Sir Chris Hohn: Strategic Investing, Long-Term Value and Purposeful Philanthropy

Hi everyone, I'm Nikola Tangen and today we are joined by one of the best investors of all time actually. So Chris Horn, not only is this fund TCI one of the best and most successful funds that Europe has ever seen but also the charity is one now one of the largest in the world. So Chris you continue to have a immense positive impact on the world. Thanks for coming. Thank you Nikola. Let's start with the investment world. What makes a good investment? I think this is something a lot of people get wrong. They think it's about growth often. Okay, or something new. Neither of those things in themselves are to us matter by themselves. The most important thing and without which it's in for the let's say the types of investing that we do is high barriers to entry. The most that Warren Buffett has talked about. Can we dig into that? Can a distressed asset of a piece of real estate that's selling at half price because of a liquidation also be a good investment? Yes. So can there be a role for cheap average assets? Let's call them low quality assets which are trading at big discounts to replacement cost. Yes, that's the type of investing that can work that I've done in my time. Yeah, cheap average businesses. Okay. Or cheap bad businesses. But I don't feel that I can have any confidence in that type of investing because the earnings power of those averages businesses is unpredictable. What are good modes? The most simple answer is ones that are sustainable. Okay. A lot of people. And ideally you would have multiple modes, multiple pieces of defense. There are many different modes. It's basically something that means that the business is difficult to replace. It's difficult to compete with. Yes, and replace. Two substitution risk and competition risk. Those long-term come very difficult because why is this so important? Competition kills profits. Yes. That's as simple as that substitution eliminates your business. So we look at. There are many modes. One, which most people don't look at. Most investors don't really look at, actually, interestingly, is irreplaceable physical assets. Okay. We're in a world where people just look at earnings. They don't look at asset value or physical assets. And so we like quite a bit of infrastructure. Airports, for example, one of our investments, which has been the airport group in Spain, where the government of private is, yes, I know. And you just can never. They'll never build a second airport at Madrid or any other places. These are natural monopolies. And so that also applies to toll roads and railroads and telecom towers. So there are many forms of infrastructure, transmission towers that are hard to compete with because then natural monopolies where. Of course, some of these things can be overbuilt like cable. So there's a form of infrastructure. But it's usually. You have to look at the details of case by case. Very unusual to try to and usually don't get the planning to build a second airport. I don't remember how long it has struggled to get an extra runway. Right. So planning, exactly. Planning and then roads is no economic case to build a second road or you don't have the land. So for different. Literally no. So infrastructure is. Physical assets is one. A second is IP. Intellectual property, that's right. And which is so advanced. Okay, that is very difficult to replicate. So what kind of intellectual property are you thinking? One space we like is aircraft engines. And it's a very complicated product because the materials complexity, the engines run at such high temperatures, the metals melt. And so many different things have to come together. Yeah, thousands and thousands of complex parts. So that's one where. That's a business where there are only two players in narrow body engines and two in wide body. And there'd be no new entrance for more than 50 years. The last new entrance was D. And so that tells you something. Yeah, there's a big industry. But it's so complex, very hard to enter. Another barrier to entry is installed base. Okay, which applies to the aircraft engine business. Once those engines are there, for various reasons, you get the spare parts business on it. And another of their barriers to entry is scaled. Although that's not a guarantee of competitive mode, network effects is another important barrier to entry. You can see this in assets like visa, meta, yeah, two examples of network effects. And brands are another barrier to entry. But I'm not saying every brand is powerful. But you know, you think about a McDonald's, it has a value or there are some brands which are powerful and sustainable, but not all. And I'll mention one more mode, which is customer switching costs. And we take mission critical software. Once it's installed, companies are very reluctant to mess with it and switch because of the complexity. How important are recurring revenue streams for you when you look at businesses? It is important, but the predictability of when they recur is not. Okay, let me give you an example. So what's most important for us is something slightly different, which is essential product or service. We don't like things which are discretionary. Okay, so one space we've invested in for a long time is rating agencies. And here, these are the people who basically give kind of character to different types of forms. Yeah, they say, is it good or bad? Yeah. To people who invest in bonds, they say, is it investment grade, non investment grade, give for research? And if you like, bless it. And there you can actually defer an issue of pace for the rating, but they don't have to refinance their bonds, which is a big part of it in any given year. They can delay and defer. But eventually the debt has to be refinanced and rated. And so there's a, and so I think essential need is the bigger point. But usually our companies have recurring and predictable revenue streams of essential products. Yeah. And so do they have to grow? Depending on valuation, not necessarily. And, or that's not necessarily the fast rate. Okay. And growth can come from two forms, volume and price. So you have to break it down. Now, why is growth as important as people, investors usually assume it to be? Because you can have profitless growth. The airline industry over 100 years has had a lot of growth. airline travel has grown at 5% a year. Yeah. It continues to grow consistently. But airlines as a business, humanitively and collectively have made almost minimal profits. Despite growth, because of the