John Armitage manages billions, shares the secret of 30 years of outperformance

0:00 hi we are live from New York because I want to thank John for having taught me pretty much everything I know about Finance now not many firms survive 30 years and the fact that Editon has gone through 30 years of uninterrupted success is just a huge achievement now I managed 15 years in my company John has done twice that amount I don't think anybody understands what it takes in terms of day in day out hard work all

0:28 the stress you see through it's a huge achievement a big congratulations John you are really a AAA well that was Nikolai tangan who is now the CEO of norus Bank investment management the largest single equities investor in the world and Nikolai before norgas ran AO Capital but his first job on the bide was working for John Armitage my guest in the podcast in this

0:59 video before getting to that interview with John I've also interviewed Paul Tucker who used to work with John I think for 15 years and he talks about what John is like to work with that's a great lead in to the actual interview itself and let me just tell you a bit about John Armitage because he's a giant not only in the hedge fund world but in the world of investing more broadly he has been one of the best

1:27 investors in the world he has produced a long on record of about 7% after fees better than the index with an average cash balance of 12% that's quite extraordinary and when you combine his strategy Edon over 30 years with his previous fund at Morgan grenfall he's actually delivered a return of 350 times your money so you'd invested

1:59 10 $10,000 with them in 1988 you'd have 3.5 million today quite extraordinary the index has gone up 41 times over that period so he's done astonishingly well and in this conversation John explains how he started with just $10 million and why you couldn't do that today he talks about it his portfolio he talks about his approach to investing he explains why he requires his analysts to follow more than one sector which is very unusual and why he doesn't employ data

2:32 scientists he also reveals that he thinks his performance would suffer if he had permanent Capital he doesn't say it explicitly but it's clear that the performance matters more to him than the wealth that he would personally acrew John is a brilliant investor and one of the best people at summarizing a stock that I have ever met he's also someone who focuses on company financials which is an underrated skill these days I felt privileged sit down with him for an hour

3:01 and I learned a lot and it's funny really because he doesn't actually tell you exactly how he does it it's almost like it's natural to him and he came out with some gems like you just have to focus on what's important and although that's blindingly obvious in a way thinking about our conversation on the way back from his office as I walked back to my office I realized I could gain a lot more time if I followed that

3:32 advice I think this is a really super conversation I hope you enjoy it Paul Tucker you worked for John Armitage what's he like um well Steve great look great to be here and and and straight to the point so I I mean just to level set I I worked with John as a partner in his firm for about 15 years uh and we sort of had a front row seat of of of of various times you the firm um was

4:00 relatively successful in that time we we sort of lived through the financial crisis and and sort of went to war together I mean I I guess I'd say a few things and the the first thing I'm I'm often reminded of a quote that I think I think John even himself gave about himself one asked about how he saw himself and he sort of likened himself to a a prospector for gold sort of agonizingly bent over in a stream you

4:26 panning away for days and weeks on end with abs absolutely nothing going on uh and then eventually once in a while you sort of stumble across a flake and very once in a while you get a nugget and that's that says a lot about John and you know his process in many ways because people would ask me our investors would say well what's what's the sort of secret Source what is the kind of algorithm you know the the the

4:52 whole kind of process that Edon and John uses and I'd always say he's much more of an artist than a scientist right he doesn't have a secret Source in a way other than doing enormous amounts of very very intensive hard work and really just seeing investing about you something that's about getting to the truth knowing more information than anybody else um not leaving any stone unturned you know no River un panned and eventually kind of arriving at a

5:22 superior understanding of a company compared to the very many smart people who are in this business doing pretty much exactly the same as we were H and that's that in a nutshell is the way that he works he's about truth nothing unturned reading every filing doing every meeting asking every question and eventually that tends to lead to Superior outcomes I mean in terms of you know what is he like um look it was an incredible privilege for

5:50 me to work with John for 15 years and you know I went in there having spent a lot of time at other firms both on the buy side and the S side side so you kind of think well how much can I really learn here but he he has an unbelievable ability to get to the point with any particular investment and it was almost agonizingly frustrating in a way because you can you John will he'll have an idea or I'll have an idea and

6:16 we'll sort of go away and do our work on it and you know what this is like Steve you've done it yourself you know you're in a rush you want to get up to speed you want to know everything there is to know about you know company X Equity y Bond Zed and you read the filings and you read the TR transcripts and you maybe have a call with a company and you look at the models and you think you've

6:33 done all of this work for days or weeks on end and of course you sit down with John and need to have this incredibly annoying ability to get absolutely to the point with the most disarmingly simple question that you have completely failed to ask um and and he's very very good at that you know sometimes you you think you've done the work we've sort of been here and done it before but John would sort of distill any situation down

6:56 into what really matters and it could be the most simple question and often you know you'd be in a company meeting with him and he'd ask the question and people would be sort of looking at themselves and they'd say well well course nobody's ever asked us that before but it'll be the most obvious thing that gets entirely to the point so he's he's brilliant at those things he is very artistic not very formulaic but he has a

7:17 real neck of getting to the point and what what gives you that ability to zero in on the crucial issue is it just Brilliance is it experience a com comination of experience and Brilliance so I think it's um I look I think he's undoubtedly brilliant he's very very clever um he's incredibly interested in companies in business in the way things work and so once he's

