Hi everyone, I'm Nikolai Tangan and today we are joined by one of the best investors of all time actually. So Chris Horn, not only is this fund TCI one of the best and most successful funds that Europe has ever seen, but also the charity is one now one of the largest in the world. So uh Chris, you continue to have a immense positive impact on the world. Thanks for coming. Good luck.

Let's start with um the investment world. What makes a good investment? I think this is uh something a lot of people uh get wrong. They that's they think it's about growth often. Okay. Or something new. Neither of them those things in themselves are to us um uh matter by themselves. The most important thing and without which it's um in in um for the let's say the types of investing that we do is high barriers to entry the moes that Warren Buffett has talked about.

Now can before we dig into that the can a distressed asset of a you know a piece of real estate that selling at half price because of a liquidation also be a good investment? Yes.

So, can there be a role for cheap average assets? Yeah, let's call them lowquality assets which are trading at big discounts to replacement cost. Yes, that that's the that's the type of investing that can work. Yeah. That I've I've done in my time. Yeah. Cheap average businesses or cheap bad businesses. But I'm I don't feel that I can have any confidence in that type of investing. um because the um the earnings power of those averages businesses is unpredictable.

Well, so what are good modes? The most important answer is ones that are sustainable. Okay, a lot of people uh and ideally you would have multiple moes, multiple ar pieces of defense and there are many ways is is basically something that means that the business is difficult to replace. Yeah. uh difficult to compete with. Yes. And replace two two substitution risk and competition risk. Y those long-term become different very difficult because why is it so important? Competition kills profits. Yep. That's as simple as that. Substitution eliminates your business.

So we look at um um there there are many many modes. one which most people don't look at uh most investors don't really look at actually interestingly is irreplaceable physical assets. Okay, we're in a world where people uh just look at earnings. They don't look at uh asset value or physical assets and and and uh um and so we like quite a bit of infrastructure. Um airports for example um one of our investments which uh has been um the airport group in Spain where the government privatized. Yes. Ayena and um you just can never they'll never build a second airport at Madrid or any other places. These are, you know, natural monopolies.

and um so but that also applies to toll roads and railroads and um telecom towers. Um so uh there are many forms of infrastructure transmission towers that um um are hard to compete with because they're natural monopolies where um where um of course some of these things can be overbuilt like cable. So there's a form of infrastructure but it it's it's it's it's usually you have to look at the details of case by case very unusual to try to and usually go and get the planning uh to build a second airport. No economic case to it. I mean I can't remember how long they struggled to get a an extra runway at Heathro. Right. So planning exactly planning and then uh roads there's no economic case to build a second road or you don't have the land. for different uh literally no.

so so infrastructure is physical assets is one a second is IP intellectual property that's right and uh which is so advanced okay that it's very difficult to replicate well so what kind of intellectual property are you thinking um one space we like is aircraft engines Um and uh there it is a very complicated product because the um materials complexity the the the the engines run at such high temperatures that metals melt and so many different things have to come together. Yeah. Thousands and thousands of complex parts. So that's one where that's a business where there are only two players in narrow body engines and two in widebody and there have been no new entrance for more than 50 years. The last new entrance was DE and so that tells you something. Yeah, it's a big industry but it's so complex very hard to enter.

Another uh barrier to entry is um uh installed base. Okay, which applies to the aircraft engine business. Once those engines are there, they um for various reasons, you get the spare parts business on it.

And um uh another um of uh barriers to entry is scale, although that's that's not a uh a guarantee of of uh um of uh competitive uh moat. Um network effects is another important barrier to entry. You can see this in assets like Visa, Meta. Yeah, two examples of um network effects and brands are another barrier to entry. But I'm not saying every brand is is powerful. But you know, you think about a McDonald's, it's a it has a value. There are some brands which are powerful and sustainable, but not all.

And I'll mention one more uh moat which is customer switching costs. Take missionritical software once it's installed. Uh companies are very reluctant to to mess with it and and and switch because of the complexity.

How important are recurring revenue streams for you when you look at businesses? It's it is important. Um but the predictability of when they recur is not okay. Let me give you an example. So what's most important for us is something slightly different which is essential product or service. We don't like things which are discretionary. Okay. So one space we've invested in for a long time is rating agencies and here these are the these are the people who basically give kind of character to different type of yeah they say is it good or bad? Yeah. Yeah. To people who invest in bonds, uh they say is it investment grade, non-investment grade, give for research and uh if you like, bless it. And uh there you can actually defer an issuer pays for the rating, but they don't have to um refinance their bonds, which is a big part of it in any given year. M they can delay and defer but eventually the debt has to be refinanced and and and and rated and so there's a there's a and so I think essential need is is is is uh the the the bigger point but uh usually our companies have uh yeah recurring and predictable revenue streams of essential products I yeah.

and so do they have to grow depending on valuation not necessarily um and uh or not not necessarily at a fast rate. Okay? And you and growth can come from two forms, volume and price. So you have to break it down. Now why isn't growth as important as people investors usually assume it to be um because you can have profitless growth. The airline industry over a hundred years has had a lot of growth. Airline travel has grown at 5% a year. Yep. Continues to grow uh consistently. But airlines as a business cumulatively and collectively have made almost you know minimal profits. Yeah. Despite growth because the very low barriers to entry and so um so I I I would say growth without barriers to entry is is not a combination that you you want.

Some of these businesses are quite uh capital intensive like it's not cheap to build an airport. Yeah. Does that matter for you? Well, you have to look at like everything into the detail and some airports uh are um well all airports have regulation on landing charges but some the non-landing charges are unregulated. the shops, the advertising, the the VIP lounges, the parking. Yep. And um the so-called dual till regulation. One till is regulated, one till is unregulated. And those are very low capital in in in in intensity. Yep. It's it's it's uh in effect. Yep. And uh and high returns on capital. They grow um because there's more and more demand for travel. And uh so um so and again capital intensity by itself it's part of the equation. Okay. But it's still um um um and it it it it tells you how valuable growth is. Okay. But what trumps, if you don't mind that expression, what trumps the uh the all of this? Still, it's still a valid expression, don't Yes. What trumps all of this is the the the the the Barry century. Okay.

I want to go back to the the point about growth can come from two forms, price and volume. Okay. And most companies don't have pricing power. They can only price if they're lucky at inflation. And that's why people don't focus on it. They don't even look at where growth comes from. They just assume it's volume plus inflation. But there is a special group of super companies that can price above inflation. And that's as Buffett taught the test of whether you have the moat. Okay. And this real pricing power above inflation can be very valuable because if you can price 1% above inflation and and you have a 20% profit margin, your profits will grow 5% faster than revenue. And um people don't go into it or analyze it because there's so few companies that that have it. But but um this is something we have a you know a lot of our investments have this because incremental pricing is pretty much all profits. That's right. And it's very potent if you have the lower your margin is. So this is why you asked about growth and is it how important if it's if you're asking about volume growth but I and I have low volume growth but I have a lot of pricing growth that's actually more important because of the leveraged effect of there's no cost associated with it.

M regulation. Yes. Um you have been in a lot of regulated businesses. So you mentioned airports, but you've been in Red Electric, which is like electricity transmission company. You have done quite a few of these things. Yes, I have. And actually, it's a general risk. Um because if you have barriers too low, competition or substitution eliminates your business and your investment. Barriers too high, regulators may come knocking on your door. Yep. M every case is different. Yeah. And um the ideal case is you that there is competition but weak competition. And apparent competition. Okay.

