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The London South East, Investing Matters Podcast - Episode 4 featuring Alyx Wood, founder of Kernow Asset Management

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 Investing Matters Podcast. My name is Peter Higgins and today I have the pleasure of speaking with Alyx Wood, the founder of Kernow Asset Management. Hello, Alyx, how are you?

Alyx Wood 00:30

Hi, Peter, delighted to be here. Thank you very much for your time.

Peter Higgins 00:35

You're very welcome Sir. I wanted to start Alyx and then take things back a little bit because you've had a long and very journey into the asset management world. And I want to start with you and your learnings from when you trained as a chartered accountant with KPMG right up to now to Kernow if I may.

Alyx Wood 00:53

Yeah, sure. Where would you like to go? Just how I got into it?

Peter Higgins 00:57

How you got into it. You know, you started you're trained as a chartered accountant. And then you went through Deutsche Bank, and then you've started now with Kernow?

Alyx Wood 01:05

Yeah, I wonder how many of them are still listening because I used to work with, that'd be fun. What would they say? See, I really enjoy investing.

I did accounting economics and getting a grad scheme is the thing to do if you can get one out of university, and actually my dad's a chartered accountant and trains accountants, so I knew the sort of big four world pretty well, I fortunately managed to secure space before, in 2006, I probably wouldn't have got in after the big crash. So standards a bit lower back then probably. And I was very fortunate for my enthusiasm or luck, they put me in the consulting team, which looked after, you know, hedge funds and worked with investment banks. And it's a rotation scheme.

So I actually started in tax for six months, my first experience of the city was VAT, which is very different to what I was expecting, but it was a good, good discipline and how important the case we were working on someone would win or lose 70 million quid.

So it was very important to understand how important how law and tax is in the scheme of things, did a rotation a bunch of different things, bit corporate finance, etc, etc.

Got my accounting exams, I only did two months of audit, I found the audit a bit surprising, I thought you'd actually check everything and you had a responsibility, actually audit is an insurance business, you're just setting your reputation. And then the big crash happened. And then again, fortunately managed to keep my job. And a lot of my clients that I was working on half of them went bust and the other half survived. And that was a really interesting period. I don't want to use names, but you could really see the difference between a good business about business and a good investor about investor.

And it was quite rare actually, to have a good business and a good investor. At scale, it was quite rare. And then after five years of that, you get to the point where you know what advising people is one thing, but you kind of want to do it yourself, then, you know, sort of adding a bit more value.

So I joined flirting clients that had a problem in an investment bank, and they actually had an office inside Mayfair, which probably wouldn't learn about. And they had a fund that had 1.2 billion in debt and 700 million of assets, which is definitely the wrong way round.

So no one wanted to do that job, the chap that took on the mantle, it's kind of a suicide pass, because you're not If you do a good job, no one cares if you do a bad job. There's no bonus or anything.

Anyway, he took it on and he needed someone to sort of help him and run round, which was me. I knew enough about PowerPoint and Excel and things. And it was a really good experience over those two years, we really cleaned up the portfolio, we're setting things for 25 million quid as a 25 year old.

So I learned to deal with boards. And back then I had a lot of respect for my elders, if that makes sense. And I was a bit nervous, a bit wet behind the ears. And that was a sort of sink or swim moment because you just had to get on with it.

And actually, it got really interesting because we ended up selling the well we didn't forcefully the debt was owned by try not to use names, but a big English bank that was in political situation. So we say and they sold the debt to Elliott, who are one of the best hedge funds in the world.

And very aggressive, sophisticated. And it was a kind of night and day because the English bank kept spelling the fund name wrong when they were talking to me after two years and the hedge fund in two weeks knew everything I knew that took six months to learn.

And they ultimately purchased the debt for 30 cents on the dollar. So the assets and liabilities are right way around now. And they stopped forcefully selling the assets and said no more fire sales, we're going to clean up these assets and sell them for a profit and do change of use etc. And all sorts of sensible things. So well, that was a big experience. And that kind of just gives you the tools to get on in business and different cultures and different people.

So it's really, really good and kind of fortunate as well, if I don't think there's many people that have survived that period, was a big one after the great financial crisis had different CFA completely changed. We took the CFA exam in 2005 it's completely different to 2017. So yeah, that's it pretty much where we got to on that you'd like me to carry on with the..