7:48 sort of got the bit between his teeth he just wants to know more than anybody else in the world knows um so he's got this endless curiosity um and I think he's got a sort of inherent understanding of you know what makes a business tick right cutting through the nonsense and really sort of understanding what makes a business tick and he's just very very good at that and so you know instead of sort of formulaically going through a checklist

8:11 because he's been told at business school you know we've got to look at margins and return or capital and leverage and sort of tick tick tick tick actually he's very good at understanding the nuances of a particular situation and then getting absolutely to the point and I think the other thing I mean in terms of his process and his approach to things and I learned awful lot from John in this way you know we've all been in

8:32 meetings where there were a bunch of so-called smart people in the room and and and and you you've kind of had an answer to a question it doesn't really make sense or you haven't really understood it or or this or there's a deceptively simple question that you want to ask but nobody's asking it and and you don't want to look like an idiot because you assume everybody else knows the answer so why would you ask that

8:51 question or everybody's understood what the CFO has said and John's completely unafraid to ask the same question he's a bit like Jeremy Pax in that sort of famous interview on newsight all those years ago where he he's completely unafraid and unembarrassed to ask the same question Time After Time After Time until he gets the answer and not not in an impolite way but just in a way that will be disarming and you know he'll typically present it as well I'm awfully sorry I

9:16 know I'm probably being really dim here um but I didn't understand what you said and of course it gets right to the point that actually if a company can't explain what it's doing then you know maybe there's maybe they don't want you to understand Maybe they're maybe they're hiding something and we've seen that so he's he's very good at those things I think um I think the other thing for me you know he has got you

9:41 know again when you think about what makes him tick and I always said this to investors if I I absolutely believe you know some people in this industry and John's been doing this for 30 odd years some people in this industry um you know you make money you start cutting Corners you think you've got it all fig out you've developed a process and an understanding and John has this what I used to call constructive paranoia where

10:06 you know he was never that person he never wanted to cut Corners he was always you know worried about what was he missing what did he not understand and and and he's the guy look he's been successful in his business he's been financially successful but you know I always believe fact I pretty much know that you know he would trade any sort of amount of financial compensation for a few basis points on his long-term compound annual

10:31 growth rate of performance because he's ultra competitive and he cares about his promises to his clients and that was the thing that mattered most of him and he never ever fell into the Trap of you know what one of my other partners used to call affluenza you'd love these sort of you know these these these these statements which would combine some kind of illness with some kind of you know failure in business and John never fell

10:53 into that trap you know he he made he made some money he was successful everybody knows who John Armitage is but he just gets up every day and does the work that's brilliant Paul Tucker thank you very much thank you well John you were my first podcast guest along with Brent hberman I'm delighted that you now the first returning guest and the reason not that we need an excuse is the impending 30th anniversary of ederton capital which started 30 years ago and

11:22 first started investing money when this podcast will be published so look um hedge fund's fairly young phenomenon and not many have lasted 30 years and not many long only fans have lasted 30 years um I doubt when you started that you would imagine that you would be looking back like this but if you were doing this today would you do this any differently and or what advice would you give to someone who was setting out on

11:48 the journey that you set out on 30 years ago first of all of course there's no way I could have possibly imagined that my career would turn out as I have been lucky enough to have it turned out uh and secondly it's not a question of what I would want to do but what I would have to do because when we started uh you needed much less dollars to have critical mass we were thrilled when we got to $150 million under

12:17 management after how long did that after after about a year we were absolutely thrilled and on day one when we opened our business I think we had $10 million on management and uh we started with I think there were three other people in The Firm and now you need much much much much much more infrastructure and the markets are much harder for different reasons so I would

12:49 have to do it a bit differently and I'm not luckily I don't have to think about that's that's not a decision I have to take but I would have to do it a bit differently and it would be a lot more difficult investing a lot more difficult than it was back then because there's been all sorts of structural changes in in markets what I mean what's most difficult I mean you've got lots of different drivers haven't you you've got

13:15 growth of passive all the algorithmic trading you've got all the Pod shops how are these things affecting markets and and how do they affect the way you manage the portfolio well I mean the F markets are a lot lot more difficult and I think there are style based reasons and then more profound reasons why they're more difficult and the most profound reason why stock markets are more difficult to perform in is that uh if you take any

13:42 industry which has which is very profitable and has very low barriers to entry by the standards of manufacturing or banking or uh or Business Services that's going to attract and and as I say has the potential to yield great profits clearly it's going to attract a mass of talent and the capital employed of of

14:15 the investment management industry is in fact people and we've been through a period where all the most talented where many talented people went into investment management and and the more time you have talent the more Talent competes for an edge the harder it is to have that edge it's just a simple as that look local language models llms are now becoming a commodity what is the

14:46 edge in each llm when there's only one llm or only two llms or only three llms they have an edge but when there are lots of them that edge is harder to Define so for the very simple reason that that the investment management industry has attracted a ton of talent it's harder it has to be harder sure if it weren't something would be wrong about the way Industries work I think all the stuff about uh pods and

15:16 passives that's more relevant in sort of particular phases in the market uh what is different from when I was young is that is that when when I think about it every year in I've been investing in years where we've done really badly and in years where we've done really well there's always been companies whose shares have done much better than us and there's I'm sure every year I've been investing there's been a stock which has been up 100% or

