The Capital Cycle Podcast - Founder’s Story

Episode Date: May 1, 2025

Neil Ostrer reflects on his long career since founding Marathon in 1986. Topics include; the importance of maintaining a long-term investment horizon, the (low) value of broker/banker advice, the false dichotomy between value and growth investment styles, Marathon's investment in industry 'clusters' and how meetings with company management are vital for successful capital-cycle investing.”For more information, or to access select articles from Marathon’s Global Investment Review publications which accompany this podcast series, please visit www.thecapitalcycle.co.uk Hosted on Acast. See acast.com/privacy for more information.

Hello, this is Edward Chancellor with a special episode of the Capital Cycle podcast. I have with me today Neil Ostra, who is one of the founding partners of Marathon Asset Manager, and until he stepped back in 2023 was the lead European portfolio manager. Welcome, Neil. Thank you, Eddie. Good to see you. And, Neil, what we're going to do in this special podcast is talk about your career at Marathon. about the evolution of Marathon's investment philosophy, your contribution to that, and interspers that with some of the hair-raising investment periods that we've all lived through

in the last 30 years. Can we start then with just talking about very briefly about how you decided to found Marathon and the clue of its early investment philosophy being in the name Marathon? The reason I helped start found it was that I needed a job. I left the fund management company that I worked for, which was in the US for a while. I had teamed up with Jeremy Hoskin, who turned out to be one of the co-founders of Marathon, but had been working with me at the previous investment company. And that in a way explains the origins of the investment philosophy,

because Jeremy Hoskin had been asked to help clean up the rubble from the last tech bubble. and this was back in the early 1980s. And if you recall, that was the PC boom, as opposed to the later TMT boom and so on. And what he learned, and I picked up at that time, was that the bust from that PC boom was caused by excess capital going into anything technology related. And, of course, that was forerunner of other bubbles and busts. And he had helped clean up the US portfolios of this firm by buying much more steady, high return businesses where there were barriers to entry or good capital cycles. And from this experience, we learned that we needed positive capital cycles to get decent investment return. And also very long-term holdings.

I was reading through some of your contributions to Marathon's Global Investment Review. notice here one point you write in August 23 as you're about to step back from actively managing the portfolios that 81% of the total return of the European portfolios was generated by stocks held for more than 10 years and this is a theme that we're going to come back to later but marathon has actually lived up to its name of having a very long investment horizon and a relatively low turnover. And what do you think is the advantage of that? Well, finishing the answer to your first question, which was Marathon was called Marathon because it wanted to be seen to be investing for the long run, as we called it. I mean, long term investing is really what investing should be about.

During my career, that quite long career, investment time horizons have got shorter and shorter and shorter, probably made so by the advances of technology and the way that. The way that that the industry works. But we learned in our early days of investment from reading about the likes of Warren Buffett and Charlie Munger and Peter Lynch and so forth. And what we learned and what we experienced was that investing is about finding good businesses

well-managed and holding them for long periods through one or two ups and downs and ensuring that they are businesses that can earn decent returns for investors over a very long period. And they need to be in good capital cycle. to achieve that. Yeah, so let's talk a bit more about the capital cycle philosophy, which it was probably innate in your investment approach before it was then properly articulated from roughly the mid-1990s.

And one of the hallmarks of the capital cycle philosophy was a distrust of investment bankers and stockbrokers. Should you talk a tiny bit about that? You know, your view which you articulated, several times the other the years about the investment bankers being transactional fee generated and so forth and not being the friend of the investor, at least of the professional investor. For a capital cycle to work well, we mean finding industries where capital is constrained and returns on capital can be good and that always feeds into the share prices. But there is a whole industry out there designed to raise capital for companies and dilute those returns. And so therefore there is this constant tension between investors in good capital cycles and investment

bankers who want to take advantage of high return businesses and raise money, which generates them fees and effectively dilutes those capital cycles. However, you know, investment bankers do feel a good social and economic function because we wouldn't have had all the pipes that created the internet without investment bankers. Nobody made much money out of people who own those pipes, but we've all benefited from the development of the internet, for instance. Yes, although not necessarily the shareholders and investors who actually funded the initial capital investment. Exactly. There are, I think, many examples of industries where nobody made much money out of the investments, but we've achieved a social and economic good from

