0:02

This is Masters in Business with

0:04

Barry Ridholts on Bloomberg Radio.

0:07

This week on the podcast, I have an extra

0:09

special guest. His name is Regiev

0:11

Jane, and he has quite the

0:13

fascinating background. UM.

0:16

He is currently chairman and Chief Investment

0:18

Officer at his own firm, g

0:20

q G Partners, which manages

0:23

about twenty four billion

0:25

dollars. Previously, UH,

0:27

he was co CEO and and c i

0:30

O at Vante Bell Asset

0:32

Management. UH. If

0:34

you are at all interested in

0:36

a wealth of things from

0:39

global and international and E

0:41

M investing two portfolio

0:44

management and the process that goes in

0:47

uh to putting together a portfolio, You're

0:49

gonna find this conversation to be

0:51

absolutely fascinating. Rajiv

0:54

Is is both humble and soft

0:56

spoken, but is filled with

0:58

all sorts of inside and wisdom.

1:01

UM. I know I got a ton out

1:03

of the conversation. I just found lots

1:05

and lots of things that he said to be intriguing

1:09

and fascinating, and I think

1:11

you will also so, with no further

1:13

ado, my conversation with

1:16

Regive Jane. This

1:19

is Masters in Business with Barry

1:22

Ridholts on Bloomberg Radio. I'm

1:24

Barry Ridholts. You're listening to Masters

1:27

in Business on Bloomberg Radio. My extra

1:29

special guest this week is Regieve Jane.

1:31

He is the chairman and chief investment officer

1:34

of g q G Partners affirm

1:36

with over twenty four billion dollars in

1:39

assets under management. Regiev

1:41

was the morning Star International

1:44

Manager of the Year. He runs

1:46

a number of different funds, the Goldman Sacks,

1:49

g q G Partners International Opportunities

1:51

Funds, the Partners Emerging Market

1:53

Equity Fund, and the Partners US Select

1:56

Equity Funds. Last year,

1:58

his Global fund was positive

2:00

while the benchmark was down nine

2:02

percent. Over the past twenty

2:05

years, we've seen our performance

2:07

in all of the areas Regeeve works in

2:10

between three hundred and four hundred basis

2:12

points. Rajiv Jane, Welcome

2:15

to Bloomberg. Thanks verty, thanks for having

2:17

me. I've been looking forward to this conversation

2:19

because you're one of these people who have been

2:21

shooting the lights out. Uh and

2:23

I think most of the investing public

2:26

is not very familiar with you or

2:29

your background, which is quite

2:31

fascinating. Tell us about your

2:33

personal history and how you got to running

2:37

a large asset management firm. Yeah,

2:40

thanks, Betty, So I think first

2:43

of all, I was born in India, grew up

2:45

in India. Uh, and I got

2:47

hooked onto stocks when I was in high school.

2:50

Uh. I guess my dad wanted to keep me busy

2:52

doing summer so he gave me some those

2:54

days you get old, you know, stock certificates and dividend

2:56

checks. He is that, why don't tell you those and dividen

2:58

haven't come in? And I used to go remember

3:01

going to broker and he was an ex

3:03

army guy, and he said, look, I need to talk to a dad. Why

3:05

they live He allows a high

3:07

school kid to come to this broker's house. He looks,

3:09

you see the average around hub, other

3:12

people sitting here. So that's how I ended up getting

3:14

hooked. Came to us when

3:16

I was you know two,

3:19

and and yeah, I

3:21

ever, I've been doing the same thing ever

3:23

since. I guess I can't do anything else. So

3:26

let's talk a little bit about your background at Vontabelle

3:28

Asset Management. You were there

3:31

for a good couple of years. Tell us what that

3:33

shop was like and how that led

3:35

to the decision to launch your own firm.

3:38

Yes, so it was it was a

3:40

part of a large Swiss bank

3:42

and it was kind of a small boutique where

3:45

first seven eight years that we couldn't even

3:47

afforded trader. So I I used to put in my own trades.

3:50

Uh. So I joined as a CopM for global

3:52

and emerging markets uh in international

3:54

Actually, And

3:57

what's the most interesting experience

3:59

I would say, UM would be

4:02

the I began the CEE IO and two thousand

4:04

two and quickly seventy person of the client's

4:06

virtus. Really yeah, why

4:09

was that? Well because the past performance wasn't

4:11

great and there was a change in PM. So that's

4:13

my view of saying it that I wasn't want to blame.

4:17

So, so you were did you begin as

4:19

an analyst? Also? How did how did you work

4:21

your way up to portfolio managers? Yeah?

4:23

Yeah, so um, I

4:26

started at at

4:28

the U B S or Swiss Band Corporation, then as

4:30

an analyst, and I did become

4:32

a CopM and after a couple of years. So

4:34

what this is a question that I've had

4:36

people asked me. You're the person perfect

4:38

person to ask this. What

4:40

is the difference when you're looking at

4:42

stocks as an analyst and trying to take

4:45

an individual equity apart versus

4:48

making the buy or cell decision as a

4:50

portfolio manager. Very different

4:52

approaches, aren't they. Yeah. Look, I think

4:54

I think the abster right, there's a big difference between

4:56

the two, and I would categorize in two

4:59

parts of that. The first is, as

5:01

an analyst, you expect to know as

5:03

much as you can, but as a portfolio manager,

5:05

you really don't have that luxury are waiting for getting

5:07

let's say, of

5:10

the information which is norble. You can't get

5:12

to that level of a certainty. But as an analyst you are

5:14

expected to know more. That's a

5:16

big difference, and I think that sometimes

5:18

when analysts become pms, they sort of missed

5:20

that. They keep ending looking for more

5:22

and more information, which you

5:25

know can can can be you know,

5:27

paralyzing. The second

5:29

part is when you're looking at a portfolio, the

5:31

risk management of the part of the portfolio construction

5:34

part become paramount. You may love

5:36

the name, and you

5:38

actually tend to love all the names you want the portfolio,

5:40

but when you're constructing portfolio the

5:43

the you may end up taking too much risk in a

5:45

particularly area. And I mean, if you go back

5:47

to two thousand crises,

5:50

a lot of folks blew up because they had too much

5:52

in an area, because consider

5:54

risk because we love this area and got cheaper

5:57

and we love it, do more and it kept getting cheaper.

5:59

So oh, you've got to be careful about

6:01

you know. And and most time it's the things that we love

6:04

that kill us. So let's talk a little

6:06

bit about that and portfolio construction.

6:09

I think a lot of individual investors,

6:12

to them, portfolio construction is really

6:14

just the stocks they've collected over

6:16

the years. You obviously approach it

6:18

very differently. How do you think about

6:20

portfolio construction in

6:22

terms of what you're holdings are, in terms

6:25

of how they're diversified by either

6:27

sector or geography, and

6:29

and lastly about the risk

6:31

you just mentioned. So

6:34

um, the first part is that

6:37

you've got to make sure that the business would be around

6:39

for long term, right. I mean, if

6:41

you're not sure how the business gonna look like five years out,

6:43

you probably not shouldn't. Shouldn't be invested. Doesn't mean you want

6:45

for five years. But you've got to be careful because markets

6:49

anticipate deturing fundamental

6:51

a lot faster than than we

6:53

we like to think. If if

6:55

if the drug is expiring in three years,

6:58

guess what, markets started discounting a lot

7:00

sooner, and you see a bunch of names which are selling

7:02

it very low multiples because oh it's still

7:04

a few years out, and it's it's a low multiple,

7:07

so and so for the market is already discounting deterioration,

7:09

right, So that's part of the first risk management. Is

7:11

that a little bit of a value trap situation

7:14

for people exactly,

7:16

And I think, I think if you look at what has happened last year,

7:18

is the reason why a lot of folks have underperformed.

7:20

And I feel investing is nothing

7:23

but a journey of learning from a mistakes. If

7:25

you're not willing to evolve an adapt

7:27

you won't survive long term. It's very

7:29

easy to say, look, I found this mouse trap, and

7:31

how wonderful it has worked in nineteen

7:34

thirties. So my question of how many anelets around

7:36

in nineteen eighties level or nineteen thirties maybe

7:38

the market become a little more efficient. So the the

7:41

low multiple trap is

7:45

is essentially markets being much more forward

7:47

looking than we would be gave it credit

7:49

for. So you sound a little bit like Ray Dalio

7:52

who talks about mistakes and

7:54

the learning process and improving. How

7:56

long should an investor expect

8:00

that journey to take before they have some

8:02

degree of components or even um

8:04

actual skill in managing assets.

8:07

That that's a hard question to answer because

8:10

it's a function of a

8:14

are you truly trying to look at in on a

8:16

verny broad spectrum, the broader

8:18

the spectrum chance that you will learn a little bit

8:20

faster. In other words, if

8:22

you if you're focusing on one specific sector

8:25

only, you're too natrowly focused.

