Why now might be time to reconsider the role of value investing

Dr Graeme Shaw - Director at Orbis Australia

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In this episode, Dr Graeme Shaw, Director of Orbis Australia joins us to share his experiences from the last two decades as a contrarian investor, why investors should look towards value stocks over high-growth and what investors might expect to see in the market from a pandemic driven recession.


Paul O'Connor (POC): Welcome to the Netwealth Investment Podcast Series. My name is Paul O'Connor and I'm the head of investment management and research. The main roles of the investment management and research team is to manage the investments made available to you through our super and non-superannuation investment platforms, and to also fulfil the investment governance for the managed funds and managed accounts Netwealth issue.

A key part of our role is to research and interact with the fund managers who all provide different and fascinating insights into their views on the global economy and investment markets they specialise in. Today we have Graeme Shaw from Orbis Investments with us, who is an investment specialist and a director of Orbis Australia. Graeme joined Orbis in 1997 as an analyst, and has worked in the areas of risk management and quantitative analysis as well as Australian equities, jointly with Orbis's sister company, Allan Grey.

Graeme holds a doctorate in philosophy from the University of Cambridge, a Masters of Science Honours in chemistry and mathematics, and is a CFA charter holder. Prior to joining Orbis he worked as a junior research fellow at the University of Oxford. Welcome, Graeme.

Dr Graeme Shaw (DGS): Thank you very much, Paul, and thank you for that very kind introduction.

POC: Yes, well, it sounds like you're eminently qualified to talk to Orbis investment strategies today. Orbis forms part of the broader Orbis group which was established in 1989 by Dr. Allan Grey. Orbis have US$34.7 billion in assets under management as at 31 August 2019, of which US$21.8 billion was in global equities, and have investment offices in London, Hong Kong, Tokyo, San Francisco and Bermuda. Orbis have a number of global equity funds available on the Netwealth investment menu, and employ a long-term focused, fundamental, bottom-up investment research process in the attempt to identify undervalued companies. This style at times is described as contrarian in nature, whereby they buy stocks that have fallen out of favour with the wider market, but perhaps we will allow Graeme to articulate Orbis's investment style.

Orbis's style and process is quite differentiated from many other managers that we have available on the investment menu, so I look forward to their views and insights. We're fortunate to have Graeme with us today, who's certainly well qualified and experienced in working at Orbis to discuss their portfolios and investment style. For starters, Graeme, how have you and the team at Orbis been coping with adjusting to the impact of COVID on the workplace. And assume you've been working from home regularly over the last six months?

DGS: Yeah, we have, Paul, been working from home, and I guess I think this has some pluses and some minuses to it. I think, on the plus side, we've found it much easier to meet with company management now that we don't have to fly a long way to see them. It's also the fact the companies themselves aren't travelling much so it's become much easier to schedule meetings. We can also have more than two or three people at these meetings; you can have the whole team attend if you would want to, and so that sort of broadens the exposure of the whole team to the companies we invest in. Funnily, I think the productivity improvements that you get by not sitting on planes and in taxis for a long time, and by avoiding the daily commute also adds significantly to productivity, so that's been an unexpected plus. I think, on the negative side, it's much harder to train new recruits in an environment where they can't be in the office and absorb the culture and they're trying to do that from home, and that's definitely a little harder.

I think it's also harder to look out for each other and keep an eye on your colleagues to make sure they're going okay when you only see them through a video screen. So I think those are two of the challenges that, I guess, we and many other companies are struggling with at the moment.

POC: Yeah. Your comments there certainly resonate with me, where I too have found that meetings can be a lot more efficient now that you don't have to travel, you don't even have to get in the elevator and have the small talk before a meeting, and you can involve more people in those meetings. But that ongoing challenge of the personal interaction with one's work colleagues, and particularly when you're onboarding new staff members, I can certainly appreciate there. But we're all being forced to adapt to the new work environment that we're now living in.

You've been involved in financial markets now for over 23 years, and I'd be interested in the most important lesson you would advise someone starting out in investing today.