that industry being developed. Yeah, and it's the job of the professional investor to negotiate these tricky technological periods of innovation to the advantage of their investors. Neil, I liked in particular a GIR you wrote in March 2004 on Stockholm syndrome and about how the investment banker captures his clients. Stockholm syndrome, which is quite a well-known syndrome, but it developed from, I think, a bank siege in Stockholm in the 70s. and when this was a prolonged siege and, I think, four gunmen held hostage people in a bank. And after a while, the captives started identifying with their captors.

And one of them, I think, ended up getting engaged or married to one, and the other one helped pay off the other one of their captors' loans and so forth. I sometimes felt like experience that in my relations with the investment bankers, stroke brokers. If they said to you, said to you, you know, this is a terrible day. much volume, that didn't matter at all to me as an investor, but somehow they wanted me to feel sorry for them. And so they wanted you to feel that whatever they were doing was right and good. That is how Stockholm's syndrome sort of works in the relationship between investors and bankers. So the banker wants you to buy their deals. You want you to churn your portfolios and generate

commission. And so they have to find ways of capturing you. And you also cited in that, piece, the psychologist, if that's what he is, Robert Chaldeini, who wrote a famous book called Influence, which was much recommended by Charlie Munger back in the day. And you write there about how reciprocation tendencies among investment bankers, how they, or the brokers, how they do favors for their clients and then expect some reciprocity. You talk about social proof. If everyone else is doing it, Neil, why aren't you doing it too? You talk about liking, just liking, how relationships between the professional investor and the broker can lead to decisions that they wouldn't otherwise make. And you talk about authority, how you were meant to be impressed

that the top-rated analyst has a buy recommendation back of the day that tended to be very few recommendations, as you remember. So those were the elements that reinforce the Stockholm syndrome. In a later, GIR, you wrote a piece complaining about the guidance game, about how companies and brokers were focusing on short-term earnings guidance. Do you want to talk a bit about that? Yeah, I mean, as the world progressed and more information became available and more readily available because of technology and so forth. The investment banking industry, the sell side, as we called them, they felt that if companies could give guidance on how their earnings might go and so forth, that would generate more activity. So guidance is, firstly, it's a short-term thing,

and companies, of course, are not, shouldn't be short-term, they should be long-term businesses, and what happens over a quarter should be fairly irrelevant. And so why, in fact, investors should react to what goes on in a quarter should also be irrelevant and not necessary. But by working on developing a guidance system, they were encouraging people to transact and generate commission for them. That's another behavioural development probably in the early 2000s that guided the industry somewhat and probably still does today, actually. To sum up our early thoughts on investment bankers and brokers, your view on the whole is that it's dangerous for the professional fund manager to spend too much time talking to the brokers?

Yes, I learned this a hard way because I started young and naive. I learned that these people who were always trying to telephone you, and of course in the early days the only way of communication was the telephone, and they tried to engage you on the phone and be friendly and nice to you and offer you lunch and dinner and so forth was a way of gaining your confidence. But the system, as I learned, you should spend as little time as possible on the phone with these people and you should spend more time doing the fundamental aspects of your job, which was to meet the management of the businesses that you were going to invest in

and assess them yourselves rather than be told by a broker what to do. And the broker is, of course, motivation because they were paid on commission and on deals, their motivation was to get you to transact and to do deals. whereas our motivation was to invest well for the long term, which might involve doing no deals and no transactions. So there's always this fundamental conflict. So, Neil, when you and I first got to know each other, it was roughly 25 years ago,

when the TMT bubble, as we called it back then, technology, media and telecoms bubble, sometimes called the dot-com bubble by Americans, was going strong, and Marathon's short-term performance at the time was suffering because the firm as a whole was applying its capital cycle investment philosophy to not buying the TMT stocks where capital was pouring in and there was a bit of suffering at the time. You remember that well, you have TMT scars.

