Hello and welcome to The Download. I'm your host, Dave Richardson, and it is my extreme pleasure to say hello and to welcome my good friend, Habib Subjally, from London in the UK. Habib, how's the new year in London thus far?

Hi, Dave. It's great. Thank you for having me on the show. London's good. It's super busy, straight in the deep end. No gentle start of the year.

Yeah, we were just chatting before, and you made an interesting comment that New Year's Day and Christmas seems like it was almost a year ago. It's been that active early in the year. And I think for everyone we've been talking to, all the portfolio managers, they've all got the same feeling that this is a really interesting period and a really interesting year that we're about to have, not just in markets, but in so many ways. And it's great to be able to get you on and get your perspective early because you have such an interesting perspective because of what you do and how your team operates all around the world in all markets, and you can really go anywhere to find the best opportunity. Again, it's nice to have you to talk about the year ahead.

It's a pleasure.

Our producer, just to take notes, said you look fabulous, too. It's always good to start the year looking that good, Habib.

This is why I question his credibility.

Well, I mean, to be fair, he said, I look terrible. So we can take it at that. But Habib, you look back on a year in 2024 that was also a pretty interesting year. It was a good year. And now, markets all around the world, if we're looking at equities, they had a good year. The US, again, was that standout. But still, underneath that, there's good returns to be found pretty much everywhere. How do you characterize the year and how did your team manage through what was happening in markets in 2024?

When you look back on the year, sometimes it's quite sobering and humbling. In markets, everyone is looking forward and result season starts tomorrow, and the big bank started reporting this week. Everyone is looking forward. But when you look back and you look to see what the consensus was, what people expected to happen, people were talking about rate cuts and falling inflation and all of that. Suddenly now, we've done a U-turn. People were predicting that US 10-year treasuries would be back towards the 3%, and now they're talking about maybe it could be in the 5%. That's just one thing. I was looking at some papers and whatnot talking about what people expected with the oil price. There's a lot of spare capacity, all those concerns about sanctions on Russian crude. Those are finding their way into other markets and displacing Western crude. That market is also in equilibrium. Again, people were talking about oil beginning with a six. Instead, I think today, oil prices begin with an eight. And so it is very humbling, these big picture issues where everyone gets so convinced that they know the right answer to. It's this body of compelling evidence that this is where interest rates are going to go, bond deals are going to go, inflation is going to go, oil prices are going to go, and so on. I could go on. Yet, it reality turns out very differently. But one thing also we can tell, there's been a lot of unexpected stuff. There's going to be a lot more unexpected stuff happening in the next few weeks and months ahead. But I think one thing also true is that in this volatile world, great businesses have continued to prosper. They have continued to do well by their customers and by their suppliers and by their employees. They've continued to provide them with more goods and services, whatever they do, and they've continued to prosper. That is really what's driven the stock market as well.

Yeah. To me, when I’m listening to you, and one of the things that I'd love the listeners to appreciate with Habib is he’s so generous with his time with everyone and particularly generous with me over the years in terms of teaching me from his experience as a very successful investment manager for decades. That's experience, not age, Habib, in a very clear sense. But the idea that these great companies, when they just hit their stride and they've got the right strategy in place, they've got the right products, they've got the right people, and it's all of these things together, that they have an advantage that is very, very difficult to disrupt. And in 2024, we saw so many of those types of companies thrive. It was almost proving everything what you've said over the years, that there's these big winners. They can make mistakes along the way. And this is, of course, the key to what you and the team do. But those winners in the right situation can really grow people's investment dollars and you've always believed that. Was 2024 maybe the peak of that thesis, or am I just narrowing down to too short a period of time? This is always the way it works, and then values are recognized at different points in the market?

I think, Dave, this is the market. This is how things work. Different companies find their sweet spot. Eventually, one of two things happen. Competitors catch up, complacency sets in, or they just get overvalued. I mean, that happens, too. Sooner or later, there is this Darwinian self-correcting mechanism that goes on in the market. Great companies stay great for a long time, but they don't stay great forever. Also, market conditions change. Competitors come in, new technologies get developed, the regulations come in, the customers change, the society changes their preferences and habits. It's a constantly changing thing, and great business services need to be able to meet society's needs, customers' needs, and they need to be able to evolve with those changing needs. That's not just technology companies, but when you look at some of the progress that's been made with weight loss drugs in the last couple of years, or even the retail, the way we shop. The way we shop has changed. It was changing with internet shopping, but then what happened over the pandemic just double change that. Now, grocery shopping is now click and collect and curbside. All of this innovation is going on. There's a lot of wasted effort there for sure, but some companies are going to really succeed and meet customers' needs and leave the rest in their wake. That's the fascinating thing of what we do.

