Sir Chris Hohn | Podcast | In Good Company | Norges Bank Investment Management

Episode Overview

• Chris Hohn details his core investment philosophy, which is singularly focused on identifying high-quality businesses protected by durable, sustainable competitive advantages, or "moats."
• He explains why he considers most industries un-investable due to the destructive forces of competition, limiting his investment universe to only a few hundred companies worldwide.
• The conversation covers the evolution of his activist investing strategy, shifting from an aggressive approach to a more collaborative, defensive stance as a concerned owner of high-quality businesses.
• Hohn shares his personal journey into large-scale philanthropy, framing it not as charity but as a "soul urge" for service, and discusses the importance of consciousness in solving global issues like climate change.

Key Concepts

• The Primacy of Moats: A good investment is defined by sustainable, high barriers to entry that protect a business from competition and substitution. This is the single most important factor, prioritized over growth or perceived cheapness.
• Types of Competitive Advantages: Moats can be categorized into several distinct types, including irreplaceable physical assets (e.g., airports), advanced intellectual property (e.g., aircraft engines), network effects (e.g., Visa), high customer switching costs (e.g., mission-critical software), and powerful brands.
• Quality Over Value: The investment strategy favors predictable, high-quality businesses with durable earnings power over "cheap average businesses" whose futures are uncertain and vulnerable to competition.
• The Power of Incumbency: Established companies can leverage their existing customer base, distribution channels, and bundled offerings to fend off competitors, even those with superior products (as exemplified by Microsoft Teams vs. Zoom).
• The Un-investability of Most Industries: The vast majority of industries are deemed "bad businesses" because intense competition and the threat of disruption erode long-term profitability, making them unsuitable for this investment approach.
• Activism as a Spectrum: Activist investing ranges from aggressive actions like replacing boards to "soft activism" involving collaborative dialogue. The strategy has evolved to be a defensive tool used to protect high-quality holdings when necessary.
• Philanthropy as Service: Hohn's motivation for philanthropy is described as a spiritual "soul urge" to serve humanity, distinct from traditional charity and central to finding a deeper purpose.
• Consciousness and Global Problems: The root of major global issues like climate change and the anti-ESG backlash is identified as a "consciousness problem"—a narrow focus on short-term self-interest that prevents collective solutions.

Quotes

• At 0:52 - "The most important thing... is high barriers to entry, the moats that Warren Buffett has talked about." - Chris Horn states his core investment principle, emphasizing that a strong competitive advantage is the foundation of a good investment.
• At 2:32 - "Competition kills profits. Yep. That's as simple as that. Substitution eliminates your business." - Horn provides the simple, powerful rationale for why moats are essential for long-term profitability and survival.
• At 5:33 - "There've been no new entrants for more than 50 years. The last new entrant was GE. And so that tells you something." - Horn uses the aircraft engine industry to illustrate an incredibly strong moat built on complex intellectual property that has prevented new competition for decades.
• At 20:03 - "We say maybe there's 200 companies that we consider to be high quality and investible." - Hohn quantifies his highly selective investment universe, stating that only a very small number of global companies meet their quality criteria.
• At 20:43 - "The one important thing that I've learned in my time in investing is investors underestimate the forces of competition and disruption." - Hohn shares a core lesson from his career, emphasizing that the market often fails to properly price in the long-term impact of competitive pressures.
• At 23:06 - "It was good enough. Yeah, it didn't have to be the best if it's free." - Hohn summarizes the strategic lesson from the Microsoft vs. Zoom case, highlighting how bundling and distribution power can overcome product disadvantages.
• At 44:39 - "Very few things matter and most things... don't matter at all." - Hohn quotes a spiritual teacher to explain his investment philosophy of focusing only on what is truly critical.
• At 49:27 - "The business always wins. It's pointless being an activist in a B business." - Hohn shares a key lesson from his career: it's better to invest in high-quality businesses from the start rather than trying to fix broken ones.
• At 52:47 - "We always act as owners." - Hohn explains that his activist interventions are not about enjoying a fight but about fulfilling his responsibility as a shareholder to protect his investment.
• At 53:38 - "You can be right, but not be able to hold it or fund the losses." - Discussing the immense difficulty of short selling, using the Wirecard case as an example where even those who were ultimately correct could have been forced out of their positions prematurely.
• At 1:01:58 - "I finally understood it... as a soul urge... that there's an essence of who we really are... and that is service, a desire to help." - Hohn describes the spiritual origin of his commitment to philanthropy, framing it as a fundamental part of his being.
• At 1:05:41 - "It's a consciousness problem. And we'll never solve any of these problems, whether it's climate or poverty or war, if there isn't a change in the level of consciousness." - He frames the world's biggest challenges, including the backlash against ESG, as issues rooted in a lack of awareness and a narrow focus on self-interest.

Takeaways

• Prioritize identifying a company's durable competitive advantages (moats) above all other metrics, including growth rates or current valuation.
• Assume that competition is a powerful, destructive force and actively seek out the rare businesses that are structurally insulated from it.
• Recognize that an incumbent's distribution power and ecosystem can be a more formidable competitive weapon than product superiority alone.
• Simplify your investment process by ignoring market noise and focusing only on the handful of fundamental factors that will drive long-term business performance.
• When practicing shareholder activism, focus efforts on protecting already high-quality businesses rather than attempting to turn around mediocre ones.
• Approach short selling with extreme caution, understanding that being right on the fundamentals doesn't guarantee a profit if market timing and psychology work against you.
• To find true fulfillment, look beyond financial success and seek a deeper purpose by engaging in a "spiritual path" and finding avenues for service.