Keith Ashworth-Lord Interview - How to invest in the best

Monday, Aug 01 2016 by
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Keith AshworthLord Interview  How to invest in the best

The great US investor Warren Buffett once remarked: “The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money.”

What he was saying is that the more money you have to invest (in his case tens of billions of dollars), the harder it is to make outsized returns. So what would happen if you took the essence of Buffett’s strategy and used it on a smaller scale in the UK? Fund manager Keith Ashworth-Lord is finding out.

Five years ago Keith set up the Sanford DeLand UK Buffettology Fund. It’s a concentrated fund with a strict methodology that’s just passed £50 million under management and growing fast. In 2015, it made an impressive 27% return in a falling market, propelling it to the top of the IA All Companies sector.

As the fund name suggests, Keith has adopted some of Buffett’s best known investing traits. He takes a Quality + Value approach, looking for ‘moat-like’ characteristics right across the market-cap range. When he likes what he sees - and he can buy it cheap - he takes high conviction positions and holds them long-term.  

Keith runs the fund from his home turf in Manchester, where he’s been a fixture in the city’s investment community for 35 years. But he’s just as well known among US ‘Buffettologists’, and close friends with the likes of David Clark and Mary Buffett (from whom the eye-catching ‘Buffettology’ branding is licensed).

He’s also just written his own book - Invest in the Best - where he explores what he calls Business Perspective Investing and the financial clues to finding great quality companies on attractive valuations.

We agreed to meet for steak and chips at Malmaison, a stone’s throw from his office. It’s a lunch menu that Buffett would definitely approve of...

Early on in Invest in the Best, you mention that you wrote much of the book on the lanai of your Florida home. That’s a pretty big hint that you’ve found an investing methodology that works very well for you!

Ha! Well I wasn’t saying it to show off. The point I was making is that had I not been successful with my investments I’d never…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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8 Comments on this Article show/hide all

LongbeardRanger 2nd Aug '16 1 of 8

Ben,

Thanks. This is an excellent interview.

Keith is one of the fund managers I follow closely (and not just because, like me, he is a Mancunian!) and he is admirably consistent in his approach, an approach which makes a lot of sense.

I would be interested in hearing a bit more from Keith on valuation. For this kind of investment strategy (i.e. focus on companies with very high returns on invested capital and opportunities to reinvest at least some of their cashflows at those high rates), Terry Smith has shown mathematically that valuation is less important - you can afford to pay a big premium and still do well. Obviously it is critical that your assessment of the business's ability to reinvest is correct! In this era of low interest rates, I'd be interested to see the overall weighted valuation of Keith's fund and what he views as a sensible upper limit of what to pay for companies that can reinvest at 15-20% rates and above (I think Terry Smith's fund is on a free cash flow yield of around 4%, for example).

I try to follow a "quality" approach similar to Keith's but start to worry once my free cash flow yield on purchase gets below 5% and I would be interested in Keith's take.

I'd also be interested to know whether he would consider investing in internet aggregators / marketplaces such as Rightmove (LON:RMV) , Just Eat (LON:JE.) , Auto Trader (LON:AUTO) (a great Manchester business, incidentally...), Zoopla Property (LON:ZPLA) , etc. Superficially they would seem to have the characteristics he likes.

Regards
Phil

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Warranstar 2nd Aug '16 2 of 8

In reply to LongbeardRanger, post #1

Hi LongBeardRanger
I too like to invest in quality growth companies. I would like them to be truly disruptive such as Rightmove & Autotrader, but I haven't bought these two because I consider them to be too expensive & priced to expect very high growth rates for the foreseeable future. My investment approach is to come up with a Graham Formula margin of safety for them. If It's too low then I don't buy. This means that I have to estimate the average EPS compound average growth rate for the next six years. This is obviously very difficult to do and involves me in lots of detail such as analysis of how disruptive they really are, how wide is their moat, and a detailed analysis of the companies Strengths, Weaknesses, Opportunities & Threats.
Would you or others like to share with us a bit more about how you decide whether or not to invest in expensive growth companies?

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LongbeardRanger 3rd Aug '16 3 of 8

Hi Warranstar

In short, the answer to your question is that, in general, I don't invest in them....and it's causing me to miss out on good investments. I think that part of the problem is that, for companies like these, they (almost) never look fairly priced on conventional metrics, never mind cheap.

I'll have a think about this (I'm thinking about it more widely in general) and will try to post a fuller answer later, though.

Rgds
Phil

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Edward Croft 3rd Aug '16 4 of 8
1

In reply to Warranstar, post #2

Would you or others like to share with us a bit more about how you decide whether or not to invest in expensive growth companies?

Here's an article I've done on the subject - "High Flyers - how to beat the market in expensive and overpriced shares".   It essentially comes down to sticking to the highest quality, highest momentum set of stocks and being ruthless when cutting laggards - but that article will answer a lot of questions.  I've been studying the subject for a long time - some of my favourite authors/practitioners have made a great success of focusing utterly on high flyers - e.g. Bill O'Neil, Richard Driehaus, Mark Minervini. 

I did a panel last year with Keith up in Birmingham - he's quite a character, and impressed me with his dedication to his process.  Great piece Ben !

Blog: Follow @edcroft on Twitter
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dangersimpson 3rd Aug '16 5 of 8

In reply to LongbeardRanger, post #1

I'd also be interested to know whether he would consider investing in internet aggregators / marketplaces such as Rightmove (LON:RMV) , Just Eat (LON:JE.) , Auto Trader (LON:AUTO) (a great Manchester business, incidentally...), Zoopla Property (LON:ZPLA) , etc. Superficially they would seem to have the characteristics he likes.

 

Not wanting to put words into Keith's mouth but I suspect that the answer would be yes but:

 

a)At the right price. Although he doesn't sell on valuation reading is comments on Restaurant (LON:RTN) he certainly buys on it. If those sort of companies were available on a 10% Earnings Yield then I'm sure it would interest him.


b) If the company has a genuine wide and deep moat. That is very different to saying that they are growing quickly and people often conflate these. In my opinion Auto Trader (LON:AUTO) and Rightmove (LON:RMV) probably do and Just Eat (LON:JE.) & Zoopla Property (LON:ZPLA) probably don't

With earnings growth hard to come by I reckon that many large cap growth shares are now over-valued. The return spread between 'growth' and 'value' is very wide and many well known value investors have struggled in 2015/16. Buying something because it seemed expensive but kept going up and you are worried about missing out has rarely ended well!

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Warranstar 3rd Aug '16 6 of 8

In reply to Edward Croft, post #4

Thanks Ed
I've read the article (that you suggest above) before & have just read it again.
I highly recommend it to other readers.

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sealeyd 3rd Aug '16 7 of 8

Really enjoyed this interview. Thanks Ben.

Blog: Storm81
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jubilee1945 9th Aug '16 8 of 8

Cannot see where this fund trades, anyone advise ?

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »

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