Why investors should take back power

In short

Podcast Notes: Making Money - Episode: Why Investors Should Take Back Power

Episode Overview

Hosts: Damien Jordan and Timeyin Akerele
Guest: Merryn Somerset Webb, Senior Bloomberg columnist and author of *Share Power*
Focus: The need for investors to reclaim their voting power in the companies they own and the implications of this shift for the next decade in investing.

Key Concepts

Understanding Ownership in Capitalism
The podcast explores the concept of ownership through pensions and investment funds.
Today, most people in work are equity owners through pension schemes (auto-enrollment).
Historically, ownership was dispersed; now, power is concentrated in a few fund managers.
Only 13% of shares in the UK are owned individually, limiting individual investor influence.

The Shift in Corporate Power Dynamics
Transition from managerial capitalism, where CEOs had too much power, to a new dynamic where powerful fund managers control multiple companies.
Concerns arise that corporate governance may be jeopardized as investor votes are managed by fund managers rather than individual owners.
The importance of re-engaging all shareholders to create a more participatory corporate culture.

Impact of Technology on Investor Voting
Advances in technology may enable individual investors to express their opinions on key corporate issues.
Examples include platforms like Tumalo that allow ordinary investors to participate in voting on company policies.
Discussions on what types of issues shareholders should have a say in, such as remuneration policy and company strategy.

Benefits and Challenges of Shareholder Democracy
Shareholders traditionally have the right to vote on key company decisions, but few engage due to lack of awareness or complexity of issues.
Re-engaging investors can empower them and lead to more responsible corporate governance.

The Role of Fund Managers and Active vs. Passive Investing
Discussion about the pros and cons of using fund managers versus investing in index funds.
Active fund managers may outperform in volatile markets; however, index funds have served investors well over the last few decades.
The importance of rebalancing portfolios to capture value and avoid overexposure to high-performing stocks.

Future of Investing in a Changing Economic Landscape
Current economic conditions, such as rising interest rates, may lead to a reset in capital allocation and corporate governance.
The expectation of higher inflation and its potential impact on market stability.

Key Takeaways

Empowerment: Investors should recognize their ownership and potential influence over corporate decisions.
Engagement: Increased engagement among investors could lead to better corporate governance and accountability.
Adaptability: The next decade may differ significantly from the past; investors need to adapt their strategies accordingly.
Education: Continuous education and awareness are vital for investors to maximize their influence and navigate market complexities.

Action Items

Communicate: Encourage listeners to write to their fund managers expressing interest in voting rights and corporate governance.
Research: Individuals should investigate their own pension funds and understand the companies they are indirectly investing in.
Portfolio Management: Consider rebalancing investment portfolios to mitigate risks associated with market volatility.

Conclusion The episode emphasizes the importance of investor agency and the potential shift in power dynamics within corporate capitalism. By understanding their rights and leveraging technology, investors can reclaim control and influence the future direction of the companies they own.

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Transcript

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0:01You know what I love, Damo? Things that save me time. You don't have YouTube Premium, mate, so I just don't believe that. Granted, I'll give you that one. However, I've got one for you. A great time saver in personal finance is Money Week magazine. They spend a lot of time distilling the biggest stories in personal finance down into consumable chunks, so you don't have to scroll and scroll. They give practical tips on savings, investments, pensions, the UK economy, the global economy. It's like your five a day, but for finance. If you want to give Money Week a try, you can get six issues in print and the app absolutely free by visiting moneyweek.com forward slash money.

0:34After your trial, you'll save an extra£5 a quarter on the subscription, which is exclusive to Making Money listeners. And that's moneyweek.com forward slash money. But there's a link in the description if you just want to click that.

0:50If people really understood that via their pensions, via their ICES, they're owners of, connected to, and have some power over the corporate world, I feel that we would feel slightly less powerless in the face of our big companies. Merrin Somerset Webb is a senior Bloomberg columnist, the former editor of Money Week and host of Merrin Talks Money. It's a great name. The author of SharePower, she argues that we need to have a say in the companies we own and believes that the next 10 years could be dramatically different to the last. We know that it probably isn't possible to go from a period of interest rates at zero or negative to a period in which interest rates go back to historical norms and get away with it.

1:37I love the book. I listened to it. So I feel like I know you well because you read it as well yourself, which was lovely. A lot of people don't, you know. It was really fun. It was really fun. Yeah. And also, you know, when you read your own book, you get to this and you think, oh, that's really interesting. That's clever. I sound great. I'm so interesting. Yeah. People wouldn't listen to like listening to me read a book for three hours I don't think but in the book so I'm I'm an index fund investor in the main and you address some really interesting problems and questions and that's kind of what we're going to get into today and talk about investing I want you to pull apart my investing strategy like you nearly did a minute ago as well but so you asked the question of who which people or stakeholders really affect the behavior of businesses yeah in in the book can you just kind of explain your thought processes around that a bit?

2:25Yeah, well, if we start right back at the beginning, the key thing is the company and the nature of the company and how the global economy and all our domestic economies are made up of companies. They're the building blocks of our economies. And lots of them are very small, of course, but then you have the very big listed companies. And if they're listed on a stock exchange and they have shares, people own those shares and every share comes with a vote. So technically, if you own shares, you should be able to vote. And if you own lots of shares, you should be able to affect the way that a company is run.

2:56And the wonderful thing about today is that almost everybody in work is an equity owner. And this is something that most people don't know, but I'm sure you've talked about on this podcast before, which is that, to go back to the 1960s, for example, only around 3 % of people in the UK would have owned shares. They owned lots of shares and they owned them individually, and they were probably able to go to AGMs and have some kind of influence over the way a company was run. Very small number of them. Today, if you're in work, you are almost certainly an owner of shares in the companies that are the building blocks of our economy because you have them through your auto-enrollment pension.

3:33You may not know that that's what your pension is, but it definitely gives you a stake in a variety of companies, not just in the UK, but globally as well. However, despite the fact that you have ownership in shares or what you perceive as ownership, you don't tend to have the power that comes with that ownership. So only a very small number of people who own shares in the UK, about 13 % of people, about 13 % of shares in the UK are owned individually by people who hold just the shares in that company. The rest are held via big funds, so by a pension fund or an asset manager of some kind. So you don't own the shares, you own a unit in a fund that owns the shares.

4:16And therefore, your vote, or should be your vote, is held by the fund manager. And he's the one who has all the power. So capitalism or corporate capitalism has been through several different stages over the years. And we used to worry about something we called managerial capitalism, where we used to worry that companies were far too much controlled by their CEO, because share ownership was quite dispersed, and it was difficult for equity owners to get together to have the power to change the way a company was run. And we would say, well, this is awful. This is awful. These big companies are controlled, effectively owned, if not actually owned, by one man.

4:55And this is terrible. He has too much power. But today, if a big fund manager, and there are a couple of huge fund managers in the world, if they have all your votes and they own stakes in all the companies around the world, suddenly you're not one man has control of one company, you have one man, i.e. the CEO of a huge fund management company, controlling thousands of companies effectively. And that's a very bad dynamic if we want to live in a world where everyone is able to participate in corporate capitalism. But how realistic is participation when you have a highly diversified portfolio? Like I've got 3 ,000 companies within a global index maybe, spread across however many countries, 65 % of it's American.

5:36So probably, and 70 % of that portfolio is probably held within the S &P 500. But even that alone, the S &P 500, what are you going to do there? Are you going to vote on? No, you're not. You're not. I mean, no individual is going to vote 17 ,000 times a year. However many times that would be. It's just not going to happen. But there are lots of different elements to this, right? So for example, the really big fund managers in the world, so BlackRock and Dirt State Street, Vanguard, this kind of thing, they have this huge level of control across the board. But lots of other institutions, smaller fund managers have their money with those big fund managers, right?