Peter Higgins 05:03

Yeah, please do because you went through Deutsche and then you went to Downing and then you started at Kernow.

Alyx Wood 05:10

Yeah. So I'll carry on. So then I was investing all the time. And then I kind of wanted to work at a boutique or somewhere where I'd have more influence where it matters. Like I don't, I'm not going to move the bottom line on Deutsche Bank, normally, I want to stay there anyway.

Peter Higgins 05:24

Not for like a try?

Alyx Wood 05:27

And yes, no, well, so I joined a friend and mentor, and she gave me an opportunity to sort of run my own money and be a licensed fund manager sit in the back of the room, she takes front and centre stage and has a vision and investment process that works. And, you know, I just helped enable that. And it went really well, really well. So for five years, we quadrupled the size of the business, made decent amounts of money. And it was a real fantastic spirits.

Think we went from like two employees to twelve type thing, on the non-tax side of the business. So we really, that was not a startup, but it was just leveled up to almost. And then my ambitions and my and the market actually fundamentally changed the investment strategy that we're running, there were some opportunities and some threats that were coming partly because the multiples have got to PE of 6 to 22.

If you're trying to double a PE, then whatever strategy you're running, going from 20 to 44 is bloody hard, very rare, if not impossible, so you'd have to reset expectations or return money or change the strategy. And then you had the Woodford thing come in. And we were doing small cap equities, I should have said that.

So it doesn't matter how clever you are, you're about to have a big pull on liquidity. And everyone's going to see it as a fear fund, which actually you want to take advantage of. But you're still going to get depending where you sit, you might get sort of punched in the face. So also the long and short side of things. The gap in long short now is just phenomenal, low value stocks and high value stocks. You can park a bus between the two. And it's just it's a beautiful time to really take advantage of the market.

So I sort of set up my own philosophy and process to well, can I run it for 20 years? And what would be the best that I could do that matches what I've learned and how do I apply that? Just Kernow essentially.

Peter Higgins 07:11

Excellent. So give us an overview of Kernow Asset Management and what differentiates it from other asset management firms? Obviously, it's small, its boutique can be more nimble, etc. But you've also got philosophy. And you've got Dr. Christina Makris with you and Ed or Edward Hugo as Chief Exec.

Alyx Wood 07:29

Yep. So we're a long short UK equity fund. So alternative philosophy nailed it is one of being contrarian, which is very hard to to emotionally but what do you do it right makes a decent amount of money.

And because people can't copy it, in the way that if you copy something that works, it then stops working, it means it's got life to it. And Mark Twain said Human Nature never changes.

If you look at any events in life, as things move under our feet, we kind of under react under react under react then massive overreaction when it's on the TV or family mention it or it's or you have to have a meeting about something, you then have to be seen to be taking action.

And then under reaction on the way up to the event. And then overreaction after is always emotionally driven. And always more than you would expect if you put it through a model. And that's the prism that I try to apply to everything.

And it suits my personality as well, which is probably the most important thing about vesting actually is matching your personality to how you invest. And then we have a process which we're probably not going to go into but that captures that and UK equities.

So we have a really good, we've got some magic sauce and the way we make money, we've got a really good team that you've touched on that have skills that I don't have. And they've got some really, really great investors that kind of see the value in having something a bit different to what you can normally buy in the UK marketplace. We use low leverage amounts of leverage, but we are volatile, and we move very, very differently to our competitors very differently.

Which when we're wrong, we look very, very silly. We're right. It's kind of night and day. And in the long run, what you're getting is basically a High Risk High Return Fund, which there aren't actually that many around. Everyone's sort of gone to the low risk end of the marketplace. So we thought, Well, why not? I don't want to do 4 or 5%.

I want to try to do 12-15% per annum. And the strategy can do that. So as long as we have the right investors that can that can handle the rollercoaster that it will be then they'll make decent returns.

Peter Higgins 09:22

Excellent. So I wanted to go back if I may a little bit not only if you've got a great team or the you know, like a pyramid regarding the three of you. But you've got a great board. I wanted to touch a little bit on the board that you've put in assembled for Kernow as well. How'd you do that?

Alyx Wood 09:35

So when I started I I know exactly. I have complete faith for what I'm doing on investing side. I don't really know what I'm doing on the business side. So what I did was I went to some friends and people that I look up to and said, this is what I'm thinking of doing. Most of them said don't do it.

