Bloomberg Audio Studios, podcasts, radio News. Welcome to Maren Talks Money, the podcast and with people who know the markets explain the markets. I am Meren sum sub Web and this week I am speaking with Ian Lance, who as a manager at Temple Bar Investment Trust. Ian, Welcome to Marin Talks Money.
Thank you, Mary.
Right, we have a lot to talk about. It's been exciting times for you. Right. This year is the one hundredth anniversary of the Temple Bar Investment Trust, Right, it is, indeed, Yeah, it's also the I was going to say the end of a period, but I hope it's part of an ongoing period of spectacular performance from the Temple Bar Investment Trust, which I will say, by the way, I'm particularly pleased to have you on because I've been a long term holder of the trust, so I keep very close eye
on what you do now. Your company, Red Whale, appointed to take over the investment Trust assets at late twenty twenty.
Right, that's correct.
Yeah, and since then it's been extraordinary. Your performance has really been absolutely marvelous. NYV in shareholder total returns have not far off well two hundred percent for NYV and well over two hundred percent for shareholder total returns, and you're pretty much top of the peer group and every single time frame since they're in very very much ahead
of the benchmark. And also interestingly, I noticed in one of the reports I was reading in the run up to talking to you that even in this period where everyone thinks that you can only outperform if you go to America, the temple Bar performance has been head of the SMP composite. So that's really quite something given you are not entirely but almost entirely UK invested. I think you can have thirty percent invested outside the UK, is that right.
That's correct?
Yeah, okay, So let's start by talking about how you did that, and then we'll talk a little bit about
whether sustainable or not. I mean, I think the important thing to say for investors and listeners who do not know the temple Bar Investment Trust is that you are very much value investors, always have been, and even when the manager was changed in twenty twenty, one of the interesting things at the board thought then was it was not the right time to move away from the value of strategy, and they continued with it, just with a
different manager. So let's talk a little bit about what value means to you and how you have created that really fantastic performance. Over the last six years, we've.
Stuck to our value philosophy, and I think the first thing that we would say is that the timing of us taking on the assets were in some ways fortuitors. Ie, we started the clock ticking at the end of October twenty twenty. You cast your mind back then, we were right in the middle of the pandemic. You know, people were wondering how long lockdowns were going to go on. A lot of share prices had done very very badly, And simply what that means for a value investor is
your opportunity set Suddenly it becomes incredibly interesting. So, yeah, you know, the market is offering you marks and spend below a pound, and you know, and Nat West Bank at the same price. It was in the middle of the financial crisis and so on and so forth, and so you know what we did was we basically use that to buy lots of those very very cheap stocks
and then stuck with them by and large. And I suppose if you look at the things that have done best over that period of the time, financials would be a big one of them, you know, UK banks, which some people were saying you should never invest in a UK bank. UK banks performed very very well. So have insurance companies. Lots of other sectors that people you know, say you should never really touch. Airlines would be another example,
again perform very very well. So really it was it was buying what we thought were sort of decent companies at a time when they were offered at very very low valuations, and then and then keeping hold of them.
Okay, and how are we defining lower valuations? How are we defining cheap? What do you look at?
We defined cheap by looking at where we think of company's earnings potentially is not where its earnings is today. We think that people typically focus too much on short
term earnings. So COVID is brilliant example of that. Obviously, you know, we'd gone into this lockdown, the economy had gone into a downturn, Lots of companies, their earnings went down the past, the dividends, et cetera, et cetera, And what people have a tendency to do is basically anchor off that they and they just kind of can't see how things are ever going to recover. What we tend to do is say, right, look, at some stage this will end, earnings will recover, where do we think they
can get back to? And we kind of try to look three to five years out and then basically value the business off where we think the earnings can get back to.
It really sounds very straightforward, quite obvious. Why doesn't everybody investate this?
Because it's simple, not easy. There's actually a book called simple, not Easy and Perfectly Some Value Investing, which is you're absolutely right. The mechanics of doing that are not particularly difficult. The difficult bit is the psychological bit. It's the buying stocks which the share price has probably just gone down a lot. Everyone hates them. Everyone tells you you're an absolutely clown to be buying those you need. Do you not know that? You know we're in the middle of
a recession and YadA, YadA yadda. I often say, you know when we when we put up our top ten holdings, people often feel slightly nauseous looking at the companies that we own. But you don't get bargains unless you buy things that have some sort of controversy around them. That's the reason that it works.