8:27

When you operate in the silo, you

8:30

really don't know the you know the there's

8:32

no cross pollination. I feel I'm

8:34

a better US manager

8:36

because I do emerging markets and vice versa.

8:38

I'm Barry rid Halts. You're listening to Masters

8:41

in Business on Bloomberg Radio. My

8:43

special guest today is Ragief Jane.

8:45

He is the chairman and chief investment officer

8:48

of the twenty four billion dollar firm g

8:50

q G Partners. So let's

8:52

talk a little bit about the launch of

8:54

of the firm. You co invest

8:57

alongside with your clients.

8:59

I think you've you've said previously something

9:02

like your own assets are

9:04

in your funds. To discuss

9:06

the idea behind eating your

9:08

own cooking. My

9:10

personal belief is that managing somebody else's

9:12

money as a privilege it's an order to manage

9:14

somebody else's money and our decision

9:16

to impact how our clients

9:19

do and whether they have a dignified retirement

9:21

or not. Right. So when we talk about

9:24

if you have to ask things, I personally feel if

9:26

you have to ask a single question anybody, the question

9:28

would be what percent of

9:31

your network are you willing to put in your own funds? Restless

9:34

talk because that that that gives you

9:36

a very good view

9:39

of a how they think about investing,

9:41

because you become much more absolute oriented, right,

9:44

whether you think about taxes or

9:46

you know, after tax returns, uh,

9:49

the fees and so on, so forth. So it's sort

9:51

of encompasses almost everything. And

9:53

I have vast majority of my wealth. I don't have

9:55

money in any other long only manager longshore

9:58

private degree. If we don't allow only

10:00

personal trading a GQG, for example, every

10:02

employees and investor. And I'm quite

10:04

proud of the fact that we have quite a bit of skin in the

10:06

game. That's quite interesting. The

10:09

the expression I recall from

10:11

years ago was I can't hear what you're

10:13

saying because what you're doing is speaking so loudly.

10:16

That seems to apply dead center

10:18

to this doesn't it. Thank

10:20

you, guys, it does. So, so let's talk

10:22

a little bit about um,

10:25

about how you go about

10:27

selecting stocks and making the decision

10:30

to to get rid of them. You've

10:32

described your quote clinical approach

10:34

to shedding positions when they no

10:37

longer fit your thesis. Explain

10:39

that there's

10:41

been plenty of evidence and I can tell you with my own

10:43

experience that buying

10:46

is easy. Selling is whether where

10:48

the trouble starts. And there has been recently

10:50

been academic you know, work on that

10:52

that portfolio managed to do a pretty good job buying.

10:55

It's just selling. When when when things

10:57

tend to go wrong, and and

10:59

and and and people describe me as

11:01

a kind of a ruthless seller, I'm happy to go back

11:03

again and revisit. And sometimes I would sell just to

11:05

clear up my mind and revisited. Um.

11:09

When when we talk about selling, it's the best

11:11

selling happens when things are subtle, not when

11:13

they are in papers. And

11:15

when things that are subtle, it means does

11:17

the thesis actually hold or has beginning to shift

11:20

a little bit? And I think, I think,

11:22

I think that's where you almost have to be willing to

11:24

be wrong and admitted

11:26

you're wrong. In fact, one of the tests

11:28

I feel for for

11:31

my analysis is have you

11:33

found new ways of losing money? Explain

11:35

that new ways of losing money, like investing

11:38

is said, is a journey of learning from mistakes. How

11:40

do we expand our investing horizon

11:43

horizon means you're our brand, our breadth, not

11:45

time horizon, and that means that you have

11:47

to experiment sometimes in areas that you're

11:50

not invested before. If you've wily

11:52

invest in financials, you keep investing financial guests forward.

11:54

Last decade hasn't been too

11:56

good for you in the nineties, if you didn't

11:58

know how to invest in financials in tech, you

12:00

wouldn't have done well in the next decade. If you

12:02

only did that, you probably wouldn't have done well either.

12:05

So you need to be able to experiment,

12:07

and many talk about experimentation. Losses

12:10

have to be small, But that's how

12:12

you would learn, because the only way you really learn is

12:15

by putting some some money

12:17

on, you know, on on on on on on those stocks. Paper

12:19

trading doesn't get it done. Paper trading doesn't

12:21

get it done. It overstays the reality because,

12:24

as somebody has said, the money is made

12:26

by the how thick is your stomach

12:29

aligning rather than now how much i Q you have?

12:32

That's really interesting. What about the selection

12:34

process you You seem to have come

12:37

up with the process that's a little different from

12:39

everybody else, as the results

12:42

have shown, What are you doing, um,

12:46

when you're thinking about building a portfolio

12:48

and making individual stock selections.

12:51

First of all, um, balance

12:54

sheet matters, right, so so so that this

12:58

you need to eliminate weaker companies worst.

13:01

In other words, that's an easy one

13:03

negative screen get exactly.

13:05

So it is not about trying to find the best company, is avoiding

13:07

the worst. In fact, investing, like a lot of things in

13:09

life, it's sometimes easier to

13:11

to identify what shouldn't be done rather than or it should

13:14

be done, because that just increases the odds of success.

13:16

So you avoid mistakes, and even

13:18

if everything else is okay, you're way

13:20

ahead of people whose portfolios are filled with

13:22

mistakes. Exactly. In fact, I've

13:25

kind of joked around the reason why I've

13:27

survived over the longer run is because you

13:29

just avoid blowing up, and enough people blow up and

13:31

you'll be top quartile just because you don't blow up.

13:34

So I think I think from a process of perspective.

13:36

First of all, you take out the weaker

13:38

balance sheets, and the second part

13:40

is think about the capital allocation decisions managements

13:43

have made. In other words, how much what returns

13:45

have degenerate on intremental instremental

13:47

capital that they put in the business? Return

13:49

capital is probably the single biggest you

13:52

know measure that that that I feel one has to

13:54

look at. Valuations comes distant second

13:57

or third really, So so let's start with

13:59

that first piece, screening out the negative

14:01

the weaker companies. What are you looking

14:03

for? Are you looking for lots of

14:05

dat Are you're looking for no real growth

14:08

in revenue and

14:10

income or you're looking at the management team

14:12

themselves or all the above and more

14:15

management team is is second.

14:17

First would be numbers. In other words,

14:19

you know, leverage is an easy one, but

14:22

also in terms of, you know, the sicklicality

14:24

of earning stream relative to their own sector, the

14:28

returns that the generating related their own space, because

14:30

you can't compare a bank and

14:32

and and a European utility, right, And I think

14:34

I think when people talk us talk about quality, they

14:38

look at much more on an absolute

14:40

based across the board. But banks the

14:42

best time to buy banks is actually when

14:45

the numbers don't look good, right,

14:47

that's not necessitude for staples. In fact,

14:50

if you look at even

14:52

technology last forty

14:54

year, if you back test the numbers,

14:57

the most expensive dis style has outperformed

15:01

the cheapest DECIDL in tech and in

15:03

pharma. So, in other words, momentum

15:06

is much more powerful than value in those

15:08

sectors. Okay, so I want

15:10

to be over you know you're overstating the

15:12

momentum issue. It's not momentum issue. It's much

15:14

more about well, first of all, it is the balance

15:16

she it good. And the second thing is the growth coming

15:18

through. So growth is important. But

15:21

but but but you need the combination

15:23

of those, and then you look at the management and then

15:25

you look at the valuations a lot

15:27

of because think about this face if

15:31

if if, if, if you're moving to Florida,

15:34

would you call a realtor say get you

15:36

know, give me the cheapest neighborhood? No,

15:38

of course not. Why do you do that in stocks?

15:41

Well, because there's this belief that

15:44

UM on average, if you're um

15:47

pe ratio or price to book or whatever your

15:49

preferred metric is, UM, the

15:51

cheaper stocks over long periods of time

15:53

should outperform the most expensive stocks.

15:56

That at least is the common belief that's

15:58

out there. Well, see that, I've a lot of problem with

16:00

averages. Averages like your foot might be enough on,

16:02

your head might be in freezer, and on average you're

16:04

dead. That's

16:07

that's a fair um, that's a fair

16:09

description. So so so I think I think you gotta be

16:11

careful about averages because in

16:13

especially this day and age, there

16:17

isn't enough appreciation that how many how

16:19

many bison alis of operating thirty years ago verses

16:22

today? If

16:24

that amount exactly? And what about fifties and sixty

16:26

And you see managers showing how well priced

16:29

to book at work in ninet thirties, Well, it's

16:31

wonderful. You're fooling yourselves. You're not fooling anybody

16:33

else. That doesn't work anymore. It didn't work in the

16:35

seventies, in the seventies, So Marcus,

16:37

do get efficient. I mean, let's not kill ourselves.

16:39

The question how are you evolve to incorporate

16:42

that? I mean, you can buy dozens of

16:44

ETFs to you know WHI should run on quality.

