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The London South East, Investing Matters Podcast - Episode 2 featuring Simon Young, Fund Manager for the AXA UK Equity Income Fund

LSE 00:01

You are listening to Investing Matters brought to you in association with London South East. This is the show that provides informative educational and entertaining content from the world of investing. We do not give advice so please do your own research.

Peter Higgins 00:17

Hello and welcome to the London South East podcast. This is the Investing Matters Podcast with Peter Higgins. Today I'm speaking with Simon young, a fund manager AXA Investment Management Group. And he manages the AXA Framlington Blue Chip Equity Income Fund. Hello, Simon, how are you today?

Simon Young 00:37

Hi, Peter, it did change its name a little while back to the just the very easy UK Equity Income Fund. So the blue chip bit has gone. But it's now the Equity Income Fund.

Peter Higgins 00:46

Thank you for that correction. I mean, for me, Simon, I want you to start because you've had a very eventful life in the investment industry, which starts back in 1997. And you were fortunate enough to be starting at Mercury Asset Management, which is now part of Blackrock and you were part of the grad scheme in 1997. And fortunately or unfortunately, you've informed me that you walk straight into the Asian crisis, I suppose you start really with? What did you learn most whilst in the graduate role? And how do you support graduates now?

Simon Young 01:21

Thanks, Peter. Yes, it was, like a lot of people I wasn't entirely sure, what fund management was but had a good idea. But you know, you then go into a graduate role. And the first thing that is filled your head with investment theory, so you know, things that your readers might may have heard of weighted average cost of capital, Miller and Modigliani optimal debt burdens.

But reality is that the most important thing is as a graduate, I believe it's keep your eyes and your ears open, your mind open, because ultimately, you're going to adopt a or workout your own best way of, of working, but it's going to take a lot bit of time.

So don't go in the sort of preconceived idea that you know how to be the world's best investor, because it's all about learning over time and picking up good advice from experienced colleagues. And, you know, that was something that I really tried to take on board.

And as you say, you know, the first thing you don't get prepared for is, is an economic crisis, whether it's in the Asian part of the world, when we saw some serious devaluations of currencies over there in places like Thailand, and Malaysia, or subsequently, only about three years later, we had the.com, boom, and then the dot com bust.

So you're learning the whole time, which is the best bit of it. So that's what I would say, as a graduate is to just take all those little bits of information, the little wins, the little losses that you'll have along your career, and start formulating a way that for you, to get the best out of your own ability.

I mean, some people are great traders, other people are sort of much more long-term investors, and it's about what suits your temperament, what suits your abilities, and then try and work to that. And then graduates now, I mean, unfortunately, don't have any formal graduate program at AXA on the fund management side.

But we have done that role, that a bit of mentoring in the past, and it's really rewarding. And I think we might come on to something that shaped my career. So you know, because I think you asked me beforehand, it's a really rewarding part.

Peter Higgins 03:25

Excellent. So he said about, you know, as a graduate learning as much as you can for many other people. And you actually were given the opportunity early on really to start managing client money.

As early as 1999, you started looking after clients’ money. So what was the learning from that, in the sense of you have this responsibility?

You're a custodian of other people's money trying to enhance that for them? How was that for you as a young person starting out?

Simon Young 03:51

Very scary, is the honest truth. Yeah, what are we there for? We're trying to help clients, whether it's individuals or institutions to meet their financial objectives, ideally, sooner than they would otherwise hope.

So there's a lot of responsibility on you, as a fund manager to do that. And you do take it, I find it I do take it personally when things aren't quite going to plan. So it was within a structure.

At Mercury, people were allowed to flourish and given albeit small pots of client money, but you know, to that client, that's the most important part of money is their own. It might not be the biggest, but it's the most important to them.

So you've got to be pretty humble about that and take things carefully. But I was lucky because I was working in a structure we had oversight from much more experienced fund managers that you would sit next to and talk to and often the reality is, you know, while you're coming up with a couple of your own ideas that you're researching, also, you're you're leveraging the team in which you're working in so you've got specialists in in areas who will be recommending a company and you'd be mad not to take their advice.

