Chit Chat Stocks - Chris Hohn: Crushing The Market With Wide Moat Infrastructure Stocks (GE, CP, And...?)

Episode Date: December 3, 2025

On this episode of Chit Chat Stocks, we discuss legendary investor Chris Hohn, who has run TCI Fund Management for over 20 years. TCI has beaten the market for two decades, putting Hohn and the small team of investors in rarified air in the investing world. How does he do it? We discuss: (00:00) Introduction (19:18) Focus on Infrastructure Investments (22:09) Case Study: GE Aerospace and Safran (27:39) Alphabet's Journey and Management Challenges (36:07) Evaluating Risk in Alphabet's Investment (44:41) Takeaways from Chris Hohn's Investment Strategy ***************************************************** Sign up for our stock research service, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chitchat Stocks. On this show, host Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into Chit Chat Stocks, the podcast to help you find your next great investment. Today, we continue our super investor series with an underfollowed investor, Chris Hone. He founded TCI Investments, a fund dedicated to making money for philanthropy around the world, and they've had some pretty stellar returns over the last 20 plus years.

I should say, before we get started, my name is Brett Schaefer, and I'm joined, as always, by Ryan Henderson. Before I let Ryan go into an introduction of Hone, his background, his history, how he got to where he is today, let me remind listeners quickly to give us a review on Spotify or Apple Podcasts. It is the best way to support the show. Let's not dilly-dally. Ryan, we're studying Chris Hone today, so talk to the listeners about his background, history, and then how did he get to founding tci investments yeah let's let's talk chris hone his background's a bit unique in that at least relative to many of the other investors that

we've studied in that he was not born into wealth by any means and it's not that every super investor we've looked at was born into wealth but typically they have some sort of family member or someone who was in finance, someone that was well-connected, that was able to introduce them to the right people. They were able to get into a good university and kind of follow the traditional path. That was not Chris Hone's path. So he was born in 1966 in Surrey, England to a Jamaican-born father and British mother. His dad was a car mechanic and his mom was a legal secretary. So again, not born into wealth, hardworking parents, but not like dad being a mechanic. It's not necessarily like a financial career by any means. So there

wasn't sort of the writing on the wall like we've seen with other super investors in the past. He grew up and attended secondary school in Adelston, which is a small town about 20 miles outside of London. For our American listeners, secondary school is basically middle school and high school. There was a lot of accolades for his early years in academics that I didn't understand. So for example, he passed 13 O-levels. I had to look up what O-levels were, but apparently it's quite high. It's the test students take when they, I think, are 16 years old and it's on just a range of subjects and you you know you either pass each one or you don't i believe and he passed 13 the standard is 5 to 10 um subjects that's kind of average so he was above average from a young age

but it wasn't like it wasn't like boy genius type of thing where for example when we studied lilu he learned english in a summer and like got like a triple major while at columbia it was very like you felt like it was huge like total genius that wasn't necessarily what what it seemed like here for chris home but he was obviously very bright so following secondary school he attended the university of southampton where he graduated in 1988 with first class honors in accounting and business economics. So yes, like I said, bright. And he would have gone on to have just a great career from there, I believe. But he had a tutor that recommended that he apply to Harvard Business School. And that's what he did. So he applied, was accepted, and ended up having a lot of success

while at Harvard Business School. He got his MBA there and even placed in the top 5% of his class. Quick note, while he was at the University of Southampton, I guess right after he graduated the University of Southampton. He immediately went into work at an accounting firm called Coopers and Librand. And you might recognize the Coopers name if you're in the accounting world because of PricewaterhouseCoopers, PwC. That is the same Coopers. So in 1998, I believe it was, Pricewaterhouse and Coopers Librand merged. So he wasn't around for this, but it was the early days uh p it was half of pwc before pwc was formed and while he was there he went on a trip to the philippines i believe for a trip like a work trip and apparently it was a very transformative

moment in his history where he saw kids living in extreme poverty and it sort of inspired him to spend a life dedicated to philanthropy. And it's not like, oh, we've seen a lot of investors where they have success and then whatever, 30 years down the road, they decide I'm going to give some money back to philanthropy. Chris Hone is different. He, from the get-go, was focused on philanthropy. It was basically a part of his mandate when he started his fund. Brett's going to talk about that in a little bit. It's a part of the name of his fund. So yeah, kind of a transformational moment. Anyway, from there, after he graduated Harvard Business School, so he was an accountant for a little while, went to Harvard Business School, did well there, joined a private

