Mello London 2018 Notes Day 2: Keith Ashworth-Lord's Buffetology Fund and Judith McKenzie

Friday, Nov 30 2018 by

I didn't attend Day 2 of this year's Mello London event, but luckily for me, Ben Hobson did. I've got a hold of some of his recordings - two good speeches here:

Keith Ashworth-Lord

Switch On Companies; Switch Off markets

  • Keith Ashworth-Lord ('KAL') manages the UK Buffetology fund
  • The fund tries to find really great companies at a price that makes sense, invests meaningful quantities in them, and intends to hold them forever
  • They use 'Business Perspective Investing' - this expression came from Benjamin Graham but is more closely associated with Warren Buffett
  • The key requirement is economic moat
    • They look for companies defying the first law of capitalism (excess returns over the cost of capital, year-in, year-out)
    • Pricing power is the crux
    • Growth potential - both for the company and the market
    • Companies that are predictable in terms of where they will be in 3, 5, 10 years' time
  • First thing KAL looks for is rising margins on sales at gross margin and operating margin levels - this indicates economies of scale
    • static or declining margins —> franchise could be coming off the boil
  • Even more important is ROE
    • They look at marginal ROE - what's happened in the past 1-5 years
    • This is delta (change in) earnings over delta equity
    • Must be a cash return on equity; high conversion of earnings into free cash flow
  • Look at cash flow over a five year basis to account for volatility
  • 'Cash flow is absolutely king'
  • Return on equity minimum of teens
  • Cash flow has to be minimum of 80% of earnings
  • Most of their businesses tend to have a very strong balance sheet & net cash
  • They allocate capital rationally
    • They look for situations where money can be invested to generate high marginal returns, which leads to future organic growth
    • Reinvest meaningful quantities of cash for future profitable growth
  • Growing by acquisition can make sense - moving into complimentary industries, synergies
    • But they don't like the 'transformational' acquisition
    • Something like 9 out of 10 of these make no new wealth for the company
    • Croda (LON:CRDA), which they own, was an exception
  • Management that are owners, that return cash to owners rather than hoard it
  • Investment holy trinity: enduring franchise w/ growth prospects…

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8 Posts on this Thread show/hide all

matylda 30th Nov '18 1 of 8

Thanks for the write up Jack, much appreciated.

Blog: Briefed Up
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rwnicolson 30th Nov '18 2 of 8

Thank you too. Just a small correction. The value investor referred to is Thomas Russo. His investment talks are available online and are worth watching.

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Jack Brumby 30th Nov '18 3 of 8

In reply to post #423358

Cheers rwnicolson, I hadn't actually heard of him before. I'll edit that now.

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Jack Brumby 30th Nov '18 4 of 8

In reply to post #423348

No worries - it was great to meet you, hope you enjoyed the rest of the event!

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jonthetourist 30th Nov '18 5 of 8

Yes, very nice notes thank you. I was there for Judith but not Keith (although I have his book). Both talk a lot of sense, although Judith's comments about comparatives and being judged sounded particularly heartfelt as she is on a bad run.


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shipoffrogs 30th Nov '18 6 of 8

Great write up for those not there, KAL is a class act. Thanks

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Gromley 30th Nov '18 7 of 8

Hi Jack,

I think you phrased my question (the first one to Judith McKenzie) much more elegantly than I did! ;-)

Had I not already handed the mic back I would probably gone for a cheeky follow up question / clarification in that I wasn't so much thinking about timing the market and getting in "at the bottom" but rather looking for a time when the execution risk of whatever transformation is being undertaken has been reduced.

Judith with here fund cannot really do that, firstly because of scale but secondly because she probably wouldn't get a seat at the table to work with the management before taking a stake.

However, we don't have those limitations. I was very impressed with Judith's presentation and her views on the companies. So I for one will be watching carefully for situations where I may be able to buy once Judith has done all the hard work for me (and taken the suffering)

I would not recommend blindly following anyone, but I certainly think there is a case to look at others for initial ideas.

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Jack Brumby 6th Dec '18 8 of 8

In reply to post #423438

Hi Gromley,

Judith seems to really appreciate the importance of viewing her investments as growing businesses rather than numbers on a spreadsheet or a series of financial ratios. I've got a lot of time for that approach, so I'll be keeping an eye out too!

There's nothing wrong with being purely quantitative, of course, but it's nice to hear the way she talks about companies. It echoes what Keith Ashworth-Lord was saying about business perspective investing, I think. I listened to her interview with the Adept Technology CEO yesterday on piworld, don't know if you've seen it:

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