15:48 150% or 200% but it didn't really and it would have been nice to have caught all those but actually what counted was what you bought yourself we're now in a different era which is reinforced by the rise of passive investing where you have these very large very profitable very dominant companies with tremendous scale and tremendous barriers to entry where uh the market is sort of

16:20 structurally underweight then most investors are underweight them and uh they they begin to have a powerful impact on the overall index if Nvidia was a small company it would have had no impact on our performance this year but as it is not know not owning Nvidia cost us I should think 350 or 400 basis points of relative performance and this is new in the last 30 years so this

16:53 slightly reminds me of investing in Japan in the late of of of the Japanese Market in the late 1990s 80s and luckily luckily I never did that but uh the Japanese Banks went through the roof they were a major component of the index they were very very very expensive and they caused tremendous underperformance by people who'd invested very successfully in Japan and of course afterwards it was a massive bubble which unwarned and I'm not suggesting Nvidia

17:22 is not a bubble it's an incredibly strong company true which has done very well but the fact is that that the performance of active managers is now affected by what they don't own in a way in which it never used to be Yeah by single shares which they don't ear in a way in which it never used to be and what's the solution to that I mean you just got to own them get get them right

17:44 I suppose but that's incredibly difficult when you've got such heavy weightings in the index well it's difficult if you don't get them right and but but let's not feel too sorry for ourselves were paid to get try and get things right no absolutely but even if you owned Nvidia would you own it to the to the degree that it's represented in the index yes you would but it but when a large company goes up 150% if you

18:12 don't own it it causes you to it of course it's a massive performance drag and what what do you do in that sort of situation I mean you you sit down and think oh my goodness I need to own it or do you think a lot Maybe that very sadly what I haven't done is owned it but I think what you have to do is try to be true to yourself and avoid being pushed around because my own

18:37 experience has been that when I've been pushed around and done something which I was reluctant to do more times than not it's been the wrong thing to have done yeah no so you stick to your process I think you have to be true to yourself absolutely to thine own self be true and how many positions would you normally have well at the moment we have about 30 to 40 long POS 40 long positions and what would you have a big waiting in the

19:04 in the top position we are more concentrated than we used to be and I I vary a lot about thinking about concentration on the one hand I think that if you concentrate a lot and watch what you're concentrated in like a hawk that is uh a good thing to do and our biggest stocks tend to produce our best Returns on the other hand if you run assets of more of a certain size you do take a liquidity risk if you run a very

19:34 concentrated portfolio and secondly the risk the the good thing about owning good companies for a long period of time is that they compound incredibly effectively in your favor and gosh I guess it's a very nice way to live the bad thing is that they can change subtly you don't notice it and then one day you realize you've underperformed for a year and gosh you'll just beginning to know why and the analogy I use you know we all know

20:04 if we're unlucky enough to be up in the night when it's getting light we all know that there's a moment in the night when it's perpetually dark then it's slowly a bit lighter and it's slowly a bit lighter and suddenly it's daytime that's like realizing why what you've owned for a long time has been a massive underperformer and that can happen that kind of familiarity is a danger which goes with concentration excessive familiarity and then then

20:28 complacency is a danger which goes with concentration and very few people are good at a good at being sufficient either being sufficiently detached or remarking themselves intellectually every day but how how do they do that because you're friends with horn and he does that well he's a genius it's he's a genius but you know but Warren Buffett says he never

20:58 never sell stocks but actually it hasn't been a particularly good experience to have had a large large position in Coca-Cola over the last 25 years absolutely and that's the danger how do you mark yourself every day with difficulty because it is difficult because you're because human human I generally believe that that human beings in all kinds of ways patterns are important in human beings patterns are important in relationships patterns are important different relationships have

21:28 different patterns uh and patterns are in important in the way you think and and the difficulty with knowing a position really well is you just get too comfortable with it and and and so I like to have more positions so I can see I like the analogy I like to use is you can plant a seed so that see if it germinates because maybe that's going to be really attractive I mean we've been lucky enough to have had some quite big

21:57 Holdings in r Insurance stocks over the last year and that's a sector I really really like but actually they started off with one small position in Munich re and then we did a lot of work on other things so I I kind of believe that you know I couldn't run a permanent 10 stock portfolio it just wouldn't work for me it works for Chris because he's a genius but it wouldn't work for me but how do you think he

22:21 manages that process how dides he get out well I think you ought to ask him he's he's got a tremendous robust intelligent mind this thing about getting too close to the companies I mean how do you keep the distance it's not too close to the companies it's getting too it's being insufficiently detached to see when things are changing and why and to understand how they might go on to change it's complacency it's not about closeness it's

22:51 complacency and that's intellectual in intellectual complacency that can happen that's a trap what would be the trigger then that would make you sell one of these stocks that you'd owned for a while and and light I mean the best reason to sell well first of all there's an easy reason to sell something and that's when it disappoints yeah the next best reason and and another good reason to sell something is when you can find something better and then you can sell things when

23:21 the price is too high but of course it's easy to make mistakes about prices M and good companies tend to get better over time and you know gosh we first bought Microsoft when it was on 10 times earnings we didn't sadly earn it throughout that period And I wouldn't have guessed it would have ever traded at 35 times earnings but it did because things changed and so you have to be aware of what can happen is