And when you look at the top ten holdings. It's actually it's a very concentrated portfolio, isn't it that There are sixty five odd holdings across the portfolio, but the top ten make up a very significant proportion.
Yeah, that's correct.
How much is the top ten now?
I think top tens are around fifty percent of the portfolio. Yeah.
Yeah, so this is very focused. So when you find it, when do you find a bargain, you really go for it.
We do, although although actually you might be surprised to find that. Actually sometimes we put you know, three percent or so into the portfolio. But I think the important thing is letting it run, so basically not being too quick, you know, to take your profits on things. I mean, I keep going back to the banks. But the banks will be a fantastic example of that. You would have had lots of opportunities to have sold banks as they
went up and buy and large. We just kind of like and run, let them run, and of course then they end up becoming a sort of five six percent position.
Okay, So what makes a stock a good value stock as opposed to a value trap. I mean, it's the standard question, right, There's a lot of stuff that looks very cheap, but in fact, maybe it's got an awful lot of debt, or it is obvious to you that its profits may remain low and definitely etc. How are we dis distinguishing between a great value buy and a value trap.
Unfortunately, buying value traps it's almost an occupational hazard. If you spend your entire time saying, now, I'm going to avoid companies that I think might be a value trap, then you are going to miss the ones that actually aren't, the ones which actually it turns out that the market has just overreacted in the downturning earnings. But by and large, we do stay away from companies with too much debt, and I think that's myself and they could be running
money for thirty years. When we look back at the things that have gone the worse for us, often it's just companies with weak balance sheets because when things went down, they didn't have the ability to basically stay the call. So you got to buy something with a decent balance cheap. And then we do try to buy things where we think that the earnings can be higher on a five year basis, and we're not always going to be right about that, but it is our starting point. So we're
not just buying cheap rubbish. We are buying things which we think have suffered temporary dislocation. That might be because of something the company has done wrong, it might be because of an economic downtown, might be because of the business cycle or commodity cycle or something like that, but where we can see some sort of route to the earnings recovering in the future.
Okay, so very much an art form it is.
And as I say, you do have to just sort of be fairly pragmatic about it and just admit yourself that occasionally you're going to get one in the one or two of these wrong took us through.
The top ten at the moment. What's in that high convection part of the portfolio?
Energy is quite a big part of it for obvious reasons, and actually they're a great example that you know, they obviously were much smaller holdings starts of the year. Energy stocks have done very well.
Yeah, so you've got both BP and SHELL at the.
Top, right, BP and Shell. Let's be honest, this was not a call on the old price of all to a certain extent, it was almost the opposite. Actually, as we came into the year some of the investment banks for falling over themselves to tell you that the old price is going to be forty dollars this year, and that immediately gives you recently high conviction. But actually there
are some stock specific stories here as well. Probably the one I would highlight there is BP, where I'm sure I'm sure you and lots of the listeners know the story here that strategically they just went in a completely different trajectory over the last few years, decided that they were going to sort of walk away from their core or in gas business and invest lots of money in transition. Didn't go so well for their shareholders, and they've had
a change of management. You've got an activist investor in the form of Veliot has come in and taken a stake, and there's a bit of u turn going on in terms of the strategy. And we think therefore you've not just got the recent rising oil prices, you've got actually a self help story going on there as well.
Okay, and then after you've still got a lot of financials.
We have, although I should say we have been trimming the banks, not because we necessarily think that they're expensive, but you go back a few years, they were very, very cheap. I mean you literally could buy UK banks on five times earnings half book six or seven percent dividend yield. Those days are gone. So now now they're more like ten times earnings one times book, you know,
slightly over, so that they're no longer cheap. And I think the second thing is when we look at the dynamics of the industry, things are pretty much as good as they could be at the moment in terms of interest. Margins are high, you know, loan defaults are low, et cetera, et cetera, and so you just say to yourself, look, they've done well. You know, they're now more fully valued and conditions probably don't get much better than this, so
we have been trimming those. I think another interesting story where we do seem to be quite contrarian here is WPP.
Yeah, I saw that tenth biggest holding. Now that is that's definitely controlling, but that's what you're supposed to do.