equity group called Apex Partners. And I think this is actually quite formative in how he runs TCI today. He says, and I know this is kind of a cliche, but he says that they take a private equity approach to their investments and that he wants to own their public equity investments forever. He also said, and I thought this was an interesting quote because he has experience in the private equity realm. He said that he believes the companies and businesses available in the public markets today are better than the companies available in the private markets. And you'll have a whole bunch of private equity companies that argue the other side of that and say, no, there's plenty of good businesses in the private world and there probably are but he gave a a useful

example he says if you took the 100 best businesses or the 100 largest businesses in the public markets and took the 100 largest privately valued businesses i he says i think he'd argue that the public businesses are much higher quality and i would guess that he's right i mean it's kind of just natural that the largest companies are are public and uh usually when you're large that that means you've had some quality in order to get there anyway so after private equity i think he was there for about two years uh he switched to a hedge fund on wall street called perry capital where he quickly rose up the ranks and two years in he was made head of the firm's london operation and i'll leave it there that kind of sets the groundwork for

what eventually became tci anything stand out to you from this i guess a couple quick takeaways for me in listening to Hone's interviews and reading about his early life, a couple of things were like notable. One, not a super genius like we've seen with some investors, but he's very rational and he's a clear thinker. He is smart, but he doesn't seem to overcomplicate things. And you can, obviously he built some of the technical expertise in order to work on Wall Street, work in private equity. So he knows what he's doing in terms of technically analyzing businesses. But in interviews today, he says he largely relies on intuition now. And maybe that's just part of aging and recognizing situations early on and getting to know management teams

over the years. So that was kind of my first one. Rational, clear thinker, doesn't overcomplicate things. Second thing, growing up middle class, or in his words, poor, led him to put in an emphasis on preservation of capital. And he says it's part of the reason for his generally risk-averse approach. So when we look at his investments, you'll see these are what I would consider risk-averse. And he says a lot of that came from not having money early on. So when you get it, you want to preserve your wealth. Well, I'd say the first thing that I notice would be when looking at any sort of educational stuff in the United Kingdom, it reminds me, it makes me think of Harry Potter and it feels like all this stuff should be some sort of

entrance to Hogwarts. But on a serious note, when you look at what he has done or just where he worked previously at a private equity firm and then a hedge fund, and then taking how those businesses run, looking at the industry, I almost think he set up an anti-hedge fund in the public markets with minimal, minimal turnover, and then also using what he knows about private equity, where they might be buying not the best businesses in the world, but doing it, you know, obviously that sector's returns have been quite phenomenal, but understanding where a lot of the demand in public markets and investing and all that are going and trying to be on the opposite end of that. Buffett-like, patient, buy and hold, buying the best businesses in the world and being a bit

idiosyncratic in looking at competitive advantages. All right, should we get into TCI Fund or do you have anything else for us, Ryan, on his background? Not necessarily on his background, but I think you said it there. For the most part, and there have been, he has deviated away from this occasionally, he is sort of a buy the book, buy and hold, find quality, hold it as long as you can type investor. Exactly. And when looking at the fund and looking at all the other investors that we've studied, it may seem repetitive, but when you look at all the things that he's looking at compared to all the other super investors and seeing their returns over the long term might make you think, all right, well, this might be the way to do it. This might be a way to

actually get some alpha out there, a proven strategy, and there might be some pattern matching investors can do. But let's look at TCI Fund. It was began in 2003 as the Children's Investment Fund by Chris Hone. He is still the portfolio manager and leader of the fund to this day. Why did he start it? Well, as he describes it, when he was working at that hedge fund and he was working in the industry, he received a $10 million bonus. I'm sure this was in the late 90s or early 2000s. And apparently he said he didn't need it. He doesn't have a high spend rate lifestyle. So he just gave it to charity or he wanted, I think, his fund to give it to charity for him. And after getting this money, he realized he didn't really need any more. He had all the

money in the world that he's ever going to need. And therefore, he decided to start his own firm with the goal of using the profits sent to the firm to donate to charity, hence the Children's Investment Fund. I'm not going to go through all the details of what they're giving away today. But with a rumored AUM of around $70 billion, give or take, we don't know exactly what it is, Because if you're looking at, say, the 13F on fiscal AI, that's not going to include all the international investments. So there's a bit of a mystery there. But the rumor is about $70 billion, probably depending on where the markets are trading. And he takes a lot of the earnings as the owner of this hedge fund.

