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Peter Higgins 0:17
Hello and welcome to the Investing Matters podcast. My name is Peter Higgins. And today I have the huge privilege of speaking with Philip O'Sullivan, former Chief Economist at Investment Bank in Ireland, he’s currently an investment relations specialist in the team of Bank of Ireland Group.
Hi, Phil, how are you?
Philip O'Sullivan 0:39
Hi, Peter. How's it going? Thanks for having me.
Peter Higgins 0:41
Not too bad mate. It's going well here. It's actually the sun's out today. So I'm happier than I've been earlier in the week when it was raining here in Leicestershire. Now, Phil, I want to start this interview with you, obviously, based over in Ireland, but I wanted to start with what spurred your first interest in investing as a young man/young boy?
Philip O'Sullivan 0:58
For sure, so I think luck and timing had a lot to do with it.. That's your kind of key recipes for successful investments. I was born in Cork, in 1981, down the south of Ireland. And I suppose when I came of age as a teenager and sort of thinking about what I'd like to do with my life, there were sort of two things going on in the background.
The first one was the Celtic Tiger period, as it was called the Irish economy was flying. The second thing was we had the stock markets were flying yet the dotcom bubble was still inflating. It was so good that off bursting. So there was obviously a lot of interest in investments at that time. And I guess I was very lucky in that I was brought up in a house that was full of books. And my parents would always encourage myself and my siblings to sort of be curious about what's happening in the world to read a lot. And I think what would help to whet my appetite about investments is that that kind of time in the mid 90s, mid to late 90s, was that there was kind of a golden age of a lot of really good accessible investment books, like Peter Lynch's one up on Wall Street, Beating the street.
You've got Jim Slater's Zulu Principle books as well. And these were things that as I read them, I really felt this is what I want to do with my career. And then I decided to go study finance in the local university in Cork. And that's what kind of led me on to the career, working in stock broking and now working in investor relations while also investing in terms of my own personal account on the site.
Peter Higgins 2:25
Brilliant, lovely, thank you for that explanation. Now, when did you first make your very first investment? And what were they? Do you remember that Philip?
Philip O'Sullivan 2:34
Yeah. So I mean, one of the things that I've done from the very early days, as I've had meticulous records have always kept kind of track of trades that I've done, when I look back, at sort of some of the trades, I would have put on the late 90s. It's funny, just, I can see a lot of the mistakes that a lot of rookie investors would have made, I was totally overweight, Irish banks, because obviously, you know, Celtic Tiger, you know, good things could only go in one direction, I was very much in terms of the dot com things I was playing with some of the Irish stocks. And you know, was there was no real diversification in terms, either geography or sector, I think as well, for what I was doing a lot of the rookie things like focusing on earnings, as opposed to understanding the balance sheet and the cash flow.
As we all know, revenue is vanity, profit is sanity, but cash is king. And it was only later on as it became more sophisticated in terms of my knowledge of the markets, that I kind of realised that you can't just focus on the EPS you need to understand really what's behind the company in terms of what sort of financial foundations does it have from the balance sheet and what sort of cash flow generation pedigree does it have? And these are lessons that I suppose you have to learn the hard way when you start off unless you've beginner's luck, of course, but you do learn a lot more from the mistakes than you do from the wins.
Because, you know, a lot of the things that do turn out can be illusions really was luck as opposed to skill. And it's applying that sort of knowledge from 20 plus years of investing is what's really, really important.
Philip O'Sullivan 4:01
Brilliant. I love that reply. Now, please tell us a little bit about your experience of the booming investing era of Ireland that was coined the Celtic Tiger?
Philip O'Sullivan 4:11
Yeah, so as I say it was a teenager when we were having the Celtic Tiger periods. The unfamiliar GDP here was probably growing 10% a year in that period. So it was certainly a fast growing economy fastest growing in Europe.
Unfortunately, the Celtic Tiger kind of gave way to a period that I probably called the Celtic Garfield, where we became very inefficient. We had a credit bubble. I think we kind of started believing our own propaganda here that we've come on to a whole new economic model that would have led to a roller coaster really because I did an undergraduate degree in finance in UCC, from 2000 to 2004.
What would have attracted me apart from the subject matter was that there was a internship element to it, which I was lucky enough to do in Goodbody stockbrokers which would be one of the two big stock broking houses here in Ireland, that was a fantastic experience.
I mean, you know, for somebody who was really into investments to be able to just go in to the equity research team, where, you know, you'd be working alongside the analysts that were producing recommendations on companies, you'd be attending briefings where you could have on any given day, anybody from the chief executive of Ryanair to the chief executive CRH, coming in to present and you know, discussing ideas with people on the sales desk and trading and attending the morning meetings, you know, when you're a rookie, when you're only 21, to have that experience was fantastic. And then at the end of that internship, I was going for lunch with the boss and offered a job, then, for one, I came back after finishing my final year college, and that then led to seven years in Goodbody’s started off and economic research initially, then move to equity research later on to equity sales.
