Bloomberg Audio Studios, Podcasts, radio News.
Hello, it's Maren sums up web here. If you are a regular listen to the show, and I'm sure you are, you'll already know. But this is just a reminder. I will be at the Fringe Festival in Edinburgh once again this year, hosting four very interesting conversations in Adam Smith's old home, Panma House. I'll be there August the seventeenth to August the twentieth. You can get your tickets by heading to the main Fringe website and searching for Maren.
We have some brilliant guests this year. Normally I don't tell you who the guests are until you know the absolute last minute, but I will reveal that we do have the marvelous Ed Conway.
This year.
We've got the fantastic Russell Napier, and we have James Ferguson who was on the podcast last week and had a lot more to say, and other wi guests I will reveal as the time gets closer.
All the way, I should tell you, of course, that John will be on.
One day now back to our regular programming twodays. Actual, John, Are you gonna come in two days?
Yeah?
Unless you get anyone better.
That's what usually happens, jacksone better and chuck you off that of course that's not going to happen. Right back to our regular programming. This week on the show, I speak with Adam Ragley. It's the fund manager at Cape Wrath Capital rather the fund manager at Case for a Capital, a UK equity boutique with a deep value investment philosophy.
We like deep value.
Dowgate Wealth integrated the Cape Wrath investment team late last year. We talked about all sorts of things, including why small caps, why the UK, and what he would buy if I wouldn't let him buy either of those things. But first, as a senior reporter and author of Money Distilled newsletter, John Staffer gets with me.
John, Hello, Maden. Isn't it great to have the adults back in the room. I feel that's the traditional way to open a podcast at this point.
Yes. And isn't it great to live in a beacon of stability? Oh?
Fantastic?
I know that's the thing we say.
If I read one more article that starts with the UK is now speacon of stability in a volatile world, it might get quite at Although I think I might have said it and possibly even have written it myself. And you know what's going to be awful if it turns out that we are not a beacon of stability.
What if this goes wrong?
You know, we're really bigging up the stability here and I can't really see any reason why we go drastically wrong in the short term, but none of the else. It's going to be really really embarrassing if something something happens that makes the UK look not stable again.
We'd be embardison to be if your expectations are fairy law or have been.
No, they're not low.
Expectations are very high for stability, maybe not very high for other stuff, but very very high for nothing happening.
They might scare the horses.
True, Okay, right, fingers crossed, everything crossed, because we don't want to have to start these podcasts with, oh my god, volatility.
Don't want that.
Right, You've been writing this week about the amount of tax that the government is managed to get from something they really shouldn't be able to get it from.
Right, Yes, the interest on your savings I've got. I really found this number quite shocking simply because of the size of it. So Before we do this, I just want to say, like, so, for context, in twenty three twenty four tax year, inheritance tax which everyone hates and understand why, raised about seven point five billion pounds for HMRC, and stamp duty on property raised about eleven and a half billion pounds. So that's the context for this number.
So savan's interest in twenty twenty one to twenty two, when basically interest rates were at zero and so no one was getting paid interest, and also the amount of interest you could earn before you paid income tax on it was higher. HMRS made one point three billion from tax on that income. This year.
The expense is killing me. Jump, the suspense is literally killing me. Just give us the number. Give us the number.
Ten four billion this year there's more than the inheritance tax take. It's almost as much as the property transaction tax take. It's a significant number. Yeah, And.
Imagine I'm interrupting, Sorry to interrupt, but imagine how many people don't know that they have to pay tax on the income from their savings because they haven't had to for so long, and people brought up in a very low income environment.
You may I.
Suddenly have savings because of course a lot of people have savings. Now they may suddenly have savings on which tax should be paid and they're not aware of it. So I bet there's a bigger tax gap there than you'd expect.
As well, there probably is stuff that people should be declared on their self assessment forms that then not yeah, we.
Don't have self assessment forms.
Yeah.
But the point this is a lot of money, and given the ser size of the allowances that we have to avoid paying this quite you know above broadly, it just surprises me that there is this much going to HMRC, and it feels like it's probably largely a voluntary tax on an apathy tax.
That is interesting, isn't it? Because you don't have to do this. You can put your money inside a sick You can put it inside and I say, you can get one of the national savings accounts that does not attract tax, et cetera. There is absolutely no reason unless you really have maxed all that stuff out, there's very little reason to have savings that attract tax.