Or there are a lot of earnings, but they are kind of, they're just deemed that they're going to be donating to various charities around the world. I don't have the exact details and they've donated. He's considered, I guess, the most generous person in all of Britain. I'm not sure if that was just a journal article, but they've donated billions of dollars to charity in the 21st century. But if we want to get back to how Hone invests, it's concentrated, it's quality, and it's acting as an owner. If we just go to their website, we can look at their marketing quote and it says, quote, TCI is a value-oriented fundamental investor which invests globally in strong businesses with sustainable competitive advantages. Using a private equity approach, TCI conducts deep fundamental research,

constructively engages with management, and adopts a long-term time horizon. TCI is an opportunistic investor investing from time to time in corporate transformations and special situations. TCI will drive outcomes by using activism when appropriate. The TCI Master Fund is highly concentrated to maximize alpha okay you probably stop listening there but let's summarize one strong and competitively advantaged businesses two making sure management is aligned with shareholders three adopting a long-term time horizon and four highly concentrated to maximize alpha i think that sounds very familiar to a lot of the other investors we've looked at before i getting to the returns ryan anything on his philosophy no it almost might sound boring to

some people because he's not reinventing the wheel here but his approach to finding businesses that are essentially anti-competition like he really wants monopolies or duopolies and you actually see that in his portfolio we're going to get into it but the vast majority of his portfolio is invested in basically duopolies or local monopolies and it ends up being pretty high quality businesses the other thing that i really like about it is this might partly be by the just due to the fact that he has 70 billion dollars in assets under management so he can't invest in that many small caps so it kind of skews him in this area but he says no to a lot of stuff he says no to a ton of industries like if something doesn't meet his criteria he doesn't try to make exceptions from

what i've seen he in an interview he did he basically was like i don't invest in banks i don't invest in alternative asset managers i don't invest in trying to think of all the other industries he said but he's like if it's competitive i just avoid it retail yeah okay let's get back to the script, looking at his returns, TCI's returns have been estimated to be at 18% a year, which crushes the index averages, even in a raging bull market. And you might ask, well, 70 billion in AUM, really long-term fund, it's been around for 20 plus years. What is the size of their investment team? It is only seven or eight people, according to a Hone interview. there's others in the back office, compliance, accounting, what have you, but the actual

investment team is only seven or eight people. That was funny listening to him. That eighth person on the team might go, well, what's up with me? It might not include in the seven or eight. I'm pretty sure the guy can count, but still less than 10 people for $70 billion in AUM. I think that is quite impressive and a lean operation that is much different than a lot of giant institutions out there. And what is Hone's specialty? I think above all else, he tends to focus on infrastructure as a specialty. We will be getting into a case study with GE Aerospace and Saffron. But one area he does focus on is airports, which I was delighted to see, since those are stocks and companies we are fans of as well. I think it's an indication that Ryan

and I are crawling up the right tree when searching for good companies and looking at these airports. I have a quote here. Maybe I'll read. Ryan already talked about it. This is part of the quote of, you know, he was a poor person or middle class and he wanted to get his capital back. He likes tangible book value, physical assets, undervalued assets. And I'll start the quote here, that's something forgotten in economic textbooks as a metric, but replacement value. As an example, maybe 10 years ago, the Spanish government approached us about taking an anchor position in an IPO of their airport, Aena. The airport was basically brand new, huge under capacity, and 75% of the value was in unregulated shops and car parks, a complete monopoly,

unregulated and huge growth potential, and they sold it at a 15% free cash flow yield. And what we could see is that you can never replace these assets. Madrid Airport, Barcelona Airport, they're irreplaceable, and they sold at the right price. Valuation matters. They sold it at a 15% free cash flow yield. I was listening to that and thinking, must be nice to get in on that deal. But I guess someone could have bought at the same time as the IPO as well. And as Hone said simply in an interview, you are never building another airport in Madrid. It is an irreplaceable asset. If you have a reasonable management team and a reasonably business friendly government, then these can be wonderful businesses to own, hold for the long term,

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needs. Switch to IBKR and level up your international trading game today. If you're interested in checking them out for yourself, head on over to IBKR.com. Interactive Brokers is a member of SIPC. Yeah, a couple of things there. So first off, on the team size, I've always thought this made the most sense, especially for a asset manager with $70 billion in AUM, you're not spanning the whole universe of equities. I think he said basically there are 200 companies that qualify into his criteria in the entire universe of equities. So let's say the average analyst covers, I don't know, 20 stocks. You don't need a team of 50 analysts. It really doesn't make that much sense.

So I've always thought, does it really help to have a massive analyst team when the decisions are made by just a few individuals and ultimately the limited partners are pairing their capital with Chris Holmes for the most part? So it's nice to see someone kind of put their money where their mouth is and actually run the team lean and make the investment decisions themselves. As for the part about the infrastructure assets there, this is what I mean by he's such a clear communicator and clear thinker is he just boils it down to Madrid Airport, Barcelona Airport are monopolies. They're geographic monopolies, local monopolies, I should say. Makes sense. These shops are unregulated, just meaning that the government is not saying, here's the prices you have to charge. Here's your cap. and he's able to get an attractive price.