very low-barriers to entry. And so I would say growth without barriers to entry is not a combination that you want. Some of these businesses are quite capital intensive. It's not cheap to build an airport. Yep, does that matter for you? Well, you have to look at everything into the detail. And some airports, all airports have a regulation on landing charges. But some, the non-landing charges are unregulated. The shops, the advertising, the VIP lounges, the parking. Yep. And the so-called dual-till regulation. One till is regulated, one till is unregulated. And those are very low capital intensity. Yep. It's in effect. And high returns on capital. And they grow because there's more and more demand for travel. And so again, capital intensity by itself, it's part of the equation. But it still tells you how valuable growth is. But what Trump's, if you don't mind that too much expression, or Trump's, the all of this-- It's still a valid expression, don't you? Yes, Trump's all of this is the Barry century. OK. But they-- What about regulation? What about regulation? You've been big in things that I had a logic. Yeah, yeah, I'll go into that. But I want to go back to the point about growth can come from two forms price and volume. Yeah. OK. And most companies don't have pricing power. They can only price. If they're lucky, add inflation. And that's why people don't focus on it. They don't even look at where growth comes from. They just assume it's volume plus inflation. But there is a special group of super companies that can price above inflation. And that's above it taught the test of whether you have the vote. OK. And this real pricing power above inflation can be very valuable. Because if you have a price, 1% above inflation, and you have a 20% profit margin, your profits will go 5% faster than revenue. And people don't go into it or analyze it because there's so few companies that have it. But this is something we have a lot of investments have this. Because incremental pricing is pretty much all profits. That's right. And it's very potent if you have the lower your margin. So this is why you asked about growth. And is it how important? If you're asking about volume growth, and I have low volume growth, but I have a lot of pricing growth, that's actually more important. Because of the leverage defect of there's no cost associated with it. Regulation. Yes. You have been in a lot of regulated businesses. Yes, that's right. But you've been in Red Electric, which is like electricity. Yes, that's mission company. You don't quite a few of these things. Yes, I have. And actually, it's a general risk. Because if you have barriers too low, competition or substitution eliminates your business and your investment, barriers too high, regulators make come knocking on your door. And so every case is different. Yes. And the ideal case is you that there is competition, but weak competition. And the parent competition. OK. So tell me, what is the parent competition? Yeah. Well, it's really weak competition and rational competition. OK. So the take some water examples. Prad and Whitney competes with GE and Safran. It has a 25% share of new orders. It can, it has a product, but it's not nearly as good. Yeah. It's got 35% of its engines grounded. Multiple technical problems. There's lots of a lot of trust. But it's there competing and for new engines. Yeah. But prices isn't the most important thing in this industry. Reliability is. And so you-- And as it struggles, it has to raise prices because it's got lots of difficulties. And sometimes, where there is competition, that competition chooses not to compete, generally speaking, not a specific industry, decides to be rational. Yeah. And compete on non-priced-based approach. OK. And then the detail matters. So you might have looked at P-throw airport and say, oh, that airport is fully regulated. Airports can't be good. But if you look into the detail of IENA, it's a different animal. It has a piece that's regulated and a much bigger piece, 70% of the value, maybe more, which is unregulated. Yeah. And so maybe the unregulated business-- the regulated business will give you a bond-like return, 7% but the unregulated give you a much higher return. Do you see? So the total of people businesses you've been very big in has been the stock-age changes. And all you both Deutsche Berzer, and all those other exchanges. In the past, yes. Yes. Why were they so good? In the case of Deutsche Borcer, starting with that, they had a derivative business called Eurex, which was a natural monopoly. It was a network effect. This was the barrier to entry, that liquidity of a marketplace for trading bond futures-- European bond futures-- the network could affect of getting best prices in the most liquid market, meant it became what is termed a winner takes all or natural monopoly. And once you have that liquidity, very hard to move people away. You can never compete on best price. And on the stock exchange has that for a LCH clean-it business, a clearing business. And so where an exchange can-- CME has it on US futures-- establish this natural monopoly by being the first mover, the winner takes all. Then these exchanges can be very good. But of course, they've changed now. On the stock exchange, in many different businesses, sells data and half their earnings are from data. And that's non-proprietary data, reselling non-proprietary data. So it has a vulnerability on that piece. They're no longer just what they used to be. And then there was a lot of growth without capital. As people came and traded more as capital markets grew, you grew without capital, which was very valuable. One of the type of companies you would never invest in. Type of industries. Yeah. That's a good question. We have a long list of companies we don't invest in. We're very focused. And we call them the risky and bad industries. And I have invested in some of these in the past, but I've learned banks. Sorry for that, is a bank. No, we don't have the bank. We're in the central bank. Central bank is good. Yes, central bank is good. But we don't like banks. We don't like banks. And why not? The low quality of earnings, because they're very leveraged. And much more than people think. Because people look at, oh, equity are risk weighted assets. But equity to total assets. Many banks have run at 100 times. And so two, they're opaque. You can't look into the book. You can't, Leah. I remember pre-financial crisis. I had a look at credit twists. And I sat down with the then CEO, Ray DeDougan, and said, put his balance sheet