No, And even then, if you've got so much money you've been able to max that, you can start looking at things that are even you know, whack your light enterprise investment schemes and venture capital trusts. If you really do have that amount of money, Yeah.
If you've maxed all that out, what are you doing with your cat sitting around in a savings count of Barkley's in the first place.
Exactly in the weird kind of way, this tax just shouldn't exist, This tax take shouldn't exist. And so yeah, get your finger out and sort of your personal finances if you're one of these people. And it is mostly additional rate tax payers, by the way, so the vast majority of this is coming from people in the forty
five percent tax ban. So you know, go and have a look at billion money as and if it's somewhere it's paying that amount e tax on your interest income, then find something to do with it.
On the other hand, I suppose what you might say is, if you don't pay tax this way, you're definitely going to pay it another way. You know, you can pay your interest, but something else is going to come. I'm quite internested in this idea by the way of means testing the state pension. It came up last week and we haven't heard much more about it this week, but it seems like one of those things that you would constantly say, if you're in the treasury.
Why don't you mean Texas state beensine?
What do you mean?
Says the state pension? And then you look at it more closely and you think, well, this is really hard.
This is really hard because if you means test a state pension, what is it you mean touched?
Do you look at just.
Someone's pension income so you look at their dB and their DC and you look at what they're getting from that, or do you look at their income outside that?
And if you start looking at.
Them their income outside their pension assets, then you have to look not just at the income that they have, but the assets that they have that could be used to generate income. Right, So if you're can look at someone's pension and you say, well, I'm just looking at their income and then everyone immediately shifts everything over it to growth stocks that they don't have an income, then you think, well, hang on, that's not okay. So now we need to tax it as though they were in
dividend producing socks. Now that doesn't work, So how do you do it? So suddenly what is it?
Oh, it's a wealth tax.
Because the only thing you can do is look at the absolute value of the potentially income generating assets people have, and tax on the base of that.
I was thinking about this that there's no way that you can means.
Test the state pension without effectively introducing a wealth tax. And I give that to you, Rachel Reeves, for free.
I think that's a really good point law. And I think actually there is something then that which points to the thing that you are always talking about, which is that rather than having inheritance tax, we should have a gift tax. And that sort of encourages it both encourages wealth transferils. You only get tax when they've are something's crystallized,
so you don't have all the evaluation golf hartening. And it is a wealth tax, but it's a wealth a wealth tax that has got far fewer skewed incentives than anything else.
Yep, make it easy, make it easy, Make it easy.
I mean, when we talk about growth, and there's new government, and all credit to them for this, at least they talk about nothing but growth, How to generate growth. I'm not sure they're going about it the right way, but we'll find out that over the next couple of years. But they talk about it all the time. But one of the things that you and I often talk about. One thinks that would make it easier for the economy to grow would be for the tax system to be
more simple. I mean I had a little example myself this week, a boy with the details, but a little tax thing, and the admin neally defeated me. And I looked at it and I thought, I just don't think I'll bother with that. But we'll do that thing again because I can't deal with the admin.
Now take that tiny.
Little personal problem up to large companies, to small companies, to medium size companies all the time dealing with endless, relentless complications. If you just make it easier, I think you would find that growth would follow simplicity, and you might not need the endless parade of new institutions that we're hearing about at the moment, which moves me very nicely to the National Wealth Fund, yes, which is not really a national wealth fund.
Well no, because that would imply that we hid some wealth and that as opposed to mass of debts on the public balance sheet. So deally, it's just it's basically it's fine. Look, I mean, we've both been trying to work what there says, But it's basically a seed capital fund for projects that the private sector is not investing
in because they don't offer every tourns that match the risk. Yeah, and I mean that's whatever kind of discussion we have about it is that's sort of the fundamental problem that you're going to come back to, is that no one is doing this stuff in the first place because it doesn't offer decent enough returns and therefore it needs a
public subsidy some way. That subsidy doesn't need to necessarily be directly financial, but it's you know, if it's in the form of a guarantee or in the form of you know, favoritizing legislation or allowing you.
To raise capital, lower rate or anything like that, anything that takes some of the sting out of the risk.
But however you cut it, if they call it a.
