| Fund or
affiliation
Methodology
- Trading undervalued
equities concentrating in the European markets.
Research/ Stock
Selection Techniques Employed
- Depending on
industry groups, but mostly he would pick one of
the best (qualitatively) companies in a sector.
- Pays absolutely no
attention to country or industry weightings.
- Avoids companies
which cannot grow through their own free cashflow
on a sustainable basis. Management shouldn’t
tolerate dilution of capital. (shareholder value)
- Preferably, one
finds good management and good business; but good
management can sometimes make money out of bad
businesses.
- Not every company
can be number one in its market, but a nice niche
will do. This is a proxy for sustainable growth.
- Cashflow is king.
- The cornerstone is
meeting and discussing the business and industry
with management. Armitage is like an archer...
with a quiver full of questions. Every answer
generates another question. He also treats all
answers with an instinctive scepticism.
- Armitage source
ideas by "working with the most talented
stockbroking firms and using their really bright
analysts... Why hire someone if you can pay
commissions and work with the best? There are
many creative thinkers out there who spend their
lives visiting comapnies. You should know
them."
Trading Techniques
Employed
- He cuts back market
exposure when he is underperforming in rising
markets since this shows that he is not doing his
job properly. The net long/ short position is a
result of being tactical about markets, but
strategic about stocks.
- He shorts to make
money, not for hedging. If you need to hedge an
individual position, perhaps you shouldn’t
be in it. Actively looking for shorts is a good
discipline.
- Review and rebalance
the portfolio each month as if starting from
scratch. Aim is to have a combination of stocks
which will move in the s-t and sleepers which
will pay off substantially. "...think of it
as a bakery... sell bread everyday but make extra
profit from selling wedding cakes every so
often."
- Buy at multiples
below the underlying earnings growth rate.
Risk Control
Techniques Employed
- Portfolio
concentration is limited to 10% of book cost at
Egerton. This is a higher risk strategy,
therefore, it is important that the businesses
are not correlated.
- He doesn’t
short companies with rising earnings, even if
their multiples are very high. Fundamentals are
easier to understand than valuations...valuation
is market psychology and what cause the next
buyer or seller to emerge. Who knows?
- Armitage explains
the high portfolio turnover: You shouldn’t
hold position in things which you can’t
justify quite well. ‘We own X because we
want something in Germany’ is not a good
reason.
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Philosophy
and beliefs
- If you take a
position in a security, underlying that must be
an assumption that there is an inefficiency in
the pricing. So you have to ask yourself,
‘What do I know that the market does not
know, and am I really sure about what I
know?’
- "The only I
know about is Europe and stocks... not interested
in trying to compete with people in other
areas..."
- "Everytime you
short when there is a bad earnings release, you
are making a sale which someone else would like
to have made." Said Bollinger.
- It’s critical
that what he knows about must be worth knowing.
He tries to focus on market inefficiencies,
rather than companies which are correctly valued.
- Shorting markets is
for hedging only, anything else is speculation.
History and other
facts
- Egerton was started
in May 1994 with partner William Bolinger.
- "Some brands
can travel well around the world. In Europe
Heineken has such a franchise and has grown its
exports."
Performance Record
- 27% over 6 years:
Armitage spent the last 6 years at Morgan
Grenfell managing the European Growth Trust. The
fund ranked first on a cumulative basis since
inception.
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