16:46

So if you're backward looking quality, it has

16:48

stopped working. I'm Barry ritolts.

16:50

My extra special guest this week is Regiev

16:53

Jane. He is chairman and chief investment

16:55

officer of the twenty four billion

16:57

dollar firm g q G Partners.

17:00

He runs a number of different funds UM,

17:03

all of which have outperformed. Over the

17:05

past UH twenty years,

17:07

he has handily beaten his benchmark.

17:09

Last year, his global funds UH

17:12

was about nine hundred basis points above

17:16

the benchmark, which was down about

17:18

nine percent for the year. Uh.

17:20

Let's talk a little bit about international

17:22

investing. One of your

17:25

biggest holdings is India makes

17:27

up about twenty seven percent of the fund

17:29

bullpark. Uh. Why are

17:31

you still enthusiastic about India? What do

17:33

you think is happening there and what companies

17:36

have caught your attention in that

17:38

country? Yes, so India is

17:40

big only in the emerging market fund and internactionally

17:42

you only have five percent, And similarly

17:45

in global I think I think, I think the

17:48

couple of things one is well, first of all,

17:50

there's a risk of me being biased, so

17:54

I think I think gotta be careful. So you have home

17:57

country bias. Even after you leave the country,

17:59

they like you, you

18:01

feel you know it better, right, So that's one saying

18:03

you gotta be careful. You you should surprise folks

18:06

over France chance, so they would have more in France. So

18:08

home country bias excess. But I think in

18:10

this case, um,

18:13

there's a differences, particularly now.

18:16

India wasn't always that big. The reason

18:18

is because if you look at what's happening around the world,

18:20

there's earnings pressure. So domestic

18:23

oriented businesses are actually delivering better

18:25

earnings growth. And India is a very large

18:27

domestic market. China is two,

18:29

and so in Brazil in the within the emerging market

18:31

context, the same in US actually right, I

18:33

mean multinational rejects for a lot of China

18:36

are not exactly doing that well. For domestic

18:38

orientage stocks are just doing better. So India

18:40

is a big domestic market and you can get fairly

18:42

high, high quality,

18:44

predictable businesses which are still selling

18:46

it reasonable valuations UM.

18:48

And hence we have higher exposure in the

18:50

E M punt. So so let's talk about

18:53

Russia. You were quote massively

18:55

underweight Russia for eighteen

18:57

or so years. Now you say you're overweight Russia.

19:00

What has changed, um, either

19:03

in your view or in Russia itself

19:05

to have that big shift. But

19:08

first of all, from a philosophical perspective,

19:10

investing is all about change, is not about

19:12

static. In other words, Singapore might be wonderful

19:15

place, but if it's deteriorting that's

19:17

not you know, that's a problem

19:19

in Russia. I'm not saying it's going to be next with de Land

19:21

or anything like that, but it's improved

19:24

quite a bit compared to it it was five, ten, fifteen

19:26

years ago. Corporate governance has improved, um.

19:29

And they talked about managing companies which are actually

19:32

very well positioned and as selling for very attractive

19:34

prices, so that there's a big difference for let's

19:37

say ten twenty years ago, and that's I

19:39

was very better rush. I'm talking about twenty

19:42

years now, uh till a few years ago.

19:44

Uh and today it looks actually reasonably attractive.

19:47

Some of the folks who have have pointed

19:49

out that Russia is always

19:51

cheap, But the concern is rule of

19:53

law, and how do you know that the state

19:55

isn't just gonna arrest your CEO

19:58

or or capture assets. How

20:00

confident can you be investing in Russia

20:02

that the normal rules apply.

20:05

I thought you were describing China. See you gets arrested

20:08

in stock collapses, right, I guess

20:10

it happens in other countries. It happens happened

20:12

here also, we've had people arrested and the

20:15

stocks haven't done that well, but it seems

20:17

to be a little more endemic to certain countries.

20:19

Now, you're absolutely right, I think. I think first

20:22

of all, that's where you got to see whether the business

20:24

interests are aligned with the with the government

20:26

policy and what the you know, what the outlook

20:29

would be longer term. So um

20:31

So, one interesting fact,

20:34

if you do the last twenty years, Russia

20:37

has been one of the best performing markets versus

20:39

China and mostly other markets, by

20:41

the way, and which is not how people

20:43

think about it. Uh. And the reason is that

20:45

you can get some really high battered true businesses

20:48

which are very well aligned with what the government policy

20:50

is. And and and ironically

20:53

because of the capital

20:55

flight issues, actually a lot of companies pay

20:57

a lot of dividends, so you basically

21:00

getting dividend

21:02

return on business that are still growing at reasonable

21:04

you know, at regional prices. So I

21:06

think I think it's a combination of the

21:08

two. Um So, if

21:10

you can buy a business where the bond heels are,

21:13

foreigners are willing to buy bonds of the same

21:15

company at four and four and a half percent. Why

21:17

the stocky link twelve percent? That's

21:20

a question, right, I mean, the corporate governors should apply

21:22

as much as the bond site. But but

21:24

but if you can get truly good business like spur

21:26

Bank for example, uh it has sixty

21:28

pc deposit franchise in in

21:30

a deposit market share in Russia

21:32

and the banking system is consolidating rapidly,

21:35

I mean, it's it's meaningful consolidation. Over

21:37

the last five years. The central

21:39

banker and Ubulina has done a very good job. But

21:42

it's yielding almost eight percent growing plus

21:45

rows selling at six time mornings. So it

21:47

is I think. I think, I think you can do a lot worse

21:50

in other places. So do you bring

21:53

a different sort of fundamental analysis

21:55

to different countries? Do you have to think about

21:57

stock selection and let's say China or

22:00

Russia differently than you would

22:02

think about Singapore or Vietnam?

22:05

How do you look at each

22:07

country with their own unique political

22:09

situation You mentioned aligning

22:11

the interests of the company with the

22:13

government. Is it the same approach

22:15

country to country or do you have to adapt

22:17

depending on the local politics.

22:21

Yes, so I think, I think there's clearly a little bit of adaptation

22:23

needed. I mean, if you're investing only in the US,

22:25

if, for example, if you're running a user refund

22:28

um, there a lot of things you wouldn't necessarily have to think

22:30

about, right, I mean, some country companies

22:33

have currency theres but most don't have that.

22:35

On the other side, if you're investing in emerging markets,

22:38

you know, country risk matters. So

22:40

what I call a macro switch off, you

22:42

don't look for a good macro You can't say China

22:44

is ring. I'm gonna try to find

22:47

companies there. That doesn't work. However,

22:49

if this political risk in a company,

22:51

if the if the company is getting contracts from the government,

22:54

off they are they are as For example, last

22:56

summer there was increased risk in Chinese

22:58

tech companies. Now

23:00

that seemed to have gone down a little bit. I'm not saying

23:03

you sell out because of that, but you've got to be aware

23:05

of the macro switches. And by the way,

23:07

that if I take a five year review,

23:09

I think the political risk is increasing in some

23:11

of the largest U S companies too. It is

23:13

not here or now, but it's not zero risk that

23:16

you could see you know, you could see some

23:19

some antitrust investigation and in some

23:21

of the larger companies, the Amazons of the world. So it

23:24

is not a factor today, but it will be naive

23:26

to assume it's not a factor if you're taking five plus

23:28

year of view. I'm very rich Helts. You're listening

23:30

to Masters in Business on Bloomberg Radio. My

23:33

guest today is Rajiv Jane. He is

23:35

chief investment Officer and chairman at

23:37

g q G Partners, at twenty four

23:39

billion dollar firm.

23:42

Let's talk a little bit about your strategies.

23:44

You're long only, so what

23:46

are your goals? Is it to beat

23:48

the benchmark or you or are you targeting

23:51

higher risk adjusted returns?

23:53

What what is the goals of

23:55

of your specific strategies for

23:57

each of your funds. So the official

24:00

activists outperformed the benchmark

24:02

by a few hundred based point with less risk,

24:05

so losing lesson down markets is important.

24:07

So it's much more conservative compounding and the fact that

24:09

every employee and an investor, that's

24:12

where the alignment of interest matters, right, So we're

24:14

not talking about acid girl. There's all about can

24:16

we compound our money along

24:18

with our client's money, and that means

24:20

that it's much more absolute oriented rather than

24:22

relative focused. And just as an example,

24:25

in eighteen um the

24:27

international benchmark was down about nine

24:31

your fund was positive slightly positive

24:33

for the year. So there's an example

24:35

of managing into a downturn.

