#2 – The Risk Taker: Stuart Roden discusses his investment philosophy.

Stuart Roden achieved spectacular success in managing money, yet he is an incredibly modest and humble guy. If you met him, you probably would have no idea how successful he has been. This interview for me was packed full of wisdom and great advice. I hope you enjoy it and learn a lot – I certainly did.

SUMMARY

In this fascinating interview, Stuart Roden, former Chairman of Lansdowne Partners, explains the 5 keys to a successful fund, how his 25 year partnership with Pete Davies produced one of the most successful hedge funds in the UK and how now managing venture capital is a different, yet similar, game.

INTRODUCTION

I have known Stuart for over 25 years but I learned more in this hour about his philosophy than I had previously. He has that winning combination of a razor sharp intellect, a love of markets, a wealth of experience and a nose for a winning idea. 

In this interview, we hear how he was tempted to fire a client, the 5 key factors to run a successful fund, why you are either an analyst or a portfolio manager, how handwriting can reveal whether you will be a good employee, and how he and Pete Davies ran an incredibly successful $10bn hedge fund. I know you will enjoy listening to this as much as I enjoyed recording it.

GETTING INTO INVESTING

Stuart has a love of gambling – he used to play a lot of poker at school and spent the summer at the racetrack.

FIRST SHARE

He bought his first share age 13 – Acorn, the computer company. He has always been attracted to risk.

RUNNING A SUCCESSFUL HEDGE FUND

When he and Pete Davies started their hedge fund, they believed that the written communication to clients was extremely important, and they were always very clear about what was happening. Nobody likes surprises and clients really like unpleasant surprises, especially if there is thesis drift.

ANALYSTS ARE VERY DIFFERENT FROM PORTFOLIO MANAGERS

Analysts want binary answers. The skill of a great portfolio manager is taking on uncertainty and risk. It’s much easier to interview analysts – give them a difficult case study. With a PM, it’s an attitude, how they think about the world.

LIFE AFTER FUND MANAGEMENT

Being a good investor doesn’t equip you for anything else afterwards. And it can make you impatient and frustrated as there are few other endeavours where you can make things happen so quickly and then turn on a dime to pivot.

CONCLUSION

This was a fascinating discussion with a huge amount of wisdom. I don’t think anyone could come away from this, no matter what their level of experience, without learning something. I know I learned a lot. 

ABOUT STUART

Until January 2019 Stuart was Chairman of Lansdowne Partners and Chairman of the Management Committee having previously co-managed the Developed Markets funds since their inception in 2001.

Stuart is non-Executive Chairman of Hetz Ventures and non-Executive Chairman of Tresidor Investment Management.

He is Chairman and Founder of UP: Unlocking Potential, a trustee of The National Gallery and The Centre for Social Justice and is a member of LSE Council.

Stuart started his career in the City in 1984, joining SG Warburg & Co, he worked at McKinsey and prior to joining Lansdowne in 2001, was a Managing Director of Merrill Lynch Investment Managers.

Stuart received a first-class honours degree in Economics (BSc) from the London School of Economics.

Stuart+Image

BOOK RECOMMENDATIONS

The Education of a Poker Player Ishi Press

And try to read investment letters – what are good investors buying and why? Some of Buffett’s letters, the greatest ones are in the past.

HOW STEVE KNOWS THE GUESTS

Steve has known Stuart since he was at Mercury Asset Management and was one of his top 5 clients when Steve was on the sell-side. When Stuart and Pete Davies moved to Lansdowne, they became Steve’s nr 1 client, and Lansdowne Partners was one of Steve’s first clients at Behind the Balance Sheet. Steve is also invested in some of Lansdowne’s funds.

 

CHAPTERS

00:06 – Introduction to Investment Management

13:26 – Key Skills for Fund Managers

25:32 – Differentiating Factors in Portfolio Management

37:02 – Building a Balanced Portfolio

46:44 – Challenges in Venture Capital

57:51 – Promoting Financial Literacy

01:11:32 – Engaging with the Charity

 

Transcript

AI-Produced Transcript, only lightly edited

STEPHEN CLAPHAM: Hi, welcome to the Behind the Balance Sheet podcast where we meet leading investors and commentators and educate ourselves about the world of investing and the world. Our mission is to remove some of the mystique around investing and improve our understanding of what makes a successful investment or indeed an unsuccessful one. Our goal is to inform, educate and entertain.

 

STEPHEN CLAPHAM: We hope you enjoy this and every episode behind the balance sheet and affiliates and podcast guests may own shares or have an economic interest in securities discussed in this podcast which is aired for your education and entertainment. Only nothing in this podcast should be construed as investment advice or relied upon for investment decisions. Always do your own research.

 

STEPHEN CLAPHAM: This podcast is supporting the Financial Times financial literacy and inclusion charity. Please listen to the end of the show for my commentary and an interview with deputy editor Patrick Jenkins explaining the new charity. But first, let me tell you about our sponsor, I asked, sent to sponsor this podcast because I use the research platform almost every day for equity analysts.

 

STEPHEN CLAPHAM: It’s in many respects the ideal tool. If I didn’t have a professional platform, I would need several different software systems. Cento saves me a lot of time and ensures my research can be done in one place. I like it because first, the data is reliable and it aggregates all content.

 

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STEPHEN CLAPHAM: It’s faster and easier, but most important is the price. There’s a huge price advantage over other systems. If you were a smaller fund or even a larger fund equipping analysts, Cento is definitely worth looking at visit Cento dot com, S E N T I E O forward slash B TV, S for behind the balance sheet. For more details.

 

STEPHEN CLAPHAM: I think the overlap between venture capital and quoted stocks is a really interesting one which we’re going to try to explore in this podcast more and more IP OS from the tech sector, more and more quoted stocks are subject to disruption today. I’m delighted to be joined by one of the top hedge fund managers in the UK who’s now turned his hand to venture capital until January 2019.

 

STEPHEN CLAPHAM: Stuart Roden was chairman of Landsdowne Partners, having previously co managed with Peter Davies, the developed markets funds since their inception in 2001. Although he stopped managing money in 2016, Stuart started his career in the city in 1984. Joining S G Warburg and co, he worked at McKinsey, then at Merrill Lynch Investment Managers.

 

STEPHEN CLAPHAM: Stuart is a director of the LSE from which he received a first class honors degree in economics. He’s non executive chairman of multiple charity and investing bodies. Stuart is married with four children, how he finds the time to do all this. Who knows? And he lives in London.

 

STEPHEN CLAPHAM: I’ve known Stuart for over 25 years, but I learned more in this hour about his philosophy than I had done previously. Stuart’s got that winning combination of a razor sharp intellect, a love of market, a wealth of experience and a nose for a winning idea. Nobody, you know, Stuart is in the least surprised by his phenomenal success in this interview. We’ll hear how he was tempted to fire a client.

 

STEPHEN CLAPHAM: The four are perhaps five key factors to run a successful fund. Why you’re either an analyst or a portfolio manager, how handwriting can reveal whether you will be a good employee and how he and Peter Davies ran a highly successful $10 billion hedge fund. I know you enjoy listening to this podcast as much as I enjoyed recording it.