Public private partnership, it's a subsidy of some kind. And it talks about catalytic capital, which is a very nice phrase and when he use a lot of these days, but it also talks about crowding in private investment.
Yes, that's a lovely phrase.
And this is this is an interesting phrase that I don't think we've already seen used in this kind of context before.
If you're crowding in private investment, what are you doing?
I guess If you're crowding, then then you either have to have something extremely appealing for them to crowd down too, or you need to be running behind them with a cattle proude to force them crowed into the thing. So it's either a sold out tail, a swift coincert or a Japanese subway train. What about a board?
Very good, John, that's very good, very thank you. It feels to me a little more like a subway train.
Yeah, I didn't think it was going to be swifty. Unfortunately.
Well, it kind of depends on the projects, I bet. But I do worry. I do worry that.
You know, when we talk about who are going to be the co investor here, who is it going to be that it might be our pension funds. And how does our pension fund money get from a Viva legal in general whatever into the national welfund?
How does that work? What is the incentive or what is the problem.
We don't know that yet and hopefully we'll find that out over the next few weeks. But the key thing to remember is that one way or another you'll be paying.
Welcome to Maren Talks.
Money, the podcast in which people who know the markets explain the markets. I'm mere in Sunset Web and here is my conversation with Adam Ragley.
Fund manager with Cape Breath Capital, a UK equity.
Boutique with deep value investment philosophy.
Adam, thank you so much for joining us today. Very kind of you.
Thanks for having me.
Now.
The last time we spoke, we were in Hey on why right, at the Financial Festivals of Mistakes.
That's right.
Yeah, a lot of fun and Adam.
By the way listeners, was extremely kind because I'd been on how many panels had I'd been on by then?
Or paneled out?
So I felt I thought, I'm taking audience members in for my next panel, and Adam was was dragged from obscurity onto the stage, well not exactly obscurity, and we had it. We had a great conversation.
Then, and we're going to have another one now, right, y ah.
Yeah, that was a lot of fun. I enjoyed it.
It was I'm sad we don't have a live audience today to heckle and ask questions, but you know that's something comments. So, Adam, let's start by talking about how you invest. You run a pretty focused fund that invests in UK small caps, So let's start by asking why the UK? Why small caps? Why then when you started the fund and why now?
Sure, so I've always invested, or most of my career, I've been involved in small cap investing, either in the UK or kind of UK and Europe. I think small caps a really interesting market because it's generally less well covered than larger companies. Smaller companies generally have fewer analysts looking at them, fewer people interested in them, and that makes it a less efficient market, and so I think there's a bigger opportunity in small caps as an active manager to generate alpha.
So that's kind of why small cap is that.
More the case now then it was even a decade ago, And that regularly change in the UK has meant that there are even fewer analysts following a lot of our small cap companies and they were ten to fifteen years ago.
With a kind of whole unbundling thing. There's definitely less research coverage around than there was, and so there are
many reasonable site well for it. For us a reasonable sized company, there are kind one hundred two undred million pound companies that might have just the house broker covering them, and in those situations, the housebroker you know, is working very closely with the management team and so their forecast may reflect more what the management team would like them to say than what you know, necessarily the kind of independent view of the of the analysts. So there's all
sorts of things kind of going on there. But what it means is, yes, I think the coverage is probably not as good as it was ten years ago, and that can create more opportunities for active So.
Small caps make sense because of that risen But why UK small caps?
So I think that plenty to go for in the UK basically, I mean I have looked at European small caps in the past. I think there is a benefit from operating kind of in your in your home market in terms of understanding the culture and the language. And I think, you know, investing in Europe some countries probably
worse than others. There was always a sense that there was a local cabal of investors who probably had you know, an edge versus us sitting in the UK because they were that much closer to the management or you know, the information flow is was you know, it was easier. So I think there is a benefit to investing in UK companies if you're sitting in the UK.
But there's also value in the UK, A.
Lot of value. Yeah, huge amount of value in the UK.