It was really that simple. And I instantly thought as soon as he talked about this, I was like, I'm going to look into Iena. I'm going to look into this airport business because he articulated his thesis in like three sentences. It's a monopoly, 15% free cashflow yield, unregulated. That's, I guess, all you need to know. I think looking at his investment size,

I would look at something smaller. maybe ones we've talked about before, Latin America, Asia, stuff like that. I think that can be quite helpful or maybe an interesting opportunity given to where those stocks tend to trade. Anything else, Ryan, before we get into the GE Aerospace and Saffron case studies? No, I just say that $70 billion in assets is a lot of money. It's hard. If you have $70 billion in AUM, and you don't want to take more than a 5% position, or I can't remember what the cutoff is before you have to consider yourself an activist or whatever it is, like you have to file a paperwork, you are not really looking at anything less than I'd say probably $5

billion in market cap, because it's just not going to influence your P&L, even if the position doubles. It's probably not going to be meaningful to your returns. I agree. All right. let's talk GE Aerospace and Saffron. TCI's largest investment right now, at least according to its 13F, is General Electric or GE Aerospace. It is worth a whopping $14.2 billion as of this writing, which TCI began buying at the beginning of 2023 before the split into the three GE

companies that we have today. With the narrative on GE at an all time low after the, I think we could say now there was some fraud at the time, the fraudulent years and the fallout after juicing earnings per share, the stuff going on in the great financial crisis, kind of a multi-decade downfall for GE. The stock traded at a cheap price with a hidden quality asset in GE Aerospace. What exactly is GE Aerospace? It operates a duopoly selling jet engines to commercial airliners. And Hone likes the market and also owns a Chuck and Saffron, which is one of the competitors in this duopoly because of the high barriers to entry.

Here's a quote from an interview. Another space we like is aerospace, things like aircraft engines and manufacturers like GE Aerospace and Saffron. And we like that space because the barriers to entry are extremely high in terms of intellectual property. property. It's so complicated to make this product that there have been no new entrants for 50 years. So no new entrance is a sign of the barriers to entry. It's one of the criteria you can look at. And why is that? Not only is it very complicated, but you make the money in the spare parts. So once you've got this installed base, the new engines are only a small percentage and the air framers only want one or two engines. It's too complicated. Otherwise,

there isn't room for multiple competitors, excuse me. And then for various reasons, it's very difficult for competitors to enter the replacement parts. So that's another space where very intellectual property can be a barrier. So I like that where you have the combination of, okay, this is an extremely hard business to get into. But not only that, from the existing customers, they're going to stick with you. And it makes sense. You have your fleet of airlines, You have your A330s, you have your Boeing 737s. They're going to have the engines fit for that. You're not going to switch to someone else just because they come up with something and

sell it at a slightly discounted price. And since GE spun out its Vernova and healthcare businesses, it can be difficult to tell what multiple of earnings TCI was buying at the time. I think someone actually, when I put something on Twitter, did some math for me. I'm not going to do all the math here. it's kind of obvious how cheap it was. But luckily, we can use our friends and the handy KPI segments at Fiscal AI and we can merge the pre 2023 KPIs they had and the post 2023 KPIs they have with aerospace operating income. And we can look at the profitability that they were buying

in Q1 of 2023. So at the end of 2022, GE had a market cap of $57 billion. By the end of 2023, aerospace operating income was, drumroll, $6 billion. So you're at 10 times earnings, you're still a little deflated from COVID, and it has since grown to $9 billion in, quote, commercial engines and services operating income. Pre-COVID, you could look and see that the business was generating $6.8 billion in operating earnings, or less than 10x the current market value. And then what about the rest of the business? Well, GE was in the process of spinning out these segments, healthcare and Vrnova, which is the power business. Healthcare is now valued at $36 billion and Vrnova at $162 billion benefited by the AI data center. Boom. And since

they bought, since the beginning of 2023, GE has a total return of 472% and TCI has barely trimmed the position. In fact, it looks like they kept buying on the way up. Here's my discussion question. Was this not an opportunity to buy an ASML-like asset at 10 times earnings that us and the rest of the market missed? Yeah, I think part of it is that people just hear GE and they get the investing ick. It seems like either dead company, been around for too long dinosaur of a business that used to fudge the numbers but yeah i think you're right the like you lay the numbers out here it was before right before an earnings inflection trading at less than 10 times earnings very durable and you think about it from the air

