The London South East, Investing Matters Podcast, Episode 16 Reg Hoare, Managing Director of MHP Communications

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Peter Higgins 00:17

Hello, and welcome to the Investing Matters podcast. My name is Peter Higgins. And I'm here with the hugely talented Reg Hoare, a Managing Director of MHP communications. And Reg has been in the city for over 35 years investment banking securities previously with S.G. Warburg and Nomura, and now is in financial PR.

Peter Higgins 00:42

Welcome, Reg.

Reg Hoare 00:43

Hello, Peter. Great to be with you.

Peter Higgins 00:45

Great to be with you, sir. Now, I wanted to ask you this question to start with, right, because we've spoken about this before, you’re a son of a farmer, you go to Bristol University, you do politics? It's got lots of economics in there. And that's your first eye opener to life in the city or what's going on in the city. Tell us about that? Because I like the fact you've had a nice traverse of a journey there.

Reg Hoare 01:08

Yeah, it actually there's also kind of that random element that you know, your university in your last year, and you've got no idea what you really want to do. Unless you're one of those people that's got a calling, you know, you know, you want to become a doctor or an accountant or lawyer, whatever it is.

But for most of us, I seem to remember me and my contemporaries slightly sort of stumbling around going, you know, what does everybody do? And in those days, of course, it was quite difficult to do research because there was no internet, nothing to go and Google.

And there was a pretty useless careers department to be frank in those days, and there was something called the milk round, which I suspect still exists, where certain employers would post job opportunities for graduates to fill up their graduate trainee schemes. And fortunately, Bristol was on that kind of network. And so there were a few things that one randomly applied for, including certain city type jobs. And in the end, that seemed to be the area that was getting most traction for me. And it was certainly an area of interest without really knowing what it was.

I didn't have any kind of family history in the city, and eventually got offered a job in stock broking and took it, you know, jumped in at the deep end in 1983.

Peter Higgins 02:19

So 1983. So we're coming up to another big anniversary next year for you.

Reg Hoare 02:22

Another big anniversary indeed. Yeah.

Peter Higgins 02:25

Fantastic. So it will be forty years for you, that's absolutely phenomenal Reg, you know, because we've seen so many people come into the city and go out of the city because of the stresses and strains of it. So you had a bit of time at S.G. Warburg after stock broking. And Nomura, I want to talk to you about that particular phase, very briefly, some of the individuals you met some of your learnings from that, because obviously, you're in that timeframe where it's very, very busy, and lots going on, 1987, Black Monday and all that sort of stuff going on lots of learning, so share a little bit of about some of your experiences, please.

Reg Hoare 02:58

Yeah, it was an amazing time. Actually, I was quite lucky with the benefit of hindsight, sort of being in the city in that period 83 to sort of 95. And actually, the first thing that happened that was really interesting was the privatisation programme kicked off in I think it was 84 (ish). And we were involved in the British Telecom privatisation initially.

So that was really interesting time. And then we in 1986, had big bang, which completely changed the way that investment banking and stock broking operated, and sort of resulted effectively in the kind of free for all that we have now, where anybody can own any type of financial institution, as long as they're regulated by the FCA, they can choose what to do, whereas before it is highly regulated and controlled, and you could only be a stockbroker, you couldn't do other things as well. You could only be a fund manager, and so on and so forth.

So that was kind of a really interesting time of change. And the foreign ownership thing was the other big change that happened at that time. All the UK firms, you know, were UK owned, that was it, and suddenly it was opened up to competition. So that was a kind of time of great change. And then the crash 87, that was pretty extraordinary. You know, we had this bizarre weekend where we had the hurricane overnight on the Sunday night, we got up to complete chaos on the Monday morning trying to get into work. Wall Street had had a dive on the Friday night. So we kind of knew what was going to happen on Monday morning. So it's like the apocalypse, you know, trees all over the place. Cars crushed. No trains are in just absolute carnage.

By then I was at Warberg, and there were a couple of privatisations actually ongoing at the time we were in the middle of doing the BP privatisation it wasn't like the original one. It was a sort of a secondary one where they were selling more stock. And obviously that made it extremely difficult. And there were a couple of rights issues which were underway at the time as well, which we were helping with advise with and so on. Ladbrokes and Scottish and Newcastle, the latter, of course no longer exists. It's subsumed into I'm not quite sure where it sits now. But those two rights issues were underwater, as you can imagine, because of the crash.

So that was kind of interesting navigating our way through that. And actually, the subsequent five years after that was a period of a lot of activity M&A, and fundraisings and privatisations.

And then of course, there was another crisis in 92, with the European Exchange Rate Mechanism, when we had a kind of false start in the UK of going into that sort of early version of the euro. And very fortunately, in my view, it was complete disaster, and it put us off going into it. And actually, that experience, I think, stood us in good stead in terms of retaining the pound and not getting stuck in the euro. So that was kind of a cataclysmic moment in 92.

