Sir Christopher Hohn ONLY｜Norges Bank Investment Management Investment Conference 2025

Summary

In this insightful discussion, the speaker shares their investment strategy, emphasizing the importance of finding great companies, concentrating positions, and adopting a long-term perspective. They discuss how concentration can be a double-edged sword and the need for sustainable barriers to entry and high value-added businesses. The speaker also highlights the importance of acting as an owner in investments, focusing on sectors like infrastructure and aerospace. They delve into the challenges of private versus public market investments and the value of long-termism in building wealth, supported by real-life investment examples and experiences.

Takeaways

• 😀 Great investing starts with finding high-quality companies, but this must be refined over time to truly understand what constitutes greatness.
• 😀 Concentrating investments in a few key positions (10-25% of the fund) can be extremely profitable when you're right, but risky if you're wrong.
• 😀 Risk is best defined as 'not knowing what you're doing,' as per Warren Buffett, and being well-informed mitigates risk in investments.
• 😀 Long-term investing is crucial. Markets may be volatile in the short term, but over a longer horizon, value is recognized and measured.
• 😀 Growth alone does not guarantee success in investment; industries like airlines demonstrate that even growth can fail if competition is too fierce.
• 😀 Barriers to entry, the ability to create sustainable value, and high value-added offerings are key factors in identifying valuable investments.
• 😀 Moats, or competitive advantages, must be sustainable; many companies mistakenly believe their moats are permanent, but disruption is always a threat.
• 😀 The forces of competition and disruption are powerful, and many investors underestimate these risks due to a short-term focus.
• 😀 Infrastructure assets, like toll roads and airports, offer a unique value proposition due to their physical asset backing and monopoly status.
• 😀 Public companies offer the best growth opportunities due to scale and scope, but active involvement can sometimes influence management and outcomes.

Q & A

What is the first strategy discussed in the script for successful investing?

The first strategy discussed is investing in great companies. Over time, the speaker has refined their understanding of what constitutes a great company, focusing on identifying high-quality businesses.

Why is concentration in a portfolio important according to the speaker?

Concentration is important because, according to George Soros, position size matters when you are right. By focusing on a smaller number of high-quality investments with larger positions, the returns can be magnified, but this also introduces higher risk if the investment goes wrong.

How does Warren Buffett define risk, and how does it relate to the speaker's investment approach?

Warren Buffett defines risk as not knowing what you're doing. The speaker aligns with this definition, suggesting that knowing and understanding your investments helps mitigate risk. This aligns with their focus on long-term investments and understanding company fundamentals.

What is the significance of time horizon in investing, as described by the speaker?

The speaker emphasizes the importance of a long-term investment horizon. Short-term market fluctuations don't reflect the true value of a company, as stated by Keynes' concept of the market being a 'voting machine' in the short term and a 'weighing machine' in the long term.

Why is growth alone not a reliable indicator of a good investment?

Growth alone is not reliable because industries like airlines can show consistent growth but still fail to generate profit due to strong competition. The key to a successful investment is not just growth but the presence of barriers to entry and high value-added businesses.

What is the concept of moats in investing, and how does it apply to a company's long-term sustainability?

Moats refer to competitive advantages that protect a company from competition, such as strong intellectual property, economies of scale, or monopolistic market positions. The speaker stresses the importance of ensuring these moats are sustainable over time, as they can erode due to disruption or competition.

Can you provide an example of a company that was thought to have a strong moat but failed due to disruption?

The speaker mentions an example of a European media company that was considered a monopoly but failed when Google disrupted the business. This illustrates the risk of assuming that a company’s competitive advantages will last indefinitely.

What types of sectors does the speaker prefer to invest in and why?

The speaker prefers investing in infrastructure sectors such as toll roads, airports, and cell phone towers. These investments are considered low risk because they are based on tangible assets that are hard to replicate and are less likely to be disrupted by technological advancements.

How does management quality influence investment decisions, according to the speaker?

While management quality matters, especially in terms of reinvestment risk, the speaker suggests that for infrastructure and other asset-backed investments, the underlying assets are often more reliable than the management itself. The company’s ability to generate cash flow and grow without excessive dependence on leadership is crucial.

What role does engagement play in the speaker's investment strategy?

Engagement involves acting as an owner, not just an investor. The speaker emphasizes the importance of being actively involved in the company, influencing decisions like dividend payouts or management changes to align the company's operations with shareholder interests.