I mean, this is the I mean I've been investing in the UK for kind of twenty odd years. I've been running a kind of deep value strategy for fifteen years or so, and I'd say this is, you know, post COVID, we are in a fantastic market for value in the UK, particularly in smaller companies. Over the last five years, smaller companies in the UK and globally have underperformed their larger peers, and I think that's not surprising
given the environment we've been in. If you're expecting a recession, then you don't invest in small caps because generally they're kind of more more volatile, more leveraged into economic growth. And in the last five years we've had you know, the whopper of all recessions with COVID in the UK. We had a short kind of technical recession at the end of last year. So it's not been a kind of fantastic economic environment and that's reflected in the underperformance
of small versus large. So I think over the last five years in the UK, small's probably underperformed large by about twenty percent. But if you look over kind of longer time frames, I mean, smaller companies generally have high growth rates, and if you go back, say over a twenty five year timeframe, there's significant our performance of small versus large in the.
UK and globally.
So you know, looking at some numbers in front of me, you know about two hundred and fifty percent out performance of UK small cap indu cries and the UK versus UK large cap in the Sea. So I think there's there's a strong argument, a very compelling argument for holding smaller companies for the long term. If you've got a more tactical approach, then it will depend on your outlook
for the economic environment. But if there was a market I wanted to be being for my career and I could choose small versus large, I'd chose small every day.
And do you think that that's still the case for the UK given the regular outflows we've seen from the UK market, you know, month after month after month for so many months now, it's getting ridiculous. So there are hints that we're beginning to see some domestic inflows again, But there are so many reasons that we given on this podcast and all over the place as to why the UK market is a continuing mess.
Yeah, I mean, I think as a value invests in, one of the key things you believe in is mean reversion, and the question always is when, and that's the answer that you can't you could rarely provide with much accuracy. So you know, I think that these things go in cycles. And also, I mean a bit more kind of anecdotally the types of conversations I've been having, I think there's a lot more interest, a growing interest from outside of the UK in the UK market and talking to global
managers for example, based in the US. There is a very kind of wariness around the valuations in the US market, and people look over to the UK and it's extremely cheap relative to other markets, relative to its own history. And so if you do, you know, believe in that mean reversion argument, then there's got to be a fantastic
opportunity in the UK. And in terms of catalysts, I mean, obviously there's there's a lot of discussion about takeovers in the UK market, things very cheap, things getting taken private. There's a lot more buybacks happening in the UK. I've noticed the last six to twelve months or so companies, more and more companies have been coming out buying back their own shares. So I think there are a few possible catalysts there, certainly, you know, on a case by case basis.
Yeah, And it is there's less the buybacks and more of the takeovers that might attract international attention and make people think, well, you know, if they're prepared to go into the UK and take over those companies and I actually go have a.
Look at it.
Yeah, yeah, I think so.
And what about politics?
Does this idea that the UK is now a beacon of stability, as people keep saying in a volatile world, is that a positive or is that just a short term nonsense?
Yeah?
I think it's a positive. Look is much going to change under a Labor government. I don't think a huge amount is going to change. But the more important than actually what changes is that perception of stability. And you know, the market hates uncertainty, love certainty. And with the election out of the way and Labor with a decent majority, it feels like we're in for a period of stability, and all sorts of people have got their kind of
own own gripes and their own expectations. But I think the key thing is that there is, you know, a period of optimism and a sense of stability, and those are things that the market likes.
Yeah, and an awful lot of talk about going for growth and endless new organizations being set up to help us go for growth, most of which haven't quite got to grips with yet.
Yes, I mean I doubt the sense, yes, exactly, the.
Feeling that this would be a nice thing is there, and maybe there'll be some money and maybe maybe the National Wealth Fund really is a fund of some kind. We'll find out every time, won't we. But so there is a sense of optimism around that. So let's talk about how you invest, because you're a value investor, but
you look for particular turning points. And then one of the things that jumped out to me in your literature is that the shorter that the shorter the time you can hold a stock for the better for you, which is not what most of fun managers to say to us.
Mostly to us, you know, I'm.
In for the long term, I buy at the right price and then I hold, and I'm not a trader, etc.
So as a phrase, it slightly jumps up your fax sheet.
Absolutely.
I mean, I think there's a lot of preconceptions out there about what the right way to invest in, and I think, you know, it's it's all part of this kind of Warren Buffett's school. So Warren Buffett said, our favorite holding period is forever, and I think that's ingrained in the mindset of a lot of fun managers and a lot of people who allocate the fund managers that
that is the right way to invest. So you know, that idea of Nick Train sitting in his library and making one investment decision a year, that kind of thing, And.
