YouSaid · the spoken record

Howard Smith

lines on the record: 59
first: 2022-08-18
most recent: 2022-08-18
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Likewise, David, it's been such a pleasure speaking to you, and we're honoured and privileged to be your partner on this quest.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Their ability and who come from humble backgrounds or people who weren't necessarily born with a lot of natural talent, who've had to work extremely hard to get to those places and have worked passionately and relentlessly to achieve their goals. I'm always inspired by people like that.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. I mean, there's so many, honestly. I'll be honest, I don't think there's any one investor who has had a tremendous impact on me. I think I've learned my trade largely through the people at Indus who've influenced me, you know, Byron Gill, Sheldon Kasowitz. Those have been my mentors as investors. I mean, I was obviously familiar with the work of Benjamin Graham and how he influenced Warren Buffett. I've read a lot about Peter Lynch at Fidelity. But I can't say honestly that they've had an enormous influence on the way that I think about investing as a craft. I think that's been developed through my time in Japan and my understanding of the Japanese language and my 20 years at Indus Capital and observing and learning from those who came before me at Indus. In terms of people who, the people who inspire me outside this realm and this industry, I think are always people who try to maximize”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm more of a nonfiction reader than I am a fiction reader. I'm very interested in history and archaeology. So I love learning about ancient Egypt. I love learning about the history of Europe and migration patterns through the Middle East and the Caucasus area of Russia, how Europe was populated. So anthropology is something that I find very, very interesting as well. And one of those people that likes to know a little bit about a lot of things. The history of the motor car is something I find extremely interesting. When I was at ING Bearings, I was the automotive analyst. So the history of Ferrari or the history of Porsche or the history of Lamborghini, I find those topics fascinating. So I love to read about that. I wish I had more time to read fiction, to be honest. My life, unfortunately, doesn't really involve a lot of downtime to read fiction. I tend to absorb”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I love getting out doors with a pair of binoculars or, you know, a camera with a telephoto lens to observe the natural world.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think the one thing that really stayed with me growing up in this village of 2,000 people was the great outdoors. As a kid, I was never indoors. I never sat indoors in front of a computer or in front of a TV. I lived outdoors, whether it was kicking a football or chasing my sister or whatever it was. I love to be outdoors and I love the natural world. One of my other passions in life is trying to reverse some of the damage that the human race has done to the natural environment. So I'm an avid ornithologist. I love watching birds and moving to San Francisco has been wonderful in that respect because it's an incredibly rich environment for bird life. There's seabirds, there's raptors, there's songbirds. And I'm lucky enough to live in a part of the city that's sort of on the edge of some open space.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Common purpose, but we're also allowed to. I think we're an incredibly open book when it comes to being able to challenge each other, to speak to each other. We're actually working with an outside group at the moment called the Conscious Leadership Group, which I think has added to our sense of unity and purpose and opened up more doors in terms of being open with each other and being constructively critical of each other and challenging each other to be better versions of ourselves and not having any qualms about doing that. We've gone through a tremendous change. The original founders and owners of the business have now retired. The people who ran the funds originally and no longer running money for industry. So we've gone through a complete ownership change, a complete change of fund management. So if you like, you could call this Indus version 2.0.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ourselves with a group of products that's smaller than we had before, but which should be more coherent in terms of an offering, easier to understand. And we've reduced the headcount at industry. We're a leaner business than we were five or six years ago with a much simpler lineup of products. And I think that's brought a unity of mission, a unity of purpose to the firm. It's brought some new adhesive, I think, to the group. It's easier to know people better if there's fewer people you're dealing with within the firm broadly. We're a small partnership. The partnership speaks regularly. We're very open with each other about where we think we can improve. I think there's no dominant character at Indus who has some overriding control over the business or manages it in his or her vision. We have a sense of...”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“For whom we managed the capital. So that's my own guiding philosophy. On the broader question of Indus, I think we've obviously evolved a lot as a business over the last 20 years. We started as a long short shop. We're now a majority long-only shop, although we are still running a lot of long short money and trying to grow that part of the business too. But in a way, we've had our own self-help transformation, I think through various iterations of our business and various changes of ownership and portfolio management, we became overly complex. We added on parts of the business that, again, with the benefit of hindsight, perhaps were a little misguided and were taking us in a direction that was distracting or adding unnecessary complexity to what we were trying to achieve. So we've paired Inda's back to a smaller number of strategies. We've worked very hard on our business development side. We're trying to project a much simpler version of”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Wilt under the pressure, you have to have the ability to come back and surmount new challenges and take on markets. You can't invest without some degree of confidence. We're in the risk business and taking risk. Involves belief. But it's also a business that will knock you back and you're never going to be bigger than the market. You're going to be one small cog in a very, very large wheel. So there's always going to be opportunities to learn from what happens. And in my opinion, it's very important to be an open book about that with the people.