So tell me what is apparent competition? Yeah. Well it it's really weak competition and rational competition. Okay. So the um take some water examples um um uh Pratt and Whitney competes with GE and Saffron. It has a 25% share of new orders. It's it it can as a product, but it's not nearly as as as good. Yeah. It's it's got 35% of its engines grounded, multiple technical problems. just has lost a lot of trust, but it's it's there competing um and uh um a and uh for new engines. Yeah. But price isn't the most important thing in this industry. Reliability is. Yeah. And so you um and so and as it struggles it has to raise prices because it's got to you know lots of difficulties and sometimes where there is competition that competition chooses uh not to compete you know generally speaking not a specific industry um decides to be rational yeah and and and and compete on you know non-pricbased uh uh approach. Okay.

And then the detail matters. So you might have looked at Heathrow airport and see oh that airport is fully regulated. Airports can't be good. But if you look into the detail of Aena it's a different animal. It has a piece that's regulated and and and a much bigger piece 70% of the value maybe more which is unregulated. Yeah. And so uh maybe the unregulated business the regulated business will give you a bond-like return 7% but the unregulated give you a much higher return.

Do do you see now the other group of businesses you've been uh very big in has been the stock exchanges you know you both do stock exchange and so on in the past. Yes. Yes. Why are they why were they so good? In the case of uh Deutsche Borsa starting with that they had a derivative business called Eur which was a natural monopoly. It was a network effect. This was the barrier to entry that liquidity uh of a marketplace um for uh trading bond futures European bond futures. it the the the network effect of getting best prices in in in the most uh liquid market meant it became what it's termed a winner takes all or natural monopoly and once you have that liquidity very hard to move people away price you can never compete on best price and London stock exchange has that for LCH clearet business a clearing business and So where an exchange can CME has it on US uh futures establish this natural monopoly by being the first mover. Okay, the winner takes all. Then the these exchanges can be be very good. But of course they've changed now. London stock exchanges in many different businesses sells data and half their earnings are from data and that's non-proprietary data reselling non-proprietary data. So it has a vulnerability on that piece. They're no longer just what they used to be.

What are the type of companies you would never invest in? Type of industries. Yeah, that's a good question. We have a long list of companies we don't invest in. We're very focused and we call them the risky and bad industries. Uh and that's and I have invested in some of these in the past, but I've learned

banks. Sorry for that. There's a bank. We are not the banks. We hate the central bank. Central bank. Central bank is good. Yes, central banking can be good. But uh we don't like banks. We don't like banks. And why not? Why not? Why not the low quality of earnings? Because they're very leveraged. Um and um uh uh much more than people think, you know, because people look at oh equity to risk weighted assets, but equity to total assets. Many banks have been have run it a hundred times and and so two they're opaque ah you can't look into them you can't yeah you can't uh I remember um prefinancial crisis I had a look at credit Swiss and I sat down with the the then CEO Brady Dugan and and said put his balance sheet in front of him from the the the annual accounts and said you have uh multi- trillion uh dollar balance sheet. Can we walk through the line items cuz I don't understand it. He said I don't either. He was a very honest guy. I really like very yeah very honest and

okay so banks you don't do it. What else do you do? And the other reason for banks is very important. You know that sooner or later you may find someone without a lot of intelligence comes to run them and then it can be toxic. Yeah. People going for growth. AngloIrish bank if you remember that one. Yeah. Of course. And they just uh can destroy the shareholders. Yeah. uh by getting uh bonuses, you know, bare sterns, you know, and non-alignment of interests with leverage and uh opacity and uh and uh

so what are the other others? Oh. Oh. Many the auto industry is obviously a commodity, retail, you know, um insurance, um the um commodities, the uh commodity manufacturing, tobacco, the the truth is uh yeah, anything in in in most things in manufacturing. Okay. So So most industries most industries are bad industries. Yeah. So Chris, it doesn't leave it doesn't leave a big universe. Correct. We say maybe there's 200 companies that we consider to be um high quality and investable. Um and um I mean I'll list you a couple more. Traditional asset managers, bad businesses. Yeah, speaking as one. Um uh fossil fuel utilities, bad businesses. Airlines, bad businesses. Um wireless telecom, bad businesses. We think media is bad. um advertising agencies, you know, it's a very long list. Why? Because it's competitive and with existing players and new technologies.

And the one important thing that um I've learned in my time in investing is investors underestimate the forces of competition and disruption because they just look today. Maybe there's a new company which has a first mover advantage but then competition comes in. Yeah. substitution and and uh um

where does it where does it leave the big US tech companies now? Yeah. So there's a lot of power of incumbency. This is another important point. So let's take a company um Microsoft. Okay. Which we've invested in um and uh one of their barriers to entry is um bundling. Okay. or the or or or maybe because of it's it's it's it it um it creates a customer switching cost. What what do I mean by this? So, the office franchise which we're all familiar with has many um products in it, you know, your your applications, word processing, Excel, your email, um security, different things. And they and they sell it as a bundle. Yep. they don't disagregate it. And when a new um product or a potential competitor enters um they can add it to the bundle.

So Zoom came out with video conferencing and they could have potentially you know added all the things Microsoft does to that. So, Microsoft had to respond and they launched Teams and they were able to distribute it through the bundle. Yeah. free to everybody. And even though Zoom some people believe it was a better product or is a better product, Microsoft won that battle because they had the installed base, the incumbency which we talked about and high switching costs for um because once people are using their their office software, they don't want to switch and so people started using Teams. Okay. something given to you free. Why? Because it was good enough. Yeah. It didn't have to be the best if I if it's free. Yeah.

What about the other tech companies? We have a a position in Alphabet and uh which is um maybe our most risky investment um um where there clearly the company it's just one of our smallest investments as a result. It's it's um and where we have some level of protection because it there are businesses like YouTube and and and their cloud business which represent half the market cap today and the cash and and other things. So um it isn't all search but search is is critical and uh and so can they out innovate um competition? Yeah there's a risk of search fragmenting you know as competitors come in uh and try to but um it's a question mark. Yeah we don't think so. We think they have a lot of advantages of their data to have to uh offer higher quality um search results and um but competition is increasing.

Talking of which how do you think AI will change the investment landscape here? It's going to increase uh disruption in in in in ways we can't even predict. But there are uh things like call centers un will will all go bankrupt. And uh another segment is Indian outsourcing companies. Yep. Who do coding and and and and uh things like that. um demand for those services could collapse because AI can do coding you know at at w with half the people. Yeah. Mhm. Yep. So, so there are but AI will will increase the productivity and lower the cost base of all all companies and so if you have a company with these barriers to entry it's going to be worth more I think uh for generally competitive businesses if you don't lead you could become uncompetitive and be disrupted. Yeah.

So now um we have identified one of these companies let's say I don't know Ayena or Rolls-Royce or Microsoft. How do you value these companies? What what is your valuation tool? Are you we don't even look at that until we get comfortable that the barriers are so strong it will be around now. Okay.