Peter Higgins 05:00

Indeed, I mean, I wanted to ask you pretty bit lateon, in a sense that you've worked with some absolutely exceptional individuals, you want to share some of the stories and the highlights about some of the individuals he worked with and who they were and how much impact they had on you, as a young person in the industry, and also, as a senior now that people actually have enhanced your learning.

Simon Young 05:19

Yeah, I think learning as I said it already, but you know, it's you never stop learning in this job in or in any job, you know, the natural state of things is to atrophy and ultimately die, whether we're talking about the universe or plant life.

So what we'll do is try and keep growing to delay the onset of that atrophy. So I've learned from some fantastic fund managers over my time, there's a lot that I've done, and I went to embarrass or them by mentioning, but Habib Annous is a fantastic role model to young fund managers, when we're at Merrill Lynch Investment Managers, which was acquired by Mercury, he was so generous with his time and explaining concepts, his huge encyclopedic knowledge of all these small caps was brilliant.

And he's just such a generous person with that, and very humbled. So that was something and then you got people like Pete Davies at Lansdowne Partners, Pete was just so far ahead of people of his age, you could see it and just his sort of left field thinking. So you piece together all these very brilliant individuals, and you try and sort of shape your own learnings.

Peter Higgins 06:27

Indeed, I mean, I've wanted to touch on if I may, obviously, during that time, and you're getting all the support, and you're learning from all these absolutely established individuals, you're all at the same time going through various different the financial impacts going on to the markets and all the crises dot com crises you've already mentioned.

And 2008, you know, great financial crash, and all the bits and pieces that happened in the past? How do you all then come together and learn and cope with the stresses and the strains of all of that, in the sense of the capitulations of markets? And what was your learning from that?

Simon Young 07:00

I think that's something that I've probably done too late in my career, but it's something I look at now is to understand where you've made mistakes and understand where things have gone right.

And more often, more importantly, where you've made suboptimal decisions, especially in hindsight, it's very easy.

In hindsight, I try and keep an investment, not a diary, but an investment thesis for each company that I hold, because I believe that you can keep true to your investment idea in the first place.

And sometimes mission creep in a company can really sort of cause them to underperform. And if it's against what your thesis your original thesis was, maybe you should use that to sell the company. So I think keeping a diary is a good idea, or an investment thesis, as I should say on each company is a good idea.

And then just occasionally, once a year, twice a year going back through your big investment decisions that you've made. Often, it'll be a trade that you've made. And you can download those as an individual from Hargreaves Lansdown or interactive investor, you can get a list of your trades, if you're an individual, it's obviously easier if you're an institutional fund manager, because you can pull the data out of a database, but you know, the data is there for Hargreaves and just think, what was I doing there?

Did I make the right decision there? And if I did, what can I learn from that? And if I didn't, you know, even more of my learnings, and some of my worst decisions ever have been in companies where they were more concept than reality. And by that, I mean, they probably had some revenues, and we're growing fast. And I was told to have a huge market opportunity, but in reality that didn't come in.

So I think one thing I've always said to myself now is, I don't invest in unprofitable businesses, you know, early stage ones, it's just not in my DNA. You know, that's not my skill set. Other people are great at that. But it's just not for me. So my rule is don't invest in in unprofitable businesses.

Peter Higgins 08:56

Yeah, I think that's a very good point you've made there. I wanted to ask you for a moment, if I may, to go back a second, I just expand for those listening into this podcast on mission creep and what that means for you. But what you should mean for the people looking at the companies that they've identified initially.

Simon Young 09:11

I can I'll give you an example. And I'm, I'm glad I wasn't holding this company. But I worked at a firm as I've only worked at three firms probably worked out. It's one of them that we had a holding in, my colleagues had a holding in Carphone Warehouse, and they're the big investment thesis.