 

STEPHEN CLAPHAM: So Stuart Roden, welcome to the podcast. Tell me what brought you into Investment Management. Was it by design? You weren’t one of these people that were doing a paper round and investing your savings in the stock market when you were at age 12? Were you or was it serendipitous or was it plan?

 

STUART RODEN: It was a combination of things actually. So I think the, the reason I got, I got into investing was probably because of my love of gambling. Actually, I have to say. So I, I used to, do two things. I used to play poker a lot as a kid. Certainly through school and into university and at the age of 15 used to spend my rather shame of the summer holidays on the race track or in bookmakers.

 

STUART RODEN: So I, I, I, I like gambling. I liked, risk and I did, I started, but I think the first share I bought was when I was, I think 13, it was acorn, which was one of the early computer makers of the BBC, and became very interested in it and kind of found it exciting and fast moving.

 

STUART RODEN: And so I guess from a pretty early age I knew I’d go into some form of risk taking, career wasn’t sure of the investment at the time. I didn’t know much about it, but I certainly was attracted to the excitement and moving fast moving world. And which one was operating. In fact, I even spent Wednesday night at Wembley Dog Track. So that was always a great out.

 

STUART RODEN: Do you still go to the dogs? I don’t go to dogs. I go racing. I don’t go to dogs. I realized that was a full of mugs game.

 

STEPHEN CLAPHAM: I guess there’ll be a lot of people in America are listening to. There’s no wonder about greyhound racing. I don’t know, even know if they have it in, in, in the States. I don’t know. But you, you started at mckinsey, right. You didn’t know, I didn’t know.

 

STUART RODEN: I started as a graduate trainee at a bank bank and then spent the first year of that, you’re meant to do rotations, but, but spent, spent the first year in Investment Management division and never left it. So I, I didn’t do this.

 

STUART RODEN: You’re meant to do kind of a year of one place and a year in another. And I, I didn’t leave it and I went to mckinsey later on actually kind of six years to the city career and went there for four years and then back, and was there ever since?

 

STEPHEN CLAPHAM: What, what made you leave and go to mckinsey?

 

STUART RODEN: It’s a combination of things actually, I think it was a, a kind of, a lot, lots of things were happening at the same time. But I think in terms of the professional move, it would have been because one was always thought one was slightly outside knowing how, how companies operated.

 

STUART RODEN: And, you know, it was always looking at public information and perhaps not quite knowing what was going on inside kind of the CEO S mind or inside the industry at a level that you could get access to.

 

STUART RODEN: So I just thought it would be a useful tool, a useful addition of skills to help, to help. I think I always knew I’d go back and become an investor frankly. I didn’t quite know how or when, but even when I joined mckinsey, I knew that wouldn’t be my life.

 

STEPHEN CLAPHAM: Was it interesting at mckinsey’s? I mean, did it give you an edge? Do you think when you went back into fund management? It’s a great question.

 

STUART RODEN: Maybe at the margin. Oh, I really enjoyed it and I really, really enjoyed my time then love working with the people and connecting it. It certainly helped this again, this is very personal.

 

STUART RODEN: It certainly helped my communication skills and the ability to synthesize information, which I think is maybe not necessarily that useful day to day in the job, you know, fund management, picking shares, but it’s very useful when it comes to all the communication, which is so, so important.

 

STEPHEN CLAPHAM: It’s funny, isn’t it? Because some of the best investors or some of the poorest communicators, the wiring is slightly, your wiring has to be a particular way to be successful as an investor. And it makes some sometimes makes you a bit of a, it makes it more difficult to communicate. I I’ve seen a, I’ve seen that number of, of, of people really successful, successful investors.

 

STEPHEN CLAPHAM: I remember, I don’t know if you remember, we had lunched probably 10 years ago at a very posh investors conference. And you, your then partner Pete Davies and Niall Ferguson, who had just written a book, the biography of Sigmund Warburg. And you were telling him about the handwriting test. Tell us about the handwriting test.

 

STUART RODEN: Well, that, that was very much a war, a war thing that whenever you interviewed for a job, they would, they’d ask for a handwritten note. And it was well known that that was sent off to, a graphologist who was Sigmund Wag’s colleague from, well, I guess now 50 60 years ago to be analyzed.

 

STUART RODEN: And whenever we had a discussion about a prospective hire, the result of that interview, the, the interview would be one part and then there would be this issue about what did the graphologist say?

 

STUART RODEN: And so it was really, really listened to, it wasn’t just a kind of an extra thrown in and people were not given jobs if something very negative came up for sure when I was in those meetings where people, and of course, what happened, which is as you would expect is people would hear the graphology and said, oh, I always thought that might be the case.

 

STUART RODEN: So it’s kind of became kind of self fulfilling in some ways. But that’s the communication point which I think it’s a really important one. And certainly when Pete and I started together, one of the things that we were very keen to do was to make the written communication, kind of an important part of the delivery to clients. And there are lots of things we can talk about later about the investment side.

 

STUART RODEN: But I think being transparent, being open and I would say trying to make sure the clients are never surprised. So, although that you’ll go through bad periods, if you’ve explained what you’re doing at any one time and what you’re thinking and how the portfolio is positioned and something happened in the world that clearly would be negative for the fund, a client having read your previous letters would be aware of that.

 

STUART RODEN: It wouldn’t be a shock or a surprise. So, you’re absolutely right. I think a lot of people in our profession find it quite hard to communicate or aren’t the great communicators on a 1 to 1 basis. But sometimes they can write it extremely well. And, you know, we think communication is a key part of what makes a good relationship between the, the fund manager and the client and the client of the firm.

 

SPEAKER 2: That’s a fantastic point.

 

SPEAKER 2: And of course, your letters have been amazing over the years, but just going back to the handwriting, it’s quite interesting because I remember Stuart Newton used to do the same thing, but Stuart Newton of Newton Investment management when you went for an interview because he, he he offered me a job and at the time, I just, I was enjoying the South side and I wasn’t sure about going to buy mistake in my part.

 

SPEAKER 2: And he said that one of the things that they did was you went through a psycho psycho metric test because his theory was that some people were better suited to be analysts and some people were better suited to be portfolio managers.

 

SPEAKER 2: And the, the idea of that test was to try and fit people into those two buckets. I mean, was this something that you used later in your career? Did you ever rely on external help when assessing a new recruit?

 

STUART RODEN: No, no, we didn’t. Actually, certainly not when, when I, when I was there.

 

STUART RODEN: But I, I, I think the distinction that Stuart is talking about there is is absolutely right. And when so Lands Down clearly, when I was running the fund for over 17, 18 years, our job there was to recruit analysts.

 

STUART RODEN: But as part of later on when I kind of took over running the firm and tried to recruit a new product managers, they had to be fund managers. And the distinction is very real and very important and there are many, many brilliant analysts, brilliant analysts who would be hopeless fund managers.