6:11So a pension fund may hold a big BlackRock fund and a Van Gogh fund and that kind of thing. And those smaller asset managers may say, well, it's part of my duty to steward my client's assets as well. So perhaps people who have pension money with that pension fund, for example. And so I need to have some say over how BlackRock vote. So you have institution to institution where one institution might be able to do all those votes that you and I might not. Or even if they're not wanting to do every single vote, they may want the main manager to have some sense of how they would vote and have some sense of the power of using their proxy votes relative to how much of a fund that they hold.

6:53So that's one thing between institution to institution. But it's also possible for the individual investor, while it's not possible for us, as I say, to vote 17 ,000 times, and most of us aren't maybe that interested in who is the accountant for any particular firm. Because lots of votes at AGMs are this kind of thing. Do you approve of the accountant? Do you approve of the buyback policy? Do you approve of a variety of complicated things that most people neither care about or approve or disapprove of? But then there are other things that a lot of people might feel like they want to have some say over, like, for example, remuneration policy.

7:24How irritating it is that CEOs can go and run a company for five years and enough money to transform their family fortunes for many, many generations. Really irritating, right? That's the kind of thing that ordinary people might feel like they want to have something to say over. And things like strategy. So say, for example, you hold shares in an oil company. And do you want them to turn into a renewable energy company? Or would you like them to just keep pumping the oil and rolling out the cash and dividends for you? This is the kind of thing where people might feel that they would like to have a say.

7:54And even a decade ago, two decades ago, possibly even five years ago, the technology didn't exist for you to be able to have a pass-through vote on things like that. But now, of course, it does. It's perfectly easy for your public manager to ask you how you feel about various issues. And there are some companies beginning to grow. There's one in the UK, Tumalo, which is really interesting, that works with big fund managers such that an ordinary person who has a pension and has discovered that that pension involves holding shares can go to the website of the fund manager, look at what is inside their pension.

8:30And you're right, sometimes you're talking 3 ,000 shares and this is very difficult, but they can look at the companies that are inside the fund. They can look at what those companies do. They can look at votes coming up and they can express an opinion on how they might or might not vote were they to have a vote. And that vote at the moment isn't necessarily binding to the fund manager, but it certainly alert them to what it is that an ordinary investor might want. So, sorry, what kind of things can you vote on? So like if you care about sustainability or like the company doing charity work, like what are the kind of criteria that most people would be, that you would be able to vote on?

9:08Well, anyone, you can put up a resolution, right? So there are, you can, you can say what it is that you want the vote to be on if you can get a resolution accepted as an AGM. So the base stuff is the boring stuff, you know, approving, it's not boring, approving pay, but that kind of thing is in there. And then as I say, there's the accounts, there's who is elected to the board and all this kind of thing. And who is elected to the board is actually really interesting because one way that ordinary investors can protest if they're like, well, I don't really like the strategy of this company and I'm not interested in the way this is developing and I feel that the directors are not doing a good job.

9:41One thing you can do to make your position very, very clear is vote against the directors, which obviously makes them think very carefully about what they might or might not do. In the old days, a lot of people went to AGMs. So when people held their shares individually, they knew they held them and they'd actively chosen to buy into a company, you would get these big AGMs where lots of retail investors would go and they would make a big fuss about things. And there was a talk about in the book about some brothers, the Gilbert brothers, who are American investors who held stakes in thousands of companies and they would go around to every single AGM, objecting, protesting, giving advice.

10:21And one of them, one of the Gilberts took a clown horn. You've read the book. I actually read it. A clown horn with him everywhere he went. And whenever a CEO said something stupid, he would honk his horn. And you don't get that kind of spectacle at AGMs anymore, but it'd be really great if you did. So the one thing that I pick out of that is the ownership point and the fact that these people were invested, not just money-wise, but they were invested in the business from a, they knew about the business. And again, with many investors now, I don't think they have that level of understanding or even impetus to want to be involved in the decision.

10:57And I kind of liken it to say a referendum on if a country should leave Europe or not. Should people that are just broadly invested across a market to try and capture the value of that market, should they be having a say in how the business is run? I'm just playing devil's advocate here so the audience don't. I'd quite like to come back to the referendum Maybe they're more than that. But do you understand what I mean? I do absolutely understand what you mean. You're saying a CEO is employed in a business because they're very capable, you would hope. Should someone off the street be able to say, I don't think the business should go in that direction?

11:25Should we be able to vote in political elections? Yeah. I mean, it's the same thing, right? You could say, well, most people don't know anything about politics or global economics or anything like that. So why should they be able to vote? Why should their opinions count? Shareholder democracy is exactly the same. You know, we don't vote on every single decision that our politicians make, although maybe life would be better if we did, but we don't. We vote for a general sense of direction. And possibly the future when it comes to shareholder democracy is the same thing, to vote for a general sense of direction.

11:54You know, I would prefer it if the company went in this direction. I would prefer it if the company went in that direction. I would prefer it if the CEO wasn't paid$30 million. I would prefer it if the CEO's bonus was not based on ESG metrics, but based on how much money he actually makes. this kind of thing. So it's much more, I think, in the end, we're exploring shareholder democracy at the moment. There's lots of different companies looking at it, lots of different politicians looking at it, thinking, how can we not reimagine, that's the wrong word, but re-engage with shareholder capitalism to make people feel like they are part of the corporate world?

12:31And this is, if we go back to Margaret Thatcher, I don't know whether your audience approves of Mrs. Thatcher in one way or another, but one of the things that she was very keen to do was to create a shareholder culture where people understood that they held shares in big companies in the UK, and therefore they were a part of the economy. They were involved and engaged with the economy, not left behind. And one of the things that I'm very uncomfortable about in the way that people engage with the equity market at the moment is that they don't engage with the equity market. passive, being a passive investor is okay, as long as you understand what you're doing and you understand what you own.

13:11So if you look at, if you do surveys of people on how they feel about big companies, mostly people don't like big companies. Mostly they feel big companies have too much power. There's a very much a shift, particularly among the young to thinking that socialism would be a better system than capitalism, although we have many, many, many decades of evidence that show us that that's a really, really bad idea. And there is a sense, or my sense anyway, is that if people really understood that via their pensions, via their ISIS, they're owners of, connected to, and have some power over the corporate world, I feel that we would feel slightly less powerless in the face of our big companies.

13:50Do you think it's a bit like with taxes, like trying to get Starbucks to pay the right tax? Do you not think that all the big companies and they're going to kind of fight against shareholders like voting because they don't want to retain as much power as possible? So do you think they would kind of kick against this idea? Probably, yeah. I mean, everyone wants power, right? But at the moment, remember that the big listed companies around the world are answerable to the big fund managers. So if you have three or four big fund managers that effectively control the world's companies, because they do, if you're the CEO of a company, you have to respond to them.

14:30So you already have to respond to your shareholders. At the moment, you're just responding to a couple of very big, powerful men. So who do you want to respond to would you like to respond to the ordinary person or would you like to respond to those people i assume they want to respond to the big people because they can go for coffee with them go for golf the same guy yeah exactly they're all friends so they can all go for drinks and you know drink champagne and give each other big bonuses so yeah i think they'd rather keep it in the boys club than i think me every tom dick and harry saying this is what i think we should do with the company this is direction it should go in i think you're probably right um but that is why it's beholden on us to keep pushing for this.