I remember this to the day was that there was a huge market opportunity for them to roll out store in store, i.e., you have a little Carphone Warehouse store, within the Best Buy stores across the USA. And it was going incredibly well. People hadn't really ever been sold as I can remember it, mobile phones with a sort of great deal, on a basis that you could sort of choose your supplier I think normally you went into like the AT & T shop or the Horizon shop anyway, this will give you a multi supplier In the end, Best Buy, I think suits, remember, bought out, that party was a JV between Carphone Warehouse and Best Buy, and they bought it out.

And it wasn't really mission creep, but it was more the thesis of change. And we were we were in Carphone Warehouse for the fact that there was a huge opportunity for them to roll out the store and store in the US. And I remember distinctly sort of raising this point. And I was told that was fine.

But anyway, I just remember, it's one that really sticks in my mind. One, again, might be something like, you know, companies where they start to believe their own success on M&A. And they go and do an M&A transaction or a merger or an acquisition in an unrelated space, what experiences that company got in there. And so that automatically raises a red flag, even though management will be telling you, yes, this is definitely part of what we've always been doing. We're really great at acquisitions.

But ultimately, if it's in an area where they've got little experience, you've got a question it. Some of them may work out well, others may not. And you'll kick yourself as if it doesn't work out as well, as they told you at the time.

Peter Higgins 11:11

You make a really good point there, Simon, I think the importance of being able to see the nuances sometimes and identify something independently that others may not actually notice. And I think that sometimes gives you and other people an edge, because people like to conform and look for other things that everyone else is looking at, but looking for the slightest nuance sometimes gives you an advantage. Okay, so having been both a fund manager, and a private investor, what aspects of investing matters most to you, Simon, and why?

Simon Young 11:45

Well, as I said, at the beginning, ultimately why you investing, you're, you're trying to meet a financial liability or grow your wealth. And so as a private individual, and I to tell people, I start ran my own business for a couple of years. And I had to do all my own investing my family at that time, which was great, and really enjoyed it. And that's how I met you, Peter, and others, but also, and then I went back to full time fund management, because the business I was doing was a consultancy, but my real love is investing. And so I got the opportunity to go back to AXA, to be a full time fund manager again, which I left out.

So ultimately, again, that is about trying to help people meet their financial goals. But through and through, coming into my career, it's, it's about long-term investing.

For me, it's about the power of compounding of returns. And it's a pretty simple thing. And Einstein described it as the eighth wonder of the world. And the numbers are quite stark, actually. And I sort of just jotted down some numbers the other day, which I have in front of me, because I was talking about this exact subject someone else. And you know, if you do over five years, you 10% per annum that you make 60%, due to compounding over 10 years, that 60 turns into 160.

So you've more than doubled your money, and over 15 years, so the next five years, you then doubled it again. So you go from 160%, return to 320% return. And then over the next five years, 10 years, 15 to 20, you're still doing 10% per annum, you go from 300% to nearly 600%. So it's about the long-term power of compounding. And so some of the best companies I've seen, people say oh, they've done quite well, I might take a bit off the top.

And there's a really interesting study by a US professor called Besson Binder, who shows that the highest returns in the stock market are actually generated by or the majority of the returns in the market are actually generated by a very small amount of companies.

I think it's like 0.5% of all companies generate something like 80% of all the all the wealth. And therefore if you can find one of these little companies that ultimately grows into a big company, and yeah, look at the size of Microsoft and Amazon these days, they have huge companies with several trillion dollar market caps. If you can find these companies that execute on a plan, keep on growing, they are sort of gold dust. So you know, I think you Peter have invested for a long time.

And I think I saw a tweet saying in AstraZeneca. So maybe you could tell people about your sort of returns there?

Peter Higgins 14:21

Well, this isn't the right podcast to do that and this one is about you Simon. But AstraZeneca was compounded from 1994. And the beauty of that company for me is that we're in the space of aging, longevity and the need for evermore pharmaceutical companies to be prosperous, and to look after our aging population.