So really, really broad exposure, and great experience, but it was a very much a roller coaster period 2004, the economy was still flying, obviously, after 2008, then we had the crash, you learn an awful lot more, and when things are on the way down than they are on the way up. And that was, you know, from a co-lead financial lens, that was certainly a very educational time is obviously a very difficult time for the country. But you know, we've come back from that, and a lot of valuable lessons have been learned.
Peter Higgins 6:18
Indeed, I wanted to just go back a little bit. And please share with us your greatest investing lessons and learnings from that particular period, 2004-2011, if you could just a couple of examples, if possible?
Philip O'Sullivan 6:30
Yeah, I guess the main thing is, it goes back to what I said, you know, are you conscious focus on the earnings or on the income statement, you need to look at cash flow, you need to look at the balance sheet, the most disastrous investments that I would have made were companies that, you know, it's all the rookie mistakes in terms of the look at a stock that was down 50, 60, 70% and say, “Oh, couldn't possibly go any lower”.
And then of course, you realise it can go all the way to zero if you're particularly unfortunate, or more accurately, if you haven't done your homework, one of the two kind of key lessons that I've taken away, and there's multiple lessons that everybody picks up on their investment journey, to know what you own is a key one, do your homework on us, I spend hours and hours on any investment idea have, I tend to plug all their historic financials going back if possible to 2007 if it's available into a spreadsheet, and you don't need to be an expert accountant to do anything like this or anything like that. These are literally three pages from the annual reports.
You just type those numbers in. And the reason why I go back to ‘07 is of course, that's before the financial crisis. So that's a period when peak economic performance for the world's economy. And then you can kind of see over the 15 years we've had since then, how does this company perform in a range of different scenarios? When the economy is flying? When the economy's doing badly? Does this company generate cash at all times? In all conditions? How stretched is the balance sheet, or how strong is the balance sheet? And it's just understanding those things.
When I look at the companies that have done a that I think the real the common thread for virtually all of the trades, or investments I've made that didn't work out was that, you know, I just hadn't done enough homework. And when you look at some of the top investors like Peter Lynch, you know, they would say, if six out of every 10 trades work out, you're doing really well. And if you can pump up your hit rate to maybe seven out of 10 doing really well you're gonna have a transformative impact on your performance. And the second kind of key takeaway for me was really over the years has been invest, don't trade where previously, we would have might have bought something saying I think this thing could go 5, 10, 15% because next month, they're going to have results.
So I think the results are going to be good. And then you know, if it works out, then I sell and take profits. But that's a terrible strategy, because the caps you're upside really a top 5,10,15% that you're targeting. But your downside risk on any trade or any investment is 100%. What a lot of people tend to do, it's a very elementary mistake that investors can make is to take profits, and not run their winners, and then instead run their losing positions, because they're hoping that things turn around.
So that's kind of an important one to run your winners and not take a short term approach. I like to hold things on a forever view, which is a good discipline I like to buy and hold. I like to take the view that if I'm looking at an investment in deciding whether or not I want to put it into my portfolio, that if I say, well, do I really want to be looking at this in 25 years time and say I'm glad I bought this 25 years ago, that's a good kind of sense check to have, you know, certainly when you've done your homework, you've looked at the financials of the company, you understand their balance sheets, their cash generation profile. It's hugely beneficial to then be able to say, look, this is something that's been a performer for 15 years management have got a good strategy, I think this thing could perform for decades to come.
Peter Higgins 9:58
Brilliant, I love that full response. Thank you. very much. I want to touch on a phrase that you used earlier and asked you a question related to that. And I think you've almost answered it fully. But I just want to see if there's any other nuances you can add. What have you added to your investing armoury as a consequence of that time that you call the Celtic Garfield?
Philip O'Sullivan 10:17
Yeah, I guess the key takeaway really is that when I looked at the positions that I would have lost heavily in at the time, there would have been some of the banks, some of the house builders, and then the sort of the missed opportunities where I did have stocks that actually turned around fine for the latter camp. I remember buying Smurfit Kappa, the biggest box maker in Europe, the share price has increased by €5.50.