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“I thank you for making those comments, David. It's obviously very uplifting to hear you say that, and I very much appreciate that. My own view, and I think it's shared by the other portfolio managers without doubt, and Indus, is that we're here because of you. We're doing this job because you've entrusted us with your capital to manage on your behalf. And as fiduciaries, we have a duty to maximize the return on that capital to the very best of our ability. I think You're very aware that we're going to make mistakes, but what we owe you is a commitment to learn from those mistakes and try to improve and build new techniques that avoid or at least minimize the risks of running into those same problems in the future. So as I mentioned earlier, this is a chastening business. It's a humbling business. It's a business that requires resilience and self-confidence and self-belief.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Evolution of behavior among Japanese companies. And these aren't small companies, these are large, these are $50,000, $60,000, $70 billion companies. And the valuations on which they trade, which don't reflect, in our opinion, the improvement in governance and capital efficiency and free cash flow generation. So that to me is the essence of the opportunity in Japan. And I think it continues to be a very fertile hunting ground.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Quite often a majority of independent directors, the chair of the board may be independent. We call them self-help transformations, but there's so many big cap Japanese companies that have shed non-core assets that have focused their capital on higher margin businesses with higher asset turnover, much lower capital intensity, much higher levels of free cash flow generation, and they're returning more of this free cash flow back to investors in the form of dividends and buybacks. And people just haven't fully appreciated this change, I don't think. This goes back many, many years. And you can find companies that are buying back two, three percent of their shares outstanding, paying out 50% of their net profit in the form of a dividend, just still trading on 10 times earnings and four and a half or five times EB to EBITDA. So there's a disconnect between the EB.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we were about 30 minutes into the meeting. And he sort of snapped, shut his folder that he was using to talk about what he wanted to discuss. And he said, nonsense. This is nonsense. Please leave. I'm not talking to anymore. And the IR guy got up and opened the door and we were literally shown out of the building. He just stopped the meeting and kicked us out of the meeting. I think the chances of that happening today are essentially nil. You may agree to disagree with the company and they may have a poor understanding of the cost of capital, but the chances of you actually being kicked out of a meeting by a president because the company has negative enterprise value and he doesn't want to talk about it. Those days are probably behind us. And if you look at the vast majority of companies in which we invest, there's a huge improvement in the governance structures. At the very least, we'll have a third of independent directors on the board.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Store your clothes in or whatever. But this company had negative enterprise value. Its net cash on the balance sheet exceeded its market cap. And we were having a meeting to talk about the valuation of the company, to talk about the fact that it may be a good idea for the company to use some cash on the balance sheet to buy back stock. We floated the notion that it would actually be really good for the management to buy out the company and do an MBO and they could make themselves very rich by doing that. They could buy the company and pay themselves lots of money in the process. And we were meeting the president of the company and he just didn't grasp what we were talking about at all. It was like we were speaking a completely foreign language. I was doing the meeting in Japanese and it was getting increasingly frustrated by the line of questioning.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, it is a two-tier market still, and it's still possible to have disappointing meetings in Japan when you're almost speaking a different language about the cost of capital or about balance sheet structure. But no doubt, on average, the standard has risen tremendously, particularly in the last 10 years, although it was certainly happening between 2000 and 2010 as well. But I think the advent of the corporate governance code and the stewardship code in 2014 and 2015 really kickstarted an additional improvement in governance and capital allocation. But yeah, in my early years at Indus, I was doing a visit with Sheldon. It probably would have been about 2004. I won't call out the company by name, but it was a small Japanese company that was headquartered in the suburbs of Tokyo. They made molded plastic containers. And some of them went into cartridge cases for toner and ink used in printers. And they also made big plastic boxes, storage boxes that you can...”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“We've seen a lot of derating of many of these world class companies. And I think that reflects a slowdown in global growth and the likelihood of a recession in the US. And at some level, I think is justified. But I believe we're very deep into that derating process now, and we're a lot closer to the end of it than the beginning of it. And that increasingly, to me, makes the setup very, very interesting on so many vectors, in so many different end markets. But I think particularly in the globally exposed companies that are sensitive to economic growth in China and the US, and which are already discounting a pretty steep downturn. And I think in certain cases have definitely overshot on the downside relative to the three to five year opportunity they're going to see in their earnings and cash flows.