framers perspective like ge's customers you're limited in who you can buy from and you're not going to go with the startup for many reasons but one of them being that you're probably not allowed to and there's i imagine a whole bunch of regulatory clearance required to even be a supplier in this industry so it makes sense that there hasn't really been much disruption for the last 50 years and yeah i admire the people that looked at this before the spinoffs and were able to realize the opportunity that was there. I agree. Okay. Let's get to your case study, Alphabet, Google, one that everyone knows about now, but Hone and TCI have had an interesting journey with, especially with their conversations with management that went a bit public and

what they're deciding to do with their position in 2025. Yeah, you could maybe call this a low light in his portfolio, even though it's it's probably resulted in really good returns for him because he actually has owned Alphabet since 2017. but up until q4 of 2022 it was more than 15 of all his u.s investments so he probably got great returns from there and actually calling this a low light is doing a disservice to him because that's five years of solid returns but after 2022 he reduced his stake and today it accounts for a much smaller chunk of his portfolio at about three and a half percent of his u.s holdings. The reason I wanted to look at this one though, is because he became very vocal about the company in 2022. So let's think back to the timing here. All the big tech companies coming out of

COVID saw this surge in demand. Apple, Amazon, maybe not Apple, Amazon, Google, Meta, Microsoft too. There was a surge in cloud demand. There was more advertising revenue. Amazon was seeing a lot of e-commerce benefits. So big tech in general was seeing really strong numbers and they were hiring a lot of people to match the strong numbers. However, 2022, if people recall their recent market history, was a rough year for all of them. So saw slowdowns in cloud revenue growth. People were starting to talk about like, is cloud close to saturation remarkably? But since it's recovered google was seeing slowdowns in advertising revenue growth and all the stocks were getting hit so google from highs which i think was sort of the end of 2021 beginning of

2022 was sort of the stock highs at that time shares had dropped by about 30 percent and all the big tech companies by this point had determined that they needed to reduce their head count google up until that point had held out they they were kind of the last domino to fall in terms of big tech uh layoffs so chris hone wrote a letter i guess i'll just read a couple of pieces to it it was i think four pages but it's a good letter it's worth a read he says dear sundar tci has been a significant shareholder of alphabet since 2017 we currently own shares valued at more than six billion, reflecting our strong conviction in Alphabet's future. We are writing to express our view that the cost base of Alphabet is too high and that management needs to take aggressive

action. The company has too many employees and the cost per employee is too high. Management should publicly disclose an EBIT margin target, substantially reduce losses in other bets and increase share buybacks. He made essentially two claims here, or two arguments. He said, number one, headcount is too high. That was pretty straightforward. And on this, he said, Alphabet's headcount has increased at an annual rate of 20% since 2017. It has more than doubled since 2017. This growth is excessive, both in relation to historic headcount growth and what the business requires. So I think in the span of like three years, they went from, I think it was like 80,000 employees to 180,000. It was really, maybe it was five years, but a surge in employee

account. The second one here, and I didn't actually realize this, he says their compensation per employee is too high. And here's a quote from the letter. He says, Alphabet pays some of the highest salaries in Silicon Valley. As detailed in Alphabet's Schedule 14A filing, median compensation totaled $295,000 in 2021. An analysis by S&P Global illustrates that median compensation at Alphabet was 67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US. Now, I have heard that Alphabet pays well, but I did not realize that they paid so much more than some of the other big tech companies. So lo and behold, two months after this letter sent, Google announced that they were laying off 12,000 people or about 6% of their

workforce but hone was not satisfied and so he sent another one-page letter to sundar pichai and by sending the letter i mean publicly releasing it on his website and also sending the letter i imagine where he basically says that these layoffs did not go far enough and to his credit he makes a few fair points he says i argued in my previous letter that alphabet's headcount has grown beyond what is required operationally over the last five years alphabet more than doubled its headcount adding over 100,000 employees, of which over 30,000 were added in the first nine months of 2022 alone. The decision to cut 12,000 jobs is a step in the right direction, but it does not even reverse the very strong headcount growth of 2022. So what he's saying here is you've added

100,000 jobs in the last five years, doubling your workforce. It's already one of the largest tech companies in the world by that point. And this feels like just appeasing shareholders a it like a six percent workforce reduction when you started 2022 with a lower employee base like i guess basically home wasn't satisfied now google did not continue to do layoffs that was the last big one announced they've had a few like specific division division specific layoffs but to their credit they have performed really well since and increased their margins over that time frame So shares since that point are up about, I think it's 256% and operating margins have gone from 25% roughly to 32%.

So they did see some margin expansion. Now, here's why I say Chris Hone kind of got it wrong. He cut his position significantly after Q4 2022, right before the stock went on quite a good run. And what I find bizarre is that he has said publicly that he does not focus a ton on valuation. And in fact, he usually lets his winners run. And we see that in his portfolio right now. He owns Microsoft.

