Lawrence Gosling (LG): What brought you into managing money for private clients?
Andrew Green (AG): I have always been interested in statistics and as a teenager I used to follow share prices by plotting them on graph paper, which is very sad. I therefore had an interest in why things happen. I applied for a job in stockbroking and it just went from there. I was very fortunate to come under Nils Taube when I was 21 and so I had his influence in the first 15 years of my career. He was one of the great post-war investors, having come here as a refugee, escaping from Estonia, first from Nazis and then the communists. He, along with George Soros, were big names in the ’50s and ’60s. He took me under his wing basically and gradually I absorbed the thinking of avoiding consensus.
LG: Were you conscious of the lessons that you were learning from Nils?
AG: He wasn’t that type of personality. I would have to question him: why are you doing this? And I’d get a half sentence as he bolted for the door. But as we got to know each other and the friendship developed, we would go out for a drink and he would talk more openly about things. Around about the same time, I became a Christian and that was very important in my philosophy of not thinking the noisiest voices were true, because you won’t get any great knowledge from information being thrown at you.
It’s interesting; it’s not long since the 50th anniversary of T. S. Eliot’s death, and one of his famous quotes was about the superfluity of information not leading to knowledge and that knowledge itself doesn’t lead to wisdom. (Ed note: The full quote reads: “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”)
So along with all of that thinking is not to trust a lot of what you’re being told but think it through in terms of what you understand to be true as opposed to what everyone is shouting from the rooftops is important. The combination of those two influences spawned the philosophy that goes against the grain, not to be perverse but to look behind what we’re being told, to try and understand if there isn’t something else going on that we might be missing.
LG: Would it be wrong to describe you as a contrarian?
AG: Unfortunately it’s a word that I think has become corrupted because people talk about being contrarian as simply buying something that has gone down, or whatever was unpopular last year must be popular this year. Reversion to the mean does play a part in it, but the canvas we paint on is probably as long as half a century. Now obviously that’s slightly dramatic but the charts I use would span that period. You can see at a glance how the behaviour patterns of investors over those decades have culminated in peaks and troughs for various reasons.
If there’s been a trend in something maybe for several decades, you might start asking a few questions as to whether it’s gone too far, what might change it, how this might occur and so on. That’s how we approach investing money, not in a short-term view, but actually very long term. We all have spasms of short-termism because we’re human and investors, that require you to respond to certain things, but ignoring the at-the-margin stuff, it is essentially a very long-term process.
LG: Presumably one of the things that you learnt very early in your career from Nils would be this concept of accumulating returns steadily over a longer period of time?
AG: Yes, because obviously every time you churn, you’re losing the dividend stream. And of course, as we know over the last century, it’s basically the accrual of dividends that has driven the performance in a general market sense. Plus whatever the fund manager adds or subtracts from that. So the worst sin of fund management is over-activity, because you have the powers to say yea or nay on every investment every day and the immediacy of all these things buzzing around in front of your eyes on screens does drive that. I think I saw that most markedly in the run-up to 2000 when the dotcom boom was almost at its peak. The movement was just extraordinary. It can grip you, I think, and much of it was nonsense.
LG: During the course of your career there have been investment fads and there always will be in markets. How do you combat being accused of being basically an old fuddy-duddy?
AG: I remain one. I felt that in the early stages of 1999. I thought, “I’ve clearly lost it, I’m not seeing something and I can’t understand this; no-one cares about multiples anymore.” I remember having lunch with Nils at the time and he said: “I feel like Ulysses; I’m lashed to the mast by my fellow managers because I’ve let them run, have their heads, because they seem to know and they are young and bright and all that sort of thing.” And I thought, “Oh golly, even he has succumbed’. And it was right for a while – and then totally wrong and he very much regretted it. But we can all feel old, fuddy-duddy and vulnerable and therefore you cede power at the wrong moment because it does seem very convincing. It wouldn’t have its power if it didn’t.
LG: Did you get the same sense in 2008 that things were looking just wrong?
AG: Oh absolutely, and that is why I feel so aggrieved that we didn’t do better, because we avoided any banks. That was where the issue was, we could see it; it was going to implode, most of the banks. And therefore I stupidly thought one was safe by just avoiding that sector. But actually there were other things that came back to bite us and you basically had to go for the most dumbed-down portfolio you could imagine, of utilities and consumer staples so forth. That was a failure on my part not to realise that. But we all need to be humbled by events. In a way, I look back and I am relieved because it would have raised expectations even more.
LG: How much does your faith play a part in the way you run money?
AG: Yes, obviously I’m prayerful about how I do my work. But I think there’s another element to it in terms of the despair or the greed, if you like, that mark the highs and lows of markets. The presumption of blue sky and the despair of dark market crashes, both of them might overwhelm the normal human thought processes but you need to keep those balanced.
LG: In your experience, have some of these trends in the markets got shorter since the turn of the century?
AG: Well it’s a funny thing actually, but I’ve been seeing the opposite where low interest rates have actually extended this cycle. In prior cycles, higher interest rates curbed inflationary bubbles and the build-up of excess debt. Once this happened, recovery names tended to perform well. This time round, the system has not been completely reset, which has meant that solidly run companies with earnings streams that are easily extrapolated into the future have become more highly rated. And the ones who might have been the recovery stocks in the old century are dragged further and further down because they don’t have a way out of their debt. That I think upsets a lot of what are called recovery funds because recovery hasn’t come in that sense, in that way.
Everything has gone on much longer and I think the mistake that I’ve made in the last year or so is assuming, when you’re taking profits, that it’s not going to go on, and it has. It goes on. We were right to come out of small caps and mid-caps but a lot of things have just stayed on a par without being challenged, because there weren’t obvious alternatives.