15:08You know, I mean, our politicians would be very keen to get rid of elections, don't you think? Yeah, probably, yeah. Everybody would like to contain the power and do things their own way. And I'm sure that the CEOs of big companies all feel that they know best, but we have plenty of evidence to suggest that maybe they don't. And we have plenty of evidence to suggest that maybe our big fund managers don't know best. Do you think shareholder influence is bigger or consumer influence? And what I mean by that is, so Vanguard is an example of a big fund manager that you mentioned, they're one of the biggest owners of pretty much every business on the planet.

15:39And I think some of their stakes are like 10 % to 15%. So they've got a big vote there. But a lot of the ESG principles that they fed in have really been led by consumer demand to have those kinds of products, plus the greenwashing and the amount of money they can make off them. But I've seen a rise in people wanting ethical investing. And then I've seen companies like Vanguard go into boards and go, you need to clean up so that we can put you in these funds. Do you see that as a form of vote in a sense? Absolutely. Yeah, I mean, that's a very clear, it's not the same kind of vote that we're talking about, it's not using the vote per share.

16:13But if clients, consumers are specifically asking fund managers to create particular types of funds, then yes, that consumer demand is effectively a vote for a certain kind of behaviour. Although I'm not 100 % convinced that most people who put their money into ethical funds, sustainable funds, green funds, ESG funds, whatever you like to call them. There's a huge variety of naming, but it's all the same thing. I'm not sure that in the main, they necessarily understand what that means. You know, we've been told for a very long time now that you can do good and make money at the same time, that you can invest in an ESG fund and you will outperform.

16:48And we've been told that as though it's absolute fact, but there's absolutely no evidence for it whatsoever. And what is ethical? Exactly. What is ethical? Whose ethics? And when we talk about ESG, we're talking about environmental, social, and governance. and these things can conflict with each other. They can conflict with each other very, very strongly. And I've been writing about this for some time, but it was thrown into very sharp relief at the beginning of the war in Ukraine when most of the big companies that have ESG funds, ethical funds, sustainable funds, whatever, they all say they wouldn't invest in defense.

17:16Never invest in defense because defense is filthy, dirty, nasty, hurts people. Bombs are terrible, et cetera. And of course they are. But if you have an underdog, if you have one country that has invaded another country, do they have a right to defense? Absolutely. And if they have a right to defense, then is defense a social good? Absolutely. So, where do you go with that? It's ethical to support them in their defense at that point. Like you're saying. Well, one would think so. We can argue about this kind of thing, but there's definitely a big gray area there. And it's the same, of course, with fossil fuels, for example.

17:45Now, you may say, no one with an ESG metric of any kind could possibly conceivably invest in fossil fuels. But what is our entire standard of living based on? Fossil fuels. And so, So is it ethically sound to disinvest from the industry that supports our living standards? No. Yeah. Yeah. And you would just destroy life as it is at the minute. Absolutely. You know, if fossil fuels were to disappear overnight, we would all disappear overnight as well. So where's the S there? Who wins there? The E and the S are in absolute conflict with each other. And in that particular example, I think we might agree that the S should win.

18:27Yeah. And they're also the businesses that are likely to have the resources to fund the green projects, aren't they? Absolutely. It's not going to be a startup. It's going to be the guys with 100 billion in the ground. And these are the things that are very important. And these are the things that it would be possible for people with a type of look through voting to express an opinion on. In terms of the voting, one thing that shocked me when reading your book was this idea of like proxy voting. And even you talk about the fact that I'm offloading my voting rights for a fund manager. They might then go, I'm offloading those rights again.

19:00Can you just talk us through this? So there are, we discussed earlier, there are thousands and thousands and thousands of votes and lots of the fund management companies, they have their own stewardship divisions, they have their ESG divisions, their voting divisions, et cetera. You'd think they'd be totally on top of this and they wouldn't need any external help. But actually, there are these proxy agencies that suggest how you should vote, that will tell you how to vote. So you can do all this work yourself or not do it. And then you go to an agency anyway, and they tell you how you should vote on everything.

19:30So it's a huge business and they have a phenomenal amount of power as well. We talked earlier about how the big fund managers have power, but to a large degree, these proxy agencies also have a huge amount of power, and that's even less understood and less known about. Yeah, because who's controlling them, who's influencing them. And they might be advising three big companies that control 30 % of the vote and then everyone goes, oh, well, we'll just go with that. No, we'll just do what they said because they've done the work. Yeah. Absolutely. Practically then. So, you know, say you do a risk profile when you sign up to a company, like a financial advisor would do a risk profile.

20:02Could you do like a voting profile then or something? Is that how you would view it? You should be running this stuff. That's exactly how you do it. It's exactly how you do it. I mean, the risk profile business is kind of nonsense. Yeah, I think it's nonsense. Everybody wants exactly the same thing. Everybody wants to not lose any money and make more money. There's people who put down seven or five or whatever that thing is when they do it. Almost nobody ticks the top risk and thinking they're going to lose money. They think they're going to... Do you? A little bit. I've got a big appetite for risky investments.

20:34Plus what's a seven out of seven, right? Seven out of seven to me is running naked down the wrong way of the motorway. But they're saying that a broad index fund that's 100 % equity, so seven out of seven. So I think the risk profile is a bit off in terms of, because people associate maximum risk with maximum risk, not funds, but anyway. Yeah, anyway, so that's all nonsense. But yes, you're absolutely right. That kind of thing at the beginning, an introductory survey that introduced you to all the concepts, asked you for broad ideas, and then that could either be where you stop, or if you're very engaged or have become very engaged by that little bit of learning, then there's the website on your pension fund managers, the bit on your pension fund managers website that you can come to any time to look at the votes that are coming up at any AGMs and say, well, actually, you know, that's where I'd like to express my opinion firmly.

21:24Why don't all these institutions offer that? The only time I've seen some sort of education is in, funnily enough, crypto, when you try and do leverage trading. So you can do normal investing. If you want to trade with leverage. Thank God. They make you do like a little... Charger is a seminar. But they make you do like a little quiz to answer, do you understand the risks? Do you understand what leverage is? Do you understand how crypto works? Because it's so high risk, you can make loads, but you could also lose everything and lose more than in your account. So why isn't this just the norm? Or is it because they want to take advantage of investors or they're just not responsible?

22:00I genuinely think that no one's really thought about it. No one's really thought about it. I remember that until relatively recently, Most investors, as I said, back in the 60s, you only had a small number of people who were direct investors. So most people weren't engaged with individual shares. And now, of course, there's an assumption that your money is being carefully stewarded by the fund managers. And so you don't need to worry about it. And that's true to a certain degree. A fund manager is someone who will take all the load off you, do all the hard work, figure it out for you. You don't have to sit there and look at company balance sheets and worry about accountants and worry about profit and loss and margins and EBITDA and all that kind of nonsense.

22:37Someone else is doing it all for you, making the decision. And in the main, they do it adequately. Adequately. And there are very few fund managers who lose all your money. They mostly underperform by a tiny little bit, but very few of them do a really, really lousy job. So the stewardship is kind of fine. So you could say there's no problem here. But the problem, as I perceive it, is the lack of engagement. And that's a threat to capitalism as a whole. and when, you know, capitalism is rather a wonderful thing. I was going to say you're a big fan of capitalism. You're a big fan of capitalism.

23:05You mentioned it, yeah. Well, how do you define, I think you said old capitalism and new capitalism. Is that right? There are lots of different stages of capitalism. But the key thing to remember about capitalism is it is our natural human state. And anything else that we try and do, any other system we try and put in place is trying to overrule the way we really are. You know, we're self-improvers, right? We're accumulators. We're workers. We're always trying to better ourselves. It's a natural human condition to try and better things for yourself and your family. And that's the underpinning of capitalism.