He owns Visa. I mean, these are companies that have had multiple expansions when we look out over five or ten years. And he's willing to continue holding them. but he sold Google here and it feels like he kind of sold Google because management didn't do what he wanted to, which, you know, I'm okay with that. If you're going to go activist, you want to tell management what to do. They're not going to respond in the way you want you sell it, but he didn't sell all of it, which I thought was a little bizarre. So they still owns three and a half percent. And now in an interview in may, which keep in mind, may was pretty close to sort

of the it was definitely the yearly lows but it was a low in terms of sentiment around alphabet like everyone thought search is dead ai is going to destroy them kind of that was the narrative at the time he called it he said alphabet is the riskiest company we own so which kind of funny timing considering that the stock has done it's doubled in the span of like six months seven months so i guess my discussion question here is if we ignore the stock performance over the last few years do you think chris home was wrong to trim his position or i guess cut it by like three three-fourths and then are there any lessons that you take away from him selling this either lessons like in that it was the wrong decision or lessons that maybe

he was he had the right state of mind the result just didn't turn out the way he wanted i think using his framework what he cares a lot about is durable terminal value predictability he wants something that is going to be around 10 20 30 years from now and he'll have high confidence in that and when looking at alphabet through that framework especially earlier this year, I'd still say today, you could go, hey, well, there's a lot of disruption risk. One thing he does talk about in the few interviews that he has done is not just competition risk, but replacement risk, where he looked at, he used to invest in the US cable and telecom industry. And the fact that Charter Communications had the fixed wireless and what is the other one fiber

and satellite internet, I think, were the big competitive threats there to potentially replace cable. That is what he calls replacement risk, where you're not just, you might have an 80% market share within your existing competitors, but if something comes along to totally replace your industry, which can happen, he's probably worried about that happening with AI at the moment and even if alphabet is putting up a good fight here there is still major uncertainty with the industry and that's probably why he he said he would sell under his framework and that would be the lesson that i take away yeah it's kind of weird to say google it's weird to hear that google alphabet one of the largest companies in the world is the riskiest investment in a portfolio

but when we look at his portfolio which i'll go through sort of his largest holdings here in a second i don't know if i would disagree like in terms of like if we looked out 20 30 years what is which of these businesses could potentially have replacement risk google somehow might be the highest on that list so let me just go through his 13f real quick and this is just his u.s listed holdings as a reminder so he doesn't include aena it doesn't include any of any international investments which he does have a lot of so number one his largest u.s investment is ge as brett just talked about his case study there second largest is visa third largest microsoft fourth moody's fifth s&p global sixth canadian pacific the railroad seventh google three and a

half percent uh eighth i think it's canadian national cni another one of the railroads the canadian railroads and then the ninth here i actually don't even know what this company is but the ticker is fer so maybe i can oh i believe it's ferguson it's the a commercial HVAC company, if I'm not mistaken. I'll double check that, but I'll let you chime in here, Brett. If I look at FER, that might be Ferrovial. Do not know what that company exactly does. But when we look at his portfolio,

it's 80% made up of GE, Visa, Microsoft, Moody's, S&P Global, and the railroad operators. Yes, there are going to be some other international players in there, but I'm not exactly sure how much of a percentage that makes up. And if you look up his US portfolio, it has to make up a good sizable percentage just because of his portfolio is not $500 billion. I think it's closer to under $100 billion. You look at that and you come back to what he's talked about before, which is concentration. If you're going to have high conviction in an investment, excuse me, in an investment, you don't want to have it at 1% of your portfolio.

You want it at 10%, 15%, maybe 15% is pushing it at cost, but you want it at least to be a sizable position at cost because who cares if you have 1% of your position in something that is your best idea, it's not going to affect your overall portfolio. And that's why when you look at this GE investment, the fact that it is now 27% of his US portfolio, that's the trifecta of finding something cheap, competitively advantaged, and sizing it up aggressively when you feel that you have that high conviction. Ryan, what did you take away from his current portfolio? All right, folks. Before we move on, we need to tell you where we get our data. Fiscal.ai. Fiscal.ai is the complete stock research platform for fundamental investors. I use the platform pretty much every single day. You'll see the charts in our podcast. You'll see it in our newsletter. This is our one-stop shop for stock research. They've got up to 20 years of financial data on all companies globally, including the largest company-specific segment and KPI data set on the internet.