in front of him from the annual accounts. And said, you have a multi-trillion dollar balance sheet. Can we walk through the line items? Because I don't understand it. He said, I don't either. And school is very honest guy. I really like them. We'll do it. - Yeah, very honest. - Okay, so banks you don't do. What else do you do? - And the other reason for banks is they're very important. That sooner or later, you may find someone without a lot of intelligence comes to run them. And then it could be toxic. Yeah, people going for growth, Anglo-Irish bank, if you remember that one. - Sure. - They can lie there. And they just can destroy the shareholders. - Yeah, by getting bonuses, you know, best earns, you know. And non-alignment of interest with leverage and opacity. And so what are the other-- - And it's a commodity. - Well, others, oh, oh, medic, the auto industry is obviously a commodity, retail, you know, insurance, the commodities, commodity manufacturing, tobacco, the truth is, yeah, anything in most things in manufacturing. So, of course industries, most industries are bad industries. - So Chris, it doesn't leave a big universe. - Correct. - We say maybe there's 200 companies that we consider to be high quality and investable. And I mean, I'll let you a couple more, traditional asset managers, bad businesses, yeah. Speaking as one, fossil fuel utilities, bad businesses, airlines, bad businesses, wireless telecom, bad businesses, we think media is bad. Advertising agencies, you know, it's a very long list. Why? Because it's competitive. And with existing players and new technologies, and the one important thing that I've learned in my time in investing is investors underestimate the forces of competition and disruption. Because they just look today, maybe there's a new company which has a first mover advantage, but then competition comes in, yeah, substitution and, and, where is it? - So there's a lot of power. - Where does it leave the big US tech companies? - Yeah, so there's a lot of power of incompetency. - Yes. - This is another important point. So let's take a company, Microsoft, okay, which we've invested in and one of their barriers to entry is bundling. Okay, or maybe because it creates a customer switching cost, what do I mean by this? So the office franchise, which we're all familiar with, has many products in it. You know, your applications, we're processing Excel, your email, security, different things. And they sell it as a bundle, yeah, they don't disaggregate it. And when a new product or a potential competitor enters, they can add it to the bundle. So Zoom came out with video conferencing and they could have potentially, you know, added all the things Microsoft does to that. So Microsoft had to respond and they launched Teams and they were able to distribute it through the bundle, yeah, free to everybody. And even though Zoom, some people believe it was a better product, or is it a better product, Microsoft won that battle because they had the installed base, the incompetency, which we talked about and high switching costs for, because once people are using their office software, they don't want to switch. And so people started using Teams, okay? Something given to you free. Why? Because it was good enough. It didn't have to be the best if it's free. Yeah, what about the other tech companies? We have a position in Alphabet, and which is maybe a most risky investment, where they're clearly the company, and it's one of our smallest investments as a result. It's, it's, and where we have some level of protection because there are businesses like YouTube and their cloud business, which represent half the market cap today and their cash and another thing. So it isn't all search, but search is critical. And so can they out innovate? Competition, there's a risk of search fragmenting, as competitors come in and try to, but it's a question mark. We don't think so. We think they have a lot of advantages of their data that have to offer higher quality search results. And, but competition is increasing. It's it's it's it's in the talking on which how do you think AI will change the investment landscape here? It's it's going to increase disruption in ways we can't even predict, but there are things like call centers. Yeah, we'll we'll we'll we'll go bankrupt and another segment is Indian outsourcing companies. Yep, who do coding and things like that. Demand for those services could collapse because AI can do coding, you know, at at at at with half the people, yeah. Yep. So so there are, but AI will will increase the productivity and lower the cost base of all all companies. And so if you have a company with these barriers to entry, it's going to be worth more. But I think for generally competitive businesses, if you don't lead, you could become uncompetitive and be disrupted here. So now we have identified one of these companies. Let's say I know I know Roslois or Microsoft, how do you value these companies? What is your valuation tool? Are you we don't even look at that until we get comfortable that the barriers are so strong, it will be around. Yeah. Okay. So yeah, yeah. Yeah, fine. Fine. So we're going to be around. Yeah, we think it'll be around. We think there will continue to be an airport in Madrid. But we'll do reference checks on relevant people. Okay. So and see if we're missing something. So we, when we were looking at investing in aircraft engines, we spoke to the CEO of a former CEO of one of the, the competitive companies and he confirmed their thesis and actually said the margins should be much, much higher. Okay. And over time, they will go there. So that that's one of the pieces of diligence. We will assess management where I think it's important, but not critical if you have the right assets, through ideally through meeting them. The talk to competitors, get their view. And look at competitive companies, look at the track record of the company. And the, usually you don't understand everything. And usually the things you find out are bad things. And I think we'll discuss it with our team. And we want to hear competing views. Yeah, we have some members of team are just inherently bearish. And they're good for testing the back case. We always want to hear how could technology disrupt here? And they were just competition and are you a bearish guy? Not particularly. No, I, I, I, yeah. What kind of valuation metrics do you, do you look at P's, cash flows? Do you do DCFs? You have like 50 pages, all of those, right? All of those, but not 50 pages. So you know, that sets, but