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23:34I like how in your book you pointed out that capitalism did well during the COVID. During the pandemic, it was the politics that failed, basically. Absolutely. It was only toilet roll that we'd nearly ran out of. Yeah, we ran out of toilet roll briefly. And there was a brief period when you couldn't get the shape of pasta that you wanted. Remember that? Yeah. Really distressing if you have kids, right? We had to eat the penis pasta that someone got us from Amsterdam like four years before. Did you? Yeah, yeah. Well, finally cleared out your covers. I was looking for an excuse. But other than that, I mean, it was astonishing how the corporate world clicked into action and how logistics stepped up to the plate and how everything just appeared on your doorstep.

24:08It was crazy. For the likes of us, things appeared on your doorstep. Let's not forget there was someone coming to your doorstep with the things, right? But it was, and the way that corporates shifted to making different things, to moving into different areas. It was an absolutely brilliant example of how capitalism works very well. was also, interestingly, a very good example of how stock markets work well. Because one of the things that I talk about in the book at length is how irritating it is that the number of listed companies has fallen over the last couple of decades because, you know, I believe that...

24:37Private equity has become a great public market destroy machine. I love it. I love this. That was great. But one of the things that happened during the pandemic was that companies found out how brilliant it is to be listed because you can turn to your shareholders and say, well, I really need some more money. And shareholders will come up with the goods much quicker, much easier than trying to raise money on the debt markets in a very difficult time. So stock markets came into their own then. You saw companies raising money, lots of secondary issues, and you saw young people coming into the markets to start participating in them.

25:13So one of the rare silver linings of the pandemic was this confluence of new listings, secondary offerings, and new investors coming into the market. And you suddenly saw the stock market working like it's supposed to work. That's great. One thing that I did see throughout that period though was what I perceived as smart money offloading on to new investors. The SPACs, there was a lot of like special... Sorry, you might not know what that is. What is a SPAC? Is it a special purpose acquisition company? That's the one. It's a way to kind of get a company to market without going through all of the rigor of...

25:53So a normal IPO has to pass through banks and they'll look at it and the Airbnb... What was it? WeWork was an example where it didn't pass those checks, but then they came to market with a SPAC. It's a backdoor way of getting to the market in a simple way. Basically a cash shell, stick cash in it and then you buy something. Yeah. So the cash shell is already listed on the market and then they buy a company. so it gets in and you buy shares for like$10. But what you find is that those types of ways of getting to the market, normally they become very prevalent when the market's very frothy and a bubble, right?

26:27That and a lot of the IPOs that I saw, which is what you were saying really about private equity, it seems more like they've taken all the value and they're just dumping it on the market to cash out. And they're taking these businesses that make no money, no profit and they're just dumping them on retail investors. Yeah. Well, there was a lot of that. The SPACs were interesting because you didn't even have to buy anything. So, some SPACs just had a pile of cash in them. Because the manager was Chamath or someone like this. We had this back in 1999, 2000 as well. You had cash shelves. People say, well, I'm going to get a lot of cash into a company in the market and then we'll buy something at some point soon.

27:06You had exactly the same thing. It's very, very bubble behavior. Yeah. And the private equity thing is, it's been disappointing, basically. I'm a great believer, as I said, in listed markets. And over the last decade or so, what you've seen is lots of companies never coming to market because they don't need to, because they can get all the cash they want from private equity and they can remain off market. And to a large degree, that's meant that a lot of the growth in the corporate world has not been listed growth. And if growth is not listed, if companies aren't listed, then we can't participate in their growth.

27:39We don't get it. We don't get it. I mean, obviously you can buy into a private equity fund, you can buy into a private equity investment trust, et cetera, but it's not quite the same thing and it doesn't provide the same degree of democracy and fees are very high, et cetera. So we'd much prefer companies to list and grow well listed, which is what used to happen. You know, they'd come to market when they needed money and then everyone would participate in the growth, Amazon being the absolute classic listed very early in its evolution. And then since then you've seen companies coming to market only when they've finished their great growth period.

28:09So then A, they don't need to raise money from us. So they're not that interested in what we think about them because they're already growing, already out of the woods cash-wise. And B, the growth bit is gone. So we don't participate in that. It's been a big problem, but it's also one that may be self-correcting. It's a wonderful thing about capitalism. It's incredibly self-correcting. It takes itself to extremes and then it pulls itself together. And private equity is in part a dynamic of incredibly low interest rates. We've been to a 40-year period when interest rates have consistently fallen, fallen, fallen, fallen down to the ridiculous levels that we saw in the pandemic.

28:43When money is free, private equity does really, really well because a lot of it is just about borrowing money cheaply and a little financial engineering, et cetera, and pretending that you're really good at managing companies. Oh, look at us. We're so good at this stuff. Are you really or did you just get to borrow money really, really cheaply? Now, as the price of money goes up, that magic trick becomes much harder to pull off. And so we may see companies beginning to come back to market at a lower stage in their growth. I really hope so anyway. Yeah, because we saw Silicon Valley Bank and the collapse there.

29:12And then we've seen a lot of stuff come out from the VC world that just made them look like idiots. Like the backing of FTX and like how they just bought into his. Maybe they are idiots. Well, it's kind of like. Some of them. Yeah, it's kind of like we saw behind the curtain, you know, like the Wizard of Oz. and they had this like mythical status of, oh, these guys are making billions. But then actually you see some of the memos that come out of business meetings and you're like, you guys are just idiots. Well, maybe idiots is the wrong word. Yeah, sorry, not professional. No, understanding the way bubbles work that when you get to a certain point of a bubble, you know, as Chuck Prince said, you know, you keep dancing until the music stops, right?

29:52And no one knows when the music is going to stop, but you don't want to get out too early. So there comes a point when it makes sense to pour money into rubbish and then try and flip it before the music stops. Right. That makes sense. Especially because their model, actually, they're buying a business. It doesn't make any money, but they get to dump it on the open market and they get a load of money. So actually the model is successful for them. Yeah, or they can sell to some other private equity guy who's the greater fool theory. He just keep going and going and going and going. And when interest rates are very low, the idea that a company isn't making you any money, the company doesn't really matter because it's all about jam, tomorrow, jam, tomorrow, jam, tomorrow.

30:27It's only when interest rates go up that suddenly you want your jam today. Because if you can get 5 % in a bank account, a nice deposit account, why on earth would you want to buy something that isn't going to make you money for 20 years? And possibly never. So the dynamics of the whole thing change incredibly quickly. And that's what we're seeing at the moment. And we don't know. I mean, I don't know if we want to move on to this kind of thing, but we don't know where the consequences of very low interest rates will throw themselves up. We definitely want to talk about this. Just at the beginning of this, we've been through an extraordinary period where low interest rates, as one of my guests said the other day, you know, low interest rates, they get into all the cracks.

31:02They get into all the cracks. And then when interest rates go up, and so the stuff in the cracks expands, we don't know what's going to break. We don't know where. We have a vague feeling that something will break. We don't quite know what. So we're slightly on tenderhooks thinking what's going to happen next. We know that it probably isn't possible to go from a period of interest rates at zero or negative to a period in which interest rates go back to historical norms and get away with it. I used to take, when I gave talks, I used to take a chart of interest rates going back over a couple of thousand years, which the Bank of England produced.