23:45 it very difficult do you find to go back to something that you've sold or are you quite flexible uh I find it more difficult to go to go into things which have gone parabolic than go into what I've sold if you sold something and things have changed and you you're are you able to buy it back higher up yeah I L I don't mind doing that look nearly every good company nearly every company you're ever going to buy has

24:10 gone up a lot no of course you got to accept that and what's the longest you've owned something for I mean I honestly couldn't say I'm terribly sorry I wouldn't know you wouldn't know a few years I don't know five years I couldn't I couldn't really tell you you managed not to fall in love with socks that's the key Mage I don't always manage it but I think one has to guard against and I generally believe look I'm very lucky

24:35 with my wife I think it's a good thing being in love but it's a good thing being in love with the right person or the right stalk yeah and the trouble is people's judgment I like to think my judgment with regard to my wife has been infallible because she's marvelous but my judgment with regard to stocks is not always infallible it's a big mistake therefore it can be a big mistake to fall in love yeah absolutely with a do

24:57 but you're quite you're quite flexible aren't you you're you're I mean I'm more flexible than I could be and I'm less flexible than I should be interesting so when we first um recorded which was about three years ago we were near the peak of the tech bubble and spacks were in Vogue loss making tech stocks were trading over 10 time sales and were commonplace and you said I can't understand these valuations you said spacks were in a bubble and and you were

25:23 you were absolutely right we also talked about Tesla if you remember and Tesla at the time you were talking about there's going to be more competition in EVS you said that autonomous was a long way off everything you said has come true and Tesla's about still about the same price which we agreed was extremely it is down over three years and earnings forecasts have gone down and the thing about Tesla is look what have you got it's a very retail own

25:51 sh very retail end company the retail investors love Elon Musk he's a tremendously aggressive bloke he's someone who uh is clearly a compelling genius and he clearly talks a story and he first talk the story about autonomous driving I think it was in 2016 2017 and the story now is that Tesla's going to become an AI company uh and it's going to become a

26:23 robots company and I'm hearing that the story that he's telling is that look his cars and the neural network involved in their compute power and the uh gpus that he's been buying from Nvidia that they are filming humans on the sidewalk and they're learning all about human behavior and that's going to have tremendous implications for his robotics business that's what I heard this morning from an

26:54 analyst but he is a guy who uh is a genius and a massive change agent and he gets belief and I think that's what it boils down to but and now the story is the Bulls on Tesla argue that the car business actually isn't that valuable for the company and it's all going to be about the AV Fleet and it's and the AV Fleet stroke rbo taxes robots AI Kathy Wood

27:26 Kathy Woods I mean I I'm re I think I can't remember what US GDP is but I'm pretty certain that Kathy Wood's latest valuation of Tesla was in 2030 Maybe I'm Wrong was it 25% of US GDP or something like that why is that because she's a believer that AI will do something for them and if you read Tesla's AGM stuff you will see what

27:56 Elon Musk says about the robots business and look there's no arguing with that you either Believe it or you don't and within that share price there's a com there's a big component of uh there's a big component of belief about what Tesla will mutate into away from cars no of course but the I mean Kathy Wood I I've written about her research in the past which you know it's

28:28 laughable um but she's managed to convince all these retail investors what I'm curious about is we've had Kathy Wood thinks that in 2029 Tesla will be worth eight trillion dollar so US GDP in 2022 was 25 trillion I mean you know I just don't believe it'll be worth 25% anyway but why do you think that the the is it just retail I mean I'd expected that we've had a big hike in interest rates

28:58 and that a doors of reality would been injected in the system but it hasn't deflated GameStop hasn't deflated Bitcoin it hasn't deflated Kathy Wood I mean the arc Shares are done a lot yeah but she's still shouting from the rooftops and I I don't know well that's what believers do that's what believers do yeah more generally I mean the you know the GameStop phenomenon Bitcoin they're all manifestations of a zero interest rate environment and you would

29:26 have I would expect reality to you know hit them like you know a car running into a brick wall but it seems to seems to be taking quite a long time well life is a funny thing is it just that we underestimate the time lags in the system because I remember you know when I started in the I think these things change gradually you know I think these things change gradually but but look uh if you look in the last

29:52 year the S&P which is generally composed of sort of better better companies and less speculative companies has the last year two years has massively outperformed the Russell uh lowquality stocks have underperformed high quality stocks so I think it is happening but should it have happened quicker well you or I would think so yeah so AI we touched on it earlier and it's of the topic of dour topic of the

30:23 of the year I went to the wpp investor day and I was sitting next to a paline got you know senior fund manager quite a big fond and within 15 seconds the CEO had mentioned Ai and we laughed turned around to each other and we laughed but actually later on um the executive one of the agencies was saying that they' guaranteed a 25% Improvement in conversion and product pages and I was really surprised none of the analysts

30:55 asked about this after afterwards I I talked to the tech people there and they were saying actually we're experiencing a 40% Improvement now I know this is one of these things you said referred to earlier that all these things get competed away because everybody else will be doing similar things me you just talk a little bit about how you perceive this whole area and how do you handle it as an investor I mean how' you how do

