Long & Short fund manager John Hempton knows HOW to admit when he’s wrong. The maverick investor prides himself on being unconventional.
Aug 9, 2020
auto_awesome
John Hempton, the Chief Investment Officer and Co-Founder of Bronte Capital, is a maverick investor known for unearthing corporate fraud. He shares insights into his unconventional investment strategies and the challenges of the 10-year bull market. Hempton emphasizes the value of mentorship and seeks quality businesses while discussing key indicators of fraud. He also offers unexpected investing tips for young investors, advocating for early career guidance from good bosses and the importance of thinking independently in a competitive landscape.
John Hempton emphasizes the importance of shorting underperforming stocks to focus on higher-quality investments for better portfolio balance.
He discusses the implications of a winner-takes-all economy, noting its effects on market diversity and economic inequality.
Hempton highlights the crucial role of mentorship in investing, advocating for learning from experienced professionals to avoid pitfalls.
Deep dives
Investment Strategy and Shorting
John Hempton outlines his investment strategy, which focuses on shorting poorly-performing stocks, which he refers to as 'crummy stocks'. This approach allows him to allocate funds toward higher-quality investments, often referred to as top-drawer shares. He emphasizes the importance of identifying small but critical components of larger industries that have the potential for significant returns. By doing so, Hempton believes investors can achieve a balance in their portfolios that maximizes returns while minimizing risk.
The Winner-Takes-All Economy
Hempton discusses the implications of a winner-takes-all economy, highlighting how companies like Amazon, Google, and Apple dominate their respective markets. While these 'winner-takes-all' companies can yield positive returns for investors, they contribute to economic inequality, as wealth concentrates among a few. He acknowledges the dual nature of these businesses, as they revolutionize industries but simultaneously diminish competition and market diversity. Hempton's analysis suggests that such market dynamics can be harmful to economic robustness.
Importance of Mentorship
Mentorship plays a vital role in Hempton's career, with particular emphasis on figures like Ken Henry and Keir Nielsen, who greatly influenced his professional growth. He believes that having exemplary mentors can provide invaluable lessons and guidance, shaping one’s approach to investing and risk management. This relationship is crucial, as it has helped him avoid common pitfalls in his career. Hempton stresses that learning from experienced individuals can lead to better decision-making and ultimately greater success in investing.
Eccentricity and Risk Management in Investment
Hempton identifies himself as an eccentric thinker in the investment landscape, a trait he views positively. This uniqueness allows him to break conventional molds in analyzing and selecting investments. However, he acknowledges the necessity of having a strong risk management framework alongside his out-of-the-box thinking. His partner Simon helps to balance his approach, ensuring that while innovative ideas are explored, there are controls to mitigate potential risks.
Investment Guidance for New Investors
For young or inexperienced investors, Hempton recommends a dual approach to investing: a low-touch strategy involving index funds and a high-touch strategy focusing on specific industries. He advises seeking familiarity and deep knowledge in industries that demonstrate robust growth potential, suggesting a concentrated investment of about 30% in well-understood sectors. This strategy supports building confidence and understanding the market dynamics. Ultimately, Hempton encourages investors to utilize a significant portion of their wealth strategically, balancing between steady index investments and more personal, informed ventures.
While Bronte Capital’s self-styled eccentric co-founder John Hempton has made a reputation chasing corporate frauds; he also loves, delves deeply into and invests in, strong, quality companies around the world. Another surprising thing about him? Hempton can also admit when he’s pursuing the wrong strategy, and the 10-year bull market since the GFC, has proved a bit of thorn in his side. What might also surprise, in Part 2 of this interview, he shares some rather unexpected investing tips for young investors, and he argues very strongly for the importance of finding good bosses and mentors early on in a career.