a very, but really honestly, one of the things we learned is there's a really important point is that we can have an advantage through long-termism, okay? Which is the average stock is held by an institutional investor by under a year or the small market in the US. How long do you hold it? A average holding period of our port, current portfolio is eight years. - Eight years. - Yeah, that's real. Eight years, I'm not saying that. That's the limit. It's just the. On average, some we've held for 13 years, some new investments like G.A.R.A.R.A. space, two years for the average, way to the average holding period is eight years. So, but it could be 10, it could be 20. I love long term, right? But how do you install that type of thinking into your organization? We don't really care. We really care. You want to. Hey, I mean, you know, went to Harvard, like you did, or whatever it is. Just like, "Hey, let's do some stuff. Come on, let's do some stuff." And it's just like, "Hey, okay, let's buy something and hold it for eight years." Right? You come home to your partner every day. It's just like they do nothing. They do say, "We really. You know, if you are in the private equity world, that's normal." Yeah. A private equity fund would hold an investment for their 10-year life funds normally, yeah, or longer, 12 years, yeah, as you know. And so. And so we. It's an overused expression for some or misused. We take a private equity approach, i.e. that we have to hold the company forever. Because you. The stock market. Now, maybe at a very bad price is when you want to sell. Yeah, if you need to sell. And so I really think you need to have that approach. And so the way we really like our long-term valuations DCF, the most important things. And here's the DCF. You take the cash flow and you discount it back to the day. Yeah, but here's the thing, the longer you can look out if you've got a great company, the more valuable value there is. Take a company we own Moody's. Moody's. A rating agency. Yeah, rating agency. So it's been around a hundred years. What do you think the average. I can ask you a question. Make it fun. What do you think the average revenue growth over than a hundred years has been? I'm going to look like a total full. But. A hundred years, seven percent? Ten. Wow. After you know that very. That's a very unusual number over a very long time period. And so investors have always underestimated their value, including myself. Yeah. And I bought the stock during the financial crisis at ten time earnings and even bought shares. More and Buffett was selling and he reduced his stake from 25 percent to I think he's got 15 percent and. Biltcher. And the. Are you kind of secretive? Please having bought something from one profit. But then I sold it. I doubled my money. I went from ten times earnings in 2020 and I sold it at a hundred dollars, bought it at 50, sold it at a hundred. I thought I was clever. And then. But the earnings kept compounding. So you buy back. I bought it back at a hundred and fifty dollars. And now it's. We're recently five hundred now, four hundred dollars. So it's. But it's. And. Because actually. the intrinsic value compounding matters more than the stock price. If you have a great company, it will grow intrinsic value. Absolutely. And the multiple. Here's the thing about the multiples. They matter less than the growth when you look at it over a longer period. But most investors are unwilling or unable to invest on a long-term high-timerized end because either they don't know what they're doing, which interestingly goes back to what were. They think it's risky, which goes back to what Warren Buffett was when he was asked what the definition of risk was. You know what he said? Not knowing what you're doing. So really good nugget here is that if you buy something which is really good, it doesn't quite matter what you pay for it because it will grow. It's secondary over a long. Well, I say it's just like this, the multiple to a point. Yeah. Whether you buy it. If it's growing, it's all maths. Yeah. You've got to look at the growth rate, the terminal multiple, all the amount of things. But if it's increasing in intrinsic value at a good rate, you will undervaluate if you look at it over a short horizon. Yep. It can be saying it like that. And if you're willing to hold it for a long-term and extract that intrinsic value growth, it'll be worth to me more to you than other people. I've heard you say that there are more good companies in the public market than in the private market. Yes. Why do you say that? Because the companies that are sold to private equity are the ones that aren't as good. Yeah. People. How do you. What about your base? Well, I say to a couple of things that I don't know what you say. Let's stay into it. I know it upsets people who are private equity. I mean, we actually. I'm pretty. I'm not pretty, I'm pretty pragmatic about this, but why do you. How do you. How do you happen to think. I happen to think that large companies are more likely to beat small companies in an industry. They have more money to compete. Yep. And in R&D, yep. And the scale we talked earlier about scale being key and in competency being key and switching costs. So we think it's. A small company that invents something new we talked about Zoom, it can be crushed by a large company reasonably easily. They can copy. And large companies are usually too big for private equity. Private equity can't buy Visa. No, no. They. It's too big for them. Yep. So that's size. Excludes private equity from large companies. And if a public company is selling something to private equity, usually they're selling their best businesses. Yep. And I'd say private equity, like all asset management, is prone to the principal agency problem where they incentivize to gather assets. Let's just say, say it like this. The very best businesses in the public markets, I believe are better than the top 100 companies, are better than the top 100 companies in private equity. Yep. When do you sell a company? When it's a view of intrinsic value is not as good as other things. Not just value, but conviction. So, philosophy. Two components to it, if you like, intrinsic value. So the price still has to be at or above or below intrinsic value. But there's a second point, which isn't really focused on by many investors, which is conviction. Okay. So you lose faith in them. No, I'm saying you need to have conviction when you invest in something at all times. Yep. And what does that mean? You could call it confidence. What does that word