Game of Thrones might be best known for its warring Houses, political intrigue and, well, dragons, but managers at Liontrust also think there are several investment lessons that can be learned from the popular TV show as it returns for its final outing.
The series, based on the books written by George RR Martin, has been responsible for several iconic TV moments in recent years as its characters have strived to attain the ‘Iron Throne’.
Below, Liontrust fund managers highlight their favourite quotes from the past seven seasons and explain how they relate to their approach to investing.
‘You know nothing.’
The often-heard refrain ‘You know nothing,’ by wildling character Ygritte is the first lesson that investors should take heed of, according to Liontrust manager Matt Tonge.
Tonge, a manager in the firm’s ’Economic Advantage’ team responsible for the £4.5bn five FE Crown-rated Liontrust Special Situations fund, said attempting to know everything about markets can be “pretty counter-productive”.
“As a fund manager you are constantly bombarded with information; there is so much data and research available that you couldn’t possibly look at everything that comes across your desk,” he explained.
“Trying to analyse too much information can in fact risk ‘confirmation bias’, where you keep sifting through information until you inevitably find something that supports your preconception regarding an investment and attach more importance to that item than it deserves, leading to overconfidence in your convictions.”
‘Most men would rather deny a hard truth than face it.’
The second lesson comes from hard-drinking and little-trusted character Tyrion Lannister, who says that most people would rather deny hard truths than face reality.
In this respect, said sustainable equities manager Simon Clements, there are many environmental ‘hard truths’ that people are shying away from. In particular, better resource efficiency, global health issues and improvements required in supply chain remain overlooked, he explained.
“We believe that the market ignores these hard truths and underestimates the pace of change in companies which are helping tackle these issues,” said Clements, co-manager of the £946.1m, five FE Crown-rated Liontrust Sustainable Future Managed fund.
“In a fast-changing world, the companies that will survive and thrive are those that improve people’s quality of life, drive improvements in the efficiency with which we use increasingly scarce resources, and help to build a more stable, resilient and prosperous economy.”
‘The storms come and go, the waves crash overhead, the big fish eat the little fish, and I keep on paddling.’
Kingmaker and 'Master of Whispers' Lord Varys provides the third takeaway that investors should take from Game of Thrones, and it is one that Liontrust multi-asset head John Husselbee said he has embraced during his career.
While the investment industry has changed considerably during his career spanning more than 30 years, said Husselbee, it is important to move with the times.
“What I’ve learnt over three decades is that patience is key – in fact it’s a cornerstone of our investment philosophy,” said the multi-asset specialist. “We put suitability, transparency and value for money at the heart of any investment decision and keep away from the noise.”
Husselbee added: “So while the world – or the country at least – remains focused on Brexit, we note that market historians tell us politics rarely has a long-term effect on investment performance. The only thing that is constant in life is change – embrace it.”
‘You don’t want to wake the dragon, do you?’
A threat from bullying Viserys Targaryen represents the fourth message for investors to glean from Game of Thrones.
“The prospect of waking dragons might seem to have little relevance for international investors, many of whom are instead worried that China’s dragon economy risks slipping into a slumber,” said manager Carolyn Chan. “In our view these fears are unfounded.”
She said that China has the largest economy in terms of purchasing power parity (PPP) GDP, “ahead of the US and greater than the combined EU members”, and while economic growth has slowed it will likely remain one of the biggest drivers of the global economy in 2019.
Chan added: “China is undergoing a necessary, long-term economic slowdown and transition but it remains the biggest driver for investors in Asia.”
‘A lion does not concern himself with the opinion of sheep.’
A turn of phrase for leonine patriarch Tywin Lannister provides Liontrust’s next warning for investors, as macrothematic investor Jamie Clark warns against following the herd.
“Our process entails identifying the kind of long-term trends that others have bypassed,” he explained. “Oftentimes, this demands that we roll up our sleeves and delve amidst companies that consensus regards as unattractive.”
Clark, a co-manager on the Liontrust Macro Equity Income fund, said that its tilt to value companies is an example of this, given how out-of-favour the style has been in recent years.
“Thanks to a decade of low rates and quantitative easing, the valuation spread between ‘value’ and ‘growth’ companies is at all-time highs. Buying value stocks has never been more attractive, particularly when the long-run returns data tells us that value beats growth over time,” he explained.
‘The heart lies and the head plays tricks with us, but the eyes see true.’
Sword master Syrio Forel's truism is next on the list of investor lessons and one that is particularly important when analysing company cashflows.
“We find that often the desire to forecast company earnings can be dangerous to investors’ wealth,” said veteran investor James Inglis-Jones, manager on Liontrust Global Income. “It is so often beset by our emotional extremes of optimism and pessimism – as Forel councils us, the ‘heart lies and the head plays tricks with us’.
“Instead a more reliable guidance for future profitability and share price return is provided by close scrutiny of recent cash flows – ‘the eyes see true’.”
‘Chaos isn't a pit. Chaos is a ladder.’
Machiavellian character Littlefinger’s insight into the opportunities arising from chaos is important for investors to know during more volatile times.
“While volatility does spike during bouts of chaos such as the credit crunch, most rational investors wouldn’t view it as ‘a pit’ but rather a desirable feature of functioning markets,” said Olly Russ, manager of the Liontrust European Income fund.
“The global quantitative easing programmes that have flooded financial markets with liquidity over the last decade have smothered volatility and encouraged smooth asset price inflation.”
Russ added: “In our view this absence of chaos is completely fabricated and unsustainable, and therefore should be a cause of concern rather than celebration.
“The return of volatility could prove to be ‘a ladder’ to better returns for discerning stock pickers.”
‘Winter is coming.’
Finally, global fixed income specialist David Roberts highlights one of the shows main taglines – uttered by doomed Ned Stark – is one which investors should also try to understand.
“Government bond markets have enjoyed a long summer, with a combination of fear and, more importantly, technical factors driving yields to levels where they are now ridiculously expensive in absolute terms and even more so when adjusted for inflation,” he said. “Winter is coming, but when will it begin?”
Roberts, manager on the Liontrust Strategic Bond fund, said that technical demand and investors chasing the market lower means the summer could yet drag on. But when winter does arrive credit selection, duration management and sector allocation will be important for generating alpha.