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 00:18
Hello, and welcome to the Investing Matters Podcast. My name is Peter Higgins. And you can find me at Conkers3 on Twitter.
And today I have the privilege of speaking with Charlie Huggins, Head of Equities at Wealth Club, the award winning tax efficient investment service.
Charlie is also the manager of the recently launched Wealth Club Discretionary Share portfolio.
Hello, Charlie, and thank you for joining me today.
Charlie Huggins 00:44
Hi, Peter.
Peter Higgins 00:45
Charlie, I want to start our interview if I may with the fact that you were born and schooled in Sheffield, South Yorkshire. And both your parents worked in the steel industry. What did you learn from your tenacious parents given you were and around the declining steel industry of Sheffield?
Charlie Huggins 01:06
Yeah, well, it was, it wasn't an easy industry to be in. So my dad in particular worked very long hours or not great reward. You know, every year it seems to be the more and more people were laid off in his businesses that he worked for.
So probably the main thing I learned from that is trying not to work in a declining industry. But he was he worked in the steel industry, all his career, he was made redundant at the age of 55, and then moved to another steel tool industry lasted about 10 years in that and then eventually they made him redundant, but he could then retire. So it was a difficult choice of career, I would say.
So that was probably the main thing I learned is try not to work for or invest in declining industries, if you can avoid it. And if you do the value of hard work because he or he just had to work harder than everyone else to make sure that he was always the last person standing at the end.
Peter Higgins 02:14
Brilliant love that reply. And as is the ethos of most people that I know that North Lancashire and Yorkshire so that's very true, tenacious and hardworking.
Now, Charlie did extremely well academically, as the lad from Sheffield, you went on to Oxford University 2007. Studying masters in biochemistry, you graduated with a first in 2011.
Your parents must have been immensely proud of still proud of that academic achievement that you attained at Oxford.
Charlie Huggins 02:46
Yeah, it wasn't that common for I think there was one other person from my school that went to Oxford. It's quite a big school. But yeah, it was a very different environment, Oxford to what I've been brought up in in in Sheffield, going to state schools in Sheffield, it was slightly a different environment, shall we say?
So I took a bit of adapting to.
Peter Higgins 03:13
What did you learn from that time there at uni?
Charlie Huggins 03:15
Well, I mean, I learned, as I said, going from one extreme to the other, really, from where I've what I've been brought up to then go to Oxford, which is such a unusual place.
Also, having done a degree biochemistry, which, in hindsight, probably, you know, didn't enjoy very much. I think the reason I chose it was because, you know, I was reasonably good at biology and chemistry, it seemed like the right thing to do, it seemed like it would open up career opportunities for me, you know, it would look good on the CV, that kind of stuff. I think as you get older, you realise that actually, that stuff isn't all that important.
And it's much more important to do what you're passionate and interested in, because that's the thing that ultimately sustains you, you know, I couldn't do any more than four years at Oxford.
So that was my absolute limit to do biochemistry. And I thought, what can I go on and do that truly interests me and inspires me, and that was why I ended up going into investing and finance, I suppose probably quite a lot of people get into investing in finance, thinking of, you know, it'll be a great job and great money or whatever. But for me, it was purely about this is what I think this is the career that I want to pursue.
This is what truly interests me. So it was a 360 switch or 180 switch or whatever, from doing biochemistry to finance.
Peter Higgins 04:44
Yeah, I was going to touch on that, because that's the twist I was going to ask you about you're qualified in biochemistry, but then you always had this keen interest in finance and investing. And I want to ask you where that started from, you know, how young were you?
I was probably bought my first share when I was in my late teens. I think my mum was a Standard Life policy holder, she had some Standard Life shares, and I ended up buying them off her.
So I suppose in theory, I didn't actually own them, she still owned them, but I gave her money and I in effect, owned them from that point on. So I started early. I also invested in quite a big part of my student loan into the stock market in 2007/2008 of student loan, 08/09, which obviously we know how that ended.
That didn't go too well. In terms of where it came from. I genuinely have no idea my parents were not at all interested in finance or investing conversely knew nothing about it, like many people in this country, I suppose financial education wasn't it was never really been taught in schools or anything. So they didn't know much about it. My granddad did, he used to invest a little bit so I learned a little bit from him, but I think it was just something I was born with.
Peter Higgins 06:04
Yeah. Thank you for that reply did the events of the financial crisis and the crash and those investments that you made with your student loan, did they have any impact in your thinking about actually, I'd like to go into that industry at some point in the future?