So yeah, really interesting times and the learnings as much as anything, we're on the technical side of it, during that period, just kind of understanding what all the KPIs were, and all the technical stuff, the crazy sort of goings on, and beginning to get a feel for the way that markets behave with, you know, the way that they're very driven by psychology, frankly, and they're always anticipating future events, rather than looking back at the past, and how they can get very overbought, very oversold, which then leads to fairly sort of precipitous moves when you know, things either go wrong or right. So you get really interesting time of learning. And it stood me incredibly in good stead, you know, for the latter part of my career.

Peter Higgins 06:40

Excellent. I love that full response. Thank you very much, I’m going to cover some of those points a bit later on as well. I wanted to ask you with regards to all that learning, what sort of insights you can give to our current new investors who are seeing almost don't want to be disrespectful to them, but seeing smaller fluctuations of what's going on and what you've experienced between 84 and now, how they can actually manage their psychology, because a lot of them are panicking. And often I'll cash them out of the market. I'm not coming back for a little while and watching them on the sidelines. What do you say to them in the sense of, you know, being calm?

Reg Hoare 07:17

Yeah, I think that's a very good point. And actually, I think what I learned was that on the days, when the markets kind of down 3% 5%, whatever it is, you're almost better to pull back at that point, and just not do anything, it's too late to react. And usually, if you react on the day or two, immediately after one of these events, usually you're then regret, you'll sell the wrong things, you'll, you know, if you're trying to buy something, it'll probably be wrong as well. So you usually just better to kind of step back and just remove yourself forever.

But I do think it's wrong to then sit on the sidelines for the next, whatever it might be three, six months, a year, whatever, I think you do need to keep an eye on things, and then work out what your kind of strategy is thereafter. And what's always kind of worked for me is to review things within a few weeks. And what you usually find is that there's been quite a significant rotation during a period of crisis.

So not everything goes down by the same percentage, obviously, the market goes down for the sake of argument 10%. The reality is that by sector, there'll be a huge range of ups and downs. And the key to for me is to then review that review what that's done to your portfolio. And you'll soon realise, you think, well, actually, you know, some of those things have hadn't done too badly.

Those have done badly. And then you can work out whether you think things have been oversold, and actually whether they're cheap, and you ought to buy some more, whether the things that are held up, maybe not wholly justified, and actually whether you should sell some of the things that held up to reinvest in the things that have gone down if the investment case is still valid.

And I think we've seen a classic period of that, over the last couple of months where we've seen a strong performance of natural resources and energy type stocks. We've seen retail, for example, absolutely smashed.

So it's a good opportunity, in effect to take stock and say, right, do I agree with that? Am I going to adjust my portfolio accordingly. So I think it's that combination of initial patients, sit on the sidelines, don't take decisions that you might regret later. But then really reviewing it quite scientifically, in the weeks that go on thereafter, as the market evolves, and take a view as to whether you need to make some changes. And of course, I might add, I think it's always easier. In my opinion, from my experience.

If you've got quite a diversified portfolio in the first place, and you're not overly exposed to a very sort of concentrated group of stocks.

You've only got 10 stocks you know, that's going to limit your manoeuvrability. But if you've got 20-30, 40-50 with smaller holdings, you're going to find that you've got a bit more flexibility around, you know what you then do thereafter.

Peter Higgins 10:11

Thank you. Great, great response, great reply there. Thank you very much. Now, with regards to what you've said there, I want to ask you about the output, a huge part of my thinking around the psychology of investing. I wanted to ask you, personally, as a ISA investor and a SIPP investor, how it's important to put on psychology and keeping yourself together and not going running out the house onto the golf course, whacking some balls because the markets has enraged you?

Reg Hoare 10:37

Yeah, no, I think that's hugely important. You know, the reality is that unless you are a full time investor, who's spending the whole day, looking at your investments, and doing whatever you do, none of us really got time, if we have a day job as I do, to actually be able to kind of be in control of events. And therefore, psychologically, it's really important to try and just step back, be calm, not overreact, etc, etc.

And I think it's very difficult clearly, though, because we all get sucked in by the emotion. And there's no doubt there's a lot of emotional attachment to certain stocks, certain sectors, which were convinced that, you know, this is the right thing. And it's very difficult to pull oneself away from that. And it's also very difficult not to get sucked into situations, and we chitchat on Twitter, on the bulletin boards about certain fashionable stocks, which certain people are made lots of money in, and we get sucked into that.

And actually, maybe we don't know enough about it, or, you know, we're a bit late to the party. And then we make the error. And unfortunately, I think even after 40 years, or close to 40 years of investing, the reality is one still keeps making some of those same errors that one made at the beginning, in terms of the emotional attachment, and so on, and being sucked into things. And it's really, really difficult to wean yourself off of it. And actually, the best way to wean yourself off of it is actually have a small exposure.

