01:04:06] desire,
[01:04:08] possessions, glamour like power and
[01:04:11] money and other things like that. And um
[01:04:16] and
[01:04:17] uh sooner or later people
[01:04:21] realize that that doesn't really um
[01:04:26] give you know
[01:04:29] um some would say happiness but actually
[01:04:32] there's more important things in the
[01:04:33] world in life than happiness. uh purpose
[01:04:35] and meaning but not but you say that
[01:04:37] sooner or later people but I mean people
[01:04:40] don't I'm not saying in in in one life
[01:04:43] they may need you know many lives and
[01:04:46] that may be a strange thing for you to
[01:04:48] hear to uh to realize yeah I don't
[01:04:52] believe this is the only time we we we
[01:04:54] we we're
[01:04:56] um we here and um eventually we'll learn
[01:05:01] that the the
[01:05:04] um what we are and can
[01:05:08] be as a result of some crisis in your
[01:05:12] life. Yeah. And death, disease or or or
[01:05:17] um or in my case the third D,
[01:05:20] divorce. And uh the um and it's then
[01:05:25] that they look inward and and and and
[01:05:26] ask well what is their life about? What
[01:05:28] is there a purpose? Is there a meaning?
[01:05:31] And for
[01:05:33] me, I could never find any purpose or
[01:05:36] meaning in my life except
[01:05:39] service. And uh and that is clearly uh
[01:05:43] you know something you could say it
[01:05:45] comes from within. Yep. And uh and so
[01:05:48] that's my origins of my my philanthropy.
[01:05:51] Do do you think uh I mean you came from
[01:05:54] a working-class family, right? And your
[01:05:56] father was an immigrant. Do you how do
[01:05:57] you think that shaped you? It made me an
[01:06:00] independent thinker. You always grew up
[01:06:02] as an
[01:06:04] outsider and um and uh you you felt
[01:06:09] different and
[01:06:12] um and
[01:06:14] uh it gave me a work ethic, a work ethic
[01:06:19] um and uh and
[01:06:22] uh a desire to to achieve something.
[01:06:26] Yeah. And uh so I think that that was an
[01:06:29] important uh piece of my history. Yeah.
[01:06:32] Tell me about the foundation. What are
[01:06:33] the main priorities of the foundation?
[01:06:34] Now first you said so it is now one of
[01:06:37] the largest foundations in the world.
[01:06:38] Right. We have uh about $6.5 billion
[01:06:41] dollars and uh in the foundation and
[01:06:44] uh I also do philanthropy outside of
[01:06:47] that and so between us we're giving away
[01:06:51] over $500 million a year. two main
[01:06:54] areas, climate change and uh children's
[01:06:57] health in Africa and India. On the um
[01:07:02] health side, we focus
[01:07:04] on foundational issues. Um
[01:07:09] uh contraception is one. You know, we
[01:07:13] can't get
[01:07:14] development or lifting people out of
[01:07:17] poverty if the the women are having
[01:07:19] which far more children than they want.
[01:07:22] you know in Africa fertility is nearly
[01:07:25] seven and in many cases that's not
[01:07:28] applicable they they they don't have
[01:07:30] access
[01:07:33] um a and agency women don't have access
[01:07:36] or agency to to to contraception and so
[01:07:39] for
[01:07:41] $10 cost
[01:07:43] for a voided
[01:07:46] uh a
[01:07:48] pregnancy you can help a poor woman have
[01:07:52] one less pregnancy if she wants. Yep.
[01:07:55] And that's a remarkably low return on
[01:07:57] invest high return on investment. Yeah.