That was a difficult period because going into the bubble in the late 90s that one of the great metrics in our industry was tracking error and the clients, consultants would measure our tracking error and if our tracking error was high, that means we were taking more risk against the index. But if the index as itself was getting more dangerous as it was because these TMT stocks were getting squeezed up for various reasons that we can go into, that meant that, you know, we were going to underperform for a while and it was very painful and we were told that we were taking too much risk and we didn't get it. We didn't understand that this was a whole new world. And it's worth underlining that, that the tracking error as the

consultants would call it, was actually a measure of prudence rather than risk taking. It was the opposite of risk taking. It's not so relevant today, but in those days, benchmark tracking was very strong, and the indexes themselves were extremely corrupted. You wrote quite a lot about that. I mean, it's a historical footnote now, but how the problems with the free float. Would you Will you tell the historically minded listener what the free-flate problem was in 99, 2000? Yes, I mean, the indices, whether it be the FT, the MSCI, the largely followed indices against which fund managers were measured and benchmarked were constructed by these people who own these indices in different ways, but they did include the full capitalisation of a company, even if it didn't have a large free float. I think you cited France Telecom, for instance. France Telecom, Deutsche Telecom were big examples because they went public in that period

and the government only sold off a small amount but they were put in the indices because they were large companies in their own right and as a result the shares got squeezed up because there was gradual development of index tracking in these days and so the index trackers had to buy the 100% waiting or had to track the 100% waiting in the index, even though only 30% was available to buy. So this squeezed the share prices. Yeah, and compounded the short-term underperformance of marathon. Do you want to think back on some of those stocks that went to crazy prices? I like it when you write, for instance, let's take the homegrown largest tech stock at the time or telecom stock, photo, photo. You want to give us your reminiscences of

Yeah, I mean, that was a great story. And I actually coincidentally looked at the share price today at 70p and the market cap, which is 17 billion pounds. And it was, according to one of those pieces I wrote, I think it peaked at $380 billion. I think it might have been dollars or pounds, still such a large number back in 2000. A Vodafone was a great example of some of these things that we've just been talking about, where investment banker capture. Yes, because there was a famous takeover of Mannisman, which was a German,

it was an engineering and telecoms business, correct? Yes. And you cite Paul Woolley, who ran the UK arm of GMO, where I later worked, and Woody mentions that given the later value destruction at Vodafone, shareholders would have been better off

if Vodafone had called, gone bust before its acquisition of management because the share price collapse was so severe later. Although we're not here really to blow your trumpet, when the dot-com bubble burst, Marathon's European portfolios put on a very good period of performance, just validating the capital cycle idea or the disciplined use of capital cycle investment in that the You mentioned, I think, in June 2002, that your European portfolios had outperformed their benchmark by a thousand basis points a year over the previous three years and over 500 basis points a year over the previous 15 years. And we won't go into the other stocks that went down. I mean, back in the day, your biggest decisions in the late 90s were whether to own Nokia, Deutsche Telecom, France Telecom.

telecom, Vodafone and the like because of their bloated shares in the benchmark. And all those stocks fell more than 50%, some down 80%. And as you mentioned, the likes of Vodafone were permanently down. I want to turn now just to go back to discussing other aspects of the investment philosophy that you developed over the years and that cohere with the general capital cycle approach And starting with the idea of value and growth approaches to investment being a false way of looking at things. I think this is a very important point. Well, Marathon's capital cycle philosophy enabled, and still does, enable us to invest in both value and growth.

And in our industry, there is a great tendency to pigeonhole a manager in a distinct style. Because our style involved using the capital cycle, it enabled us to invest in those two ways. explain to a listener who wouldn't be familiar why this is said? Okay. A capital cycle, if there is excess capital in an industry or coming into an industry and it presses returns and that may go on for a while, then that industry is by definition not going to be a growth industry. Maybe was in the past, but isn't now.

