‘Most com­pa­nies take too much risk’

The Daily Telegraph - Your Money - - INVESTING FUND OF THE WEEK -

Jeremy Lang set up Arde­vora four years ago af­ter leav­ing Lion­trust As­set Man­age­ment to team up with his part­ner Wil­liam Pat­tis­son. The pair now have four funds at their new firm. The Arde­vora Global Eq­uity fund, launched in 2011, goes against the cur­rent vogue for con­cen­trated port­fo­lios: it has 150-200 hold­ings, with none likely to ac­count for more than 1pc of the port­fo­lio.

Mr Lang is seen as the “anti-fund man­ager” as he shuns com­pany meet­ings and stock­bro­kers’ re­search and, in­stead, looks for stocks that ap­pear to have been wrongly val­ued by the mar­ket.

The fund also has the abil­ity to “short” cer­tain shares.

Here, Mr Lang ex­plains how he uses psy­chol­ogy to find stocks that will out­per­form the mar­ket.

What’s your ba­sic method for choos­ing in­vest­ments?

Our frame­work is based partly on ex­pe­ri­ence and partly on my in­ter­est in cog­ni­tive psy­chol­ogy. We try to work out how dif­fer­ent groups of peo­ple in­vest in the stock mar­ket and the kinds of mis­takes they can make.

We as­sume that most com­pany bosses are risk-tak­ers. That throws up four sit­u­a­tions. One is where com­pa­nies have had lots of tor­ment and dis­tress but it has been so bad that it has forced the peo­ple run­ning the busi­ness to change in a way that re­duces the risk in the busi­ness in or­der to sur­vive.

An­other is when a com­pany has had a lot of trauma in the past 10 years that was so bad that it has scarred other in­vestors’ views of that busi­ness.

The third is where busi­nesses make money in quite a dif­fer­ent way from those that su­per­fi­cially look very sim­i­lar, mean­ing they can catch an­a­lysts out.

Last are “dis­rupter” busi­nesses that have taken risks in the past and have proven that the new way of do­ing things works, and the com­pany still has a long “run­way” of growth ahead of it.

What’s the ben­e­fit of be­ing able to ‘short’ the mar­ket?

We “short” to try to give more pro­tec­tion against price falls than you would nor­mally have if you were purely “long-only”. We tend to short­sell busi­nesses that are the op­po­site of what I have been de­scrib­ing.

We like short­ing ag­gres­sively run busi­nesses or busi­nesses where the man­age­ment are go­ing wrong and are in de­nial.

What have you bought and sold re­cently?

We’ve re­cently bought Ten­cent, the Chi­nese in­ter­net and gam­ing busi­ness. All as­pects of its busi­ness are very prof­itable, and it is find­ing it very easy to grow quickly with­out need­ing to take much risk. We bought An­glo Amer­i­can, the miner, in March. Be­fore the start of this year the peo­ple run­ning it were still in de­nial, but things got so bad that they couldn’t blame any­body else and re­alised that if they didn’t do some­thing they would be in se­ri­ous trou­ble.

A busi­ness needs to be bat­tered enough to change man­age­ment’s mind but also needs to be fix­able.

We sold Moody’s, the rat­ings agency, as con­di­tions seemed to have got a lot tougher for it re­cently, but man­age­ment and an­a­lysts seemed to want to be­lieve the rea­sons were tran­si­tory. We sus­pect they are not.

We also sold Whit­bread, the leisure group, in Fe­bru­ary. It had an easy time grow­ing over the past few years as it rolled out Costa Cof­fee and Premier Inn. Re­cently, we have seen signs that growth is get­ting harder and it is hav­ing to take more risks to keep growth go­ing.

Arde­vora’s Jeremy Lang has an un­usual method for spot­ting op­por­tu­ni­ties, he tells Laura Suter

You seem to pre­fer medi­um­sized firms. Why?

I’m a “bot­tom-up” stock­picker. I don’t own stocks just be­cause they are big, and I don’t put more of the fund in it just be­cause it’s a big stock. We pick 150-200 stocks and then treat them all the same.

Do you in­vest your own money in the fund?

I do, I have most of my liq­uid as­sets in the fund.

What would you have done if you hadn’t been a fund man­ager?

I can’t do it be­cause I have a fam­ily and chil­dren, but I would be a longdis­tance sailor, which I did for four years in my late 20s. Fail­ing that, my ideal ex­is­tence would be to be a well­re­spected jour­nal­ist in a field I en­joy. I’d get to in­ter­view and talk to lots of ex­tremely in­ter­est­ing peo­ple, and it might give me some flex­i­bil­ity to do some longdis­tance sail­ing. How to buy the fund as cheaply as pos­si­ble

The trust has a to­tal cost (the “OCF” or “TER”) of a year. Be sure to buy the right “share class”, which is “B”. An “A” share class ex­ists, with a 1.62pc OCF. The in­vest­ment shop through which you buy


the fund will also levy a charge. Some will charge a per­cent­age of the amount in­vested, while oth­ers will ap­ply a flat an­nual fee. Our colour-coded ta­bles at



guide you.


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