22nd June 2012 by Tim Guinness
Tim Guinness, fund manager, founder of the Guinness Asset Management group and MM Blogger, talks to us about his investment philosophy, energy markets and why he never has enough money to pay for a cab.
MM: You’ve been in the business for over 30 years – anything you’d like to share?
TG: Lets keep it punchy – pay as much attention to the macro-economic picture as to individual stock selection and keep in mind the complexities; everything is very much interconnected today.
MM: Can you give us an example?
TG: Take the energy market – the direction of the oil, gas or uranium price naturally has a significant influence on the stock prices of companies involved in the buying, selling or distributing of those commodities.
Commodity prices are determined by supply and demand factors, plus sentiment.
At any one time the oil price may be influenced by anything from the growth outlook in China to US debt, so I will need to have a long-term view on all these factors.
MM: People often characterise you as a contrarian. Is that fair?
TG: My views may stand contrary to the prevailing market sentiment, but they will always be the product of detailed, independent research.
They will never be swayed by the caprices of the markets. Perhaps that’s why they say those things.
MM: How do you choose which companies to invest in then?
TG: I invest for the long term and select companies that fit four main criteria.
These are, one – quality, as measured by a company’s past and projected return on investment; two -value, as measured by the current share price versus the discounted cash flow; three – favourable earnings trends and, finally, price momentum, measured over 3, 6 and 12 months.
MM: You say you will take into consideration the company’s history, yet almost all investment literature carries that old caveat: ‘Past performance is no indicator of future results’, so if that’s the case, why bother paying attention to retrospective track records at all?
TG: I’ll tell you why. Take energy. I always hold a long-term view on the future of energy.
So in building this view, we analyse historical trends.
For example, oil has been displaced from much of global energy production. Urban heating and railways for example have found alternative energy sources.
However, oil continues to dominate transport, and has generally been supported by the popularity of the motorcar, first in the US and the developed world and now in emerging markets, such as China, India and the Middle East.
So in this regard any analysis of its long-term prospects must take into account its past.”
MM: You personally manage the £197m Global Energy Fund. Could you tell us how you came to specialise in this area and how you put your principles into practise?
TG: I learned my trade at a time when energy was deeply unfashionable.
All the hot-shot fund managers had gone to manage dotcoms and we built up a process and after a few years, realised it was working and that we might be onto something.
It wasn’t until 2005 when other good people started to realise the importance of energy and came back into the industry, but I had a six-year head start by then.
The importance of energy within the global economy is now widely recognised, and with it the potential of energy investment.
I like to think that I recognised its significance before anyone else.
MM: You said in a recent Sunday Times interview that, despite earning a six-figure salary, you don’t carry cash. Is this really true?
TG: Yes. And my colleagues will tell you that I never have enough to pay the taxi fare either. I hardly use cash and prefer to travel by bike and on the Tube.
Tim Guinness founded Guinness Asset Management in 2003. The group now has £550m under management. He is a descendant of Sir Arthur Guinness (the brewer) and studied engineering at Cambridge University before being headhunted from MIT by Barings Bank.
Click here for Tim Guinness’s biography
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