If it is something you're thinking, is this against my better judgement, am I being sucked in, then only go in small, and maybe that's probably arguably the way I've rationalised it. I know that's a psychological weakness. So therefore, if I have a small exposure, I know but my downside is limited.

Peter Higgins 12:25

I think that's a sensible approach, I think that's a really good way of looking at it in the sense of, the larger the exposure, the greater your psychological flaw is, and then once it starts to go the wrong way, you're immediately flapping because you're overexposed to it.

Reg Hoare 12:38

Totally, you're overexposed. Exactly. And if you never go, let's say, for the sake of argument, you never go more than 5%, and maybe on average on most of your holdings to say two or 3%, then even if you're emotionally attached to it, your emotional attachment isn't that great, because it is only two or 3%. And we all know that you can make that up relatively quickly, hopefully, if something else goes well.

So that's always been my approach. And I think the other way, your initial investment, you'd put a toe in the water, don't bet the whole house in one hit. So I'm very much a buy and build in terms of my holdings. And as I kind of get to know the business better, as I get to know the investment trust better, actually, you then understand the share price better, because the share prices, they kind of have their own way. And again, that's partly because of the overarching psychology of the market. It might also be merely down to liquidity, all sorts of, you know, other reasons like how much research there is on the stock, etc, loads of reasons why share prices might be volatile. And actually, if you go in small to start with, and then drip, drip in more money, as you get more confidence in the story, and more confidence in your own ability to manage the holding, then actually, that's quite a good strategy.

In my opinion. Again, that's sort of worked well for me over the years. Not always perfectly, obviously. But the risk of that and you then have the catch the falling knife syndrome. Obviously, if you're drip dripping in and share price keeps going down, then that is always a risk. But actually, again, at that point, you can reassess your analysis. Is this story still right? Is it still ultimately going to pay off? Has the market in the short term got it wrong? Because the markets got into this very negative cycle. So that's kind of the way I think about it and rationalise it as I go along with my shareholders.

Peter Higgins 14:36

Excellent. So with regards to that you rationalising it. There are occasions where I just said you drip in the market. And it happens to all of us. We've done our research we're very confident about the company, the CEO, the leader, and the niche that they're in and the market you've touched on falling knives is driping in and going down as you're still dripping in. When do you go hmm, actually, Reg, you might be wrong on this one?

Reg Hoare 15:00

Hmm, yeah, the answer that is, I guess when it gets to that point where it just seems that like there's nothing can stop it, good news is ignored, essentially.

And maybe a good example of that is Boohoo, where, yes, there had been some forecast cuts, and so on, so forth. But broadly speaking, since I did it halfway through last year, it looks like the company has been doing the right things in terms of the corporate governance and ESG.

The other stuff and you know, sorting out its supply chain, and protection, etc, etc. But the share price keep that just kept on going down. And in that situation where I had gone into it, and initially, I'd had some success with it. I then thought, okay, I'm pulling back, I'm just going to sit on the sidelines, I'm not going to do anything, because the share price has got a mind of its own. But I'm still convinced that the long term argument that this is an attractive growth story, quality management, everybody else is going bust, which means it's going to gain market share, blah, blah, blah, all the arguments for that slot.

But there's a point at which you can't kind of fight the falling market. So at that point, you just have to sit back, go, okay, I'm not touching it until it's found a level. And maybe this is where the charts can be used. I'm not a Chartist.

But there's no doubt there's a point at which you know, when you start to see that share price getting into the you of the bath, or whatever the expression might be, that's the point, you think, okay, this has found a level, what's the news flow, like, maybe it's time to start looking at it, again, from the point of view of buying it, or indeed, maybe at that point, you think, okay, I capitulate I'm going to sell, because I don't think it's ever going to get back.

But coming back to my point about position sizing, if you only had let's say, you started with 2%, or 3%, and the things halved, you've only got one and a half percent of it, actually, what's the point selling it at that point, that doesn't make any difference really goes from one and a half, let's say it's 1%, it goes to half a percent, it's not actually making a great deal of difference your portfolio performance.

So actually, there's a lot of those kind of stale bull situations where I just sit in the hold, and I wait for some catalyst. And the laws be a catalyst. Again, one of the lessons of the stock market is there's always a catalyst at some point in a stock. And you might have to wait three years, five years, but we're hopefully we're long term investors.

So actually, we can afford to sit and wait on those those small holdings that have just we can almost shift them in a corner, park them, if we've got only half a percent or 1%. In it, we can just wait and see what happens. And ultimately, it's amazing how often something then happens. The takeover bid or change of management, and change a fortune, whatever it is.

