RWH072: The Making of A Money Master w/ Rob Vinall

The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network

William Green interviews Rob Vinall, the managing director of RV Capital, to explore his twenty-year journey as a successful hedge fund mana

Key takeaways

• Rob Vinall has achieved an annualized return of approximately 15.5% since launching the Business Owner Fund in 2008.
• His investment framework centers on 'owner return,' which targets a combination of dividend yield and earnings growth.

Main topics

• Value Investing Philosophy
• Concentrated Portfolio Management

Notable quotes

I've discovered for myself a niche of managers where I think the odds are just massively stacked in my favor... managers who've turned the business into their life work.

Conclusion

The episode offers profound insights into how character-driven investi

Transcript preview

Speaker 2 (0:00) You're listening to TIP. Speaker 1 (0:25) studying how he's crushed the market in the 20 years since he founded his investment firm. But before we get to that conversation, I also wanted to let you know about an exciting opportunity that I hope will be of interest to you. Later this year, I'm going to be launching a new Richer, Wiser, Happier Masterclass. If you're interested in studying with me over the course of a year in a very small, intimate group that's likely to be somewhere between 10 and 20 people, Please contact my friend and fellow podcast host, Kyle Grieve, to find out more about dates and prices and all that good stuff. His email address is kyle, which is K-Y-L-E, at theinvestorspodcast.com. Who's the masterclass intended for? Well, based on the first two masterclass groups, I would say this is ideal if you're a fund manager, an asset allocator, a wealth manager. manager of a single family office, a CEO, an entrepreneur, or simply a serious investor managing your own family's money. Essentially, the masterclass is designed for keen investors and passionate learners who liked the idea of studying with me and an amazingly accomplished and diverse group of people over Zoom each month and also in person at a couple of very special private events that we'll host in Omaha and New York. My current plan is to make this my third and final Richer, Wiser, Happier Masterclass. So if you're interested in this year-long exploration of how to build a life that's truly richer, wiser, and happier, then please don't wait. It would be really great to spend some time with you. In any case, I hope the stars align and that I'll see you later this year. And now, as my friend Stig Brodersen would say, on with the show. Speaker 2 (2:16) You're listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your host, William Green. Speaker 1 (2:50) Hi, folks. I'm absolutely delighted to welcome today's guest, Rob Van Al. Rob is the managing director of RV Capital, an investment fund that he founded almost exactly 20 years ago. He has a superb investment record as the manager of the business owner fund. Since launching the fund in 2008, he's racked up an annualized return of around 15.5 % net of all fees, which is a cumulative return of more than 1,200 % over the last 18 years. He's an exceptional investor and a delightful person, as I'm sure you'll see. And it's extremely rare for him to do an in-depth interview like this. So I'm particularly excited on multiple fronts to be chatting with him today. And Rob is joining us from Switzerland, where he lives with his wife and three children in a village near the Zurich Lake that I gather is about 100 yards away from the famed Lindt Chocolate Factory. So welcome, Rob. It's really lovely to see you. Speaker 4 (3:44) Yeah, thank you so much for doing this with me, William. It's been a few years since I did a podcast. So the downside of that is I'm maybe a little bit rusty. But the upside is that hopefully there's lots of Speaker 1 (3:54) stuff which is new for people. Well, I managed to whittle down my questions to about 15 or so pages. So we should be here for the next seven or eight hours, which is great news. So buckle in, everyone. We've got a lot to discuss. I wanted to start by asking you about your early life. I'm wondering if you can tell us a bit about where you grew up and what your parents were like, because it seems so different in a way from the life you've built for yourself as a fairly cosmopolitan, globetrotting fund manager in Switzerland with investments everywhere from Denmark to China. And when you and I spoke recently about your early life, I was just really struck that it was nothing that really seemed to predestine you for a life as a successful globetrotting investor. Speaker 4 (4:36) Yeah. So I grew up in a very small town called Seaford, which is on the south coast of the UK. It quite literally is the end of the line. It's the final stop on the train. And if you get off the train, then it's sort of a few hundred yards and you're at the English Channel and beyond that France and the rest of the world. So it was a small town. And I was reflecting on where things were started recently as it is the 20th anniversary of my firm coming up. I read once that people love to tell this sort of story about their lives, about how they sort of started in this impossibly difficult sort of situation and then against all of the odds sort of turn things around and had the success they had. And when I look back at my life, there's for sure in the early childhood things which were sort of tough. Mom and dad didn't have a whole lot of money at the time. And when dad got home, mom would go out to work and that kind of stuff. On the other hand, though, it was a very sort of a loving environment. Speaker 4 (5:29) I got early exposure to investing through my grandfather, who was a passionate stock picker. So overall, I think I was sort of pretty lucky and there's nothing I would change Speaker 1 (5:37) about how things have gone. And your dad, if I remember rightly, had an office job in the local port and your mom was a stay-at-home housewife. So there wasn't a big kind of financial urge in the family. It wasn't like everyone was working on Wall Street, right? And then you go off, you got kind of an unusual trajectory change, I think, because of your education at this extraordinary school, Christ's Hospital. Can you talk about that? Speaker 4 (6:03) Yeah. So, you know, for people who aren't from the UK, the UK has this sort of dual system where you have the private schools, which somewhat confusingly are called public schools, which are sort of for wealthier people. And then you have, you know, the kind of the state schools, which are not uniformly bad, but it's for sure a bit of a lottery. And when I was about 11, I took an entrance exam to go to the school, Christ Hospital, you mentioned, which is a sort of quite a special school in the sense that it's not for wealthy kids. It's means tested. And it's Speaker 3 (6:32) a Speaker 4 (6:32) school where the philosophy is very much to kind of give an opportunity to kids who otherwise wouldn't be able to afford to go to a public school. Speaker 3 (6:38) And I remember very Speaker 4 (6:39) clearly at the time working very hard for the entrance exam. And fortunately, I passed. And, you know, when I look back on it, I sometimes have a little bit mixed feelings about the experience. It was, you know, public schools in England 30 years ago were sort of closer to, or at least it feels like closer to the age of Dickens than the... the bond world we live in today, corporal punishment and all that kind of stuff was very much a thing. Certainly predates mobile phones, that's for sure. So it was a tough environment, but it was one which ultimately gave me a great education, which culminated in getting a place at Cambridge University when I completed my A-levels. So overall, I think it was a good start to have in life. Speaker 1 (7:20) Yeah, and quite an eccentric background, right? I was looking up the school yesterday, and I think it was founded by King Edward VI in the 1550s. And you wore these strange blue coats with these sort of brass buttons, and I think yellow socks, if I remember rightly, like the eccentric world that you got thrown into. Speaker 4 (7:38) Yes, it was. The uniform was very unusual, as you mentioned, you know, yellow stockings and breeches and a long blue coat. The school then, and still to this day, always leads the Lord Mayor's show in London. And so, you know, the band would play and then the people who weren't in the band would be tasked with sort of wandering around selling programs. And put it this way, we were definitely a target for the local London kids walking around like Speaker 1 (8:02) that. And as you said, you then went off to Cambridge and you studied modern and medieval languages. I think you were specializing in French and German and were studying literature and philosophy. Why? Speaker 1 (8:15) counterintuitively, was that actually a surprisingly good education for an investor to have? Yeah. Speaker 4 (8:22) Well, the philosophy in England, and I think generally it's a good one, is that studies are generally not vocational. So you study something you're interested in and passionate about. And we tend to be quite finished with studying quite early in England. So typically when you're 21, 22 years old. And the idea is you study what you want. And then when you hit 21, 22, then the real life starts. But I was very interested in modern languages. And that's what I ended up studying at Cambridge. And a language degree at Cambridge isn't so much about the language per se. It's studying the literature and also the philosophy. And although it wasn't my plan at the time that this would be the great preparation for becoming an investor. In fact, when I started studying, I'm not even sure I realized I wanted to be an investor at that time. I do think, fortunately, it was a great preparation. It was very deeply analytical. Every week, we would take on a new author or a new philosopher, starting effectively at zero and trying to get up to speed and understand their thinking and how they fit it into the wider social context. And then by the end of the week, present a ready written essay to our supervisors. And if you squid, that's not so different to the life of an investor where When you start analyzing a company, typically you know nothing about it at the beginning. And then hopefully by the end of the research process, you have a decent grasp of what's happening. Speaker 1 (9:46) It makes me kind of wonder what the impact of AI is going to be on our ability to think and work through these difficult problems. Because you and I, last time we spoke, we were talking about the horrifying challenges of writing, where both of us, I think, have derived great joy and satisfaction from writing. You write these terrific shareholder letters. And at the same time, we talked about how agonizing it is. And I'm kind of, I'm curious what your view is as you embrace AI more and more in the research process, because it's incredibly helpful. What your view is on kind of what we can lose as we do less of this kind of agonizing with a problem. I mean, I remember you saying to me when we spoke, I think back in June. that when you needed information, when you were at Cambridge, you literally would cycle to the library. Speaker 4 (10:37) Yeah. I mean, I think there's two slightly different questions in there. The one is sort of the research process and the other is sort of, you know, the writing process, although of course the two are connected. You know, in terms of research, it kind of makes me feel a little bit old when you put it like that, but it was really the case that, you know, I was probably one of the luckiest people in the planet studying in