 

STUART RODEN: And I guess the, and there are lots of reasons why there that distinction exists. But I think the a lot, a lot of analysts find it not just in fund management or, or in our world, but the concept of an, an analyst would be always wanting to find the final answer and having a very clear yes or no.

 

STUART RODEN: And of course, when you’re in the fund management role, you never get that certainty and part of the skill, I think of a great fund manager.

 

STUART RODEN: It’s understanding what’s not known and taking on a position in spite of that, you know, taking on the risk and uncertainty. And if you, you know, if you’re not comfortable with that, it’s gonna be a really very difficult job and you’ll always kind of want that bit more information or want the certainty.

 

STUART RODEN: And of course, even if you get it, it might be too late by then. So I think, I think there is a different character. And you can, you can generally gauge that from conversation and what they’ve done before.

 

SPEAKER 2: What sort of signals would I give off as to whether I was a good analyst or a good PM?

 

STUART RODEN: Well, I, I think, I think a good analyst is actually easier to interview for because you give them case studies and you can go through examples of companies or industries, give them examples of a particularly difficult company that you’ve looked at and, and, and see that’s, that’s what we used to for our analysts.

 

STUART RODEN: I think when it comes to fund manager, it’s, it’s, it’s kind of an attitude where they’ve taken risks before, how they think about how they think about the world. It, it’s, it, it’s probably the case and this is, certainly was the case for most people that they went through the route of working for a fund manager before they knew whether they wanted the job or not.

 

STUART RODEN: It’s very rare that you would take on somebody. I can’t think of an instance where somebody would come in totally cold and say I want to be a fund manager, please. Can I have a job without having done something similar before? It’s very rare indeed. And again, I can’t make a convincing case.

 

STUART RODEN: This is the truth, but where that has happened and there are some cases, I’m not sure it’s ended up very well. So people might have very good skills in a certain area. But when it comes to actually being in the seat, it’s very, very different and there’s, you know, lots of things that you can’t prepare for.

 

STUART RODEN: So it’s much harder to know whether someone will be good for manager than a good analyst. And I think obviously over time, you know, track record tells you something, but even that has to be carefully interrogated, but you’d want to work with someone I think before, you would be willing to say they could be a great fund manager.

 

SPEAKER 2: When I was remembered, we had a, a coffee and you very kindly gave me some advice when I was writing my book. And as I recall, you attributed your success in markets to being able to identify change, change happening in the world and its impact on the outlook for companies.

 

SPEAKER 2: Is that, I mean, is that one of the key things that made you so successful or were there other things that you, that you did that you think distinguished you and, and enabled you to beat the averages?

 

STUART RODEN: Ok. So if I if I could take a step back because, because, you know, we kind of used to get asked these questions when pitching for new business and it’s kind of quite a difficult one to answer without sounding kind of immodest.

 

STUART RODEN: But, but, but I, I used to kind of break it down into probably four distinct areas and and I’ll come back to something at the end about kind of partnership and why in my case, I think worked incredibly well having, having Peter Davies as a partner for so long running the fund. So I, I think, I think that the four things, there’s probably 1/5 which we touched on before.

 

STUART RODEN: But the for the four, the four key blocks I think of being and here I’m talking about running a successful fund rather than just the individual, individual stock picker. So I think, I think the four things would go into these, into these buckets. What, what one is idea generation. Where do you get your ideas from? And again, no easy answer to that.

 

STUART RODEN: But I think it’s having a curiosity of mind that means you’re always consuming information from all different sources. There’s no doubt that when we started our access to new information sources did distinguish us. We used to pay for it. I think we were the very first firm, certainly in Europe to actually pay for external sources of, of data or information.

 

STUART RODEN: We did our own interview panels. So I think, I think just being are creative and how you get information is a starting point. And from that ideas come and, you know, if you’re smart and you’re talking to smart people, you’ll find lots and lots and lots of ideas.

 

STUART RODEN: Then the second thing of course is to know which of those ones to follow this kind of kind of filtering system. And then you have to do very good analysis on those companies and it is financial analysis at its core, definitely not one of my strengths, but Pete and the rest of the team were exceptionally good at that.

 

STUART RODEN: And there were times also as you know, Stephen, that we’d ask other people to look at something if we thought it was complicated in a set of account or acquisition, you know, we, we, we would outsource that if, if we needed to so very strong analysis. For me also the industry.

 

STUART RODEN: So we were, although I wouldn’t say that everything we did was in this bucket, but there’s very strong sense of capital cycles going through what we believed would be an attractive investment where capital has been starved. And there were delays in putting new supply up, working that out through to demand. And what, what the kind of next two or three years might look like.

 

STUART RODEN: I think that’s a lot of what we did, what we did. And actually, that’s true of the mining and some of the UK shares we look looked at and you know, you’d argue that on the short side, when you were looking at the increased supply of somebody like an Amazon was bringing to sales that’s going to lead to certain pricing pressures which happen.

 

STUART RODEN: And we, we were, I think pretty early on to the negative impacts of e-commerce went way before it was recognized by the market. So they, they’re the, they’re the first two things. I think you’ve got to have really interesting ideas.

 

STUART RODEN: Lots of joining dots, lots of seeing patterns, thinking about capital cycles and then doing some extremely strong analytical work on the company asking all sorts of questions, forensic questions, but also working out, you know, classic questions of operational leverage, both up and down costs, acquisition opportunities and so on and so forth.

 

STUART RODEN: And, and then the third part is how you put those positions in our case, it was a hedge fund. But before that long, only into a portfolio that makes sense. And that’s kind of not a trivial matter. Because you could just take all your good ideas in the alongside, all your good ideas in the short side and say this is, this is our best of ideas.

 

STUART RODEN: You know, let’s, let’s see what happens. That’s definitely not what we did. We were very explicit about what return profile we were looking for, which included volatility or drawdowns. In other words, what, what was acceptable.

 

STUART RODEN: So that in a sense determines what the portfolio looks like in terms of exposure to individual companies, exposure to individual sectors and exposure to overall macro themes and the key in all of that Stephen was to and again, I think it’s something I think we can say immodestly that Pete and I did when we, when we launched the fund, which I wouldn’t say it was earth shattering, but it was certainly not commonplace at the time was to make sure that we weren’t taking risks that we didn’t know about.

 

STUART RODEN: So we used to call those, we want to avoid taking hi hidden risks. And the way that we did that was to run the whole portfolio through different factor scenarios, different analytical external events that could happen. And certainly wanted to happen in the past and what would that look like for the fund?

 

STUART RODEN: And so we were kind of feeling very pleased with ourselves that we’ve done that and it was very working quite well. And then of course, we had 9 11 kind of couple of months into us running the fund. So you always know this can be something you haven’t thought about. That was one of the first things that happened to us that wasn’t on the cards.

 

STUART RODEN: But, but, but, but, but, but making sure and I, I learned this lesson from my early days at Mercury where people were performing very well, but it turned out that they had one, basically one theme or risk running through the whole fund and that happened to go wrong. And the whole portfolio on wild everything was connected.