Yeah. As Stu will say, in the short term, there's great companies, and they could be bad stocks. But in the longer term, great companies tend to be great stocks if you are buying and owning those great companies, and most importantly—and this is what I love about you and your team—is can we identify those great companies at the right point for investment.

Yeah. This is the thing. That in the short term, there are good stocks and bad stocks, and whether a stock is a good stock or a bad stock is determined by so many different things. To be honest, the algorithms are fantastic at that, at figuring out what is a good stock and a bad stock and trading from nanoseconds to minutes to weeks to months. They're really good at that, and they keep the market really efficient in the short term. But there is this inefficiency in the long run. Great stocks tend to be great businesses. I'm really struggling to find any example of a great stock that isn’t associated with a great business success over the long run. I think that's the key. For us, it's trying to identify those great businesses. Ultimately, these are wealth-creating businesses. The businesses have to create value for their customers. If you do that, your business is much more valuable in itself. The value comes from what customers are prepared to pay for your product or service. That's what we look for. Then we look for the right opportunity to enter those positions. Then, of course, you want to build portfolios that are robust portfolios because unexpected things happen, and we started the conversation around that. Bond yields may not go where you want and wars happen, and commodity prices are volatile, and exchange rates are volatile. Geopolitics creates all sorts of issues for you. You need to build portfolios that are robust to those shots.

Habib, as we come out of 2024, and now we'll look forward to 2025, and your thoughts on the year that's off to an interesting start and has a long way to go, but the idea of there being great companies and great stocks, it seems like for the last two years, we've been narrowed down to there being roughly seven great companies in the entire world, which is obviously absurd. At some point, you would have to think that the other dozens of fantastic companies around the world whose stocks have not delivered as much as this very narrow number of stocks start to get appreciated for what they are. That's got to create opportunities for an investor like yourself.

Oh, definitely. First of all, this Magnificent Seven type thing, it's not just restricted to technology. You have similar concentrations in healthcare, in staples, in communications, in discretion. There's a number of different ones. Even consumer staples, these are beer, spirits, grocery stuff. Even there, there's an enormous concentration amongst the winners. This is something that is more pronounced now. I think it's the nature of the market. It's the nature of market participants. There's a lot of ETF and index-based investing. There's a lot of hedge fund and algorithm investing. Just going for where momentum is and so on. This can go on for a lot longer than you think, but ultimately, valuations matter, expectations matter. Ultimately, expectations always get ahead of reality. Sometimes it takes a long time to do that. Great companies keep pushing expectations higher and higher, but then the market becomes fan clubs, and then expectations even get ahead of reality, even those great realities that some of these great businesses are producing. Then, of course, there's competitors. In any great industry, pick a great industry that someone else is always trying to get into it, whether you just look at beer, spirits, and things like that. All of these celebrities starting tequila brands and things like that. I mean, it was really hard, but they did it. They found a way of getting in. Just think of the beauty industry and cosmetics and fragrances. Again, celebrities and social media influencers and whatnot, they're creating their own brands or promoting different brands. There's all of this. The market is incredibly dynamic. Some of these smaller, nimbler companies can chip away at the market shares of these larger companies and therein start the new cycle. I guess it's the circle of life. This is what happens in markets. It always has and it always will. It happens. Maybe the numbers are much bigger, maybe the amplitude of these cycles is more violent, for sure, because there's more money sloshing around.

Yeah. Habib, I'm going to see you in six weeks in London. I'm looking forward to trying your new beer, the Habib beer. Habeer. I know you're having a lot of success with that in the UK.

If only I could influence anyone in that arena.