I mean it's worked very well, very well for Warren Buffett, by the way, Yeah, pretty well for Nick Train, or then maybe not so well recently, but long term pretty well.
Yeah.
There are many different investment approaches which can work fantastically well if applied with discipline, with a good process. So you know, I'm not saying that value is better than growth. I'm saying that you have to choose the investment style that best fits your personality and then you need to go away and deliver a process and a philosophy around
that to deliver returns. But I think that, yeah, there are a lot of rules of thumbs, so you know, holding period only, buying quality, looking for low volatility, all these things are kind of really chime, I guess if you're a quality growth investor, because if you're a quality growth investor, you make one fantastic decision to buy that high quality business at the right price, and then your returns come from the compounded earnings growth of that business
over time. Whereas as a value investor, you're more interested in buying at a discount to fair value and then selling it fair val Valuation is absolutely key to your perspective and to your calculation. And so if we can achieve fair value in a shorter time period rather than a longer time period, than that is a better IRR. And we generate our returns by taking the profits we've made from you know, selling at a discount to fair value, sorry, buying a discount to fair valuance and selling it a
fair value and reinvesting that in the next opportunity. So that's how we achieve our returns rather than through the long term compounded returns of the underlying company.
You see, you explain it like that, and it sounds like any good value investors should also be looking to have the shortest possible time as a holder in that if you get the catalyst correct, then everything should happen very quickly.
So if you turn into a long term holder.
Of your stocks, then you've got it wrong.
Somewhere along the line.
This should be quick, I would say so, but I have some sympathy for other and value investors who perhaps manage very large portfolios. So if you've got a one hundred stock portfolio, it's impossible to turn that over, you know, in twelve months or our average holding period is twelve months, and with twenty to twenty five holdings, we can realistically turn that portfolio over in twelve months. If you've got one hundred holdings, there's just no way that you can
cover have conviction enough companies to pursue that kind of strategy. So, you know, I think what we do is quite a pure approach to it. But we're able to do that because we have have low capacity, a small number of holdings, and of course the trade off is that if you want to become fabulously wealthy as a farm manager, you know that's not the way to do it.
You want to go out.
You want to build a strategy that has huge capacity because you're making your money from the fees you charge for investors, and the more assets you manage, the higher those fees. But my view is that, you know, if a manager gets wealthy, it should be from eating their own cooking rather than from the fees they charge their investors. And so that's how we've structured our fund.
Let's go back a little bit and talk about what fair value means to you. What makes a stop cheap and what makes it fair value? What are the signals you're using.
Yeah, so there's a bunch of different stuff that we're looking at when we're selecting our investment opportunities, and valuation is one piece of this, and then we're also thinking about the risks attached to that upside and the potential catalysts to achieve that upside, And the valuation itself is probably the most kind of quantitative part of it, in so far as we build out a model on every
company that we invest in. We can do that because we've got a relatively small number of holdings, we generate some short term earnings forecasts, and often the types of companies we invest in our in these turnaround situations or at trough earnings, and so we need to have a view on what the profile of an earnings recovery might look like. And then we apply those earnings forecasts across
a variety of different valuation metrics. So we've got around twenty five different valuation metrics in our model, and we'll select the ones of the most appropriate. And typically, I mean, if I look at our portfolio today, so the way to the average upside across the portfolio is around seventy seven percent, So that gives you an idea of what we're looking for in terms of ups and the types of companies we invest in may often have fallen seventy
eighty ninety percent from their recent highs. So typically we're not looking for companies to regain their former glory, but we're looking for situations where other investors have become too pessimistic about what's happened around a company.
But still it's very subjective, isn't it.
In the end, As you say, you have twenty five metrics and you choose ones which are most appropriate.
Any one time. This is extremely subjective.
Yeah it is. Yeah, yeah, So you know, investing is a whole thing about investing being as much an art as a science. And you know, we have our we have our process, and I think it's important to have a process to kind of keep you honest. But the fact is the best computer that we have is the human brain, and the process will only ever be a kind of shadowy reflection of you know, all the things
that are happening behind the scenes in the brain. And the process you know, should, should and does develop over time as you become more experienced an investor, as an investor and you develop your intuition whilst also kind of working to guard you against your biases. So there's you know, there's BIOSes which try and trip you up, there's intuition which tries and help you make the right decisions, and the process kind of sits there as a bit of
an arbiter between between the two. So valuation is and all investing is an art as well as the science.