Charlie Huggins 06:18
I mean, I suppose it probably should have put me off really, because it was literally, I think invested a few months before it crashed.
And it was anyone who remembers that time, 08/09, lines of queues outside Northern Rock every time you turned the nine o'clock news/ten o’clock news on it was stories about more troubles at banks or more economy after all, the news was just awful around that time, and the stock market was awful.
So it probably should have put me off. It didn't. If anything, it probably made me even more fascinated by it. But I think it probably did instil a sense of caution in me, that's probably never left me because I think those early experiences inevitably do impact you.
So I think that probably has had some impact on my investment approach ever since. It's hard to say, isn't it? You never quite know. But one thing it didn't do, thankfully was put me off.
Peter Higgins 07:16
Brilliant. Thank you for that reply. Now Charlie you joined Hargreaves Lansdown in 2011 straight from the university and you joined on a graduate scheme, please, can you share with us how that came about? And what it entailed that scheme that you're on?
Charlie Huggins 07:34
That was I was coming towards the end of my time at Oxford, obviously, as I said, I knew that I wanted a job in finance. I knew a lot about Hargreaves Lansdown having interacted with them. My granddad was a client of theirs, so I knew quite a lot about Hargreaves Lansdown, I looked at them. And I thought this is a tremendous business. And everything it does, I'm interested in in terms of investing, ISAs, pensions.
So I just sent a purely speculative application to them and didn't hear anything.
So I sent them another speculative application and didn't hear anything. And then I think on the third time, it ended in the lap of Alex Davies, who was Director of Pensions at that time.
He then later left to set up Wealth Club, which is who I'm now working for, but they created a graduate scheme for me luckily, so I was the only one on that scheme.
Initially, they've since expanded it quite significantly. But that just gave me the opportunity to rotate around the business and to learn all about different parts of Hargreaves Lansdown’s business.
So that was a good foundation into a good learning opportunity just to have exposure to so many different parts of what was a tremendously run business with Peter Hargreaves, the founder was still there at that time and it was just a very slick operation.
Peter Higgins 08:57
Brilliant, now you joined a research team initially working as a fund research analyst, Charlie, what were you have researching? Who were you meeting, and what were your greatest lessons from that time?
Charlie Huggins 09:11
Yeah, so soon after the graduate rotation scheme, I moved into the research department, which was my main area of interest.
Initially, as a fund research analyst, as you say, that just gave me the opportunity to meet lots of fund managers to study their track records to get inside their brains to see how they thought to see what mistakes they made to see what works and what didn't really.
And obviously, meeting so many different fund managers gave me exposure to lots of different styles of how people did it and you know, so that was quite interesting.
Hargreaves Lansdown was at that time and probably still is best known for its fund research. So joining a team that was that was very well set up to research funds. As time went on, I would also do more on the shares over research as I started writing more about shares.
So did the role did evolve. But yeah, it's just getting that insight to how the fund management industry works really was the biggest lesson.
Peter Higgins 10:19
Brilliant. Thank you for that reply.
Now, Hargeaves Lansdown clearly nurtured your talents, because you're quite young, if I may say so.
And you helped to establish and run the HL Select Funds, and you're managing money at quite a young age.
Charlie Huggins 10:35
Yeah.
So when Hargreaves Lansdown had run multi manager funds in the past, but have never run a direct equity fund that invested into shares rather than funds.
So I, because of my interest in shares, probably more luck than anything, there was no one really else in the business that wanted to do that, or that was positioned to do that.
So at a very young age, I was given the chance to launch and establish the HL Select Funds, which launched around December 2016, select UK growth, and then after that a UK Income Fund.
So yeah, I think I was I was about 27, when I started managing those funds. Did that for about five years before joining Wealth Club.
So yes, that was it was great to be given the opportunity to run money at such an early age, I learned a tremendous amount made lots of mistakes.
So yeah….
Peter Higgins 11:43
But you also had a great performance during that five-year tenure when you were running it as well.
Charlie Huggins 11:48
Yeah, the performance was reasonable. It's always difficult to say, Isn't it with hindsight, how much of that is luck? And how much is judgement? Probably a combination of the two. I would deem five years as a very short track record, really, in the context of yeah, my investment style is sort of very, very long term.
So I think you always need to be careful about, you know, taking too much too many lessons from a short track record.