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Specifically, I think the US and China over the last six or seven years in an era of low rates and kind of growth at any price investing. So I think as people reassess the global landscape, Japan will get more attention. It certainly deserves more attention. It is a two-tier market. There are still companies which are not well governed, which make bad capital allocation decisions, which have very low return on equity. I think it's an incredibly interesting opportunity set for long short investing, actually. There's some great long opportunities, there's some great short opportunities in Japan. But broadly defined, it's underanalyzed, it's poorly understood, and there's not enough international capital which is seeking out opportunities in that market. So I'm very fired up about the opportunity, particularly I think after the last six or seven months when we've seen another dislocation in markets.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think Japan has a growing number of world-class companies that have world-class governance structures, world-class capital allocation decisions, but yet do not trade at world-class valuations. That to me is the disconnect in Japan. You have companies that have enormously deep and wide moats around them that have a governance structure that absolutely is top decile on a global stage that generate free cash flow relative to sales or relative to assets that's absolutely world class on a global stage, but yet do not trade up multiple which come close to reflecting that level of excellence. There is tremendous mispricing in the Japanese market that stems from years of neglect and misunderstanding and focus I think on other places.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Are so many things that make me excited about Japan today? I could speak for hours about it. It's a market that still has a tremendous perception problem. And that to me is so much more of an opportunity than a threat because people misunderstand the place. They paint it with this brush that I think is so out of date and so poorly describes the current opportunity set. 30 years after the bursting of the bubble, people are still talking about public debt in Japan or deflation in Japan or poor corporate governance in Japan. And I think people tend to look at Japan through a very shallow prism that can paint it in sort of broad brush terms without really peeling off more layers of the onion and understanding what's happening beneath the surface.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is no longer positive, I think is an important skill because you can get yourself very confused and you can drown in too much information. So drawing the line on what makes sense and what doesn't in terms of the analytics is critical. But ultimately, more information, in my opinion, equals more edge if it's used appropriately.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“We can still be fundamental investors and visit companies and have long-term investment horizons and be true to the original toolkit that's existed throughout the history of Indus, but marry that to a lot more data-driven risk management toolkits that help us to be on a different and hopefully better efficiency frontier than we were on before. And it's ultimately using information and analysis to improve our edge and improve our insights. The more information that you have, the more edge you're going to develop and the better you're going to do this job. And the pursuit of information is endless, so you need to be cognizant of that. You need to be cognizant of acquiring too much information and starting to get discombobulated by it or confused by it. So drawing the line when the marginal utility of an extra unit of information”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Every unit of risk that we're taking. And that's helped me manage size of individual positions, I think differently. With the benefit of hindsight, looking back to Q4 of 18, we had too much concentration at the top of the portfolio. And in particular, we had too much value at risk concentration at the top of the portfolio. I think the S&P 500 was down 10% in December 18. It was one of the worst months for the S&P 500 in a very long time. When the US sneezes, Japan can sometimes catch a cold. And that was an example of that. So there were tremendous amounts of learning and retrospective analysis that we devoted to the fourth quarter of 2018. And I'm working very closely with Brian to this day still to apply those lessons. So it's the marriage of portfolio construction and risk management with the underlying toolkit, which to your point earlier has stayed constant through time.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Intuitively, I think, because I now am so accustomed to looking at his data and his analysis, the interplay of risk management with the fundamental bottom-up approach that we use. So for me, personally, the most enlightening aspect of that has been the sort of marriage of value at risk at the individual stock level with the subjective opportunities that we see, i.e. the upside versus downside that we model. But marrying the subjective analysis that we do to the fact-based, backward-looking risk metrics on pairwise correlations or value at risk at the individual stock level has really helped me with the force ranking of ideas. So trying to be on the efficiency frontier of maximizing the expected return.