That includes metrics like Duolingo's daily active users, Oracle's backlog, Rocket Lab's revenue per launch, and literally millions more data points. They've also got earnings call transcripts, ownership data, equity research reports, and much, much more. If you want complete financial data at your fingertips, you need to check out Fiscal AI. And if you use our link, fiscal.ai slash chitchat, you will automatically get two weeks of Fiscal Pro for free. No card required. If you want to upgrade, our link will also get you 15% off. Again, that's fiscal.ai slash chitchat. The link will be in our show notes.

Now, pretty much all the same things. And quick correction for myself here. I said ticker FER. I assumed that was Ferguson. I was wrong. The company is Ferrovial. I believe it's based in Spain. Can you guess what Ferrovial does, Brett?

Something in infrastructure? Toll roads? Yeah, nailed it. They own highways, airports, and various energy businesses, so wind farms. But let's see if there's any notable ones here. Ferrovial invests and operates in airports, has operated several airports in the UK, including Heathrow for a period, and recently reached an agreement to acquire a stake in Dalaman International Airport in Turkey. And then they own several toll roads and highways in both North America and Europe, actually a few in Texas as well. So maybe I've paid him a few bucks in revenue there.

Interesting one. No, I guess my question for you, Brett, is he says that Google is his riskiest investment. When looking at that list of holdings, would you agree with him? And I'm talking replacement risk. I might put Microsoft replacement. I might put Microsoft slightly higher. that's the only one that comes close but when i look at the railroads infrastructure stuff visa the ratings agencies the both of them s&p global and moody's ge i guess i'm forgetting ge

there the only ones that look somewhat risky from a replacement risk level would be microsoft an alphabet yeah it's almost like it feels wrong to say that there's a replacement risk for those two businesses being that they're the largest in the world but if you i think listeners should go this is sort of a shameless plug here go to fiscal ai look at his portfolio and look at the list of companies and ask yourself what do you think has a higher likelihood of being around in 20 years I'm not talking about being a bigger business because, you know, Google or Alphabet, Microsoft could grow faster. But what has a higher likelihood of being in business in 30 years? The railroads or Google?

I would argue the railroads. I mean, it's impossible to disrupt. Ratings agencies or Google? Probably the ratings agency. So I don't think he's necessarily wrong to call it the riskiest investment. let's talk takeaways here though as we're kind of running up running up on time what were your overall takeaways from chris hone where would you rank him in the super investors that we've studied ranking well i think if you're going to rank someone you have to just use their returns

that's all that matters at the end of the day a lot of people can talk all willy-nilly about oh well we're investing in the highest quality businesses and it's a more robust strategy but at the end of the day what matters is your returns 18 that would put him maybe if we're going to tear it out he's not up there with drunken miller buffett uh who are the other ones that are the top soros stuff like that but he's maybe in that second tier which is two decades plus of close to 20% returns, 15 to 20%. I think those are quite good. And I think when you look at Hone, that is a reminder, and this is perhaps difficult in a raging bull market, but you want to buy high quality assets at a reasonable price and hold them for the long

term. When you look at high quality assets, I think what he talks about is the two risks that can hurt your durability of earnings and earnings growth. And that is substitution risks and competition risks. You have assets like technology assets, internet assets, however you want to define them. They are a category that can have low competition, but high substitution risks because of potential innovation. We talked about the trimming of alphabet that Ryan mentioned. We had the whole discussion on that. But when you look at the railroads in North America, can they be replaced? No. Every time I look at the BNSF railroad in my hometown, I think this is an irreplaceable asset. It's not going to be duplicated. It would be impossible. Has there

been another railroad entrant in the last hundred years? No. Well, that should tell you something. Has there been another jet engine maker, as we talked about earlier? No. That should tell you something about the industry. And his average holding period is eight years. He wants to buy and hold forever. I'll finish up my part with a quote here. Quote, so we look at more simpler tests sometimes. Will the business be around? Will we still fly airplanes in 30 years? And will we want to airline travel? Will there be demand for it? And once you, and I think that valuation is just approximate, but we can just say in truth with confidence, we have a good or great business. And as I'm saying, only a small subset of businesses can be predicted, which are

the most powerful ones, but exactly how they grow and unexpected events. You're right, there's no certainty. So maybe trying to project that growth can be difficult, or exactly what the growth is. But if you have that durability of the low competition and low substitution risk, you can be very confident that the business as long as the industry is still going to be around the business is going to be there and generating earnings 10 20 30 years into the future okay when i sell my business i want the best tax and investment advice i want to help my kids and i want to give back to the community oh then it's the vacation of a lifetime i wonder if my out of office as a forever setter. An IG Private Wealth Advisor creates the clarity you need with

plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. Yeah, I like his preference for infrastructure assets. It sounds, and it's kind of funny because it's not the way I invest at all like if i look at my portfolio it's very different than his portfolio but i can appreciate what he's doing and his intense focus on quality and brett was talking about the replacement risk for the railroads and i think that's a really good example if you and you said like you see it in your hometown you think every time it's got to be impossible to replace just the illustration