DGS: Sure. So, I'm sure many of your listeners have probably been at a barbecue or some event, where a mate has come up and said, "Geez, I've found this amazing company. They're growing rapidly, their products are selling like hotcakes; you've just got to get invested." And of course the temptation is to rush out the next day, phone your broker and buy some, but I think, when you do that, you make two closely related mistakes. The first is, it's important for investors to realise that share prices don't move based on outcomes; they move based on the difference between outcomes and what the expectations were for those outcomes. So, for example, if a company grows profits by 25%, and that would be regarded as an excellent result for most companies, its share price won't out perform if everyone already expected it to grow profits at 25%. So, to do better than the market, you have to do better than the expectations.

I think the second related mistake is that you can only outperform the market if the person who sells you those shares makes the mistake of selling them to you too cheaply. So, in this example, if your mate knows the company's prospects are fantastic, then the people who already own the shares probably know that too, and they're only going to be willing to sell them to you at high prices. It's very hard to generate outsize returns if you've already paid very high prices. So I think probably the most important take home lesson I can give your listeners is that they need to recognise, for them to beat the market, the people they transact with have to make a mistake of selling you those shares too cheaply.

POC: Yes. Interesting, the comments you make there, Graeme, and particularly around that the market has an expectation; it is forward looking in its assessment of a company. And, as you rightly state, a company might grow its earnings by 20%, however, that could even disappoint the market and hence the share price may go down. So it's very much a challenge if people are just, I guess, being given stock tips at barbecues, and one of the great potential pitfalls for investors. Orbis describes itself as a contrarian manager. What does this actually mean, Graeme?

DGS: So, as contrarian investors we try to spend our research time on those parts of the market that are out of favour with other investors; where they're more willing to sell you things at a discount because they've allowed their emotions to drive their behaviour. Now, sometimes these companies can be suffering from a one off event that's caused other investors to become scared. Sometimes a company might've disappointed for a number of years in a row and investors have become frustrated or angry. I guess, when other investors get fearful or angry and they allow those emotions to drive their behaviour, it's more likely than not that they will make the mistake of selling you those assets too cheaply, and so I guess that's where we try to spend our time.

POC: Yeah, it's interesting. And as you're talking there, I'm just thinking about that it is very much the battle and the challenge that we all have as investors, is not to allow fear or greed to get us carried away with buying or selling stocks. So, can you give us a few examples of the types of companies Orbis have bought that you would consider a contrarian purchase?

DGS: Sure. I guess my favourite example is a company we bought probably getting on 10 years ago now. It was Toyota and they were suffering from a problem that they very politely called pedal entrapment, which actual meant in practise that the accelerator pedal had got stuck and their cars wouldn't stop, which is kind of a problem in a car. And you can see why that would scare other investors. They had to recall six million cars, which I think was one of the biggest recalls ever at the time, and other investors worried what would happen to the brand. I guess that created the opportunity for us to buy what we regard as being the world's best car maker at a very attractive price.

A similar example was Apple just after Steve Jobs passed away, and other investors were saying, "Gee, how is Apple going to cope without someone as visionary as Steve Jobs running it?" I guess we knew the other managers well. They were highly capable and the company had stacks of growth left in it. The iPhone had really just come out; it wasn't on most of the networks in the US, hadn't gone anywhere near China yet, and other people were willing to sell us that stock at 10 times earnings. A more recent example is a company called Comcast; it's the dominant supplier of broadband services to homes and businesses in the US. And we were able to buy it at only 12 times earnings because they also own Universal Studios, which is suffering at the moment because the theme parks have been shut, Universal Pictures, which is suffering at the moment because movie theatres are closed and that makes new movie releases a little bit harder, and they also own NBC, which is a free to air TV channel in the US, and that's suffering a loss of advertising revenue as you always get in recessions.

