Richard Oldfield, the subject of our latest Q and A, is the founder and chief executive of Oldfield Partners, a privately owned investment management firm with $2.8 billion under management, invested wholly in equities “on a concentrated, value-focused, index-ignorant basis”. He is largely unknown outside the professional world, but highly regarded within it.
Before founding Oldfield Partners in 2005 he was for nine years chief executive of a family investment office. He is chairman of the Oxford University investment committee and of Keystone Investment Trust plc, and the author of Simple But Not Easy, a “slightly autobiographical and heavily biased book about investing”, first published in June 2007, which I strongly recommend and praised in The Spectator.
How generally do you see the equity markets at the moment?
We are torn between the extreme gloom about the problems of the public sector and enthusiasm for the new strength of the private sector, with strong cash flow and balance sheets and evidence of much improved demand, and valuations which are not too high. On balance we think it is positive for equities (which is a bias, but not an invariable bias, of ours).
Is the crisis in the eurozone over yet?
I think the outcome is resting on a knife-edge. On balance my sense is that the crisis will pass, and the euro will survive, at least for now. The stakes are too high for governments to let it go. I have always said however that the euro was unlikely to survive for more than 15 years, and I stick to that.
All that talk of the euro becoming a new reserve currency can be discounted. It isn’t going to happen. Central banks are not going to be rushing to buy more euros if they think they might be getting drachmas instead. On that basis that the euro does survive for now, however, that should mean we get a decent market rally.
What is the best approach to adopt in this kind of market?
The cushion of comfort is very important: risk is high. Investors need to be sure they have enough in low-risk assets so that they will not fret too much about the higher-risk ones. But once this cushion of comfort is determined, a different figure for every investor reflecting not only circumstances but temperament, investors shouldn’t be too shy of holding equities.
The answer I think you are begging with this question is “buy and hold is dead – do we need a trading strategy instead?” I am not too sure of that. The time to be skeptical of buy and hold was, in hindsight, in 2000 before equities gave a negative return for ten years.
Now, on the contrary, buy and hold may be a little hairy – hence the importance of the cushion of comfort – but the odds of an average to above-average return over the next ten years seem to me to have risen, particularly with quality stocks which really are for tucking away for the long term.
What opportunities do you see? Are there any striking valuation anomalies?
Not many major anomalies at the higher level – sectors or country. Japan though is cheap and maybe now the catalysts to this cheapness getting recognized have increased – a weaker yen, and a government determined to stimulate consumption. Quality equities, by which I mean major companies with low debt, strong cash flow, relatively unvolatile earnings, and high return on equity, do look good value.
There are plenty of anomalies, we think, at the stock level. Some excellent companies are becoming extremely cheap. The only question is whether the good companies in the private sector are going to get crushed by the public sector. On balance I still think that is unlikely.
Please give some examples of stocks you have been buying and why?
The most recent purchases this year have been Fiat and Hitachi, both based on the sum of their parts. Hitachi has been a dismal story, but there are signs at last of management change to sort out this amorphous conglomerate, and the stock is extraordinarily cheap.
Fiat is only the fourth car company we have bought in 30 years. Car companies are terrible – high debt, highly cyclical, usually union power – but in return for their terribleness there is occasionally huge upside and we think we have it here.
What would you avoid (or go short of) and why?
We would continue to be wary of China.
What are your thoughts on gold, bonds and property?
Gold: having been a bull for the last ten years, I am now wrongly somewhat more skeptical. The conditions still appear classically good for gold, but everyone is already there. On bonds, I am afraid, we are entirely consensus in being negative. Property – no clear view.
If you had just one moneymaking tip for this environment, what would it be?
But we don’t (and, seriously, we don’t believe in having one good idea; we think a portfolio should have a lot of decisions at play in it). Don’t stray too far from your comfort zone is the most important thing.
Jonathan Davis 