It could be a commodity industry or retail or whatever. But that means that the industry may still become attractive. to invest in on a capital cycle basis because enough capital will be taken out of the industry that the returns can improve again. So that would be probably a value stock, a company that is low value compared to what it could achieve. Whereas a growth stock, again, there will be a capital cycle that enables it to be a gross stock because capital in the industry is constrained by virtue of competition barriers to entry or whatever. The company could have a very special franchise in medical equipment or whatever, but that means the

company can continue to own very good returns over a long period. It won't be cheap as an investment, but it will be a growth stock, and it has a good capital cycle within its own context. I think I'm right in saying that the consultants again used to beat marathon up for what they used to call style drift, and they wanted to pigeonhole you as a value investor and reprimand you if you bought a so-called growth stock. Yes. A few years after the bubble, the TMT bubble had burst, we decided that there was quite good value in what we would call beaten up growth or growth stocks that have been so damaged by the effects and the after effects of the TMT bubble that they were now presenting good value

because I think what happened is that the markets throughout the baby with the bathwater and so when we got to about 2004-5 there were some very depressed growth stocks they may not have been in TMT and when we bought into the hearing aid industry which was a good long-term growth industry and you've been could sort of say they were technology stocks, but they were very depressed because all growth had been derated by the bruising effects of the TMT bubble and its aftermath. And I think this is, again, really profound reason of why the capital cycle approach is a very powerful approach, is it allows the investor to move between these different conventional approaches

like value or growth, according to what the opportunities that are around at the time. So conventional value after 2000 did very well. When I mean conventional value, I mean low price to book, low price to earnings. But then probably around the 2005 period, which you're talking about, that that run was largely done. And your what we might call growth at a reasonable value or high return stocks, quality stocks that were reasonable value, that then took off.

So it was a nice chance to show that the portfolio could shift its emphasis. And I think we might just mention a bit about how you then write about how Marathon had what you call a horizontal approach investment rather than a vertical approach. Can you explain what you mean by the horizontal approach? Yeah. Most fund managers think in terms of verticals. They have various people who specialize in different areas, whether it would be telecoms or autos or chemicals. Marathon specialises in a horizontal way because its key skills are capital cycle analysis and management assessment. And those are horizontal because they cover all industries. So we take our skills and we apply them to whatever industry we're

investing in, where we decided whether the capital cycle in that industry is attractive or not. And then we assess the management in that industry. And the ability to assess management is broad-based. It doesn't have to cover one particular industry. And likewise, the ability to analyze capital cycle. Exactly. What we discovered was that these two disciplines were not very well covered by the sell side because the cell side had an inbuilt conflict. And the cell side couldn't write things about management because then they wouldn't get access. And they were always integrated with investment banks. So that wouldn't work. So we never got any really good insights into management from the cell side. We'll get, Neil, we'll get back to the meetings with

management a bit later on. I want to just say with the idea of these clusters, you call them, that by the beginning of this decade, you're talking about managing around a variety of investment themes, where you mentioned the hearing aids, but you had a number of other themes, and those themes, I take it, are in areas where you felt that the capital cycle was in a benign phase, i.e. not where capital either was being taken away, or at least capital wasn't being sucked in to take to reduce returns and high return industries. Can you talk us a bit about your cluster views? Yes.

I mean, the cluster discussion really is about trying to explain to people who think that fund managers had always be very concentrated. And we've always got criticism at Marathon for having too many stocks. And they say, well, how could you know all these companies well when they've got so many of them? Our answer is we're often trying to understand an industry and a cluster of companies. and there might be more interesting than owning one big stock, like an HSPC or a Glaxo. Rather, we would have three stocks in the hearing aid industry.

And the cluster is because we've decided that we'd have stocks in this particular capital cycle because we think the capital cycle is the overriding theme here, the fact that the hearing aid industry is consolidated and so forth. And it also has the advantage in that it allows you, if you're managing a large sum of money, not to be forced into large-cap stocks, Absolutely. You can hold medium cap stocks in a cluster, and by holding three of them, you're in effect holding the equivalent market capitalisation of a single large cap stock.