The share price fell to a low of about a €1 during the financial crisis. And there was nothing wrong with Smurfit Kappa was just the markets were very nervous, very jittery, Smurfit Kappa was still very profitable, generating a lot of cash. But I think people could get very paralysed by fear. And the thing I should have done was to go and buy, you know, more of it at €1. But you know, I didn't do that. And then the stock subsequently came all the way back up, I think I sold somewhere in the 20s, I think I sold about €21. So worked out fine. But the four bagger or whatever if it sold it would have been emotionally certified, doubled, or tripled my position or the euro, had a 20 bagger at of the incremental buying. So I didn't do that.
That was one thing, which, you know, I feel if I probably done extra work on Smufit at that time, and understood that that's a super business, fantastic track record, you know, and if the market was valued at an absurdly low rating, that would have been something that at the time, if I had done more work, and I would have had the confidence to buy more of it, I didn't have confidence at that time. And on the other flip side of it, it was not having put enough work into some of the positions that you know, in terms of house building stocks that got into big trouble at that time, that that led to me holding positions that just weren't going to survive the crash, that would have avoided that permanent loss of capital, you know, it doesn't bother me, if I buy a share in it goes down, if I'm confident it's going to come back up again. And then so but when you haven't done the work on these companies, and you don't understand their balance sheet, or the cash flow, and then they get in trouble that then you get into the realm of risking a permanent loss of capital. And that's not a position that you want to be in. As I say, though, every investor will have those moments.
There's no investor that doesn't make these mistakes. The most important thing is what you do with those lessons, what you learn from them, you know, since then, my hit rate, if you like, has improved, but I'm not too bothered about short term performance. As long as I can kind of see incremental progress that every year, these companies are getting stronger, they're earnings are at an upward trajectory, their balance sheet is not being in any way stressed. Those are the types of names that I want to hold within my portfolio on a forever view.
Peter Higgins 12:55
Brilliant. I love that response. Thank you so much for that. Now, I wanted to talk about the time 2011, you're doing very well in your job, and you decide, You know what, I'm gonna take some time out. I'm gonna go back to academia, I'm going to do one year MBA, what did you study? And what was the driving force behind that idea?
Philip O'Sullivan 13:12
Yeah, so back in 2011, the economy in Ireland was on the floor. We were in the new IMF programme, I had always wanted to do a master's degree. And the opportunity cost was never going to get lower when the economy and markets were, you know, just so much pressure. And, you know, went to UCD, University College Dublin to do it was one year MBA. It was a fun experience. It was a very, you know, international class. And, you know, we were able to share lessons and experiences from around the world, with classmates. And that was something I was really, really keen to kind of leverage I would have had just thinking about it.
One of the other things I was conscious of though, when I went back into the world of academia to do that master's, I didn't want to disappear off the grid. I wanted to do a number of things to keep myself the name and circulation, I will just spend some time doing some financial journalism.
On the side while doing my MBA, I was given some good opportunities, the Sunday Times newspaper the Irish edition, the business editor, this gentleman called Brian Carey. And he gave me the opportunity to write a number of their editorials, which was great exposure. And John Walsh, who was the editor of an Irish business magazine called Business and Finance, he had me writing their markets column. So that was, you know, super experience, good opportunity to kind of get the name out there in circulation. And then that was leveraged if you like, because three weeks after I graduated from my MBA, I started work with Investec, the South African UK, diversified financial services group, they had an Irish business, and they hired me as their Chief Economist, you know, certainly was the profile that I would have had maintained and developed during the MBA would have been instrumental in them hiring me in this chief economist.
So, I spent the next seven years covering the economy and writing about you know, doing equity research for Investec back in Ireland. And then in 2019, I got the call from Bank of Ireland, they had wanted me to join their investor relations team, which is where I still am now. And that's been a wonderful experience. I love doing that. It's really leveraging all of the sort of the skills that I've developed over the years in terms of analysing the company, understanding what's happening in the markets, communicating with the group's investors, it's nice to get paid to do your hobby. In other words.
Peter Higgins 15:25
Absolutely. Now I want to go back a little bit if I may. 2011-2012 is around July (ish) 2011 when the markets are getting absolutely hammered everywhere. And Ireland was getting, you know, hit, possibly the hardest and one of the hardest in Europe. What do you recall of Wilbur Ross, the billionaire American businessman, who with these investment companies and other US investors acquired a large minority interest in the Bank of Ireland in July 2011.
Some months after the EU IMF bailout programme came into operation they exited in around June 2014. And they made three times the investment they made what was so important about that and reasons why it was important for Bank of Ireland group at the time?
Philip O'Sullivan 16:04
Sure, I should say at the start this long precedes my employment with the group. So this is totally a personal view. But I think from looking back, I think that was an enormously important development, the investment by a number of private investors, the ones you mentioned, the Robert Kennedy Wilson, Prem Watsa, who's you know, one of the most respected international investors, they came in to, like, The Bank of Ireland is by far the biggest bank in Ireland, so they would have come in in 2011, as you say, and that was a huge vote of confidence, because fundamentally, a bank is a leveraged play on the economy. And when you have the largest bank in the country getting a big investment from internationally respected investors, that's sending a good signal to the market about how they not only view the prospects for the group, but also for the whole country.