So that's why I'm still invested in that company. I think, going forward, the use of AI, artificial intelligence machine learning is where pharma is going to go. So that's a company that's at the cutting edge of that as well. So investors should consider pharma companies that are involved in that space. Simon, I want to go now into you at some point this month. If not, you've already surpassed it. You're three years in now, back at AXA investment Managers. Yeah. Have you celebrated your third year anniversary yet?

Simon Young 15:10

Yes. Is the third year now. I've been there now three years. I took the fund over the beginning of November.

Peter Higgins 15:15

Okey dokey. So I wanted to start talking now about that fund. What is your theme regarding it? Obviously, it's got, as it says in the title, it's income, etc. But what is your thesis for that in the sense of your selection of stocks? What's in the stocks? And what are you looking for regarding when you're looking to say, okay, I think that one is reached a point now, where it's, it's been fully realized the potential I'm going to look for something else.

Simon Young 15:40

Yes, I mean, as you say, I took over the AXA Framlington UK Income Fund in November 2018. And guess what walked into a crisis. Pretty soon, I guess the learning that I've had is about resilient businesses, because, you know, whether it's, as I said, it's the GFC, it's the Asian crisis, it's the dot com boom bust.

I mean, ultimately, you know, we're looking to compound at a good rates of return. And ultimately, I want businesses that can grow, kind of whatever the weather, in many respects, I want them to be able to survive the tough times and thrive in the good times. And so that resilience is something I look for, and whether that's, and that's there's four business models that I really look for in in the fund, because I think these are these helped with that resilience in a companies where they've invested in high levels of intellectual property, we talked about pharma companies, and we own a couple of pharma companies within that, and companies where they've sort of developed their brands, again, that's intellectual property.

The second one would be companies where they have high levels of repeating income companies where, you know, subscription service, for example, where the cost of that subscription isn't terribly high. But the utility of it is very high.

And you know, accounting software would be a very good example there, you can't have a business without some kind of accounting software.

Thirdly, would be businesses with high levels of very strong sales forces, so they can sell their products around the world. And finally, it's low cost providers. And we're seeing that at the moment, businesses that have a structurally lower cost than many competitors can keep on growing their business, even in the tough times, because people in the tough times they'll look for value.

So we're seeing it at the moment, you know, out there, people are looking to lower their costs, because if something and to get their their energy bills through the post, I think there's going to be a big move to sort of low cost in the next couple of years because of the some of the cost inflation that's coming through. And I think there's a number of winners, whether it's discounters in Europe, companies in the UK, that are structurally lower cost.

Peter Higgins 17:54

You touched on IP recurring revenues, and strong salesforce and low cost providers want to give us some examples of the companies that fit that remit and currently within your portfolio.

Simon Young 18:04

Yeah, sure. I mean, a company that a lot of people know about is Games Workshop, you know, they've been developing their intellectual property for 40 plus years.

And obviously, there's nothing like other companies I'm mentioned our recommendation, but I'm trying to use that as a as an example of companies where I believe that it fits into the mold of what we're looking for. And so some like Games Workshop has very little direct competition has huge amounts of, they produce miniature figurines, for the uninitiated, which they sell by their own shops and over the internet.

But it's not so much about making these plastic figurines which are incredibly detailed, but it's also about the backstories that go with them. And then the gameplay because people use them in tabletop gaming. So it's a lovely concept, people actually talking face to face and playing a game rather than sort of doing over the internet, as many of these computer games do these days, but coming on to compete against, they realize that their actual property can move into the computer game space.

So they've done a lot of licensing deals. And they received royalty income from computer game manufacturers, which in the last few years, has averaged between 10 and 20 million. So it's a very profitable and high margin source of earnings for that business. So that would be sort of intellectual property. If you wanted an example of something in the high levels of repeat income can be like Sage accounting software, they are moving their business into the cloud.

So people will be able to access their accounts anywhere and everywhere on mobile phones or desktop computers. Again, you know, people are paying up front now. So it's a software as a service type model. You pay, I don't know, depending on the size of the company between 30 and a few 100 pounds a month, maybe more for some of their biggest or notes.