24:38

I have to think clients are pretty happy about that sort

24:41

of situation. Yeah, And I think I think that's

24:43

that's the reason why we've seen we continue

24:45

to see, you know, reasonable influence from

24:47

some of the most sophisticated institutions. Is

24:50

that it's all about I think. Look, I think I think you've

24:53

got to be careful about relative returns. You can't focus

24:55

on too much. And it doesn't matter whether it's a pension fund

24:57

or an individual. Right, if there

25:00

kets down and you're only down, you're

25:02

still down. That that's

25:05

true. But if you're long older,

25:07

you can't manage that. And and there's no free

25:09

lunch. So if you're trying to manage it too much, you

25:12

leave the upside and seeing on the hedge fund site, right, ivan,

25:15

yes, they didn't lose that much and maybe two thou eight,

25:17

but you gave more plus some or

25:19

the next decade because the markets, you

25:21

know, tend to go up over the long run. Right, So

25:24

let's talk about capacity. You you recently

25:26

announced one of your funds was going to

25:28

be capped at ten billion dollars? Is that

25:30

is that right? Was it a fund or was it a separate managed

25:33

to counts? So it's a uh did

25:36

the multiple vehicles, So

25:39

it's a product issue. I've

25:41

run thirty billion in emerging markets before. Performance

25:43

was fine, but I did lose a

25:45

lot of flexibility. So we've

25:48

you know, we've said bild soft claws. In

25:50

other words, existing clients can add at

25:53

ten billions, but you won't take into new

25:55

clients once you hit that ten billion dollars. You will keep

25:57

maybe that some of the mutual funds open, uh

26:00

for technical reasons. But but we'll we'll we'll

26:02

start hitting the brakes as we get

26:04

to ten. So so when emerging only but global

26:06

internationally, we have a lot of capacity because they're very large

26:08

liquid. So what is it about emerging market

26:11

that limits the capacity? Is it there's

26:13

just not that many big companies

26:15

or what what specifically

26:18

puts a cap on on that? You

26:21

know, I was just mentioning that that around

26:23

thirty billion and e M and probably was

26:25

the largest pool under single manager. Uh.

26:28

How and the performance was okay, uh,

26:32

but you clearly lose nimbleness. Emerging

26:34

markets actually much larger space than than than

26:37

the perception. Seems to be a lot of very large that

26:39

could names. And I think I think, I mean, for

26:41

example, the Chinese tex space itself is probably a

26:43

trillion and a half dollars didn't exist a decade ago

26:45

pretty much so, and it's China.

26:48

Is China still technically? E M? Have we

26:50

when does that get moved? Didn't M

26:53

s C I just do a whole thing with China

26:56

and e M do we still think

26:58

of China as an emerging market or or

27:00

have they graduated yet? Now? Look, I think,

27:02

I think, I think if you look at any sort of um

27:05

common sensical wave from in terms

27:08

of rule of law, in terms of you know right

27:10

to you know, you know

27:12

you're properly right, and so in the full, China

27:14

is clearly in emerging market emerging market.

27:16

It's not a now some Shanghai developed

27:19

more developed in New York. It feels that way if

27:21

you go there, but it doesn't mean the whole country as such.

27:23

M quite quite interesting. So

27:26

so let's talk a little bit about how you

27:28

um think about entering

27:30

positions. I know, some managers

27:32

do a pre mortem where they right

27:35

out with their full explanation of why they're

27:37

making the investment, so

27:39

afterwards they can look back and say, this is

27:41

exactly, um,

27:44

what they were thinking, whether it works well or goes bad.

27:46

What what do you do when you're in the midst of adding

27:49

a new name to a portfolio. First

27:51

of all, you need true diversity, and we talk

27:54

about diversity, but if you look at our team, there are folks

27:56

who have done long short equity long

27:58

short credited investigative journalists, uh,

28:00

you know, um, forensic accountants you

28:03

want to be You want to have a true devil's advocacy,

28:06

right um. And And that

28:08

means that multiple pairs of ice will look at the name.

28:10

And I work as a full time analyst and a part time

28:12

PM. There's no name that will go that has gone

28:15

in over the last twenty five years without

28:17

me actually working on a name, you know, having some sense.

28:19

Obviously some of the analysts will do a lot deeper

28:22

work on those names. And then we want to have

28:24

a separate pairs of eyes, whether from an accounting

28:26

perspective or from an investigative journalists, which

28:29

is more to sort of get a sense of where,

28:32

um, you know, are there

28:34

any sort of grassroot issue that

28:36

we are missing, for example, if

28:38

there's any governance issues. So we don't

28:40

talk to existing employees, but are there any governance

28:42

issue that we should be aware of? Any regulator

28:45

is that we should be aware of, uh sort

28:47

of you know, kind of e s g um

28:50

hygiene, if if if you

28:53

if you will. So what

28:56

that does is is that again, the idea is

28:58

to reduce the chance of a blow up. The

29:01

idea is not to find the best name. The idea is to

29:03

eliminate the weakest name. So

29:06

you mentioned investigative journalists. You

29:09

hired Carolyn Q from

29:12

the Wall Street Journal. What

29:14

was the thinking behind saying, I

29:16

know, I need an investigative reporter on my team.

29:19

It's interesting if you think about what we do, it is

29:21

it is kind of investigated journalism anywhere.

29:24

I mean, it's it's actually what a good

29:26

analyst should be. Is very similar to

29:28

making sure you're getting the facts right, being more

29:30

objective. So you want to have devil's advocacy

29:33

within the team and investigator

29:35

journalist kind of work as a separate team. They're basically there

29:37

to find faults with our existing names. So what

29:39

I call them internal critics. Ah,

29:41

And as you can see, a lot of anils get pretty uncomfortable

29:44

with that internally I'm talking about. But

29:46

I think the idea is my view is I

29:48

would rather have internal debate

29:50

and discussion rather than

29:52

the markets criticizing you. When

29:55

the markets criticize you, that's expensive to

29:58

say, to say the very least. Um,

30:01

so something else you said

30:03

previously, Um, it seems

30:05

most investors and evaluate managers

30:08

just by looking at their past performance.

30:11

You suggest that that's the wrong approach.

30:13

How should an investor evaluate

30:17

a potential manager they're interested

30:19

in hiring? But

30:22

you can't undermine the past performance? It

30:24

matters because I mean, that's that's a good starting point.

30:26

But that's all it is. It's a starting point. And I

30:28

feel that, um, the

30:31

other way to look at it, which is actually

30:33

more important, provided there's a good past tract

30:35

recker, because as

30:37

somebody said, past performance not a good indicator

30:40

past performance? Right now? Why is

30:42

that? As I say, I'm I'm contracting

30:44

myself. So I like the ying and yang debate in every

30:46

very discussion. So the reason is

30:49

decision makers can change, so you know, firm

30:51

self past performance. But you know, but

30:54

who took the decisions ten

30:56

years ago, maybe totally different guys. So you've got to

30:58

be careful about because you know people said teams

31:00

and so ons of forth, but it's not an indy cator of decision

31:02

maker and who was a decision maker. So

31:05

you've got to be careful and look at long term track records.

31:07

Is the same individual or individuals who

31:09

are taking the decision and if it's a one individual

31:12

like a PM, you know if somebody might have

31:14

changed, but the firm might be selling the track

31:16

record of the firm, right, So you've got to be careful

31:18

that. But more importantly, I think the way

31:20

to look at or

31:23

to assess a portfolio manager

31:26

our track record is how

31:28

did they do in different environments?

31:30

So for example, if you look at growth Magic today,

31:33

most of them look like geniuses right right

31:36

now, most of these won't have a good track record

31:38

going back to if you go back two thousand two

31:40

three era, how many actually them did

31:42

well? So this whole

31:44

growth and value debate is is kind of

31:48

I personally feel it's it's it's it's nonsensical

31:50

in a way because why

31:52

would you consciously overpay for anything.

31:55

So so you've mentioned previously, Um,

31:58

what you've described as quality growth,

32:01

what is that and how does that relate to the value

32:04

growth debate? So, first

32:06

of all, nobody construally looks for bad

32:08

quality. I don't know if you have somebody come across here and said,

32:10

look, we buy low quality, high prices, right,

32:13

growth manager, value manager. That's all wonderful. In fact,

32:15

one of the things I've observed is people,

32:17

The more disciplined people sound,

32:20

the more rigid they are and more chance of than blowing

32:22

up steps.

32:26

Stability is a close cousin of stagnation,

32:30

and discipline is a close cousin cousin of

32:33

rigidity. So

32:35

how they adapted to changing environments.

32:38

Look at Buffett, I mean he's adapted dramatically,

32:40

even a low low you know, classic

32:42

low multiple, you know, cigar but kind of investor.

32:45

And then do you know, moved to to a different

32:47

area in terms of quality you know, you

32:49

know high you know big more high bad

32:51

gentry businesses, and and I was

32:53

buying tech. And on top

32:55

of that, he's done a whole bunch of private deals on the

32:58

side, which are all nothing but cyclicals. By them, I

33:00

mean, can you tell me one name one one

33:02

large part maybe except sees candies in Berkship,

33:04

which is not cyclical? I mean, his guy could not cyclical?

33:07

Is some of the you know, boot companies,

33:10

insurance, reinsurance, home

33:13

building, what brick companies,

33:15

railroad? What is not cyclical? Right?