mean? Because there's a saying talk is cheap. You can say this and you can be wrong. Okay. And so one of my first investments when I worked in New York for a hedge fund before starting TCI was in an Italian media company. And being capital block control, it was like a billion euro valuation. And it went to a 50 billion euro valuation and then went to zero. It was a yellow pages company. Which you remember it. And when I first invested in the internet, it didn't exist. And people thought yellow pages were a monopoly and they were. And so the point is you can be wrong. And certain industries, your risk of being wrong are higher. Technology is one of those areas. Absolutely. But if I own an airport, yep. That is a toll road. Let's take a toll roads that are unregulated, which there are some that we own. I'm less likely to be wrong than if I own a retailer. Yeah. My chances of being wrong because I'll less because I have physical asset backing, substitution risk. So the thesis is much more obvious. Yeah. Because so the and so this concept of conviction is very important. One investor, yeah. Yeah, so I have to be able to sleep at night. It has to be sufficiently obvious, which, but you always have, sounds contradictory to saying that you can be wrong because what kills you as an investor is permanent loss of capital. Absolutely. I got a bit of a problem with the concept of intrinsic value as if there were some kind of objective truth. Yeah, you're right, you're right. It's, you know, we can't tell the forecast the future to a high degree of accuracy. You can just say, which is why you can, and the longer you look out, the harder it is. And so we look at more simpler tests sometimes, will the business be around? Yeah, yep. Will we still fly airplanes in 30 years and you know, will we want airline travel? Will there be demand for it? And so once, you know, so I agree with you. So I think that valuation is just approximate. We can just say in truth, with confidence we have a good or great business, okay? And as I'm saying, only a small subset of businesses can be predicted, which are the most powerful ones, but exactly how they grow and you know, unexpected events, you're right, there's no certainty. (upbeat music) Let's move on to from companies to investors. And in terms of what makes a good investor, why are you a good investor? Well, it's your words, it's important to have humility. But there was someone I knew who took me aside once and he said, Chris, you and I, he did reasonably well. He said, we weren't the best investors, we just took the motorist. So I just, which is not true, actually. Yeah, it was, it was an interesting comment that makes you sometimes when people say a joke, you're, or scumbling, you wonder, is it true? But I was always willing to look at the company fundamentals and not them try to guess the stock market, okay? And focus on macro or trading, yeah. So I was always fundamental. Most investors are not fundamental. They trade actively, they look at data points, they say, what's the catalyst? They don't really know what the company does. So I think the fundamental approach has been key. Long-termism is key, okay? Another thing we've done is concentration. We've owned a few things. We may have 10% type holdings, 10, 10 stocks, you know, 15 stocks. We don't own 100 things. We're not, and I think another key point is intuition. We work with intuition, which is something that is, how strange, how do you use intuition? It's a, it's been defined as thinking without thinking, which is the Buddhist would call a co-an, something that doesn't, makes sense. We will come back to your Buddhist thought slash one. But it's a, it's a lot of people don't understand what intuition is. It's, it's sort of, well, I have, I happen to have written my master's dissertation on this exact topic, but since you're one who does, then it's sort of the opposite of intellect. And so what is pattern recognition in a way, you've seen it before. Yeah, that's, there's a word for it, knowing. Okay, it's, it's all of the opposite of intellect. So of course, we'll do analysis, but then it's a higher level of intelligence than just intellect. But do you, what do you have intuition about? Do you have the intuition about the people, the situation? What is it? All of it. Okay, all of it is someone trustworthy or not trustworthy and the patterns, patterns are another thing. And so, you know, we were, we don't do, we were really short, but we were short wire cut. Yeah, I know, we're coming back to that. Yeah. And but the, is your intuition now better than it was when you were younger? Yeah, it was not in intuition so much before the last five to ten years that you've been a change, but I think I always operated with at an intuitive level and it's not just stop picking, but I decided to start my own fund. You know, 21 years ago, I just had this intuition that I was in the wrong place and not doing what I was meant to do. And it wasn't about money or anything, but it's, it's, it's, when you know, yeah, when I met my wife Kylie, you know, you're just, you know, there's a point where you just know, yeah, it isn't an intellectual thing. You know, there, this is called, this is called love, this is something else. Well, love is not of the mind, but love should be intuitive. Yeah, it's an example. Yeah, do you believe in, so if I, if I'm your colleague, so I work now for you, I'm a junior analyst, I came to, I come to you and I say, hey, Chris, I got this intuition. I think this looks really good. Will you believe me? No, I'll, the, the, because the thing is that people have to do, we don't work like, here's the differences. I've been a stock picker. So a lot of portfolio managers aren't portfolio managers. They're managers of managers. And they say, people like that say to me, there's only two truths, which is not the story that I hear, but the PNL and the stop loss. Yeah. Because they can't analyze the company themselves. So no, we never take anything from anybody at face value and we work in a team that's something we didn't mention earlier. But the, here's the point is just a story is just a story. Yeah. What? You have to focus on what matters. Okay, because there was a, a spiritual teacher actually, he said something that applies to investing. He said very few things matter and most things matter, don't matter at all. Okay. So you could, an investing, it's actually similar. Yeah, you can, you need to get out of the noise and just focus on the handful of things that matter. Is it, is it talent or can it be trained to