Yes. I think we get on to your investing rules of thumb. We won't spend very long on them, but never invest in a German bank? I think that still holds true. I mean, to this day, and throughout my career, which is nearly 40, well, it is over 40 years, I don't think anybody's made much money in German banks. German banks, of course, were rebuilt after the Second World War and ended up being owned by it as cooperatives or municipalities

or by the federal government. And as a result, they relied on the government for finance or these various owners for finance. And they were set out in a way for a sort of a social purpose. So they'd never had the right shareholders or the right return requirements. And it was a hopelessly fragmented industry. And it was very fragmented. So they were never set up as capitalistic institutions.

Okay, next one. Never invest in a European legacy airline. Well, I mean, airlines have always been quasi-state owned in Europe. And even today, they have the name of the country on their name normally, which means that they are often prestige entities, as opposed to just commercial enterprises. So as aside, Neil, I mentioned you. before we started recording that the airline industry in general, as you know, has the worst capital cycle, probably any industry in history. But the infants of the capital cycle philosophy

has become so extensive that last week the chief executive officer of United Airlines was being quizzed on his latest earnings report. And one of the questions was, what had he got out of reading the marathon book Capital Returns, and he said that he didn't like to be buying airplanes when everyone else was buying them. So that's a nice, a nice thought, that not only the Marathens Capital Cycle philosophy extended, as you know,

right through the buy side, the professional investment world, but it's now even curiously enough seeping over into these very capital, undisciplined industries like airlines. Your next point, avoid IPOs. Well, I mean, IPOs are, you know, the ultimate way of making money for investment banks because certainly in earlier times

they generated fees of 7% or more for the investment bankers. So they were desperate to do this business. And so they were desperate to sell it to the buyers being people like ourselves, professional fund managers. But they were priced as highly as possible because these fees were being paid by the sellers, not by us the buyers. I think here we should mention your very scientific method you developed for gauging sentiment in the market for initial public quotations. Tell them about the Ostra IPO tracker. Yes, the crude indicator back in the day when you probably didn't have this information stored electronically was to pile up the prospectuses and see how high they got.

And we just did notice in the late 90s that the prospectuses, the pile of process is getting so high. It put by month by month, Craig. Yes. And there was hardly any space. in your office. And we have a photograph, you remember, in the first marathon book Capital Accounts, of the tottering piles of IPA prospectuses

full of female Arpoo's average revenue per units of these mobile phone companies of the monetisation of eyeballs and all sorts of nonsense. And I remember either you or Charles Carter telling me how you'd provided so little business to the brokers back in 2000 and with these IPOs

that they were hardly returning your calls when you actually wanted to put a trade through. Yes. We weren't very popular because these IPOs were such a lucrative business for them and we weren't buying them. But as we just discussed, an IPO tends to be a sign of the top of a market. It's a capital cycle manifestation.

It's raising capital. Yes, and also it captures a speculative euphoria of the period. So what we typically have is, you know, the first day, a little run-up, perhaps first day or a few weeks, and then longer-term underperformance. So for a long-term investor, IPOs are on the whole, a no-no. You mention also avoid companies that are partly owned by the state?

Yes, state-owned companies tend to be run partly for political reasons and partly by political appointees, which are not ideal reasons to own them. The political appointees are probably not good managers of businesses, probably politicians, and they probably don't have the right objectives in mind because if they're being run partly for the state, they're probably run for employment reasons as part from anything else. And so this follows the next sector or recommendation to avoid is never invest in commodity auto makers. So a company like Renault, which is both largely state-owned and a commodity auto manufacturers, is a no-no. Well, certainly back in the days when I wrote those articles, you know, there were a lot of commodity automakers earning very low returns.

And again, they were partly there for political reasons. They were very unionized businesses. And so they were big employers. And so therefore, it wasn't something that the politicians would have wanted for them to go bust. And it's also, I mean, it's even true of automakers that are not, where there isn't any direct state, well, you remember, in the United States, half the global financials. financial crisis, how Washington stepped in to keep general motors afloat and keep all those jobs. Now, you mention your list of what to avoid nepotism, and one can understand that. You obviously don't want investing companies where a family member who's not qualified is given

the job of running a company. But when you write elsewhere about what you like in a company, you talk about stability of management and a long-term controlling shareholders. So how does one weigh up your sort of warning against nepotism with your attraction for businesses where there's a controlling family group? Well, I mean, the controlling family group doesn't always have the family running the business.