LG: Tobacco stocks would be an example?
AG: Absolutely, 30 years of outperformance of that poisonous weed. At the same time, you can see the ground shifting under their feet as sales dramatically fall and yet they manage to push up profits each year because they always tack on an extra margin with the tax increases. But in the end, it will topple over.
LG: So over the years when you’ve realised, perhaps, a mistake that you’ve made with an idea or a cycle in the markets, how do you try not to make that mistake again in the future?
AG: Well, one very clearly should learn from one’s mistakes, but of course there is something in one’s own make-up and my weakness is trying to judge the bottom of something. Whereas I remember Nils always saying I should always leave the first 20% to someone else. I’m different in that regard.
LG: Would you say you sell too early sometimes?
AG: Yes, definitely. Because if you’re in early, you tend to think, “Gosh, this has been amazing.” Yet another thing I have learnt over the years is that a different sort of investor will start to look at the stock as I’m leaving, because it’s now back into investible territory. And that was amazing to me because I hadn’t thought of it that way.
LG: Go back a little bit, over the years, what are the key metrics that you’ve used that have stood you in good stead in terms of analysing individual companies and where do you get your original investment ideas as well?
AG: Well that does come from the technical side and it’s fed out to the team to make the case in fundamental terms. That’s really how we work, how we mesh the two together. People have often kept them separate; I think they’re very closely linked. These very long-term charts generate the thought process about what we should look at, and then the team will go away and dig into the fundamentals.
LG: Chartism in general is perhaps not as popular as it was. An observation is that over the years, the managing of money has gone from being an art to being very scientific and perhaps you’re a mixture of the two. Would that be fair?
AG: Yes, I think there is that element. I can see patterns in investment which other people may think is snake oil. And that’s fine. Nils would always tease me and hold the chart upside down, and say, “I can’t understand this”. Charts can be useful in terms of market timing in the short term, but the short term cannot determine what stocks you would buy. You must think on a much, much bigger frame. My team are able to give credibility to my madness; that’s the theory.
LG: How much longer do you see yourself going on for?
AG: I was thinking about this in one of my Bible readings this morning. Retirement is a modern construct but I think as long as the Lord gives me health, he has given me the gift to do this; clearly I won’t be able to do anything else as far as I’m aware. So I might as well keep on doing this as long as I’m able.
LG: Do you enjoy it? Because it sometimes seems a lonely place and quite a responsibility to manage anybody’s money?
AG: It is, it is. I always say love–hate because you think, “Why do I put myself through this?” But there is the intellectual challenge of working out what’s going on and I think that holds a fascination for me. We’re all humbled by events because we’re not in control of the future, but I think I have a tool here which helps me to make some sort of sense of where we are, and I obviously get it wrong but not as many times as one gets it right. So on balance, you’re probably putting a plus sign in over the years. That’s the aim. I’m always amazed when people say I absolutely love the business, because I think it’s terribly difficult.
LG: You’ve mentioned Nils quite a lot, but who are the other fund managers that you respect, admire, and have learnt something from?
AG: I think [Fidelity’s] Antony Bolton, I know everyone will quote him, but he wasn’t just an accumulator of assets, which I think some of the famous people today are. I think he was amazingly right on a number of cycles, over a long period of time.
LG: It strikes me he almost invented the recovery or special situations portfolio.
AG: Yes. I think it’s astonishing the number of companies he would see every week, which I don’t, that’s not part of my process, because we wanted to operate in a different way. But I admire him. And I think coming back and having one more trip round the track in the Chinese investment process was a clear challenge and it was a reminder to all of us that the “roar of the greasepaint, the smell of the crowd”, is very hard to give up and not keep doing it, because it does absorb you intellectually.
LG: Do you follow or ignore a benchmark when you’re investing?
AG: Well I really wouldn’t totally ignore the benchmark because that smacks of arrogance to me. So I’m always aware of it without being a slave to it. Obviously at points of extreme valuation like technology we can ignore it. But most of the time, you don’t get that clarity. And therefore, you have to be humble in the face of that and say, “Well, I’ll have to pay respect to various sectors and have something there, till it becomes clear.” Then I would vacate whatever it might be.
LG: How did you come to run your own fund?
AG: When Gilbert de Botton [founder of GAM] formed the company, I expected him to say I want you to run a UK fund but he said, “No, I want you to run a global fund”. I said I knew nothing about global investing and he said, “I think you just apply the skills you’ve got across a broader space.” I would list him as an influence. I don’t think personally he was a great investor, but he was clearly a visionary in terms of building a company in a niche area that wasn’t fashionable at the time and creating something very, very successful.
LG: What are your thoughts on China?
AG: Everyone knows where the risks are and what they’re trying to do to stem them but clearly it’s not an easy area to invest in, both from a technical, legal, regulatory perspective, and from the point of view of not having invested in China before. Also, I think it’s important to recognise the old chestnut that GDP growth and trends don’t determine stock market returns, certainly not in anything other than the very long run.
China has a clear opportunity to reform, and reform plus supportive valuations are a positive cocktail. China is taking the pain in terms of social reform. It’s trying to do many things that are, at least on the face of it, friendly to equity holders over the long term. Following the pattern of more mature markets that have made similar transitions suggests the next step for China is the liberalisation of financial markets and when that happens it tends to be bumpy but it also creates opportunities. It is important to realise though that the extent of reform has to be balanced against the fear of civil unrest which haunts the political system.
We have a far deeper understanding of Japan, where our investing history spans 12 years. There have been lots of small positives in Japan in terms of shareholder-friendly moves, which considered alongside the cash-rich nature of corporates suggests there is scope for money to be returned to the shareholder. This is a fundamental long-term driver, we believe.