But it's very difficult for a business to know what they're doing without counting software, if you do on the back of a fag packet or an Excel spreadsheet, it becomes quite dangerous because ultimately you don't know how much you're the tax man, you don't know how much are your employees, which is incredibly important. And you don't know how much your customers owe you. So you've, you know, there's a real benefit from having all this information to hand in a sort of low cost, relatively low cost product, because if you think about the benefit relative to the cost, it's, the benefit is huge. The cost is not so high.

LSE 20:32

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Peter Higgins 20:50

I wanted to ask you, Simon, because you touched on the resilience of businesses there. And I want to just flip that a little bit and talk about the resilience of fund managers and the psychology and the mindset and ask you what aspects of mindset and psychology has enabled you to deal with all the different aspects of what's happened to you since 1997, you mentioned, you know, you've got you've gone to that company and that company, and then straightaway is almost like a financial issues going on regarding the market.

So you've had to deal with quite a lot, you're still a successful fund manager, despite all the knocks that you've had. So, ultimately, talk to me about my mindset and psychology and how that has worked for you.

Simon Young 21:29

Well, I think you have to develop a thick skin, ultimately, we're trying to do our very best for investors. But what times are going to be tough, and you've got to recognize that and recognize, you know, the long-term goals are the other most important.

And I think sometimes you can, it's very easy as either private individual, or even as an institutional fund manager to be knocked off course, by the by the short- term, whether it's, you know, family issues, or whether it's economic issues, the macro environment, as a whole, as you said, there's a whole lot of nice inputs into you.

And I think it's, sometimes you have to come back to it, you'll look back at your investment thesis, because often when times are tough in stock markets, and you're looking at a share price, and you're thinking, well, the market must know a lot more than I do, because I think that the value is let's say, 100. And the shares are trading at 50, or even 30.

Don't forget that stock markets are made up of people who are also feeling these pressures, and will be potentially swayed by the short-term inputs that they're feeling that the stresses and the strains. And so that's why I think looking back at your original thesis and saying, okay, I think this company is still worth 100, because I don't think anything's really changed. I think people are very nervous at the moment. But I think ultimately, this this business will keep on growing. So that one, you should hold on to that position.

Peter Higgins 22:55

Indeed, I mean, it's this is the beauty of looking into the intrinsic value of some of the parts regarding businesses. I think, and I'm not sure in your private investors do that. I know you as fund managers always looking for picking up bargains, but I don't think investors do enough of that. Maybe because of the workload involved in actually doing that analysis is quite, you know, quite in depth at times.

Simon Young 23:15

It's not always, it's not always easy. And I think I seem to remember that one of the best of some urges, Peter Lynch was always very keen on on his some of the parts, and what the private market was going to be prepared to pay relative to the public market.

And we're seeing that at the moment, we're seeing that the private market is prepared to pay substantially in excess of what a number of these quoted businesses are going for. And I think that's there's two parts to that one, I think that debt is very cheap.

As we know, the interest rate costs are incredibly low, and you can finance on high multiples in the in the debt market. So it's allowing some of these private equity businesses to to buy out quoted businesses far in excess of what the stock market is valuing them at. So I think that's a big issue at the moment. And we've seen huge amounts of corporate activity in the last 18 months.

Peter Higgins 24:11

Indeed, we have an unfortunately Simon, I think you and I are going to be seen a few more stocks, shares and companies being taken over by private equity and other entities that are going to plunder the markets because we haven't put a value on them ourselves.

Simon Young 24:26

I mean, I had one I'm not going to mention the name of the company, but we got a takeover approach. It was before the financial crisis. The recent pandemic I should say, I thought it was a slightly derisory bid and I voted against the transaction but unfortunately, investors didn't and I keep on seeing this company advertising on the radio at the moment and clearly doing very, very well and it sticks in my gut actually.

Peter Higgins 24:51

Yeah, unfortunately, we're going to get some of those which are either call them Undertakers. Yeah. Undertaker Unfortunately, it happens occasionally. And we're going to talk a little bit sound, if I may, about your portfolio, some of the stocks that you've got in there, and your best investments that you've had since you took over the AXA fund, and just talk about how and when you identified those and thought, You know what, this is the right time for me, what were you looking at what were the investing matters aspects of that particular stock that you identified and honed in on?