So barriers fine we think it will be around. Yeah. We think it'll be around. We think there will continue to be an airport in Madrid. Right. We'll do reference checks on um relevant people. Okay. So, and see if we're missing something. So, we when we were looking at investing in aircraft engines with uh we spoke to the a CEO of a former CEO of one of the the the competitive companies and he confirmed their thesis and and and and actually said the margins should be much much higher. Okay. Okay. And over time they they will go there. So that that's uh one of the pieces of diligence. Um we will assess management where I think it's important but not critical if you have the right assets. Um through ideally through through meeting them um uh the the uh talk to competitors get their view. Um and um um look at competitive companies, look at the track record of the company and usually you don't understand everything and usually the things you find out are are bad things and um I think we'll discuss it with our team and we want to hear competing views. Yeah, we have some members of team are just inherently bearish. Yeah. And they're they're good for testing the bare case. We always want to hear how could technology disrupt. Yeah. And and just what competition and um

are you a bearish guy? Um not particularly. No, I I've um Yeah. What but what kind of valuation metrics do you do you look at PS cash flows? Do you do DCFS? So you have like 50 page spreadsheets, all of those, right? All of those, but not 50 pages, you know, that's that's uh uh but a very But really honestly um one of the things we learned is there's a really important point is that we can have an advantage through long- termism. Mhm. Okay. Which is the average stock is held by an institutional investor by under a year or the stock market in the US. How long do you hold it? Average holding period of our port current portfolio is eight years. Eight years. Yeah. That's Yeah. Eight years. I'm not saying that's the limit. It's just uh the we've on average some we've held for 13 years. Some new investments like G aerospace two years but the average weighted average holding period is eight years. Yeah. So but it could be 10, it could be 20.

So I I love long term, right? But how do you install that type of thinking into your organization? I mean we don't straight out of business school out of business school. You want to hey I mean you know went to Harvard like you did or whatever. It's just like hey let's do some stuff. Come on let's do some stuff. Yeah. And it's just like, hey, okay, let's buy something and hold it for 8 years, right? You come home to your partner every day. It's just like they do nothing. Then you we really um you know, if you are in the private equity world, that's normal. Yeah. A private equity fund would hold an investment for their 10-year life funds normally. Yeah. Or longer. 12 years. Yeah. As as you know. And so and so we we it's a it's an overused expression for some or misused. We take a private equity approach i.e. that we have to hold the company forever because you you the stock market maybe at at very uh bad prices when you want to sell. Yeah. if you need to sell and and and so I really think you you need to have that approach and um and so the way we we really like a long-term valuation is DCF the most important things and here's the thing DCF you take the cash flow and you discount it today. Yeah. But here's the thing is is and the the um the longer you can look out if you've got a great company the more valuable value there is.

Take a company we own Moody's. Moody's a rating a rating agency. So it's been around 100 years. What do you think the average I can ask you a question. Make it fun. What do you think the average revenue growth over that 100 years has been? Uh I'm going to look like a total fool, but uh 100 years is long time. 7%. 10. Wow. Yeah. You know, a very that's a very unusual number over a very long time period. And so investors have always underestimated his value, including myself. Yeah. And um I bought the stock during the financial crisis at 10 times earnings and then and then I even bought shares Warren Buffett was selling a and reduced his stake from 25% to I think he's got 15% and um butcher and uh the are you kind of are you kind of secretly pleased having bought something cheap from Warren Buffett? Yeah, but then I sold it. I doubled I doubled my money. I went from 10 times earnings to 20 and I and I sold it. uh at $100, bought it at 50, sold at 100. I thought I was clever and then but the earnings kept compounding. So you buy back I bought it back at $150. So now it's recently $500, now $400. So it's it's it's because actually the intrinsic value compounding matters more than the stock price. If you have a great company, it will grow intrinsic value. Absolutely.

And the multiple here's the thing about the multiples. they matter less than the growth when you look at it over a longer period. But most investors are unwilling or unable to invest on a long-term time horizon because either they don't know what they're doing, which interestingly goes uh back to what War they think it's risky, which goes back to what Warren Buffett was when he was asked what the definition of risk was. You know what he said? not knowing what you're doing.

So really good nugget here is that if you buy something which is really good, it doesn't quite matter what you pay for it because it will grow and secondary over a long uh well I say the let's just say it like this the multiple to a point. Yeah. Whether you buy buy it at if it's growing it's all maths. Yep. You've got to look at the growth rate the terminal multiple the all the mult things. But if it's increasing intrinsic value at a at a at a at a good rate, you will undervalue it if you look at it over a short horizon. Yep. I can be saying it like that. And if you're if you're willing to hold it for a long term and extract that intrinsic value growth, it'll be worth to me more to you than other people.

I've heard you say that there are more good companies in the public market than in the private market. Yes. Why do you say that? because the companies that that um that are sold by to private equity are the ones that aren't as good. Yeah. People Are you sure? I mean, how do you how do you what do you base what you say? Not that I don't Let's dig into it. Let's dig into it. I know it upsets people who are private equity at all. I mean, we actually uh I'm pretty pragmatic about this, but why do you where do you get back? I happen to think that large companies are more likely to beat small companies in an industry. They have more money to compete. Y and um a a and um in R&D. Yep. And scale. We talked earlier about scale being key and incumbency being key um a and switching costs. So um yeah, we we we we think it's an a small company that invents something new. We talked about Zoom. I it it can be crushed by a large company reasonably easily. They can copy and large companies are usually, you know, too big for private equity. private equity can't buy Visa, you know, they they they it's too big for them. Yep. So that that's size excludes private equity from large companies. Um and um and if a public company is selling something to private equity, usually they're not selling their best businesses. Yep.

When do you sell a company? When it's a view of intrinsic value is not as good as uh other things including including not just value but conviction. So our philosophy There are two components to it if you like intrinsic value. Yeah. So the price still has to be at or above at or below intrinsic value. But there's a second point which isn't um really um focused on by many investors which is conviction. So you so you lose faith you lose faith in them. No, I'm saying you need to have conviction when you invest in something at all times. Yeah.

And what does that mean? You could call it confidence. What does that word mean? Because there there's a saying talk is cheap. You can say um the this uh and you can be wrong. Okay. And so my one of my first investments uh when I worked in New York for a hedge fund before starting TCI was in an Italian media company and uh Bane Capital bought control. It was like a billion euro valuation and it went to a 50 billion euro valuation and then went to zero. It was a yellow pages company which say it. Yeah, you remember it. And uh the the and when I first invested the internet didn't exist and uh people thought yellow pages were a monopoly and and and and they were a and so the point is you can be wrong and certain industries your risk of being wrong are higher. M technology is one of those areas. Absolutely. But if I own an airport y that is or a toll road, let's take a toll roads in that are unregulated which there there are there are uh some that we own. I'm less likely to be wrong than if I own a retailer. Yeah. My my chances of being wrong be are are less because I have physical asset backing substitution risk. So um the thesis is much more obvious. Yeah. Because so the um and so this uh this concept of conviction is is very important. One investor Yeah. Yeah. said to me, I have to be able to sleep at night. It has to be so sufficiently obvious.

moving on a bit. Uh so you are uh or you were you know perhaps more considered an activist investor. Yes. So what in your in your view what is an activist investor doing? It's it's a spectrum uh and from fullblown hardcore removing boards and CEOs and uh and uh demanding the sale of a company to um um call it uh soft activism, softer activism of trying to have relationship and dialogue with the company at a professional level a a and where you understand their their mindset and their thinking of the business. So so and um uh and engage okay and that could mean many things. It doesn't uh you know uh I'd say today our relationships are very uh generally very constructive with companies. So but it wasn't always that way. Yeah, it wasn't. We I I learned you've gone kind of from having been an aggressive tiger to becoming a bit more of a Yeah. you know big uh lion.