33:18

So this whole debate is much more around

33:21

I feel at the end is you

33:23

expected compounding and sometimes

33:26

a cyclical with the high berded entry could

33:28

be very attractive, and sometimes a

33:30

very steady, eaty business could be very attractive.

33:33

So like in today's environment,

33:36

if you look at most of the value oriented

33:39

names, you're

33:42

making a cyclical call. Mm hmm.

33:44

In other words, if the economy really starts ripping, they

33:47

would do very well. So it is not that they

33:49

are being given away to you because people

33:51

they are being misunderstood. There's

33:53

a fear of downturn. Hence some

33:55

of these names, whether it's car companies in Europe

33:58

or hair or some of the financial why

34:00

are the banks been underperforming

34:02

in the U as well? The fear is that you know npls will

34:04

go up. So it's a binary bet

34:06

on on future economic

34:09

performance, not necessarily

34:11

a specific company exactly.

34:14

And I think I think, I think I think that is it

34:16

may be a perfect call to make by the way, so I'm not here to criticize

34:19

that, but it is not something g they

34:21

are totally misunderstood and you know they kind

34:23

of um underappreciated assets

34:26

as obviously market might be overestimating

34:28

the downturn, if there is one. Uh,

34:31

but I think I think, I think it's much more around

34:34

what are the earnings trajectory

34:36

and what are you paying for? So if you look at some of the

34:38

tech names, for example, some

34:42

of the SaaS names right, the cloud names which are some

34:45

of them don't even have multiple because they are not earning

34:47

any money. How much of they are investing in

34:49

the business, and how much of that is and you really like

34:52

business? Now what I call the

34:54

Amazon in fact, that because you made money

34:56

in Amazon despite

34:58

it not making any sort of net pro of it, um,

35:01

it's being extra poled. A lot of areas and a lot of areas

35:03

companies would blow up because they're not

35:05

Amazon. Right, Amazon did not have cash

35:07

losses after I believe two thousand two

35:10

or something, you know, because it's a negative working capital

35:12

model, which is a very different model than than whole

35:14

lots of other companies are looking at today. But

35:16

it does mean that if businesses

35:19

that are willing to take longer term view, are

35:21

willing to invest chance

35:24

that they probably would do better than folks

35:27

were very focused on short to margin and you saccer with

35:29

craft right. I mean, if you look at

35:31

the whole three G model, why had that that has not

35:33

done well well? Partially because they're too

35:35

focused on profitability. They cut

35:37

down everything through the bone. And guess what, You're

35:39

not investing in the business. And there

35:41

are not many people interested in chief spread anymore. Quite

35:44

quite fascinating, and can you stick around a bit? I have a ton

35:46

more questions for you. We have

35:49

been speaking with Rage Jane, chairman

35:51

and chief investment Officer of g q G

35:53

Partners. If you enjoy this conversation,

35:56

we'll be sure and come back for the podcast afters,

35:58

where we keep the tape rolling and continue

36:00

discussing all things international

36:03

markets. You can find that at

36:05

Apple, iTunes, Google Podcasts,

36:07

Spotify, Overcast, wherever

36:10

finer podcasts are sold. We love

36:12

your comments, feedback and suggestions

36:15

right to us at m IB

36:17

podcast at Bloomberg dot net. Be

36:20

sure and check out my daily column. You can find

36:22

that at Bloomberg dot com slash Opinion.

36:25

Follow me on Twitter at rid Holts.

36:27

I'm Barry Riholts. You're listening to Masters

36:29

in Business on Bloomberg Radio.

36:35

Welcome to the podcast for Geeve. Thank you

36:37

so much for doing this. I've been looking forward to

36:40

having this conversation. You know,

36:42

there is a group of people

36:44

who are significant

36:47

and influential in the world of investing

36:49

that forget the public half

36:52

of the investing world. UM,

36:54

may not be familiar with their background

36:57

in history. UM, you're

36:59

one of those people. You're You've been running

37:01

a substantial amount of money for a long time

37:04

and I followed your career for a while. I

37:06

think a lot of people may

37:08

not know who you are, and I

37:10

hope this conversation helps

37:12

more people learn about you and your

37:15

background. Thank you so

37:17

so, we missed a bunch of questions

37:20

during the broadcast portion. Let

37:22

let me um, let me go through some

37:24

of the areas we didn't get to. We talked

37:27

about quality growth, We did

37:29

not talk about the shift from active

37:32

to passive. So first,

37:35

what does this mean going forward?

37:37

Is this a temporary shift or

37:39

is this more permanent? And I

37:42

can't help but wonder does the move too

37:45

as more and more people become passive

37:47

investors, does that create opportunities

37:50

for the remaining active investors.

37:53

Yeah, like, I think that's that's obviously the

37:56

most important debate, And frankly, I don't think there's a debate

37:58

anymore. I think it's the reality and it's not a

38:00

temporary issue. It's a permanent uh structural

38:03

shift towards passive UH.

38:05

And the reasons are beside

38:07

the fact that active you know, hasn't add

38:09

added value on an average UH,

38:13

probably don't add value. But I think

38:15

that you're being kind, But

38:18

I think, I think, I think a couple of reasons where And

38:21

the second part of a question was whether it

38:23

helps active remaining active? It does because

38:26

you know, if if you're paying attention over the longer run, and

38:28

hopefully you should will add you should be able to add

38:30

value. But I think, I think, I think the big

38:32

reason why is is Number

38:35

one, is active

38:38

manager charged too much money? M

38:40

hm. They are being boxed

38:42

into into in you

38:44

know, they boxed into their specific

38:47

sandbox, and the market changes

38:49

changes colors. So if you're a let's

38:52

say mid cap value

38:54

manager, that's wonderful to be compared. But is

38:57

the is an incline really looking

38:59

for a US MidCap

39:01

value manager or you just talk about long

39:03

term compounding, right, So the segmentation

39:05

has made life more difficult. So if you're not able to

39:07

break through that, it'll it's a problem. In fact,

39:12

there was a time and people have accused me of being a

39:14

value manager their time, and people accuse me of

39:16

a growth manager, and I'm doing

39:18

exactly the same thing. So I think you need

39:21

to have the ability to not

39:23

be labeled for rest of your life

39:25

because yes, of course you won't

39:27

buy higher quality sensible prices, but

39:30

sometimes the market gives you very

39:32

high quality business a very attractive

39:34

evaluations. So why wouldn't

39:36

you buy those? Right? Uh? And

39:38

I think I think that if you are

39:40

open minded and if you

39:43

keep your costs low. And that's an

39:45

important part because if you look at especially

39:47

on the institutional side, institutions

39:51

growth basis do actually our perform.

39:53

The problem is on net basis they're nder perform the

39:57

way Yeah exactly. So I mean the question why people

40:00

still of charging hundred hundred ten based funds for US

40:02

large mandates no

40:04

sense. What's even more shocking is you can

40:06

find SMP five index funds

40:08

at a hundred and fifty basis points. That makes

40:11

no sense whatsoever. That's hybrid Robert, right,

40:13

So that that shouldn't be allowed actually because

40:16

of misleading practice because typically institutions

40:18

will not get would not get

40:20

you know, would not pay for that. But it's a retail it's

40:22

kind of misleading. I personally find misleading.

40:24

So, I mean it's been around for a while, So I

40:26

know you cut fees five

40:29

basis points on a couple of your funds. What

40:32

is your thinking and is this something

40:35

that you're doing

40:37

because you're comfortable with it? Are you

40:39

responding to fee pressure in the industry?

40:42

Do you plan on making more cuts in the future.

40:44

How do you think about what's the appropriate

40:47

level of fees relative

40:50

to the size of the funds and the performance of the

40:53

funds? So

40:55

something you said at the tail in about

40:57

the performance of the fund At the

40:59

end of the day, clients care about net

41:01

performance, not gross performance, right,

41:04

and net performance means your fees matter.

41:06

So what hedge funds problem is not lack

41:08

of talent, is the fee structure. Right. There

41:10

isn't that m juice in the game to have to or

41:12

twenty and be able to add any value unfortunately,

41:15

right, I mean, how many hedge funds around in late nineties

41:17

let alone, you know, thirty four

41:19

years ago, right one, from a hundred hedge

41:21

funds to eleven exactly, So

41:23

so I think, I think so that's why one of the things we have

41:26

done consciously is that we want to make sure

41:28

that our fees are below median

41:30

and very comparedive. Why because I want to be you

41:33

know, we want to be known as a firm to have added

41:35

value, which is net performance. So

41:38

you want to be you know, very cost competitive

41:41

simply because you want to have better performance. Right.