31:34Fantastic chart that showed interest rates, you know, wobbling around the place for thousands of years and then dropping down to almost zero and staying down there at almost zero for however long it was. And I would take this chart and I'd hold it up and I'd say, this is the most dangerous chart in the world. And then, of course, I realized when interest rates started to go up, I realized that That was absolutely not the most dangerous chart in the world. Because as long as interest rates were incredibly low like that, then, you know, maybe nothing bad would happen because you have free money all over the place.

32:02What was really dangerous was when they started to go up again. That's the really dangerous moment. And that's where we are. And we don't really know what's going to happen. So kind of exciting for podcasters. Yeah, go for content. Go for content. But bad stuff may happen. Last time we recorded, Tamay, and you were having some real dramas with your accountant. So how's that been going, mate? They're sacked. So drama sorted. They're a big corporate firm. They didn't really reply to my emails very quickly, like took a week or two at times. And they charged me way too much. I mean, I've got pretty simple taxes and yeah, they were charging me thousands.

32:37They saved me some money, but yeah, I had to move on. Slow and expensive. Pretty much, yeah. This is one of the reasons that we're really happy to be partnering with TaxApp. It's a tech platform that makes self-assessment simple. Whether you're self-employed like me, a freelancer or a director like Demo, big dog. Instead of sending endless emails, bills and spreadsheets to your accountant, you just connect your bank, answer a few questions that are only relevant to you, and your tax return can be ready in as little as 15 minutes. TaxApp is really easy to use and it's HMRC recognised software, so it's safe, secure and legit.

33:07The price is also decent, so if you're self-employed with one income stream, it's just£89 as a one-off fee, no big accountancy fees, and we also have a discount code, of course. If you need to file a self-assessment this year, give TaxApp a try. We've left a link in the description and use the code MONEY10 for 10 % off your first tax filing. That code is MONEY, M-O-N-E-Y 1-0. So Mr. O 'Carolet, I hear you are a salesman. Elite salesman, yes. One of the best, they say? I've got a little bit of experience in the game, yeah, I could say. Done a few deals. A bill, a bill. What would your compliance team say about you?

33:44They will say that I am always nagging them and that essentially I just have beef with compliance. I love the team. Compliance slows down all my deals because every time I get to the finish line, they've got to check documents, KYC, GDPR, and it's just a nightmare. It slows the deal down by like two, three weeks. It's always on both sides as well, isn't it? Sometimes it can be blocked on the other side. Well, that's where today's sponsor can help. Indeed. Vanta helps companies of all sizes get secure and compliant fast and they stay that way. They do it by automating compliance with over 35 security and privacy frameworks like SOC 2, ISO 27001 and HIPAA.

34:21Yeah, all of them. And this saves businesses so much time and money. According to a recent IDC study, Vanta customers save over half a million dollars a year in costs. Not bad. And they also help you complete security questionnaires up to five times faster, which is great because everybody hates filling out forms. If you're a business that needs to prove security and compliance, visit Vanta.com forward slash making money to sign up for a completely free demo today. That's Vanta.com forward slash making money. There's a link in the description though, so you can just click that. Well, we see it, say, if we just look at the housing market, which is a relatable example, it takes time to feed through, doesn't it?

34:59It does. I mean, they always said that, you say in academic stuff, that an interest rate rise would take a year to 18 months to feed through to an economy. But it takes longer now because the housing market is a classic example. So many people are on fixed rates and quite right too. And anyone who didn't manage to fix their rate at 1 % or 2 % during the great low interest period, very bad luck for them. So it takes longer and longer because you've got these five-year things and two-year things. And people roll off bit by bit by bit. And you can see in the housing market that it's slightly frozen.

35:28Transactions are massively down because no one knows quite what to do. But there aren't as many forced sellers as you might expect in a very fast interest rate rising period because of the fixes. And you see it in the corporate world as well, because, you know, company managers aren't stupid. You can see that interest rates were far too low. So everyone lops their debt in for longer than they might have in the past. So, again, we don't quite know when the crisis is going to hit individual companies. And then on the other hand, you have companies that are doing incredibly well. very, very big tech companies in the US, for example, they have piles of cash, which they're now getting four or five plus percent.

36:02So that's a bonus for them. So it's complicated, but interesting. And you're right, the housing market is one of the places you see it. And loss making companies, the growth companies, disappearance of the SPACs, et cetera. You can see it in those obvious places, but there will be non-obvious places. Yeah. You get like a Wilco collapse, which might've been predictable because you're like, that's clearly a business hanging on by thread anyway. But what do you think might happen? I don't want to put you on the spot, but do you have any non-obvious predictions of where that you might see the cracks?

36:32Well, I mean, if you look back to what happened during the trust government, very brief trust government, that came out of the blue. That was entirely unexpected. No one really quite understood the interaction between gilts and pension funds. So that was completely bemusing for almost everybody. Almost everybody. So that's an unknown unknown, unpredictable. predictable. But what you're more likely to see is just a sort of slow rise in defaults and the resetting of capital allocations. We've been through a period where capital has been horribly misallocated. We've talked about SPACs and talk about companies that make no money, who shouldn't have received money, et cetera.

37:08So what we will see is a correction of that as capital begins to be more efficiently allocated, which, by the way, is a great thing. It's a great thing. It's painful. It's painful. But only by allocating capital correctly can we bump up productivity and reset our economy and get real wages up and all that kind of thing. Do you think then that the current resilience in the market will be short-lived? Oh, yes. That's what I like to hear. I mean - You want to buy the dip. I want to buy the dip. I always want to buy the dip. You always want to buy the dip. I love the dip. 7-7 guy. I love the dip. 7-7.

37:42The UK market is cheap. Yes. So that's not quite so much something to worry about. We're cheap on every single level. trading at a discount to every single market out there. And that's even when you take account of the differences in the makeup of our market, say the American market, lower tech, more resources, et cetera, slightly older companies. Even so, we're trading on a fairly intense discount. And that's particularly the case with medium and smaller companies. So I think you can probably, and not financial advice, by the way, but you're much safer buying cheap companies at a time like this.

38:12If you're buying for the long term and you want to be safe, then you want to buy something that is already not overpriced. It's much more risky to buy into expensive markets with the US being the classic. Although if you take out the big seven, take out the very expensive tech companies from the US, it's not nearly as expensive as it looks on the face of it. But it's pretty expensive relative to history. So that's a much more dangerous place to be if you're expecting nasty stuff to happen. And I think that there is a risk at the moment where everybody believes that interest rates are going to start coming down quite quick.

38:44There's now a consensus opinion that the inflation scare is over, that the central banks have sorted all this out, which is very bizarre, by the way, given that they didn't seem to have any idea that inflation was going to go up, didn't seem to have any idea that that was going to happen. And we now think that they've done a brilliant job in bringing it down. And it's all over because they're so clever. It's amazing how we can sort of shift from opinion, isn't it? So I wouldn't be too confident in that. Once you get inflation up to particularly high levels, it tends to be very volatile afterwards.

39:10We had one guest who I spoke to about this, who'd done research that showed that once inflation goes over 8 % in a developed economy, it takes an average of 14 years, 14 years, not one and a half, 14 years to bring it back to target. Jesus Christ. And it tends to become extremely volatile. So it is entirely possible, everything is possible, it is entirely possible that we've been through a period of very high inflation, that it was entirely transitory, that it's now nearly over, and then we'll go back to having inflation knocking around 2 % forever from here. Possible, but based on history, fairly unlikely.