So, for only 12 times earnings we get a great broadband network, and that's a network that's probably going to be worth more today than it was in the past as this working from home environment becomes more permanent. And we also get NBC Universal, which we think will eventually recover because people do like to go to theme parks, they like to watch movies, and they like to watch TV, and that will probably continue.

POC: Gee, you must need to be brave as a contrarian investor, given that involves going against the crowd and when there's potentially bad news and an impact on company earnings, so I guess it must very much rely on detailed research into every company that you eventually purchase in your portfolios. Your description of contrarian investing really does sound a lot like value investing, so can you explain the difference between the two, and is research the key to avoiding companies that are undervalued because perhaps their business models are just no longer competitive?

DGS: So, I think if you look at the way value investing is classically described; a value investor likes to buy stocks where its price to earnings ratio is low or where the price to net assets ratio is low. And we like to do that too, but there are also business where earnings might be depressed or even negative, and the PE is often very high for that reason. And there are businesses where assets aren't necessarily meaningful, particularly the service oriented companies and a lot of the software companies, and so price to net assets isn't always a meaningful ratio. So we don't just limit ourselves to low PE or low price to net asset stocks. I think the other thing that's important to focus on is to look out over the long term. You find investors, they typically want to get rich quickly, and the stock brokers kind of lead them on to that kind of behaviour because it causes people to trade more if they look at the short term.

Whereas, if you're focused on the long term I think it allows you to buy often quite good quality companies at low prices when everyone's fixated on the short term, and Apple would be an example of that kind of stock. So I think that makes contrarian investing a little different to classic investing, and I guess, as you suggested in your question, it might appear from the outside to also require some bravery. I think, actually, in fact all it requires you to do as an investor is to sort of put your emotions to one side and just focus on the facts. And so you can have companies where people will say, "Gee, it's got this division that's really awful and I'm not sure they'll make money again," but if you're not paying anything for that division, does it really matter? And so, a good example of that in Australia right now is AMP, where people are fixated over one division but, actually, if you look at the price of the company, you're not paying anything for it.

And so, it looks brave but I guess we would say it's just more factual.

POC: So, value investing has been a style employed by fund managers, gee, probably going back to the 1930s, and has generated strong returns but hasn't worked for probably the last 12 years or so now, which has really led to some people questioning about whether it will ever work again. Debate in markets is that structural issues such as technology productivity gains and extraordinary Central Bank monetary policy have created headwinds for value managers since 2009. So, where do you stand on this issue, Graeme?

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I guess, as we've just discussed, value investors classically buy companies where their price to earnings ratio is low or where their price to net assets ratio is low. I think it's polar opposite. Growth investing tends to focus on the companies that have grown rapidly in the recent past and where people expect that growth to continue into the future. So, as you suggested in your questions, value investing has beaten the pants of growth investing for almost 80 years now, but growth investing has done better in the last 12 years, and it seems that 12 years is long enough for some people to suggest that perhaps this is going to continue indefinitely. And there are two arguments that are used to support this view. I think the first argument is that people say, "Well, technology's developing faster today, and because the growth stocks have more of the newer technology, that they benefit more than the value stocks."

Now, I'm sceptical of this explanation for two reasons. The first is behavioural. I think it's very well known that, as human beings, we tend to be over optimistic when it comes to assessing our own abilities. Some famous examples include the fact that 80% of drivers think they're above average, 50% of the Stanford psychology class believe they'll be in the top 10%. And so, when people ask, "Are we better at creating new technology than our parents," it's not surprising that most of us will say, "Yes, of course that true," but is it really true? Well, if we're really being more innovative today, then that higher rate of innovation should be reflected in a higher rate of GDP per capita growth. And when you look at the US, and that's a market widely regarded as a tech powerhouse, it's also a market where growth investment has done unusually well, what you find is actually that GDP per capita growth in the last 10 years has been slower than the 10 years prior to the GFC. And the growth rates in GDP per capita in the 40 years prior to that was even faster again.