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Peter Higgins 17:58

What what happens in the market is sentiment driven, which is why the technical people the charters actually use you were touching on that basis. But the 200 day moving averages, what once it starts to pick back up above that, that's usually a good sign that it may have some some further running to go. And then sometimes it comes out with some good news like, say, or a catalyst. So very interesting stuff. Boohoo (BOO) the sentiment was so high at one stage that they could do anything in the market was just do the share price up and now nothing.

Reg Hoare 18:26

Yeah, absolutely.

Peter Higgins 18:29

And that's the psychology of markets that people don't understand.

Reg Hoare 18:33

That is it is absolutely psychology, the sentiment. My father very sadly, was very bipolar. And that experience growing up with a bipolar father, sort of through my teenage years and early 20s taught me that actually unfortunate the stock market is very bipolar, and it goes massively. The sentiment just goes like that. It goes risk on then suddenly it's risk off. overbought, oversold, we talk about this thing climbing the wall of worry, so it will do this kind of like in the wall of worry thing. And then eventually, once it's climbed the wall, why do you think oh, well, what are we waiting for now? And actually, quite often, that's the point at which the market rallies. And we've sort of seen the beginnings of that actually, in the last week or two, where you know, all the bad news is in front of us. I mean, it's all there. What else can happen?

So I think the psychology, the sentiment, that whole thing about the stock market is is just, you know, extraordinary and bizarre and part of our learning is just understanding that and just saying, that's what it's like, so we just have to live with that work with it.

Peter Higgins 19:41

Indeed, I mean, we appears he said that last few weeks, I said the market seems to have dealt with all of the worries, all the stresses, but obviously that's because we've experienced and you've experienced in the near 40 years, lots of times when we've been in a bear market, we've had significant bear market rallies only for it to go subsequently lower. What would you say to invest There's that new to the game that are listening to this and say, Actually, I'd be mindful of these, I would say, This is what to look for, because this rally might actually have some further to go. And we could be coming into a bull run.

Reg Hoare 20:12

Yeah, I think one's always got to be mindful of that, you know, those spikes in the chart, and the fact you get the pullbacks the draw downs, then you might get another rally, and so on and so forth. And what I was looking at, and I think, again, history bears this out is that rotation thing I mentioned, tends to happen during those spike periods of the rally, and then the pull back again, you get more of this rotation thing going on between sectors.

So you know, we've seen the popularity of energy and oil and gas and natural resources, and so on and so forth. Suddenly, retails consumers out of fashion, everybody's talking about value, not growth. But actually, ultimately, if the rotation goes too far, one way or the other, suddenly, actually, the growth stocks become to look like value stocks. And at that point, you go, well hang on what is happening now you look at a stock that's growing at 10,15, 20% per annum, you think hang on, it's below double digit P/E. And it suddenly it's yielding three or 4%.

Whereas before we'd all go, it's on 20, something times that yields one, it's quite expensive, and people are still buying it, despite the expensive. So I think you need to look for those opportunities where that rotation has flipped stocks, like on their heads. And actually, suddenly, it's really good value. And actually, it might be the moment when you get those spikes and drawdowns or whatever, again, to look at the things that have outperformed, maybe take some profits there, take the top off holdings, these might be long term holdings, you just take the top off and put that money to work in something that's got some recovery potential.

So that's kind of the way I look at it. That's what I've been doing, essentially, since this crisis. Since the war started in Ukraine.

That's broadly what I've been doing is top slicing the things that have outperformed during that period and buying back into things actually that I top sliced last year, suddenly a lower than 20% lower than the price I top flow state.

Peter Higgins 22:13

To me on that nuance, can you please expand on the top slicing, because a lot of people don't understand it. And I think what happens is a good friend of mine does a lot. And then people put up charts to say, oh, from January 2021, to April of 2022, this share price has gone nowhere. But the person has gone up 15% and 20% as top sliced it a little bit there bought it back again, it's got to pick up again, and do that three or four times over the course of two years, we've got 100% Return.

Reg Hoare 22:41

Totally. And that's always been my approach to investing. So I think it's easier to do where you've got some really long term holdings in your portfolio, which are, let's say you might have a group of them, which are your biggest holdings. And quite often it's easier to do in investment trusts than it is in conventional industrial companies, because the investment trusts will follow the market more.

Whereas the companies may obviously have their own dynamics, which means the share price might not, you know, might be a bit out of kilter with what the markets doing. And so a good example might be something like Herald Investment Trust (HRI), which I've owned for as long as I've had a sip. And it's absolutely a long-term keeper fund.