WPP is definitely contrarian. So obviously WPP is the advertising agency was put together by Martin Sorel for a series of acquisitions. It's definitely lost its way in the last few years. But again you've got management change about six months or so ago. And I think what gives us conviction here is that their peers are still growing. So going back to your question about value traps, how do you know a value trap? Well, their biggest peer is
a French company called Publicists. Publicists are still growing at five cent pranum, so you know there are definitely structural forces going on within the industry. And despite that, Publicists is still growing at five percent parandum. So that, I suppose makes us think that it's probably a WPP issue, not an industry issue. And we can see what the WPP issue is, which is its still run as a
series of fiefdoms. So all those different advertising agencies are and may the J Walter Thompson, etc. That were put together through a series of acquisitions, Were never really fully integrated and they're still run as separate businesses to the extent they sometimes they will picture against each other for the same account.
Well, that's absurd.
We think the challenge is basically to integrate those different businesses into one company. And the valuation is just crazy. The valuation is absolutely crazy. The shehad today, I suppose about two pounds seventy something like that, they are forecast to do fifty p of.
Earnings, but that rather rather reflects lack of confidence in the management team being able to amalgamate things in the way you've just been talking about.
It absolutely does, which which funny enough, we like. Actually, so the market is giving new management zero percent probability of improving things. We would say they could just stabilize earnings at fifty p right, what do you put that on ten times or something that would be a five quid shower price from kind of two pounds sixty today. And actually we think that they can do better than just stabilize the earnings. So at the moment, the market doesn't agree with us, so we will see you.
Don't want the market to agree with you for a while.
Right, well not yeah, not yeah no, but eventually, yeah, let me ask.
You about another one on the top ten. Foint we move on to two different things. Cheers, K, you've got there at number five. Yep, that seems to keep coming up when I talk to fund managers and listen to dot pickers SPEAKSK is very popular at the moment.
Yeah, although funny enough, actually not, I wouldn't say that there was a that's not really a sort of recovery story. I think that's just a situation where within healthcare, the market just became very very negative on healthcare companies. And actually that you know, these are reasonably good companies. They're not uber growth companies, but you know they can normally knock out sort of five percent or so earning's growth.
And that's absolutely the case with GSK. Their record in terms of new drug discovery has not been fantastic over the last few years. But you know, there are some very good businesses within the company, and yet it just got down to a very very lay multiple. So and actually in the last year or so, actually the stock has begun to rerate, hence again why it's ended up in the top ten.
So what we've got here is relatively inexpensive portfolio, pretty high conviction, and very pragmatic in terms of where you look in the market. Right.
You know, you mentioned at the start that the trust is up sort of I think two hundred and forty percent or something since we took it over. It's on a pe of less than ten today, which is amazing. No you think, oh, that almost sounds impossible, doesn't it. And of course that that's I suppose the good thing about being a value investor is you rotate around the market to where the value is. You're not locked into sort of one set of companies, and that's exactly what
we've done. So despite the fact that the trust has gone up, we've basically been able to continually rotate around the market, and thus you've still got a low valuation today, which hopefully, you know, is an indicator of you know, that the returns can continue in the future.
We were talking earlier before we came on about different investment styles, and you know, you call yourself a value investor, we call you investor a value investor, and let lot of people call themselves growth investors. And then we've been through this lengthy period until quite recently when people talked about investing in quality growth seemed to be an area that massively outperformed, and people would talk about not worrying about price so much because they were invested in a
quality company and it was growing. Therefore price was slightly by the bye. Now that seems to be coming to an end, or has come to an end, and a lot of the quality growth investors have been having a pretty torrid time, which slightly brings us back to the idea that maybe all investing should be value investing, and in the end, if you buy something over priced, it's going to end up a valuestog.
One day, I would completely agree. The thing that always puzzled me about it was that when I look at a company that the quality of it and the growth rate of it are both things that I consider when I'm calculating the value of the business, and so is actually right right? So why would you suddenly say, you know, all I'm going to look at is the quality and the quality and the growth and I'm not really going to consider the valuation that That never really made sense
to me. What is interesting actually is that you're you're absolutely right. For about ten years. Actually, that style of investing work quite well twenty ten to twenty twenty.
Yeah, twenty ten to twenty twenty, right, which coincided amazingly with guess what.