41:43

So it's actually an odd interest. And then

41:45

you can have a long term sustainable

41:47

client base because the higher

41:50

recharge the expectations go up

41:52

on on a shorter term basis of our performance,

41:54

which is not not possible. So

41:57

I think, I think to build a sustainable investment

41:59

managment shop, you have to be very cost competitive,

42:02

and the lower the cost, better

42:04

your net performance going to be. It's

42:07

not about margins. So my personal

42:09

view is that you can't build a business with a specific

42:12

margin target. That makes absolutely no sense.

42:14

That should be an that should be a fall out

42:16

of what you're doing, not a target itself.

42:19

Quite quite interesting. So you're

42:22

you're known as an international manager, but you

42:24

also run a

42:27

US domestic fund. How

42:29

do you balance the two? They're such different

42:32

um environments, such

42:34

different stocks. How do how

42:36

do you go back and forth between thinking

42:39

about equities in the US

42:41

and thinking about international equities.

42:44

I have I've done it for twenty

42:46

years and now both developed an emerging markets and

42:48

I feel I'm a better emerging market manager because

42:50

I do developed advisive versa. So, for

42:53

example, last year that the implication

42:55

of trade we thought were clearly

42:57

being underappreciated in a lot of Chinese companies,

43:00

meaning the tariffs, the Tarifan

43:02

trade ward. I mean it's not just putting tariff, but

43:04

it also impacts Apple and a bunch of other

43:06

companies here. So if you look at Nike,

43:09

Starbucks, and Apple, I mean this, this, this, You've

43:11

got to incorporate the potential risk

43:13

coming from what's happening in China. So

43:16

in fact, some of the names that we did cut

43:18

back last summer, which added ultimately added

43:20

value, was primarily because of read on

43:22

ground in China. So I think there's a

43:24

lot of cross pollination. In fact,

43:26

I personally feel that if

43:29

you're learning a large gap mandate in

43:31

US on U S secretaries, I don't see

43:33

how you would survive the long run without having

43:35

good insights what's happening as of the world. So

43:39

you you really need to have that level of sort of

43:41

some understanding. You don't have to run emerging market

43:43

portfolio, but you need to have some understanding

43:45

what happened in some of these countries because

43:47

that's where the growth might become a lot of large multinationals.

43:50

Are you in these countries on a regular basis?

43:52

Do you do a lot of traveling or does do you have your

43:54

team um put boots on the

43:56

ground or is that just not necessary

43:58

these days? Yeah? You boots on the ground

44:01

is not necessary. In fact, what I found is a little bit counterproductive.

44:04

Really. Why is because people tend to become

44:06

bias. It's like trees versus forests. It's so

44:08

close to the three that you forget the forest maybe on fire,

44:11

right and and by the way, it happens more

44:13

often. Uh so, so you've

44:15

gotta be careful of that. But yeah, if you do travel. But

44:17

I think again that's part of the evolution.

44:19

Corporate access to corporate management

44:22

is a lot less valuable than you used to be. Changed

44:26

a lot it's changed, and I think that's a lot of

44:28

wild large shops struggling. You can talk to the CEO

44:30

and say, look, the next coup is gonna great, and

44:32

you load up on the stock. Lets just happened in nineties

44:35

all the time. It doesn't work that way

44:37

anymore, and which is why. And

44:40

you just have to sort of adapt to say that that you know, corporate

44:42

access is actually is important to understand

44:44

how they think. But just because

44:47

you happen to know a uccer Bruck doesn't mean you're gonna get the

44:49

stock right. Right, So so you mentioned

44:51

you do. Both US and international

44:55

U S equities have outperformed international

44:57

now for at least

45:00

a decade, and by a substantial

45:02

amount. Historically that's been

45:04

a much shorter cycle. US leads

45:06

and international leads. And it goes back

45:08

and forth. Oh what what

45:10

do you attribute this huge out performance

45:12

over the past decade two? And

45:15

and when do you suspect um

45:17

global stocks and international stocks

45:19

might take the leadership role again?

45:23

Yeah? I mean if you take a very long tram view, these

45:25

things tend to tend to go in cycles, right,

45:27

I mean, Um, if you look

45:29

at US corporate margins and by the why US

45:31

are performed because ben't fastened rest of the world. I'm

45:34

and simple as that, right, But all

45:36

right, which raises the fundamental question, why have

45:38

earnings growth been faster here than

45:40

internationally? Was it the US response

45:43

to the crisis? Is it just the nature

45:45

of the economy? What is it that why

45:47

US companies have been doing so well

45:50

compared to their overseas piers. I think I

45:52

think it's a combination of what some of what you said, because

45:54

I look at the European banking system that did not

45:56

sort of you know, clean up as fast

45:58

as what happened here. I think one of the things there will just

46:00

put everybody in the room and say everybody's gonna take capital

46:02

and while you recappalize everybody,

46:04

but right, I mean you

46:07

forced capital down everybody's throats, which is the

46:09

best thing that could have happened in hindsight. In

46:11

Europe. Can be done,

46:13

won't be done? Um, that's

46:15

a problem. What what about austerity we've seen

46:17

in the UK and the EU? Was

46:19

that How much of a factor was that

46:22

that they basically ignored

46:24

everything keens toward us and

46:27

try to tighten their belts in the middle of a downturn.

46:29

Well, that's that's the whole problem in

46:31

Europe. In general is you know, there's there's

46:33

difference between what's happening or what was happening

46:35

in Germany and what was happening in Spain and Italy

46:38

and Portugal. Right, so they would

46:40

big differences in terms of radar growth, unemployment,

46:43

terms of fourth. And and that's why I've seen property

46:45

price in Germany go up dramatically now because

46:48

it's basically free money, UM.

46:50

So I think that's a fundamental flaw in

46:52

Europe. Um. Having said

46:54

that, there are some really good companies

46:57

um which can allow

46:59

you to come only a wealth over the longer run. So if you take

47:01

set of view, you

47:03

get these cycles in between. It feels like,

47:06

oh US always going to do well or internationals

47:08

gonna do well. For example, if you're sitting here in two thousands,

47:11

even you didn't make

47:13

a dime, you didn't really make any money in US

47:15

equities or the prior decade. That's

47:18

why meaningful model of money was going in emerging markets

47:20

and non US. Now fast forward another

47:22

eight nine years, that's the opposite. So I think

47:25

these these things go in cycles. One

47:27

aspect I would say I would highlight

47:29

but is not being appreciated, is

47:32

the US corporate profitability has gone

47:34

up dramatically since two

47:36

thousand. I

47:38

would argue a lot because of Chinese

47:41

entry into w t O and

47:43

this whole decoupling notion of decoupling

47:45

with China means that Apple

47:47

has to shift its manufacturing based to other areas

47:50

out of China, outside of Chinnel just

47:52

as an example, right ample Apple is just

47:54

one example that

47:57

has to be margin negative for margins

48:00

or the longer run. So the corporate profitability

48:03

US corporate margins are

48:05

we seeing some sort of secular peak, not

48:07

because of some cyclists such but because

48:10

now you have to go somewhere else to set a manufacturing

48:12

based So again, a lot of companies will not be IMPACTEDS

48:14

software is it will not be impacted, but other

48:16

companies will be impacted. So but

48:19

that's you know, that's that's kind of what makes

48:21

investing interesting. So you did

48:23

an interview a couple of years ago

48:25

with City wire over in in London,

48:28

and your answer to one of the

48:30

questions was, and I don't

48:33

remember the question, but it doesn't even matter long

48:35

term performance, long term performance, long term

48:38

performance, explain I

48:41

think. I think at the end of the day, it's longer

48:43

term performance incorporates multiple cycles.

48:46

And which is why I feel to do. To really

48:49

judge an investor or portfolio

48:51

managing, you've got to look at how they how they

48:54

survived the inflection points, because

48:56

if you think about it, what kills quants inflection

48:58

points, it's almost a guarantee

49:01

that the market cycles would turn into something else.

49:03

I can't sit in forecast. So you need

49:05

to able to navigate the inflection points. People did

49:08

in late nineties got killed the cycle

49:10

turned in March or two thousand, for example, right then

49:13

there was a commodity super Bowl market people called commodity

49:15

supercycle. Well, we don't discuss them

49:17

anymore as such, right, And I'm sure

49:19

there's super same

49:21

in the text site, right. I mean there's

49:23

a different breed of tech names that are doing well. You

49:26

don't talk about Intel as much. You still talk about Microsoft

49:28

when you talk about Intel as much. So I

49:31

think that's why you need to be able to capture a few

49:33

inflection points to be able to see whether

49:35

the managers adapted or they keep bidding the drum

49:37

off. We do a B C D RNs

49:40

repeat and don't worry about it that

49:42

that actually makes me very nervous because you

49:44

know that that typically It's like saying

49:46

you're going to drive from New York

49:49

to Washington a sixty miles an

49:51

hour irrespective road conditions. Makes

49:54

makes a lot of sense. So, so you mentioned

49:57

quants don't do especially well at turning

49:59

points. Arguably

50:01

the past couple of years have not been too kind

50:03

to the quants, especially the

50:05

ones with an emphasis on factor investing.

