We Asked T. Rowe Price's $17B International Manager Why Value is Winning Again — and What the S&P 500 Leaves Out

SPEAKER_1 (0:00)

How do you want to split it? Actually, dinner's on me.

SPEAKER_2 (0:02)

Okay, big money.

SPEAKER_1 (0:03)

Well, I got a Venmo balance that I can spend with my Venmo Debit MasterCard, so.

Justin Carbonneau (0:08)

Well, I Venmo'd you three times last week, so it's kinda on me, actually.

SPEAKER_1 (0:12)

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SPEAKER_2 (0:13)

Did my money get, like, reincarnated?

SPEAKER_1 (0:15)

Yeah, it's chicken shawarma. You want it back?

Colin McQueen (0:18)

I can't believe you, like, ate my Venmo.

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Justin Carbonneau (0:32)

Hi Colin, welcome to Excess Returns.

Colin McQueen (0:35)

Hi, great, thank you. Pleasure to be here.

Justin Carbonneau (0:37)

You are a portfolio manager at T. Rowe Price's Global Equity Division, where you spend your time looking for investment opportunities around the world, not just outside the US. So we're looking forward to a discussion today around value investing, where you're seeing opportunities, your process. And also I think, you know, it's going to be an interesting discussion with you about how value investing has evolved in your career and over your career. And so I think that's maybe where we can start. I mean, international value stocks have had a really good recent run.

But the preceding stretch to this recent performance was one of the worst periods for value since the 1930s. And I think we'd like to kind of start there with you, sort of what that stretch sort of taught you and what has changed and how you kind of think of it in the context of your career in value investing.

Colin McQueen (1:40)

Okay. Thanks, Justin. Yeah, maybe it helps. I'll just sort of back up a little bit. Because I guess for me, I kind of think of three sort of lessons that sort of shaped how I got to where I am today and how I sort of think about value investing. So I started my career in 1989 I started a firm called Phillips and Drew Fund Management, which vanished into UBS in the distant past. But it was basically it wasn't synonymous with value investing in the UK.

And the firm was very much a sort of deep value investor. I mean, our sort of motto to put it into American was we fish in the garbage cans for the things that other people have thrown out. So that for me was a sort of great introduction. It told me a lot about the kind of the tools, the techniques of value investing, a lot of which is about the emotional resilience. I mean, it kind of takes you a little bit of a process of getting used to the idea of buying things when your email inbox is full of people telling you why it's an awful stock and it's going to keep going down, to sort of feel comfortable with doing that. So I kind of learned that there. I have to say I also was fortunate in starting my career in 1989, which sounds like a long while ago when I say it out loud, but I spent the first half of my career then basically in a period where value investing works. And I sort of probably reached the midpoint of my career just thinking, why on earth doesn't everyone do this value investing thing?

It just keeps outperforming. Why does anyone do anything else? I probably spent the next half of my career kind of getting the answer to that the difficult way. Anyway, so I left Phillips & Drew, or had then become part of UBS Asset Management, after about 16 years, and moved on to Morgan Stanley, joining their global value team, Morgan Stanley Investment Management. And I think I found to my surprise, it's sort of gone from one end of the value tent, as I put it, the kind of deep and dirty value end of life, to much more the sort of quality compounding, and was much more of sort of Morgan Stanley's focus. You know, thinking sort of Warren Buffett buying Coca-Cola, much more steady, much more higher quality, you could argue, companies over time. I think I probably spent the first six months thinking, what have I done? Why on earth are these guys paying so much for these stocks? But I began to see after a while, there was kind of a different thought process, and it really applied very well towards companies based more around intangible assets, kind of whether that was based on brands, technology, etc. Whereas I think kind of the school I'd grown up in was probably more around hard assets. You know, if you picked up a Ben Graham textbook, that's what you read about. But over time, more and more of the economy is around intangible assets. And I felt a different sort of thought process, a different way of kind of looking at stocks that worked that way. And having those sort of two ends of the spectrum, I found has really been helpful ever since.