And so, it's perhaps surprising, given our biases, but actually, if anything, we are being less innovative today than prior generations, and if you just sort of think about it, maybe that's not so surprising. I mean, I would argue that the invention of things like the telephone, refrigeration, air transport, the silicon chip, lasers, fibre optics, satellites, have probably had a bigger impact on the world than the invention of things like Twitter and Facebook and Uber Eats. So I think, when you look back at history, the evidence is that technology has not actually been evolving faster than the past. I think that the second narrative that sort of suggests that growth stocks will continue to win forever is that the world is turning Japanese.

So, according to this sort of story, we face the future with low population growth, low GDP growth, low inflation, low interest rates, and so investors seeking to buy growth will have to pay ever higher multiples in order to access that. So, let's put aside, firstly, the fact that investors don't really go out to buy growth; they actually go out to buy risk adjusted returns, and just look at the example of Japan. So, Japan had a massive stock market and real estate bubble that peaked in 1990, and that collapsed, and by about 1993 much of that overvaluation had come out. And since then it had sort of faced a future with very low inflation, so CPI fluctuated between slightly positive and slightly negative, bond yields were low; they spent most of the time somewhere between zero and 2%. Population growth has been close to zero and GDP growth has been about 1%.

So, actually, this isn't a particularly accurate model for the world. Long term forecasts for population growth globally are about 1% and long term forecasts for GDP growth are still around 3%. So, Japan is an unusually slow growth model but let's use it anyway and sort of say, "Okay, how did value go since '93 in this low growth environment?" And the answer is value absolutely crushed growth. Outperformed by more than a factor of two. And so I guess history shows that there is no reason why growth can't beat value in a low growth environment.

POC: Yeah, interesting there, Graeme. I recall well as a young man, starting out in the investment markets in the early 1990s, and I sued to hear the comment, "Why would you invest in a growth manager?" I think value had outperformed for over 10 years, so I do find it funny now that I hear people saying, "Why would invest in a value manager?" I have no doubt, like yourself, that things will change, the environment will change, and value will outperform growth for an extended period going forward. So I think it's important for investors to consider both styles in their portfolios. So, Graeme, if it's not technology and it's not low growth, how do you explain the out-performance of growth investing over the last 12 years?

DGS: I think there are three reasons why growth stocks have done so well since the global financial crisis. I think, firstly, they've been helped by falling interest rates. Secondly, it's been an unusually muted competitive environment, and the thing that normally causes growth stocks to disappoint the market is new competition entering, and I guess we've had less new competition than you normally would face. And I guess the third reason, and, in my opinion, the most important one, is that growth stocks after the GFC were unusually cheap relative to value stocks, and they now look unusually expensive, so they've transitioned from very cheap to very expensive, and when you do that obviously you're going to get great returns but it's hard to repeat that trick a second time.

POC: So I guess, also, there you're inferring, in my mind there, the quantitative easing has really assisted and helped growth stocks by keeping interest rates artificially low.

Yeah, that's absolutely right. I think the interest rate that investors use is the following. They look at the growth shares and they have more of their earnings further out in time, and so, when you lower interest rates, those far away earnings benefit more from the reduction and the discount rate, than value stocks do where their interest rates are closer in time. Or, in purely technical terms, growth stocks have a higher duration than value stocks. And duration certainly seems to have been relevant in the post GFC period. If you look at the relationship between the 12 month change in US bond yields and the 12 month difference in the performance of value versus growth; those two time series correlate really closely. But this shouldn't necessarily make you feel comfortable as a growth stop investor today, for two reasons. Firstly, we have a 700 year time series on real interest rates that we got from the Bank of England, and what that shows is that real interest rates today are pretty much at 700 year lows with the exception of the two world wars.

So history says rates, if anything, over the long term are more likely to go back up, than to stay where they are or go lower. I think the other observation that's quite interesting is the performance of bond yields during the pandemic period. We haven't had negative bond yields before in history, so you always have to be a little bit careful thinking you know how they're going to behave, but the interesting thing during the pandemic was that the countries where bond units were already zero or negative, and this is places like Japan, Germany, France and Spain, actually didn't benefit from the usual decline in bond yields that you get in a big recession. And so, together you've got both the recessionary data that says, "Negative bond yields find it hard to go lower in a recession," and 700 years of data that says, "In the very long term, rates are more likely to go up than down." So both of those together, I guess, makes me think the experience we've had in the last 12 years with falling interest rates can't happen again when the starting point for rates is already negative.