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Personally, so you mentioned Brian Lee. And what Brian has brought to Indus, I think, is an incredibly analytical data-driven approach that pushes information at the portfolio managers. So instead of the portfolio managers having to go and seek out that information or make requests, Brian is proactively providing a huge amount of data and analysis on risk and the interplay of risk with opportunity or how we define asymmetry, the upside downside of the opportunities as we see them. So for me, as”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. This is a chastening job. It's a job that you will never master. There are always challenges. There are always opportunities and overcoming the challenges and addressing the opportunities is a life work that will never be complete. I liken this job in a way to the game of golf. I think you can play 10,000 rounds of golf and still be hitting balls in the water hazard and in the bunkers and misreading potts. You never, ever perfect that task right and I think investing is a little bit like that. And that to me is the fascination of it. That's what makes it so stimulating. It's always going to throw curveballs at you. It's always going to bring you down a peg or two. It never allows you to get too far overconfident or above your skis. So 2018 was an absolutely classic example of a very chastening period for us and for me.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Earlier, we talked about the core investing principles of the strategy, heavy focus on bottom-up research, cash flows, valuations, and that stayed consistent over your time at Indus, but the strategy has also made some material adaptations. We talked about changing market structure in Japan from when you were first starting there to what it looks like today. I'm thinking of Q4 2018 after a tough performance period made some material changes Brian Lee joined the team as the chief risk officer and a lot of those changes have led to some very profitable alpha generation years ensuing. Talk a little bit about how you preserve the first principles of the strategy but adapt around the margins to continually improve year after year.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“I need to understand the technology roadmap of these companies. I need to understand the capex intentions of these companies. And there's a huge amount of work going on at Indus Capital on those very topics. So I think that's a really powerful differentiating factor for us as we invest in a market like Japan. But Japan is largely these days a B2B investment opportunity as opposed to a B2C. I mean, of course there are B2C companies in Japan and they're a very big brands. Japan has some amazing brands like Nintendo and Sony, but a lot of the high value added businesses in Japan in which we invest kind of exist behind the veil, if you like, and are not well understood and not well known by people because they don't see the brand name. But they're absolutely essential to the development of leading edge technology.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“But the ultimate producers of those semiconductors are companies like TSMC or Samsung or Micron or Intel. They are not Japanese companies. So the Japanese companies are the B2B businesses that the end consumer doesn't see when you buy a Samsung phone, you're completely unaware of the Japanese content behind that phone. But that phone isn't going to see the light of day without the input of a large number of Japanese companies. So I think the interplay of the branded producers of consumer electronics and the supply chain behind them, the vertical integration is something that is absolutely critical to what we do. As I think about investing in companies in Japan that make semiconductor production equipment, I need to know what's going on at TSMC and Samsung.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a lot of examples, honestly. I mean, I think the most relevant is probably the technology sector. Japanese companies are absolutely critical players in the value chain for semiconductor production, whether it's the production equipment that's used in lithography or etching or inspection or cleaning or dicing or whatever it may be, or whether it's the materials that are used in areas like semiconductor resists or slurries. Japan plays an absolutely critical role at leading edge nodes in the production of semiconductors globally.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“We're sniffing out change on a continuum and sensing how different that is relative to that company 10 years ago or 15 years ago. That's really the crux of how I think as a portfolio manager.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“It can involve understanding the supply chain, the competitive landscape. Typically it will involve some description of the moat around a company, the barriers to entry. And that's often in the case of Japan R&D driven or technology driven. Or it can be patent driven, some sort of intangible asset that's very hard to recreate. So we're looking for a great depth of knowledge and some insights that really differentiate our research from what we think is discounted in the market. And I think having a lot of experience on our bench and among our PMs gives us the ability to sense change on a continuum of time. Because more often than not, we're investing in companies after having seen them over a number of years. We're not normally investing in companies that we are seeing for the first time or that we don't know very well.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“That ideally has shelf life over a very long period of time. What I'm looking for is a portfolio manager, David, more than anything else, is depth of insight. Ultimately, it's about change at the margin. We're looking for something that is different, something that the market has not discounted or has not understood. That can involve going down.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Projects or topics that need to be addressed. We'll collectively decide that we need to develop it in this way or another way. We're lacking a little bit of insight in this area or that area. And it will therefore evolve into a longer form note with a lot more information in terms of charts and tables and a fully-blown earnings model that forms really the fully baked thesis, if you like. If it then meets the hurdle for inclusion in the portfolio, that itself is a complex topic that involves working with the risk team and ultimately is the portfolio manager's decision. The buck stops with the portfolio manager, but will then use that work as the basis for forming a position over time. And that body of work will then be subject to regular maintenance and regular updates and sometimes additional scrutiny and additional follow-up work if that is necessary, but it will form the basis for a thesis that we can go back to.