But it's done incredibly well over the years on the back of the boom in tech. And because the manager has been a very clever manager of the investment trusts to have a lot of takeovers of the businesses within the portfolio. And over time, you know, the share price kept on going up and up and up and up and up. And eventually the position size got a bit too big for me was nearer 5% and 3%, which is kind of a point at which I begin to think about top sizing. So I top slice, and my mantra is if it goes up another 15% of my first top slice, I'll do another top slice.

My top slice percentage is usually actually pretty modest. I might only top set let's say I've got a holding. It's probably easier to do it in numerical amounts. If I've got a 20,000 pound shareholding, I’ll only top slice five or 10% of that shareholding so I might only sell 1000 or 2000 quids worth. So it's very much at the margin that I'm doing this and then if it goes up another 15% I'll sell a few more goes up another 15% I'll sell a few more goes up and up and 15 per cent more.

I'll sell a few more. Now, you might argue I'm missing out because I'm top slicing all the time. But the amount of times I've then been able to buy back has been quite extraordinary. I mean surprised me. I've gone seriously and buying these back again. Okay, great. That takes a bit of patience.

But at the moment I've been able to buy Herald’s back. You know I sold some of that 22 quid/24 quid last year. I've just been buying them back at 17 and 18. And it's taken a market correction to enable me to do that. But it's, I think it's absolutely the right thing to do. So that's my top slicing technique. And there may be others that would do it slightly differently, you know, there might top slice a bigger amount.

But for me, it's like top slice, no more than 10% over shareholding and then wait for the opportunity to buy it back. And as I say, it's amazing how often it comes around again.

Peter Higgins 25:27

Love that strategy it’s brilliant, because the beauty of that is that you're doubly compounding your long term returns, because you're able to buy, essentially, people always say or buy the dips, but when the dips arrive and shy away from or could go lower, you know, you've got to go back in or not.

Reg Hoare 25:41

You've got to go back in, you've got to go back in on budget. Absolutely. Got to be disciplined about that. And I think you've obviously I mean, the example of Herald, you've also you also got to just look at the discount to NAV and see where that still is. And at the moment, it's very attractive, you know, it's double digit. So you think, okay, that's absolutely the right thing to do. It's a no brainer to do that.

Peter Higgins 26:02

Excellent. Now, I want to change it up just slightly. And then we'll talk about the nuances of your role. So I'll expand on your role as Managing Director of MHP Communications and what you do across the industry, because it's not just stocks and shares, it worked with some of the investment funds and investment trusts as well. So people get an understanding of that fully.

Reg Hoare 26:21

Yeah, so we've got quite a sort of wide range of clients across both, you know, stock market quoted businesses, which could be any sector. And also we do financial services, PR. So we do PR for financial institutions, which is more about PR in their products, their services, etc. And that could be any type of financial institution, you know, from an investment bank, to an insurance business to a fund manager to insolvency practitioner to a city law firm, etc, etc. For the quoted companies, we look after about 65 ish quoted companies, all shapes and sizes from sort of small round of AIM through to the big end of AIM, then up to the fully listed FTSE 250, FTSE 100.

So we were unusual in that we do the kind of full range of shapes and sizes of companies, we'd like to think they're at the quality end. And I think there's good evidence that they are, you know, they tend to be sort of profitable growing businesses that are ambitious and active with M&A. And then obviously, we help them with their whole kind of lifecycle as a quoted company.

So we'll help companies with the IPOs help communicate those, then we're doing results. And then obviously, the day to day stuff, you know, there might be board changes, investments, restructurings, you name it, we're up to it. And then obviously, there may be M&A where clients have been bid for. And some good examples recently have been Cobham, couple of years ago, we're on the ultra ticket at the moment, which is an interesting situation. And then we've got all sorts of other what we might call sort of crisis and issues management.

So a good example, where we're helping at the moment is a client of mine, and Nanoco (NANO), which is kind of quite a popular retail stock, where they've got this amazing litigation ongoing against Samsung. So we've been helping them with that for the last couple of years in terms of the messaging announcing progress in terms of the litigation activity. And as we go along, also getting some press coverage as the story develops. So you know, it's a really wide range of activity that we're going to get into.

Oh, yeah, yeah, yeah, it can be quite cyclical, you know, you've got I mean, I've got a client base where it Fortunately, not all of them are doing stuff at the same time. So I've got a nice range of financial year ends, which means my results season is quite nicely, sort of even through the year. And then Fortunately, not all of them are doing M&A or having a crisis at the same time.

But it's amazing how sometimes you do get extraordinary periods of time, where suddenly you've got a client being bid for, you've got a couple of crises in trading, profits warming, and then another client rings up and says, Oh, we're having a change of CEO and you think how could this all that within a week, but that's part of the excitement than the interests in keeping it sort of fresh and new and there's always something new, you know, even after the period of time I've been in the market never ceases to amaze me how you get like a new situation that you've never seen before. And you think, Oh, my God, that's new. Well, this is how we should deal with it. This is how we should communicate it. These messages we should go with.