POC: Yeah, interesting comments there, Graeme. And I guess as you were talking I was also thinking about the fact that central banks, governments, I believe, will allow or try to allow inflation to take off and run, and even reach the upper ranges of their targets, which naturally will have an outcome where we will see interest rates rising and potentially normalising there. So I think that will occur; the question is when that will occur over the... looking into the future. You mentioned that valuation can explain the good performance of growth stocks recently. How do you think investors should think about valuation when they're comparing slower growing value stocks with faster growing growth stocks?

DGS: As an investor in a stock, one way to break your return down is you can break it into three parts. You get the dividend yield on the stock, you get the growth and the profits of the company, and then you get the change in the valuation multiple that the market applies to those profits. When comparing the performance of value and growth shares, it's that third components; the change in the valuation multiple, that explains a lot of what has happened over history. And you can kind of see that by focusing on the difference or the gap between the valuation multiple applied to value and growth stocks. So if you cast your mind back to 1990, that was the top of Japan's stock market bubble; a period where Japan's growth stocks were very popular, and that popularity meant that there was a very wide valuation gap between the highly valued Japanese growth shares and the other shares you could find in the rest of the world. Growth investing was very popular back then because Japan had done so well.

When that bubble burst, the Japanese growth stocks did badly and growth investing became less popular. By about 1993 the valuation gap between value and growth shares has shrunk back to near the low end of the range, and that set up the conditions for growth shares to do quite well, which takes us to 2000, the top of the tech bubble. That was the last time I think everyone was saying value investing doesn't work. Growth investing was very popular. But by 2000 there was a very wide valuation gap between the value shares and the growth shares, and that set up the conditions for value investing to do very well, so from 2000 to 2006, value investors absolutely crushed growth investors. By about 2006, everyone wanted to be a value manager. All the talk was about value or growth at a reasonable price, not just about growth on its own.

But again in 2006, 2007, the valuation gap between value and growth shares was quite small, and certainly, I can remember at that time, we were finding a number of quality growth names that were on very attractive valuations, so that set up the conditions for growth and shares to do very well. If we look at where we are today in 2020, the valuation gap is now very wide again, growth investing is once again popular, no one wants to be a value manager. And I think, if that history continues, you would say, "We've seen this movie before," so I think there are probably two lessons to draw. The first is that when investors think about the future, they really shouldn't extrapolate the 2007 to 2020 period, because growth shares went from being unusually cheap to unusually expensive and you shouldn't expect that to happen again. I think the second related lesson is that history suggests it's probably more likely to reverse than to continue, but definitely you shouldn't expect it to continue just as it has in the past.

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So, do you think, Graeme, that the current recession will further change the view and your view on value in investing? I must admit, in my mind, I believe that surely a recession will impact on a corporate's earnings, and given the high multiples investors are paying today for growth stocks, they must be becoming a risky proposition with very little room for error in their earnings or disappointing the market in their earnings.

DGS: So, if you look back at the past, you can kind of classify recessions and the associated stock market bear markets into three categories. So I think the first category is where there's been a part of the market or part of the economy that's done incredibly well, and then people actually come to realise that that was a mistake; it wasn't as good as they first thought. And classic examples of this would be the collapse of the Nifty 50 stocks in the US bear market in '73, '74, the collapse of Japanese growth shares in 1990, and the fall in technology, media and telecom stocks that occurred in the tech bubble in 2000. Value shares tend to do relatively well in these types of recession and bear market scenarios. But there's another category, where maybe the economy has overheated and the Central Bank raises interest rates, or where the stock market gets hit by some external shock like an oil crisis or perhaps a pandemic, and in those sorts of scenarios, value shares don't always do well.

