As we all know, financial journalists (including the team at FE Trustnet) love an eye-catching headline. 
Certainly, during times of stress in markets, investors will be bombarded with articles explaining how billions have been wiped-off the FTSE (interestingly, you never see headlines which state that billions have piled back onto an index) and therefore suggesting the world is coming to end in a very nasty and abrupt fashion.
As you would have seen, bucket loads of those articles have been bandied around by the press over recent months as markets have been falling.
Performance of indices during the correction
Source: FE Analytics
There have been articles exploring the similarities between August’s ‘Black Monday’ and the start of the 2008 crash and how, given the sell-off was sparked by concerns out of China, a collapse in the world’s second largest economy was going to bring the globe to its knees.
Of course, this is normally just all just part of the daily noise that long-term investors need to ignore. It must also be noted that the job of a journalist (us included) is to make people read your work, so the more eye-grabbing the headline, the better.
However, Keith Ashworth-Lord – manager of the ConBrio Premier Sanford Deland UK Buffettology fund – is one expert who is becoming increasingly concerned about the impact such headlines and articles are having on the market.
In fact, he tackled the subject of ‘irresponsible’ journalists in great detail in his most recent note to investors.
“Newspapers are rightly obsessed with exposing rip-off investment management fees and their impact on investors’ wealth. For that they deserve a debt of gratitude. But in the space of a few days in the final week of August, they deserted the moral high ground,” Ashworth-Lord (pictured) said.
“‘Black Monday risks a new financial crisis’; ‘Pensions and ISAs hit as £74bn is wiped off UK share prices’; ‘End of the bull market will make us all poorer’. You get the picture? This was sensationalism on a grand scale, designed to sell newspapers by spooking Joe Public. And it worked.”
“In the space of five days, we saw a deluge of outflows from the fund as frightened unit holders headed for the exit after the event and just before share prices rebounded all the way back up. Recall my comments about ‘Black Monday 1987’ in a previous commentary.”
“The amount of wealth lost by ‘investors’ faked out of the market by the fourth estate dwarfs the money surrendered in fees to fund managers. Hardly the finest hour of either: journalists for laying bare a lack of professionalism or knowledge and investors for being seen to be little more than traders or speculators.”
According to FE Analytics, Ashworth-Lord’s Buffettology fund shrunk by 4.5 per cent in size during the month of August as a result of outflows and capital losses – despite the fact the portfolio has returned 6.35 per cent since April while the IA UK All Companies sector and the FTSE All Share have posted large losses.
While the fund did fall during the August sell-off, it has had the fifth lowest maximum drawdown – which measures the most an investor would have lost if they had bought and sold at the worst possible time – in the 270-plus strong sector so far this year.
Performance of fund versus sector and index in 2015
Source: FE Analytics
Given Ashworth-Lord follows legendary US investor Warren Buffett’s investment principles, he takes a long-term approach to the market and aims to invest in companies and enduring franchise with pricing power, strong free cash flow, and management focused on delivering shareholder value.
Therefore, he urges investors to realise the dangers of selling into an already falling market due to short-term noise.
“I’ve lost count of the number of times I have counselled the dangers of trying to time markets; bobbing in and out of shares or funds. I even evoked the sage words of Peter Lynch who said ‘Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves’.”
“An investor is an operator who has the fortitude to ride volatility in share prices knowing that equities are invariably the best long-term investment for creating wealth. All else are traders or speculators who, as Eugene V. Shahan said, may well succeed in the short term but at the expense of the rewards garnered by long haul investors.”
He is, however, happy that certain investors have now left the fund.
“Well, in the short run, shaking out flaky holders at prices well below where the fund unit price sat at the end of the month – after £74bn had been wiped back on share prices – means we have retired equity at prices that new investors will be paying more for to get on board,” he said.
“We stayers are the sole beneficiaries of this. And dropping the panic stricken invariably improves the quality of shareholders in the fund.”
Nevertheless, the manager says that to make sure investors stick to their long-term objectives, financial journalists should come under more scrutiny.
“Financial journalists enjoy a valuable privilege. They are neither FCA regulated nor necessarily qualified,” he said.
“They are free to make whatever comments they wish, subject to their editor’s override, without fear of attracting the regulator’s attention. The same is not true for those of us operating within the financial services regimen. We are no longer allowed to advise Joe Public to buy and sell this and that.”
“If you don’t believe me, try getting hold of stockbrokers’ research if you are a private investor. Privileges are not rights; they must be exercised responsibly.”
“Which brings us back to shrill financial journalism. Perhaps it is time for the purveyors of it to be brought under the same regulatory umbrella – training and competence, qualifications, exams, CPD etc.”
Ashworth-Lord launched his £20m ConBrio Premier Sanford Deland UK Buffettology fund in March 2011.
According to FE Analytics, it has been a top decile performer in the IA UK All Companies sector over that time with returns of 85.86 per cent, meaning it has more than tripled the FTSE All Share’s gains in the process.
Performance of fund versus sector and index since launch
Source: FE Analytics
It has also outperformed in each calendar year since inception. The fund has the second best risk-adjusted returns (as measured by its Sharpe ratio) since launch and is top decile for alpha generation relative to the FTSE All Share over that time.
Ashworth-Lord is primarily invested in mid and small-caps and has a very concentrated portfolio, with 52 per cent of his portfolio held in his top 10 stocks.
While the manager is happier with his fund now certain investors have sold their stake, he says current unitholders should accept that volatility is likely to persist.
“Already the game has shifted to trying to call whether ‘Black Monday 2015’ was the capitulation phase of a correction going back to April or the start of something more sinister,” he said.
“The stock market is a great leveller. It may indeed make me look a complete fool by going from a 15 per cent correction to a full blown bear market. If so, I don’t care to predict it or pre-empt it.”
“All I know is that we will be best served over many years by concentrating on getting our investments right and swinging at the ball when the pitch is fattest; which means when prices are lower because others are losing their head.”
He added: “Be greedy when others are fearful and fearful when others are greedy.”
ConBrio Sanford Deland UK Buffettology has an ongoing charges figure (OCF) of 2.13 per cent, but is lower on certain fund platforms.