They often might be owners without being managers. I mean, hopefully if they're far-sighted enough. The examples I give of nepotism is where a son has succeeded a father for no good reason other than he was the son of the father and not qualified to run the business well. Whereas long-term family holders could be people who would just put in the right management because they want the business to do well,

not because they want to employ the family. An example of that might be Heineken, which I don't think the family works in the business, but Heineken has prospered very well over the years. And you write, you know, when the Anie family used to control and manage for it, And you write on more than one occasion of how pleased you were to see the Agnely's relinquish executive control to the late Sergio Machoni, who you thought was a great manager. Yes. And we had a very sort of revealing experience there because when Fiat said that it was restructuring and then they brought in a senior executive from GE, the chairman and the vice chairman were still family members and they didn't let him do the things.

that he wanted to do such as closed plants and do the things that were unpopular and wouldn't go down well, you know, in Italy with a Fiat family name. He wasn't able to do it, but when those two scions of the Anili family suddenly both died close together, then a professional was brought in by the rest of the family and he had carte blanche to do what was right and Marchioni did a fantastic job and now Fiat is one of the world's largest auto companies. in its merger into the company called Stellantis. Another feature you say you're attracted to is insider ownership. You like that the management should be aligned with Shellers.

You mentioned, for instance, in one of your pieces, the former head of Reckett Benkeezer, Bart Beckett, and also Simon Borrows at 3I. So you want to talk time a bit about insider ownership or alignment of incentives? I mean, it's fairly common, but it's worth drawing out. It was less common in those years when we were writing some of those articles. But obviously, it's good for managers to own shares in a company and to put a lot of their wealth into the company

because they're putting belief in what they're doing. The opposite would be that managers don't have any investment in the company and they don't have enough incentive. We have those examples, whether it be 3i or record or, and many others, something like a much yearn, he would have had a lot of investment in his companies, where they are properly aligned and they're aligned with the shareholders. Obviously, you can get extremes and excess, which goes wrong, and management's get very greedy, and they get given too many incentives and so on.

But those examples I gave you work. Or they get given short-term incentives and reload their stock options whenever the stock price crashes. So we're going to do in the last part of the podcast address a theme that you've been mentioning on and off in our conversation so far, namely how you get a lot from meeting with the managers, companies you're investing in. There is a view that is quite commonly expressed. You mentioned in one of your pieces, the late Tony Dye, who was head of Phillips and Drew, and the manager that he was kicked out at the peak of the dot-com. but Tony didn't believe in meeting with managers, thought there were corporate PR exercise,

the quant investors who invest, as their name suggests, solely on the numbers, don't meet managers and obviously don't believe in meeting managers. But you have a different view. And I think in one place you make a good point is that these people tend to view companies as inanimate objects as if some or other people don't matter.

You know, companies, in a way, is a living, breathing thing. It's as good as the people who come into work each day. Obviously, there are some companies with fantastic franchises that are going to survive all types of managements, you know, like a Coca-Cola or a Disney, some food brand. Possibly not Disney. Maybe not Disney. But the management makes such a difference.

And I frequently quote the Warren Buffett quote about, you know, how much. Yeah, let's, I've got it here. You can read it. And I'll read it to you and you can explain it to the listeners. Warren Buffett, at one point highlighting the importance of the manager's capital allocation decisions, says here, after 10 years in the job, a CEO whose company retains 10% of net worth will have been responsible for the deployment of over 60% of all capital at work in the business. What that means is that management, how they allocate capital and whether they earn good returns on that capital is crucial to the value of the business. And that's why investors must focus so much on management and how they reinvest the capital. So Marathon spent a lot of

time not just meeting with management, but asking them hopefully the right questions about how and why they're allocating the capital, not just because investment meetings with management can often just end up in a discussion of what they do, you know, how many cars they sell and so on. But we want to know why are you selling cars? You know, is it a good return business? Should you be selling cars and so on? That's a different discussion. Or putting a different way is you invest with a capital cycle framework,