become a good investor? I think it can be trained. Yeah. There's a judgment element of it. I think it can be trained for sure. Yeah. No, we have, we both have taken inspiration from some of the same people. Right. One of them is John Amtich, who I worked with. Yes. Yeah, I love John. I love John is a, I consider my friend. Yeah. I was just starting out. He really, he's a great investor and he took me under his wing a little bit and I can do anything and we had the same, couple of same stocks. The energy group was one and I didn't have the experience to know and say you would probably say that knowing an intuition comes with experience, too, too, too, but yeah. So yeah, I'm a fan of John's. Yeah. Because most of the things I know about investment, I learned from him and his partner, Bill and the manager. We have some of the same teachers here. Moving on a bit. So you are, or you were in a perhaps more considered an activist investor. Yes. So in your view, what is an activist investor doing? It's a spectrum. And from full blown hardcore, removing boards and CEOs and, and, and, and, and, tomorrow in the sale of a company to call it a soft activism, softer activism of trying to have relationship and dialogue with the company at a professional level and where you understand the mindset and the thinking of the business. So, and, and engage. Okay. And that could mean many things. And, you know, I'd say today, our relationships are very, generally very constructive with companies. So. But it wasn't always the way. Yeah, it wasn't. I learned. You've gone kind of from having been an aggressive tiger to becoming a bit more of a, you know, big lion. Yeah. Well, though no one thought like that when we started the fund, when we named it the Children's Investment Fund, we thought how are we going to compete with with Tiger and Viking and more aggressive named sons. But yeah, it is true. I've learned that actually, hard core activism is not a great thing. - Why not? - Yeah. It's very difficult to succeed because the vast proponents of today's investor base are passive who don't actually get them to vote for something is very difficult and all the power, and so active management is dying. And so when I started, there was very little indexation and so there was a more engaged active shelter base and now indexation has limited the power of shareholders. But I mean, you were one of the most fared people in Europe. - Yeah. - But it was like, - It was like, - It was like, - It was like, it was like, it was like, it was like, bad businesses. And long ago, like, AB&AMRO, putting up for sale through, putting on the AGM, a vote to sell the company. And we made a lot of money. We made a billion dollars, forcing the sale of it. But in truth, the company was worthless, but was bought for 100 billion from three companies who all went bankrupt. Royal Bank of Scotland, 40s and on Venator. So they didn't know what they were doing. We didn't know what we were doing. And it was all, a madness, it was a, but it made money. But for those who sold. But in truth, the fundamentals would trump everything. So a lot of activists end up being activists in bad businesses. - But are you, have you stopped being an activist because you are more attracted to good companies? - That's because you can't take the pressure. - The business always wins. Okay, so it's pointless being an activist in a B business. And that said, we still engage in it. In hard core activism, we're an investment where we went on the board and pushed out chairman and some directors and the company's doing much better now. And, but that's an exception. And I'd say, that was a result of a disastrous case in the company where we went on the board. They couldn't appoint a CEO. The board was divided and it was a real mess. - What kind of personal told us to take on you to be in this fight? - You'll be giving an example. A few years ago, we, I don't know, it was six years or so. We own shares in Safran, where we still own them. We've held them for 13 years. And it's a great company, Kraft engines and joint venture with G. Error Space. And they announced that we're buying a company called Zodiac. And we felt a French Error Space, I thought the price was ridiculous, 10 billion euros and they wanted to pay in shares. And we thought that we believe the shares were half price. So they were paying four, five times the intrinsic value. And we ended up a very aggressive campaign and threatened the litigation and demanded a vote. And in the end, the target was adding multiple profit warnings and it became clear that we were right. And Safran went to Zodiac and said, "We have to cut the price in half and pay in cash because TCI are forcing us." Okay. And so, and that's what happened. Sox doubled and, but we were sued by the seller for 100 million euros, both me and my general counsel, separately. She said, "Kris, I'm not really sleeping much at night. Are you gonna fall in? I can't." And so, yeah, I went into a Paris court and it's not for the faint hearted to do this and do you enjoy a good argument? No, I don't really enjoy fighting people anymore. I never really did. It was a, it was a, something we began with Deutsche Borsa and now really it's, I'd say, what people call activism is really an exception to us. So, it's like, why did we get involved in that Zodiac? We were already a shareholder and something bad came out of the blue. It's like you walk home and someone attacks you, yeah, to try to take your wallet and you fight back. And I say, do you enjoy a fight, Nikolai? No, but I'm not so sure I would fight back. Should you choose to? Yeah, I'll ask you that question. Is you, you would say, no, I don't enjoy fighting. It's just I had no choice. So, I was fighting for my life. So, I put it like this, we act as owners. We're always act as owners. What does that mean? We, we, we're interested, we're engaged. We think we have a right to, a point directors, we're legal right to it. And, and we'll, yeah. And so we think one thing we have learned is governance does matter. Which brings us to kind of the opposite, wild card. Mm-hmm. Which has a bad company which you shorted. And shorting just for those people who don't know, it's you borrow shares, you sell it. The goal is that the shareholder should go down and you buy them back cheaper and hand them back, right? And make a profit. So, what's the, what was I mean, in a few words, wild card. Well, he, yeah. First, not too long. Because he's a very long company. Yeah, no, by high level. We learned that shorting isn't a great business