Speaker 1Hi everyone, and welcome to Friday Wrap-Up. I'm Nikolaj Tangen, the CEO of the Norwegian Suburban Wealth Fund. This week's episode was with Bill Ekman, and today Marte has handed me the microphone. This is a special episode with a guest from inside the fund to learn more about active management. And Daniel Balthasar, how are you?
Speaker 2Yeah, I'm very well. Thank you, Nikolaj. Always good to be in Oslo. So, Daniel is
Speaker 1the co-CIO in Active Strategies, together with Pedro. He's been at the fund since 2007 and started out as a portfolio manager. And just to be clear, Active Strategies, that's the part of the fund that deviates from the benchmark. So, Daniel, you admire
Speaker 2Bill Ekman. Why is that? Well, I really admire him, and there's a very simple reason. I was invested in a stock, and I lost a lot of money. I gave up, and Bill came in, and he doubled his money. Well, tell me, what happened? Well, it's a company that I identified operates in a very good and healthy industry, very stable, very good long-term prospects. What was the company? It was Air Products. Right. The stock was cheap, so I thought there's an opportunity. It's much cheaper than the PS, and I got involved, and the stock kept underperforming. And then there was a profit warning, and another profit warning, and another profit warning. I kept losing money, and I threw in the towel, and I gave up. And then Bill decided to get involved. He got in. He engaged with the board. He made some changes to the company, and it became a very successful investment for him, and he doubled his money within a relatively short period of time. And what did you learn from it? I think I learned that every stock that's cheap is cheap for a reason, and something needs to change for that stock to perform. And for that value to materialize. And I was just investing in hope for change. And Bill came in, and he made the change happen.
Speaker 1Anything else that stood out?
Speaker 2Yes. I think it was very interesting when you asked him, what is a good company? And his response was, good company or great company. And he explained his philosophy about investing, that he ideally identifies a great company, and there are not too many of them. And that's the kind of company that you can invest in. And the market shot for 20 years, and you don't need to worry too much. But in 20 years' time, you can be relatively certain that you generated a good return on that investment. And these are typically companies that have a strong moat around their businesses. It's well-protected, and they generate very stable, very predictable cash flows in the long term. And when he said it, it reminded me a little bit Chris Hohn and the way that he invests. And those two are pretty similar. Chris Hohn is probably one of the two best long-term investors.
Speaker 1And Chris Hohn, by the way, we've also done a podcast, which we recommend people to listen to.
Speaker 2Absolutely. So we can learn from these guys, and we try to implement this at the fund as well.
Speaker 1Let's move on to the fund and the markets. So many people see us as an index fund. Is that what we are?
Speaker 2No, we are not. We are near the index. But the mandate that we have from the Ministry of Finance allows us to deviate to a certain degree from our benchmark. So we can take some risk to generate excess returns. That means generate returns for the fund that are better than its benchmark. And we in active strategies employ quite a bit of that risk. So we have four investment departments, and they're all tasks with the generation of excess returns. The department that's probably closest to the way that Bill invests is called Active Equity. So these are our internal portfolio managers.
Speaker 1What does the equities team? Have that Bill would recognize?
Speaker 2I think one is a long time horizon. So we are here to generate returns for future generations. I think that sets us apart from many other investors. I think another one is the engagement with companies. We spend quite a bit of time meeting management teams, but also being on the road, visiting companies, understanding their management teams, understanding the products, and understand the corporate culture. And Bill also talked about competitive advantages that come with permanent capital. We have permanent capital that gives you many investment advantages, but it also means for our portfolio managers that they don't need to go out there and do marketing, raise funds. They can focus on what they are here to do, which is investing and generate returns.
Speaker 1What are the kind of things that you think we can learn from him?
Speaker 2I think what he does extremely well is challenging his own investment thesis. And this we need to do better at the fund. He speaks a lot how he does it. So when he invests and wants to build conviction, he meets the biggest short seller. Are you the people who have the opposite view, right? People that have the opposite view. And the way he consumes news and information is also very specific to this. And he really tries to get the information that goes against his reasons. Why is it so hard? Why don't people like to hear the opposite view? I think it's human nature. You don't like to hear that you are wrong. But I think it's also the way that the brain works. And the late Dan Kahneman, I think, describes it really well in his book Thinking Fast, Thinking Slow, the two parts of the brain, the fast thinking one and the slow thinking one. The fast thinking one is switched off all the time. And it does most of the work, including the analytical work. The slow thinking part needs to be called upon. It's a little bit lazy, but it does the reasoning for you. And he has this great example. A bet and a ball cost $1.10. The bet is $1 more than the ball. How much does the ball cost? So most people say 10 cents. And that's the fast thinking part of the brain answering for you. But if you call upon the deep thinking part of the brain, the right answer is five cents.
Speaker 1So people can now go and do the math and figure it out. So what do you do? What do you do?
Speaker 2Well, I think what we need to do better is, find the counter arguments, challenge ourselves, be open to these arguments. We are developing a few systems that help us with this. And I think the objective should be to find the truth. And we also then need to admit when we are wrong. And when we are wrong, we need to make sure that we learn our lessons and we systemize our learnings and we de-bias our investment decisions. So we have a system in place, for example, and we also need to make sure that we learn our lessons and we de-bias our investment decisions. And tries to identify for every single portfolio manager what they are good at and what they are not good at, and then improve the quality of future decisions.
Speaker 1Now, Bill Ackman says that passive owners don't hold anybody to account. What about us?
Speaker 2We do. Bill also says that he believes in one share, one vote. And we strongly agree with this. We provide capital to the companies. And with this capital come rights. We don't buy them. We don't want these rights to be undermined. I think Bill, us, and other investors are totally aligned with this. And we have a joint interest, which is the long-term success of the companies
Speaker 1we are invested in. What have you been focusing on this week? You've been in Oslo, for instance.
Speaker 2Yes. So I sat down with a couple of our portfolio managers and tried to understand how they are positioned, how they make decisions, what kind of risks they take. That's an important part of our job. But we also spent quite a bit of time with people from the active ownership department, which is an area that focuses on stewardship and sustainability. They will join our area in a couple of weeks. So we really want to meet those people, get to know them, and understand what they are focused on and how we can integrate them in the best possible way. Daniel, finally, it's a tough game
Speaker 1being in active management, right? In particular, when you underperform. And this year hasn't been so great. So how do you stay focused?
Speaker 2I think I try to focus on the absolute foundations. Bill talks about it as well. Sleep, nutrition, exercise. I think that's the core of everything you do. And then you need to make sure that you have some charging stations that you can pull on.
Speaker 1And what is your charging station?
Speaker 2Well, one is the weekend. It's my kids. So I'm looking forward to spending the weekend with them. My son is 10 and he plays the drums. He will be my teacher. He wants to teach me playing the drums. So I'm looking forward to another lesson. He's a very good teacher. And my 13-year-old daughter sings along. So we will have a lot of fun. The neighbors will probably have a bit less fun. It sounds like it.
Speaker 1I'm happy I'm not your neighbor, Daniel. But a big thank you for joining us here. So what we will do going forward, we will do some episodes like this with people from the fund on a regular basis so that you will learn more about all the interesting things we are doing around here. So happy weekend.
Speaker 2Happy weekend. Thanks for having me. Take care.
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