It seems like everyone else has a podcast or a craft beer company. So I know you haven't started that. That's just a joke. But Habib, you've been in the markets for a long, long time, and you start to talk about that amplitude. I was sitting listening, and I thought you might get there with your comments, and sure enough, you did. This amplitude. The idea, lots of money sloshing around, but is it actual participants, too? I meet so many young people today—and of course, I've got a 20- and 18-year-old, and they're friends. A lot of them who might have bet on sports before. And of course, there's an explosion in sports betting in North America. We're starting to see what it's been like to be in the UK for a long, long time with these, not betting houses, it's all online now, and the UK sites, places that have largely gone online as well. But the people that used to bet on sports now bet on stocks and almost view the market as a game and a gambling, an entertainment facility, which again creates these big moves in these small numbers of stocks. You're just playing momentum and up and down and up and down and mostly up in this case. Do you think that technology, do you think the new approachability of the market, is that one of the things that's creating this? Not to mention all the program trading that goes on behind the scenes with algorithms trading stocks, particularly within indices and within ETFs. It's a different market than the market you remember from 25 years ago.

You know, Dave, you're absolutely right. But this is the reality we live in, right? There's a lot of money. Look, the democratization of the stock market is a great thing, that people can now buy stocks on their smartphone. Love that. But then I think that along with that opportunity, there has to come some learnings and some lessons around that. I think that is lagging behind. In a bull market, we saw this before in the dot-com bubble and things like that. I'll tell you this funny story where the guy sits behind me in football at Arsenal. The guy has a steel fabrication company. He's a great engineer, has been very successful, but he's an engineer. At various times, he feels that he's a better stock picker than someone like me. That was in the dot-com bubble, and more recently, when it comes to the Magnificent Seven and things like that. I think when markets are going up and certain stocks are going up in a straight line, it feels like free money. But you have young people always say, give me some stock tips, and things like that. A, that's really hard, but B, the question is, are you going to have a flutter on a stock for a day or a week or something like that? Is that a bet like you would bet on some sports event or something like that? Or is this an investment? Are you planning on investing for the long term? Because if you're going to continue making bets on the stock market for the long term, then let me just remind you, the odds of picking a stock that beats the market over something like five years is something like 30%. That's a tough number to face. You've got to believe that you are better. You can find the 30%, and everyone else with the algorithms, the databases, and the tools, and the technology can do a better job. You can do a better job than them. That's the crux. I think people realize that when they go to a casino, they know they're doing it for entertainment, and they're prepared. This is my budget. At least all the sensible people I know. Being an investor, the only person who's been to Vegas and to Macao twice and never bet a dollar in any of those places. I'd rather give the money to charity than to give them some casino. But for many people, they get entertainment out of it. This is my budget and it's X hundred dollars and that's it. It's gone. I walk out. I might get the free meal or the free cocktails from them before I walk out. But I think of that realization. Because you know that the odds are stacked against you when you walk into a casino. I think that people need to realize the statistics. Yes, the stock market tends to go up over time. Over time, the stock market is phenomenal. It gives you that 6 or 8% compounded. Einstein called it the eighth wonder of the world, this compounded return. It's phenomenal. But individual stock picking, the odds are stacked against you. This is where you need to have an edge to say, I can find those 30% that's going to beat the market.

Yeah, and the gambling analogy works right here because on the other side, as you say, you know the casino has an edge. You're playing a slot machine. They're mandated to pay out at a certain rate, and that rate is below. If you play and play and play, you're going to lose. When you're sports betting, there's someone on the other side of that bet and quite typically, that is now a professional sports organization with people who are engineers and mathematicians, and they're doing things that the average person who may think that they're smarter just has very little chance to beat over the long haul. Same thing when you buy a stock, someone's selling it to you. So there's someone on the other side there as well. And you have to have a certain amount of skill and expertise and experience, and you have to have a lot of money behind you to consistently beat the market. Now, someone like you has all of those things. Very few other people out and just walking the streets every day have the same tools.

But Dave, also knowing what is your edge. You can have tools. There's a lot of resources, databases, clever people, lots of technology, but you got to know, what is my edge? One or two things. What is the inefficiency I'm going after? For us, the inefficiency is very simple. It's what we talked about earlier. It's about over the long term, great stocks are associated with great businesses. Find those great businesses and get into them early or get into them when people don't think they're great businesses and jump on that. There are other people who are very good at the short term trading, but they tend to be prompts and have big databases and trade their portfolios. Everyone is focused on trying to exploit what they are really good at and trying to find it. You need to know what inefficiency you're going after. You need to have the right people and skills and resources to go after that inefficiency or chosen inefficiency.