The ones that said that's brilliant, go for it. Here's some money. I said well, I can't take money like it's illegal like FCA regulation isn't that they ended up becoming advisors and help us and so for example, a lawyer was like, if you do this, and you are going to jail, so I'm going to do it for you. And so she helped. And then I still I still like talking to traders. So Graham, who's essentially a prop trader that works in a brokerage, I would ask questions, and he would help me talk through things.

Previous business partner and person I worked with was, gave us our first pot of money externally to mine, they say it's friends, family and fools go in first. So we'll be forever, forever grateful. And he owns a bit of a bit of the company as well.

So it kind of just naturally happened. But it's been totally one of the most important things to our success is having that deep board of expertise. Essentially, if you could pay and put them together, you, you'd be spending a lot of money, and they've got the same reach and same credentials as as the big and the best out there, in my opinion. So we're very, very fortunate in that. And if, in terms of getting contacts or advice, because of them, or any one degree of separation from that the best that you can get.

It doesn't mean I've banked lots of favors. But there's a time and place when you can when you can do that, I think we're we're in that, that age where we can kind of get away with it, because we're not so old that people think you should be doing yourself not too young that they don't trust you. So we were very, very fortunate in that. And I didn't expect it I, in all honesty, so forever grateful. And if anyone else is thinking of taking on business basic, definitely get an advisory board of people who've been there and done that.

Peter Higgins 11:26

Thank you for that. I mean, you touched on personality with regards to investing. And obviously, your personalities is something that's helped you nurture those relationships, and people have invested in you because they believe in you and the team.

Alyx Wood 11:40

Yeah, so one of the most important learning experiences from last 20 years of investing in everything I can think of trainers to CSDs is you need to match your personality to investing. And I am by nature very contrarian. If a building is on fire, I want to go and buy it and then I'll sell the land next year, that trying to market why are you running into a burning building is difficult.

Also, I'm quite methodical and quite a take quite a long time in what I'm doing. So I don't do tons and tons of trades, I can do the 20 seconds clock trading thing, but actually, I'd rather do it over a number of weeks.

So in essence, I'm more of a three year prop trader, I'm very, very slow in the way that we apply our process that makes makes the money that it makes. I've tried doing the fast thing, I've tried doing that Warren Buffett thing, and it doesn't quite work for me. And what I've noticed is having spoken to some really great investors with the best track records, is they've each got their own unique thing. And if they're really really really good at about it, being obsessive and passionate, it also matches their personality in the way that they approach things will be hugely risk averse, come on, you know, convertible bonds or something, or high high risk, venture capitalists, and reading all the books you can't see behind me, I've kind of found that process and philosophy that matches what I do.

And the great thing about the investing and you'll know this better than anyone Peter is there's loads of ways of making money, actually. But you got to find your own way. And then hopefully not to make your copy and ruin it.

We talked about stock the other day where actually I made money on it and you made money on it. But we were actually trading against each other. Indeed, yes. And because you're both applying a different framework. Now you've got to have discipline on the back of that because otherwise you're going muck it up but yeah, it's really important to match it and try and figure out how it how it sits with you. You don't want to be worrying about it at nighttime when you go to bed as well. That's a bad sign.

Peter Higgins 13:28

Absolutely I mean you've already touched on it a little bit there Alyx, thank you around the psychology it's not just about finding the opportunity but having the right psychology because some of these investments take time to actually evolve into show your profitability and could be sitting on an opportunity cost for a while before they actually you know, returns to success.

Alyx Wood 13:48

Yeah, absolutely. And you're you're either going be making money like an academics you're either taking money off someone else through their mistakes, or providing liquidity or something they want to realize, or you're trying to make money out of actually the company.

In today's market, I think there's more people trying to make money out of other people than there are on the fundamentals of the company. So the sentiment and psychology to your point is incredibly important.

If you look at how you're going to trade if you're doing dividend scalping which used to work in the naughties because everybody started doing it now works today in mid and small cap because the big funds don't bother doing it lower down and there's not many people do understand how dividend scalp, you can trade the 5% scalp, but actually, it's the psychology of the mentum buyers around that stock and the story that can make it do all sorts of crazy things.

And that can be a lot more volatile than the two or 4% dividend you're trying to clip today. There's a big concern around how do you price growth. There's a short-term thing of the you know the inflation and supply searches, but AOL fell 20% You know THD is down 15 and then future groups hardly move. These are growth stocks that normally move on a risk off risk off basis. All in tandem. They all move differently. If you are trying to dividend scalp them not that they pay much a dividend If it's given any of them, it wouldn't work in the last month.