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so a pasta normally starts with a one or two page document that I would call 60 or 70 percent cooked, if you like. It's not a completely off-the-cuff random idea. There's a lot of work that goes into an initial pasta report. And then the analyst will volunteer his or her time to present that report to a group of portfolio managers. We'll then go through an initial meeting where the portfolio managers and the other analysts are free to scrutinize and challenge the work that's been done on that company. We may decide at that point to shoot it down and move on. We may put it on ice for a while and say it's potentially very interesting, but the timing isn't appropriate right now. We'll come back to it at a later time. But more typically, that work would lead to a list of follow-up processes.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“a thesis through a determined process and exposing it to scrutiny and debate. So we use the written word and a lot of internal face to face meetings to scrutinize and debate and challenge the underlying work of the analysts and the thesis that they're developing. But those analysts are heavily incentivized through our compensation structure to cross-fertilize or pollinate their ideas to PMs other than their direct reporting line.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think it's a very coherent system that really relies heavily on the written work that we've produced. We archive our work on multiple internal systems actually. I think our incentive structure is designed in a way that heavily incentivizes people to collaborate across products. So our teams are loosely arranged around individual funds, but almost every analyst reports across multiple funds and speaks to multiple fund managers and that's nowhere is that more true than Japan because we have myself and Byron and John all investing in the Japanese market some long short, some long only. So in addition to the written work, we have regular team meetings and what we call pasta calls. Pasta is our way of essentially preparing and evolving.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Companies developing relationships doing analysis, but we had that global perspective of being able to understand the supply chains and the competitors of the companies in which we invest. And I think that's really, really important if you're going to have a holistic view of investment management. And I think it's a model that's always worked for us and it's a proven concept and I think we'll continue to work in the years ahead.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“That I manage, the majority of the companies in which we invest are global businesses. They're domiciled in Japan, but they generate the majority of their revenue outside Japan. What's happening in the Japanese economy isn't directly relevant quite often to their futures or their revenue streams or their margins. So understanding their clients or their competitors who are domiciled in Europe or the States is an extremely important part of the business. And I think being based in America and having that perspective and accessibility to these companies is an important element of what we do. But we combine that with a permanent presence in the region, strong language skills. So we're linguistically equipped to deal with the companies out in the region. I think RPMs have very deep connections with the region and the majority of us have spent most of our adult lives living in the region. We have boots on the ground based there permanently out on the road visit.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. It's always been the model. It was the model with Soros when David and Sheldon were doing that job for Soros in the 90s. They were based in New York, Bendesoma and Byron and the others were the analysts based out in the region. And that's the model that Indus adopted from day one. So we've always had boots on the ground in the region. If you look at Indus today, we have an office in Tokyo. We have an office in Hong Kong. We have an office in Shanghai. And then here in the States, we have offices in San Francisco and New York. So that has always been the model. The PMs have traditionally traveled to the region on a regular basis, and we will do that again once borders reopen and travel becomes easier. But I think we can bind the best of both worlds. We've got a global perspective here. We can see what's happening with the competition for a lot of Asian companies in which we invest. If you look at Japan,”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it was a big personal upheaval, to be honest, especially for my wife and kids. So it wasn't an easy decision to make, but from a professional point of view, I think it was absolutely the right decision. And I think I've clearly benefited from this new perspective. Pre-COVID, I was actually getting better access to the senior management of Japanese companies here than I ever did in Japan. They come on these non-deal roadshows often to the United States. And you can get to meet the CEOs and CFOs of mega-cap companies. And that's very hard to do in Japan because once they go back to Tokyo, they sort of disappear into the woodwork of managing their firms. And the accessibility or the access to top management is actually better, I found outside Japan than inside Japan. So that's been different, obviously, with the pandemic. So that was really the inspiration behind it.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“The ability to access information about US politics or geopolitics or the Federal Reserve is much easier here than it was in Tokyo. Being out of a live market also, I think, is very beneficial to me. The market here opens at 5 p.m.