Well, Habib, this was supposed to be a look back at 2024 and a preview of 2025. It's evolved into the conversations we tend to have over a Habib beer in London, and that's probably a more interesting conversation for the listeners. Remember, if you want to follow the whole series of the Download, you can subscribe here on YouTube, wherever you get your podcast. You can also follow or subscribe to the podcast. Give us a five-star review, even if it's about Habib's appearance today. That's five-star appearance. Don't worry, my mom will give you that one. Habib, sorry, I should explain to you. You haven't been on enough recently. The marketing folks—and I know you have to work with the marketing folks, too—they put a lot of pressure on me, Habib. It's terrible. They want me to do this. I can't stand doing it, but they make me do it because they want more clicks and all that stuff. That must be working. We're up about 500% year over year. Maybe they are smarter than me to begin with. So please do that. But Habib, let's talk then about 2025. How do you see this year evolving and how do you plan on taking advantage of it, you and the team investing?

I think we have to remember that in the vast majority of cases, the world just muddles on. And that's probably 70 or 80% of your probability events. But there are a bunch of risks out there, too. It's that last 5 to 10% and the risk that can work out really badly and it can work out really well. The number of risks—people are talking about the geopolitical risks, whether it comes in terms of tariffs, it comes in defense, more wars, sanctions—that can really disrupt the world out there. On the other hand, I think things could work out really well. There's quite a lot of pressure and stress on the system, but that can lead to more innovation. I'm just going to talk about two things. Like AI, you can just look at how AI is evolving. Six months ago, nine months ago, we had heard of this thing, and we could see a lot of investment going into it. Now, I use it every day, several times a day. It's remarkable. It is changing. This can create a productivity boom for us. We talked about those weight loss drugs. Again, that can improve people's lives. Again, there will be winners and losers out of all of these things. There could be new technological developments. These drugs and new technologies can be used in different ways to improve our lives. I think there's risks and opportunities on both sides. It's really hard to predict the normal case of 80% or so in the middle where we muddle along a few ups and a few downs and things like that. That's probably the central scenario. Sorry, it's not very dramatic. It's not a great story to say that, but that's the reality of it.

Sorry, Habib. I was going to say you were there very early with some of the winners in AI. You were there particularly early with some of the winners in the weight loss drugs and diabetes drugs. What is the team talking about as maybe an area of interest in 2025, or is it those same areas, but the evolution of those areas and different companies that will take advantage of that?

I think right now, it's the evolution of those areas. What is something like AI going to do? When does it change the way, let's say, we do our taxes? I don't know how long you spend on your taxes, but for me, it's a horrible experience. You spend two, three days, you're looking for paper, and I've forgotten the password to this website, and trying to gather all of my stuff together. This AI should be able to do it for us in minute, seconds. You just specify, these are my bank accounts, and this is my employer. And off it goes. When does it change our time at work? How we work. I think it's going to change the way we work and live in ways that we haven't really thought about, the way we listen to music, the way we socialize. This is going to have an enormous impact on lots of different areas. It's trying to evaluate that, what a consumer is going to do, how a product provider is going to create winners and losers. In the same way with these weight loss drugs, it's going to create winners and losers. It's net-net. I think it's going to make the world a much better place. People will be healthier, they'll be happier. The costs to society, the financial costs will be lower, the human costs will be lower. But also, it will mean that people will probably eat less unhealthily. There's a double negative there. But you know what I mean? That people will no longer get those cravings and those addictions to certain types of food. Those food companies and beverage companies are going to struggle at the margin. This is not going to happen overnight, but it will slowly impact those sorts of companies. There will be companies, even in the healthcare space, that would, let's say, do a lot of hips and knees and things like that, knee joints. Now, hopefully, there will be few of those surgeries required, and those companies will suffer. It's trying to figure out the angles for this and trying to get there early and which businesses are going to think that longer term and adjust their business model for that so that they really benefit from these things rather than get hurt by them.

Yeah. Just one other thing I wanted to bring up as we head into 2025, and I'm going to have to be very careful in the way I position this because I'm going to go into an area around people. And if I look at the period that we've gone through over the last three or four years and as we head into this year with several new governments in place around the world. And the focus that has been put on people within organizations, the value of people, how you think about building an organization, how you get a diversity and diversity of thought in those organizations. And there seems to be almost a pushback against that. And I know that you have spent a lot of time, and you do spend a lot of time evaluating not just the product that a company produces, but the way it does it and the way they manage and treat the people that work with them. Because over time, there is a connection between your people and your output and your success. It's not debatable. Now, there's many elements to it, so maybe we can debate that. But there's no doubt that there's a connection between the people in the organization and the long run success. And do you see anything happening that is pushing against that? And does that create in your mind an even bigger opportunity in that way, those companies that continue to have an edge in attracting and retaining the right people and making people feel good and having people be more productive? Does that change at all? Is that still as big an advantage or are we moving into a different era? And then does AI affect that in any way at all? I know that is a huge social question for you, Habib. Not the way you want to end this conversation. Don't worry, I'll end it in an area you want to end it. But have I just rambled on and really ask you nothing, or is there something behind what I'm saying?