31:18 you think about it because I was quite enthusiastic about you know the wpp commentary but it's quite difficult to understand what their competitors are doing today or what their competitors will be doing tomorrow and and the relative rate of change how do you think about that well when we talk about AI I think what we really I guess what you really mean is generative AI because AI has been around a hell of a long time sure and AI Powers

31:43 Amazon and it's powered meta and it's Powers Google and it Powers Banks and it Powers revolute giving you a fraud notice I mean it AI has been around for a very long time and that's going to continue generative AI is the latest sort of iteration of that the biggest application of generative AI that or the nearest real world large application of generative AI it seems to me is going to be in online advertising when you think about have

32:11 how have smmes advertised in the past well they've bought stuff in local papers now they can go to now they can go to Google and now they can go to meta but actually what does generative AI give them well if you read Mark Zuckerberg's blogs on what Tesla's been doing generative Ai and uh ad copy and the ability to create lots and lots of different versions of AD copy the ability to make images from words the ability to change

32:43 backgrounds then generative Ai and or Ai and the ability to do ab testing at scale instantly uh Ai and the ability to test audiences these things are all phenomenal and clearly it's going to come to uh many Industries and an obvious one will be will be Business Services sure

33:13 because we all know we go online for business services we don't like hanging on to a phone and better chat Bots chat Bots which can really answer questions clearly absolutely marvelous it's going be a very very big thing I guess it will create it will definitely create losers as well as winners and I happen to think that I well I really I I happen to think Google and meta are very attractive stocks you're not concerned that um

33:46 search loses out in in this because that seems Seems a terrible r i mean I I know that deep mind's very very advanced in in all this and we don't really know the relative position of Deep Mind and opening eye and the other participants but there is a risk that search loses ey there is a risk that incrementally uh individual apps and chatbots cannibalize cannibalize general search but but General search Google does have massive

34:18 distribution at scale it's been investing in this for longer and it has and and it's far filed far more patents and papers about AI than anyone else it's got immense compute it's got you know how often does the internet does Google's internet go down hardly ever and we're quite habituated to search and uh well that's what I think will sustain

34:50 it but look clearly it's less certain than it was yeah it hasn't been reflecting the share price interestingly no hasn't but clearly it's less certain than it was yeah Google's position is less certain it has to be it's um it's been I look if you can go to booking.com and say uh find me a trip make me a trip to Paris and what shall I see if booking.com can do that as well as Google that's a risk to Google yeah it's

35:24 inter there doesn't seem to be a lot lot of talk about it and um I have been puzzled as to why people haven't been more more worried have you done anything on sort of applying AI internally within the firm I mean are you a believer in that I mean no we haven't yet and is that something that you think will be important to to investors well I don't know whether it's important to investors the question is

35:52 whether it'll be important to us uh and the answer is I don't know [Music] uh the answer is I don't know do does it worry you I mean something to use well I'm in the happy stage where I'm not starting my career now clearly all these things make a g to make markets more efficient and we'll all have to find a different way to get ahead I think and look data scrapers

36:24 make markets more efficient yeah so maybe you've got to invest in things where short-term data is less important maybe you've got to have a longer term perspective and and be right about that maybe you've got to exploit drawdowns caused by people who sell things because the latest contemporaneous data is a negative but does that not mean that you need to have the data scientists and the the the

36:56 infrastructure in order to understand that's why they're selling it you know I'd rather not invest in a company where I feel I've got to do a data science check every two minutes to work out whether it's doing well I mean I'd like to have data about terms and conditions on reinsurance contracts and how they've changed unfortunately that's private I'd like to have data about Amazon's Cloud backlog but I'm not going to get that from using data science

37:27 and there is stuff which is more important than what data science can give you I guess the thing is and I think it would be awfully difficult to follow a company like tesar and you know there are these there are these people who every month write about the number of planes abaso Boeing has produced in a month and then they write about test flights and that's all very interesting but is the important thing how many planes are us produced in May

37:53 when there are like four different holidays in Europe or the important thing what they'll produce in 2027 well I think it's the latter sure but so what do you do with something like Ryan a which is reporting monthly traffic figures and creating a lot of noise just not worry about it and just watch the share price yes I do worry about it and uh we've been caught off guard by their weak pricing I do worry about it

38:19 but I also think I also think you know you can't invest for monthly data no and so you have to find a way around that and a way around that is thinking about whether something's a good business and what are its medium-term prospects not are it's not what it's done last month Rina is a slightly different sort of Beast because its earnings are the result of kind of its pricing changes in real

38:51 time so it's a sort of different kind of Beast to uh other businesses in which you might invest where pricing and demand has sort of longer term cycles and changes gradually I just use the Riner example because it's an example of one where you could scrap the data every day or a 100 times a day or I don't know how how often people do it but you you know you you can scrape the data and come up with

39:20 your own algorithm as to what is the what is the yield and I mean an awful lot of effort and I'm not sure that it would give you a huge amount of reward but I was just curious as to it probably is one way you could probably do that you yeah no I'm sure I'm sure there are people doing it I don't know if they having been an airline analyst in the when I was in the Southside and

39:43 constantly being asked what was the next monthly traffic figure likely to be and having no clue about it and um it was hard enough trying to work out what the quarterly earnings were going to be and I I found that pretty pretty pretty difficult one um thing I wanted to ask you about was Private equity and I don't know I mean do you keep an eye on what's happening in private Equity market so is it something