So Bank of Ireland would have been the only Irish domestic bank that would have escaped majority state ownership, the others needed significant state bailouts, I mean the Bank of Ireland I did receive some investment, which was very much appreciated and necessary from the taxpayer. And they have made significant repayments of that capital. Since then, it's the only Irish bank that's more than repaid the taxpayer for the essential critical support that would have been given at the time.
But I think in terms of the fundamental significance of that really was that it was the first of a series of big investments in Ireland right at the bottom that helped to sort of steady the ship and create the sort of groundswell of belief in the markets that are Ireland’s coming back. We had the investment in the banks, there was huge investment from the technology companies like the Googles, Facebooks Twitters, LinkedIn, they've all invested billions in this country. That's been transformative. We've seen huge investment in basic medical devices and pharmacy sectors as well.
So this is something that, you know, helped to get the country back on it’s feet, and both have been really, really strong. For the past seven or eight years or so. I mean, even during the COVID period, the economy grew 5% in GDP terms in 2020. Because Ireland is massively overweight, tech and pharma. And the two things you wanted to own during 2020 with COVID is tech and pharma. So that's, that's been something that's been very important in terms of driving the recovery that we've seen.
Peter Higgins 18:21
Brilliant, thank you very much. They've already mentioned, you know, getting the job and the role within the investor relations team at the Bank of Ireland, which is the biggest bank in Ireland, please, can you give our listeners an overview of the sheer scale and size of Bank of Ireland group and the assets?
Philip O'Sullivan 18:37
Sure, so the group would be the largest bank in Ireland, we will be number one, or number two, in all key product sets, very significant market shares. And so roughly half the balance sheet those is in Ireland in terms of the loan book, and the other half is invest internationally, we have a presence in the UK, we've a full service bank, in Northern Ireland, and in GB, we'd be active in a number of niches, we'd be active in terms of the mortgage market, we'd be active in terms of auto finance, personal lending.
There's good partnerships with the post office in the UK, and also with the AA, the roadside assistance company. And these have been very, very successful partnerships for many, many years. And we would have an international acquisition finance business, which will be split kind of 50/50 between North America and Europe, including the UK, we will also have some very small but useful exposure to US commercial real estate also like single digit percentage exposure.
So it's, you know, it's a systemic bank, I have 9,000 colleagues, as I say, we're focused on care delivery with a strategic aim. So we have a very, very good track record on that front.
Peter Higgins 19:46
Brilliant, thank you for that response. Now, tell us a little bit about your role and why it's so important for your clients and investors, please?
Philip O'Sullivan 19:53
Sure. So what investor relations does is we ensure that there's an accurate flow of information by the group by going out to the market, it's to help people kind of understand the performance of the group, the strategy of the group. And everything that we do is anchored by our strategic objectives, which are to transform the buying process, sustainable profits. And, you know, we were very, very focused on delivery of those things.
You know, the past couple years, we've made huge progress in terms of taking costs, in terms of improving customer experience, net promoter scores have been trending higher and improving returns.
So that sort of delivery has been very, very helpful. And also what so what I or does is we kind of, you know, provide the narrative, if you like, when investors kind of want to understand the performance, that it's not an accident that these things happen, that there's a clear plan behind it. And it's, you know, to make sure that everybody is clear on what the strategy is and what we're doing to deliver it.
Peter Higgins 20:50
Brilliant, thank you for that full response. Now, you mentioned Peter Lynch earlier, the famous American investor, mutual fund manager, and philanthropist, he ran the Magellan Fund at Fidelity Investments between 1977 to 1990.
Lynch averaged 29.2% annual return, making it the best performing mutual fund in the world at the time. During his 13 year tenure, assets under management increased from 18 million, 14 billion. He's stressed and stipulated that all investors should, as you said earlier, know what you own and why you own it. Why is this such an important statement regarding the need for in depth research and understanding of what each of us invest in?
Philip O'Sullivan 21:32
Yeah, no, it's it's so clear. I mean, it's, I guess, when I would have started as a junior equity analyst Goodbody, I remember one of the senior people on the team used to say to us, if you can't explain the company, or explain the investment case for the company, and just three bullet points, you haven't done enough work on it. And you know, I love that the number of times I've received tips from people who say, Oh, you should buy shares of XYZ company, it's great, you know, ABC, it's the new big thing, or whatever, you know, and then you say to them, but what to do. And you'd be surprised how often people haven't a clue what they do, but all they know is it's going up, because they've heard from somebody in the gym, or, you know, at the school gate, or you know, the coffee machine at work that you know, it's going up. And that's all they have.