 

STUART RODEN: So you could, I mean, the classic example would be property if you’re exposed to property and exposed to banks and there’s a property collapse, you’re going to get hit twice. So that is something we spent a lot of time on kind of managing risks and how things were interrelated and would work in different scenarios that took place.

 

STUART RODEN: And then the final block of the four I would say is it is kind of active monitoring. So I assume you’ve done the first bit and the second bit and you’ve got your portfolio, it’s really important that you look at that as best you can a fresh every week.

 

STUART RODEN: It’s very easy to become not kind of lazy but slightly complacent about positions. And one of the things that we used to say a lot is be very careful of thesis creep. So you’ve got lots of positions on, you have reasons why you’ve got those positions on.

 

STUART RODEN: And then when something doesn’t quite work, you kind of meant another reason why you should keep the position on and that’s incredibly dangerous. So we were, we were the, the term that gets used.

 

STUART RODEN: Now, I don’t think it was, I don’t think Pete and I or the team have used, it was re underwriting positions that you want people to re underwrite their positions, you know, on a, on a, on a constant basis and not have the bias of being linked to what price you paid or any other emotional thing that you might have.

 

STUART RODEN: And one of the most common ones, I think is, you know, you can get too close to management for sure. And so what we used to say is we know there are biases, we know we’re humans, we have them, all you can do is guard against them and be aware of them.

 

STUART RODEN: So, you know, constant vigil on the portfolio to keep it dynamic and to keep it fresh, that would be the fourth block. And the fifth one we, we, we spoke about before, which was communication, incredibly important to communicate to your clients and work on the principle that nobody likes a surprise, particularly a bad surprise.

 

STUART RODEN: And you know, as long as you, as long as you do that, I think you’re often forgiven.

 

STUART RODEN: I think what clients don’t forgive you for is producing kind of returns which are kind of unexpected, obviously poor and unexpected when they’re good and unexpected, they kind of, they never say anything but which is completely illogical because it means you are probably taking too much risk one way or another just happen to work out in that case.

 

STUART RODEN: But, but, but making sure that you’re true to your word that you’re delivering within your risk parameters and what, what the expectations are.

 

STUART RODEN: And so we used to say, for example, that we didn’t want to have a drawdown of more than 4% in a month or 5% over three months, didn’t mean we would never have it. But that was the kind of expectation we set, that’s very challenging.

 

SPEAKER 2: Because you don’t know what’s gonna, what’s gonna happen. And, but I, I, I suppose setting expectations is a good idea. Listen, you and Pete worked together for nearly 25 years and I was scratching my head because I can’t think of another investment duel that has been as enduring and as successful other than Warren Buffett and Charlie Munger perhaps.

 

SPEAKER 2: But, but when you look, I mean, it’s quite an interesting thing. So I was thinking about, well, who’s, what partnerships have there been in business? And you get a lot of family partnerships? You know, the Cock brothers are the Barclay brothers. O obviously used to be a very successful family partnerships.

 

SPEAKER 2: Lots of father and son pairings and in business there used to be a lot of jewels. Procter and Gamble Rolls Royce Wells Fargo, Hewlett, Packard Anheuser Busch. I mean, there’s a huge long list, but when you look today, there’s far fewer, you know, there’s Ben and Jerry’s ice cream, there’s Sergei Bin and Larry Page Google, but it’s not a, it’s not a common thing.

 

SPEAKER 2: What, what was it about the chemistry between you and Pete? I mean, it complementary skills, different psychological, I mean, what, what made it so successful because in Investment Management, these partnerships tend not to endure for that long.

 

SPEAKER 2: You know, the one that’s been very, it was very successful was John Armitage and William Bollinger. But Bollinger retired relatively early on and Armitage has been, you know, had an amazing performance on his own, Chris Horn. Patrick De Goris, I mean, the left and set up, set up on his own. What, what was it? And I mean, maybe you don’t know. I mean, maybe an unfair question.

 

STUART RODEN: No, I think, I think it’s a very good question.

 

STUART RODEN: I can have a go at answering. I don’t think we know, we know for sure. So, I think, I, I think, I think there are kind of few contributing factors if first of all, we were kind of different ages, which I think is quite important. There was, there was never, you know, it wasn’t a competitive thing. You know, I, I, I, I was older and had done certain things he hadn’t done.

 

STUART RODEN: He’s obviously, you know, you know, a brilliant mind when he started farm management but didn’t have farm management experience. So I think there was a kind of a clear complimentary skills. There was huge respect even though we had different skills. And I think without that the basis of respect for each other and for what the other person thinks nothing is going to work.

 

STUART RODEN: And there was never a sense that, you know, one of us was buying as you would do in a large company, potentially to get to the top of a pile. So I, I think, you know, we, we came with different skill sets and I guess what’s interesting to ask is, you know, what were those, those differences?

 

STUART RODEN: And I think I, I think anybody who knows that both of us would not find it hard to say something like, you know, Pete’s kind of optimistic and very, very, you know, confident Stuart’s much more neurotic and cautious. Always looking at the downside. So that’s a really interesting combination because, you know, to be a great farm manager, you have to have both confidence and humility and it’s very rare, very rare mix.

 

STUART RODEN: You, if you don’t have humility, you’re going to get it at some stage because the market’s gonna make you humble. It just, it just does that. And if you don’t have enough confidence, you may never take the position that you need to take and, and work through it and, and, and maybe, you know, it’s a proposition, I can’t prove it, but may, maybe it’s very hard for one person to hold both those things.

 

STUART RODEN: Maybe it’s incredibly difficult and so that, you know, balancing was probably a very, very good thing. And you know, it allows you to question in a kind of safe and respectful manner rather than in a point scoring manner. Which kind of happens in large firms. You, you, you’re, you’re not trying to win points in the debate, you’re trying to do what you think is the best thing for clients.

 

STUART RODEN: And having two people looking at it kind of from really quite different angles, temperamentally different angles, I think was, it was incredibly valuable. And obviously you’ve got to get on with the person, so you got to respect them and you got to like them, you’ve got to have shared values.

 

STUART RODEN: And I’m not gonna say we never disagreed on things. We, we clearly did not many times I can actually count them on, I can literally count them on one hand, but we never ever disagreed on anything where there was a moral issue about what to do either in the team or in the firm or with man or, or, or with management of information.

 

STUART RODEN: Never ever had any, ever had a disagreement that always came to the same answer. And you do get these questions about whether you can, whether you can’t do something, whether something should be on the restricted list or you’re allowed to deal in something or you’re not how you treat staff.

 

STUART RODEN: You know what the firm wants to stand for? Never ever, ever had a difference of view on that. And I think that’s really important, really, really important. So I guess I’m summarizing, I’d say lots of mutual respect, lots of shared values, different, complementary skill set and, and, and it, and it worked, obviously it worked.

 

SPEAKER 2: I mean, I, I, I remember coming to present to you guys when I was on the South side and you would always be sort of set, sat off to the side not saying much.