40:06 that you you you feel resistance I mean I don't keep an eye on it we sometimes in we have invested in private Equity firms I mean I think the thing to keep an eye on is monetization rates and the extent to which companies are going to make money out of the more recent vintage years and that looks troubling I don't know what it look looks like I mean it'll be interesting to see you're not are you invested in in KKR anymore or we

40:33 don't own KKR I wish we did or or I wish we had well I'm not sure whether you will going forward and were you surprised when we're we're we're meeting in on Friday in June when revolute is supposed to be looking for a 40 billion valuation which is probably what the European banks have done reasonably well this year but it is pretty big for a bank have you been surprised by by some of the valuations and VCS being their

41:03 aspirations continuing to be so high well look the awful thing is I I don't know a lot about VC investing and I don't really know much about these valuations but yeah I mean I think at times it is very surprising so one of the things that has puzzled me is you believe in having weekly valuations and and you're a pretty liquid fund I mean you've got different classes obviously but there's I was curious if you had

41:34 ever thought about raising permanent capsule and you know having an investment trust or a vehicle of that nature which would allow you to take longer term I mean I think the danger with with longer term locked up money is that you sort of say to yourself well I'm underperforming but you know guess what I've got a longer term perspective it's all fine I can think on a two-year basis cu the money isn't going to go and then

41:57 you realized that you were under performing for a reason and that and that this long-term capital had lulled you into a sense of self into a sense into the wrong sense of security into a false sense of security I think that's the danger and uh I mean I I happen to like liquidity I think it's a good thing to be able to get your money at and uh when I was at Morgan grandly ran a fund with daily liquidity and I

42:26 actually think that's quite a good discipline so you like the insecurity of them of the I don't like it but I think it's healthy and it's healthy for our investors and do you think it makes you a better investor I don't know but the the because I I asked this because I was quite um bemused by the the the Amman Bill lman raising a billion dollars at A10 billion valuation for his business which is sort of 65% of

42:59 his present AUM which is mainly the the listed the vehicle which was listed in in London and apparently he's going to raise 25 obviously it's based on the fund he's going to raise but what I would say is it probably puts a lot of money on the people probably values the investment decision makers in the business pretty highly he's 58 right well you know he's obviously worth5 billion doar to the business at least which is a

43:29 lot it's um well so it was a huge amount of money and I I was just puzzled as to how one might manage um three publicly listed companies if presumably if if you list the the permanent Capital vehicle in the United States it's going to be very difficult for him to create two vehicles with exactly the same investment profile which the answer is I don't really know I haven't studied it but I would guess

44:00 he's either going to have to buy the same make the same investments in much bigger size or else have a lot of different Investments it's um I I I'm been scratching my head about it um is quite really pretty pretty difficult now last time we spoke you said your hobby was reading annual reports and one of your colleagues which was slightly tongue and cheap well one of your colleagues told me that when you get on an airplane you take a pile of 10ks or

44:26 annual reports and you manag to get through them very quickly well now I take an iPad so but you can you get through them quite quickly I like reading things yeah do you have a process for doing it I mean how can you do it so efficiently well I don't know that I do do it efficiency but efficiently but I think you know you have to be aware of what you're looking out for and you have to

44:47 be able to sort sort out the wheat from the CHF and is this something that you find easier with companies that you've followed for a long time well I think it is easier by of course yeah cuz you know them better so you know what to look out for so do you have do you approach it differently if you're looking at a new company well it's a it's more of a more of a mountain to climb getting to know

45:08 something new what would your process be if you picked up a new stock I mean ordinarily your analyst will have given you well I mean it's the same as I mean it's it's fairly sort of standard you know you you want to read what the disclosures are you want to find out what the management is saying we like reading transcripts we like reading filings we make a model we talk to the company we talk to the cell

45:33 side and it's a sort of iterative process involving question and answers and each time you learn something a new question is raised in your mind and you said you had 35 positions would what would would you have like a watch list of stuff that you're involved with beyond that or we do we do have a watch list it's not very formal and we're always trying to find new ideas so we're always looking at yeah we're always

45:57 looking out for new ideas yeah and what are you interested in at the moment you mentioned reinsurance so I was at the Burkshire Hathaway meeting and a Jane was talking about climate change and I hadn't really thought about this before I I tend to stay well away from the financials because having worked in a financials hedge fund I realized how difficult the and how much of Black Box some of these things are but he basically said you climate change is

46:22 pretty good for our business because it makes boards much more boards this is an era where boards are more focused on risk yeah so I I think there is more aware awareness of that and I therefore I think there is more demand for insurance and I think that at boardroom level reinsurers are aware that they've got to start making return that they have to make returns and I think that's what the 2023 reset was all about and so

46:47 I do think that's a good thing because I think it's a cycle which will last for a bit and I think it will take time for the earnings to come through sure but that's because they because companies because insurance is an unusual business where the results you report at the end of any year are are really an estimate because you only actually know what you've lost from a contract after a period of time and it could be anything

47:11 from two to 20 years if it's a casualty contract so so companies have to make an estimate the nature of human beings is that when things are bad they're too pessimistic and when things and it takes them time to swing Round And if you've come through a very bad period I think you're going to be very cautious about recognizing that it's good that's just a behavioral thing and uh terms and conditions are radically reset in favor

