Sir Christopher Hohn

1\. relentlessly Focus on "Moats" (Barriers to Entry)

Hohn argues that many investors wrongly prioritize growth or newness. Instead, the most critical factor is high barriers to entry, or "moats," which protect a business from competition and substitution.

• Sustainability: A great investor looks for sustainable defenses. If barriers are too low, competition eventually kills profits.

• Specific Moats: Hohn identifies several key types of moats, including irreplaceable physical assets (like airports or railways), intellectual property (like aircraft engine technology), installed bases, network effects (like Visa), and high customer switching costs.

• Pricing Power: A definitive test of a "super company" is the ability to raise prices above inflation. This allows profits to grow faster than revenue without additional cost.

2\. A Long-Term, Fundamental Mindset

Great investors distinguish themselves through long-termism, often holding stocks for a decade or more to allow intrinsic value to compound.

• Compounding Intrinsic Value: If a company is truly great, the growth of its intrinsic value over time matters far more than the entry multiple (price) paid for it.

• Discounted Cash Flow (DCF): Hohn prefers DCF analysis, looking far into the future, rather than relying on short-term trading metrics or "catalysts".

• Concentration: Rather than diversifying into hundreds of companies, a great investor focuses on a small number (e.g., 10–15) of high-quality positions.

3\. Independence of Thought and Conviction

A great investor must possess independence of thought, particularly when the market or "authority" claims otherwise.

• Ignoring the Herd: In the case of Wirecard, Hohn trusted his own analysis and the work of journalists over the German establishment and regulators, who were ignoring the fraud.

• Conviction: One must have enough conviction in an asset's value to hold it through volatility. Hohn notes that you must be able to "sleep at night" with your positions, usually ensuring they are backed by tangible assets or obvious value to reduce the risk of permanent loss.

4\. Avoiding "Bad" Industries

Part of being a great investor is knowing what _not_ to invest in. Hohn avoids industries characterized by opacity, high competition, or leverage, such as:

• Banks: He considers them "bad businesses" because they are opaque, highly leveraged, and difficult to analyze.

• Commodity/Competitive Industries: He avoids airlines, auto manufacturers, fossil fuel utilities, and general retail because competition and disruption are constant threats.

5\. Personal Qualities: Humility and Intuition

Finally, Hohn highlights intangible personal qualities that separate great investors from the rest:

• Humility: One must admit that they do not know everything and can be wrong. Hohn suggests that arrogance or a lack of humility can lead to disaster.

• Intuition: He describes this as "thinking without thinking" or pattern recognition. It involves a "knowing" about people, situations, or business patterns that goes beyond raw intellect.

• Teamwork: A great investor often works within a collegiate team where ideas are challenged, and "bearish" views are encouraged to test investment theses

1\. High Barriers to Entry ("Moats")

The single most important factor is the existence of a "moat" that protects the business from competition and substitution. If barriers are too low, competition will inevitably kill profits. Hohn identifies several specific types of powerful moats:

• Irreplaceable Physical Assets: Infrastructure that is a natural monopoly, such as airports, toll roads, or railways, where it is economically or physically impossible to build a competitor.

• Intellectual Property (IP) and Complexity: Products that are too complex for new entrants to replicate. Hohn cites aircraft engines as a prime example; the technology is so advanced (parts running at melting temperatures) that there have been no new entrants in 50 years.

• Network Effects: Businesses where the value increases as more people use them, creating a "winner-takes-all" dynamic. Examples include Visa, Meta, and stock exchanges (where liquidity creates a natural monopoly).

• Switching Costs: Products that are "mission-critical," such as enterprise software (e.g., Microsoft Office), where customers are reluctant to switch due to complexity and risk.

2\. Pricing Power Above Inflation

A defining characteristic of a "super company" is the ability to raise prices _above_ inflation.

• The "Trump" Card: While investors often look for volume growth, Hohn argues that pricing power is more potent. If a company raises prices by 1% above inflation, that increase flows directly to the bottom line without added cost, whereas volume growth comes with associated costs.

• Profitless Growth: Hohn warns against "profitless growth," citing the airline industry, which has grown consistently for a century but made minimal cumulative profit due to a lack of barriers and pricing power.

