Thinking Aloud

When we believe that we have something of interest to say, we jot down posts that we hope might offer a different perspective on an issue or conventional wisdom. We call this Thinking Aloud.

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LONG-TERM THINKING

At Kennox, we see great strength in the current corporate system, which includes the creation, growth and interaction of an enormous range of companies. Whilst there are unquestionably significant problems, these corporates are an essential part of the market-based ecosystem that has steadily increased living standards for so many across the globe for so long.

November 10, 2021

ESG AND INFLATION

Kennox suggests that there might be other ways to view ESG and inflation than the accepted narrative currently in the markets. Maybe it makes sense to consider the idea that wishful narratives are crashing into the inevitability of hard realities. Perhaps the situation with natural gas in Europe is a good example for ESG. A narrative recently has been that gas has no redeeming features [...]

October 10, 2021

KENNOX BELIEFS

Kennox’s investment style is logical, sensible and powerful, built upon fundamental human behaviours. Psychologists and behavioural economists observe that not-entirely-logical traits and irrational quirks slip regularly into human behaviour. For Kennox, key to note are that people: extrapolate the recent past, don’t like uncertainty,

July 14, 2021

KENNOX THOUGHTS ON ESG

Intractable societal problems are complex, and any solution will involve painful trade-offs with no easy answers. “Ethical” issues such as diversity, climate change, inequality across groups or genders are especially complicated – if simple and easy answers existed, surely the problems would have been solved by now. To make it more complicated, ethics are inherently […]

June 10, 2021

OBJECTIVES, VALUES, AND ADVANTAGES

There are times in every investor’s career when the values that drive their approach are brought into particularly sharp relief. Now, as markets become increasingly distorted, is one of these times. Geoff and I have been managing the Kennox portfolio for coming on 14 years now. We have 100% of our equity investments in our Fund and are pleased to have been joined along the way.

March 24, 2021

WHY SHELL IS AN ESG INVESTMENT

There are times when there are “fat pitch” opportunities available in the market, opportunities arising when the prevailing narrative in the market doesn’t match up to the likely practical outcomes in the real world. The market’s narrative can become beguiled by enticing but ultimately false promises, by misdirected thinking that is likely to be significantly […]

March 17, 2021

VALUATIONS AND LONG TERM RETURNS

2018 saw the passing of a giant in the fund management industry, John Bogle of The Vanguard Group, who was seen as the father of passive investing. He had many interesting insights into the investment industry, one of which was to break down investment returns into constituent parts (back in the June 2013 issue of […]

March 7, 2019

QUALITY & SUSTAINABLE EARNINGS

As Investment Directors at Kennox, we have 100% of our equity wealth in the Kennox Strategic Value Fund. Our objective is to make excellent, risk-adjusted returns for us and our co-investors in the Fund, delivering annualised performance over the long term which is in the high single digits or better (currently 9% net of all […]

March 21, 2018

MARKET DISTORTION

As you might remember from our last speech in 2014, we’re devout pessimists. But it’s getting hard, given the distortions we are seeing in the markets, not to become optimistic. We think that the outlook for value is very good. Before discussing distortions, I will give a brief overview of Kennox value. After all, the […]

March 8, 2018

ENERGY AND GLOBAL DEMAND

Energy, particularly speculation on the future of renewables and electric cars, is a hot topic of conversation at present, being as important to the cocktail party circuit as it is to the safe and smooth functioning of the global economy and our planet. Our society must navigate the turbulent waters between the environmental impact of […]

November 3, 2017

WHY (DON'T WE) OWN BANKS

We were very privileged recently to be able to attend a talk given by Dave Jones, the former CFO of Northern Rock and the only member of the senior executive team who was in place before (although only for a matter of months), during, and after the run on the bank and the ensuing crisis. […]

June 19, 2016

STEWARDSHIP RESPONSIBILITES

Kennox has a Stewardship Code which reads as follows: Kennox takes its management and stewardship responsibilities seriously. As such, we believe it is important to remain up to date on issues impacting our investee companies, and to engage with them where appropriate. We assess any issue in terms of its impact to the long term […]

May 22, 2015

EXCESSIVE CEO REMUNERATION

Equities are an attractive asset class, particularly at a time when the world is travelling down its current unprecedented monetary path. This is the case as the underlying companies can be robust assets whose prices provide inflation-beating returns in the longer term. Contrasting this, there is no hiding that equities are risky, having to face […]

December 23, 2014

THE JOYS OF PESSIMISM

Article: Delivered to the London Value Conference 2014 (amended) I’m a pessimist. I see the down side in everything – gloom and doom everywhere, pitfalls and traps, dangers around every corner. I have always been this way – as a kid, I was the one who was known to carry around his raincoat. And, […]

October 24, 2014

EFFECTIVE DECISION MAKING

It is well known in the industry that investment research is an integral part of a strong investment process and management company. Any in-depth consultant or client meeting will involve a long and complicated discussion about research. This is of course of utmost importance to good investment decisions. However, there is another key ingredient […]