Yeah. Though no one thought like that when we started the fund and when we named it the children's investment fund. We thought how are we going to compete with Tiger and Viking and more aggressive named funds. But um yeah it is true. I've learned that actually activism, hardcore activism is not a a a great thing. Uh why not? Yeah, it's very difficult to succeed because the vast proponents of today's investor base are you passive who don't actually uh to get them to vote for something is very difficult and uh um and all the power you know the and and and so active management is dying and so when I started there was very little indexation and so there was a more engaged active share base and now indexation has um limited the power of of of shareholders.

But I mean you were one of the most fared people in Europe. Yeah. But I was buying bad businesses uh long ago like ABN AMRO putting up for sale uh through putting on the AGM of Oats to sell the company and we made a lot of money. who made a billion dollars forcing the sale of it. But in truth, the company was worthless, but was bought for hundred billion from three companies who all went bankrupt. Royal Bank of Scotland, Foris, and Onventtor. So, they didn't know what we they were doing. We didn't know what we were doing. And it was all um uh you know, a madness. It was a but it it made money. But for those who sold um but in truth the fundamentals were were were were would trump everything. So a lot of activists end up being activists in in in in bad businesses. Yeah. But are you have you stopped being an activist because you are more attracted to good companies or because you can't take control? The business always wins. Yeah. Okay.

So it's pointless being an activist in a in a B be B business and um that said uh we we we we still engage in it in in in hardcore activism. We we're an investment where we we we went on the board and um you know pushed out you know chairman and some directors and and and and and uh the and and and the company's doing much better now. And um but that's an exception and uh I'd say that was as a result of of of a disastrous case in the company where they we weren't on the board and they they couldn't appoint a CEO. The board was divided and it it it was a real mess. What kind of personal toll does it take on you to be in these fights? Yeah. Let me give you an example. A few years ago, we I don't know it was six years or or so, we own shares in Saffron, uh where we still own them. We've held them for 13 years. And um it's a great company, Aircraft Engines and uh joint venture with G Aerospace. And they announced they were buying a company called Zodiac. And we thought, French aerospace company, we thought the price was ridiculous, 10 billion euros. and they wanted to pay in shares and we thought that we we believe the shares were half price. So they were paying four or five times the the the intrinsic value and we undertook a very aggressive campaign and um threatened the litigation and demanded a vote. And in the in the end the company the target was adding multiple profit warnings and it became clear that we were right and Saffron went to Zodiac and said we have to cut the price in half and pay in cash because TCI are forcing us. Okay. And so and that's what happened. the stocks doubled and um a and but we were sued by the seller for a hundred million euros both me and my general counsel separately. He said Chris I'm not really sleeping much at night. Well, you can afford it. I I I I I can't. And uh so yeah, I went into a Paris court and you it's not for the faint-hearted to do this. And do you enjoy a good argument? No, I don't really enjoy fighting people any anymore. I never really did. It was it was a um it was a something we began with Deutsche Borsa and and now really I'd say what people call activism is a is really an exception to us. So it's like why did we get involved in that zodiac? We were already a shareholder and something bad came out of the blue. It's like you walk home and someone attacks you. Yeah. To try to take your your wallet and you fight back. And I say, "Do you enjoy a fight, Nikolai?" No, but I'm not so sure I would fight back. Should you choose to I would ask you that question is you you you would say, "No, I don't enjoy fighting. It's just I had no choice. I was fighting for my life." Yeah. So, I put it like this. We act as owners. We always act as owners. What does that mean? We we we're interested. We're engaged. We think we have a right to um appoint directors. We're a legal right to it. And and we'll Yeah. And so we teach, one thing we have learned is governance does matter.

Which brings us to kind of the opposite wild card. Mhm. It's a bad company which you shorted. And shorting uh just for those people who don't know it's uh you borrow shares you sell it uh the goal is that the share price should go down and you buy them back cheaper and hand them back right and make a profit. So what's the what was I mean in a in a few words wild card what there is a very long and complicated high level we learned that shorting isn't a great business because you can be right but not be able to hold it or fund the losses. Okay. So, um, but wire card was because if you are short and the shepherd goes up, you basically unlimited downside. Yeah. And you have to fund the losses. This is what people don't realize. You're going to be eventually, right?

So, the first guy to short Wire Guard 20 years ago was a guy from Bronte Capital. And the stock went up 20 30 times and went to zero. But he was when that happened, he was interviewed by the media and they said, "Congratulations, you you were right." But he said, "No, I had to covid-19 years ago. I couldn't afford to to to to to fund those losses." And so it's you have to understand investor psychology. Yeah, it's tough. Very tough. And uh I had a dinner once with Warren Buffett and he said he and Charlie looked at shorting. Yeah. They studied it and they just said it was too hard because of that point of understanding investor psychology and the um asymmetric risk and reward and and and and um so it's an exceptional thing but uh we we we we looked at Wire Card and uh and all the accounting games and and then the Financial Times came out with all these articles. Yeah. And I called the journalist, uh, good guy, and I said, "You're writing all this stuff." And, uh, he said, "It's all true." I said, "No one will listen to you." He said, "Everything's true. We stand by every word." And and and you just you could literally read it in the paper. And well, the whole German establishment went in and supported the company. That's right. That's right. In fact, the the the the the chairman was a former CFO of Deutsche Bulser and uh um in in but there was a bit of pattern recognition where I remember uh at Harvard Business School an accounting course I took and there were red flags. Yeah. When you do this small auditor. Yeah. Um uh no cash flow. Yeah. Um and uh things like all their Asian businesses the office was empty. Yeah. Absolutely.

So but I think to be a good investor you need a certain independence of thought. Totally. And probably to be a good journalist as well. And and that's why um the funny thing is that the fraud was there in plain sight. And I think um I learned to be an independent investor and uh the and so we went to see the CEO. Actually, I sent two of my team to meet him and uh and they came back incredulous at this like pathetic demonstrations of technology and uh that they were shown. And interestingly there there was a a potential catalyst which was the the the the the report about their accounting and uh in the end they just said it's it's garbage and uh and then the stock went up a lot and uh so actually I tried to take um uh become an activist in this position. and I filed a a a a a a formal criminal complaint for fraud in in in the uh at the Munich prosecutor's office because uh they said if I didn't wasn't public about it would be viewed as market manipulation. So we're transparent about it and um that created chaos but it forced some actions. Yeah. you you you know when it falls eventually an investigation and uh and so um because I didn't want to be like Bronty Capital where it just ran and ran and so at some point it really became obvious and it became a confidence game. I think that um people trust authority too much. Okay, that sounds a strange thing, but they trusted the German establishment. Yeah. That you had a a board with the the great and the good and and and and they weren't willing to believe the the the the journalist.

Let's move on to from uh companies to investors. Uh and in terms of what makes a good investor, why are you a good investor? Well, I it's your words. Um it's important to have humility. Um but um there was uh someone I knew who took me aside once and he said, "Chris, you and I, he he did reasonably well." He said, "We weren't the best investors. we just took the most risk. So I just uh which is which is not true actually. Yeah, it was he was uh it was an interesting comment that makes you sometimes when people say a joke you or something you you wonder is it true? But uh um I was always willing to look at the company fundamentals and not the try to guess the stock market. Okay. and um and and focus on macro or trading. Yeah. So I was always fundamental. Most investors are not fundamental. They trade actively. They look at data points. They say what's the catalyst. They don't really know what the the company does. So I think the fundamental approach has been key. Long-termism is key. Okay. Uh um uh another thing we've done is concentration. We've owned a few things. Yeah. We may have 10% type holdings, 10 10 stocks, you know, 15 stocks. We don't own a 100 things.