Peter Higgins 15:03

Indeed, I mean, it's absolutely spot on there. And that touches on the question I had for you a bit later on, as we've seen an absolute surge in outperformance of tech stocks over the past few years. And I was going to ask where do you sit and Kernow stand in the debate regarding growth versus value rotation debate?

Alyx Wood 15:21

Great question. I wish I knew the answer. The reality is I don't really mind and I'll just do whatever is the opposites the prevailing mood, so we're actually short tech. And we're actually long property in retail because no one wants shops, nobody loves tech, where are being two, three years time, I have no idea. If the ESG boom, carries on that might present some insecurities.

It's more likely if I had to pontificate and this isn't part of our process at all. But you know, interest rates and inflation should pop up. That means you won't be holding commodities we've had the last decade of owning commodities has been a bit of a dog. And then that means utilities would be the be the lagarde of the city want to buy because I'll underperform they'll be low beta stocks be highly defensive, but you want inflation protection assets that actually generate cash.

So when fully owned by utilities and be short commodities, when everybody's running around going on commodities, great. Today, the world everyone's happy with technology, if you go back 10 years before the crisis, everybody was all about consumer staples, it always rotates.

What you've really had is America create some phenomenal companies, and they just have done have absolutely nailed it.

In the UK. If you look at the market and segment eyes it our large companies are a bit dinosaury, they're a bit overrun by committee. There's not many great entrepreneurial companies that growth sectors or even kicking out proper amounts of cash in an efficient way.

So you've just got a dividend return for the last 20 years, you probably get that again, if there is a good company that will be sell it to someone. And so we can all buy, go buy a big posh estate, the real success story, as we say, think it will continue to be the mid-caps, because you get two times GDP before you've got out of bed.

So that's nice, 7% a year, hopefully, they've got a scale, they've got intellectual property, they've got incentivize management teams, because they tend to actually own decent amounts of the company or be founders or such, they can afford to pay and they can make decent amount of money, they can still grow.

They're not so small that they're completely irrelevant as well. So they're still inside the indexes. There's still liquidity, they still tradable. If you go into the small cap area, that's even better opportunities, but you can also lose 70-80% your money in a year and that can get quite scary.

It's that that mid-cap space that's really interesting to us where we've got a bias to, it will change in 5-10 years’ time, I don't know where it will be in five. And we'll probably move to where where the opportunity is.

But I imagine for the work that you undertake, actually, you probably really like it when the analysts as well stop paying attention. And there's that magic spot, I think between 50 million and 100 million, which we don't do where no one has any idea what. And you could just be so the price could be so so wrong. It's phenomenal opportunity for some of these tenacious diligence of time to go figure it out.

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Peter Higgins 18:17

Yeah, I think I think what I love about the work that you do, Alyx, is that the amount of time you spend analyzing these companies and looking through the accounts, and finding the gaps, and that's where the anomalies are. And the anomalies can be very, very profitable, somebody who's patient and looking for, for the gap between intrinsic value and what where the actual true value lies, you know, what would a predator pay for this stock, you know, for this company?

Alyx Wood 18:39

Yeah, so it's, I enjoy doing it. But it's actually quite a lot of work, you know, it's 100 hour work, 100 hours of work. And then at the end, you put it in the bin most of the time. And then you I've done it 500 times I follow 500 stocks, and then I'm just waiting for something to change, turn into something because I probably do, there might be four to six new ideas a year, but you're also going to look after your current portfolio and everything else. So it's a lot of work, but it's become more profitable, because everybody is either index hugging, or doing short-term trading.

So the absurdity of some of the things that are going on are getting larger, which means the returns are larger because there's less people doing fundamental research in the in the stock space, so and then applying it in a disciplined, disciplined way.

So it's a very rewarding experience at the moment, there's probably only going to get more inefficient actually, you know, unless there's tons and tons of new funds launches and having done some research on this, there's just not that many new fund launches that have huge amounts of conviction.

A lot of it is this a lot of it is theme based, you know, it's you're selling a product first and then an investment second, which is definitely not how I view the world.