So, if you look at history, the bear market phase is mixed. Value tends to beat growth roughly half the time in those scenarios, and growth tends to beat value the other half of the time. But the good news for value investing is what happens after that. So, if you look at the full 100 year history, we'd sort of say it's always a good time to be a value investor because on average value has beaten growth. But there are times when it's even better to be a value manager and one of those times is just after you've just had a big bear market and a recession, and then the next one to three years after that. For example, if you look at the performance of value versus growth, one year after the economy peaked out, value beats growth in 60% of US recessions. If you look three years out after the market peaked, value beats growth in 80% of US recessions.

So a success rate of 80% is pretty good in investing, and so I think the good news for investors today is that we're now getting on towards one year after the economy peaked, and so history is more on the side of value investing right now, than it is on average.

POC:  So, in your view a typical recession isn't a threat to value investing, but is it possible that things are going to be different this time around with a pandemic driven recession?

DGS: So, there are probably two schools of thought on this. I think one says, "No, things are not different. Indeed, this time is different, is the most expensive phrase an investor can ever say." Corona virus has caused a contraction in the economy but, given time, the economy will take up unutilized labour and recover just as it always has in the past. I think there are a number of observations that would support that view. For example, there was a recent trial of an inhaled Interferon beta compound that reported a 78% reduction in patients progressing to serious disease, so that looks encouraging. The monoclonal antibody treatments that are in the process of coming out have been highly effective in treating other viruses, for example, Ebola. And then even the vaccine data is looking pretty encouraging, and certainly medical opinion seems to have moved on from discussing, "Will it work," to discussing more, "How long will it work? How many injections will you need a year to make this effective," rather than just, "Will it work at all?"

So, that's one argument. I guess, even in treatments and vaccines don't work out, of course another path available to the world is to adopt the Swedish model and just say, "Look, we're going to have to accept Corona virus, just as we accept a whole range of other illnesses, and we'll just go back to normal." And certainly the political pressure for that option has been building over time. I think the alternative case is to say, "Actually, yes, it is different this time," and that case is based on observations like the fact that this recession has been unusually large. The debt levels were already high going into this recession, and have been increased to record levels during the pandemic, and you really shouldn't bet your investment future on the outcomes on new medical treatments because they're highly unreliable. So, I think those are the sort of two schools of thought.

I guess I'm going to suggest today that it probably doesn't matter which of those is true, and that might be surprising because, at the moment, if you look at the value indexes they're quite heavily weighted and more cyclical, more economically sensitive names that probably wouldn't do well in an environment if the pandemic lasted for many, many years. But I think investors can actually pick through those stocks and find names that are actually much less exposed. Not all value stocks are cyclical and not all cyclical companies necessarily will do badly in an extended pandemic scenario, so I think you can still be a value investor, even if you believe the pandemic might last longer than other people think.

POC: So, Graeme, can you give us an example of the types of investments you're referring to?

DGS: Sure. So, I guess Anthem is a good example of the first category. It's not economically sensitive. It's a US health insurance company, or what the Americans would call an HMO. So, in the US your health insurance is normally provided by your employer, who will go out and purchase health insurance from an HMO on your behalf. If you get sick, the HMO will arrange your doctors, your hospital care, and they'll negotiate with the drug companies for any drugs that you might need. It's a nice business, there are four big players that control the bulk of the market, and it has really high barriers to entry because, to be an effective HMO, you simultaneously need to have very large local scale to manage all the relationships both with the employers and also with doctors and hospitals, but you simultaneously need really high national scale to get really good prices from the drug companies. And it's very expensive to simultaneously build large national scale and large local scale, which keeps a lot of competitors out.

