Secrets of a Hedge Fund Titan’s Success
John Armitage's Remarkable 30 Year Journey
As you read this, I shall likely be nursing a hangover after a wedding in Scotland yesterday and shall be heading back to London this afternoon. On Wednesday, I fly with my family to Shanghai, and after a short stay, we are off to Tokyo and then on a tour of Japan for most of August (recommendations welcome).
I am sure I shall be reporting back on what I learn – the trip is business as well as pleasure. And rather than stop production, I have prepared a few articles in advance. These will mainly be available for everyone, although as ever, shall save some material for my premium subscribers.
Expect a couple of articles on famous investors and a couple on the private credit market which I find intriguing. I may even take a week’s break - hopefully, you will understand.
This week, I write about John Armitage, the co-founder and CIO of Egerton Capital which is celebrating its 30th anniversary. He has an outstanding track record and is the first podcast guest to have returned for a second interview. First time out, we were restricted on time and John shared the episode with Brent Hoberman, one of the UK’s top tech voices. This was my first podcast to be transmitted and at the height of the tech bubble in the summer of 2021, I thought it would be fun to get a perspective on the tech world through the two different lenses of VC and public markets. I repeated the exercise in the third podcast with Pete Davies and Spencer Crawley.
John is an investor I admire enormously, and I wanted to share some of my learnings with my newsletter subscribers, not all of whom listen to the podcast. Why not? Give it a try.
As mentioned, John is our first podcast guest to return for a second episode. He is incredibly humble for such a successful investor. In our first podcast conversation, he said
“I like working. I never feel successful. I measure success by the recent past.”
Armitage attributed his success to a decent dose of insecurity and being a workaholic. His ingredients for success were:
Finding something you like
Feeling you have more to learn
And always worrying
In this our second podcast conversation, he explains how he started with $10m and 5 people and how they were thrilled when they got to $150m after one year (Egerton has 100 times that now!). And he acknowledges that it would be a lot more difficult to start out on that journey today.
Stockmarkets are more difficult today because there is more competition in active management – the capital in investment management is human capital and it’s natural, given the rewards available, for talent to be attracted to the industry. Meanwhile, the performance of active managers is affected by the performance of single shares that they don’t own in a way it never used to be, as the rise of passive has reinforced the dominance of the big tech stocks while the active industry is structurally underweight.
He touches on his portfolio, where he has 35-40 long positions and is more concentrated in his top positions than he used to be, although the size of his funds inhibits that. John is concerned about concentration as he feels that it’s easy to get too familiar with the stocks and become complacent and then you suddenly realise that one has been underperforming for a while.
He talks about his recent investments in the insurance sector and how not owning Nvidia has made matching the benchmark an uphill struggle. He talks about how he sees AI and its possible impact on Alphabet and on Meta. And he explains his views on Tesla which were sceptical in our first conversation and haven’t changed much. John also talks about some of his favourite stocks and sectors - more later for premium subscribers - but you will have to listen to the show to get this from the horse’s mouth! John has invested in Japan but he questions the extent to which Japan is a macro trade, benefiting from depreciation of its currency.
We also discussed his approach to investing and his focus on the long term. He explains why he requires his analysts to follow more than one sector and why he doesn’t employ data scientists. He thinks following more than one sector gives perspective – it’s no use finding the best bank stock if they are all going down. And while he acknowledges that you can extract short term data using web scraping etc, he doesn’t see much use for the information, preferring to focus on the longer term perspective. John considers himself an analyst, hence the title of this episode.
He reveals why he thinks his performance might suffer if he had permanent capital, and he thinks that liquidity is healthy for his investors. He doesn’t say it explicitly, but I felt that the performance matters more to him than the wealth he would personally accrue.
Armitage is an intense and thoughtful investor and has strong feelings about societal problems, perhaps reflecting his interest in history (he studied Modern History at Pembroke College, Cambridge). In the interview he talks about Brexit; having backed the remain campaign, although he would have preferred a different result, he was also concerned that it might have left the country divided. And on Hamas and Israel, while he believes in a two state solution and is concerned about what is happening in Gaza, he points out that Hamas could simply release the hostages. It’s clear that John has a deep understanding of the geo-political landscape and is concerned about recent developments.
I learned a lot from sitting down with John for an hour and confess to being rather in awe of him. John talks about having to focus on what’s important and while in a way that seems obvious, it’s rather profound.
About John
John Armitage CBE is the co-founder and CIO of Egerton Capital. John’s track record in the 30 years since inception is simply stellar – the hedge fund has beaten the S&P (and the long only fund has done so hands down) and it must be one of the longest running (and one of the best) major hedge funds in the world.
Armitage is in his 60s, and founded Egerton with William Bollinger, formerly of Tiger, in 1994, having previously worked for Morgan Grenfell Asset Management which he joined from university. He studied Modern History at Pembroke College Cambridge.
Disclaimer: I have known John Armitage for several years; I and my family interests are invested in Egerton funds; and Egerton Capital is a client of Behind the Balance Sheet.
Premium subscribers can read on to learn what John is investing in and my perspective.
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