Peter Higgins 19:47

But yeah, I've got two separate questions on that count. You'll be talking about the funds that are coming out and there's been absolute surge, boom, in fact, in environmentally focused investing, I think the last sort of data found EPR global saying there's been more than 2,300 funds representing $2.3 trillion. And that seems to be the space. But my concern and you touched on dinosaurs in our you know, FTSE All Share in FTSE 100 companies is that impact and the decarbonisation of what they're meant to be doing. Surely is going to impact our funds, our stocks going forward regarding ESG?

Alyx Wood 20:23

Yeah, I couldn't agree more. You want to be talking to Christina not me on this because she's, she's the ESG expert. But for me, I just look at where's the best companies in the UK, you've got like Darktrace coming in as unicorn, you've got BenevolentAI, you've got Revolut.

These should all be listed, Darktrace is now listed, these are the ones whether or not they work or not, that should be listed and listed sooner they exist, which is good.

But they're not on the mind, we actually some of the pre unicorns is what we really want to be seeing on the stock market. And so that that fresh uptake of growth story and new world isn't as much as I would like, it's very much, here's the end of our story. And now we're going to float it the dinosaur stocks, they're there to pay a dividend, whether it be Vodafone, or Tesco or whatever.

They've got really good business models in terms of it's quite defendable. But how are they going to double in size, double in size and not dilute? It's going to be a really, almost impossible task to do that.

So ESG also complicates things and creates an opportunity from bankers have a bad reputation and they got smashed, because you weren't sure if they actually did nothing in the crisis and asset managers took note of that said, okay, how do we make ourselves look good?

What they said was, if you asked man on the street, is our money managers ethical yes or no? Are they good or bad?

Most people will be I'm not sure money, people sound bad. If you ask them is doing good for the environment, good or bad, they'll say it's good or is doing good stuff, good.

If they own the narrative and so what you've done is you've protected your, your incumbents.

So all of a sudden your assets go from money management to make money, but actually, we're managing for the good of society, that's a much better narrative. And then also, if you can charge more for it and do the same as before, brilliant if you want to be a skeptic.

Now, the flip side of this is it will hopefully nudge our society into the realization that we're a species spinning on round a fireball on a rock at the end of the day, we need to figure out what we're going to date and not run out of times and look after the future generations, etc, etc.

So it's one of the nicer movements that that are going on. And hopefully it'll, it'll help. Yes, a big, big question. But see what happens in terms of stock effect, which is my point. So what is an ESG stock?

If you type into the way did you say in Bloomberg, actually, the top 10 were actually cigarette companies, oil companies, because they spend the most and they also, work companies are the largest renewable firms in the world, right?

That's not quite what you thought about when you thought ESG and what that was governance and what you get with ESG investing is a booming green stocks, and everybody else is just catching up and sort of saying the same thing and their accounts, and nothing changes. And there's not many ESG stocks that are so there's a lot of money going into them and they get exaggerated. ITM is a phenomenal company, and really nice guys good business. But while that valuation, you know, but is that story going to stop on hydrant? Probably not? Do you know, in Norway, they've got a great wind farm company and valued a high rating. 

Why don't we list one here, I could probably make one up between you and me in about a half an hour, we can list it for a couple of billion, obviously exaggerating, but you need some assets, I live in Cornwall, it'd be pretty quick to do. So the market wants to buy and I'm sure the market will create the products for the to the people. I don't think that's that was one of the unintended consequences when the PR people came up with this.

Peter Higgins 23:46

I completely agree with you on it. And this declaration by mining oil, gas and other resources, stocks, and cigarette companies have net zero targets. It's like, come on, you know, are they achievable? I throw money at it, are you just trying to fit into these funds, you know, so that you meet the criteria for people and fund managers buy it, you know, it's just the duration.

Alyx Wood 24:06

And I think that I think are genuine in their aspirations and looking after their business. And they're responding to the environment that they're given. And they're responding to government rhetoric again, which means nothing. So we got our government won't, you know, be a different government in four years and net zero, just a good way of kicking the can down the road and everybody agreeing that they could people were not doing any action. And so everybody's all agreed to not do anything fine.

Let's move on. You know, there are other ways of doing it and more extreme and easier methods, from taxation to direct impact and all the rest of it. But now it's way, way beyond my paygrade to understand or analyze.

Peter Higgins 24:40

So with that in mind, then and having been and worked in various different institutions larger to what you're working in. Now, in a sense, you're focusing on being nimble and agile and having a young entrepreneurial team. What are the typical mistakes that large asset managers make? And how does this benefit or potentially enable Kernow and your approach to thrive?