But yes, it will, it was reasonably good. But most of all, it was just having the opportunity to run money for other people and, and all the, there's no substitute for that I was running my own money.
I have been for many, many years, as I said, since my late teens, but when you're running money for other people, that's when you really learn that it's, it feels different.
You know, it's one thing losing money for yourself, it's another losing money for other people.
Peter Higgins 12:51
You also had to overcome the hurdles of what was the COVID period as well, lots of uncertainty in volatility markets, and you navigated that really quite assured as well.
Charlie Huggins 13:04
Well, that was that was a very interesting time. I mean, it's easy to look back now and say, you know, COVID, yes, vaccines are going to come along. And yes, we're all going to get out and about again, and economies are going to open up.
But at the time, that was far from assured. We didn't even know whether we would have vaccines, we didn't even know whether people will be allowed out of their homes. And revenues for a lot of businesses just disappeared overnight.
And obviously government stepped in and helped our businesses, which was thank God they did, but at the time, that was far from obvious.
So yeah, that was that was an interesting time. Definitely.
Peter Higgins 13:42
Now, given how successful you'd been at Hargreaves Lansdown, what was the driver after 10 years to leave?
Charlie Huggins 13:51
It was mainly just a new opportunity that came up at Wealth Club.
So as I said, the founder of Wealth Club, Alex Davies, I had worked with in the past we'd kept in touch and he was he was keen for me to go and launch a portfolio for him. Because I was at Hargreaves Lansdown already running money.
I was, you know, putting him off quite a lot and saying, look, I'm still happy at Hargreaves Lansdown still trying to get a track record, but eventually he managed to persuade me.
But I think by that time, by the end of the five years, I was ready for a new challenge.
I could have continued to work at Hargreaves Lansdown continue to take salary and bonus and what have you and accumulated money.
Instead? I thought, No, I think I'll learn more by launching a portfolio for myself and I think in this industry in this career is you just have to keep on learning keep on learning keep on learning.
I'm sure I would have kept on learning at Hargreaves Lansdown, but I felt that this was an opportunity to learn even more and to launch a portfolio that I could really call my own.
And that I could manage in a way that was exactly how I would run my own money. So that was that was the idea behind it.
Peter Higgins 15:13
Brilliant I'm going to talk a bit more about your portfolio a bit later, you joined the Wealth Club in April 2022.
Please share with us an overview of the Wealth Club, its investment philosophy, and its methodology for evaluating the best long-term investments and who you are your preferred client group?
Charlie Huggins 15:35
Yeah, so Wealth club has been a leader really in tax efficient investing VCTs, EIS, so that was what the business was established on tax efficient investing.
And it's done a very good job in that area, as a lot of the other platforms have curtailed their activities in those areas wealth of has gone after that niche very successfully.
So anyone looking for tax efficient investments would come to Wealth Club, and there's probably there's no better place for that, as time has gone on and the business has grown and it's still a small business, but highly profitable as the business has grown.
It has great ambition, and it now wants to expand into offering more mainstream investments. And that was where the idea of offering the quality shares portfolio came along to offer a portfolio of great businesses 15 to 20 businesses selected from across the globe, very high conviction portfolio, and not just a tax saving vehicle.
But this is hopefully our portfolio that people can over the long-term and to grow their long-term wealth.
Peter Higgins 16:49
Thank you for that. Now, your launch, did you say the Quality Shares Portfolio March 2023, please share with us the key elements you look for in a company for it to be included in your portfolio, Charlie?
Charlie Huggins 17:03
Yep. So the portfolio is no has very, very few restrictions. So this is a global portfolio. It can go in any developed market, there's no real size restrictions.
So this is very much a best ideas portfolio and what I wanted to create was a portfolio of exceptional businesses.
First and foremost, the best possible businesses I can find that was what I was looking for. So how do I define that? It's a few things it has to be I have to understand the business. So there's many businesses and I've learned more and more as I've gone on that are very difficult to understand.
Warren Buffett talks about a circle of competence, and he says you must stay within your circle of competence. And as time has gone on, I've probably learned that my circle of competence is smaller and smaller than I initially thought it was.
So most businesses are excluded on the basis of me not being able to understand them or just having a complex business model complex accounting, if I understand it, what I'm looking for then is first and foremost resilience. Great businesses endure over time they adapt, they are able to survive periods of crisis, because the one thing you can guarantee is that we'll get a crisis I've seen in my relatively short time, the financial crisis and the COVID pandemic.