Dave, I think what you're saying is actually very profound and very wise. This is a real issue. First of all, I think AI is very important, but it's going to put a greater emphasis on human capital because a lot of the processes and things like that, everyone will have the same AI engine or similar AI engines. What differentiates one from another, one business from another, is the people and how they use AI, how quickly they learn to use it, adapt to it and utilize it, and turn that into value add for their customers. That's going to be critical. Human capital becomes even more important. I know everyone is worried that, hey, AI is going to take my job, but I tell you what, AI can help you win market share from your competitors. That's going to be the game, because if you don't do it, someone else is going to do it. If you are slow on AI, someone else is going to use AI to take your job and your customers away from you. I think that's clear. A business is so dependent on their human capital. When you look at a large business that employs 80,000 people across hundreds of locations and across maybe 20 or 30 different companies, how all those 70,000 people have the same objective, working for the same purpose, making decisions that are consistent with each other and are supportive of the corporate objective, as opposed to working against the corporate objective, working against each other, negating each other's energy. If you can get 70,000 of people all pushing in the same direction, that's incredibly powerful. But at the same time, if you have 70,000 people running around like headless chickens, you end up going nowhere, spending a lot of energy, but going nowhere. So I think human capital is so important. I really worry when corporate leaders start spending a lot of time positioning themselves on the geopolitical stage and trying to get a few favors, government favors and things like that. We've seen it's disappointing. You would have thought the stock market would look through some of those things, but it doesn't. Favors and patronage certainly benefit corporates on the short run. But in the long run, are they really helpful? Because if that's how you're creating value by getting patronage, that actually weakens the efficiency. If you believe in meritocracy and in efficient and competitive businesses going up against each other, creating value that way, then I'd argue that companies really need to focus on their knitting, focus on staying competitive, on innovation, on their own human capital, on customer satisfaction, making sure they have the support of their customers and suppliers. That is really important. That has always been the case and always will be the case.

Well, Habib, that's why I just love having you on and love the time that we get to spend together. Then through this podcast, the time that we can have our listeners get a chance to hear your thoughts on so many different things because you're such a deep thinker and obviously an incredible and experienced investment manager. So it's great to catch up. But let me finish with probably the most important question of the day. Arsenal in 2025, what's the outlook there?

You know, Dave, there’s that old saying, it's the hope that kills you. All Arsenal fans started this season so optimistic. This is the year we're going to do it. And boy… You know, football, a bit like the stock market, is a humbling business.

So not going to be the year?

I never give up hope, but I think I've been forced to temper my own expectations as the season has progressed.

It's like my Oregon Ducks. My Oregon Ducks went 13 and 0 and then lost in the first playoff game. Very disappointing. But I'll tell you, Habib, here's an exciting thing. You got to come and join me here on my island, San Miguel in the Azores. The local team has scrapped its way up into the first division in Portugal. Right now they're sitting fourth in the league table. If they can hold that position, they'll qualify for European competitions. So at a stadium that holds about 12,000 people for €15 for a ticket, for the best ticket in the house, and you can get in for €2. Some of the best teams, maybe even Arsenal, will be traveling here to the islands, and we can go to a game and enjoy it on the cheap. That's going to be value, Habib.

Oh, I'm coming. That'll be a lot of fun.

I imagine the ticket to Arsenal is more expensive than the plane ticket here from London.

You can’t get a ticket. That's the thing with Arsenal. But to watch it in a different environment. I'm a real football fan, and I would love to do that. I'm going to hold you to that.

Well, yeah, I'm going to cheer them on Saturday, so I'll let you know how that goes, Habib. Thank you so much. Just great to see that big smile, and we'll see you in a few weeks.

It's an absolute pleasure, Dave. Thank you. Wow, today went really philosophic on us, but yeah, I really enjoyed this conversation.

Well, a little philosophy, a little football. That's a perfect combination.

Quite. I'll see you in London in a couple of weeks' time.