because you're going to be right, but not be able to hold it or fund the losses, okay? So, but wild card. Which is if you are short and the shepherd goes up, you basically just want to have it. Unlimited downside. Yeah, and you have to fund the losses. This is what people, but realize you're going to be eventually right. So, the first guy to short wire card 20 years ago was a guy from Ronti Capital. And the stock went up 20, 30 times and went to zero, but he was, when that happened, he was interviewed by the media and they said, congratulations. You were right. But he said, no, I had to cover 19 years ago. I couldn't afford to fund those losses. And so, it's, you have to understand investor psychology. Yeah, it's tough. Very tough. And I had a dinner once with Warren Buffett. And he said, he and Charlie looked at shorting. Yeah, they studied it. And they just said it was too hard because of that point of understanding investor psychology and the asymmetric risk and award. And so, it's an exceptional thing, but we looked at wire card and all the accounting games and then the financial times came out with all these articles. Yeah. And I called the journalist. Good guy and I said, you're writing all this stuff and he said, it's all true. I said, no one will listen to you. He said, everything's true. We stand by every word and then you just, you could literally read it in the paper. And I have a whole German establishment to end in and support in the government, right? That's right. In fact, the chairman was a former CEO of Deutsche Bolser. And but there was a bit of pattern recognition where I remember at Harvard Business School an accounting course I took and there were red flags. Yeah. When you do this, small auditor. Yeah. No cash flow. Yeah. And things like all their Asian businesses the office was empty. Yeah. So I think to be a good investor, you need a certain independence of thought. Totally. And probably to be a good journalist as well. And that's why the funny thing is that the fraud was there in plain sight. And I think I learned to be an independent investor and so we went to see the CEO. Actually, I sent two of my team to meet him and they came back incredulous at this like pathetic demonstrations of technology and they were shown. And interestingly, there was a potential catalyst which was the report about their accounting. And in the end, they just said it's garbage. And then the stock went up a lot. And so actually, I tried to take, become an activist in this position. I filed a formal criminal complaint for fraud in the Munich Prosecutor's Office because they said if I didn't wasn't public about it, it would be viewed as marketing manipulation so we were transparent about it. And that created chaos, but it forced some action. Yeah, you know when it's. force eventually an investigation and so because I didn't want to be like Bronti Capital where he just ran and ran and so at some point it really became obvious and it became a confidence game. I think that people trust authority too much, okay, that sounds a strange thing, but they trusted the German establishment, yeah, that you had a board with the great and the good and they weren't willing to believe the journalist, but we had a very good team at MBM, which was on the same side of that. Yeah, so really good. Talking about trusting authority and moving on to corporate culture at TCI, what is a corporate culture like in TCI? How many people are you? You know, in the investment team, it's seven, eight people, we have a large back office, but how do you work together? We want so small. Very small and it's collegiate. Yeah, we have known each other a long time and there's something that we've built which is an intangible trust. Why don't you have a hundred fund managers? No, a good question. Firstly, my best people, you know, they would never stay. They don't want to, it would be too impersonal. There's a human aspect to work, you know, people don't come to work, you know, the best people for money. They come to because they enjoy the environment and so it's really important how we treat people, how everyone treats each other. And I'll never hire someone without the blessing of my senior team and because we could destroy the culture. And so. I mean, Isoke teams are five and football teams are 11. Is there something magic with seven? No, but it's small enough. Yeah, above ten, it would be too big. What do you look for when you're higher? So now I'm applying for job. Yeah, everybody, you meet everybody. You meet everybody. You're applying for a job at TCI, I'm here. You share the philosophy. What kind of questions you ask? Yeah, what makes a good business or the things you talked about, it becomes, yeah, we ask for a case study. Right. Or two. And it becomes immediately obvious whether you know what you're doing, yeah, whether you share the philosophy. But also it's not enough just to be a good investor. You have to work in a team, not everybody wants that. And you have to be able to get on with people in a way where you have to be open-minded to being wrong. You can't be too dogmatic because. So the personality does matter a lot. Now you have a big share of the profit over the firm goes to the charitable foundation. Right. Well, actually, I give it to charities. A lot of philanthropy I do directly. Often I give it to the foundation or co-invest with them. So yeah, one way or another it goes to charity. Do you think it's important for your colleagues that you guys fund all these? Well, charitable. No, I think they make a lot of money too. What do you think is irritating that you give away all the money? They also earn good money. I think it's probably a positive thing, but I can't. You'd have to ask them. I can't say definitively. But I give away everything I own. I don't really care about money because other than its value in helping people. When did you learn about philanthropy? Who taught you? When I was in York working for a hedge fund, one point after about three or four years, made I don't know, two or three million dollars. And they. I'd done well and they said you're going to get a ten million dollar bonus. And I just. This is in intuition, said I don't want it. I want to just give it to charity and I created a US foundation and gave it to it. And I didn't really understand it. What was driving me for 50 years? I would meet with Bill Gates. A lot of charitable work with him over the years and he would ask me, "I couldn't answer the question." And eventually I did understand it and better late than never as a sole urge that