And I'm sure that there'll be another crisis in the next few years, it's just inevitable, you need to find businesses that can survive a crisis.
That means having loyal customers often recurring revenue, very strong balance sheet, and a business model that is durable.
In addition to that, I'm looking for a very strong capacitive moat, it's not lack of growth opportunities that destroys businesses, it's competition.
If you can find a business that is as immune as possible from competitive factors, then it will be much more likely to endure and it will be much more resilient.
And that can come from brands or distribution networks, there are many things that play into the moat of a business. But that is a key thing I'm looking for.
Once I found a business model that is resilient and relatively immune to competition, the management and culture are critical, because the culture within a business dictates how decisions are made.
It dictates what kind of people end up working for a business, it dictates what kind of people are retained within a business. It dictates the talent within a business. It dictates almost everything, the culture, and it's something that few investors pay enough attention to, in my view, but if you get the management and culture of business, right, everything else tends to look after itself.
And then the final thing is cash generation, you can have all of that and still not generate very much cash, and profit and cash and not the same thing.
Some businesses are quite good at, we've seen a lot of businesses very good at generating revenue, not very good at generating profit, and even worse at generating cash.
I'm looking for businesses that prioritise cash, they're not reliant on factories, machineries, you know, heavy machinery, they tend to be more reliant on the brains of their employees than they are on physical assets.
And they just generate tonnes of cash in good times and bad.
So that combination of factors is what I'm looking for. And then I have a 60-point investment checklist that I assess all these factors through, which helps me to make sure I'm not overlooking anything and keeps me on the straight and narrow, Hopefully!
Peter Higgins 20:45
Brilliant, I love the fact that you've got a 60-point checklist that seems huge to me.
But I think it's very important that you that you probably expand on why that's so important, because there's going to be supposedly a large, you know, 10,000 stocks globally, probably that that could be assessed, where you're trying to find 15, if not 20.
So where do most suppose in quality stocks fail your benchmark, Charlie to be included?
Charlie Huggins 21:15
Where the most of them fail? It's, it's probably the competition piece.
Actually, if you're investing in a quality business, you've got to be as sure as possible that it's still going to be thriving 10 years from now, 10 or 20 years from now.
And we've seen many businesses fall by the wayside many tech businesses in particular.
Now normally, that's either competition, think of, you know, Blockbuster and Netflix, Netflix coming along and Blockbuster, not reacting to that.
And so that's competition, but also technological change. And so I would say the majority of businesses are either doing something that is relatively easy for the competition to replicate, and or are in an area which you think technology changing technology or changing trends could disrupt that business.
So they're probably the two biggest reasons but it could be I don't like the culture. It could be that as I said, that I don't understand it. Maybe it's a great business, but I just don't understand it well enough, you know, look at all the problems that investors in banks have had, because who understands banks? I mean, I don't most banks are incredible, if you try going through their accounts or insurers incredibly difficult to understand.
So yeah, they're probably the main two, so you've got they can fail for a number of reasons balance sheet, sometimes you think this is a great business.
But why is it got so much debt? Or why have they structured the balance sheet in that way? Sometimes it's just I don't like overly cyclical businesses.
Generally, I do make some exceptions. But I don't want a business that as soon as the economy turns down, you know, is going to start making losses or whatever, there's quite a lot of businesses like that the cash a business can fall down, as I said it not that many businesses are excel at generating cash.
So it can be all manner of reasons. And that's the point of the checklist is to go through each one and say, well, what do I really think about this?
Because it's very easy to sell yourself a narrative. We are human beings, we love narratives. We love stories, and the checklist forces you to say well, the narrative may be great but, on this point, it fails and no business will ever tick every box is just I don't know any business that's ticked every 60 boxes, but it's just you want as many ticks as possible.
Peter Higgins 23:49
Brilliant love that response. Thank you ever so much for that clarity as well and Charlie, appreciate it.
You place a great deal of importance, Charlie in that regard and your quality companies having growing and strong free cash flow for the inexperienced investor, please get into that expand and why that's so vital?
Charlie Huggins 24:07
Yes. So free cash flow is the cash that's left over at a business after it's paid its bills basically, after it's paid any capital expenditures that it needs to make, you know, after it's paid its employees after it's paid taxes, interest on debts, whatever.
So the cash is think of it of what's in the till at the end of the day or the end of the year. And that cash gives the business so many options.