And I think another key point is intuition. We work with intuition, which is something that is uh people find strange. How do you use intuition? It's uh it's been defined as thinking without thinking which is um the Buddhists would call a coan something that just doesn't make sense. We will come back to your Buddhist thoughts later on but it's a lot of people don't understand what intuition is. It's it's it's sort of uh well opposite I have I happen to have written my master's dissertation on this exact topic but so you're you're one who does then it's sort of the opposite of intellect and uh so well pattern recognition in a way you've seen it before. Yeah that's there's a word for it knowing. Okay it's it's it's all the opposite of intellect. Of course, we'll do analysis, but but then um it's a higher level of intelligence than just intellect. But do you what do you have intuition about? Do you have the intuition about the people, the situation? What is it? All of it. Okay. All of it. Is someone trustworthy or not trustworthy? And uh the the the patterns patterns are another thing.

Is it talent or can it be trained to become a good investor? I think it can be trained. Yeah. There's a judgment element of it. I think it can be trained um for for for sure. No, we have we both have taken inspiration from some of the same people, right? One of them is John who I worked with. Yes. I love John. I love John. He's I consider him a friend. Yeah. When I was just starting out, he he really uh he's a great investor and he took me under his wing a little bit and uh cuz I didn't know anything and uh we we had the same couple of same stocks. The energy group was one and I I I I I I didn't have the experience to know. and say you you would probably say you know that knowing and intuition comes with experience to to but um yeah and uh so yeah I'm I'm a fan of John's. Yeah because most of the things I know about investments I learned from him and his partner Bill Bullinger. So we have some of the we have some of the same teachers here. uh

moving on to corporate culture at TCI. What is a corporate culture like in TCI? How many people are you? You know in the investment team it it's it's it's you know seven eight people. We have a large back office but um how do you work together? The we want small very small and uh it's collegiate. Yeah. We've known each other a long time and there's something that we've built which is an intangible trust. Why don't you have a hundred fund managers? Good question. Firstly, my best people, you know, they would never stay. They just they don't want to um it would be too impersonal. There's a human aspect to work. Yeah. People don't come to work, you know, the best people for money. they come to because they they they enjoy the environment. And so it's really important how we treat people, how everyone treats each other.

And I'll never hire someone without the the the the the blessing of my my my senior team. Um and because we we we could destroy the the culture. And so I mean ice hockey teams are five and football teams are 11. And is there something magic with seven? No, but it's small enough. Yeah, it would above 10 it would be too too big. What do you look for when you hire? So now I'm I'm applying for a job. Everybody you meet everybody. I'm applying for a job at TCI. I'm here. You share the philosophy. You share the philosophy. What kind of questions you ask me? Yeah. What makes a good business? All the things you talked about it. It becomes Yeah. We we we ask for a case study, right, or two. And it becomes immediately obvious whether you know what you're doing. Yeah. Whether you share the philosophy, but also it's not enough just to be a good investor or you have to want to work in a team. Yeah. Not everybody wants that. And you have to be able to get on with with people in in in a way where you have to be open-minded to being wrong. You can't be too dog dogmatic because um so the personality does matter a lot.

Now uh you have a big share of the profit of the firm goes to the charitable foundation right? Yes. How well actually I I give it to charities. A lot of philanthropy I do directly often I give it to the foundation um uh or co-invest with them. So yeah one way or another it goes to charity. Do you think it's important for your colleagues that you guys fund all this well charitable? No, I think they make a lot of money too. Or do you think it's irritating that you give away all the money? They they they they also earn uh you know good money and uh it's probably a positive thing. I I I I I I don't know definitively. I um and um the um and um the but I can't you'd have to ask them. Uh I I can't say definitively. Um but I um I I I I I yeah I I give away everything I earn. I I don't really care about money for uh because other than its value in helping people.

When did when did you learn about philanthropy? Who taught you? When I was in New York working for a hedge fund uh one point after about three or four years it made I don't know two or three million. and they I had done well and they said, "You're going to get a $10 million bonus." And I just, this is in intuition, said, "I don't want it. I I want to just give it to charity." And I created a a US foundation and gave it to it. Um, and I didn't really understand it what was driving me for 50 years. I would uh meet with Bill Gates, did a lot of charitable work with him over the years and he would ask me and I I I couldn't answer the question and uh eventually I did understand it and uh better late than never as a as a soul urge that there's essence who we really are what we really are isn't the personality or the physical body but you know soul or consciousness and and that um some would call it life. Yep. That's something that gives us life and uh that um and will. Yep. Gave you, you know, in in the same way you uh Nikolai had a a desire, a will, a will to do something more with your life. Yeah. Than than than than just make money. And uh and that uh and that in the fundamental nature of that uh that that uh uh that's uh the soul is is service desire to help to to to help ultimately humanity and u where did that come from? It's innate within everyone that but the Yeah. Yeah. For sure. Everyone So if it's inate with everyone why why don't more people do it? Because they're um they identify with their personality a and less with the consider that like a unit as a user interface of the soul and uh and the personality's basic uh urge is desire, possessions, glamour like power and money and other things like that. And um and uh sooner or later people realize that that doesn't really um give you know um some would say happiness but actually there's more important things in the world in life than happiness. uh purpose and meaning but not but you say that sooner or later people but I mean people don't I'm not saying in in in in one life they may need you know many lives and that may be a strange thing for you to hear to uh to realize yeah I don't believe this is the only time we we we we we we're um we here and um eventually we'll learn that the the um what we are and can be as a result of some crisis in your life. Yeah. And death, disease or or or um or in my case the third D, divorce. And uh the um and it's then that they look inward and and and and ask well what is their life about? What is there a purpose? Is there a meaning? And for me, I could never find any purpose or meaning in my life except service. And uh and that is clearly uh you know something you could say it comes from within. Yep. And uh and so that's my origins of my my philanthropy.

Tell me about the foundation. What are the main priorities of the foundation? Now first you said so it is now one of the largest foundations in the world. Right. We have uh about $6.5 billion dollars and uh in the foundation and uh I also do philanthropy outside of that and so between us we're giving away over $500 million a year. two main areas, climate change and uh children's health in Africa and India. On the um health side, we focus on foundational issues. Um uh contraception is one. You know, we can't get development or lifting people out of poverty if the the women are having which far more children than they want. you know in Africa fertility is nearly seven and in many cases that's not applicable they they they they don't have access um a and agency women don't have access or agency to to to to contraception and so for $10 cost for a voided uh a pregnancy you can help a poor woman have one less pregnancy if she wants. Yep. And that's a remarkably low return on invest high return on investment. Yeah. There's almost nothing. Um another area is um severe acute malnutrition. Um where um I I I I funded the creation of a a company and I and I buy product for um um for $40 a case you can of therapeutic food. Think of it as a fortified uh uh power uh bar or it's it's uh you can save a child's life and there's 100 million children with severe or acute malnutrition nearly half of all child deaths under under five. Um neglected tropical diseases like traoma. I fund traoma surgeries where just a it's not for $50 you can um do fund a surgery which stops someone going blind irreversibly. Yeah. And there's you know millions of people with with this. So with so little money Yeah. $10, $40, $50, you you can save a life. Yeah. Or or or or stop something going blind. It it it's remarkably you know you know what what you know when you go to go out for dinner you might pay $40 for a bottle of wine you wouldn't think oh I could save someone's life with this but that's the reality and so um the um um HIV AIDS um we're very involved in as Well, uh

so um uh and on the climate side, what are the main areas that we've been trying to create infrastructure for the climate movement um and uh uh reg regulation advocacy because nothing's going to be fixed if there isn't regulation. um we fund um uh then that's across the board and that's and also technical assistance to governments who want to change but don't know how we're very active in Asia where where if you don't operate in in in India and China you that's where and and and and you know Vietnam and all these countries that's where all the emissions are growing tax is another thing because if if we're not advantaging through tax uh new technologies and and and and we're subsidizing fossil fuels, which is what happens. We'll never change. Um um a and uh methane is another one. We're a fun of the methane hub and methane satellites and just many things uh litigation, environmental litigation. We fund that. So, in a sense, there's activism there.