Alyx Wood 25:03

So I think large asset managers make mistakes, I think they probably have a focus, that means they probably ignore some things, because it's not going to move the bottom line in a way, and there's probably easier ways of doing business.

So for example, if I flip it round, it'd be quite difficult for an asset manager to give me a billion quid, and I don't want star culture and ultimately a managing human being at the worst of drama queen, you know, it's much easier to run a computer and turn it off, it's being annoying.

And actually, if you just run a computer, and or a fund manager that's very, very tightly constrained in the mandate, and they can't use their voice or their conviction, you know exactly what you're going to get you get mediocrity.

But that's reliable mediocrity. And that means you're not going to surprise people. If you don't surprise people, it's much easier to scale business, get more assets in the make the POS business more profitable.

And that makes a lot of sense. If you're an asset management firm your job is to raise AUM is your goal, that's a much better way of doing it.

If your goal is to be the best investor in UK equities, because you've got a different aspiration. And actually, probably the best investors probably family offices, and you probably never heard of them. They know what they're doing, they keep their mouth shut.

Because if you know how to make money, don't tell anyone, if they can clip out 20-30-40% per annum returns, they're going to be very, very happy compounding the capital in a tax free manner.

Hopefully, we sit somewhere between those two, we were the majority owners of our company. So we can't get pushed out of our positions, we can hold our convictions, we won't have any style drift. If we're wrong, we you know, we live or die by the sword.

If I worked in a large house, and we talked about, you know, ESG or whatever, if I was holding us stock, that was downgraded for ESG reasons. And that's not in my mandate. And actually, I want to buy it because an overreaction or an undue reaction, I might be forced out of it by the risk committee for whatever reason, for something that's completely irrelevant to making money.

And I might have to spend time on it as well, you know, and that's not time spent making money or researching stocks for gaps. So it's a focus point of mining and adding value at all the times to improving the returns and lowering your risk.

Everything else is secondary, wherever obsessive in that focus. And you wouldn't want to require our business to try and scale it for that reason, you're not going to put a couple of million dollars for us. So it depends what your goal is. And turning away from us.

If you look at boutique fund managers and just do them as an average, they outperform the indexes, which is phenomenal. So on average, most of the money's in 80% of the large fund managers, they charge a fee, they basically have to hug the index if you're too much money.

So they underperform the boutique managers have a lot less money have niches have edges. And if you just held them as a basket, you would actually outperform passive. So I don't know anyone hasn't just done boutique indexing, but maybe the fund industry declined too quickly because of marketing.

But AMG spend put a business model around that in America, Artemis you in this country's got a great brand and reputation is actually secretly owned on the side by AMG, and the like.

No other moving round and it's the boutique fund managers that tend to have edges that apply them and outperform. And that's there's a lot of consolidation around that. And even if you look at the large houses, they're trying sometimes they're trying to split themselves up as class themselves as multi boutique and specialists, which is really interesting as well. So even the large houses that do care about performance trying to split our teams up.

Peter Higgins 28:23

Yeah, I mean, that's very, very interesting. Thank you for sharing that. I wanted to touch on the performance, because from my analysis of kernow, you're growing kernow, by out performance by the performance of your fund. And not necessarily a lot of fund managers seek to great buy assets under management, which are more and more funds coming in all the while. So that's quite an interesting approach as well.

Alyx Wood 28:46

Yeah. If I do well, I live off the money I make. If I can grow some assets and get some good investors, we make a bit more money and I can invest in the team, and then great, if you don't get anyone, then ultimately all I'll be okay. If my performance drops off. And the philosophy doesn't work then the last 20 years of reading and everything that I believe in doesn't work, then you know, these are how to go and you put your head above the parapet and say, Hey, I think I can I got something here. And you'd regret not doing that, I think.

Peter Higgins 29:15

But your performance has been outstanding since inception. Alyx?

Alyx Wood 29:19

Yeah, it's still quite a short period, I wouldn't, I think you probably need more sort of 5-10 year track record before you can really analyze someone.

I mean, I've got a 20 year track record, but that's across multi assets and multi strategies. I've got the 16% per annum five years beforehand as well. But it's this is more of me a 5-10 year journey before you can say I think you can warrant that that track record is worth something because there's the short-term is too much luck.