So business that generates lots of free cash flow can then go out and it could acquire other businesses, it can pay off debts, it can expand this existing business, or it can return that cash to shareholders.
All of those are good options for if done sensibly are good options for shareholders. The worst type of businesses to own are the ones where it runs really hard to stand the scale, it has to invest loads in new manufacturing facilities, or new oil wells or whatever, and then you get to the end of the year, and all the cash is gone.
I want to see a business at the end of the year that generates as much cash as possible.
Ultimately, that is how you value a business as well as on cash flow.
You've probably heard of discounted cash flow models and all of that. The value of a business depends on how much cash it generates, free cash it generates between now and judgement day, which is when the business ceases to exist.
That is how you value a business. So really, the only thing you should care about as an investor is the cash. Nothing else really matters.
Revenue doesn't matter. Profit doesn't matter, because profit is just an accounting term. It's the cold hard cash that comes into a business because at the end of the day, cash is what pays bills. Profit doesn't pay bills, revenue doesn't pay bills, cash pays bills, and cash is what allows a business to expand and to reward its shareholders with dividends, share buybacks, etc.
Peter Higgins 26:05
Brilliant reply, thank you ever so much.
Now, given your forensically detailed research, analysis and filtering process of your checklist, please can provide and share with us three distinctly different companies that you've already selected for your portfolio please?
Charlie Huggins 26:21
Three company examples?
Well one, which I've talked about quite a lot as Diploma (DPLM), it's listed in the UK around about 3 billion market capitalization.
It's an industrial distributor of industrial components such as seals, so they go into things like heavy mobile machinery.
So if you look on a local construction site, you see a big piece of Caterpillar equipment, seals, you know, that piece of equipment will contain lots of seals, which basically is hard to describe somebody who doesn't work in that industry, but they are critical for that machinery to operate.
And if they often break, and people who own that machinery need a replacement seal quickly.
Diploma will have a large group of suppliers which you can go to get any steel that you want, and can supply it to you the next day.
That's not all it does. It provides lots of critical components that go into mainly industrial and medical appliances. Why do I like it?
Well, it's hard to see that business going out of fashion, you know, it's hard to see any technology that comes along to disrupt it.
It's extremely cash generative, because it's not it doesn't own it doesn't make these products itself, it's just the distributor, so it doesn't need big manufacturing facilities or factories.
And added to that it has an excellent culture, in my view, do you centralise culture hubs, which means that it contains lots of different individual operating businesses, all with their own owner operator, running them with their own profit and loss account.
So very accountable, very agile, very entrepreneurial, is made some very good acquisitions, and its operating and growing markets.
And it's got the ability to do acquisitions to supplement that. So it has good growth prospects, in my view, and and it's a resilient business.
On the other end of the scale, something like RELX (REL), which does academic journals, it provides data and tools to scientists, to lawyers, to financial institutions for doing fraud checks and know your customer checks. The data and the tools that the RELX provides to its customers are critical.
They tend to be required in good times and bad because doing fraud checks, for example, or accessing medical research is something that you need no matter what, very high recurring revenue, very highly cash generative, and again, sensibly managed.
There's not a business that tends to make the headlines. It's not a business that many people have even heard of, or come across.
But if you're a lawyer, if you're a scientist, or if you work in finance, or even many other industries, you may rely on them every day.
All insurers use RELX data for writing quotes, for example.
So it's absolutely critical. So that's another example of a business that I like and another one, Danaher (0R2B) is a life sciences business.
It provides equipment to biotechnology and pharmaceutical companies that provides diagnostic equipment.
The thing I like about them is that they're sort of a picks and shovels provider to that industry. So the trouble with investing in a biotechnology or pharmaceutical businesses you're always rely on the next drug, you know what, what's the next big drug that's going to come out.
And now there's loads of new therapies and developments at the moment. And they're tremendously exciting opening up potential for treating diabetes, alzheimer's, lots of different diseases, which we've never really been able to treat well before.
But trying to pick a winner amongst the individual companies is very difficult. And you've got the risk of drug development, whereas Danaher is providing equipment to those companies.
So whoever wins, they should benefit as long as these new therapies get launched. So again, it's maybe not the most exciting way to play the theme.
But it's a more resilient way because I like businesses where heads I win tails, I don't lose very much, and that they've got lots of shots on goal.
I dislike businesses that are heavily reliant on a single customer, a single drug, a single thing happening.
