Owen – Efficiency and Opportunism

This article is part of our 'Guru' series - profiles of successful traders, with takeaways for the UK private investor.
You can find the rest of the series here.

Today’s post is a profile of Guru investor Owen, who appears in Guy Thomas’s book Free Capital. His chapter is called Efficiency and Opportunism.

Owen – Efficiency and Opportunism

Owen is one of the (mostly) anonymous investors in Guy Thomas’ book Free Capital.

Owen was once a professional activist investor, agitating for funds to return value to investors.

• His investing style retains some of this opportunism.

Guy Thomas also notes his “efficiency”:

I will go through market news late at night or sometimes early in the morning. But I don’t feel an obligation to be at my desk at regular hours every day, and I’m certainly not watching markets all day.

Stagging

Owen’s father owned low-budget hotels in West London, and was a keen stagger of new issues (which before 1995 all had to be offered to the public).

• When Owen was 11, his father committed suicide.

A lack of support from his father’s church turned Owen against religion.

It made me conscious of being on my own in the world, and that if I was going to get anywhere, it would be by myself. It meant I grew up young.

He was the poor boy at his public school, but made it to Oxford, where he got a first in physics.

His mother took over the stagging of new issues, but when he was 16 he inherited £2K and started to do the same thing himself.

• By the time he got to university, he had £20K.

Career

At Oxford, Owen thought about going into the City, but instead he joined a management consultancy for the high starting pay.

• He did not enjoy it.

I thought the bullshit factor was off the scale … the whole business model was to find what the client wanted to hear and dress it up for delivery.

He moved over to investment banking, first in risk management, then in option-pricing and equity index arbitrage.

His team made a lot of money in the 1987 crash, and they became proprietary (`prop’) traders, investing in “special situations” (arbitrages in mergers and options, closed-end funds, and capital structure deals).

• Positions were typically held for just a few weeks or months.

These opportunistic strategies became less profitable over the years because so much more hedge fund money and other investment capital was directed towards them.

The investment trust deals turned into activist investing as their fund grew larger.

Personal account

Owen was not allowed to invest in the same ideas as he was implementing for his employers. But he was allowed to make other investments, and these tended to have a similar rationale.

In 1999, he bought into a cash shell that was trading below cash value.

• It was used in a reverse takeover of Redbus Interhouse, the internet company.
• Owen made 15 times his money on the deal – more than £1M after a few months.

He also shorted the Nasdaq, holding on until the crash in March 2000 and making making several hundred thousand pounds more on this deal.

Despite a good year at work and in his personal account, Owen was now going through a divorce, and in spring 2002 he quit work, aged 38.

I wanted to get away from having a boss.

Split capital trusts

Split capital trusts – where separate share classes have different rights to income and capital – were popular in the 1990s.

• They eventually blew up in the 2002-03 bear market, with the effects of the crash multiplied by the tendency of the trusts to invest on one another.

The crash threw up price anomalies that Owen exploited.

• After that, Owen built a couple of houses, but he found property development time-consuming and poorly remunerated (in relative terms).

He found more opportunities after the 2009 crash.

Style

Owen runs a concentrated portfolio, usually with no more than a dozen holdings. He is also happy to hold large amounts of cash while waiting for the right opportunity. 

“When there aren’t any good situations, I may be entirely in cash.”

He does sometimes use spread betting for part-hedging his portfolio, by shorting stock index futures. Overall he uses virtually no leverage.

He spends no time reading bulletin boards, and only a little discussing possible investments with other investors.

He rarely meets with company management and seldom attends AGMs. Asking specific questions on the telephone is a more efficient use of his time. All of this makes him unusually efficient.

Conclusions

There’s not much here for the average private investor.

• Owen uses an investing style largely derived from his professional career which would be difficult for most of us to emulate.

He was also lucky – or brave – enough to get a couple of “moonshot” returns during the dot com boom and bust (and to have very high earnings to begin with).

• He meet’s Guy’s requirement for chronicling the first dozen ISA millionaires, but not mine for actionable information.

Until next time.