So I think doing your homework on companies, allows you to kind of see actually, this isn't necessarily the slam dunk, that's been presented to me, understanding that if the balance sheets looking a little bit weak, if they're close enough to covenants, if their cash flow generation is pretty well for these are not the types of companies that I want to own companies that are financially robust, that have strong cash flow generation attributes. And, you know, that's really what I want to focus on from my own personal portfolio. And I think, while I would say it's impossible, that that I would have anything resembling Peter Lynch's returns, I think, if it goes back to the earlier quote, and from when he talks about, you know, six out of every 10 things work out the work that I do from my own personal investing, and all my comments here about investing or on a personal basis, nothing to do with my day job, if I can kind of avoid those banana skins as much as possible, then the market will look after the rest, because what drives the bulk of your returns is not timing, it's time. And if you are looking to buy things on a forever, buy and hold basis, and you make sure you avoid the garbage that's out there, then that should drive fantastic returns over time, you know, the market, over the long term grows about 7 to 8% a year on average.
So you know, every nine years or so you should double your money. And you'll double your money in the nine, eight or nine years after that again and again. So that's why, you know, it would be a big advocate for people to start early, as early as possible. It doesn't even have to be a lot of money, just whatever you can afford to put away on a long-term basis. And learn from all your experiences. And as I say it's the mistakes you can actually be hugely valuable in their own right much more so than the wins at times.
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Peter Higgins 24:30
Giving you're now almost 25 years of investing experience and navigating the markets please share with our global Investing Matters audience what your investing methodology is, style, and how your portfolio is constructed, please Philip?
Philip O'Sullivan 24:44
Sure, so I'll take that in reverse order, if I may. So, I guess in terms of the portfolio, when I look back at my records from the late 90s, early 2000s. I didn't have diversification as I should have back then, and I've certainly learned lessons from there. I have a portfolio that has exposure at about 13 different sectors, which I know some people would say that's mad, that's crazy. It does work for me, mainly because I've got access to systems and approaches that allow me to kind of manage a portfolio that's that diverse.
I have 39 names in it. So it's typically both three names per sector and average. And these are companies that they really fit into one of three verticals. There's the structural stories, these are things I see as mega trends for the next 20 plus years.
You know, I look at things like electrification, and I say, right, I want to be buying companies that are exposed to copper. Because of that, I look at things like ageing populations. And I say, look, I want to be involved in health care companies that are dealing with what an ageing but also becoming more prosperous population once. And then I look at areas where there's emerging middle classes and stuff like that, and what that means in terms of future consumption growth.
So structural growth stories are about a third of the portfolio. And other third would be self help stories, these are companies that I can see that either through M&A, or through cost cutting, or through investment, that they can materially enhance their performance. And also another one to fit in there will be companies that to deleveraging can spark a big rerating, you know, one example of a company held previously that certainly deliver on that was Premier Foods, which was very heavily indebted, was on an extremely low P/E, which I think reflected the balance sheet risks.
But I could see from the cash flow that this was a company that was so producing good cash flows, I could see was a company that had a lot of new product developments. And I could see that it was kind of holding its positions in terms of the market. And that stock more than doubled over the, you know, the couple of years, they held it for as it transformed its balance sheet dramatically from being a company that was very heavily indebted into a company that was carrying actually relatively low debt compared to its underlying earnings by the end of it and the share price more than doubled.
You know, as a result of that, and other things, I mean, certainly the pandemic and more home eating would have helped, as well as in terms of its performance, but it really accelerated delivery performance, as opposed to was a driver of it. And then the third kind of vertical would be value stocks, stocks that I see as being fundamentally mispriced and that I believe, I'm picking up at a very attractive price relative to their intrinsic value. And I think across the portfolio that I look for companies that have got decent cash flow generation, I think the running yield on my portfolio is probably somewhere between 3 and 4%. And that's something that produces really, really helpful cash flows, because I reinvest all of those in terms of growing portfolio over time. And as I say, I'm not too bothered about short term market movements, because as a CEO, just if you just keep buying good companies that you know, sensible prices, you know, the time will take care of everything else.
Peter Higgins 28:01
Brilliant, love that reply. Thank you. Now, you touched on several very important nuances there Philip, I want to go back to one if I may, you touched on about cash flow and dividends. And I want to just put that into one context here regarding compounding of the returns on the portfolio and why that's so important for long term growth of the value of the portfolio. Can you expand on that for our listeners, please?