November 19, 2013

THE UNCERTAINTY PRINCIPLE

We at Kennox have serious concerns that new regulations and laws are being written at present which add to the complexity of the financial system and increase red tape yet do little to prevent another recurrence of the troubles of the last few years. We would highlight that lawmakers and regulators are ignoring a simple […]

April 1, 2013

KENNOX' CORE PRINCIPLES

Kennox Asset Management is an independent company with the directors owning 97% of the shares. This independence is important to us as it allows us to focus on what is important to build an excellent investment company. There are three core principles that will ensure success for the long term for Kennox and our clients: […]

November 1, 2012

VALUE ANOMALY

Why are there so few value investors here in the UK? For clarity’s sake, we use the term “value investing” to mean looking for companies trading at prices that imply a double digit return without relying on an assumption of growing earnings streams. Essentially this means there is a margin of safety as per the […]

September 12, 2012

WHY HOLD CASH

In the Kennox Strategic Value Fund, we tell investors that we will have up to 20% cash. The Fund is primarily an equity fund but we feel that the flexibility to hold some cash benefits investors, and we feel this is one reason why we tend to hold up better in falling markets. It helps […]

November 4, 2011

ON CAPITALISM

Capitalism is constantly criticised in the media, in literature, and very ostentatiously in anti-globalisation protests. These protestors offer few credible alternatives or solutions but give voice to a feeling that somehow the system is failing. At present, the system is especially open to criticism as we are dogged with high unemployment, crippled banks, a possible […]

September 4, 2011

PEAK EARNINGS

There are several concepts associated with value investing: margin of safety, hunting for low Price-to-Earnings (PER) and Price-to-Book ratios, being contrarian. Another point, one that we feel is underappreciated, is avoiding peak earnings. The PER has been the mainstay of investors ever since Benjamin Graham. Whilst the volatility of stock prices (the “P”) gets a […]

February 4, 2011

WHAT IS RISK?

Risk is losing money, nothing else. There are other measures and analyses of risk but Value at Risk, CAPM-derived betas and equity risk premiums, tracking errors and other such measures are of no help when investing using a low-turnover, concentrated, long-term value style. Only thinking of risk to one’s capital money makes sense. Equities are […]

November 4, 2010

CRUNCH ANALYSIS

We are in a tricky spot right now in the global economy. This is not one person’s, one group of people’s or one institution’s fault. It is the fault of all of us. Enough of us believed that the good times would last forever, that prices would continue to go up because they had, that […]

October 4, 2010

THE ROLE OF MACRO

We are often asked what is more important, the bottom up or the top down, the micro or the macro. Without question, we are bottom-up investors. We feel that the best approach to protecting and growing capital is to find companies with an identifiable business franchise available at valuations which afford a margin for error. […]

August 4, 2010

TIME TO GO TO CASH? THINK AGAIN

Flashback to June 2009: After a slight falter, markets seem to be continuing their inexorable rise upwards. However, the undeniably optimistic trend in asset prices seems opposed to the flow of news. Commentators are comparing those guiding the economy with tightrope artists teetering over a vertiginous drop [1], everyone is discussing the precarious timing of […]

April 4, 2010

PORTFOLIO MANAGEMENT

Portfolio management, conceptually, is about risk and return and about correlation and diversification. It is taught in academia as Modern Portfolio Theory; Markowitz’s efficient frontier, optimal portfolios and the like. While we firmly agree with the concepts of risk and diversification, it seems to us that this theory is too often put into practice using […]

March 31, 2010

DIVIDENDS VS BUY BACKS

There are two economic reasons to own share: capital gains and dividends. The beauty of dividends is that they reward you with a steady income while you wait for unpredictable capital gains. According to Standard & Poors, when dividend payments were at their peak in 2007, they accounted for nearly 7% of US personal income. […]

March 4, 2010

BUBBLES - THEN AND NOW

Bubbles have been a recurring phenomenon throughout modern economic history. “Modern” in this instance refers to the period after the industrial revolution, and it is unsurprising that there were no economy-wide speculative bubbles prior to the 17th century. The two basic prerequisites for a bubble are a fair proportion of the population owning enough wealth […]

February 1, 2010

A FEW CONCRETE ACTIONS TO ENCOURAGE LONG-TERM THINKING AND BEHAVIOUR

Recent stories of rises in tariffs on food have caught our attention, as several countries try to protect their citizens’ interests. While we generally applaud governments protecting their citizens’ interests (that’s what they’re supposed to do after all), this type of action is dangerous and short-sighted. Firstly, the law of unintended consequences says that this […]

May 4, 2008

WHY HOLD GOLD

There are at least three classic reasons for holding gold as part of a portfolio: 1) As protection from a weakening dollar 2) As an inflation hedge 3) For diversification as it is uncorrelated to other investments. Although in many ways these are different sides of the same (gold) coin, we hold gold for all […]

December 4, 2007

CENTRAL BANKNG STRATEGY WATCH

We mentioned to a friend that our favourite game at present is “Central Bank Strategy Watch”. It’s pretty simple: you try to figure out what each central bank should do, what you think they will do, who will go first, which one is your favourite. And how about some of the exciting sub-games: Interest Rate […]

September 4, 2007

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