‘Most companies take too much risk’
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
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