So AI is another great example of, you know, RELX, isn't incorporating AI into its data and solutions for many years, I'm not going to go invest in a new AI company that might do well, if AI takes off.
I want somebody who's applying it more more broadly. So there are three examples that I would give.
Peter Higgins 31:33
Brilliant, thank you ever so much for that and you covered my second phase of my question, which is going to cover RELX being under the radar AI company. So thank you for that.
Now, Charlie, we spoke already a little bit about some stocks that haven't made the grade, please, can you share with us two popular high-quality names, which have not yet met your criteria to be within your quality shares portfolio?
Charlie Huggins 31:58
Unilever is quite a good example. You know, it's a good business.
There are some very good brands, it's very resilient, it stood the test of time, it does generate a lot of cash.
But the culture of that business hasn't been right, in my view over the last decade, or at least the last decade. I think it's quite bureaucratic.
I think they own too many brands, I think the management has been too focused on acquisition and not focused enough on disposals return on capital has been declining for several years.
So that's an example of a business where actually I quite like the business, but the management and culture fails the check list mainly on the management and culture piece, they do have new management coming in.
So that could change I'll monitor that one. So that one fails, I suppose another popular business would be Amazon and not one that I'm considering owning, it's very capital intensive, it's having to spend a lot of money on or it has spent a lot of money on new warehouses, for example.
So during the pandemic, obviously, at the time, everyone thought, This is great for Amazon, because everyone's shopping online, all of a sudden, Amazon is one of the few places they can get goods. But Amazon had to invest a lot of money in order to meet that demand and the returns that it makes on its investments, not just in warehousing, but in lots of different areas that the company is investing in, I think is hard for me to appraise.
I prefer businesses where every Pound or Dollar that they spend, I can say with some confidence that will generate a very good return for me as a shareholder.
And I'm not sure you can say that about Amazon is also just a very complicated business. And Amazon needs to stay on top of changing trends. And it has done phenomenally I'm not you know, I think Amazon's tremendous business.
I'm not saying that it isn't, but it's a business that always needs to stay one step ahead. And, again, I prefer businesses that don't have to always be at the forefront of change, because that's hard to do.
And obviously, Jeff Bezos has been phenomenal, leading that business I know now.
Now he's stepped back, but you know, you compare Amazon to say, a Microsoft, you know, few people would say Microsoft is a true cutting-edge innovator, it's tended to always be there. And it's tended to use its existing customer relationships and distribution that bought it time to adapt to new trends.
So I prefer a business like Microsoft to and Amazon for that reason, it comes back to resilience, resilience again.
Peter Higgins 35:01
Thank you. I love the examples you've given there as well, I really appreciate it.
Now, Charlie, given your long-term investment plan, and the fact that you seem to do little or no trading bar rebalancing, which sort of negative company issues could trigger an instant sell for you an instant sell?
Charlie Huggins 35:24
I mean, it's, it's going to be something that undermines my confidence in either the management culture or business model.
So, I can be wrong on all three, unfortunately, I can be wrong on the business model.
If the business isn't as resilience as I thought it was, then that would be a reason to sell. So if I thought the management and culture is good, but it turns out not to be I mean, if I had any doubts about the integrity of management, and we've seen, obviously this, this happen quite a lot where a company comes out and says, Well, our management have been not behaving in the right way. If I think that they're not treating employees very well, or suppliers.
I want a business that treats all its stakeholders well, because ultimately, that's the way to be sustainable, where everyone wins. I don't like businesses where someone loses badly because I don't think you know, there's a lot written about ESG.
And to my mind, the least sustainable businesses are the ones where one of those stakeholder groups is losing out.
So if I had reason to think that then that would be definitely a reason to reappraise is exceptionally difficult to do to change your mind on a business, it's very easy to overlook the warning signs. And it's something that I'm definitely not immune from.
But you just have to, again, the reason why the checklist is there is because you're saying, well, do I still think that and if you don't, you do need to be willing to change your mind.
Peter Higgins 37:12
Thank you, Charlie, with regards to your checklist and monitoring companies, which I know you'd be doing intensely. Regarding your portfolio, will you be visiting the companies the firm's speaking with the CEOs, CFOs, and attending AGMs, etc?
Charlie Huggins 37:30
In some cases, yeah, so it really depends.
You look at a business like Microsoft, for example, that, you know, I've never met Satya Nadella.
And they may never meet him.