And then the long term that's when you can see the processes you know, money churned through 80 trades and you’re only good as your last trade as long as the repeatable and robust and you can start saying hey, this is probabilistically got a asymmetric return profile.

And if you do it can be done 16 trades and four of them have made us loads and loads of money. I don't know, to the degree, I know pretty sure I know why weights works. But you've got to give it give it time, I think the more interesting thing would be to analyze the best fund managers in the UK. So go look at Simon Knotts’ track record, go look at Gary Channon’s track record, and look at their strike rates and their probability distributions. And then you can draw some conclusions. Andy Brough, they're not too difficult to find they're out there if they let you have the data. Hopefully, we've got something as well ask us let in a few more years, I think.

Peter Higgins 30:32

Okie dokie. So I've got a couple more questions for you. And then we're going to complete this. So with regards to Investing Matters, it's imperative that investors seek out as you touched on, they're really good fund managers and find the exceptional ones. What skills should investors seek out in a exceptional fund manager?

Alyx Wood 30:49

Awesome question, make sure the fund manager puts his own money in the fund. And I mean, ask the amount in the know how much they get paid, or helping their house is, make sure they own some of that company or have some political sway over the p&l, because then actually, they care more about the investment than they do about, they don't want a big boss coming along, telling them we're doing this now they need to have you to be in it for the long haul.

Because if you want to leave your money, there is unlikely to be a six month trade unless you're trading small caps on the rebound, blah, blah, blah, blah, blah, but actually be doing asset allocation trade, you don't need a fund manager, once we go direct and use ETFs.

So do you want to give it to Fundsmith or something, you really need a three five year old view of those, there's no point.

So you need that fund manager to make sure he's aligned and has political control or influence. And then thirdly, understand, write down what you're expecting. So what's the maximum you think it will lose? What's the maximum you think it will gain? And actually I say this to some other people, if you if you if you have a whatever it is of 100 grand, and you want to invest it all and double it over five years, you're looking at a fund that might have a 50% drawdown profile, the best thing to do is invest half the money now, invest the other half when it does its drawdown, and just put the rest in cash and wait. And and you know what, if you're wrong, and it does really well anyway, you'll still get 100 grand from your 50 if it has the drawdown, you probably you're then doubling up at the perfect time, emotionally.

And that helps you know why you're buying, you're not buying actually track record, you're not buying brand and you're not buying people. I mean, that's how everyone buys, what you're buying is conviction, how much money they've got in their alignment, ability to achieve it. And then what are your expectations? Why have you done it? Those are the three things why you should allocate capital to fund manager or not.

Peter Higgins 32:36

Brilliant, love that reply. Alyx, thank you ever so much. I've got a final question for you. I'm just going to ask you really to just summarize what your greatest learning has been regarding the aspects of investing that you think should matter most to investors full stop?

Alyx Wood 32:51

One we’ve already touched upon, personality, that is the single most important thing. And then actually finding your niche is the actual answer. So you have your way of doing things, I have my own thing.

And I don't want anyone to tell me, why do we touched on dividend scalping, it doesn't suit me, there's probably going to be 10-20 guys out there who know how to do it and we'll be making money from it, the best thing you could do is almost try a little bit of everything.

It's sort of play money. Find something that feels right with the options trading and picking up pennies in front of steamrollers. Or doing big thematic trading or ESG. And you wouldn't want to bet against that buy every greenstock doesn't matter.

Just be you know, find a way and then execute it or do everything until you find something and then when you do find your thing that suits you don't do anything else just obsessively focused on that one thing if you want to build an edge. If you don't want to build an edge, then just give the money to other people or do a basket spread or whatever.

But edges can be found. If you match your personality it is entirely possible and achievable. And if it's scary, the interim just read a bunch of books, people who've done it before, there's plenty of great literature out there. Not how I made a million in the stock market in 30 seconds type thing but you know, biographies and the stories and all the rest of it of the edge that people have found. It's not a magic formula. What you need to find is what works for you and then just find the strategy that already exists that you can apply.

Peter Higgins 34:14

Brilliant Alyx it's been an absolute delight to have you. That was Alyx Wood of kernow Asset Management speaking to me, Peter Higgins on the London South East Investing Matters podcast Alyx, thank you so much. Take care mate. God bless.

Alyx Wood 34:27

Good, it’s appreciated.

LSE 34:37

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