Simon Young 25:23

The most obvious one is one of our biggest holdings is being Games Workshop, which is just about trebled since we took it over, since I took over the fund. And I actually went to organize a visit with a couple of colleagues to go up and see them very shortly after I joined AXA.

And that's because I knew the business from before the private investor taking an active interest in it, because it had a lot of the characteristics that always appealed to me, it's got incredibly high barriers to entry, incredibly high financial returns, and produce a lot of cash, so pays great dividends. So you know, tick, tick, tick, and going up to see them is something that is, and I was grateful to the company for, for allowing us just to go and see them and see Kevin and Rachel, the CEO and the CFO, respectively, and meet some of the divisional management.

I think sometimes that's the sort of advantage that we introduce our managers have the ability to go and see these companies, whereas it's kind of more difficult often for private individuals to go and see the operations of the company. I think sometimes if it's a smaller company, and I know that I think you've gone and done some visits, and I know some of the other people on the on the in the Twitter universe organized small private message visits at smaller companies, I think that's great. You know, that's really good. You're showing an interest in the company in which you're invested. That's fantastic.

Peter Higgins 26:43

Yeah, I mean, I've had the great pleasure of working and doing some stuff with your colleague or former colleagues, and I say, Alex, like regarding the IR stuff, and seeing some companies. So that's been really, really useful as well. That's good for those that want to do that other additional bit of legwork to investigate some of these companies.

Simon Young 27:00

And the thing is, you often you don't learn, you know, certainly don't learn the inside information, you know, that'd be totally illegal. But what you learn is you get a much fuller picture of the people that run the business, it's really important to me, I think, the more I invest, it's about the motivations of the management teams.

Buffett said, invest in a business that a very simple business, because ultimately simple people will be running it or something like that. But ultimately, I'll turn around, I think you can create a great business, if you get a great business aligned with some really great management, you've got a very potent cocktail there. So I also look for those management teams that are looking to invest for the long-term in their business, or, especially if they've got financial alignment, because they own a substantial proportion of their own wealth in the company, or their family owns a big holding them. That's something I would definitely look for.

Peter Higgins 27:56

I mean, I think a great example that you've got in portfolio, you might want to expand on this a little bit, you touched on a low-cost business Admiral has been exceptional for its shareholders.

And also since they IPO and keep churning out returns and dividends to their to their shareholders, that's been a phenomenal success for the founder and CEO.

Simon Young 28:14

Yeah, I mean, that that has been an unbelievable sort of success story. As you say, I was looking for an annual report I was writing the other day, its return 30 times, to investors since it floated in, I think it was 2003 30 times of which 20 times has come from reinvesting your dividends.

So the share price has gone up 10 times. But actually, the compound has been reinvesting a dividend. And if you think about what was attractive about that business, it was entering into a quite sleepy segment. So it was going into motor insurance.

Motor insurance always used to be sold on third parties selling agents or brokers. And they went in with a direct model selling via the telephone. And then they soon realized, hold on, we can also send by this thing called the internet, and it's really low-cost. And not many other people are doing it. And then if we start our own website called confused.com, we can really learn about how we best optimize our product to sell more of it on other third-party price comparison sites, and then you build onto it.

And I guess this is where the danger in my original comment about writing the investment thesis. Had I written an investment thesis about Adirmal. At the very beginning, I would have said it was a low cost business that potentially had really excellent returns in the UK but I would not have said it would have gone into France into Spain into Italy into the US into Germany.

Germany didn't work actually they lost 20 million pounds from me or something like that. They shut it down. The US has been very difficult for them, but they've tried it but they also gone into so they start out as motor insurance now now have household insurance.

They now have travel insurance. They're trying a bit on loans because they got so much data about individuals, because the questions that they ask on price comparison websites and also on from just data they built up over time, and credit histories, for example. So now they're going into into loans. So have I written my investment thesis at the beginning, I wouldn't have had any of those ideas. And so I might, I might have said, look, I didn't actually there, we should have sold the business, but they're in related areas.