Okay, let's talk about some of the companies that you've got in their portfolio at the moment and what made them look like value to you.
What's what's interesting do you think.
Yeah, so we've recently took a position in the pub company Marston's. So Marsten's owns around thirteen one hundred pubs across the UK, and with a pub company, I mean, but pubs, it's a very liquid market in so far there's as there's historically been quite a lot of m and a around listed pub companies and then you know kind of individual prop companies are actively traded, so it's a very liquid market. So you can get a reasonable kind of view of what this pub portfolio is worth.
And in the case of Marston's, if you look at the kind of tangible book value per share, so what the value of these properties is, basically you get a figure of around ninety five pence per share and that kind of triangulates quite nicely against the takeover offer that Marston's had in twenty twenty one, so about three years ago, for one hundred and five pence per share, And if you look at kind of transactions, it's normally kind of one to one point one times book value, so that
kind of all will makes sense and stacks up quite nicely against Marston's current share price of around anyway, between kind of thirty thirty five pence a share of the last couple of weeks. So there's you know, there's plenty of upside there. It's always interesting to think what the
kind of alternative angles might be. And for us, a nice angle was the fact that Marston still owns forty percent share of a JV, a Briwin Company JV with Carlsburg, Carlsburg Marston's Brewing Company, and we put in a value for that brewing business of anywhere between thirty and fifty p Actually two days ago, Marston's announced they were going to sell the JV to Carlsburg for thirty three pence per share. So that transaction is basically at the current
share price of the business. The portfolio pubs has some debt against it, and so even if you were to take that portfolio of pubs, so we're going to write the value down to zero, we're going to hand them all back to the banks. That those thirteen hundred pubs you can still you know, get your money back purely through the sale of this brewery business. So we see a lot of a lot of value in Marston's and a couple of hundred percent upside.
And how long you say that your your holding period is twelvemonths right roughly on average?
Yeah, I mean there's a blu range around that.
How long are you prepared to wait for a company to come to fair value? If you're sitting there and nothing happens with Marsden's for two years, three years, four years, when when do you call it a day?
Was such just more portfolio?
If the thesis doesn't change, then we are prepared to
be patient. Situations where we will recognize we've made a mistake and sell out would be if over time we see that assessment of fair value coming down and there's a kind of death by a thousand cuts every time there's an update, you kind of knock down your fair value by ten percent, and you know, after you've had you know, four or five updates, suddenly you know, perhaps the share price and the fair value moving closer together, but for for all the wrong all the wrong reasons.
But if nothing changes and our fair value remains or a bust or even goes up, but the share price doesn't move, then usually we're happy to hold on to it. But it does give us pause for you know, reflection. What is it that you know? Could it be that we've that we've missed something here and.
Your last facts Muslins with your top Mustins, with your second holding, what kin Jones was your top holding?
Is it still?
Yes, that's right.
I know you've got a strong view on the student student combinations sector, which is what kin Jones is historically has been has been their their core market.
Okay, tell me where I'm wrong.
Then, sokay, So what King Jones has got there effectively a house builder crossed with a contractor. So their business model is to go out and get sites, typically in in city centers, and then to find a partner a investment for an institutional investor to provide the capital to
build out that site. And so they'll they'll kind of take take their margin on sourcing the land, they'll take their margin on the construction phase, and then they'll also provide the ongoing maintenance, facilities management kind of service that
for that property going forward if required. And historically they've done very well during this kind of boom in purpose built student accommodation, and they've also got i mean, their purpose built studentccommodation business has been kind of stable to like in a a kind of gradual decline over the last seven eight years or so, what's been very fast growing has been their built to rent business. And essentially these are very similar to the same skill set, is
often the same sites. It just depends on who the institutional investor is, who's who's kind of backing the project. Wakin Jones got hit particularly by the building safety regulations, so they kind of post Grenville building at a height kind of cladding issues because obviously they're building a lot of a lot of tall buildings in cities, and so that's had a signific can impact on the on the valuation, on sentiment around the stock. But that's something that you know,
they've got cash to cover the provision. The provision seems to be fairly well figured out, and their remediation is kind of proceeding in line with plan according to provisions that they've made.
