market folly

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Stuart Roden of Lansdowne Partners.


Stuart Roden's Presentation at London Value Investor Conference

Stuart Roden and Peter Davis managed Lansdowne’s flagship long/ short equity fund, The Developed Markets Strategy, until the end of 2014. Since then he has taken on the role of Chairman.

He does not regard himself as a value investor or a growth investor - he is eclectic.  He likes to focus on situations that involve change typically at an industry level rather than a company level.

Investment managers need to have an appetite for risk and be able to cope with loss. Most of Lansdowne’s employees have First Class degrees but he said that sometimes very academic people particularly from a science and maths background cannot deal with uncertainty.  It’s partly due to not being used to things ‘not working out’ but also because they may not have experienced enough set-backs in life. “The stock market can make a fool of you for quite a long time.” Fund managers need common sense as well as brains and managers need to understand that they may be wrong. You can’t control events and things are going to happen that you are not ready for – you will be shocked at times.  If you can’t deal with that level of uncertainty it can make you emotionally unstable.

At Lansdowne, they encourage their portfolio managers to get four things right. Firstly, you need a creative idea. Secondly, strong analysis. Thirdly, risk management and correlation control to make sure that you are not missing a risk that runs throughout the portfolio. Fourthly, monitoring. He likes Barton Biggs’s advice on portfolio management: ask yourself is this the portfolio you would build today? His role was often to be ‘questioner in chief’. He watched out for thesis creep. Do the reasons why you wanted to buy a stock in the first place still hold true? Do you need to change your view? If you can’t change your view you won’t make it as a fund manager.

He values imagination pointing out that they made a very successful investment in Amazon by thinking creatively about the way Amazon would look in 3-5 years. This was not a momentum trade but instead required long-term thinking. They were only able to make the investment because they did not hold a static view of Amazon’s valuation.

If you can find two people who complement each other partnerships work very well in investment management. He said three people was too many. He was very lucky to have worked with his partner, Peter Davis. There was something about their partnership that worked, they were very different people, their emotions were different, Davis was optimistic whereas he was looking over his shoulder the whole time to see what might go wrong – a combination of confidence and humility. There was also an age gap that avoided them becoming competitive. Good partnerships require respect and mutual admiration.

Given the state of the markets, if he was opening a fund today it would be a long/ short fund and not a long-only fund. In the past 16 years when a lot of Lansdowne’s shorts have been in indices rather than single stocks the markets have tended to go up. Today all their shorts are in single names. Shorts are easy to find because there are so many businesses being hurt by disruption. When he first started he was often confident that they could hold equity investments for at least 5 years but today he feels that has shrunk to 3 years. There is so much uncertainty – not just in interest rates and valuations.


Be sure to check out the rest of the presentations from the London Value Investor Conference.