So which is why I think it still holds true, you know, they haven't gone into become a low-cost airline. Do you know? No, they haven't decided to suddenly sell cars, they've all always sold sort of financial products.

So that's, that's good, too. And for me as an income for manager, you know, as I said, it's compounded, I think 16-18%, something like that over 25 years. But even in the last three years, it's up over 100%. So it's not all front end weighted that return it's something that is still much more recent.

And so they've a been a real COVID Winner, they have recognized that they needed to be agile, so they were one of the first companies to cut their prices to existing policyholders, when COVID hit because they realized that people were staying at home or so they gave you a £25 back rebate per policy, which costs them over 100 million pounds and in profits, but actually, it meant that they got on the front foot, and then they could start winning customers, and they've taken on over I couldn't get this number wrong, but something like to have two or 300,000 customers in the last year alone, new customers, you know, it's a fantastic achievement.

So it's gone from a business that had no customers to I think, I think the number is something like five and a half million in the UK and 7 million or 6 million, if you include Europe in the US. So, you know, fantastic.

Peter Higgins 31:52

Absolutely fantastic business and great leadership, shown by the CEO and the team there as well. And it's very, very important. I think.

Simon Young 31:58

Yeah, I just bought Henry's book. Henry Engelhardt, was one of the co-founders along with David Stevens. And he's, he's a self-published book on Amazon. So actually, I think it's going to be I haven't started it yet. I'm still reading something else at the moment. But I think it's going be a fascinating read, because he was a he's a really fascinating individual.

Peter Higgins 32:20

I'll definitely put that on my my reading list and add to the library that my wife tells me, I need to stop buying books, I might get in trouble. I've got a couple more questions for you. What, in your opinion, are the aspects of investing that should matter most to private investors? Some leadership, we’ve touched upon llow cost. But what in your opinion should matter most to investors?

Simon Young 32:41

In terms of investing and the process? Well, I think you've got to work out what's most important to you what you're best at?

I think that's what I would say. As I said, some people are really great at saying this share price, it can't get much worse. It can't get much worse. There's a cycle. They're very good at the psychology of it. And they're more apt to be a trader.

And then they'll say, actually, no, I don't think things get much better here. And I've worked with a colleague who was phenomenal. He was just phenomenal at saying this. Actually, everyone, everyone's got this now. So I'm going to sell it. And I was thinking why I can't see why you want to sell it to me sold it. And he moved on to the next thing.

And that was that's his psyche. So again, it's just working out what, how do you harness your own skills in the best ways, and some people are going to be really studious, and they're going to dig into accounts. And they're going to dig into a reading about a US private investor, who is he's worth several 100 million or a billion dollars, I think, because his real pastime is digging into patent inquiries and patent applications by some of these companies.

And he's been big into aerospace and defense companies and some of the chemical companies because he was trying to work out which ones had some certain products, and he's made phenomenal returns, because that's his past.

And he's he's a chemical engineer, by background I seem to remember. So that's, for me. I'm not a chemical engineer. So some of the patent stuff would be well above my will be totally above my head. So and, frankly, probably wouldn't interest me that much in terms of for him. He worked it out, he worked out his angle, and he took it and that's brilliant.

Peter Higgins 34:24

Appreciate that reply is very important for people to find out where they fit in the old mechanic, sort of all this investing and, and be comfortable in their own skin doing what they need to do and find the area of expertise. 

Simon Young 34:37

And for some people, it will be about making a lot of money. It'll be about compounding at 15-20% per annum. And then they can go and talk about it on Twitter and tell everyone, it's awesome. But other people will be there and they'll say, I'm really happy if I can make between 6 and 10% per annum with low volatility because it just means that it's better than putting money in the bank I'm outstripping inflation, I'm growing my real return, I don't have to worry about it that much. And my approach is kind of low risk.

