Keith Ashworth-Lord’s investing lessons for long-term success
Legendary fund manager Keith Ashworth-Lord says investors have a human tendency to take credit for their successes and blame others for their mistakes but the opposite is often true.
Also known as UK’s Warren Buffett Keith Ashworth-Lord says investment managers need to have their noses rubbed in any mistakes they make if they want to become better investors.
“There’s a natural human tendency to take credit for your successes and blame somebody else for your mistakes. But in my experience, it’s usually the other way around – quite often your successes are not down to you, but your mistakes most certainly are,” he wrote in his book “Invest in the Best”.
Who is Keith Ashworth-Lord
Keith Ashworth-Lord has over thirty years of experience in equity capital markets, company investment analysis, corporate finance and fund management.
Prior to setting up Sanford DeLand Asset Management Ltd and the UK Buffettology Fund, he was a self- employed Consultant working with a variety of stockbroking, fund management and private investor clients. He has an investment philosophy similar to Warren Buffett and Charlie Munger and is a keen follower of the teachings of Benjamin Graham and Philip Fisher.
He is also an author who has written a bestseller, “Invest in the Best” which presents his investment philosophy and the search process he uses to find stocks to invest in. He advocates investing in high quality companies.
There are several features similar to the investment philosophy of Warren Buffett in Keith’s investment philosophy like staying within a circle of competence, viewing investments in stocks as a part ownership of a business, and only buying with a margin of safety.
If Keith finds a quality company to invest in and if he can buy it cheap then he takes high conviction positions and holds them long term.
Keith says the number one lesson about investing is that it’s nothing more than deferred consumption.
“You’re laying out cash today to get a whole lot more back in the future,” he says.
According to Keith investors generally ignore ‘value’ despite the fact it’s been such a successful strategy for so long as investors generally find value investing boring.
Keith revealed a checklist in his book for identifying ‘quality’ companies for investment which can help investors in generating superior returns. Let’s take a look at this checklist.
1. Comprehensible business model,
2. Transparent financial statements,
3. enduring franchise with pricing power,
4. Consistent operational performance with relatively predictable earnings,
5. High returns on capital employed,
6. Strong free cash flow,
7. Strong balance sheet,
8. Management focused on delivering shareholder value, and
9. No undue
on acquisition-led growth.
Be disciplined and patient
Keith says investors need to have the discipline and a robust methodology which they need to stick to religiously for generating superior returns.
He says investors also need to have patience which means when they have found something that they really like but they can’t buy it at a price when there’s not enough margin of safety they need the patience to say ‘hold off and wait’.
Spot wonderful opportunities
According to Keith wonderful opportunities arise when unusual circumstances surround good businesses.
Stay within your circle of competence
Keith says investors need to have a circle of competence that’s a foot wide and a mile deep and should run quite a concentrated portfolio.
“I have always said that I would never take this portfolio to more than 35 companies because after that it becomes a zoo. The key thing is that I want to feel that I know as much, or more, about the companies I own as anyone else does. For that reason, I’m never going to have a massive portfolio of holdings. I think 30 companies in a portfolio is more than adequate diversification,” he says.
Keith says investors should have a very strong focus on good quality, strong cash flows and sustainable growth and they shouldn’t worry too much about what percentage of a company they own.
Learn from mistakes
Keith says everyone makes mistakes and investors shouldn’t have any regrets at the end of the day.
He says in order to deal with the disappointments and if they get something wrong, they should try and learn from it.
“What I learnt from that was to never try and anticipate a turnaround, always wait for it to start. The key in circumstances where you’ve got it wrong is to admit it, rectify it and then try and learn from it,” he says.
When to sell?
Keith says he has never made a sale from his fund on valuation grounds because he prefers to stick with his investments.
According to Keith the worst possible reason to sell a position is to crystalise a profit.
“By all means sell it if you got it wrong or something has changed. But if something is winning for you, stick with it. My experience has always been that the winners produce nice surprises and carry on winning. But with losers, you seldom gain back what you lost,” he says.
(Disclaimer: This article is based on Keith Ashworth-Lord’s book “Invest in the Best”)