I'd like to give is like if you underestimate the disruption the undisruptable nature of a railroad just walk near a railroad for like I don't know a few miles

see what it looks like and think could someone build this all over again all the way across the country when the entire country is now developed for the most part

it would be very difficult to do and it seems like honestly it might be one of the hardest to disrupt businesses in the world and i guess credit to him he's got it in his portfolio but kind of on a tangent there what really stood out to me was he has narrowed his universe of companies to choose from and he's strict on monopolies duopolies and maybe oligopolies so let's just go through the portfolio ge i think you could say that's maybe a duopoly oligopoly but there's no new entrance in the last 50 years uh visa duopoly with mastercard microsoft massive incumbent so they're not really a monopoly but that's actually

something he also talked about a lot which is incumbency and how much he values it especially in tech he used the example of microsoft versus zoom zoom had spent so much time building up this business and carving out market share for this their video solution covid hits and the incumbent in this case microsoft is able to they've got all this distribution they're able to bundle in a free video service into all their other offerings and they've basically replicated a zoom in a year and he talks about how he people under appreciate how much of an advantage a lot of incumbents have So it's either monopolies, duopolies, massive incumbents. I'll keep going through the list here. Moody's, duopoly with S&P Global. S&P Global, duopoly with Moody's. Canadian Pacific, geographic monopoly in many areas. All the railroads, geographic monopolies. It is – he sticks to it and he doesn't really seem – and maybe this is just the last 13F that I was looking at. He doesn't seem to stray away from those types of investments. the only thing i'll say here and it's not really a critique but if i were extremely wealthy

this is pretty much the exact type of portfolio that i would want all these businesses are so so durable they're not going anywhere however they are not exactly the type of businesses that i tend to look for honestly because i i tend to prefer companies and this is kind of a shameless plug for the newsletter brett writes that are in the emerging moat bucket where the potential earnings growth is much higher but it's also at higher risk and these are much more in the massive developed moat that could that'll likely stay the same but it's not a quickly expanding moat is that fair to say i think it is and i appreciate the shout out for first it's two ways to skin the cat is it a little bit riskier to buy companies with quote-unquote emerging moats or

ones that maybe don't have a very wide competitive advantage or in a more competitive space but you're making a earlier bet on the business yes it is riskier but you can have higher upside And I think that's the balance here, where he wants established moats, certainty, irreplaceability. That's one way to invest, and it's clearly led to fantastic returns for TCI over the long term. All right. I think that's going to do it. I think that covers all the bases for Chris Hohn. I will say I liked studying him. He seems to care a lot about philanthropy too, which we didn't discuss too much on this episode, but I recommend listening to interviews with him, reading about him. He's a thoughtful investor and we try to do credit to his portfolio, his investment approach and everything today, but it's sometimes better to just hear it directly from him. So I recommend going and listening to those interviews. They're all over Spotify, Apple, everywhere else. And I think that's going to do it unless, Brett, you've got anything else. nothing else on my end I say thank you to the listeners we had some technical

difficulties on this episode so we're going to try to keep fixing that we've hit some sort of curse I think the last two weeks and I just hope it's just a string of bad luck using our DIY setups here but

hopefully that bad luck runs out on Chris Hone great investor someone to definitely look at And I enjoyed studying him. And I think if I'm taking away personally for any listener, when looking at infrastructure investments during a bull market focus, not really on that, even though it's specific AI infrastructure at some points, but airports, toll roads, stuff like that, it gave me validation that these are the sectors that I should be looking at.

And I quite enjoyed it. Yeah, the last thing I'll say before we sign off here, there aren't a lot of investors that I actually follow their 13Fs where I like look every quarter and see what they bought. Chris Hone is one I'm going to add to the list because sometimes 13Fs, there isn't a ton of value like Stan Druckenmiller. He's kind of moving in and out of positions really quickly. You never really have a sense of why he owns it. Same with Michael Burry. Same with a lot of these investors. 13F is kind of just a snapshot in time. With Chris Holm, you know why he owns a business.

He owns it because he likes it. He has that private equity approach to public markets where he wants to own it forever. So it's worth keeping an eye on his investments. That is going to do it though. Thank you everyone for tuning in. We want to remind you that Brett and I are not financial advisors. Anything we say or discuss here on this podcast is not formal advice or recommendation. We may buy, sell, or hold any of the securities discussed in this podcast. Thank you again for tuning in, and we'll see you next time.