but the actual capital allocation in the real world is being done by the management team of the companies you invest. You want to make sure that they understand. the capital cycle in the industry they're operating in a similar way to the way you do. Yeah, you're absolutely right. You want them to think in a sensible capital allocation way. You want them to think about why and how they allocate the shareholders' money and how they get to earn a return on it. And if not, why aren't they giving it back to shareholders? So you want to know how they think about that, because sometimes you will have a discussion

in management and there will be no reference to that. And it goes back to, I think, a point that you mentioned earlier that the brokers who produce, you know, propaganda on companies, on the whole, tend not to analyze the capital cycle or the capital allocation decisions of management, partly because the brokers themselves being vertical, as you'd call it, and specialising in a particular industry, can't see the wood for the trees. And also, they will tend to support periods of when their investment booms, when a contrarian capital cycle, the investor. would be pulling out. So people will hardly believe this, Neil, when I mention how many meetings you and your team management meetings you and your team had. You write in one of your pieces that between 750 and 850 meetings are held with European managements in the course of the year. And then I think towards the period where you're about to step back from, or when you have stepped back from managing the European health, being the lead management,

in the European portfolios, you say that there have been nearly 18,500 team meetings with management. So that's a lot of time you've dedicated. You probably, in terms of allocating your time as an investor, you allocated most of your time to European meeting with management. Yeah, I suppose I spent more time doing that than anything else. And it was the right thing to do, as much time as possible meeting the people who are looking after your client's money in you know, the shareholders' interests. And interesting enough, you say that even with these stocks that you held for decades, you carried on meeting them. I mean, if you would own a stock for a long time, what were you looking for when you revisited the management that you were

quite familiar with? What would you try and get? You were looking for consistency of their investment policy, that they were continuing to do what attracted you to the business, that they knew why they were doing it, that the policy was being executed successfully. And obviously, you would also talk about some of the external factors that influence their businesses. But you were just continuously trying to catch up with management and seeing whether the story remains the same and whether there were any inconsistencies. Because sometimes you would meet companies where we perhaps didn't have investments, where they would tell you one thing at one meeting, and then six months later they would tell you something contradictory. And so you want

the consistency of message. So let's get into the management red flags, which is a bit I particularly enjoy. First of all, there were certain personalities you didn't like among the senior executives. You referred back to the former management at Sainsbury's old patriarchal management. In particular, I think this is a theme

which I see in lots of your pieces, you didn't like autocratic management. Tells a bit about the autocrats. Yes, you're, you're, You would often meet managements, and particularly they were from these sort of privatised European businesses and industries, whether it be a telco or a utility, where management would have been a political appointee, and they would come into the office with a retinue of colleagues or junior people. You know, the room was filled up. Other people were never allowed to talk. The senior autocrat

would waffle on and would not really allow you to ask many questions and then sweep out of the room and that would often happen. So you got a sense that there wasn't any dialogue or discussion within management of that company. And so you often met management like that. Or there are autocrats who were behaved in different ways to that. They were often, you know, we would meet management where we kept in wondering why the CFO changed every two years and so on. And you realized that people couldn't get on with the boss.

So next to the autocrat, there's the, and this goes back to common theme and the have the cycle and in your your pieces of the dangers of the investment banking is the investment banker turned chief executive of which the perhaps most famous in history is Jean-Marie Messier, who took an excellent French utility company, turned it into telecoms and music franchise back in 2000 and utterly imploded the stock. But there you talk about him being promotional, being surrounded by sycophants, being intolerant of criticism. He was, when he'd been at Lazars, the star banker. He was the Macron of his day.

An utterly useless manager, you steer clear. You complain about managers who are arrogant. On appearances, you say, watch out for the, when you go to meet the manager, watch out for the quality of the meal. Do you want to tell them why I want to? If you were given a very nice meal with a company, I mean, that would have been paid for by the investment banker. And the meal, you know, they wouldn't give you a very nice, expensive meal

unless they wanted something from you. Some capital raising. There was capital raising or whatever. So you look out for science of extravening, executive jets for the operators of Scandinavian paper companies. Yes, I mean, if the management are doing things that you don't think are normal and down to earth in their management of the company. The Scandinavian paper companies would have jets.

