MARKETING - The PRIDE Magazine by Liontrust - Flipbook - Page 9
based on independent research done
in the US in the 1990s.
off that cash until the next reporting season,” he says.
“I came across a study on corporate cash
flows and, as an accountant, it made
implicit sense to me. Cash doesn’t lie.
You can manipulate
earnings, but cash
doesn’t lie. We’re
very
aware
of the tricks
companies
might play
to make
their earnings look
better. For
example,
a supplier
to supermarkets
could ask Tesco
or Sainsbury’s to
get their orders
in early, but
not pay
Samantha adds: “Company managers
can put a very positive spin on numbers
and we take the active decision
generally not to meet management.
When you take sales pitches out of
the process, it becomes much easier.
Eventually, the price of a stock reflects
the numbers. You need to be strong and
bold in your decisions. You need thick
skin and broad shoulders to withstand
any negative news and to know that
eventually it will be reflected in the
share price.”
You need thick skin and
broad shoulders...
Samantha explains that this investment
process helps shelter the team from
becoming overly emotional over
certain stocks.
“We’ve set up rules that mean we
equally weight our holdings
and we don’t rebalance
or cut positions unless
their cash flows have
changed,“ Samantha
says. Large share price
movements can trigger
emotional responses,
with investors often
falling into the trap
of closing out their
winners but running
their losers. There
James Inglis-Jones
is good evidence,
however,
that
Favourite investor: Joel Greenblatt/
trimming, adding
Gotham Capital - The Little Book that Beats
the Market is one of the most compelling
or cutting positions
books on investment I’ve ever read
in companies is
difficult to get
Favourite book: Lonesome Dove - a
right. This is why
wonderful portrayal of life in 19th century
we only respond
North America and the ferocity of some of
to changes in
their indigenous peoples
companies’ cash
flow and try to be
Hobby: Stand up paddle boarding in the
surf when I get the chance
unemotional when
confronted with
Something you might not know about me:
company news.
I’m frequently sporting a pair of Vibram
Our
investment
Fivefingers shoes
process guides us
against our frail
If I were on The Great British Bake Off,
human nature.”
my signature bake would be… An almond
flour dark chocolate brownie with minimal
sugar content owing to the fact I’m a bit of
a health nut
The Funds managed
by
James
and
Samantha are a mixture of long only,
where the managers are investing to
benefit from successful companies,
and long/short, where they’re looking
to benefit both from that upside and to
take positions to profit when companies’
performance dip.
Two wind turbine companies, Vestas
Wind Systems in Sweden and
Nordex in Germany, exemplify how
the managers’ process is applied to
companies. In November 2016, Vestas
suffered a share price fall on the back
of Trump’s anti-climate change rhetoric.
“We continued to hold it, even as the
share price fell sharply. Without the
process, the temptation would have
been to sell, but we stuck to the process,
and soon saw the share price recover.
The company went on to report strong
financial results,” Samantha says.
Process guides against
our frail human nature.
Nordex shows the other side of the
coin. “It’s what we look for in a good
short,” Samantha says of the company.
Nordex acquired the turbine unit
of Spain’s Acciona in June 2016,
making it the sixth largest wind turbine
group in the world. This increase in
assets, however, was accompanied
by growing debts, while its working
capital deteriorated. This meant it was
having to invest cash in the short-term
operation of the business while also
facing declining volumes and sales
prices, which combined to put a lot of
downward pressure on its share price.
What are the key things investors
should remember when analysing their
investments? James and Samantha
point to patience, being bold in your
investment decisions and looking for
contrarian value.
Among the funds run by James
and Samantha
Liontrust European Growth
Liontrust Global Income
You can read James and Samantha’s
latest views and insights on P13
Issue 1 Winter 2017 - TH E P R IDE - 9