 

SPEAKER 2: And Pete would have a barrage of questions and then you would just sort of fire the, the bullet at the, you know, close to the end and ask this. Well, are we really looking at the right thing? I remember a couple I can’t remember the exact instances. I remember a couple of times that that happened.

 

SPEAKER 2: But when you disagreed, I mean, what, what would be the end result? I mean, if you had diametrically opposite, using the stock, we just wouldn’t do that.

 

STUART RODEN: I said, I said when it was working best we kind of had a veto, we had a veto policy. Which was if, if either of us, you know, at the beginning definitely didn’t want to do something, particularly if it was to do with the personality or something, we felt uncomfortable about the company or its management team, we just wouldn’t do it.

 

STUART RODEN: And that, that was, that was just a fact we wouldn’t do it. And then basically the way you reflect differences of opinion or in the weighting of the company.

 

STUART RODEN: So where we were both very pro something and it was often a theme actually at the time rather than a company, we would go to our maximum kind of risk exposure, which would be carefully worked out relative to other positions in the portfolio where it was something that, for example, had a, had a view on, I was less sure we would go in to a kind of a half position and then try and either build it up or not build it up depending on kind of the new, the new evidence or, you know, getting clarification on certain issues.

 

STUART RODEN: So, so, so I said that the kind of how much of the position of the company on the long or short side you have in the portfolio expresses your confidence. And so you go from, you know, having nothing to a smaller position to a maximum position and then the job is to persuade the other person. Why you think you’re right in a, in a, in a healthy manner.

 

SPEAKER 2: Was there any sort of particular sectors or geographies that you particularly liked that you found that you consistently made money and that you were attracted back to.

 

STUART RODEN: I think, I think mining was one that we really got to understand the first capital cycle. When you get asked a question or you bottom up or top down. The answer is we were both and you’d have this view going back. It’s just a good example of, you know, when new Chinese demand was very strong, we knew supply was constrained, we knew that the supply numbers in the marketplace kind of never got met.

 

STUART RODEN: There’s always delays for kind of good reasons or not good reasons, but, but supply never quite met the the target. And then that’s your kind of your overall thesis, you then meet 678 companies and they will basically tell you the same thing and then your job is to pick the ones which are kind of in that case on the lowest cost curve. Or you think the ones that can do interesting M and A deals.

 

STUART RODEN: And therefore you had both those things coming together and that and then that led to maximum position. So I think mining, mining, mining was one building infrastructure was another one. We’re very strong on Pete was very strong on financials, obviously, banks.

 

STUART RODEN: From what way back at Mercury days, the areas that we rarely invested in perhaps are the other way around. Were a retail. We were, we were pretty good at both long and short. Actually, we found retail very easy to analyze Airlines, which is something you know, a bit about.

 

STUART RODEN: We, we made some very good investment in, in, in those sectors and as you can see, they’re all, you know, capital heavy areas of the market, the, the areas that we generally didn’t do very much in were pharmaceuticals. We kind of came to the conclusion after quite a long time that we weren’t sure we could, the, the list of public companies that that is that we could really add value.

 

STUART RODEN: You’d have all these kind of professionals come in doctors and people who from broken firms or from non broken firms who claim they knew about what’s going to happen to a certain drug. And you kind of realize that nobody quite knew and you realize the management didn’t know themselves.

 

STUART RODEN: So, not, not in a bad way because how could they say a big farmer, we didn’t do very much of and, bigger oil as well was something we never really had, very big positions in utilities was something we were, we were big in one at one stage. I think there are two big sectors where we had very limited exposure long or short, over, over kind of 20 years.

 

SPEAKER 2: It was interesting. The Airlines, of course, Pete, started at Mercury doing the Airlines, right. And it was really, I felt quite bemused. I remember going to a meeting with them and he’d been, I don’t know, he’d been there less than a month and he knew more about the Airlines than I did and I’ve been doing, I thought, well, how does that work?

 

SPEAKER 2: And I realized quite quickly that it was pretty smart but issues like the Airlines and mining, there’s quite a big macro influence. So just talk about, talk about the, the top down versus the bottom up. I mean, you’re quite big in the top down stuff, aren’t you?

 

STUART RODEN: Yeah. Yeah. Yeah. Yeah, definitely. Yeah. So, so basically it’s, it’s having, it’s having a view, not necessarily kind of, you know, the macro GDP numbers but kind of within sectors where you think money is going to be spent. So, for example, I don’t think it takes a genius and my own personal portfolio now is very tilted towards kind of infrastructure, infrastructure spend.

 

STUART RODEN: It’s kind of pretty clear that in this country in America, that’s where governments are going to spend money. And kind of, they’ve said it. If you look at the Chinese five year plan, they tell you, they literally tell you where the money is going to be spent. I mean, it’s, it’s, it’s not a secret. I mean, so I think you have to start start there as a starting point.

 

STUART RODEN: But then of course, if you look at Airlines, the actual the ball case on Airlines was not a demand one, it was the shrinking number of players in the sector. And it got to the stage where certainly when I last saw it and I’ll be well out of touch, but kind of the top five had 80% of the sector, whereas that number kind of 10 years ago was 50%.

 

STUART RODEN: So the idea that obviously what’s happened with COVID and the pandemic has upset all those numbers, but the idea was a very strong one that you’d get better pricing power had you had a much more concentrated market. I would say Stephen for anyone listening, who happens to be an analyst in a sector who then goes on to run money. Beware of what, what what I want to call the sector curse.

 

STUART RODEN: And the sector curse goes along the lines that when I go back to my old firm, Mercury Asset Management, we all had funds. Well, you had some leeway, but you had sector analysts with their specific sector, they had to cover from a research point of view. And if you looked at the fund of all these different people, you could tell which sector they covered because they always always will fill up in that sector or overweight.

 

STUART RODEN: So because you think, you know it best, so you’ll think you can always have most, most exposure to it, but of course, it might be the worst sector in the world. So, yeah, just because, you know, something, well, it doesn’t mean that you should have a lot of exposure to it.

 

SPEAKER 2: It’s quite, quite funny because, I realized that I couldn’t have a, as impartial, a view of my own sector when I went to the by side. And, if I looked, I, I never tracked the performance of the, of the different, stocks, but I would bet money that transport would have been my worst.

 

SPEAKER 2: I mean, because, yeah, it’s exactly that you’re much less impartial and you think it’s slightly dangerous because you think, you know, and you’re, you’re not as, able to put it in the context of the wider market. So, I certainly did better with things that I was completely new to. It’s obviously you’re, I think you’re attracted to it because it’s easier. It’s less work.

 

STUART RODEN: It, yeah, it’s less work and, and you know it. Right.

 

SPEAKER 2: Yeah, of course. It doesn’t always work. I remember trying to persuade one of my colleagues at one fund that they shouldn’t invest in a particular transport stock. They’d asked me, I’d been for breakfast with the Goldman Sachs analyst and he’d recommended this stock and I said I wouldn’t touch that with a barge ball.