50:08

Um, are we in a turning point

50:10

now or is this something different

50:12

that's causing them to underperform?

50:15

I think I think what's happening is part of that is a lot of

50:18

the fact that everybody talks about factor investing,

50:21

question how much that is an arbitrage away. I

50:25

mean, there was a recent piece in you

50:27

know, academia that once a study

50:30

is published about a particular type,

50:32

factor or style, how

50:34

well it works historically the efficacy that

50:36

goes down, right, So I think we sometimes

50:39

if we get we are competing with ourselves.

50:42

So once it is recognized eas to do well,

50:44

the efficacy will be lore makes

50:48

makes a lot of sense. You mentioned earlier

50:50

the academic piece, UH

50:53

that looked at fund managers

50:55

who add value in buying on

50:58

average, but generally do a terrible

51:00

job selling. And and I recul

51:02

seeing that in January Uh, and I

51:05

had written about it, and the takeaway

51:07

seemed to be that the

51:10

two things the fund managers were

51:12

very poor at selling were

51:14

either stocks that had gone up a

51:16

lot, UH, that

51:19

were strong growth with momentum.

51:21

They sold because look how much money

51:23

we've made, or stocks that have gone down

51:25

a lot and had become very cheap. Uh.

51:28

How much of that is a fundamental

51:31

misunderstanding of why stocks

51:33

go up and down? And how much of that is just pure

51:36

behavioral finance and the application

51:39

of emotions to to the

51:41

decision making process. But if you think about

51:43

it, isn't the second one, i e. Behavior driving

51:45

how much stock has gone and up and down? Sure,

51:48

my view is that cost you bought the stock is irrelevant.

51:50

In fact, somebody asked me the other day,

51:53

what what's your price of stock x Y? You

51:55

know excess? Look, I don't know, and it's not relevant

51:57

because the moment you think about I bought

51:59

it this price, you anchoring to that.

52:02

And therefore it's

52:05

because the market doesn't care where you bought

52:07

it, right, so you don't. And I think

52:09

that anchoring is the biggest issue, and frankly,

52:11

be anchored to our own knowledge base because

52:13

if you think about our knowledge is history, that

52:17

makes perfect sense. The so

52:20

so you're you're gonna say, behavior makes

52:22

a great deal of difference obviously to

52:25

now, why doesn't it have the same impact on buying?

52:28

I guess there is no there, there's

52:30

no endownment effect, there's no anchor.

52:32

You don't own it previously, So

52:35

it's a fresh sheet of paper when you're

52:37

making a purchase. Is that thinking? Yeah? Exactly?

52:39

And I think I think that's why I've done a number of times

52:41

that I would just sell the stock to clear my own

52:43

mind, because that this game is played inside,

52:46

it's not outside. You're not fooling anybody, fooling yourself.

52:49

So how do you how

52:51

do you reboot your own mind? And

52:53

sometimes you might well sort of take

52:56

it off the table, And a lot of times

52:58

you don't want to. You don't know why the name again, do

53:01

you not anchor on your previous buy or

53:03

sell when you're approaching a name. I'll

53:05

give you my favorite example before

53:07

the I when the iPod not

53:09

iPhone iPod first came out, Apple

53:12

was about fifteen bucks with thirteen

53:14

cash dirt cheap. It

53:17

ran up to about forty five dollars in a relatively

53:19

cheap amount of short amount of time

53:22

and then pulled back. And I remember selling that

53:24

stock in the low forties, thinking there

53:26

I tripled my money, and here it is. It's falling,

53:29

and I said, if it ever gets back over forty

53:31

five, I'm a buyer again. And of course

53:33

it goes back over forty five, and I'm like, I

53:35

paid fifteen dollars, how do I pay forty

53:38

five? What is the thing to go even higher?

53:40

And of course we know what happened that that was

53:42

a classic anchoring trading

53:44

error. How do you avoid doing that?

53:47

When you do a clean sheet of

53:49

paper and say, okay, I've sold

53:51

this stock and I'm just forgetting about where I

53:53

bought it or sold it. It's

53:55

difficult. I think. I think I've

53:58

been working on it forever and I still have

54:00

you know, some of us, You know I still commit

54:02

the same or similar mistakes. So I think you

54:04

can only work on reducing that, which

54:07

is where you want to have the diversity in terms

54:09

of how people think about

54:11

the names. You want to have a bull

54:13

and bear case within the team,

54:15

right, which is why we've actually hired

54:17

folks who have good shorting experience. Um,

54:20

We're not gonna launch long short

54:23

How many long only folks are willing

54:25

to entertain folks have shorting experience

54:28

in the team. That's interesting. So the way

54:30

you deal with behavioral issues is

54:32

you make sure that a lot of people at the table

54:35

have broadly different views and histories

54:37

and perspective. I have had client meetings where

54:39

a name, Um, I

54:42

I said, look, this is a bull and this isn't

54:44

bear, and I'm out of the room. We can talk to both of them.

54:46

We don't own the stock right now we wanted before. So

54:49

but look, I think I think, I think you

54:51

just would work on reducing that. It's very hard

54:54

to get over that, to say

54:56

the very least. I know, I only have you

54:58

for a finite amount of time. Him. So

55:00

let's jump to our favorite questions

55:03

that we ask all of our guests. Uh,

55:06

tell us, what was the first car you owned?

55:08

Your make and model? Uh

55:11

it was Honda Civic ninety

55:14

two. Right. It's hard

55:16

to kill those and it will stick shift because I'm trying to save

55:18

a little bit of money. Right, same same

55:20

for me. Those cars are all but impossible

55:22

to kill. They run forever. Uh.

55:25

What's the most important thing that people

55:28

don't know about regif Jane. Yeah,

55:32

it's it's kind of hard to say because a lot of pretty

55:34

much everything is public. But

55:38

but maybe the fact that I've not been on

55:40

a golf course will last ten years now. Uh

55:43

So were you a big golfer? No? I

55:45

was never a big golfer, So that's what I'm saying. But

55:48

I live in Florida and I should drive through its

55:50

golf course. So who are your early

55:53

mentors who helped influence the way

55:55

you think about stocks and investing?

55:58

Um, I can't say I've

56:00

worked with any individual ways sort who

56:03

has mentored me. But obviously he learned a lot from

56:05

reading Buffett, I think. Or

56:08

there's a whole sloop you know Phil Fisher?

56:10

Um, Phil Fisher? What the name is familiar

56:13

where? Yeah? He wrote that, you know, the

56:16

famous book in the fifties, and he has

56:18

influenced you know a lot of folks, including

56:20

including Buffett. Uh common

56:23

Stocks? Sure? Yeah, Um

56:26

that's not Ken Fisher's father, is it? I think

56:29

it is. I think it is too. That's quite interesting.

56:31

Speaking of books, what are some of

56:33

your favorite books fiction, non fiction? What

56:35

what do you like to read? So?

56:38

Um, I

56:40

I think the lessons for corporate America

56:43

probably is one of the better from an investment perspective,

56:45

I feel, and anything Buffett has written obviously

56:47

is is what you know, definitely worth reading

56:49

and rereading, meaning his annual letters

56:51

or annual letters. Uh. And you know

56:54

some of the transcripts from his and

56:56

you know a g MS that kind of thing. I went

56:58

to grad school with a guy named Lauren Cunningham

57:00

who came up with a brilliant idea twenty

57:03

five plus years ago of taking

57:05

Buffett's annual letters and printing them in a

57:07

book. And well, that's what I'm talking about

57:10

lesson for Corporate America. So that's Karring Cunningham's

57:12

book that that I went to school with him. And who

57:14

would have known back years ago that

57:17

was the thing. And it's become I think in a nuity

57:19

any any of the books you want to mention, Yeah, like I think,

57:21

I think, I think, I feel that it has to be

57:23

a little more holistic. Um. So I

57:25

do quite like the Art of Happiness.

57:27

Why. I think it's about Howard Cutler or something.

57:30

There's an interview of Dalai Lama really

57:33

Yeah, and you

57:35

know recently add that this book by

57:37

and Duke on Betting that was book

57:41

Thinking Bets. The other. Actually, I'm reading this

57:43

book by Rory

57:46

Sutherland, which I quite like. The Alchemy just

57:48

came out. Um, the Alchemy,

57:50

The Alchemy. Yeah, he's he's

57:53

from the advertising side, so it's kind

57:55

of colorful book. It's it's a fun read. So

57:58

I I read rather eclectic. That's

58:01

that's quite quite interesting. UM,

58:03

tell us about a time you failed and what

58:05

you learned from the experience. I

58:09

think, I think from an investment perspective,

58:11

UM, what if I go back in two

58:13

thousand eight. You know, I actually pretty

58:15

much ended up exiting all our financial

58:18

exposure by two thousand seventh. Their bats,

58:20

but I still a lot of exposure which could have an impacted

58:22

negatively because of slowing economy

58:24

and the fact that I was so nervous on the financial side. The question

58:26

why didn't I connect the dots? And that actually

58:29

led me to revamping the whole investment team

58:31

over the years, how I thought about investment team.