They said ostensibly to fly them up to the paper mills in north of Sweden, but actually they used them to come to London from Stockholm, which you could do for a very small amount of money. Well, you never liked grandiosity in any way. At one stage, you referred to the warning sign of the blue diamond cufflings worn by Bernie Ebers, who was the chief executive of World. the large telecom business that imploded. But this became a common marathon refrain of not liking moves to fancy headquarters.

You mentioned at one stage Erickson, the Swedish telecoms equipment maker moving to fancy headquarters in Mayfair. But you liked modest management. And so the Reckit Pinkies are the European Household Goods Company. Describe your first meeting with them. Well, my first meeting with them was they weren't called Reckett-Benzheza. They were called Benkeezer, and they were a small Dutch household products company, capitalised at a billion or so on the Dutch Stock Exchange, and their headquarters was in the Ski-Pol Airport Office Complex.

So you didn't have far to go to get to them once you got to Amsterdam. I went to meet them, and I met the CEO, and I was impressed by the sort of the low-cost surroundings, but also the message, of course, from the company which was very impressive. And so we invested in the business. And within a few years, it had reversed, taken over, much bigger, sleepy, British conglomerate called Reckett and Colman and Benkeesa. So it became Reckett Benkeezer. But of course, it was a reverse taker of the smaller company who were staffed by ex-proctor and gamble executives who were quite dynamic.

They went through the old sleepy British colonial business, Recke and Coleman, like a dose of salt. And it became a very successful food, household products company that, you know, grew to challenge the big players like Unilever. We're with this very dynamic management that ran the business on negative working capital and developed its brands very dynamically and reinvested in the business. and were required to have a lot of incentives in the business. So, Neil, I created from your writings what I call the, as opposed to the red flags, the checkered flags, the things you liked, the alignment of incentives we've already discussed, belief in shareholder value, humility, open-mindedness, and realism. You cite preference for a strong corporate culture. You mentioned one stage BAA systems had a strong core.

corporate culture. You had a sense when you visited companies that certain firms had very strong cultures. I mean, sometimes you would just notice it from walking into the premises and, you know, everything from the reception to the people you met, you know, they were positive and gave you a good feel for the company. As a fund manager, you would often be dragged around plants and so forth and often you don't get a great feel from watching a car being assembled or whatever, but you do get it from meeting the people in the business and talking to them about the business. And you do get a bit of a sense of the culture if they're all positive and, say, you know, sound intelligent and coherent when talking about the business.

So, I mean, there are many ways of trying to measure corporate culture. Obviously, I think you made reference to grandiose headquarters. You know, when the company spends too much of the shareholders' money on their lifestyle, that's not a very good sign. And, of course, I contrasted the headquarters of Tesco down in a housing estate in Cheshant in Hertfordshire with the new corporate headquarters of Sainsbury, which was in Holborn Circus, which is prime London real estate. Why did a big food retailer need to be there? And likewise, I think you cite when Markson Spencer moves from its Baker Street, his old Grand Baker Street,

headquarters to somewhere a bit more modest. So that you took us a positive signs. Obviously, a management that is humble and realistic and not squandering its shell, just money on fancy headquarters and jets. We'll have a bit more cash play left over to return to investors. So, I think we'll wrap it up now. Lee with a comment that I think you cite more than once of one of the managers you particularly admired of Euron Rupert at Richemont, one of your holdings, I know he's a family member of the controlling family, but not, according to your book, a nepotistic appointee. And he says, if you talk up the value of the stock, then disappoint the folks come looking for you. I think that that, now you're not actively managing the portfolios of Marathon, but that culture of meeting with management continues.

and as part of, if you will, the sort of DNA of Marathons' investment philosophy. I hope perhaps one day we'll have another conversation because of other things we can talk about, which I had on my list, but I don't think we can go on. But thank you very much. I've enjoyed our conversation. And so have I. Thank you very much.

Thank you for listening. If you'd like to access the Global Investment Reviews and or the podcast, you'll find that. them at the Marathon Client Portal. Do join us again next time.