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“And short-term market neutral investing isn't about that. It's about mean reversion. It's about taking money off the table quickly and putting it back to work quickly. And that's not how I think about investing at all. I really wanted to see Japan from a different perspective and get closer to the other portfolio managers at Indus, all of whom were based in North America, either in New York or in San Francisco. So here I am now in San Francisco, working alongside Byron and John Pinkle, who manages our Pan-Asian long-only product called the Indus Select Fund. Also working with Ben DeSoma, who's our head of research. So I can interact with those guys much more, understand how they're thinking about the world, how Japan fits into the matrix of countries in which they invest. They invest in China, they invest in the ASEAN region, they invest in Australia. We're obviously all based here in America.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Much different investment horizons from the ones that I want to think of. So the whole language of investing had changed. And when I was speaking to brokers, they would be telling me about what to expect with an earnings beat or an earnings miss next week in this company or even sometimes how the value factor in the AM session was out performing the growth factor, but how that was reversing in the PM session. This was kind of alien to me. I didn't want to know about this stuff. It doesn't resonate with me in terms of how I want to think of investing. I want to dive deep with companies. I want to get to know the management of companies very well. I want to form long-term relationships with the management of companies. I want to get inside behind the curtain and understand how companies work, how decisions are made. I want to understand their end markets. I want to understand their competition. I want to understand their technology, their R&D.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can tell from my accent, I'm not American, and so I'd never lived in the States before. I had no family links here, had no particular personal reason to be here. But when I started at Indus in 2002, the competition was the big US mutual fund industry. It was Fidelity and capital and Putnam and T-Row. And the toolkit that people were using was broadly similar to the toolkit that we use. It was fundamental investing based on company visits, based on getting to know the management of companies well. If you look at the world of investing in Tokyo today, you know, it's dominated by the platform hedge funds. And I think the whole approach has changed. These are market neutral hedge funds and quite often beta neutral and factor neutral and running money with high turnover, highly leveraged strategies that have”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“But as Sheldon started to dial back and step aside from fund management, I started to play a greater role in the stock selection and the management of the analytical team. So I became head of research for Japan and I was managing a group of analysts within the firm covering Japanese stocks and increasingly playing a role alongside Sheldon as a co-portfolio manager. And then when Sheldon stepped away and retired from the firm, I took over from him as the fund manager for both of those products, managing a team of people in North America and in Tokyo. And as part of that process, I decided to take the big decision to leave Tokyo in 2018 and move to San Francisco.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Joined as the second analyst on the Japan Longshort Fund. We had a very small office in Tokyo and there were three of us in that office. There was Byron, myself, and an office manager. That was it. That was the setup in Japan. Sheldon sat in New York and he ran the funds from New York. And that's what I did for many years. And in this, I was working in Tokyo as an analyst forming investment ideas and writing reports internally. As time went on, Byron graduated to being a fund manager in his own right. I stepped up to the lead analyst role under Sheldon and took a much more senior role. And as you know, we launched a long only business in 2010, thanks to you, Timco. And that was the second of the two Japan funds. So we had a Japan long short fund and a Japan long-only fund. And if you fast forward to today, the Long Only business has become much bigger than the Long Short Business.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“In those days, Indus had two funds. It was a hedge fund. We had two long, short strategies. We didn't have a long-only business in those days. We had a Japan fund that was managed by Sheldon Kasowitz. And we had an Asia, Extapan fund that was managed by David Cowitz. Both of them were long short strategies, and both Sheldon and David had been senior figures at Soros working on the quantum funds and had spun out of Soros in 2000 when Stanley Druckenmiller moved on to do things for himself. So a group of investment professionals led by Sheldon and David and taking along characters like Byron Gill and Jim Shannon, who's now our CEO and Ben De Somer, who's now our head of research, those guys spun out of Soros to form in the same year two thousand. Byron was the lead analyst on the Japan Longshort Fund.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investing was the predominant form of investing, and certainly the model that resonated the best in the Japanese market. So I've always been extremely conscious of multiple, if you had to put a label on me, I'm probably a GARP investor, a growth at a reasonable price investor. But I think my understanding of what constitutes reasonable price has been very much formed by my experience in Japan from 1988 onwards.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source
“And that stated assets aren't always what you think they are, I think, as had a profound impact on the way that I think about companies, or at least the importance of looking at capital structure and balance sheet and cash flow in addition to standard P&L analysis and what's happening to revenues and operating profit and EPS, the trifecta, if you like, of all three of the financial statements, I think was seared into me at a very young age. And I think also the notion that value investing is relevant and works was seared into me at a young age too, the period from 1992 after the initial bursting of the bubble really up until I think the global financial crisis and beyond until we got into a global era of zero rates around 2015 or 2016.”
2022-08-18 · Capital Allocators · Howard Smith – Japanese Equities at Indus Capital (Manager Meetings, EP.35) · IDENTIFIED FROM THE TRANSCRIPT · source