there's an essence who we really are, what we really are isn't the personality or the physical body, but soul or consciousness and that someone called it life. There's something that gives us life. And that and will. In the same way you Niklai had a desire or will to do something more with your life, then just make money. And that fundamental nature of that, that the soul is service, desire help, ultimately humanity. And where did that come from? It's innate within everyone. But yeah, for sure. So if it's innate with everyone, why don't more people do it? Because they're. They identify with their personality and less with. Consider that like a user, use the interface of the soul. And the personality's basic urge is desire, possessions, glamour, like power and money and other things like that. And sooner or later people realize that that doesn't really give, you know, some would say happiness, but actually there's more important things in life than happiness, purpose and meaning. But you say that sooner or later people, but I mean people don't. I'm not saying in one life. They may need here many lives and that may be a strange thing for you to hear, to realize. Yeah, I don't believe this is the only time we. We're here and eventually we'll learn that they. What we are can be as a result of some crisis in your life, yeah, and death, disease or. In my case the third D divorce and it's then that they look inward and ask, well, what is their life about? What is their purpose? Is there a meaning? And for me, I could never find any purpose or meaning in my life except service. And that is clearly, you know, something you could say it comes from within, yeah. And so that's my origins of my philanthropy. Do you think. I mean, you came from a working class family, right? And you're followers and immigrants. How do you think that shaped you? It made me an independent thinker. You always grew up as an outsider and you felt different and. It gave me a work ethic and a desire to achieve something, yeah. And so I think that was an important piece of my history here. Tell me about the foundation. What are the main priorities of the foundation now? First, it is now one of the largest foundations in the world, right? We have about six and a half billion dollars in the foundation. And I also do philanthropy outside of that. And so, between us, we're giving away over 500 million dollars a year. Two main areas, climate change and children's health in Africa and India. On the health side, we focus on foundational issues. Contr reception is one. We can't get development. or lifting people out of poverty if the women are having, which is far more children than they want. You know, Africa fertility is nearly seven. And in many cases, that's not affordable. They don't have access and agency. Women don't have access or agency to contraception. And so for ten dollars cost for avoided pregnancy, you can help a poor woman have one less pregnancy if she wants. And that's a remarkably low return on investment. High return on investment. Yeah, there's almost nothing. The area is severe acute malnutrition, where I funded the creation of a company and I buy product for $40 a case you can of therapeutic food. Think of it as a fortified power barrow. Therefore, you can save a child's life. And there's 100 million children with severe or acute malnutrition, nearly half of all child deaths under five. Neglected tropical diseases like trachoma. I fund to coma surgeries where just a stint, it's not for $50 you can fund the surgery which stops someone going blind irreversibly. And there's millions of people with this. With so little money, yeah, $10, $40, $50 you can save a life. Stop something going blind. It's remarkably, you know, what can you know, when you go to Gautger dinner you might pay $40 for a bottle of wine, you wouldn't think, oh, I could save someone's life with this. But that's the reality. And so the HIV/AIDS were very involved in as well. So on the climate side, what are the main areas there for you? We've been trying to create infrastructure for the climate movement and regulation advocacy because nothing's going to be fixed if there isn't regulation. We fund. And that's across the board and also technical assistance to governments who want to change but don't know how. We're very active in Asia. If you don't operate in India and China, that's where Vietnam and all these countries, that's where all the emissions are growing. Tax is another thing because if we're not advancing through tax, new technologies and we're subsidizing fossil fuels which is what happens, we'll never change. And methane is another one, we're fund of the methane hub and methane satellites and just many things, environmental litigation, we fund that. So in a sense, there's activism there. So given all this, how do you read the backlash against ESG in financial markets? Well, I never really got involved in the S and the G, just the E. And so here, I think it's a very dark thing that's going on where people are saying, some people are saying in effect, burn down the planet as long as we can make money today. And we don't care about future generations. We don't care about poor people in poor countries, dying off, we only care about our country. And making money as much money as we can today to hell with the consequences. And it's really back to what I was talking about, this distinction between soul and personality that if it's a conscious of this problem. And actually, we'll never solve any of these problems, whether it's climate or poverty or war, if there isn't a change in the level of consciousness. So given that, and in order to finish off on a slide, I'm a blifting note, what is your advice to young people on a kind of spiritual? Yeah, go on a spiritual path. Go on a study and I would say the spiritual world is real. Soul is, when I first mentioned this to my son, he was 20, he said, "Dad, the soul is a myth." He doesn't think that now. Is it not? He doesn't think that now. It's definitely not in many paths to connect to it and you can connect consciously to it. And whether you go the long way, the short way, the easy way, the hard way through suffering, you eventually come to learn that the spiritual world is not just real, but it's the whole thing. And so that's the only source of real purpose and meaning and joy, which the world needs. And I think that if you crack that, then everything else is easy. Very good. Chris O'Neal, we've talked a lot about purpose, meaning and joy and what really matters in life. Big thank you. Thank you. [Music]