 

SPEAKER 2: And they, this particular guy thought that the Goldman’s analysts were brilliant. I don’t, I never understood why. And, he went out and bought it and, you know, ended up losing money.

 

SPEAKER 2: And he kind of said, well, you told me that and I said, no, I told you not to buy it, you know, very typically, typically funny. So listen, you’re now doing different things including venture. And one of the things that we’re quite interested in is, you know, where venture meets, quoted companies because I think there’s an increasing part of the market.

 

SPEAKER 2: So I was looking at a big hedge funds, 13 f holdings and about 40% of the value was in stocks that were less than 10 years old or less than 15 years old and had come to the market from venture.

 

SPEAKER 2: And I was just, I was just wondering, you know, judging management, I think is incredibly difficult and it’s incredibly difficult when you’re looking at quoted stocks because the guy that’s got to the top of a Fortune 500 company, he’s good at sales and he’s good at selling himself and he’s good at persuading you that, what he’s saying is true in venture, it’s a much more important component of the total.

 

SPEAKER 2: So, tell me, how do you, how do you do that? And are there any transferrable skills from quarter to venture or?

 

STUART RODEN: It’s a, it’s a, it’s a tremendous question. I, I, I, I mean, at one level, at one level, there are very few frankly, and if you do that venture, venture as in and, and the, and the one that I’m most involved in, which is when we started three years ago, in Israel actually, which is literally spa seed companies.

 

STUART RODEN: So 23 people in a room with an idea and with big brains, you know, all the kind of stuff that we would have done, which is scope market size, do forecasts. It’s just, it’s not, it’s just not that relevant. And as you said, you are taking a huge, huge gamble on, on the people.

 

STUART RODEN: So I think common sense and some form of framework as to, yeah, and the question I asked now, which I guess it took me a while to ask and I, and I don’t do the day to day work is, you know, if, if, if this does work, how big, how big can it be? Because the it’s most likely not to work and that’s kind of the rules, the rules of venture investing. It’s most likely that things don’t work.

 

STUART RODEN: And therefore the ones that do work, it’s that classic thing have to be able to return two or three times the fund and therefore scoping how big something could be, does become important and it becomes important for the reason that, you know, if you think about the way venture works, you invest at say $10 million the next person invests at 40. The guy who pays 40 while it’s still early stage wants to make sure it’s worth 200.

 

STUART RODEN: The guy that’s 200 needs to make sure it’s worth 400 so on. So at one level, you have to believe that these venture companies you’re investing in can be worth 5 $600 million. Otherwise you really shouldn’t make the investment on day one.

 

STUART RODEN: And so one of the things that we’ve not quite answering your question, but I think we’ve learned is that investing in a company that’s got a market initial value of 5 to $10 million that you think could be worth 60 or 70 is one you’d pass on. Frankly. So the market opportunity bit I I think is obviously, I assume they execute and they’re the only player and they’re the winner and all the rest of it.

 

STUART RODEN: But that becomes, I think a much more important question for an early stage investor than it necessarily does for kind of public companies. And as you say that the, the CEO team at the beginning often have one to our discussion before that our most successful investment today has been two brothers, which is extraordinary because, you know, you could think about all the reasons why that shouldn’t work.

 

STUART RODEN: And it, and it’s had its challenges but that, that’s been an incredibly powerful partnership, but you are backing a huge amount on one stroke to people in a way, you are not with public companies. So even if you’ve got the market size, right?

 

STUART RODEN: And even if you’ve got a fantastic product, you don’t know whether these are the guys who prepared to execute it. And there are some, we’re not in that camp but, but I can see why there are some V CS now who won’t invest in first time founders for that reason, they’ll only invest in people who have done it before, even if they failed. That kind of bothers less than a first time fouler.

 

STUART RODEN: That’s just too big, a too big, a challenge to get everything right, first time. And I have sympathy with that. I said it’s not, it’s not a route that we’ve, we, we, we’ve taken to, but they’re very, very different investment skills, very different. And I, and I have to say kind of being totally frank being a good investor.

 

STUART RODEN: And it might mean you’ve got other skills but not, doesn’t necessarily equip you to do anything else afterwards. I mean, you may be kind of incisive and ask questions and be curious. But in terms of actually doing another day to day job, I’m not sure there are, there is anything that necessarily means that you’ll be good at something else and maybe that maybe that’s not a surprise.

 

SPEAKER 2: Well, it’s interesting, isn’t it? Because if you’re a good investor, you tend to have longevity and you can carry on, you can carry on investing. It’s only if you’re, if you have a bad patch and you’re not, you don’t have patient enough clients or patient enough employers that you end up having to figure out what else to do.

 

SPEAKER 2: And oh yeah, I mean, I, I, I, I think your point is well made that investing doesn’t really equip you for very many other things other than it gives you, it gives you the ability to react to events and to, and it gives you a network.

 

SPEAKER 2: So, so I haven’t, I hadn’t really thought about it because I ended up as, you know, doing a training business, but I didn’t have any, you know, I didn’t, I didn’t set out to do that. It just happened by complete accident and it so happens. It’s actually, it’s actually good fun and obviously it’s a lot less stressful than investing.

 

STUART RODEN: So, you know, it’s I think you end up in, in what you do sometimes just, just by, just by accident, I tell you the other, the other thing that not a massive insight, but as an investor, you can change your mind, you can do something that doesn’t work. You change your mind and you can change your mind very, very quickly.

 

STUART RODEN: That’s really true in other forms of business. Once you’ve committed to something, it’s much harder to pivot away, you can do it. And some of these V C firms do pivot quite a lot. But when you’re running a big company or a big organization or you kind of, you know, pursuing a strategy, you don’t generally have the flexibility to say, oh yeah, I got that wrong.

 

STUART RODEN: Yeah, I mean, politicians are a great example, right? And they make mistakes the whole time, but they never tell you. I mean, very rarely they say I’ve got that wrong. I’ll do something else because that’s seen as weakness where it’s fund management, you do it the whole time.

 

SPEAKER 2: I mean, there are very few endeavors in, in which you do have the flexibility that you have in, in fund management is quite, quite true. And you, I mean, you’re doing lots of different things now. You’re sitting in all sorts of committees and investment committees, not for profit things.

 

SPEAKER 2: I mean, how do you decide what you’re going to do and what demands? I mean, you have a lot of demands in your time. Are you just doing things that you think will be fun or interesting or things that you think you’ll do good. I mean, how do you decide?

 

STUART RODEN: Well, I guess the best piece of advice I got when I, when I left Lands Down was kind of, don’t rush to try and fill the time or don’t just take the first things that come your way. And so I’ve just tried to build a kind of selection of things that kind of meet, meet my interests, things I care a lot about which is kind of kids education or lack of good education for kind of vulnerable and excluded kids.

 

STUART RODEN: And trying to help them get back on to a, a better path. That’s probably the thing I care most about on the non, the non profit side joined kind of academic in the board of an academic institution, the L S E the National Gallery. So it has to be something one that I, I, I have a connection with, but also where I think they are going through a really interesting change.