So it's I think it's about working out what your goal is how you want to achieve it, and thinking about the building blocks or foundations that will get you there.

Peter Higgins 35:15

Indeed, I mean, the important aspects of all of that, I think, with that sort of mindset, is that the adage of actually conserving and preserving your capital whilst trying to safeguard it, but growing it incrementally and slowly, and not going for the get rich, quick sort of approach to investing?

Simon Young 35:30

Definitely I see it, you know, you see, like everyone, I sort of have a look on Twitter every once in a while. And sometimes I just can't, somebody can't help themselves. I think, you know, there's a lot of people sort of peddling the snake oil on Twitter. And you just got to take a step back and say, is this real?

I give an example of something someone used to live in my village. And I got a text from him about a year and a half ago, telling me about an FX trading platform that was doing I think it was between 5 and 7% returns per month.

And I as I just doesn't ring true. So the first thing I do was I Googled it. And you start to read all the scams stories about this.

And so I just said, Look, I sent it back to him. I said, Look, here's the link, read this. Because I think if you really think about this, you will realize that this is not real. No, no, no, it's real. It's real. It's real. And we agree to disagree.

But just that level of you're making returns, sort of high single digit returns in currencies, which are notoriously volatile, month in month out. Just don't believe it. Just don't believe it just got to be sensible with your money.

Peter Higgins 36:47

Absolutely. Traders graveyard. I wanted to finish on a final question for you, Simon, if I may, you wrote an article back in November of last year. And you titled it, what experience tells us about investing in risk. And I think it's a really good point that you've made several great points in the article, but I wanted to just capture it there as to why it's important for investors to actually make sure that they're not just looking at the as you've just touched on there, or the positives regarding a potential investment, or stock. And also look at the risks involved in that, if you may, please.

Simon Young 37:18

Yeah, it's, it's, you build up your, your data bank as a as an investor over time, all of the risks involved in a company, whether it's, I think I was talking about leverage at the time, leverage is fantastic.

If you make 10%, and you have it levered two times, and that translates into 20%. Don't forget, if you have at level two times, and it falls 10%, you don't lose 10%, you lose 20%. So leverage is, you know, can be a very intoxicating tool, especially when you see everyone making a lot of money.

And so people I think, will be using spread betting these days. And that's, you know, using leverage. So, you know, there's risk there, but you've got to sort of, right, I think you learn over time, what risks you're prepared to take, and others you're just not. And so as I said earlier about investing in unprofitable businesses, for the funder, just don't do that, because it just is not my forte.

And when I've analyzed my returns, they're really poor and those kind of concept areas. So that's the first thing for me leverages too much leverage is another thing to stay clear of. And then I think we, you know, you've as an investor, you've also got to identify what can cause a company to fail, whether it's potential regulatory risk in a company that only has one product, and that's pretty obvious if, you know, let's say it was a pharmaceutical company, and they were doing some kind of injection for cancer or something like that. If that doesn't work, you've got nowhere to go.

You know, all the government turns around and says, actually, we're not happy with those with that data. We're going to ban your product, you've got no education as a single point of failure in front of I was listening to a podcast with Pete Davis, from Landsdowne the other day, talked about the single point of failure with

Northern Rock. And at the time, because it was basically getting all its financing from the wholesale markets. So if they ever shut, they're in a lot of trouble.

So he's trying to identify, you know, does this company have enough diversity of income, whether it's different markets or different products such that if one of them doesn't work, you're not left high and dry. So again, that's a sort of the third angle, the third leg to the stool, I'm saying.

Peter Higgins 39:34

Brilliant. Simon, I think I've completed all my questions there. I want to thank you ever so much for coming on the investing matters podcast. I know, we're going to speak again, at some point in the future. But I want to thank you, as a fund manager, AXA for coming onto this podcast, and I look forward to speaking to you again very, very soon. Thank you very much.

Simon Young 39:51

Thanks, Peter. It's been really, really enjoyable. Thanks very much.

Peter Higgins 39:54

Thank you, sir. Take care. God bless, Simon. Cheers.

LSE 40:04

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