No interesting state of easing. And I'm sure that, I'm sure that had a big part of it. It's come badly unstuck since then. And I think there are two reasons for that. One is that it turns out that a lots of these companies were not as high quality or not as fantastic growth as maybe people thought. You know, I scribbled down a couple of examples later on night. The share price has gone from one hundred and eighty
dollars to forty dollars. One hundred and eighty dollars. It was doing four dollars of earnings, so people were paying forty times earnings for Nike, just ahead of a period in which the earnings went from four dollars to one pounds one dollar fifty. So and you know, that is a fantastic example, isn't it, of where both of those bits went wrong. So, in other words, the earnings were not as great as you originally thought they were going to be, and you were paying too much for those
earnings in the first place. You put the both of those things together and you just get this horrific in a combination of de rating on their earnings. That's the story across lots and lots of these. Another example, Starbucks earnings has gone from three fifty dollars to two thirty. People are still paying forty times earnings for that. There are examples in the UK records records, did three twenty of earnings back in twenty eighteen, they forecast to do
three this year. So again, you know, the earnings for a lot of these things have just not been nearly as good as maybe people anticipated, and you paid the wrong price at the start.
I mean, that doesn't necessarily tell you that you shouldn't look for high quality companies that you think will grow fus. That just tells you that it's very risky to overpay for them. I mean, the message is very simple.
Yeah, it is. And actually coming back to this point about the fact that we rotate around the market to where the value is. People often laughed at the fact when we join our WC, as it was in twenty ten, we own Microsoft. We have a value investors to by Microsoft. Why because in twenty ten all the tech guys were tell you that Microsoft was basically it was like old technology was going to get disrupted by all the all
the new entrants and so on and so forth. Microsoft was trading on eight times earnings back in twenty ten. It had net cash on the balance sheet. There's a fantastic example, I guess of what you're talking about.
There.
You had a what you might call a quality stock, but it was available at a really low valuation, which is just that's your nirvana, isn't it.
Yeah? Are you seeing any of that now? As we move away from the idea that quality growth is it's okay to overpay, And there's some of the stocks they had badly or worse than expected it anyway, is there anything in there that you can pick up and say this is quality growth and value at the same.
Time, I think the answer is no. One or two of them are starting to move down into interesting territory. So actually a stock which was it was almost the post child of sort of quality growth was Diagio. So we haven't owned I don't think we've ever owned Yasue. Actually we initiated a position recently on Diagio. Why because the earnings have come down, the dividend's been cut, You're
now actually only paying twelve times lowered earnings. You've got a change of management every with Dave Lewis coming in, so you know it's got the ingredients there for a business that could do relatively well. To be honest with you, we haven't gone sort of gang busters on it. Why because actually I think there are potentially some quite deep
structuring issues going on here. If you look at spirits volumes all around the world, spirits volumes are going down at the moment actually, and it's you know, there's a possibility that this industry is no longer the growth industry that people once thought. That just consumer tastes have been changing, people are consuming less alcohol. For a new management team, if you're facing those sorts of structural issues, that that's a big challenge. It's not just as simple as cutting costs.
The honest answer to you is no, we still think lots of these things, such a very very over valued Costco trades on fifty times earnings, Walmart trains on forty five times earnings. I mean, these things, they're good companies, but they're just they're just no way should you be paying that sort of valuation for them.
Have you got a Costco card?
I don't have a Costco card.
No, it's great to Gosco strongly recommend nice day out.
I'm sure, I'm sure it is, but I'm sure it is. Just think that makes the stock worth fifty times earning.
Good day out with the kids. So where else are you looking at the moment? Where are you seeing value? I mean, I'd actually quite like to talk about the international compointment of the portfolio, so that is thirty percent, right, Well, where are you finding value abroad?
Last year? Actually we actually found some interesting stocks in career.
Well, I mean I wrote about career a lot the last couple of years, and last year I suggested that if you'd missed out on everything that you saw in Japan that had been super cheap, maybe you should head for career. I'm quite pleased with that recommendation.
Yeah, exactly, And that worked out well. And what we found amazing about career actually was that most of the time, as a value investor, you have to buy a stock where there's some sort of controversy. So something has gone wrong, the owned has gone down, you know, people hate it, and that that opportunity. And then we we looked at some Korean stocks and we thought, actually, there's no controversy
here at all. It's just the fact that I think so much money had gone into US tech growth et cetera, et cetera, these things bit like Japan actually had become cheap by neglect. So we bought a couple of Korean banks called Hannah and Wooy last year and they were trading on sort of five times earnings half book and dividend yields of about eight percent. And then you looked at the history of the company, and actually, the history
of the company is really good. For about a decade, they'd grown their earnings very consistently, they had very sensible lending policies. They actually already had very good shareholder return policies, so they were paying dividends, buying backstock, et cetera, et cetera. You're almost sitting there scratching your head, thinking what am I missing here? It turned out actually there wasn't There wasn't another thing we were missing. They had just become cheap by neglect.