And um so given all this, how do you read the backlash against ESG in financial markets? Well, I never really got involved in in in in the S and the G. I just the E. And so here I I I I think is a very dark uh um thing that's going on where people are saying some people are saying in in effect burn down the planet as long as we can make money today and uh we don't care about future generations. We don't care about poor people in poor countries dying off. We only care about our country. Yep. And and making money as much money as we can today to hell with the consequences. And it's really back to what I was talking about this distinction between soul and personality that if um it's a consciousness problem and uh and actually we'll never solve any of these problems whether it's climate or poverty or war if there isn't a change in the level of consciousness.

So given that and in order to finish off on a slightly more uplifting note um What is your what is your advice to young people on a kind of spiritual Yeah. Go on a spiritual um path. Go on a study a and I would say the spiritual world is real. soul is uh when I first mentioned this to my son I think he was uh 20 he said dad the soul is a myth he doesn't think that now is it not he doesn't think that now it's definitely not and there are many paths to connect to it and uh you can connect consciously to it and um and uh whether you go the long way the short way the easy way the the hard way through suffering you eventually come to to to to learn that it the spiritual world is not just real but it's the the whole thing and and so the um and that's the only source of real purpose and meaning and and and and joy which the world needs. Yep. And and and I think that uh um if you crack that then everything else is easy.

Hi everyone, I'm Nikolai Tangan and today we are joined by one of the best investors of all time actually. So Chris Hohn, not only is this fund TCI one of the best and most successful funds that Europe has ever seen, but also the charity is now one of the largest in the world. So Chris, you continue to have an immense positive impact on the world. Thanks for coming.

Let's start with the investment world. What makes a good investment? I think this is something a lot of people get wrong. They think it's about growth often. Or something new. Neither of those things in themselves matter to us by themselves. The most important thing, and without which it's, for the types of investing that we do, is high barriers to entry—the moats that Warren Buffett has talked about.

Now, can a distressed asset, like a piece of real estate selling at half price because of a liquidation, also be a good investment? Yes. So, can there be a role for cheap average assets? Yes, let's call them low-quality assets which are trading at big discounts to replacement cost. Yes, that's the type of investing that can work. I've done it in my time. Cheap average businesses or cheap bad businesses. But I don't feel that I can have any confidence in that type of investing, because the earnings power of those average businesses is unpredictable.

So what are good moats? The most important answer is ones that are sustainable. Ideally, you would have multiple moats, multiple pieces of defense. There are many ways, but it's basically something that means that the business is difficult to replace and difficult to compete with. You need to address substitution risk and competition risk. Those long-term become very difficult. Why is it so important? Competition kills profits. That's as simple as that. Substitution eliminates your business.

So we look at many, many moats. One which most investors don't really look at, actually interestingly, is irreplaceable physical assets. We're in a world where people just look at earnings. They don't look at asset value or physical assets. And so we like quite a bit of infrastructure. Airports for example, one of our investments has been the airport group in Spain, Aena, which the government privatized. You can never build a second airport at Madrid or any other places. These are natural monopolies. And so that also applies to toll roads and railroads and telecom towers. There are many forms of infrastructure, transmission towers, that are hard to compete with because they're natural monopolies. Of course, some of these things can be overbuilt, like cable, so there's a form of infrastructure, but you have to look at the details on a case-by-case basis. It's very unusual to try and get the planning to build a second airport. There's no economic case to it. I mean, I can't remember how long they struggled to get an extra runway at Heathrow. Planning, exactly. And then roads, there's no economic case to build a second road, or you don't have the land.

So, infrastructure and physical assets is one. A second is IP, intellectual property, that is so advanced that it's very difficult to replicate. One space we like is aircraft engines. It is a very complicated product because of the materials complexity; the engines run at such high temperatures that metals melt, and so many different things have to come together. Thousands and thousands of complex parts. That's a business where there are only two players in narrow-body engines and two in wide-body, and there have been no new entrants for more than 50 years. The last new entrant was GE, and that tells you something. It's a big industry, but it's so complex, very hard to enter.

Another barrier to entry is installed base, which applies to the aircraft engine business. Once those engines are there, for various reasons, you get the spare parts business on it. Another barrier to entry is scale, although that's not a guarantee of a competitive moat. Network effects is another important barrier to entry. You can see this in assets like Visa, Meta, two examples of network effects. And brands are another barrier to entry. But I'm not saying every brand is powerful. But you think about a McDonald's, it has a value. There are some brands which are powerful and sustainable, but not all. And I'll mention one more moat, which is customer switching costs. Take mission-critical software: once it's installed, companies are very reluctant to mess with it and switch because of the complexity.

How important are recurring revenue streams for you? It is important, but the predictability of when they recur is not as critical. Let me give you an example. What's most important for us is something slightly different, which is an essential product or service. We don't like things which are discretionary. One space we've invested in for a long time is rating agencies. They say is it good or bad to people who invest in bonds, is it investment grade, non-investment grade, and provide research. An issuer pays for the rating, but they don't have to refinance their bonds, which is a big part of it, in any given year. They can delay and defer, but eventually the debt has to be refinanced and rated. And so, the essential need is the bigger point. But usually, our companies have recurring and predictable revenue streams of essential products.

Do they have to grow? Depending on valuation, not necessarily, or not necessarily at a fast rate. And growth can come from two forms: volume and price. You have to break it down. Now, why isn't growth as important as investors usually assume it to be? Because you can have profitless growth. The airline industry over a hundred years has had a lot of growth. Airline travel has grown at 5% a year consistently. But airlines as a business cumulatively and collectively have made almost minimal profits. Despite growth, because of the very low barriers to entry. And so, growth without barriers to entry is not a combination that you want.

Some of these businesses are quite capital intensive. Does that matter for you? Well, you have to look at everything in detail. All airports have regulation on landing charges, but for some, the non-landing charges are unregulated: the shops, the advertising, the VIP lounges, the parking. This is the so-called dual till regulation. One till is regulated, one till is unregulated. And those are very low capital in intensity and have high returns on capital. They grow because there's more and more demand for travel. So capital intensity by itself, it's part of the equation. But what trumps all of this is the barrier to entry.

I want to go back to the point about growth coming from two forms: price and volume. Most companies don't have pricing power. They can only price, if they're lucky, at inflation. And that's why people don't focus on it. But there is a special group of super companies that can price above inflation. And that's, as Buffett taught, the test of whether you have the moat. This real pricing power above inflation can be very valuable because if you can price 1% above inflation and you have a 20% profit margin, your profits will grow 5% faster than revenue. People don't analyze it because there are so few companies that have it. But a lot of our investments have this because incremental pricing is pretty much all profit. That's right. And it's very potent. This is why you asked about growth. If I have low volume growth but a lot of pricing growth, that's actually more important because of the leveraged effect of having no cost associated with it.