Philip O'Sullivan 28:23
Yeah, sure. I mean, just distributions are so so important in terms of driving returns, and it doesn't have to be dividend. You know what one of the things though, look at what I'm running my screens on companies is shares outstanding. So companies that happened during buybacks, that can lead to huge compounding value, in terms of underlying earnings per share over time, so as not slavishly beholden to the dividend.
But you know, across my portfolio I’ve got companies that have massively reduced their share counts, you know, I mean, none of this is investment advice. Clearly, as this is not an appropriate forum for that, but you know, look at companies like a Kenmare Resources that did a tender offer both back 13 and a half percent of their shares if my memory is correct, last year, the likes of Ryanair, which, you know, since 2007, has reduced its share count from about one and a half billion shares to 1.1 billion shares, these things are, have very obvious impact in terms of if if you're reducing the denominator for the earnings per share, and you go to underlying performance, then you know, the rating will follow.
So that's something that, you know, would track quite carefully, and as well as the companies that pay the dividends, certainly, that's very helpful in terms of, you know, when I, from time to time, I look at the cash that I have and say, look, I think, you know, such and such companies are silly price, I think I'll buy more of it. And that's being able to sort of be strategic in terms of my own capital allocation on the back of what the companies are producing themselves. That's enormously helpful to be able to look at that in a portfolio level.
Peter Higgins 29:59
Thank you very much. Now a piece of advice that every person who plays the stock market is given is, and I think you've touched on it earlier, cut your losses and run your winners. Why do you think we as investors psychologically find it so hard to sell positions that are in the red? And how do you combat this yourself Philip, in your personal account?
Philip O'Sullivan 30:18
Yeah, it's a psychological challenge, I think for every investor, because, you know, you convinced yourself oh, like, I know what's going to turn around, you know, I, as I say, I'm a terrible seller of companies, every time I've sold a winning position, it's gone up even more like it would have held Wynnstay, previously, a bought us around to two to four pounds a share my thoughts isn't that great of double my money, and it was only something like 12 months or something was very, very short space of time. And the share price went up to £5.50. And I went from feeling very, very smart and very satisfied myself to feeling you know, gosh, why the hell did I sell it there.
So in terms of, as I say, when you have the perspective of saying, I'm buying things on, I want to hold this forever basis, that kind of is helpful in terms of as long as the story doesn't change. I mean, I don't mean to say that I'm, you know, fundamentalist about this.
I mean, if management announced that they're pivoting from a very sensible strategy into doing something that's completely bonkers, that, you know, just don't see that delivering value, then, you know, then I'll call it if the strategy has changed. But as long as the strategy is good, and as long as the prognosis for the markets is good, then, you know, I'm happy to keep running positions, in terms of the losing positions. Yeah, I'm not, as I say, I'm not that bothered about mark to market on the portfolio.
I mean, if I need shares are down 10,15, 20%, where I bought them, like, of course, it's frustrating. But if you believe that these are robust businesses with strong business models, and you know, they're going to deliver good growth over time, then you know, the share price will look after itself, you don't need to worry about it, where I would, outside of, you know, if a company was to materially change its strategy and represent something very different. If I see that there's a credible risk of a permanent loss of capital, I'd immediately caught it.
Thankfully, I haven't had too many of those the past couple of years, there's been one or two, like, which would have been kind of casualties of the COVID period and stuff like that. But you know, generally, we have much of that. And that would reflect the fact that I would put an awful lot of effort into trying to understand what's behind the balance sheet. And, as I say, when we plug 15 years of financial data, there's now into a spreadsheet. And you can see how companies perform in different circumstances.
That's very, very helpful, particularly, you know, if we're going into more uncertainty of the global economy, and you're looking at the banks, for example, and say, how did they do after 2007 and say, well, we're not in another, it's highly unlikely to be as bad as the global financial crisis was whatever lies ahead.
But you know, if this was as bad as it gotten the global financial crisis, and this is the capitalization of the European or UK banking Secretary today, then you'd be very optimistic that the banking sector can get through whatever about the short term performances, you know, when you see that the capital is multiples of what it was previously. And the losses are likely to be, you know, a fraction of previous economic shocks. That's something that gives you an awful lot of reassurance.
Peter Higgins 33:15
Yeah, you've touched on something which I've not heard anyone else said before, in the interviews or anything I've read before. And that's going back to 2007. About peak performance. I think it's absolutely fantastic that you're putting those sort of numbers in at the moment. That's like, 15 years of data crunching. And if that doesn't filter out the rubbish, I don't know, what will you know, so you've got a fantastic chance of hitting it and a home run and success with that. Definitely fantastic, mate.