3\. Essential, Non-Discretionary Products

A great investment provides a product or service that is essential rather than discretionary.

• Inevitability: Hohn favors businesses like credit rating agencies (e.g., Moody's). While an issuer can delay rating their debt, they eventually _must_ do it to refinance, making the revenue stream recurring and predictable over the long term.

4\. Compounding Intrinsic Value (Over Low Valuation)

While Hohn acknowledges that buying "cheap bad businesses" is a strategy that can work, he prefers buying great businesses where intrinsic value compounds over time.

• The Multiple Matters Less: If a company is truly great and increases its intrinsic value at a high rate, the entry price (multiple) matters less if you hold it for a long period (e.g., 10+ years).

• Discounted Cash Flow (DCF): The primary valuation tool is DCF, looking far into the future. The longer the time horizon, the more valuable a great company becomes.

5\. Weak or "Apparent" Competition

Ideally, a great investment faces "weak" or "rational" competition rather than aggressive price wars.

• Rational Oligopolies: Hohn likes industries where competitors choose not to compete on price, or where the competition is technologically inferior. For example, in the aircraft engine market, reliability matters more than price, and competitors often behave rationally to maintain industry profitability.

6\. What a Great Investment is _Not_

To understand what makes a great investment, Hohn also lists what makes a "bad" investment. He avoids industries that are opaque, highly leveraged, or commoditized.

• The "Bad" List: Banks (too leveraged and opaque), auto manufacturers, airlines, fossil fuel utilities, general retail, and insurance are all cited as "bad businesses" due to the constant threat of disruption and competition.

1\. Sustainable Barriers to Entry ("Moats")

The most critical factor is the existence of high barriers to entry that are sustainable over the long term. Without these, competition kills profits and substitution eliminates the business,. Hohn identifies several specific types of powerful moats:

• Irreplaceable Physical Assets: "Natural monopolies" where it is economically or physically impossible to build a competitor. Examples include airports (like Aena in Spain), toll roads, and railways.

• Intellectual Property and Complexity: Products that are too complex for new entrants to replicate. Hohn cites aircraft engines as a prime example; because the technology is so difficult (parts running at melting temperatures) and safety is paramount, there have been no new entrants in over 50 years,.

• Network Effects: Businesses where the service becomes more valuable as more people use it, creating a "winner-takes-all" dynamic. Examples include Visa, Meta, and stock exchanges (where liquidity creates a natural monopoly),.

• High Switching Costs: "Mission-critical" products where customers are reluctant to switch due to risk and complexity. Hohn uses Microsoft Office as an example: once installed, companies do not want to "mess with it," giving the incumbent immense power to bundle new products (like Teams) effectively for free to crush competitors,.

2\. Pricing Power Above Inflation

Hohn argues that the ability to price above inflation is what "trumps" everything else and is the test of a true "super company",.

• Pure Profit: If a company creates volume growth, there are costs associated with that production. However, if a company raises prices 1% above inflation, that revenue flows almost entirely to the bottom line (profit). This leverage effect allows profits to grow significantly faster than revenue,.

• The Airline Counter-Example: Hohn points to airlines as the opposite of a great company. Despite volume growth of 5% annually for a hundred years, the industry has made minimal cumulative profit because it lacks pricing power and barriers to entry.

3\. Essential, Non-Discretionary Products

A great company sells something that is essential, not discretionary.

• Inevitability: Hohn favors businesses like credit rating agencies (e.g., Moody's). While a bond issuer can delay getting a rating, they eventually _must_ do it to refinance debt. This makes the revenue stream predictable and recurring.

4\. Rational or "Apparent" Competition

Ideally, a great company operates in an industry with "weak" or "rational" competition.

• Rational Oligopolies: Hohn prefers industries where competitors choose not to compete on price. For instance, in the aircraft engine market, reliability matters more than price, so competitors (like GE and Safran) behave rationally to maintain industry profitability rather than engaging in price wars.

5\. Compounding Intrinsic Value

A great company is one where intrinsic value grows significantly over time.