39:44So I think you have to expect as your base case that over the next couple of years, at least, inflation will be higher than we've been used to and more volatile than we've been used to. And that's not good for markets. Markets like low, steady inflation. And do you think that's on the core numbers? So the domestic-based inflation instead of, say, the more volatile stuff, which is food and energy, which was the main driver. Because a lot of the fixing has really just been external factors in the UK that have declined again. Food and energy, which is not really central bank policy, is it? No, no, no.

40:17And that was the case on the way up and the case on the way down. And our politicians can tell us that they've done an excellent job in halving inflation. But of course, as you say, this is mainly global stuff. But food and energy prices should be more likely to be volatile now than they have been in the past. And this is partly to do with our energy transition. Of course, we're trying to do something incredibly expensive and very unusual. We're trying to make a transition from an incredibly dense and efficient form of energy to a not particularly dense and not particularly efficient intermittent source of energy.

40:48And that's expensive. It's expensive globally. Yeah, 50 billion a year, I think, was the forecast that we'd need just for the net zero, leading from now until 2050. They talk about efficiencies on the other side, but we've still got to find that money. And our politicians are very keen on talking about the transition, the energy transition as being a growth opportunity. But it's actually a cost. Yeah. It's a big cost. Certainly for the first 10 years, it will be a big cost. Maybe forever. We're giving ourselves a more expensive and less reliable form of energy. That's expensive, volatile, erratic, and comes with all kinds of difficulties.

41:24So I don't think you can expect energy prices to fall back and just stay steady. No. That's not how it's going to work. No. So off camera a minute ago, we spoke about my investing. And I said I was a global index investor. And he said, we need to talk about that. So I think I want to talk about that because I'd like you to pull me apart. No, I'm not going to pull you apart. I mean, you're absolutely right. It's a great way to invest. And it's been a great way to invest for a couple of decades. And it's cheap. And that's the key thing. Because we always say that when you look at your investments, you don't know anything except for the price.

41:54Yeah, you can't control the fees. It's the only thing you control. Everything else is totally unknowable. and the fund management industry has this extraordinary thing going on where it's literally only them and the government who can take money out of your pot at will. You know, you pay a lot of stuff in direct debit, but that's from your own bank account, etc. That's your pot that you control. Only the government can reach into money and take their share out before they give it to you and the fund management industry is the same. So what I mean by that is the government can just reach into your pay packet and take out whatever taxes it designates on any given day and a fund manager, the fee changes depending on the value of the assets under management and that kind of thing.

42:35But their pot rests with them and they can just take out the money again, as and when. And these are the only two organizations that I can think of that get to reach into your pot to take out differing amounts of money, regardless of your permission on any given day. So they have a huge responsibility there. Back to fees. Yes, that's the key thing, that it's cheap. However, index investing is also momentum investing. Yeah. Right? So what you're doing is something goes up in price, you earn more of it. Goes up in price more, you earn more of it. It's market cap related. So you do well when market's going up.

43:11That works very well. But in this environment where everything is a little more choppy, I'd be more minded to have an equal weight index. So where every company inside it, you hold it at an equal weight, which means it's constantly being rebalanced. So just to explain to you, Apple is a large proportion of the global market, maybe 5%. Apple's actually bigger than the whole of the UK weighting in my portfolio because the UK is 4%. So 5p in every pound gets invested into Apple. If Apple goes up to 6p, like 6 % of the global economy, more of my money goes in. So I'm pouring more money into what might be an expensive business.

43:46So they should all be the same weighting. Yeah. Yeah. So, and we used to do an investment trust portfolio for our readers and it had a trust like a Scottish mortgage in it, which is a huge growth trust, right? And then it had things like personal assets trust, which is very based on trying to protect your capital and RIT, which again is not quite the same thing. And we told our readers every six months, a Scottish mortgage soared and soared and soared and soared and soared during the last decade. We kept saying to them, you have to rebalance every six months. You've got to keep this equal weight.

44:22So sell some of your Scottish mortgage and buy some of the personal assets or Caledonia or whatever the others were at the time. And when Scottish mortgages as interest rates started to rise and inflation started to come and the great growth bubble started to collapse and shares in Scottish mortgage plummeted, I looked at it and I thought, if they'd done what I told them to do, they'd be in absolutely great shape because they've captured an awful lot of the bubble But over time, they'd have transferred the bubble money into more capital protection funds and it would have been great. But of course, none of them did because it was almost impossible to give up the excitement of the constant rises in the share price of Scottish mortgage shares.

45:02It was really tough to do to say, God, look, that is going up, you know, 20 % a month and she's making me sell it. So do you think this is just an approach for times of volatility and uncertainty or at all times you should balance your portfolio? I think you should rebalance a lot. I mean, people, there's an argument here in the market about whether you should run your winners or whether you should rebalance. And the thing about running your winners is you never know when they're not gonna be winners anymore. So I'm a keen rebalancer. How are you rebalancing if you've got, say, a global index fund though, which is just a one fund that buys the whole market?

45:37Yeah. You're not, you're screwed. You're screwed. Tough, isn't it? You're dumb, Demo. So you don't need to give us specifics, but how are you structuring your portfolio then in terms of holdings? Well, I don't look after a lot of my own portfolio anymore for the simple reason that I get tied up in all sorts of compliance things. So most of it is contracted out with a wealth manager. I only keep a small part of it to do myself. And that tends to be spread across a group of investment trusts. I'm a very keen investor in investment trust because I like the idea. I'm also director of a couple of investment trusts, by the way.

46:14Actually, only one at the moment. Take that as an interest. I like the fact that they've got independent boards of directors looking after shareholders. It's a job with a board of directors and investment trust to keep a close eye on the interests of shareholders. I like that in it. I like the idea that they have permanent capital. If you invest in an open-ended fund, money comes in, money comes out, money comes in, and money comes out, it's very hard for a fund manager to manage. In an investment trust, they have a set pool of permanent capital, which should make it easier. And long-term, so far, investment trusts, closed-ended funds have outperformed open-ended funds.

46:53So that's a long-term dynamic. Have they outperformed indexes or the market? Would be a better question. Good question. It's a good question. And my guess would be yes, but I would have to check. I have not actually looked at that. Post fees. And it's pre and post fees, but it always has to be post. No one cares about pre. Always has to be post. And again, it depends on sectors. You know, the investment trust market has really opened up over the last five or six years, not much longer. So there's lots of infrastructure funds, private equity funds, et cetera. So it's very hard to say, have they as a whole done this or done that?

47:28Because there's so many different areas within them. You could probably, and you could, and we will do this. Let's do this. look at whether, say, for example, equity income investment trusts have outperformed or underperformed the index. We'll look at that. And one thing that I think is the hardest is stay in the course. When you've got a choice of like fund managers, if we use fund managers as an example, they will underperform and outperform, but maybe over, say, a 20-year period, they provide seller returns. But you find that people dip in and out, don't they? Because Cathie Wood is a prime example.

47:59she produced that insane return over a period. But you find that most of the money came at the end of that return. And because they chased the performance, people tend to chase performance. And then people lost so much money at the end. Yeah. She's a brilliant storyteller. She's fantastic to listen to, but her performance has been absolutely awful. I do like listening to her. She's great to listen to. She waves her hands and talks about innovation and you get suckered in, don't you? You're totally suckered in. You're like, oh yeah, space, amazing. Yeah, space. Netflix is your space business. Yeah.

48:27No, she's great. She's great. Anyway, back to index funds. Again, it depends on the market. So the US market, for example, is very, very hard for stock pickers to outperform. But in markets outside the US, stock pickers have a much better chance. And is that just because it's so well traded and monitored that it's really hard to get an edge? So well researched, so much money in it, very hard to get an edge, exactly. And also because for a long time, it's been driven by a small group of companies. You know, if you're not be in those companies. And if you try and stock pick outside that, or historically, if you tried to stock pick outside that, you will fail.