So the company's grown its earnings historically at about 12% per annum and you can but the company today at only 12 times earnings. Now, the nice things about those earnings is, when you look back at previous recessions they've proven to be really quite resilient, and the reason for that is, when there's a recession people get worried about losing their jobs and so they tend to delay elective surgeries, which are quite expensive. So, if you need a knee operation, you might go, "Look, I'll just wait till the economy recovers. I'll put off having that operation," and that saves the health insurance company's lots of money. And so, for example, if you look back to the GFC, the HMOs actually did perfectly well during that period.

I guess an example of the second kind of company is BMW. Now, BMW, as you know, sell cars and it's not surprising that in a recession people buy fewer cars, so BMW has been a cyclical company if you look back over it's almost 40... slightly more than 40 years of listed history. But just because it's cyclical doesn't mean it's low quality. It's managed to grow its business at somewhere between 10 and 12%, depending on how you measure it, so that's an above average growth rate. It also has higher than average barriers to entry. It's been remarkable. BMW, Audi and Mercedes have managed to keep most new entrants out of the luxury car market. They've managed to defend their turf and continue to enjoy above average margins; much higher margins than the average car company receive, so that makes them better than average. And so, I guess the question would be, "How might BMW go if the pandemic proves to be longer lasting than the market believes?"

So, it has two things that the average car company doesn't have. The first is, I guess, that luxury label that we've spoken about. The second thing is that they sell a disproportionate number of cars in China, and China has recovered much better from the pandemic than most other places, and you've seen that reflected in car sales. So, while car sales are still shrinking in the rest of the world; they've stopped shrinking in China, and I think one of the reasons for that is that people have realised that if they want to avoid the pandemic and they need to avoid public transport, then they have two options; they can buy a bicycle or they can buy a car. Now, you try finding new bicycles in many parts of the world at the moment. They've all been sold out, and so buying a car is another option.

And you're increasingly seeing people who live in cities, who didn't used to own a car and relied on Uber or public transport to get around, are now saying, "Actually, maybe I should own a car." And so that's an aspect that this pandemic might have that weighs less on BMW than on the average cyclical business.

POC: Yeah, and I guess there, Graeme, you're very much highlighting the power of some brands in markets and different industries, and I guess, too, BMW have been very much a beneficiary of, A, having that strong brand, but also the aspirational nature of the consumer, particularly in the developing world like China, where the average Chinese person doesn't want to but a locally made car like a Geely; they very much want to buy one of the German luxury brands there. No, some very interesting points you make there about the corporates there. And finally, Graeme, have you got a tip for us at all on the US presidential election in November, and who you think markets are supporting? Do you think we might get a democrat president or do you think it'll be another four years of President Trump? What does your crystal ball tell us?

DGS: Yeah, we don't have a crystal ball. I think one of the lessons from the previous election was that you should put more weight on the economy when you're far out from the election, and only put weight on the polls when you get quite close to election day. And so, the models that did better during the previous election were the ones that weighted things in that way. I guess, when you look at the world today, neither of those things are really favouring Donald Trump. He's behind in the polls and the economy is not doing very well, so I guess we would probably have to plum for a democrat win in the election. But that actually has very little investment value because that's also the market's view at the moment. And if I just loop right back to the comment I made at the beginning; you can only do better than the market if you have a view that's different to the market and you turn out to be right.

So if you have the same view as the market, it doesn't really matter if you're right or wrong; you're not going to make any money off that. And I guess that's probably how we would feel about the presidential election today.

POC: Yeah. I guess if you, as you're saying there, if you have a view in line with the market, well the market's going to price that into the stock prices there, so it's certainly not going to be a trade you're going to make any money out of. So, in conclusion, Graeme, thank you very much for joining us this morning for the Investment Podcast Series. I think it's been really valuable to have a value investor, or a contrarian investor, I should say, on my podcast this morning, and you've certainly brought some different ideas and thinking that... obviously compared to a growth style manager. So, thank you very much for your time and for joining us this morning.

To the listeners, thank you again for tuning in to the Investment Podcast Series. I hope you found today's podcast both educative and informative, and I wish you all the best in the current environment we're working through. So, thank you very much, all. Have a great day, and I look forward to you joining us on the next Investment podcast.

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