Peter Higgins 29:33

Talking about different things and things being new that you think crikey I have never seen that before. What would you do or experience in the past where you've got a situation now where you've got the likes of Elon Musk, you discover that you've got a mandate for this brilliant company. But later on down the line, you find you've discovered that you've got an Elon Musk esque CEO, how do you as a team manage that? Or do you think you know what I'll give them a couple of moments and we're going to start to get them off the books. How do you manage that sort of character?

Reg Hoare 30:03

Yeah. Very good question. And I think it's fair to say, I've probably not attracted that many of those characters to my client list over the years, maybe I'm too sensible. But yeah, you sort of slightly have to just let the ego get on with it.

Inevitably, I think the advisors find over time in those situations that they just kind of need to step back and let him or her just get on with whatever it is they're going to get on with. And obviously, in the sidelines, you might be advising them to say, actually, I really wouldn't do that. And maybe I'd do it this way. But you often find, actually, they're not very good at taking advice, those types of characters.

So therefore, you just you just kind of plug on, and then eventually, usually what happens in my experience it either the situation completely blows up, and you find that it's a busted flush, or whatever. And quite often you the baby gets thrown out with the bathwater. So quite often, the early victim of a crisis is that financial PR company, because somehow we didn't polish the I won't be too crude….

Peter Higgins 31:13

Wow, I didn't know that. Yeah, do you get the blame first?

Reg Hoare 31:16

You suddenly find that it's like, okay, we need to fire somebody. Usually what happens is they fire people internally, first, that's part of the mechanism. And then eventually they start firing advisors, even though it's not your fault, because you can't, as I say, polish the situation.

Peter Higgins 31:33

Because you didn't manage the narrative, you sort of manage the narrative better than that's the blames going up.

Reg Hoare 31:38

Well, that's obviously the board's conclusion. But it's usually a false conclusion, and usually actually then leads to further problems, because obviously, they're thrashing around trying to find somebody to blame. And actually, the person who should be blaming is the egotistical chief executive. So that's a situation we've often over the years, I found is quite irritating, as you can imagine, shooting the messenger, as they say.

Peter Higgins 32:06

Yes, absolutely. Continue with on the communication side, the largest growth of the past few years, and money being spent on is on ESG. At the moment regarding lots of different investments and funds, and so on, so forth. How much work are you doing and how much work is being done? And does it benefit some of these investment companies and companies regarding ESG communication at the moment? Have they benefited from it?

Reg Hoare 32:29

That's a very good question. I think broadly, yes. I mean, I think a lot of it is compliance. It a lot of it is saying there is this trend, we need to be cognizant of it.

What are we doing about it? Let's communicate it. And quite often you find actually, the companies are doing quite a lot already without really writing it down, or sort of collating it. And when you actually quiz them, they go, yeah, well, we've always done that, in that business. And we've always had people do this here, particularly around the S bit actually, the social bid really interests me, because the environmental, it's kind of numbers and statistics, isn't it that saying we reduce emissions by X, so we invest Y in a new bit of whatever it is technology or something, the S bit is the softer, less easily measurable bit, i.e. the social side of it, and particularly the culture angle. So talking to clients, I find it really fascinating over the last year or two, talking to them about their internal culture. And where they, to me looks like they've got a really strong internal culture. I've said, Well, you need to emphasise this, because that's the glue that holds your business together.

That's the thing that makes your staff loyal. That's the thing that actually your customers understand. It's not articulated, but it's there. And that's been noticeable, I think, during lockdown, and working from home, and so on and so forth for monitoring clients have have actually been able to articulate that quite well, as a result of the conversations we've had and saying that you need to talk more about this. And so they've been able to articulate it quite well in their statements.

So that's been important, particularly for people businesses, because a lot of the challenge to companies is well, we don't have factories, we don't have emissions. Okay, we got office, but not really, we don't make anything physical. We're a software company, we're actually making anything that has an impact. Again, that social thing, the culture thing becomes much more important for those types of companies to talk about the S bit but last but not least, the governance but again, it's very driven by fact, it is what it is, you're either complying with it or you're not.

There wasn't really much of a nuance, unfortunately, around it. So yes, we spent a lot of time advising clients on it. And I think broadly, it's beneficial that they do and anything that kind of gets the client thinking about it, I think it's always a good thing.

Because actually, sometimes they're so wrapped up in their business in the day to day, they don't have time to think about some of the other stuff. So I think it's been quite a good discipline to get the internal debate going.

Peter Higgins 35:08

Excellent. That's great. Thank you very much for that reply. Now, Reg, regarding your own personal investing, how has that nuance of ESG been applied to your own portfolio? Hasn't it?