58:33

Uh and in fact, g k as you know, I didn't bring anybody

58:35

from my prior team.

58:38

This was really uh keeps using

58:40

a clean sheet of paper. You started

58:42

from scratch and launched with UM.

58:45

Nobody from your prior firm.

58:47

What was the thinking that the thinking is again, you

58:49

know, what have I learned, I mean, over

58:51

the years in terms of what works and doesn't

58:54

work? How can create more diversity, And so

58:56

tried to hide with a lot more diversity in terms of folks

58:58

with long, short experience, credit, low credited

59:00

experience, full capital structure analysis,

59:02

so different type of investigative

59:04

journalists. And I think I think that's part of learning

59:07

evolving. In fact, there was again somebody

59:09

who has covered a consultant, has covered

59:12

this space for a while said to me something

59:14

which is interesting. What

59:16

they found was that the team that had

59:19

no employee analyst turnover, the

59:21

chance of then going under was the highest.

59:24

Really, that's interesting, and that actually

59:27

makes sense. This interesting does a very

59:29

good job selling how everything is stable, everybody has

59:31

been here since they were childhood and don't really batter kind

59:33

of stuff. But that's misleading. That

59:36

leads to group think. So how do you sort

59:38

of read And by the way, I've done that kind of you

59:40

know, restructuring before too,

59:43

because I feel I'm better hiding now than I was

59:45

twenty years ago, fifteen years ago, right, I mean, you got to learn

59:47

from the mistakes. So sure that that's part and parcel

59:50

of which is why I have a I

59:52

thought I'll have a clean sheet of paper, and

59:55

what would I redo? And and

59:57

and one reason I think we've done better now is

59:59

partship because of Okay, these are the mistakes.

1:00:01

It's like tennis. If your back end is weak,

1:00:03

the good news is you can im You

1:00:05

know, in tennis you can add somebody else to play a back

1:00:08

end. In this game, you

1:00:10

can. So what how can I address my

1:00:12

own weaknesses? Let me hire those rather than sort

1:00:14

of saying, gee, this is the same group of people and

1:00:17

we're all happy living ever after. So

1:00:20

so you mentioned golf and now tennis. Tell

1:00:22

us what you do for fun when you're not in the

1:00:24

office. Unfortunately you

1:00:26

need I needed. I tried everything,

1:00:28

including golf and tennis. So I

1:00:30

don't think so I would say that I'm good at tennis at all. Um,

1:00:33

I like to read. I mean, you know, eclectically

1:00:35

doesn't do investment at all. So I think my

1:00:38

best day would be having a good book and a couple

1:00:40

of coffee and sitting alone and reading

1:00:42

on a Sunday morning. That probably be describe

1:00:45

what I like. That That sounds like fun. So

1:00:48

what is it these days that you're most optimistic

1:00:51

about, and what are you most pessimistic about.

1:00:54

I think that, um,

1:00:57

there's still quite a bit of pessimism generally

1:00:59

speaking on markets. I'm

1:01:01

talking about equity markets. Uh. The

1:01:03

focus on on

1:01:05

what FED is going to do is and

1:01:08

it's not an important don't get me wrong. But

1:01:10

there's real corporate earnings

1:01:13

picture, which is important, not is not

1:01:15

unimportant, but it's separate from just where

1:01:17

rates are to if rates go lowered, how

1:01:19

much does that really help Apple or Amazon? Yeah,

1:01:22

it won't. It won't make that big a difference, right, I mean

1:01:24

Amazon has not done well because of rates collapsing

1:01:27

or something. Right, It's it's a fundament They're

1:01:29

fundamentally transformed. How we you know,

1:01:32

how we transact um and that kind

1:01:34

of transformation happening a lot of different areas. So

1:01:36

I feel that we need to focus on that

1:01:38

true to find the next group of winners

1:01:41

um uh. And and some

1:01:43

of the old companies have sort of restructure themselves in in

1:01:45

a dramatic fashion too. That's a lot more important. So

1:01:47

I'm actually pretty optimistic in terms of where the world

1:01:49

is. I'm not saying the market is going to go up next year. Or something.

1:01:52

But but because sometimes too much

1:01:54

focus on FED policy

1:01:56

and you know, and and other things that are

1:01:58

wrong in the world. UM. And by

1:02:00

the way, that's why The Factfulness by Rosaling is

1:02:03

another fantastic book. UM.

1:02:05

I think I think the world is a lot better place today

1:02:07

than than than we give it credit for. Anywhere

1:02:10

in the world. I mean, I've invested in frontier

1:02:12

markets twenty years ago. I mean almost

1:02:14

invested invest in Zimbabwe in ninety after

1:02:16

visiting their thank god I didn't. Um.

1:02:19

We've invested in Botswana and Bibia, Mouritius

1:02:21

and all over the place. Generally, you go, things

1:02:24

are better today than they were ten twenty three

1:02:26

years ago, I mean, broadly speaking. So

1:02:28

that's the optimistic side. What what are you pessimistic

1:02:31

about? I think I

1:02:33

think I think this um, the trade

1:02:35

water issues, I feel a much more deeper rooted.

1:02:38

Uh. This is a paradigm shift that is

1:02:40

basically unfore Lygen tried it in front of our eyes.

1:02:42

Um. And I think I think there

1:02:45

will be a transition Peter needed, you

1:02:47

know, because of because of what is happening. And I think I think

1:02:50

if it's slow, I think we should really handle it. I hope

1:02:52

it's not too fast transitions just a

1:02:54

batter life. So I'm not saying it's gotta bad. They happen. Makes

1:02:57

sense. So if a millennie

1:03:00

all or recent college grad came up to you

1:03:02

and said they were interested in a career, uh

1:03:04

in investing, what sort of advice would

1:03:06

you give them? First

1:03:09

of all, I would say that you have the open minded

1:03:11

and humble about about things.

1:03:13

If you're not humble, because what arrogance

1:03:16

leads to is you become dogmatic about to us,

1:03:18

and that's the worst thing to doing investing is become

1:03:21

arrogant. In fact, what I've seen is my

1:03:23

worst losses came and I knew I thought I knew

1:03:25

the most because you become dogmatic. So

1:03:27

being open minded humble is important. The

1:03:30

second part is you always have to think about giving back.

1:03:32

So we for example, a GG launched our

1:03:34

foundation, but then basically and have a

1:03:36

launching with employee matching. We've

1:03:39

you know, it's important to get back and this

1:03:41

industry pays well, we need to think about how

1:03:43

we sort of you know, from a societal

1:03:45

perspective, how what are we actually about giving back

1:03:47

to society? So so how does

1:03:49

that work? You're you're matching if an employee

1:03:52

makes it comes up to you with a UM,

1:03:55

appropriate philanthropy or charity g

1:03:58

q G will match whatever the eployee.

1:04:00

Yeah, so there's yeah, so if you're trying to be thoughtful

1:04:02

about it. So there's a separate committee. I'm not on the

1:04:04

committee within the firm from different areas

1:04:07

of the firm, who would approve that,

1:04:10

uh, and then we would match. Ah.

1:04:13

But but that foundation is also now started

1:04:15

actively giving out for from a you

1:04:17

know, education, health

1:04:19

care, you know, especially kids, and

1:04:21

and and a few other causes. And

1:04:23

finally, what is it that you know about the world

1:04:26

of investing today that you wish you knew

1:04:28

thirty years or so ago when you were first

1:04:31

ramping up That I

1:04:33

that I know a lot less than what I think.

1:04:36

I think you said. You begin to appreciate your

1:04:39

own um uh

1:04:42

yeah

1:04:42

yeah. You

1:04:45

let me rephrase that. As

1:04:49

you grow older, you tend to appreciate what you don't

1:04:51

know a lot more and that is part

1:04:53

of the strength, and that actually makes you not only better

1:04:55

invested, but a better human being. So I

1:04:57

think I think it's important to and I feel

1:05:00

light, I feel a no, a lot less today

1:05:02

then I thought I knew thirty years ago.

1:05:05

Um, and that's important part of not

1:05:07

just investing, but life makes perfect

1:05:10

sense. Reggiev, thank you so much for being so

1:05:12

generous with your time. We have been

1:05:14

speaking to Rajiv Jane. He

1:05:16

is the chairman and chief

1:05:19

Investment Officer of g q G Partners.

1:05:21

If you enjoy this conversation, well look

1:05:24

up an intro down in Intro on Apple iTunes

1:05:26

and you can see any of the other two

1:05:28

d and fifty such conversations we've

1:05:31

had over the previous five years.

1:05:33

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1:05:36

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1:05:38

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1:05:41

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1:05:43

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1:05:45

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1:05:48

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1:05:50

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1:05:52

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1:05:57

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1:06:00

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