Philip O'Sullivan 33:38
Yeah. I mean, it's time consuming. But it's, you know, I'd rather spend a day typing those numbers in going investing in blind because we there's a lot of stuff that looks cheap. And if you don't do your homework, you'll realise it's cheap for a good reason.
Peter Higgins 33:52
Brilliant. I love that, Ohil I’m going to change things up slightly here, you've got your own investment, you've got your own investment style and strategy. Have you opened any investments for your children? And if so, what type? And how does this strategy or for the portfolio differ to yours at all, if any?
Philip O'Sullivan 34:08
Yeah, I mean, you know, without going into too much granularity on that, because of respect for their own privacy, you know, would have put money away for them, it would be on the same basis. I mean, my kids are aged between one and six, they want me to access any of this money for a very, very long time. So that kind of enforces putting that long term lens on it, to say that look, you know, maybe they don't need this money for 15,20,25 years. And then you're looking at companies that you believe on that sort of view, are going to be good performers in that time are going to grow in that time. And that's a nice lens to put over it. Because you're not being sucked in by any short termism. You're not overly bothered also about the price you're paying for things. You know, you're not trying to be greedy and say, oh, if only that price will go down with five pence.
There'll be a great entry level, I mean, on a twenty plus year view, it's irrelevant, and particularly if they're a dividend paying company, you'll get all that back and more. So I guess, you know, I would look at that, I think the main thing I'd like to give my kids would be an interest in this in terms of, you know, investing, putting money away for the future, your future self will thank you.
I'm a strong believer that by allocating resources, now, not just financial resources, but in terms of time, by doing lots of reading, we lived in tastic periods, you can access kind of the totality of human knowledge on your mobile phone, it's amazing, there's really no excuse, you can listen to podcasts like this, like this series. And I know you've far more illustrious investors than me and your back catalogue that people can listen to.
You've also got access to webinars from companies and you know, lots of really, really good content, to understand what makes those businesses tick a lot of companies are doing, you know, webinars that are accessible to retail shareholders, where they can ask questions directly. And that sort of ability to link in with management is really, really valuable. And as I say, if you kind of put in the time and effort, your future self will thank you. That's a strong believer in that.
Peter Higgins 36:12
I completely agree with you about putting the time in most definitely. Now, for that there is so much talk of inflation, recession, energy crisis impacting lives in the market at the moment. What are your views on the current pressing issues? And are you looking to navigate them?
Philip O'Sullivan 36:28
Yeah, that's a good question. I think what's striking is that there's a number of different factors have come together. I mean, obviously, obviously, we've got the post COVID dislocation, disruption to the supply chains, particularly in the Far East, you've had, you know, economies that have been rebooted. And there's been some kind of stresses from that in terms of labour market shortages, in a lot of countries, and so on so forth.
With the inflationary pressures we're building in the system, you also have monetary policy where that's moved from ultra accommodative to no tightening. And then we had the invasion of Ukraine earlier this year to think about and the implications of that. And certainly, as the years gone on, I've become more encouraged by what I'm seeing, there's been significant improvements in terms of supply chains, there's still you get the odd headline out of China doesn't give you pause. But certainly the supply chain pressures globally are easing fiscal policy is very, it looks very appropriate both in the UK. And here in Ireland and other countries, there's an awful lot of support being provided by the government to allow kind of households and businesses get through what's been a very, very difficult period. And the other thing that's probably overlooked is that the buildup of savings during the pandemic has been absolutely enormous. I mean, I don't have the figures for the UK to hand, but in Ireland since 2019.
So pre COVID, household savings are up by 33%. And business deposits are up 30%. So even if we have a set of periods where people are going to have to dip into their savings, because they've got extremely high bills to pay an awful lot of households and businesses are not staying at all of them. Now, don't get me wrong, because in aggregate, there's an awful lot of people who have the those buffers that they can draw. And that's something that's important in terms of ensuring that people can get through this period a lot more easily than would have been the case that hadn't been so.
So there were some kind of silver linings from some of the things we've gone through in the in the past couple years, in terms of you know, the deleveraging, that's been happening in many countries not all, but you know, certainly here in Ireland, household debt in cash terms is the lowest it's been since 2005. We learned a lot of lessons from the period after the global financial crisis onset. And that's kind of set us with with really, really strong balance sheets, both business and household, to see through this period. And I'm happy to see that unlike the earlier stages with global financial crisis, that a lot of the policy settings are helpful.
I mean, central banks have a job to do. That's well understood, but in terms of governments are trying to make things easier for people and hopefully, that will be really, really helpful.
Peter Higgins 39:15
Brilliant love that response. Thank you very much. Now, quite an interesting recent population data from the Central Statistics Office of Ireland, surprise, many are showing there's that net inward migration across all age groups, which runs contrary to popular narrative that young people are fleeing Ireland in droves, fellow person economist at heart what in your view has been a catalyst for this?