Regulation. You have been in a lot of regulated businesses. You mentioned airports, but you've been in Red Eléctrica, which is an electricity transmission company. Yes, I have. And actually, it's a general risk. Because if you have barriers too low, competition or substitution eliminates your business. Barriers too high, regulators may come knocking on your door. Every case is different. The ideal case is that there is competition but weak competition. And apparent competition. It's really weak competition and rational competition.

Take some examples. Pratt and Whitney competes with GE and Safran. It has a 25% share of new orders. It's a product, but it's not nearly as good. It's got 35% of its engines grounded, multiple technical problems, and has just lost a lot of trust. But it's there competing for new engines. Price isn't the most important thing in this industry; reliability is. As it struggles, it has to raise prices because it's got lots of difficulties. And sometimes where there is competition, that competition chooses not to compete, to be rational and compete on a non-price-based approach. The detail matters. So you might have looked at Heathrow airport and seen, "Oh, that airport is fully regulated. Airports can't be good." But if you look into the detail of Aena, it's a different animal. It has a piece that's regulated and a much bigger piece, 70% of the value maybe more, which is unregulated. The regulated business will give you a bond-like return of 7%, but the unregulated will give you a much higher return.

The other group of businesses you've been very big in has been the stock exchanges. Why were they so good? In the case of Deutsche Börse, they had a derivative business called Eurex which was a natural monopoly. It was a network effect. This was the barrier to entry: the liquidity of a marketplace for trading European bond futures. The network effect of getting the best prices in the most liquid market meant it became what's termed a "winner takes all" or natural monopoly. Once you have that liquidity, it's very hard to move people away. London Stock Exchange has that for its LCH ClearNet business, a clearing business. CME has it on US futures. Where an exchange can establish this natural monopoly by being the first mover, these exchanges can be very good. But of course, they've changed now. London Stock Exchange is in many different businesses, sells data, and half their earnings are from reselling non-proprietary data, so it has a vulnerability on that piece. And then there was a lot of growth without capital. As capital markets grew, you grew without capital, which was very valuable.

What are the type of companies you would never invest in? We have a long list of companies we don't invest in. We call them the risky and bad industries. I have invested in some of these in the past, but I've learned. Banks. We don't like banks. Why not? The low quality of earnings because they're very leveraged, much more than people think. Equity to total assets, many banks have run at a hundred times. Two, they're opaque. You can't look into them. I remember pre-financial crisis, I had a look at Credit Suisse and I sat down with the then CEO, Brady Dugan, and put his balance sheet in front of him and said, "You have a multi-trillion dollar balance sheet. Can we walk through the line items? Because I don't understand it." He said, "I don't either." He was a very honest guy. And the other reason for banks is very important: sooner or later, you may find someone without a lot of intelligence comes to run them, and then it can be toxic. People going for growth. Anglo Irish Bank, if you remember that one. They can just destroy the shareholders. Others? Oh, many. The auto industry is obviously a commodity, retail, insurance, commodities, commodity manufacturing, tobacco, anything in most things in manufacturing.

So Chris, it doesn't leave a big universe. Correct. We say maybe there's 200 companies that we consider to be high quality and investable. I'll list you a couple more: traditional asset managers, bad businesses; fossil fuel utilities, bad businesses; airlines, bad businesses; wireless telecom, bad businesses. We think media is bad, advertising agencies. It's a very long list. Why? Because it's competitive with existing players and new technologies. And the one important thing that I've learned in my time in investing is investors underestimate the forces of competition and disruption because they just look today. Maybe there's a new company which has a first mover advantage, but then competition comes in, and substitution.

Where does it leave the big US tech companies now? There's a lot of power of incumbency. This is another important point. So let's take a company, Microsoft, which we've invested in. One of their barriers to entry is bundling, or maybe because of it, it creates a customer switching cost. The Office franchise, which we're all familiar with, has many products in it: your applications, word processing, Excel, your email, security, different things. And they sell it as a bundle. When a new product or a potential competitor enters, they can add it to the bundle. So Zoom came out with video conferencing. Microsoft had to respond, and they launched Teams and they were able to distribute it through the bundle, free to everybody. And even though some people believe Zoom was a better product, Microsoft won that battle because they had the installed base, the incumbency which we talked about, and high switching costs for people using their Office software. People started using Teams because it was good enough. It didn't have to be the best if it's free.

We have a position in Alphabet, which is maybe our most risky investment. It's just one of our smallest investments as a result. We have some level of protection because there are businesses like YouTube and their cloud business which represent half the market cap today, and the cash and other things. So it isn't all search, but search is critical. And so, can they out-innovate competition? There's a risk of search fragmenting as competitors come in. It's a question mark. We don't think so. We think they have a lot of advantages of their data to offer higher quality search results, but competition is increasing.

How do you think AI will change the investment landscape? It's going to increase disruption in ways we can't even predict. But there are things like call centers that will all go bankrupt. And another segment is Indian outsourcing companies who do coding and things like that. Demand for those services could collapse because AI can do coding with half the people. So AI will increase the productivity and lower the cost base of all companies. And so if you have a company with these barriers to entry, it's going to be worth more. For generally competitive businesses, if you don't lead, you could become uncompetitive and be disrupted.

How do you value these companies? We don't even look at that until we get comfortable that the barriers are so strong it will be around. We think it'll be around. We think there will continue to be an airport in Madrid. We'll do reference checks on relevant people and see if we're missing something. So, when we were looking at investing in aircraft engines, we spoke to the former CEO of one of the competitive companies and he confirmed our thesis and actually said the margins should be much, much higher. We will assess management, where I think it's important but not critical if you have the right assets, ideally through meeting them. We talk to competitors, get their view. We look at the track record of the company. And we'll discuss it with our team and we want to hear competing views. We have some members of the team who are just inherently bearish, and they're good for testing the bear case. We always want to hear how technology could disrupt.

What kind of valuation metrics do you look at? PEs, cash flows, do you do DCFs? All of those, but not 50-page spreadsheets. But really honestly, one of the things we learned is there's a really important point: that we can have an advantage through long-termism. The average stock is held by an institutional investor for under a year. How long do you hold it? The average holding period of our current portfolio is eight years. Not saying that's the limit, it's just the weighted average holding period is eight years. It could be 10, it could be 20. If you are in the private equity world, that's normal. We take a private equity approach, i.e., that we have to hold the company forever because the stock market may be at very bad prices when you need to sell.

The way we really like a long-term valuation is DCF. The most important thing is, the longer you can look out, if you've got a great company, the more value there is. Take a company we own, Moody's, a rating agency. It's been around 100 years. What do you think the average revenue growth over that 100 years has been? Ten percent. A very unusual number over a very long time period. And so investors have always underestimated its value, including myself. I bought the stock during the financial crisis at 10 times earnings and then I sold it. I doubled my money, went from 10 times earnings to 20, and I sold it. I thought I was clever, but the earnings kept compounding. So I bought it back at a higher price. It's because actually the intrinsic value compounding matters more than the stock price. If you have a great company, it will grow intrinsic value. And the multiple, here's the thing about the multiples, they matter less than the growth when you look at it over a longer period.

Most investors are unwilling or unable to invest on a long-term time horizon because either they don't know what they're doing, or they think it's risky. Which goes back to what Warren Buffett said when he was asked what the definition of risk was: not knowing what you're doing. So a really good nugget here is that if you buy something which is really good, it doesn't quite matter what you pay for it because it will grow. The multiple, to a point. If it's increasing intrinsic value at a good rate, you will undervalue it if you look at it over a short horizon. And if you're willing to hold it for a long term and extract that intrinsic value growth, it'll be worth more to you than to other people.