 

STUART RODEN: And where kind of the next 5 to 10 years I would have been very different anyway. But what’s happened with COVID and kind of the ability to do things remotely has definitely accelerated that. So it has to be something where there’s a really interesting change and where the people running it kind of buy into that.

 

STUART RODEN: But, but it is a very different experience. And at times, you know, it can be pretty frustrating because a lot of these organizations just don’t move for very good reason at the pace that we, we’re used to in the investment world both in terms of getting things done.

 

STUART RODEN: But, but also, as I said, you know, well, if that doesn’t work, we’ll do something else. It’s just, that’s just not how they operate. And the, the whole incentive structure is not designed like that. So it can be frustrating.

 

STUART RODEN: And the best you can do is kind of keep, keep chipping away and trying to find the right levers whether it’s other trustees or other board members or people within the organization who think the same way. So there’s a bit more I use the word selling, it’s kind of navigating around to get people to do things in a way that I think in kind of my old life, you’d get them done pretty quickly.

 

SPEAKER 2: Well, there are a few endeavors where you can be as quick as you can at a large hedge fund. But you’ve got a lot of resources and a lot of people who are queuing up to help you and you, you know, you, you, you and of course you can pivot the, the money.

 

SPEAKER 2: So I, I understand that I just you were talking about, you know, running a quarter of portfolio and it requires a lot of emotional discipline and in venture capital, you, you know, you referred to this sort of high attrition rate.

 

SPEAKER 2: So you get a lot of setbacks, I wonder, do you mean do you have any sort of tips for people? I mean, how did you used to cope when you had, you know, a bad run? You’d had, you know, a few bad months, maybe, maybe a month where there’s more than the 4% drawdown or when you’ve had a bad run.

 

STUART RODEN: How do I cope? Not very well is the answer to be honest. So, so we, so we went for 10 years without having anything that could be considered bad and then have the most awful 2011, which I remember very well to this day, having having a partner, I think is massively helpful.

 

STUART RODEN: I, I, I don’t mean domestic partner, I mean business partner because you are sharing that burden and I, I, I remember that it was literally a year when nothing went right and almost everything went wrong consistently.

 

STUART RODEN: It wasn’t like it was one mass, it was literally kind of like water torture every week, every month was awful. So having a team, you know, Pete and Johnny at that time to share that with is, is massively important to talk it over.

 

STUART RODEN: And you kind of try and keep physically fit, which I think is very important. Again, I can’t prove it. But I think a lot of the people in our field who are at the top of the game, you know, mentally strong, but also physically strong. I think those two things do go hand in hand and try and be as dispassionate as possible.

 

STUART RODEN: And 2011 was a really, you know, bad, bad year. We had to kind of down 20% at one stage. We, I remember sitting in a room with Pete and, you know, clients were kind of saying, how can you do this? Da Da Da. This is not what we expect from you guys.

 

STUART RODEN: And we came up with a plan, you know, very well thought out plan that what we would do in terms of risk of the pro of the portfolio as we hit different performance drawdown numbers, but also to de lever and not get rid of companies that we believed in. And that was kind of really, really important. And we told clients this and at one stage, I remember very clearly, I remember where I was sitting.

 

STUART RODEN: We both said to each other that if the clients that, you know, in a sense demand that we cut, which is kind of what a lot of people say. It’s just kind of just take all the risk off the table and rebuild. If that was an overwhelming desire from the clients, we would stop running the fund.

 

STUART RODEN: And that, and that wasn’t kind of, we didn’t make that a public statement, but we said that to each other that we, you know, we can, we’re in a bad hole here. We think we know the way out of it. If, if people want us to lock in that loss, it means we’ve got the wrong client base.

 

STUART RODEN: And so we, we did do we, the rest you can kind of is known about, but that was an extremely, extremely tough time and lots of communication between us, lots of communication between us and the client and, and luckily it worked out fine. The next year turned out to be a very good year because we hadn’t cut at the bottom which you see so many people being forced to do. Yes.

 

SPEAKER 2: Tell me. I mean, you, you don’t really have a choice of clients or most funds don’t, but you were in a kind of unique position, weren’t you? Because people were queuing up to get in the fund. So, did you kind of gently encourage clients to leave?

 

SPEAKER 2: I mean, I mean, I do remember one, friend of mine who, who, when called up by an irate client just told them to take their money away and they were quite, they were so nonplussed. They couldn’t believe it that they left their money in.

 

STUART RODEN: Yeah, we, we, I don’t think we’d never said it like that, but we did say at that period. Well, well, two things I’d say what one is, that there were plenty of clients. I think this is a generic comment, but I think it’s an interesting one. So everybody said when we started the clients who really want are the endowments. They’re the ones that kind of, they’re the long term investors.

 

STUART RODEN: They’re the ones that will stick by you and be careful of these fund, the funds people because they’re kind of first bit of bad news. They run out of course, 2008, the exact opposite happened, the endowment had liquidity crisis. So they use kind of hedge funds or any liquid, more liquid investment as a an AM. And we, we got a lot of redemptions from them.

 

STUART RODEN: Whereas actually the fund of funds were, were very stable during that period. They didn’t have the same and they performed badly but didn’t have the same liquidity constraints as, as it happens that the endowments had. Well, we, we never, you know, we told clients what we were doing, we told them what they could expect. We told them that very tough period, how we were responding to it.

 

STUART RODEN: We might have said kind of if that’s not to your liking, then the only thing you can do is redeem, but we, we never actively redeem the client. There are a couple we’d like to have done because they are complete pains.

 

SPEAKER 2: But, but we never did tell me about selling because I think one of the things that people find really difficult, particularly private investors is knowing when to get rid of a position. What, what were your rules? Did you have specific rules when something went against you or specific rules when something got too big? I mean, how do you, how do you decide when to sell?

 

STEPHEN CLAPHAM: What would your advice be?

 

STUART RODEN: I think a lot of it temperament frankly and I don’t think there is an answer to that because there are many funds who run very strict stop loss policies, you’ll know them. They’re kind of very short term funds and that means they never have big drawdowns because the minute you go through something, they automatically get cut. We, we never had that. We, we just didn’t suit our style. We were long term, we were fundamental.

 

STUART RODEN: If there was a good reason, you go back to my point before we didn’t want to kind of get into investor creep, but just because we, we would never let the price determine our behavior of what we did for sure. That’s when things go wrong.

 

STUART RODEN: Sometimes it’s right to cut and we did that sometimes, sometimes it’s right to add more. Sometimes it’s right to do nothing where a situation or has gone right for you. Obviously, long, short is very different because long it becomes riskier because you have more of it as it goes up.

 

STUART RODEN: Just discipline in terms of risk. Are you taking too much risk? What’s the valuation? Versus what you thought it could be has the company delivered. That’s, that’s actually not that difficult, but the harder one is what to do with the short that’s gone. Right, because clearly it’s now a lesser position in the fund.

 

STUART RODEN: And so this is this term kind of pressing the short. Do you sell more to get the position up even though it’s gone down?