47:41 of reinsurers which is positive look this is a year where in the US severe conve where there have been more severe convective storms than any time in the last 10 years and we're in a storm season at the moment and up till a couple of weeks ago the damage from storms and sort of minor catastrophes is over the average it's over the median of the last 10 years and that means premiums have to go up and

48:08 more premiums equals good for insurers well it's a capital cycle kind of approach is that play a big part in your thinking I mean to what extent are you top down driven well I think no one can be an investor without having some sort of top down perspective but ours is quite loose look I don't think in I don't think we're going to go back to a zero cost to Capital world no that's as far as I would go I think inflation it'll

48:35 probably take time for inflation to drop and I think politics is something to be geopolitics is something to be guarded about but of course geopolitics if it's bad will be unimportant for markets right up until the day it happens geopolitics is irrelevant until you get hit does that mean you don't worry about it no yeah I do worry about it to my cost because it's meant that we didn't invest in t in tsmc are there any other sectors that

49:02 you're sort of interested in now that you think are are that the reinsurance is a really interesting well I like some of the world's very cheap Banks because I think there been a big behavioral change in the banking sector and they all have lots of capital and uh very conservatively struck asset Port loan portfolios and high provisioning and they're going to return a lot of money and I like Aerospace a lot uh that's engines and OEM and uh I really like a company

49:35 called flutter which is the leading online gaming business in the states online Sports B because it's because it's being liberalized and it's booming and they have 55% of net gaming revenues in America and online sports betting is like many online things an area where the winner takes all or most of it and the more money you the more the more betters you have and the more compute power the better you can assess the price and the odds you can

50:07 offer better prices and if you if you work them out right you can get a high win ratio therefore attract more people therefore find out more about them and in today's world if you're an online sports betting person on the flutter platform they can do an individual promotion to you and they are also able to assess whether you or I let's take it's a football team are you or I good at betting on Corners are we

50:34 good at it individually so they can price odds individually so I think it's I think it's a very very very very well-run company are you a betting man no that doesn't doesn't surprise me from that your team is it mainly analysts or do people have PM responsibility as well well we're all kind of analysts you know I think the only way is to analyze companies ianes we arrive at convictions on stocks through you know several people cooperating and I have to love

51:05 something for it to be a big position how does the teamwork work I mean do you have people with different skills cooperating in one of one of my podast I say different skills but different knowledge sets different areas of focus and I like people who who I like people who know about different and contrasting I like having people who know about different and contrasting sectors so that they know there's a world outside their own speciality so people will have a

51:33 specialism but they will also look at something outside their speci yeah multip Specialists multi sector specialism that's what I like and why do you think that that works because most most firms are because the danger is that you know you get the D you don't want to have someone who covers Banks and will only recomend we only think about the best bank in the world because the best bank in the world might be less interesting than the best software

51:56 company and in the same way and and that goes the other way around but the the problem with doing that and I completely agree with you the problem with doing that is they can't spend all their time the bank's massive sector and really difficult and could absorb you know a whole team's time so they they they're unable to go as deep as they might otherwise do if they're looking at more than one area is that not problem

52:23 depends how focused people are because you know investment firms they don't have to know about everything they have to know about what's important sure and so the question is finding out what's important and and then focusing on that but I like people who know that you know it's if the only space to be in is in Enterprise software it's great to know what the best enterprise software companies are but if that's all you know about and that isn't the right

52:52 space that's a bad thing and if that's all you know about and by the way a lot to know about and if that's what you know about but but you know uh a home builder is more attractive it helps to have a broader perspective and I think people with a broader perspective as well as a sort of detailed Focus I think that's more valuable how about geographically I mean do people have a geographic B some people do more in

53:17 America than others do you try and have somebody that knows about each country or no no no we don't because I tend to feel sectors are more global not they're not always but I tend to feel it's more Global and how do you cope with something like what's happening in Japan right now I mean do you have a Japanese exper well I find Japan quite difficult because uh first of all there are a lot of secular changes going on in Japan

53:42 initiated by the Japanese Stock Exchange and by government authorities or government related authorities and by activism that's a tremendous tick at the same time I wonder how the US Stock Market or the European stock market would have done if its currency had fallen by a third and the answer is it would have done a lot better than it has and there is part of me which wonders is Japan a macro trade so that's one thing which sort of

54:14 holds me back but the second thing which holds me back in Japan is you know we've had meetings with Japanese companies lots of them and basically the meetings tend to be in Japanese through an interpreter you have one R and and let's face it you don't know how your question was translated you don't know what the company said and in any case half the meetings wasted no that that is difficult I mean have you noticed any

54:37 change in attitude though because well there there is clearly a change in Attitude initiated by the JSC but it's not Universal you I just wondered if you had a feeling whether the corporate sectors really embraced it or whether they I think I think a lot I think a lot of it has but some of it hasn't look we own a food company in Japan which makes which makes instant noodles in America big business in America big business in

55:01 Mexico food business in Japan they got a vast amount of net cash it was proposed to them that they pay a special dividend their dividend payout is absurd it was proposed to them they pay a special dividend and they stop investing in areas which under to perform and it met with a resigning thumbs down from the board John you're normally very low profile and but you've been quite outspoken in two occasions I think um one was the the brexit vote and the