• Multiple Irrelevance: Hohn notes that if a company is truly great and compounds its value over a long horizon (10–20 years), the entry price (earnings multiple) matters less. He cites buying Moody's at various prices, noting that the compounding of the business was far more important than the specific entry point

• Public vs. Private: Hohn believes the "very best businesses" are found in the public markets rather than private equity. Large public companies often have the scale, R&D budgets, and incumbency to crush smaller, innovative private competitors.

6\. What a Great Company is _Not_

To define a great company, Hohn also explicitly lists "bad businesses" to avoid. These are characterized by leverage, opacity, and commoditization.

• The "Bad" List: Banks (too leveraged and opaque), auto manufacturers, airlines, fossil fuel utilities, general retail, insurance, and traditional asset managers are all considered "bad businesses" because they lack the defenses described above,.

1\. Fostering a "Collegiate" Culture of Trust

Hohn leads TCI with a very small team (7–8 investment professionals) to maintain a specific culture.

• Intangible Trust: He emphasizes that the team relies on "intangible trust" and a collegiate atmosphere. He actively avoids becoming a "manager of managers," preferring to remain a stock picker working alongside his team,.

• Personality and Fit: When hiring, Hohn looks beyond raw intellect to personality. A team member must be able to "get on with people" and share the firm's philosophy. He notes that he would never hire someone without the blessing of his senior team because a bad hire could "destroy the culture".

2\. Humility and Open-Mindedness

A core trait Hohn values in his team (and himself) is the lack of dogmatism.

• Admitting Mistakes: Great leaders and investors must be "open-minded to being wrong." Hohn warns against being "dogmatic" and values people who can test the "bear case" rather than just validating their own ideas,.

• Intellectual Humility: He specifically mentions that "humility" is important and implies that arrogance or the belief that one knows everything is a flaw.

3\. Intuition and "Knowing"

Hohn elevates intuition—which he defines as "thinking without thinking" or pattern recognition—above raw intellect.

• People Judgment: He uses intuition to determine if someone is trustworthy. He describes it as a higher level of intelligence than just intellect, a sense of "knowing" about people and situations,.

• Independence of Thought: A leader must possess "independence of thought" rather than trusting authority. In the Wirecard fraud case, Hohn trusted his own analysis and journalists over the "German establishment" and regulators who were defending the company,.

4\. Service Over Ego ("Soul" vs. "Personality")

In the latter part of the conversation, Hohn outlines a spiritual view of leadership, distinguishing between the "personality" and the "soul."

• Rejection of Ego: He argues that the "personality" is driven by a desire for possessions, glamour, power, and money. He believes leaders driven by these superficial urges eventually realize they do not bring happiness.

• Service as Purpose: True purpose and meaning come from the "soul," which is fundamentally driven by a "desire to help" and "service" to humanity. Hohn views his philanthropy (giving away over $500 million a year) as the expression of this deeper leadership purpose,.

5\. Acting as an Owner (Alignment of Interests)

When discussing the companies he invests in, Hohn highlights the difference between "managers" and "owners."

• The Agency Problem: He criticizes managers in "bad businesses" (like banks) who destroy shareholder value by chasing growth to get bonuses. This "non-alignment of interests" is a failure of leadership.

• Active Ownership: Hohn believes in "acting as owners," which includes engaging with boards and demanding changes if necessary to protect the business. He contrasts this with passive investors who do not hold management accountable,.

1. Small Size and "Collegiate" Atmosphere

Hohn deliberately keeps his investment team extremely small—only seven or eight people—to maintain a specific dynamic.

• Intimacy: He describes the culture as "collegiate," noting that a team larger than ten would become "too big" and lose its effectiveness.

• Enjoyment: He believes the best people do not work solely for money; they stay because they "enjoy the environment" and the human aspect of the work.

2. Intangible Trust and Consensus

The foundation of the culture is "intangible trust" built over time among people who have known each other for years.

• Hiring by Consensus: To protect this trust, Hohn never hires a new team member without the blessing of his senior team. He notes that even a single wrong hire "could destroy the culture".

• Personality Fit: Beyond raw intellect, a candidate must be able to "get on with people" and genuinely want to work in a team rather than as a lone wolf.