Reg Hoare 35:19

It hasn’t to be frank, obviously, we're all concerned about what's going on, and climate change and what have you. But I feel that the particularly quoted companies are so much under the spotlight, that in my experience, they evolve quickly, and adapt quickly to these situations, just as they do to criticism about their business models, or their strategy or their leadership, or whatever it is.

So I'm sort of sitting there going, well, I know my clients are in doing the right things at their own pace. So therefore, the things I invest in, I sort of take the same view, there'll be doing the right things, slowly but surely. So it's not a measure, which I'm adding into the pot, shall we say? So I don't have a problem investing in defence, tobacco, etc. Because I think it's a cheap sector, I'll go for it.

Peter Higgins 36:11

And that's the same with myself as well. So I completely agree with you on that front. I wanted to ask you with regards to your portfolio, you mentioned earlier diversification, you've got your ISA and your SIPP and you've put it across investment companies, let's say investment companies, funds and trusts, and also small caps and mid caps. Can you talk about some of your selections, your strategy of selection, and then you spoke about usually having a smaller position and working up to five and then top slicing? How do you filter Reg, which investment companies you select, and also the stocks, so our new listeners can get a grasp of actually, I never thought about how I go about selecting stocks are the most on the bulletin board and on social media?

Reg Hoare 36:51

Sure, I think I've sort of analysed it recently, actually, funnily enough, and slightly prompted by an article I read about the Yale Endowment Fund, which is the Yale University in the States, and how they ran their money over the last 30, 40, actually 50 years or so.

And I realised I was sort of I seem to be, by default, doing broadly what they were doing, which is taking a view of assets across the piece, and how we can access them through the stock market. And it occurred to me that ultimately, what we're trying to do is grow our portfolios of valuable portfolios. And ultimately, that's linked to the underlying growth with the businesses, their profits, which they can turn into dividends. And that's what's kind of drives the long term value.

And the sectors that seem to do that best are actually things like small companies, because they grow more quickly by definition, and the kind of faster growing sexier sectors for want of a better expression.

Ultimately, over the longer term, things like technology and healthcare, are always going to grow more quickly than traditional kind of engineering businesses. And then alternative paths, and particularly private equity and venture capital are always going to grow faster than conventional listed companies. Because broadly, then growth capital, that's what their businesses they're investing in are, by definition, fast growing businesses.

So I've ended up with, therefore, when I've chosen investment companies are very much focused in on those areas I've gone right, there'll be overweight, smaller companies, I'm going to be overweight, private equity, I'm going to be overweight venture capital, long as the overweight sort of technology, healthcare type areas. So I'd be very much skewed to that. And then in the smaller companies, I invest in actually, much less sector based, and much more stock specific where either I know a stock.

For whatever reason, I've been attracted to the occasion, I've invested quite successfully in former clients, where I know the business, I've had a bit of a bent towards technology, and particularly to software. Because I found that's been an area which is, again, it's been fast growing. But also it's attracted a lot of bid activity over the years, a lot of M&A. And I've had great success with M&A in that sector. So that's broadly how I have seen it. So I've now got a portfolio which is very much skewed to equities. And it's very much skewed to smaller, faster growing areas of the economy, which I think are going to provide better returns over the longer term.

Peter Higgins 39:28

Thank you for that reply. Now, you touched earlier about the diversification and size of use did question smaller portfolios and concentrated portfolios. So I'm assuming you've got a larger breadth of investment companies and stuff. What's your view of what is a better strategy? Obviously, you're diversified, but some people are saying, actually, it's better to be concentrated.

Reg Hoare 39:47

Yes. So what I do is I my concentration comes in the sector, if that makes sense. Let's take the example of smaller companies. So in smaller companies I've actually got this is investment companies smaller company investment trusts, so I've actually got four or five of them.

So if you taught up the total amount in smaller company Investment Trusts, I've actually got more like, I'm just trying to do the maths in my head, probably got near a 10% of my portfolio in smaller company investment trusts, but actually, I hold four or five of them. And the reason I hope four or five is to give them diversification and reduce the concentration risk, because the individual managers, their performance varies, they're not all performing exactly the same way. Secondly, their portfolios are subtly different.

So JP Morgan Smaller Companies Investment Trusts, which I've held forever, in reality is more of a mid cap fund. It's mostly investing in larger AIMcompanies billion pound market cap upwards, and things that are just moving into the bottom end of the FTSE 250. Whereas I hold the mini Miton Small Cap, and the River and Mercantile Micro Cap Investment Trusts (RMMC), both of which are very much focused at the lower in the sub 100 million market caps. And of course, that means they're really completely different from the JP Morgan one. And they behave differently. And then the other interesting thing is that the River and Mercantile one has a policy, where if the market cap goes over 100 million, because performance is good, they actually return capital shareholders. And that means that the managers always really focused.