I've heard you say that there are more good companies in the public market than in the private market. Yes. Why do you say that? Because the companies that are sold to private equity are the ones that aren't as good. I happen to think that large companies are more likely to beat small companies in an industry. They have more money to compete in R&D, and scale, we talked earlier about scale being key, and incumbency being key, and switching costs. A small company that invents something new, we talked about Zoom, it can be crushed by a large company reasonably easily. They can copy. And large companies are usually too big for private equity. Private equity can't buy Visa; it's too big for them. So size excludes private equity from large companies. And if a public company is selling something to private equity, usually they're not selling their best businesses.

When do you sell a company? When its view of intrinsic value is not as good as other things, including not just value but conviction. So our philosophy has two components to it: intrinsic value, so the price still has to be at or below intrinsic value. But there's a second point which isn't really focused on by many investors, which is conviction. You need to have conviction when you invest in something at all times. And what does that mean? You could call it confidence. You can be wrong. One of my first investments when I worked in New York was in an Italian media company, a yellow pages company. Its valuation went from a billion euros to 50 billion euros and then to zero. And when I first invested, the internet didn't exist. The point is you can be wrong. And in certain industries, your risk of being wrong is higher. Technology is one of those areas. But if I own an airport or a toll road, I'm less likely to be wrong than if I own a retailer. My chances of being wrong are less because I have physical asset backing, substitution risk. The thesis is much more obvious.

What makes a good investor? Why are you a good investor? It's important to have humility. But I was always willing to look at the company fundamentals and not try to guess the stock market, and focus on macro or trading. So I was always fundamental. Most investors are not fundamental. They trade actively. They look at data points. They say, "What's the catalyst?" They don't really know what the company does. So the fundamental approach has been key. Long-termism is key. Another thing we've done is concentration. We've owned a few things. We may have 10% type holdings, 10 stocks, you know, 15 stocks. We don't own 100 things.

And I think another key point is intuition. We work with intuition, which is something that people find strange. How do you use intuition? It's been defined as thinking without thinking. It's the opposite of intellect. We'll do analysis, but then it's a higher level of intelligence than just intellect. It's pattern recognition in a way; you've seen it before. There's a word for it: knowing. It's all of it: the people, the situation. Is someone trustworthy or not? And the patterns. Is your intuition now better than it was when you were younger? Yeah, I was not into intuition so much before the last 5 to 10 years. But I think I always operated at an intuitive level. And it's not just stock picking. When I decided to start my own fund 21 years ago, I just had this intuition that I was in the wrong place and not doing what I was meant to do. When I met my wife, Kylie, you know, there's a point where you just know. It isn't an intellectual thing.

You were perhaps more considered an activist investor. What is an activist investor doing? It's a spectrum, from full-blown hardcore removing boards and CEOs and demanding the sale of a company, to softer activism of trying to have a relationship and dialogue with the company at a professional level where you understand their mindset and their thinking. And I'd say today our relationships are generally very constructive with companies. But it wasn't always that way. I've learned that actually hardcore activism is not a great thing.

Why not? It's very difficult to succeed because the vast proponents of today's investor base are passive, who don't actually, to get them to vote for something is very difficult. And so active management is dying. When I started, there was very little indexation, and so there was a more engaged, active share base. And now indexation has limited the power of shareholders. But I was buying bad businesses long ago, like ABN AMRO, putting it up for sale, and we made a lot of money. We made a billion dollars forcing the sale of it. But in truth, the company was worthless, but was bought for a hundred billion from three companies who all went bankrupt: Royal Bank of Scotland, Fortis. They didn't know what they were doing, we didn't know what we were doing. And it was all a madness. A lot of activists end up being activists in bad businesses.

That said, we still engage in hardcore activism. We're in an investment where we went on the board and pushed out the chairman and some directors, and the company's doing much better now. But that's an exception. A few years ago, we owned shares in Safran, which we've held for 13 years. They announced they were buying a company called Zodiac. We thought the price was ridiculous, 10 billion euros, and they wanted to pay in shares, which we believed were half price. So they were paying four or five times the intrinsic value. We undertook a very aggressive campaign, threatened litigation, and demanded a vote. In the end, the target was having multiple profit warnings and it became clear that we were right. Safran went to Zodiac and said, "We have to cut the price in half and pay in cash because TCI are forcing us." And that's what happened. The stock's doubled. But we were sued by the seller for a hundred million euros. It's not for the faint-hearted to do this.

We learned that shorting isn't a great business because you can be right but not be able to hold it or fund the losses. So, but Wirecard... because if you are short and the share price goes up, you have basically unlimited downside. And you have to fund the losses. The first guy to short Wirecard 20 years ago was a guy from Bronte Capital. And the stock went up 20, 30 times and then went to zero. But when that happened, he was interviewed and they said, "Congratulations, you were right." But he said, "No, I had to cover it 19 years ago. I couldn't afford to fund those losses." I had a dinner once with Warren Buffett and he said he and Charlie looked at shorting. They studied it and they just said it was too hard because of that point of understanding investor psychology and the asymmetric risk and reward.

So it's an exceptional thing. But we looked at Wirecard and all the accounting games, and then the Financial Times came out with all these articles. I called the journalist, and I said, "You're writing all this stuff." And he said, "It's all true." I said, "No one will listen to you." He said, "Everything's true. We stand by every word." The whole German establishment went in and supported the company. But there was a bit of pattern recognition where I remember at Harvard Business School an accounting course I took, and there were red flags: small auditor, no cash flow, things like all their Asian businesses, the office was empty. I filed a formal criminal complaint for fraud in the Munich prosecutor's office because they said if I wasn't public about it, it would be viewed as market manipulation. That created chaos but it forced some actions. I think that people trust authority too much. They trusted the German establishment. They weren't willing to believe the journalist.

I give away everything I earn. I don't really care about money other than its value in helping people. When did you learn about philanthropy? When I was in New York working for a hedge fund, at one point after about three or four years, they said, "You're going to get a $10 million bonus." And I just, this is intuition, said, "I don't want it. I want to just give it to charity." And I created a US foundation and gave it to it. And I didn't really understand what was driving me for many years.

Eventually I did understand it, as a soul urge. That there's essence, who we really are, what we really are isn't the personality or the physical body, but soul or consciousness. And that in the fundamental nature of the soul is service, a desire to help, to ultimately help humanity. Where did that come from? It's innate within everyone. So if it's innate with everyone, why don't more people do it? Because they're identified with their personality. And the personality's basic urge is desire, possessions, glamour like power and money and other things like that. Sooner or later, people realize that that doesn't really give happiness. But actually, there's more important things in life than happiness: purpose and meaning. For me, I could never find any purpose or meaning in my life except service. And that is clearly something you could say comes from within. And so that's my origins of my philanthropy.

What is your advice to young people on a kind of spiritual path? Go on a spiritual path. Go on a study. And I would say the spiritual world is real. Soul is, when I first mentioned this to my son, I think he was 20, he said, "Dad, the soul is a myth." He doesn't think that now. It's definitely not. And there are many paths to connect to it. And you can connect consciously to it. And whether you go the long way, the short way, the easy way, the hard way, through suffering, you eventually come to learn that the spiritual world is not just real, but it's the whole thing. And that's the only source of real purpose and meaning and joy, which the world needs. And if you crack that, then everything else is easy.

Chris Hohn, we've talked a lot about purpose, meaning, joy, and what really matters in life. A big thank you. Thank you.