3. Shared Philosophy

A great culture requires alignment on the fundamental mission. At TCI, every team member must share the investment philosophy (long-term, quality-focused).

• Case Studies: When hiring, Hohn asks candidates for case studies to immediately verify if they understand and align with the firm's specific approach to business analysis.

4. Intellectual Humility and Open-Mindedness

The culture values truth over ego. Hohn emphasizes that team members must be "open-minded to being wrong" and cannot be dogmatic.

• Challenging Views: The culture encourages dissenting opinions. Hohn values team members who are "inherently bearish" because they are good for "testing the bear case" and challenging the investment thesis with risks like technological disruption.

5. Rejection of Bureaucracy ("Manager of Managers")

Hohn avoids the "manager of managers" structure common in larger firms.

• Flat Structure: He prefers to remain a stock picker alongside his team rather than becoming an administrator. He argues that a bureaucratic structure is "impersonal" and that his best people would leave if the firm operated that way,.

1\. Avoid "Bad Businesses" (Especially Banks)

One of Hohn's most emphatic lessons is knowing what _not_ to invest in. He admits he has invested in "bad industries" in the past but has learned to avoid them entirely.

• The Mistake: Investing in opaque, highly leveraged businesses where you cannot truly understand the risks.

• The Lesson: Hohn now explicitly avoids banks. He argues they are "opaque" and leveraged to a degree that is dangerous (often 100x equity to total assets). He recounts asking the former CEO of Credit Suisse to explain his own balance sheet, to which the CEO replied, "I don't [understand it] either". He also avoids the auto industry, airlines, and fossil fuel utilities because competition and disruption are constant threats.

2\. The Perils of Short Selling

Despite successfully identifying the Wirecard fraud, Hohn learned that short selling is fundamentally "not a great business" due to asymmetric risk.

• The Mistake: Underestimating the "irrationality" of the market.

• The Lesson: You can be right about a fraud but still lose money because you cannot fund the losses while the stock temporarily rises. He notes that in a short, you have "unlimited downside." Even Warren Buffett found shorting "too hard" because of the psychological toll of holding a position against an irrational market,.

3\. "Hardcore" Activism in Bad Businesses is Futile

Hohn was once known as an aggressive "locust" or activist, but his approach has softened.

• The Mistake: Being an activist in a "bad business." He cites his famous campaign with ABN AMRO, where he forced the sale of the bank. While he made a billion dollars, he admits, "we didn't know what we were doing... it was a madness." The underlying business was actually worthless, and the buyers eventually went bankrupt.

• The Lesson: "The business always wins." It is pointless to be an activist in a structurally poor business. Consequently, he has moved toward "softer activism"—constructive engagement with high-quality companies—using "hardcore" tactics only as a last resort when a company threatens to destroy value (e.g., the Safran/Zodiac case),,.

4\. Growth Without Barriers is "Profitless"

A common mistake investors make is assuming growth equals value.

• The Mistake: Chasing volume growth or "something new" without checking for a moat.

• The Lesson: Growth without barriers to entry is "profitless." Hohn uses the airline industry as the ultimate lesson: despite 5% annual volume growth for a century, the industry has made minimal cumulative profit because it lacks pricing power and barriers to entry,.

5\. Trusting Authority Over Independent Thought

Hohn emphasizes the danger of trusting the "establishment" rather than doing the work yourself.

• The Mistake: In the Wirecard case, the market and regulators trusted the "German establishment" and the "great and the good" on the board, ignoring evidence of fraud.

• The Lesson: A great investor needs "independence of thought." Hohn trusted his own analysis and the work of a _Financial Times_ journalist over the assertions of regulators and the company's auditors. He learned that fraud can hide in plain sight if investors are afraid to challenge authority,.

6\. Spiritual Lessons: Service Over Ego

On a personal level, Hohn shares a profound lesson learned through personal crisis.

• The Mistake: Identifying with the "personality"—the drive for money, power, and glamour. He suggests that pursuing these things eventually leads to the realization that they do not bring happiness.

• The Lesson: Through "suffering" (specifically mentioning his divorce), he learned that true purpose comes from the "soul" and a desire to serve humanity. This realization drives his massive philanthropy, as he believes the only source of real meaning is "service",.