[01:07:59] There's almost nothing. Um another area
[01:08:03] is um severe acute
[01:08:06] malnutrition. Um where um I I I funded
[01:08:11] the creation of a a company and I and I
[01:08:14] buy product for um um for $40 a case you
[01:08:19] can of therapeutic food. Think of it as
[01:08:21] a fortified uh uh power uh bar or it's
[01:08:26] it's uh you can save a child's life and
[01:08:29] there's 100 million children with severe
[01:08:32] or acute malnutrition nearly half of all
[01:08:35] child deaths under under five. Um
[01:08:38] neglected tropical diseases like
[01:08:41] traoma. I fund traoma surgeries where
[01:08:45] just
[01:08:46] a it's not for $50 you can um do fund a
[01:08:52] surgery which stops someone going blind
[01:08:55] irreversibly. Yeah. And there's you know
[01:08:58] millions of people with with this. So
[01:09:00] with so little money Yeah. $10, $40,
[01:09:03] $50, you you can save a life. Yeah. Or
[01:09:08] or or or stop something going blind. It
[01:09:10] it it's
[01:09:13] remarkably you know you
[01:09:16] know what what you know when you go to
[01:09:21] go out for dinner you might pay $40 for
[01:09:24] a bottle of wine you wouldn't think oh I
[01:09:26] could save someone's life with this but
[01:09:29] that's the reality and so
[01:09:32] um the um um HIV AIDS um we're very
[01:09:38] involved in as Well, uh so um uh and on
[01:09:43] the climate side, what are the main
[01:09:46] areas that we've been trying to create
[01:09:47] infrastructure for the climate movement
[01:09:50] um and uh uh reg regulation advocacy
[01:09:55] because nothing's going to be fixed if
[01:09:56] there isn't regulation.
[01:10:00] um we fund um uh then that's across the
[01:10:05] board and that's and also technical
[01:10:07] assistance to governments who want to
[01:10:08] change but don't know how we're very
[01:10:10] active in Asia where where if you don't
[01:10:14] operate in in in India and China you
[01:10:18] that's where and and and and you know
[01:10:20] Vietnam and all these countries that's
[01:10:22] where all the emissions are growing tax
[01:10:24] is another thing because if if we're not
[01:10:28] advantaging through tax uh new
[01:10:30] technologies and and and we're
[01:10:32] subsidizing fossil fuels, which is what
[01:10:33] happens. We'll never change. Um um a and
[01:10:38] uh methane is another one. We're a fun
[01:10:41] of the methane hub and methane
[01:10:42] satellites and just many things uh
[01:10:45] litigation, environmental litigation. We
[01:10:47] fund that. So, in a sense, there's
[01:10:49] activism there. And um so given all
[01:10:52] this, how do you read the backlash
[01:10:54] against ESG in financial markets? Well,
[01:10:58] I never really got involved in in in in
[01:11:01] the S and the G. I just the E. And so
[01:11:06] here I I I I think is a very dark
[01:11:09] uh um thing that's going on where people
[01:11:14] are saying some people are saying in in
[01:11:18] effect burn down the planet as long as
[01:11:20] we can make money today and uh we don't
[01:11:24] care about future generations. We don't
[01:11:27] care about poor people in poor countries
[01:11:30] dying off. We only care about our
[01:11:32] country. Yep. And and making money as
[01:11:37] much money as we can today to hell with
[01:11:40] the
[01:11:41] consequences.
[01:11:43] And it's really back to what I was
[01:11:46] talking about this distinction between
[01:11:48] soul and personality that if um it's a
[01:11:52] consciousness problem and uh and
[01:11:55] actually we'll never solve any of these
[01:11:57] problems whether it's climate or poverty
[01:12:00] or war if there isn't a change in the
[01:12:03] level of consciousness.
[01:12:05] So given that and in order to finish off
[01:12:08] on a slightly more uplifting note um
[01:12:13] What is your what is your advice to
[01:12:15] young people on a kind
[01:12:17] of spiritual Yeah. Go on a spiritual um
[01:12:22] path. Go on
[01:12:24] a study a
[01:12:28] and I would say the spiritual world is
[01:12:32] real.
[01:12:34] soul is uh when I first mentioned this
[01:12:37] to my son I think he was uh 20 he said
[01:12:40] dad the soul is a
[01:12:43] myth he doesn't think that now is it not
[01:12:46] he doesn't think that now it's
[01:12:47] definitely not and there are many paths
[01:12:50] to connect to it and uh you can connect
[01:12:52] consciously to it and um and
[01:12:57] uh whether you go the long way the short
[01:13:00] way the easy way the the hard way
[01:13:02] through suffering you eventually come to
[01:13:04] to to learn that it the spiritual world
[01:13:06] is not just real but it's the the whole
[01:13:09] thing
[01:13:10] and and so the
[01:13:13] um and that's the only source of real
[01:13:16] purpose and meaning and and and and
[01:13:20] joy which the world needs. Yep. And and
[01:13:23] and I think that
[01:13:25] uh um if you crack that then everything
[01:13:29] else is easy. Very good. Uh Chris Horn,
[01:13:33] we've talked a lot about purpose,
[01:13:34] meaning joy and what really matters in
[01:13:36] life. A big thank you. Thank you. And
[01:13:38] Nick, thank you.