21 Questions with Dr Johnny Hon, the Founder and Chairman of angel investment, venture capital and strategic consultancy conglomerate, The Global Group.
- Who or what first made you interested in the world of shares?
When I was at University, my favourite magazine was the Investors Chronicle and thus started my journey into share investments in the UK. I was really just trying to make money. From the age of 18, I took the decision that I would not make any financial claim on my parents. I needed to make my own money and fund my own studies and life.
2. Given your comments on AIM listed Chinese companies if you were asked how UK private investors should gain an exposure to China how would you respond?
First of all, be very careful. Study, think and take your time. I think that there are much better quality Chinese companies listed in Hong Kong. Personally, I would not focus on Chinese companies listed on AIM. Not unless you really want to risk your funds. Having said that, I think UK companies with UK management but with Chinese backing can be ones to consider. This can give you the best of both worlds since the investors can assist the management to expand their business back in China and beyond. Above all, do your homework and due diligence and find partners who know China but who you can trust. This takes time.
3. Last week it emerged that in the PRC there are 50 million empty homes – is this not a little bit odd and a source of concern?
It is a source of concern. In fact, the leaders of China are very concerned about it. When President Xi Jinping gave his more than three hour report to the party congress in October last year, the loudest applause came when he said that homes should be for living in, not for speculation. At the same time, many in the west have pointed to what they call China’s ghost cities. Not just homes but shopping malls and so on. Yes, that can be a problem, but China is building not just for today but also for tomorrow. The movement from countryside to cities has not yet finished. The growth of the middle class has not yet finished.
4. There are some in the West who regard much of the China growth story as being based on currency manipulation and a debt fuelled asset bubble. Are they wrong and if so why?
Currency manipulation alone cannot explain the most remarkable economic transformation in human history. And those who complain about China managing its currency might be well advised to be careful what they wish for. For decades, people have been saying that the Chinese economy is a debt bubble that is about to burst or it is about to have a hard landing. We are still waiting. Debt is certainly a problem in China. But the level of the country’s external debt is low and there are a much greater number of ways to manage internal debt, particularly for a country like China. In recent months, there are increasing signs that the government is getting to grips with this issue.
5. Do you own shares in Alibaba and why or why not?
Not at the moment. Alibaba’s share price is quite high in my view but as a long-term investment it is fine. But not for me at the moment.
6. Do you think that the threat of trade wars between Donald Trump’s America and China is a real issue?
Yes. In fact, it is not just a threat, it has already started. Doubtless Trump’s personality plays a role, but something like this was inevitable at some point. We are in the midst of a huge change. No human being alive has lived in a world where the USA was not the single greatest economy. Managing this process of change is difficult and dangerous.
7. Are you concerned about Brexit? Does it make you less inclined to invest in the UK?
I think the uncertainty is no good and everyone is so tired of it now. We will have to set up a European headquarters somewhere in the EU, rather than managing everything from London, which was always our preference. The more this issue drags on, the more uncertain it becomes and the more intractable it appears. Nobody knows what the final outcome will be. Business hates uncertainty above all and these have become very uncertain times.
8. You and Global have invested in smaller resource plays. Is this not just gambling – most investors in AIM resource juniors lose money.
It is gambling and retail investors who cannot afford to gamble should not touch junior resource plays no matter how well they sell the story. But if you can afford it, then the gamble can pay off.
9. How would you reform the AIM Market in one simple step or do you think it is doomed come what may?
I think AIM is really backward and in particular I do not agree with the conflict of interests embodied in the NOMAD system, where cash hungry advisory companies are paid and retained by the very people they are supposed to investigate and evaluate. I think they need to change the structure of the whole thing and be more modern, fair and transparent. Be more professional as a regulator. The Copenhagen Nasdaq is a much better model for all parties.
10. Would you say that you were a trader or an investor and why? How long do you typically hold shares for?
I am an investor. To invest in a junior company, I take at least a 24 months view. But please remember shares are not diamonds. They are not forever. When things are not right, you need to sell.
11. What percent of your portfolio is in cash right now? Would you say that was prudent?
Right now, it is important to keep cash. More than 50 percent of my portfolio is cash. I think the market will get worse before it gets better.
12. Do you take a market view and does that drive you or are you strictly a bottom up investor?
I take a market view but, above all, I focus on the quality of the management and the people behind the project. Good management in small companies is really hard to achieve. Also you need to understand the other co-investors. If you have a strong, experienced person like Nigel Wray on your shareholder list, it provides more comfort. Hence, I still like R4E, which also fits with my passion for theatre, cinema and entertainment.
13. You must have an opinion on equities. On a global scale are you a bull or a bear right now?
Bearish. Therefore, one needs to be really selective. I think the markets generally will go down more from this point.
14. Is the world drowning in debt and, if so, what is the answer?
It’s a real problem. Global debt has hit another high this year, climbing to $247 trillion in the first quarter alone. Of that figure, the non-financial sector accounted for $186 trillion. The debt-to-GDP ratio exceeded 318 percent in the same period, marking its first quarterly rise in two years. A Nobel Prize Winner in Economics might give you a better answer, but I do think every country needs a renewed focus on the real economy. In that sense, Trump is on to something.
15. What was your biggest ever winner in percentage terms and what made you invest in it in the first place?
I made some huge gains in companies that I got involved with but knowing when to sell is sometimes more important and harder to do than finding the right opportunity in the first place.
16. And what was your most costly stock market mistake? And why did you make it?
Too many mistakes to mention! There was a company that I invested in called Cupid many years ago. The share price moved from 130p to zero. But I’m a firm believer that humanity learns from its mistakes.
17. Do you sometimes despair at the dishonesty of many involved in the stock market?
Yes. There are so many frauds it is unbelievable. That’s why I want to support Tom Winnifrith’s work. If I get cheated so often, and I am an expert, this just illustrates how bad it is for the retail guys, especially in the UK.
18. If you could introduce any one law to make the stock market a cleaner place what would it be?
It would be to impose a legal and statutory requirement that regulators need to be proactive and conduct real and thorough investigations to ensure good conduct. Currently they are not doing nearly enough in my view. At the moment, they make a fetish out of formalities like the wordings in your brochure (if you are FCA regulated), rather than carrying out real investigations into the misbehaviour of board directors of public companies and so on.
19. Do you feel that as you get older you become a better investor?
Yes. Experience is so important. Unfortunately, investors only become better by losing money and being cheated. As I just said, humanity learns from its mistakes.
20. Do you understand bitcoin and or blockchain and have you invested in any plays in this sector?
Blockchain is a good technology and it can be interesting. But that does not mean that it is everything or for all business. Personally, I am investing into some really interesting blockchain start-ups at the moment.
I recently undertook a Fintech certificate course at the Massachusetts Institute of Technology (MIT) as well as a similar certificate course at New York University’s Leonard N. Stern School of Business as I think one really needs to know this sector if you’re going to dabble in it. Besides, I love learning about new things.
For example, blockchain is not just about bitcoins. I own 2 bitcoins, just for fun, but I think longer term, they won’t be worth much as countries start to issue their own virtual currency. Nation states will certainly not want to be locked out of this development. So, while virtual currency is good for the future, I don’t think bitcoin itself will be a good investment long term.
21. If you had to give one piece of advice to anyone starting in the stock market what would it be?
Be suspicious, be careful and be cautious. If something sounds too good to be true, it is almost certainly because it is too good to be true. Do as much research as possible. Keep reading. Lose money and eventually you can learn how it works. Nothing is easy. Good luck!