Cambridge because I was close to one of the largest libraries in the world. But to get to information, I would still have to get on a bike and it was about a 15 minute ride to get to the university library. And from there you would order a book and it would probably take about an hour for it to find its way to you to the extent someone else hadn't already sort of borrowed it before you. So it was a clunky process and still probably one of the best you could possibly get at that point in time. And you kind of fast forward that to say 10 years or maybe 15, 20 years ago when the internet came along and all of a sudden, you didn't have to get on a bike to... to get to the information, you could just sort of, you know, Google it or look it up on the internet, but you still would have to sort of find the relevant document, you know, read it through and then, you know, get ultimately to the information you were looking for, which took a certain amount of time. And then if we fast forward to, to the, you know, the last sort of couple of years and the LLM revolution, it's, it's truly astonishing. If there's something you're interested in, you put in the question and most of the time, of course, there is a little bit of hallucination, but. but most of the time you get the exact answer you're looking for and it takes a fraction of a second. So it's really an incredible time to be alive in that respect. So that for sure makes the research angle easier. You also asked about writing and we did indeed speak a few weeks ago and we sort of cried on each other's shoulder about how agonizing the process is, at least for the two of us. Not sure what's the case for everybody, but anyway. You know, I just actually, it's sort of propitious timing to discuss this now because I actually pressed send on my most recent investor letter this morning. So I've just sort of finished the process of doing that. And for the first time, I really used it not just as a research tool, but as what I would describe as sort of an editor to help me sort of, you know, formulate my thoughts, sharpen up the text. And it's really an incredible tool for writers in that respect. I was talking to my daughter about it earlier and encouraging her to use AI in a similar way. And she had some misgiving as this kind of cheating, as this sort of taking a shortcut on the thinking process. But I don't think it is. I think what it effectively puts in your hands is a sort of this sort of very high quality editor, which professional writers and journalists have always had, but it's obviously prohibitively expensive. for most people. Whereas now, you know, that sort of editor is available to anyone, you know, irrespective of how worthy they are. And, you know, I think it'd be madness not to use it because it really improves and sharpens the writing. Speaker 1 (13:30) Yeah, I feel kind of ambivalent about it all. Like you, I feel like it would be madness not to use it. And at the same time, I worry about, you know, my brain becoming softer. If I rely too much, because I think most of the things that I've learned that are really deeply valuable are things that I agonized over for a long time, where often there was a kind of cognitive dissonance. And I was trying to resolve something that seemed contradictory. And then at a certain point, you're like, oh, that's what it means. I mean, I think the ability to stay with a problem, you know, your friend of mine, Chris Begg, we've talked about this, where he talks about the ability to kind of linger longer. as he would put it, to keep out a problem. So I don't know. I think this is just going to unfold in an interesting way. Speaker 4 (14:17) Yeah. Well, it's a half-year letter and the half-year ended on the 30th of June. We're recording today on the 20th of August. So there were still two months of procrastination and what I prefer to tell, what you much more generously describe as lingering. So there was no shortage of that either. Speaker 1 (14:32) Yeah. And it's Speaker 4 (14:33) a Speaker 1 (14:33) very good letter. You very kindly sent me a draft of it and we'll discuss it more as we go along. Thank you. I'm curious, you graduated from Cambridge in 1996, and you began your career, I think, in 1997 at Goldman Sachs Asset Management in their graduate trainee program. And then you end up joining this small German bank in Frankfurt, I think, in 1998 as a sell-side analyst covering the telecom sector. And I'm curious in some ways, coming from this somewhat modest background that wasn't particularly money-oriented, Were you intensely driven to make money? Were you going into this business because it was intellectually engaging? Were you going into it because you wanted to get a degree of independence and security? I'm just curious what was driving you because I think your views on what investing is, as we'll discuss, kind of evolved a great deal over the years. But what was your attitude towards money and investing in business when you started out? Speaker 4 (15:29) Yeah, I mean, I think I always latently had the ambition to be financially independent, still do for that matter. It was never my ambition to be super wealthy, but the idea of being independent was a very important one to me. So when I finished my studies, it was always completely clear to me that I was going to go out into the world and try and make money. Some people graduate with other ideas, but unfortunately, I didn't have anything more noble than that to offer. And I think When I meet some young people today, they're incredibly thoughtful about where they go to for their first job. And unfortunately, that wasn't me either. As a sort of an ambitious young person, Goldman Sachs was then, probably still is today, the number one brand on Wall Street. And so that's where I sort of set my sights on working and got a place there, which in hindsight was not the best