 

STUART RODEN: And again, never had a hard and fast rule on that, but I would say it was rare that we actively pushed a short after it had gone the right way. It was rat. I may, I don’t know whether it’s, we did want to look at it. I don’t know if that was ever a something that cost the funds performance.

 

STUART RODEN: It’s just something we weren’t particularly, we just weren’t, we just didn’t do a lot. I didn’t know whether we were kind of worried about it. You kind of always worried that, you know, someone can take it over, someone will pay the irrational price.

 

STUART RODEN: We did do it a few times but that was probably, and it’s a bit like the, the, the, the similar, I guess the parallel question that we’ve definitely struggled with was hedging whether it was options or futures after you’d been right.

 

STUART RODEN: You know, when, when, when is it that you cut an option, you take out option positions for protection.

 

STUART RODEN: Let’s say it happened. It works. You’re sitting on quite a lot of, in a sense, profit on the option. You probably lost money elsewhere because it was a hedge, something has gone wrong in the world.

 

STUART RODEN: Do you run that? Do you increase it or do you take profit? And that was always a very, very tricky. You know, I don’t think you can give rules in advance for every time. You got it right. You’ve got it wrong another time.

 

STUART RODEN: But, but certainly it was a very, very lively debate.

 

STUART RODEN: Because basically as I say, your maximum fear normally happens after an event and a lot of stuff has been, been written about that. And I think we were pretty good at not getting carried away.

 

STUART RODEN: Something I like doing in the stock market was to take on risk when others didn’t want to say where the expected return of an investment or a serious investment was positive. But there was a meaningful chance that it would be a zero. Lots of people hate those situations. They’re kind of like, I don’t want that on my book.

 

STUART RODEN: I don’t want to be shown something that could be a zero. I, I was always kind of keen to take the other side of that and again, you never knew you’d be right. But if you did, did it enough times you’d probably get a good return. So you’ve got to have the nerve to do that. You have. Yeah.

 

SPEAKER 2: Yeah, exactly. And what, what about shorts that went wrong? Because I’ve always found that was the most painful and always, always cause you lost sleep. Because the short that’s gone wrong is the one that you’re going to lie, lie awake at night wondering what to do.

 

STUART RODEN: Yeah. And the reason why it’s so painful, is the fact that as it goes wrong, it becomes more risk for the portfolio. It’s a bigger position. Whereas a long that goes, you know, if you have 10% in a share and it halves, you’re only exposed now to 5%.

 

STUART RODEN: If you’ve got a short that goes up, It doubles the inverse of halving, it’s now 20% and it’s too dominant. So again, I think my starting point was always kind of, our starting point was always risk management.

 

STUART RODEN: You know, what is the right level? Forget the share price, forget whether you’re right, forget whether or not, you know, the market you think is being stupid. What is the maximum exposure? You think you can have to any position in the fund?

 

STUART RODEN: And we actually, for a couple of the other funds, the risk committee at Lands Down introduced some pretty good, sorry, pretty tight guidelines which didn’t exist kind of beforehand as to what an individual short position could be for, for, for, for those very reasons, whether you, whether or not you’re right or wrong kind of is irrelevant.

 

STUART RODEN: It’s just what can be afforded by the portfolio. Because as I say, if you stop with, you’re trying to produce X return for clients with X or Y volatility, you don’t want all that risk to sit in one place. That would be stupid.

 

SPEAKER 2: Sure. It’s been absolutely fascinating listening to all this. I’ve got one closing question for you if I may, I mean, do you have a book, a practice or a training recommendation that you would suggest to anyone that was looking to come in to the asset management industry, looking to become a quoted investor.

 

STUART RODEN: 00 other than yours, Steven, other than obviously, other than yours. Well, the first book I read that Got me into Investment was was the something called the education of a poker player. So I’m not sure whether other people would enjoy that.

 

STUART RODEN: I, I, I frankly, I would try, apart from reading your book inside out, I would try and get investment letters and many of these are on the website, kind of kind of obviously well known ones, you know, people like Oak Tree Grantham.

 

STUART RODEN: There are plenty of others and the Lands Down ones, not just our fund. I think some of the other funds have written extremely good letters over the years and that kind of makes it kind of current and real. And you know, you hear about what people are thinking about why they’re thinking about it.

 

STUART RODEN: What the analysis is from the people who write good letters, and allow you then to go and do your own work on those companies. I, I, I don’t think I ever found a particular one book. You know, I like, I like the behavioral finance stuff that’s been written, you know, in the last years. I find that interesting, but on its own it’s clearly not enough. The buffet letters, certainly the ones of the past.

 

STUART RODEN: I’m not so sure, the most recent ones or his best ones, but, you know, going back some extra extraordinary, you know, good insight into markets generally and what they stand for. So I, I would track, you know, some of the best investors out there and look at what they’re doing, but more importantly why they’re doing it.

 

STUART RODEN: The marathon book is very good. I think it’s called Capital Account. I think I’m not quite sure.

 

SPEAKER 2: Yeah. Sadly, it’s sadly out of, out of print and I actually said to them, you know, can we get, get you to reprint it or, you know, get a PDF copy because all my students would love to, to read it.

 

SPEAKER 2: And, well, I mean, I think that I’m slightly surprised that you and Pete didn’t do the same thing, get somebody like Lawrence Cunningham to go through all your past letters and produce a book because I think it would be phenomenally, phenomenally interesting.

 

STUART RODEN: We, we want to ask, what was that? We want to ask whether we wanted to do a chapter on, is it Market Wizards?

 

SPEAKER 2: Yeah. Yeah. Yeah. Yeah.

 

STUART RODEN: Yeah. Yeah. And, we decided not to, which was just as well because I think it was just before the fund had a terrible time.

 

STUART RODEN: But, I don’t think those ones aren’t that interesting. They kind of a chapter is not that interesting. You’re right. If you wanted to do something, you’d have to write something quite detailed. You know, quite, quite, quite thoughtful if it’s gonna be of use to other people.

 

STUART RODEN: But no, we, we, we, we, we, well, we never did. But, but then, you know, and that the latter letters that, you know, Pete wrote, the, the year end ones are very good, but as you know, Patrick’s letter is very good.

 

STUART RODEN: There’s lots of people in lands, right, exceptionally well, both about some of the macro. But also I think more interesting for people is some of the, the analysis of the companies and the industries and why they’ve chosen to do certain things. A collection of value would be really interesting.

 

SPEAKER 2: No, absolutely. Well, I’ll, I’ll speak to Pete and see if I can persuade him to publish a book. And, I’m incredibly grateful to you really generous of you to give up your time and to do this. Thank you very much.

 

STUART RODEN: Not at all. I’ve enjoyed it. Thank you, Steven.

 

STEPHEN CLAPHAM: This interview for me was packed full of wisdom and great advice. I hope you enjoyed it and learned a lot. I certainly did and don’t forget, please subscribe to the podcast, rate it on itunes and visit our website behind the balance sheet dot com where you can sign up for our free newsletter. Thanks for listening.