And they wouldn't be they wouldn't be dependent on them when going back to student housing, They wouldn't be dependent on this market.
It sounds like that.
Model works, Yeah, that's right, Like not like the kind of unite or or worker might be who are absolutely locked into that market.
Now.
I mean, these guys are absolutely kind of ambivalent about about who the who the person is who's moving into that accommodation. But it's just if you want to build lots of low cost flats in city centers, and then these guys are are they kind of go to And so I think you know that obviously, you know, we've spoken about politics, and you know how much may or may not change, But there's certainly a lot of appetite energy around hitting these you know, these housebuilding targets again.
And and I think that you know that that's got to be an opportunity for what Kin Jones and and a lot of the housebuilders started to recover around Q four last year. You've seen a lot of them up what fifty sixty percent from their lows, and what can Jones really hasn't done. It hasn't done a great deal over that time period.
You would have thought, Adam that the new government, in all the talk about house building under this government and changes to planning, except it would have been exactly the kind of thing that would have been your your catalytic shift for.
What can Jones.
Yeah, I think I think you're right, Marret.
And actually, since you know, since the morning of when we all woke up with the new government things. What can Jones' share price has started to move, so I think you know that that could be something that's bringing more attention to the story.
Okay, we don't we don't spend we've spent too much time on in with your stocks.
But just tell me, is there anything new in their portfolio that you're particularly didn't in anything you come in recently?
Well, those are those are two of our recent holdings. I mean, there's there's plenty of stuff on my on my desk. Some of your listeners might be familiar with you GOV.
So they've everywhere everyone's familiar with you GOV.
Couple of weeks.
Yes, so they've had yeah, obviously had had a kind of whopper profit warning.
And so that's you know, that's precisely the.
Type of thing that falls into our into our screen, comes into our bucket. And so the work that you know that that we then do is to work out despite the share price declines, is it uh?
Is it cheap?
Because you can have companies that fall eighty percent and are actually not that cheap, and in the case of you GOV, actually it's probably it's probably not that cheap yet despite the declines, and then we you know, we have to also have a thing about the risk factors. So you Gov's got quite a lot of debt on the balance sheet. Bart's having said that they've been fantastically cash genitive historically, so that's you know, probably not an issue.
They've still got their kind of quality growth investor base on the shelter register, and that's something that we look at because often the best situations for us aware the quality growth people are having to sell out because it no longer fits their profile, fits their mandate, and the
value investors are just starting to get interested. In those situations, you've got a lot more sellers than buyers, and so you know, for us, that's the kind of classic capitulation event that we look for in terms of buying opportunities, where the outgoing investor might might say, well, look, you know, we recognize there is value here, but for you know, for emotional reasons or for reasons of our mandate or whatever it might be, we just have to get out
of this at any price. And you have kind of you know, indiscriminate selling at those lows.
And adam on a one macro level, so we were expecting interest rate cuts soon that as you we get across the board for small caps, right particularly, Yeah, yeah, so that's good. Is there anything that you look at and you think, well, Okay, the environment looks good, interest rates will for better stability in the UK, some signs from international investors that they might shift into UK small caps.
This all looks great.
Is there anything in your mind that you think could just derail that rather attractive story.
I think that you know that the big the big car crashes are always the ones that you're not expecting. So you know, look at COVID or whatever it might be, and small caps they will always do better in an environment. Whether is that optimism whereas there is that economic growth.
So if there was you know, something out of left field that came along and and you know, broke up that party, then then I think that we would see small caps underform large caps, and we would see probably some underperformance of value because value stocks are often seen
as low quality. Then grows stocks, and you know, in tough environments, it's it's larger caps, and it's the it's the kind of grow more growthy stuff that that that performs, and the and the value stuff and the smaller stuff that's seen as riskier underperforms, and you.
Very obviously avoid anything in any of the overpriced tech sectors. So I think AI in there, if there were, for example, the a lack of balance in the US market, which is already it's something of him extremely gets even more extreme, you end up with a proper AI bubble, or that you could argue it's definitely an AI bubble already, and then you end up with a crash in that sector that would spread out across the board, wouldn't it.
