Kerr Neilson, an Australian investment manager, is the co-founder and managing director of Platinum Asset Management. He spoke to Christine St Anne, Morningstar Australia's online editor, about various issues.
Since founding Platinum Asset Management in 1994, you have primarily focused on global portfolios. What has been the most surprising global investment trend during that time?
The integration of markets and industries. People used to look at these things in a discrete way. They used to look at engineers in Europe and ignore America and Japan. Now, people look at industries across the borders.
What do you think will be the most surprising trend of the next 20 years?
The emerging markets will be the most interesting place to invest in, which is ironic as the U.S. in the MSCI index is a 49% weighting and produces one-fifth of the world's output. It's completely out of kilter. Places like China, Brazil, India and Russia have a weighting of less than one-tenth of the MSCI and produce more than the U.S.
What was your biggest investment mistake and how did you learn from it?
The mistakes we have made are invariably because we did not have enough global or industry perspectives -- that's where you can make mistakes. If you think you have something that other people don't have, all you are doing is deluding yourself.
You can be too narrow in your focus. Remember it is a zero-sum game, so if we don't make mistakes other people can't make money and if other people can't make mistakes we can't make money.
We also pay too much attention to the nearby affect. We all get too much in a tizzy about the potential invasion of the Ukraine. However, what will be the impact in 10 years' time?
The same thing can be said about 9/11. Everyone was too afraid to fly but after that event it was probably the safest time to fly because security was high and pilots were drinking less. We all over-emphasise certain elements of our existence.
How would a "hard landing" in China impact the global economy?
I don't think China will have a hard landing because they can sell more and they can tax more. The rich don't pay tax. That's why Macau is seven times bigger than Vegas. The Chinese use Macau to shift money abroad.
Don't go on a hunt for a house in Sydney because all you see is Chinese. They are just externalising their money. China is not going to change its view of its future. And what I mean by that is it is a country with huge ambitions and will continue to grow because of the choices its government has.
The U.S. equity market has been very strong over the past couple of years. Are you still finding ideas there or is it time to take profits?
The energy and utilities sectors are cheap. The broader U.S. market is okay, but it's not cheap.
What do you see as the biggest risk in your portfolio?
If the Aussie dollar went up a lot that would hurt our shareholders. The other risk is if we go off with the fairies somewhere and we perceive something that is a complete illusion. The important thing is that we don't get too carried away when everyone is excited and too depressed when everyone is miserable.
What is harder: Starting an investment firm or keeping it going 20 years later?
Starting the firm is always the hardest because you lose the warm embrace of your former employer and then you have to create all the systems. What I found astounding when I started my business is the amount of people that come out of the woodwork to help. We couldn't believe how kind people were. They don't want you to fail -- they want you to succeed, which is great.
Many global investment managers feel it's important to have research staff stationed in various parts of the world, but you don't ascribe to that. Why not?
We just have a crystal ball! Investing is not about having a day's edge on someone. It is about understanding big global changes. So the idea that there is some sort of advantage because you have people in every location is irrelevant.
You can't be everywhere and it doesn't matter. The problem is too much information, not the availability or access. It is just making sense of a world that is changing. The internet is now ubiquitous and is changing whole lot of relationships.
Who is the leader who is most influencing your outlook for the global economy?
There are some magnificent fund managers in the U.S. -- like the old brand of hedge fund managers that don't manage any money, people like George Soros. Soros has given huge amounts of money and he has done it to influence society for the better. He is trying to make the world more equal and protect the underdogs.
He has proven to be one of the most influential people over last century because of the amount of money he gave. He tried to get rid of George W. Bush but he was restricted because he could only give $17.5 million. If he had the chance he would have given $100 million.