49:04Yeah. If you've not had the big seven, you failed. Yeah. If you think you're really clever and you can find better companies, you failed. Yeah. Absolutely. Yeah. And there's a lot of active investors in the US where they hang on their face for that very reason. When you say apart from the US, active investors often outperform, do you mean everywhere or like in certain countries. So like for example, the UK or like Spain or France or China. UK, lots of European markets. They outperform. Yeah. Maybe like India as well, which is probably more niche. Yeah, absolutely. You know, somewhere like India, where it's actually quite expensive at the moment, but it has been a great place for the last couple of years.

49:39And there are loads of really, really interesting companies. But it's not like the US where every single one of those companies is hugely researched and well-known. And we're as an analyst on top of every single one. You know, not the same at all. And same in Japan, by the way, where there are lots of amazing companies, huge value, incredibly cheap market, lots of companies doing astonishingly well, but nobody looking at them. Nobody looking at them. So you've seen over the last couple of years, you've seen the few investors who look at Japan very carefully and who understand the smaller companies have been heavily invested in value, have done spectacularly well because nobody else is looking at those companies.

50:15Is that because it's just like a downtrodden market? Is this what you're saying about the UK? Underperformed for so long. Yeah. Underperformed for so long. So many people have left. I used to work in Japan in the early part of my career. I was a stockbroker there. And, you know, since those years, everybody has stopped looking at the smaller companies, stopped looking at some of the mid-sized companies. You only see really good coverage of the very big companies in Japan. Yeah. As you said, we're going into a period of uncertainty. What are some like pros and cons of using a fund manager, I suppose?

50:44Yeah. What are some pros and cons of using a fund manager? Because obviously the fees are like the biggest - They're very downtrodden, aren't they? Amongst our generation, people are like, index, index, index. Yeah, why should I pay someone to manage my money? I'm not a millionaire yet. So like I can manage my assets for now. And even if I was a millionaire, I think I'd probably still have the same, I know you would have the same mentality right now. Why do I want to give 2 % or 1 % to someone else when I can just do it myself? You're traditionally underperforming. Maybe you don't. Yeah.

51:13There's two different things here where, We're confusing or not confusing, but we could confuse wealth managers and fund managers. So, you know, wealth manager, you just give them all your money and say, you choose the funds, you do the stuff. An active fund manager is just someone who runs a fund with lots of stocks in it. So you're not really asking someone else to manage your money. You still have to choose the fund, right? But it's more expensive because it's an active fund. So he has to make active decisions about which shares to buy. Why should you do that? if you think that the market is going to run out of momentum and that the index funds that have served us all so well for so long might no longer outperform.

51:50But actually, there are index funds that can't outperform by definition, but might no longer do better. And there might be a case for having someone in a difficult market who has the skills to choose companies that may do better than others. Now, I've been saying for years that time for the stock picker, the stock picker's back, it's time to get into active funds instead of passive, et cetera. And I've been wrong over and over and over again as the market picks up again and the index funds do incredibly well and the stock pickers mildly underperform. But I do think that the more volatile, the more volatile a market, the more difficult a market, the more likely it is that an active fund manager will outperform for you.

52:28And that's particularly the case outside the US. And you think that interest rate rises could be that catalyst now because that's a big shift in the narrative, isn't it? It's a huge shift in the narrative. It's changed everything. thing it's a very confusing very volatile time um so i do think there is more of a case of having an active fund manager now than there has been for some time but also i've been wrong so many times on this one yeah and where do you think you know stage of life factors into that decision so i think one thing about you know me is i recognize that i've got like 30 years ahead of me and most things get ironed out over those kind of timelines so i'm not too bothered but i can understand that if you plunk me now at 60 with 5 million, I might be like, I want a professional to look after this because I can't have this go south in the next two years.

53:16Yeah, no, that's a very good point. If you're young, you can just have a big diversified portfolio and leave it. And you're right. If something goes horribly wrong, it's normally fixed itself in five, 10 years. Not always, by the way, not always. There've been some enormous crashes, Japan being classic, 1929, et cetera, takes a lot longer than 10 years to fix itself. But in the main, in the main, you get fixed pretty quickly. And where do you see, you made the distinction between an active fund manager and a wealth manager. Can you talk about the role of a wealth manager then and where you see value there?

53:49Well, a wealth manager isn't going to give value to most young people. You need to have a certain amount of money before you go to someone and ask them to just take everything off your hands. almost everybody is investing on a platform where they're choosing a variety of funds. And if you go to most of the platforms, you can get lots of research and they have recommended lists, et cetera, and you can choose a group of funds that will fit your particular criteria. Now, Wealth Manager is a different thing altogether where you don't actually have to do anything. You just write them a check and leave them to it.

54:19And they will allocate your assets for you and work everything out for you. So it's a slightly higher level of asking someone to do the work for you. I mean, that sounds like a nice position to be. Yeah, absolutely. Absolutely. Great. But most wealth managers won't take people on unless they've got, you know, many hundreds of thousands of pounds. I've only just got a clue. That's a different level. But, you know, you can get so much good advice on the platforms now. Well, not necessarily advice, but information on how funds work and how to put a portfolio together, et cetera, that if you're prepared to put in a little bit of effort.

54:55It's enough. I was going to ask, how would you go about, if someone's listening, how would they go about picking an active fund manager? Like what are the criteria you should look for? Well, start with cost, again, because even a good active fund manager shouldn't be particularly expensive. And again, you don't know if they're going to succeed or fail, right? So the first thing to look at is what are they going to cost you? So that's key. But then when you're looking for an active fund manager, you have to make decisions yourself. Which area do you want to be in? Are you investing in particular companies?

55:27Do you want to be in Japan? Do you want to be in Europe? Do you want to be in the UK? Do you want a global fund? Do you want a multi-asset fund? You have to make so many decisions yourself before you start. But once you've made those decisions and you're looking at a particular area, then you want to look at past performance, although there's no guarantee of future performance. But if you can see good performance over more than five years, and that'll help you out a bit, you want to look. I mean, I'm more of a value investor than a growth investor. I always want to see someone investing in something that is cheap, not expensive.

56:00So you want to look at what is their strategy? What is their valuation technique? What are they choosing? How are they choosing it? Do you know what I mean? It's not easy. It's really not easy. And if you're going to choose active funds again, you can't just have one active fund. You have to have a group of active funds so that you are diversified across fund managers. So it becomes difficult. It's something you have to really focus on. And most people, of course, do not focus on what happened. They buy a bit of this and a bit of that, a bit of this and a bit of that. And then they stick it all in their account at Interactive or EJBAL or HagerSantime, whatever it is.

56:35and then they don't look at it again for four years and they come back and I think a lovely surprise that they get a nasty shock. So you do have to keep an eye on it and you have to choose these funds very carefully and you have to look at them every six months and you have to be on top of it. It's almost like valuing a business, isn't it? You know, if you're going to pick an individual company, you need to value the business. You need to value the fund manager in a way. Because I think a lot of people just buy off the front page of HL. That's why the Neil Woodford thing caught so many people.

57:02Don't point at me. I invest in Neil Woodford. I was saying that was how I started investing. Yeah, Neil Woodford Fund. Yeah, that was, I think a lot of people of our age, that's when they kind of got into investing and this guy was held up as the UK's Warren Buffett and platforms like HL were like, this guy's the guy. So you're like, okay, well I'll buy some of that then. He's produced 20 % a year, he'll keep doing that. And you know, I think that burnt a lot of people that were probably new to the space. Yeah, I mean, as a blow up, I say that was relatively unusual. Yeah. You know, obviously it was relatively unusual, It was a big one.