Yeah, I think there would be ripple ripple effects, yeah.
Which would leave you a wonderful opportunity to pick up some value in tech areas where you wouldn't have gone over the last few years.
Yeah. Absolutely.
I mean, we're pretty agnostic about the sector that we that we invest in as long as we can, as long as we can understand it. And there are you know, there's a company called Alpha Wave, for example, which has come across our screen that serves that semiconductor market which is kind of arguably been kind of sliding into into value territory for kind of specific reasons. But yeah, we're yeah, we're if we can, if we can get our heads around the around the business model and and and the tech.
Then we're pretty agnostic about sector.
Okay, so you're not You're not not in any particular sector because well, you say there's things you don't understand, and you know, a good value investor always says, I never invest in what I don't understand.
So there must be areas where you yea, as I couldn't go on that.
Yeah, yeah, yeah, So I mean, I guess there are some more specialist things, like you know, kind of some some biotech type stocks. Perhaps we for us, you know, reats were an area that we decided a few years ago we wanted to do a bit more work on, So my colleague and I went off and spent a bit of time on various kind of training courses and talking to real estate invest so we could be comfortable that we had a way of kind of looking at
reats and analyzing those business models. So that for us was a sector that we brought within our area of competence. So yeah, it's it's it's it's a question of working out whether the opportunity's big enough to make it worth going out.
Understanding it skilling up.
Yeah, Okay, what about Adam, what about cryptocurrencies? Because you know at the end of this podcast, I always ask if someone over a ten year period would hold gold or cryptocurrencies, and mostly people are ready for this one, and it just to warn you, we do now have a couple of very enthusiastic bitcoin people who follow us on Twitter and spend a lot of time explaining to me how stupid I am and how stupid all my
guests are because they don't understand. If only we would educate ourselves or read this or read that, or read this or read this, then we would understand the amazing opportunity there. And of course it's don't I always say it's not. You know, we're not ideologically against cryptocurrencies or ideologically against bitcoin, and we've both owned bitcoin over over the general cycles, et cetera. Well, of course I keep losing my code, so I don't really count. Anyway, We're
getting a lot of criticism for not understanding bitcoin. Probably, So here's the question to you, what would it be a Rotenia period? Would it be a bitcoin or would it be gold? You can't have anything else. You can't have any of your small caps. You're not allowed to take any of this value.
In with you. You're only allowed one of these.
I would have Gold.
Doing this on purpose just to make me a hate target.
Sorry, sorry, Marion.
I totally get the argument for bitcoin, and you know, I think it's a kind of political kind of stance, isn't it about manipulation and money supply, about trust of governments, And you know, I think you know, bitcoin is because of the limited supply. Is you know, if you're going to buy a cryptocurrency needs to be one with limited supply basically, So you know, Bitcoin stacks up on that basis.
And I also buy the argument that know that because of the because that limited supply, maybe you should just put a fraction of your net worth and the bitcoin because it could go exponential and you know in the hedge and all the rest of it. So I do
get the kind of bitcoin argument. But I guess if you go to a kind of extreme, you know, end of civilization kind of point, which is kind of you know, where you get to if you if you believe that all currency is, you know, fear currency is really worthless, then I you know, I think I would rather have something that I didn't need to be able to log into the internet, you know, to to to access It's.
Interesting that's where that is where I always end up when when I when I get into it. If these are if gold and bitcoin are both effectively designed for the same thing, designed to compensate you for the fact that fear currencies are of no use to anybody over the long term, then you probably want the one that doesn't require an infrastructure around it to work.
I think so if you go bars in the basement, that's.
The way to he you've got gold bars in your FACETK. I'm not going to tell anyone. I'm not going to tell anyone where you live. Adam, thank you so much for joining us today.
Thanks Maren, really fun.
This episode was hosted by me Maren Suset Whatever was produced by some ASIDI production support and sound designed by Moses and special thanks of course to Adam Raightley and as ever to John. One more thing I want to say to you This week from September, John and I are going to go a little bit more personal finance.
We are going to once a week take one personal finance topic which we hope will be suggested to us by a listener and discusses for ten fifteen minutes, give our give our ideas on what you should do, or what you might want to think about a subject, be that taxes, mortgages, savings, SIPs, ices, anything personal finance related.
Write in let us know what you want to hear about