Yeah, okay, so career and is that still okay? I mean that market has really moved. No one would say career is neglected today.
We still hold them. We've obviously taken a little bit of money out of them because they've done incredibly well.
Okay, So where else are you saying cheap things? Either globally or at home.
We're starting to see value in the US, which will all sort of potentially make you smile, because I think I think we would probably agree that US is a very expensive market, but it's also a very big market, and it's a very diverse market. There are pockets or value in the US. Laughably, in the US small cap is sort of zero to ten billion and ten billion to twenty billion. That's called small cat. We've been finding
value in that sort of area. So again, tail end of last year, we've bought a couple of energy companies. One of them is called Devon Energy. One of them is called called Your Shale Producers, and as you can imagine, they have performed quite well. It's that sort of air. I just think you have to look outside of megacap, US tech and so on and so forth.
You're clearly a stockpicker, a bottom up stockpickering. I would guess, try not to think too much about the macro environment, but that's getting increasingly difficult. What worries you at the moment, what's keeping you up at night? I mean, obviously, when you have a portfolio like this, you built in margins of error across the board, and so you will maybe feel safer than someone who's got a very expensive portfolio. But what wakes you up in the night.
It's a conversation I think that yourself and John had about a week ago, which is it could loosely call it complacency in the market, which is the strait of Halbe's as we talk today, is still shut. The oil price is still a one hundred dollars. Airlines are starting to cancel flights. Some Asian countries have gone to a four day working week, and the S and P five hundred, you know, has just hit hit in the all time high. I think the semiconductor index has just done eighteen consecutive
up days. There just seems to be an awful lot of complacency. And you're absolutely right. We are not macro forecasters, but I don't think you have to be to say that eventually energy prices are those levels is going to have an impact on the economy. And if your starting point is some very very high levels of valuation, normally those two deep to putting those two things together don't
work out well. And you're right, from where we sit, we can look at our portfolio and say, yep, it's lowly values and we think we've built in a margin of safety. But if the US market comes down, it's not going to sit there and just and be completely
immune from that. So yeah, I do find I do found that sort of mildly, mildly worrying how people appear to have just become accustomed to buying and I think I think it's possible that people are buying this dip for the wrong reason, by which I mean historically it was right by the zip because whenever something happened, the central banks of the world wrote your rescue, either cut rates or printed money or whatever or you know, so
they were going to do whatever it takes. I don't see how central banks can print money and open up the straight of hall moot and get the will price to come down, if anything, If they do, that's going to make the inflation problem worse, not not not not better. And so yeah, that I do find that. I do find that a bit worrying.
Okay, So even even you're awake a little at night, Okay, So one last question, one last question, And what are you reading at the moment.
I have just finished Lionel Barber's bol for You about Son or Son, and I have just started Jeremy Grantham's book The Diary of Perma Bear.
Oh have you the new one? We had them on the podcast, you know, did you listen to that?
I did? Indeed, I almost almost don't need to read the book.
Actually yeah, and I I saw him again the other night. I mean, he's just so interesting, so interesting, and Lanel's book is as great. Tists of strong recommendations.
Thank you, Ian, those are both good books. What I tend to do is have a I have a list of books. At Christmas time, my family just buy me investing books and then I'll basically spend the rest of the year reading them.
So they're my investment books and the odd pair of socks.
And that's that exactly here, ex actually right.
Brilliant, And thank you so much for coming on today.
Pleasure, good to talk to you.
Thanks for listening to this week's marrin. Doalgs Money if you like, I share, rate, review, and subscribeerever you listen to your podcast and keep sending your questions or comments to merryorn Money at Bloomberg dot net. He's an Also follow me and John on Twitter or x I'm at maryness w and John is John Underscore Stepic. This episode was hosted by me Marren Sunset Web. It was produced by Sumer Sardi and Moses and Sad, designed by Blake
Maples and Aaron Kasmer. As I think of course, to Ian Loos,