And it means effective, they're always taking profits, but they're always top slicing, effectively, And then obviously, it has happened, now, the shares have fallen back, they can actually issue new shares, to increase the size of the fund again, or just wait for the performance to come back again. And hey, presto, that's a really interesting vehicle.

So you can get the concentration in a sector, but at the same time, get the diversification through buying these slightly different vehicles with a slightly different approach. And I do exactly the same in my private equity investment company holdings, my venture capital ones, and technology, whatever. So I've got that sort of diversification, basically, but at the same time, that concentration,

Peter Higgins 42:10

Reg you’re a very smart, very shrewd individual, well, I'll be clocking all those tips, by the way, thank you very much.

Reg Hoare 42:15

It was working very well up until Putin made life very difficult for all of us.

Peter Higgins 42:22

And it will work again going forward. I have no worries on that fronts.

Reg Hoare 42:25

Exactly. I haven't every confidence that it's going to do that.

Peter Higgins 42:30

Right, now conscious of the time. So the last few last couple of questions, you took some time out, going back to 2001. And you bought and invested in, I think that's where you are now in Andalusia, in Spain, you made a major investment in Spain. And you've finished it off, and now you're enjoying the pleasure of it.

Now, the diversification is that this is actually a property. Now you've been in there and built it finished it 20 odd years, and you've got a huge passion now for everything Spanish. And I'm still waiting for my invite. So you know, so tell us about that. And about having the assets.

You know, obviously you've got places elsewhere in the UK, but you've got a fantastic property. And some people say, Oh, no, I'm never going to property because I don't understand it. And the tax this and the tax that and overseas property. Explain that nuance, I think it's a fantastic thing to have as well. And it's about what you've been warned if you're investing as well.

Reg Hoare 43:17

Yeah. And it's sort of I mean, when I first did it, it wasn't essentially a I'd want to diversify my property portfolio, which actually was only one in the UK. And it wasn't, I want to diversify my currency. But then when I thought about doing it, if you sort of mean initially, it was hard going, I love Spain, I found this amazing place completely by accident. I'd be crazy not to go for it. Then when I thought about it up here. I was like, actually, it might have some benefits in terms of currency diversification, market diversification, albeit the Spanish market and the Spanish holiday coastal market is mad. I mean, talk about a crazy market wild swings.

So then I had to go hang on at what point of the cycle am I in? And actually, I did have that thought. And of course, when I bought the land, it was kind of in an early upswing going back to that time post the.com crash, there'd been a bit of a market sell off. So actually property was on an upswing section, the timing was quite good. And then the Euro actually has been fantastic because the Euro has been ridiculously strong and demand has been very weak.

So it's worked out. It's very good currency play. And also when I did it when I started building, which was actually a number of years after I bought the land when I started in 2010. Again, I had to get the old brain going and go okay, is this the right time to build? And once heart it's time is going no, we've just had a crash financial crisis. Don't do it. You're mad. And then I thought, no, it's got to be the right time because building costs are low. Interest rates are going one way down. And it's got to be the right time to do it. And again, that's been the right decision, as it turns out, because I've had incredibly low interest rates.

It's built in quite good value. So that's been an exciting and fun journey. The downsides are, it's a hassle. You've got to have tax returns and down in Spain and Brexit made that slightly more difficult. And so there are hassle factors, and I have to rent it out.

So it pays for itself. And there's hassle around that, and owning two homes, you know, there's always things going wrong that need fixing. So there are some downsides, but I get huge amount of pleasure from it. Long may that last?

Peter Higgins 45:31

Brilliant. Now, my final question is an easy one. I'm going to share this one with our listeners. Right? Have you learned some Spanish?

Reg Hoare 45:36

Well, I did O Level and A Level of Spanish actually. And that was part of the reason along with going there on family holidays when I was a kid for getting into practice Spain generally. And I've learned a little bit it sort of gets me by but it's not really good to be frank. I'm not fluent. And the downside in Andalusia, it's like going to the Outer Hebrides, and they have a very strong regional accent. So when you try to speak at your O Level Spanish from 40 years ago, it's like, oh deary me. But anyway, it's fun.

Peter Higgins 46:08

I'm sure they appreciate you trying Reg.

Reg Hoare 46:10

So when they whisper under their breath. They have one or two rude phrases for foreigners, which now and again, you think, yeah, I wonder what they're saying to each other. When your backs turned.

Peter Higgins 46:23

Reg, we could go on for another hour, I'm sure. But it's been an absolute delight to have you on here. Thank you for sharing those investment strategies with me and those insights. We will have to speak again. I look forward to seeing you again. Very soon face to face when you're in London. Thank you ever so much for sharing your insights with our Investing Matters listeners, take care and god bless.

Reg Hoare 46:43

Cheers Peter.

LSE 46:54

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