outcome for me. I think I didn't get on particularly well there. It's what makes Goldman Sachs successful is it's an enormous machine and machines need need cogs and not independent thinkers. And it was a complete mismatch. And so that was an early punishment for not being thoughtful. So what happened? Nothing particularly bad. I mean, I think the way these large investments banks work then, probably not all that different now, is that when they want to hire the best people, but I think that's not because they have high-end work for them to do. It's because it reflects positively on their brand. But when these smart, young, ambitious people show up, the more senior people in the organization like to do the kind of thinking and the interesting stuff. And so you start at the bottom of the food chain, sort of more like working the photocopier all hours of the night. And that was definitely not how I envisaged my life panning out. So it ended up being a sort of a clash between me and my superiors. And that was a battle where there was only ever going to be one winner. Speaker 1 (17:19) I've never been very good either with superiors or with copying machines. So I think both of us ended up doing very independent spirited stuff. So I think one of the early experiences that was very formative for you as well is that you kind of came of age as a young investor in the early 2000s amid the dot-com bubble bursting. And I'm wondering what you learned in those early years. Because for one thing, I mean, you did not start with a big nest egg that you were investing. Can you give us a sense of that early stage of your evolution as an investor? Because you were typically self-taught, really. Speaker 4 (17:54) Yeah, yeah. It was an incredibly formative period for me, the dot-com crash, for multiple reasons. So I was around 30 at the time that happened. So I'd been in the financial services industry for a few years by then. And I would describe myself up until the dot-com crash as being a financial analyst. So I knew how to build a spreadsheet and analyze a company. I worked through the motions. But when the dot-com crash happened, that's when I would describe myself as becoming a value investor. And so what is the difference? When the dot-com crash happened, I had a lot of time on my hands. I was sitting at my desk in the office and the phone was no longer ringing as no one was interested in the telecoms industry. So I had some time on my hands. And a lot of the companies that I'd previously been tasked with analyzing you know, they lost, you know, 99%, sometimes some of them went even to zero, but they all lost nearly all of their value. And as a sort of no nothing sort of investor, I was sort of looking at these stocks and, you know, many of them were trading at a small fraction of the cash that they had on their balance sheet. So it wasn't unusual for something to have maybe sort of 10 million market cap, but you know, a hundred million of cash on its balance sheet. So Even with the little knowledge I had at that time, I could figure out if you could buy something for 10 million, which has 100 million of cash, then that's got to be a good deal. And so that's when I would say, A, I really started to get into value investing. But B, the returns in that period were really spectacular, not because of me being a particularly good investor, but just because the opportunities were just so incredibly rich. So even though I only had probably at the time a few a few thousand euros, if you are doubling that potentially more than once or twice a year, then that starts moving things in the right direction very, very quickly. Speaker 1 (19:43) So you got really addicted pretty quickly, right? I also remember you telling me at one point that you read The Intelligent Investor and that was revelatory to you. Yeah, that was revelatory Speaker 4 (19:54) from an analytical perspective, but also in terms of the importance of collaboration. So I shared the office at that time with two two very good friends of mine, Vida and Wolfgang, with whom I'm still in close contact today. And at the time, I sort of thought I was onto something and was sort of keeping it to myself. And so they were like a little bit confused at the time where there was no one who really had anything to do. I was working like an absolute ninja. And, you know, they asked me what I was up to. I said, oh, nothing, you know, don't worry, you know, don't pay any attention to me. And then they were a little bit persistent. They could see that I was clearly was doing something. So I sort of told them about these incredible opportunities I'd come across. And of course, then started collaborating. And I remember one day Vidar came bouncing into the office and said, Rob, I've just been given this book and I read it and you're not going to believe what it says. And he had a copy of The Intelligent Investor. And there's one chapter in The Intelligent Investor where Ben Graham describes how after the great crash of 1929, these sort of former high-flying companies were so despised by investors, many times they would trade below their net cash. And so I just was completely blown away by reading something written 50 plus years before describing what I was experiencing, this supposed sort of modern world with internet companies and stuff. So that really sort of got me fixed onto value investing as well. And of course, once you've read The Intelligent Investor, it doesn't take you too long to come across Warren Buffett. Speaker 1 (21:19) I think it's also striking that from a pretty early date, you were very concentrated. And even now, I think you typically only have about 10 stocks, right? Yeah. Tell me how you came almost accidentally, but fortuitously to be a very focused, concentrated investor. Speaker 4 (21:39) Yeah, it came completely naturally as opposed to being, you know, sort of