55:28 other was um talking about you know the attitudes after the tragic events in Israel on October 7th last year why were those two issues um important to well I never really spoke out over brexit but I think I did give some money to the Rain campaign and I I have feel that if we hadn't left it would have left this massively divided Society still divided so I don't so Society I don't know whether it would have been the

55:53 wrong thing to have stayed or or not but I thought economically it was wrong look on the Hamas thing first of all I feel that that the only solution and I'm not an expert and what do I know but I feel the only clearly The Only Solution in the Middle East is is a two-state solution Israel's never going to make that happen and nor now is Hass secondly you know what sickened me was that there were these massacres they

56:24 were massacres you can't get away from it and not a single person who's talked about talked about the war not a single one of these protesters has ever ever as far as I can tell mentioned the massacres I think it's completely despicable nor have any of these protesters ever protested when Islamic people are murdering each other which they have done in Iran which they have done in Syria that I I have never

56:54 noticed protesters then and I really despise that I think it's the most tremendous double standard and I think in this country we have a major issue with and I have to be careful with my words here with militant islamism and I say militant and extreme islamism and I wouldn't want the words to be separated because clearly there are many different sorts of Islam but for some reason it seems to me we in our country we have a

57:26 situation where there's no condemnation of massacres where it and it's very easy for highly anti-democratic highly unpleasant forces to take control of Muslim communities I'm flabbergasted that it's not an election issue that there is still a teacher in hiding well I know why it's not an election issue because the conservatives would get accused of islamophobia and Labour's got 8 million Muslim voters yeah so there's no way

57:57 they can say it's a bad thing but the fact is that the Muslim there are what 8 million Muslim pop in our 8 million Muslim people in our country and there are 75 to 80% of all the threats MI5 investigates but it's a difficult problem to cure right yeah it's really difficult but it's not a problem we're addressing I also sort of think you know this would War would have ended long ago if Hamas had done one thing which none

58:21 of these protest Marchers tell them to do and it's very simple they could have just released the hostage no absolutely yeah listen I really appreciate you taking the time and thank you for sharing your your your thoughts on that I wanted to just leave on uh finish on a on a sort of looking to the Future note and just to tap into your long experience and just some advice for young people so what would you say to

58:46 somebody who's thinking about what University degree to do or what career to pursue so a young person who's sort of entering the the workforce or thinking about entering the workforce we've seen just in the last 30 years we've seen an enormous change and what seems quite likely is the even faster change if anything over the next 30 Years how should people think about preparing themselves for that and how should they think about choosing a career when lots of jobs are going to be

59:15 very very different um and how can you you know how can you protect okay well I mean look the first thing to say about experience yes I mean experience is useful but it's not always useful and sometimes experience frankly is a bad thing to have and I sometimes think today I'd be a much better investor if I was younger and younger and naive but you know what would I suggest well look I've been very lucky to have my career

59:38 at probably the best time I was talking about this to a friend actually maybe the and we we sort of realized we sort of thought 1865 would have been a comparably good period to have had a 30-year career or 40-year career relative to when I had it that's what we thought but you had to own the railways then yes but you know that was a great great time to be an investor and I've had my career at a great time for the

60:01 markets and to be an investor I'm not sure it's going to be the same I think today look where is the future you know what are the relevant skills today they're clearly to do with technology so I think everything should be everyone should be familiar with that but I also think we've got to go to you people should go to universities to be educated as well as to learn a trade you're going to have the whole of

60:25 your life to work so I think you know people should go to universities to study Human Society in the nature of what it is to be human and whether that's studying history or whether that's studying English literature or foreign literature or philosophy I don't know but we have to be educated at University people who are not educated can be easily manipulated we can see it today why was Germany manipulated in the 1930s because people used the myth of the civilian

60:57 stab in the bag why is our past being reinvented today to suit the convictions of the present and I think it's very important that when people grow up they should learn about the highly complex nature of human societies of our past and what it means and what it meant to be human and a particular being my Bonnet today is this tendency to judge human being the past by the standards of today yes I mean we we laugh but that's

61:27 what happens and I think people need to be educated in the past and I think they need to be educated in in society and I think you get more of that through Arts related subjects than you do through subjects which teach you a trade I agree and it's a great training to be an investor I think it's a good training to be an investor yeah John Armitage thank you very much it's been my pleasure well John's humility is astonishing he must

61:54 be one of the best inv in the world yet he's never satisfied with his own performance and perhaps it's that Relentless Focus which is the secret of his success John has an ability to summarize Concepts and to explain why he owns stocks distilling it down to the absolute Essence my biggest takeaway was that this must be the most important skill to cultivate work out what's important and focus on that I'm afraid it's easier said than done

62:26 as I said at the start it really has been a privilege to sit down with brilliant people for this podcast and learn from them amazingly this is my 40th show and I'm grateful not only to my fantastic guests but to you the listeners as ever if you enjoyed the episode those five star ratings really help spread the word thanks for your support thank you for listening I'm Steve Clapham that was the behind the balance sheet podcast please don't

62:53 forget to subscribe to the YouTube channel and why not visit our website behindthe balance sheet.com where you can find the show notes and lots of other videos which can help you on your investing Journey thank you for watching