HIGHLIGHTS: Sir Chris Hohn

0:01Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. hi everyone i'm nikolai tangen and today we are joined by one of the best investors of all time actually 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 so chris you continue to have a immense positive impact on the world thanks for coming thank you neglect. Let's start with the investment world. What makes a good investment? I think this is something a lot of people get wrong.

0:42They think it's about growth often or something new. Neither of those things in themselves to us matter by themselves. The most important thing, and without which it's...

1:14Let's say the types of investing that we do is high barriers to entry, the most that Warren Buffett has talked about. Now, before we dig into that, can a distressed asset of a piece of real estate that's selling at half price because of a liquidation also be a good investment? Yes. So can there be a role for cheap average assets? Yep. Let's call them low quality assets, which are trading at big discounts to replacement cost. Yes, that's the type of investing that can work, that I've done in my time. Cheap average businesses, or cheap bad businesses. But I don't feel that I can have any confidence in that type of investing

2:16because the earnings power of those averages businesses is unpredictable. So what are good moats? The most important answer is ones that are sustainable. Okay, a lot of people. And ideally, you would have multiple moats, multiple pieces of defense. And you're saying moats is basically something that means that the business is difficult to replace. Difficult to compete with, yes, and replace. What are the type of companies you would never invest in? Type of industries. Yeah, that's a good question. We have a long list of companies we don't invest in. We're very focused. And we call them the risky and bad industries.

3:02And I have invested in some of these in the past, but I've learned. Banks. Sorry for that as a bank. No, we're not the bank. The central bank. Central bank. Central bank is good. Yes, central bank is going to be good. But we don't like banks. We don't like banks. And why not? Why not? The low quality of earnings, because they're very leveraged and much more than people think, because people look at, oh, equity to risk-weighted assets. But equity to total assets, many banks have run it 100 times. And so, two, they're opaque. You can't look into them. You can't. Yeah, you can't. I remember pre-financial crisis, I had a look at Credit Suisse, and I sat down with the then CEO, Brady Dugan, and said, put his balance sheet in front of him from the annual accounts and said, you have a multi-trillion dollar balance sheet.

4:10Can we walk through the line items? Because I don't understand it. He said, I don't either. He was a very honest guy. I really liked him. Very confident. Yeah, very honest. Okay, so banks, you don't do it. I've heard you say that there are more good companies in the public market than in the private markets. Yes. Why do you say that? because the companies that are sold to private equity are the ones that aren't as good. Are you sure? What do you base? Well, I'll take a couple of things. Let's dig into it. I know it upsets people who are in private equity. I don't upset me at all. I mean, we actually, I'm pretty pragmatic about this, but where do you get that?

4:53I happen to think that large companies are more likely to beat small companies in an industry. They have more money to compete. And in R &D, yep. And scale, we talked earlier about scale being key and incumbency being key and switching costs. So we think it's a small company that invents something new. We talked about Zoom. It can be crushed by a large company reasonably easily. They can copy. And large companies are usually too big for private equity. Private equity can't buy a visa.

5:45It's too big for them. Yep. So that size excludes private equity from large companies.

5:57And if a public company is selling something to private equity, usually they're not selling their best businesses. Yeah. And I'd say private equity, like all asset management, is prone to the principal agency problem where they incentivize to gather assets. Let's just say it like this. The very best businesses in the public markets, I believe, are better than the top 100 companies, are better than the top 100 companies in private equity. Why are you a good investor? Well, it's your words. It's important to have humility.

6:48but there was someone I knew who took me aside once and he said, Chris, you and I, he did reasonably well. He said, we weren't the best investors, we just took the most risk. So I just... Which is not true actually. Yeah, it was an interesting comment that makes you sometimes when people say a joke or something, you wonder, is it true? But I was always willing to look at the company fundamentals and not try to guess the stock market, okay? And focus on macro or trading, yeah? So I was always fundamental. Most investors are not fundamental. They trade actively. They look at data points. They say, what's the catalyst?

7:40They don't really know what the company does. So I think the fundamental approach has been key. Long-termism is key. Okay. Another thing we've done is concentration. We've owned a few things. We may have 10 % type holdings, 10 stocks, 15 stocks. We don't own 100 things. And I think another key point is intuition. We work with intuition, which is something that people find strange. How do you use intuition?

8:21It's been defined as thinking without thinking, which the Buddhists would call a koan, something that just doesn't make sense. When did you learn about philanthropy? Who taught you? And when I was in York working for a hedge fund, one point after about three or four years, it made, I don't know, two or three million dollars. And I'd done well. And they said, you're going to get a$10 million bonus. And I just, this is in intuition, said I don't want it. I want to just give it to charity and I created a US foundation and gave it to it

9:11and I didn't really understand it what was driving me for 50 years I would meet with Bill Gates a lot of charitable work with him over the years and he would ask me I couldn't answer the question And eventually I did understand it, and better late than never, as a soul urge. That there's essence, who we really are, what we really are, isn't the personality or the physical body, but soul or consciousness. And that, some would call it life. Yep, that's something that gives us life. and will. In the same way, Nikolai had a desire, a will to do something more with your life than just make money. And the fundamental nature of that

10:23that the soul is service, desire to help, to help ultimately humanity.