57:34It doesn't happen very often. It doesn't happen very often. But it did happen and it caught a lot of investors. And it was that thing of, I didn't really know what I was doing. So I was buying what I thought was experience. But actually, like you said, you need to do work around that. But even still, there was no way for us to know that he wasn't doing what he was saying. He was buying unlisted, risky businesses. And, you know, lots of very experienced investors were caught up there too. Absolutely they were. And the key thing, of course, is to remember, if you are starting to invest, it's important to remember that you are already an investor.

58:02So you want to go and see where is it that your pension money is invested? Where's that money? What's happening there? I mean, that is the first place to start. See what you have already. Because a lot of that will be actively managed or will have components of active management, won't it? Yeah, absolutely. And also, you can change or a lot of companies will allow you to change the funds that your auto-enrolled pension is in. So that's worth looking at as well. Yeah, just see if you can reduce the fee or you might want to... So, you know, you have stuff to do before you even start investing other money.

58:33Was it that Roman said how many hours did he spend researching? Well, Sasha. Oh, sorry, Sasha. You're Sasha. So many guests. Sasha said he spends 50. Oh, it's like 100 hours of business. He's a stock picker. So he's, you know, he's all in the reports and yeah, but he's like 100 hours of business, a quarter. To pick for one stock. Yeah, yeah. Wow. Well, he's building a bottom of the portfolio. Yeah, models and like, you know, he's discounted cash flow and all of that kind of stuff. Yeah, don't do that. Yeah. He loves it. He loves it. I've got a friend who's the opposite and he just buys stocks because someone told him, oh yeah, this is a good one to buy.

59:05Don't do that either. Don't do that either. But that's what most people do. They're like, oh, Amazon, that's going to be good. Netflix, I'll buy that because I know what it does and the price is going up and Tesla and then they buy over prices because they're not doing their research and things like that. Well, that's why you need the fund manager so he can do all that nonsense for you. So you've obviously, you've been in it a while, this game, You've seen the evolution recently of finfluencers and you mentioned a couple in your book and I liked that. And I was hoping that if you wrote it another 12 months later, you would have said me.

59:36Definitely. Next edition is all about you. Yeah, get me in there. But no, what do you think of this like movement in terms, because one argument is it's just another form of like journalism and they're similar to, you know, you've got, what's his name? Kramer, you know, he's like a finfluencer in a time. Talks a lot about stock. First one. Yeah, exactly. So what do you think of the modern day movement towards, say, social media and stock picking and investing? Well, again, I'm torn on it, basically. I'm torn on it in that on the positive side, I absolutely love it that young people are getting engaged with finance, engaged with markets, engaged with growing their wealth, etc.

1:00:16This is absolutely fantastic because, you know, we've been through a period where one has felt that young people aren't engaged with wealth building. So they can be absolutely brilliant. And if there are easy ways for them to access all this information and to be enthused about it, also absolutely brilliant. But, but not all the information is particularly helpful. Most of it isn't. Okay, most of it is not helpful. And the thing that I worry about the most is the way that if you watch too much of the stuff, you can believe that it's easy. Yeah. Oh, 100%. You get caught. You get joined the cult.

1:00:54Yeah. But at the same time though, it exists because there isn't the education elsewhere and people seek it out. You know, I have an audience because there's clearly not another place that those people can go. But I do think people forget that, say, a journalist who's employed by a paper, they get their salary regardless. And yeah, they want a story. But most influencers are making money from affiliates and even talking about a stock and being paid for it. You see the SEC declarations on some of them. They're getting paid 18 grand to mention a stock in a video, you know. And their motivations are leading them to make it look like things are easy and talk about specific things.

1:01:29Yeah. And that is the danger. It's very easy. You see it more in crypto than in your industry. Well, crypto is just a part of the list. Someone will pay them, promote my project. I'll give you like 10 grand and they'll promote it on their channel. Loads of people buy it. The influencer doesn't buy it themselves. And then they've got 5 ,000, 10 ,000 people to buy this crypto that's going nowhere. But they've been paid 10 grand by the owner of the company. So yeah, it's not - But so many people have been so burnt in crypto now. Is that - Oh yeah. Not right now, but yeah, generally, well, it's up currently.

1:01:59But yeah, a lot of people have been burnt and will be burnt in the future in crypto. I think it's just a playbook that they took from finance. You know, they went back to the 1920s and said, what are the scams? And they applied them. So they didn't invent it, did they? You know, finance did all of the stuff that crypto pump and dumps and all of that stuff. But I do think as well, give the audience some credit. what I will say is that my audience, they know how to spot someone who's, and they go last. These people who come forward and are like, do this, do that, you know, it's for everyone to see.

1:02:29And within a month or two, they're gone, you know, and the people with credibility and the people who are honest, like you said, I've been talking about active management for ages and I've been wrong. People just like that kind of honesty. No one expects you to be perfect. They just expect you to be honest. I'd like to be perfect. well i thought the book was perfect i think you talked about an angle of investing that most people don't consider myself as a passive investor i'm just like plugging away don't think about voting ever and i really should and you're right you know i should can if i want to be involved in a business i should say how what where that direction is and even if it was with a simple thing like these are kind of my appetites towards voting i would appreciate that you know from a Vanguard if they had that.

1:03:13So I think it's an important read and I really enjoyed it. And as you know, we did read it. Thank you. Listen to it, listen to it. Thank you. But it was very well read. Yeah. Whoever you got to read it, they did a very good job. Why, thank you. But you know, the thing to do is to have, to make this happen, everyone has to want it to happen. So I'm trying to encourage everyone to write to their fund managers, write to the people who run their money and say, you know, I'd like to have a say. I'll email Vanguard. Help me find a way to have a say. You know, BlackRock is doing very well on this and a couple of the other companies are beginning to get there, looking at various ways to do look-through voting, et cetera.

1:03:46It's very, very much there. The technology exists and for some of the fund managers, the will exists as well. It only takes a few more letters, a bit more pushing to get everyone over the line. Because one thing that company directors can get behind is their shareholders in terms of their mantra is almost, it will, traditional economics would say that they exist to serve the shareholder, don't they? Not many other stakeholders matter. And actually, if they just benefit the shareholder, everything else comes out in the wash. You say this in your book. Yeah, it does. So if the shareholders start to put pressure on, they normally get listened to more than even a consumer would.

1:04:22In the end, yeah. And they should. That's supposed to work because the shareholder is the owner. Lots of other people have some of the attributes of an owner, the things that we associate with being an owner, but the actual owner is us. Yeah. And we should have the power. Yeah. Well, thank you so much for your time today. it was a wonderful chat I'm gonna now change everything I do I'm quite sure you're not I won't I won't if you want a bullet point summary of this episode you can sign up to our newsletter using the link in the description and don't forget to subscribe to the podcast and leave us a review it really makes a difference and lets us know that we're doing a good job and remember this is not financial advice like we say a lot on the podcast investments can fall and rise In fact, it's almost a guarantee.

1:05:08Remember, past performance is no guarantee of future results. So your money is at risk with investing. Also, remember other fees may apply. I'm Damo. I'm T. This episode was recorded by Jack Hobbs. Music is by Felix Taylor. It was produced and edited by Ruth Edwards. Johnny Hunter is in charge of marketing. And it's all brought together by Will Stollerman.

1:05:36Thank you.

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