a top-down sort of idea. So, you know, I was concentrated in those days because, you know, A, I didn't have a whole lot of cash. So when I saw a really amazing opportunity, I wanted to sort of focus the cash I had on that opportunity. But B, there's only so many hours in the day. And especially in the early years, I didn't have much of a sort of a mental network or mental watch list of companies to follow. So it wasn't as if I had a thousand companies on my radar in any case. So if you combine having a few very good ideas with a limited amount of capital, I think it comes very natural to invest in a concentrated way. And if we were to fast forward the story five or six years when I received the seed capital to start the fund, the one piece of advice I was given by my mentor, Norman Rentrop at that time was just continue doing things the same way you do it. Don't change anything. And so it was great advice. And I'm sure most professional money managers read about diversification and how you have to have a... nice, big diversified portfolio and all that kind of stuff. But I didn't have to unlearn that lesson because I never learned it in the first Speaker 1 (22:49) place. Speaker 4 (22:50) Can Speaker 1 (22:50) you tell us a little bit about Norman Rentrop? Because I've met him a bunch of times, both in Omaha, but also at ValueX events and clusters. And he's an intriguing guy. I don't know him well, but I know that he played a very, very important role in helping you. I guess you set up RV Capital in Switzerland in 2006 and then the business of the fund in 2008. Speaker 4 (23:12) That's right. So if we sort of fast forward to 2006, where I'd moved to Switzerland and decided to set up RV Capital, the first call I made was to this gentleman I'd met a few months prior called Norman Rentrop, whether he would like to become my first client. And fortunately, he said yes. And so that really set me off on the races. At the time, I had two small children. And when you set up a company and you start with zero, then... the biggest challenge is always getting the first client. So that was an incredible boost for me. But in terms of who Norman is, he's an entrepreneur based in Bonn, Germany. He started a professional publishing business, which is where most of his wealth came from. But when he was 40, he decided to step back from the business and become a full-time value investor. And as he tells the story, the first thing he did when he decided to do that was catch a train from Chicago to Omaha. to go to the Mecca of investing. And apart from being a great investor, he's been a great mentor to me, but also to many other people. He organizes a value investing conference for German speakers in Omaha around the time of the Berkshire Hathaway meeting. And as probably the person more than any other who's supported the growth of the value investing community in Germany. Speaker 1 (24:28) And around that time, I think in 2006, so exactly when you heard was starting to launch your own firm. You visited Omaha for the first time and you've been many times. I think the first time we met was in Omaha this year when you came to an event that you were hosting there. Why was that first experience of Omaha and the Berkshire Annual Meeting such a life-changing, formative experience for you? Speaker 4 (24:57) Yeah. I mean, life-changing is probably a term that gets overused, but But for me, it really was a life-changing experience. It was obviously May 2006 when I went and I set up RV Capital in August 2006. And I think it's fair to say that probably wouldn't have happened if I hadn't been to Omaha that year. I think at the time I was in a job where I was learning a lot. I liked the people I work with, but it had the one drawback that I didn't really have any agency. other people made the investment decisions. My job was to do the analysis to put them in a position where they could do that. By this time, I'd had a considerable amount Speaker 3 (25:34) of Speaker 4 (25:35) success managing my own money. I had achieved a degree of financial independence by this time. But what I above all wanted to do was to be the decision maker, the person who was the one deciding which stocks to buy, buy and sell. I couldn't do that where I was working at the time. And what really sort of gave me the nudge to set up my own company to be able to do that was going to Omaha, seeing the incredible role model that Charlie Munger and Warren Buffett have given to people, experiencing all these sort of like-minded people around the AGM who are also sort of passionate investors. So that really was what gave me the inspiration to go and do it. Speaker 1 (26:12) When you saw their emphasis, Warren and Charlie, on values and purpose and doing the right thing and all of that, and you had kind of come from this background where it was just like, I just want to make some money so I can live decently. Did it start to have a sort of slow burn effect on you? I mean, did you start to think, oh, actually, there's a different way of operating, which is kind of, I remember Nick Sleep and Kay Sicario, Zach said to me, that for him going for the first time. with Nick to Omaha, he just was like, oh, this is unbelievable. This isn't a casino. Here are these guys who actually own like real businesses. They're not just, you know, charlatans trying to get you, you know, to pick your pocket and to scrape off lots of fees. I'm wondering, did you start to see there was a different type of capitalism that you hadn't necessarily been aware of? Speaker 4 (27:01) Yeah, I think that was, you know, it was almost a religious type revelation in that respect. I really loved the sense of purpose which Buffett and Munger have built, Berkshire Hathaway, and the sense that it's not just about the financial returns, but helping people and creating a community. For me, as financially motivated I was