But for a business like that, there's so much information available online, after they do conferences, which they release online.
You know, you could spend all day reading through information.
So you get, and there's so much written about the CEO. So all the information I need is there, I don't necessarily need to meet with him.
On the other hand, Diploma, which is a smaller business and less in the public eye, and there's less written about it.
That's a business where I did recently meet their CEO, I recently had a call with their CEO, Johnny Thomson, as you can call to discuss mainly the culture of the business.
But so, it really depends. But yeah, some businesses I will meet management, I will attend conferences, etc. And some may not really have a hard and fast rule, I just need to make sure that I can understand that sometimes meeting management can be a double-edged sword.
I think you have to really do your work on the business. Do you research on a business before you meet management? If you meet management, then it comes back to what I'm saying before, if you meet management, right at the start of your research process, you can buy into a story and a narrative.
And then it's very hard to get out of that frame of mind when you're reading the balance sheet or something is seeing oh, I don't quite like that.
But you know, I've been sold a story, you have to be a bit careful.
Peter Higgins 39:09
So true, very true.
Now, Charlie, given your high conviction, Wealth Club Quality Share Portfolio, in comparison to other funds in the in that sort of niche, how's yours going to differ?
Charlie Huggins 39:27
I think there's probably a few ways I think the and this isn't exclusive to me.
But I think the long-term approach of always viewing having an ownership lens around the business rather than I own a share of business.
I pretend I own the whole business, and I treat myself as a business owner.
And then I look to own that business for 5-10 plus years.
That approach isn't common with other fund managers. There are some notable exceptions.
But it isn't common, I think because short termism does prevail in the industry, unfortunately. And I've seen that on both sides of the fence.
I saw that obviously a lot when I studied fund managers previous of my career. So having that long- term view, ownership, business ownership mentality, the number of stocks that I'm owning 15 to 20.
Normally, you'll often see 50 to 100 companies within a fund.
To my mind, that's far too many to keep track of, you can't possibly have as much conviction in your 50th or 100th idea as you do in your first.
So that's a key difference. And then as I was saying earlier, the culture being so focused on culture, and management is not something that I see as common in the rest of the industry.
You know, you can't boil culture down to a number on a spreadsheet. And I think a lot of investors and fund managers, they'd like to be able to have things in spreadsheets, that they like to be able to model earnings over the next year or two, I don't do that I'm much more much more interested in the employee reviews of a business than I am an analyst report because the employee reviews actually gives me some insight into the business itself rather than an analyst who's written about what the next quarters earnings will be.
So, it's a very different approach. And then for people who do invest in my portfolio, I provide a lot of information.
So, most funds give you a fact sheet with top 10 Holdings, I will for investors in my portfolio will see every single holding I will write at least once a month explaining portfolio developments and what's going on my thought processes etc.
Peter Higgins 41:43
Thank you for that.
Now, how does one become an investor in your share portfolio?
And what are the charges Charlie?
Charlie Huggins 41:51
So the portfolio is available exclusively through Wealth Club, it's not on any other platform. So you just need to go to our website and there's loads of information there with a video.
If you haven't had enough of me by now, there's another video you can watch. And lots of information on there about the portfolio.
The charge is the 1% annual management charge. There's a 0.25% custody or platform charge as well.
Peter Higgins 42:23
Thank you for that. Now, Charlie, investors often want to know that the performance of their investment is aligned with that as individuals leading and managing the fund they're invested in.
Have you and Alex Davies, the founder of Wealth Club, invest some of your personal wealth into the portfolio and the management of Wealth Club, could you share?
Charlie Huggins 42:45
Yes. So I, myself and my wife have a six figure sum invested in the portfolio, which is a substantial part of our wealth.
Alex Davies has also invested a substantial part of his wealth in the portfolio and intends to invest more as time goes on.
And as have many other staff members at Wealth Club actually, so no pressure.
But yeah, I mean, the reason one of the reasons of setting up this portfolio was to provide a vehicle for staff or employees at Wealth Club to invest into as well as clients.
So it's very much a I couldn't agree more that alignment is essential between the manager and clients.
So I get the same companies that clients do and I'm very have every incentive to make it work.
Peter Higgins 43:47
Brilliant, thank you, Charlie, you spoke earlier about the importance of management and culture within companies.
Please, can you share how Alex Davies, founder of Wealth Club not only recognised your potential as a graduate in 2011, but is now building a new investment culture around and with you now in 2023, with the leadership culture being nurtured at Wealth Club?