Philip O'Sullivan 39:39
There's there's a number of factors. I mean, Ireland has, you know, for many years have a very, very flexible pro business climate. It's very easy for companies to get visas for people to come here. That's not the case in many other countries. I think a lot of that probably rests on our own country's history of immigration for long periods of time.
Originally, our biggest export was our people. But you know, since the country's kind of economic fortunes have turned, we've seen huge numbers of people coming back, Irish people coming back, we've seen huge numbers, people, global talents. Moving to Ireland, I mentioned earlier, the country resembles something of a floating aircraft carrier, off the west coast of Europe, that multinationals who want to launch goods and services into the European single market, they can do so out of Ireland. And if they need to find people with certain language skills, or other skills that are not found in large quantities in Ireland, that's something that you know, that they can correct for that they can solve for that. And it's just been a joy to see that coming through.
It's crazy, huge opportunities for people here. And it's lovely to see people voting with their feet and coming to arms and large numbers, you know, that and as I say, there's, you know, in a lot of countries, there's there's popular narratives, but what's happening, but as I say, the data do show that, you know, there's more people coming here, including more Irish people coming here that are leaving the country. And I think there's no better kind of reflection on how people view the country's prospects and if they're willing to move to that country.
Peter Higgins 41:11
Yeah, thank you very much. Now, I'm going to ask you the question about renewables now. Okay. EirGrid published the report September 2021. Note that this is prior to the current 2022 energy crisis we're having. And they predicted that the country could face electricity shortfalls over the subsequent five years, due to demanding rising while supply lower due to the closure of fossil fuel fired power stations, much of the growth of demand of energy has come from data centres, of which there's lots of tech companies in Ireland, which are responsible for 14% of all energy uses in 2021. That was a rise of 32% compared to 2020. And to just 65%, compared to 2015. Philip, what are your thoughts, views on renewable energy, and the growth of investments in them by Ireland's government and Irish businesses?
Philip O'Sullivan 42:03
Yes, so look, I mean, Ireland is a super location for renewables, like we're on the Atlantic Ocean, there's been billions put into building wind farms, solar farms are now starting to be developed and battery storage. Also, people laugh, I think, you know, before they started to think about it, at the sheer notion that Ireland would have solar, because I think most people would associate Ireland with pretty, pretty awful weather. But the thing is, we're so far north, that it's actually you know, it can be brighter until very, very late at night in the summer until half ten.
So that's something that's kind of allows us to position ourselves as a country, that's a really, really good place to invest in renewables. There's been there's large numbers of projects underway and planned for the coming years. And you know, the grid being big investments and things like interconnectors, there's one under construction at the moment, it's in Ireland, Wales does another one that's already operational.
We're obviously connected through Northern Ireland's too. So there's a big interconnector being built between Ireland and France. So the all these things will help to enhance resilience. And that's something that's, you know, to be welcomed.
Peter Higgins 43:09
Brilliant. Now, I've got, I'm conscious of how long I've had you on this particular interview. So I've got one final question for you Philip. And I'm gonna give you a magic wand, having enjoyed a huge successful career in finance in the investment industry, if you were given the ultimate power and opportunity to change, improve one aspect of investing for the betterment of all savers, and investors. What would that be? And why, Philip?
Philip O'Sullivan 43:34
I think education is the key, I think there's not enough emphasis on this being put on, you know, we do as a species face into some interesting demographic challenges in the years ahead. You know, in many countries, including this one, the birth rates never been lower to life expectancy has never been higher.
You know, I think people need to invest to kind of, you know, look after themselves for the future, there's probably not enough emphasis being put on that, I'd like to see more of this type of discussion on the curriculum. And that would be kind of what to be pushing for. Because once people are empowered to make informed decisions, and can learn from them, that's something that's hugely valuable. And as I say, it's to kind of pivot away from any kind of get rich, quick, type nonsense and look at, you know, proper long term investing in sensible opportunities. I think that's what people should be, should be shooting for.
Peter Higgins 44:27
Brilliant. I love that response, because that's exactly what we're trying to do with this particular series of investing podcasts is to educate people. As you get people to make the right decisions become more and more informed and learn that there's far more than one way to do this one size doesn't fit all regarding investing, and everyone's got an opportunity to get better and improve their life chances going forward. Philip, it's been brilliant having you on this Investing Matters podcast, I want to wish you well in your current role as investors relations team at Bank of Ireland, Godspeed and good strength to you going forward mate.
Philip O'Sullivan 44:58
Thank you.
Peter Higgins 45:00
Take care. God bless.
LSE 45:11
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