Charlie Huggins 44:11
I think Alex Davies has always been very good at hiring good people and just letting them get on with it.
So you get a lot of this, has always been the case even when I worked with him at Hargreaves Lansdown, you get a lot of autonomy, and a lot of responsibility.
And I think that is that is very much a culture that's created a Wealth Club, it's very entrepreneurial, people are given a lot of autonomy and responsibility.
And I think that's a very good way to motivate people. I think too many businesses, especially as they grow bigger, they become very bureaucratic.
And they start putting barriers in the way of people to do their jobs and actually doing the job, the day job becomes less and less important becomes harder to do.
And many businesses operate like that. But Wealth Club is very much the opposite. It's very much everyone rolls their sleeves up, and everyone just gets on with the job at hand and has the tools and responsibility to do so.
Yeah, it's really to summarise it's probably just an entrepreneurial culture is the best way to describe it.
And that is something that I look for in businesses that I invest in is that entrepreneurial culture.
Because if you're very bureaucratic and full of process, policy and procedure, it's a great way to lose relevance.
You see a time and again, with with businesses, as they grow larger, they they stop innovating, they become complacent.
They start hiring loads and loads of people and actually become less and less efficient.
Because the more people you hire, the more the responsibility dilutes across a business.
And that's not what you want. You want to employ a person and say, This is your responsibility. If you do it, well, you'll be rewarded. And if you don't, then we'll know how to come if it if things go wrong.
So to my mind, that's the best way to run a business. And that's how Wealth Club operates.
Peter Higgins 46:15
I agree with you entirely.
Thank you for that reply and I've totally asked you all the questions that I had prepared. Is there anything you want to add regarding this interview that we've had today?
Charlie Huggins 46:26
No, I think we've covered a lot of ground, I suppose we could draw out some general lessons for investors as a whole.
Well, I mean, I think individual investors are in a different position in a privileged position in some way to be able to take a longer-term view, we talked about fund managers and their professional investors often being very short-term.
I think if individual investors can take that long-term view, 5-10 years, then they may not have access to all the resources necessarily that a fund manager has, but they're playing a different game.
And the odds are stacked in their favour as long as you do your research. But if you have that behaviour is a behavioural edge, really, that I think private investors in particular are very well, well suited to capture, having patience, you know, not trying to get rich quickly.
Try to get rich, slowly, let compounding work for you. By having that long-term perspective, don't get wiped out. So diversify.
Don't put all your eggs in one basket and find those resilient businesses that can ride out the highs and lows to capture long-term compounding, humility, you know, it's the more I've gone through investing, the more I've realised how little I know, don't try to forecast what's going to happen next.
Don't try and predict the economy or what the stock markets going to do.
Don't try and time markets. If you don't understand the business, move on.
You know, there's plenty more businesses out there, just have that humility to understand what you do understand what's within your circle of competence.
And probably don't outsource your thinking either.
You know, don't rely on tips don't rely on just because I've said about the businesses that I invest in, that's not a reason to invest yourself.
It's maybe a reason to do more research. But ultimately, you have to come to your own opinion. And I think because if something goes wrong, you need to know why. And you need to know why you invested it in the first place.
So I think for shrewd private investors, there's no reason why they can't do just as well if not better than professionals, if they play to their strengths. And as I mentioned, the management and culture side of things.
Ignore it at your peril. I would say it's something again that most professionals I don't think pay enough attention to, but private investors are perhaps better placed to understand and if they do have that long- term perspective, then they can really benefit from those businesses with great cultures.
Peter Higgins 49:31
Charlie that was an absolutely fantastic synopsis of what our conversation and thank you for sharing those highlights and insights for our global listeners, which are some fund managers as well private, ultra-high net worth individuals or listen to this Investing Matters Podcast.
Thank you ever so much. That was Charlie Huggins, Head of Equities and manager of the Wealth Club Quality Shares Portfolio.
Charlie it’s been a delight speaking with you today on the investing matters podcast. Take care. God bless you.
Charlie Huggins 50:03
Been a pleasure. Thanks, Peter. Thank you.
LSE 50:05
Thank you for taking the time to listen to Investing Matters. Be sure to check out the London South East website for free tools and info to research your next investment. You can also join in the conversation on our social media channels. And don't forget to subscribe to our YouTube channel for more content, including our CEO interviews. Catch you next time.
