Ian Rushbrook outperformed by avoiding overvalued markets.
Market timing is often seen as a mugs' game, but Ian Rushbrook saw it as the most important part of the investor's job. Sadly, he passed away in October 2008, just as the calamity he predicted was coming to pass, but thanks to his efforts, his investors were better positioned than most to withstand the turmoil.
Background
Rushbrook was born in Edinburgh in 1940, the son of a fire officer who was a world expert on ship fires. Despite spending several years of his childhood in hospital, suffering from tuberculosis, he went on to study physics at Edinburgh University, which he funded by playing poker. He subsequently studied at Cranfield College of Aeronautics, and at the London School of Economics.
In 1967, an approach to asset manager Ivory & Sime for research sponsorship led to the offer of a job, with Rushbrook eventually managing several of its investment trusts, including the highly successful and aggressively managed Atlantic Assets, which he took over in 1975. Over the following 10 years, he grew the company's assets from £15m to £165m.
Personal Assets Trust
In 1990 Rushbrook took control of Personal Assets Trust (LSE: PNL), another Ivory & Sime fund that he had originally founded along with Robin Angus in 1983.
Although it was managed far more conservatively than Atlantic Assets, over the following 18 years the trust's share price rose by 558%, outperforming its benchmark, the FTSE All-Share Index, by 140%.
Investment style
As an independently managed investment trust, Personal Assets had total freedom to use gearing (i.e. borrowing to leverage its position), or liquidity (i.e. holding funds in cash rather than investing in the stock market) as appropriate. In some circumstances the trust would continue to hold individual company shares, while hedging its position on the overall market using derivatives.
"We view our level of liquidity or gearing as probably the most fundamental decision we have to make on behalf of the shareholders of Personal Assets -- much more so than which individual stocks we should buy or sell."
This requires taking a view on the overall valuation of the market, and Rushbrook was never shy about addressing that question. For many years, he has viewed the market as overvalued, even during the trough of several years ago. In mid-2004, he expected a 30% fall in the market, but it went on to gain another 60% before crashing, and even then it did not fall as far as he expected. So to an extent he was 'right', while those who were 'wrong' made more money, at least for a while.
That's a dangerous strategy, though, and it's a game that Rushbrook was not willing to play. Markets can remain irrational for a very long time, but a key objective of Personal Assets is "to protect and increase (in that order) the value of shareholders' funds over the long term".
And that's exactly what it did during the subsequent downturn, and during the bursting of the tech bubble before that. Rushbrook had started moving into cash as far back as 1996, after Alan Greenspan's famous 'irrational exuberance' speech. He had half the trust's assets in cash at the peak, and outperformed the market by 40%, gaining value as the market was crashing.
And when it came to selecting investments, Rushbrook and Angus worked out a set of 10 rules to maximise the chances of success:
1. Only invest in companies with growth in revenues per share and avoid companies that 'grow' by acquisition;
2. Avoid highly geared companies like the plague -- debt is crippling to management flexibility and corporate growth;
3. Only invest in companies with an attractive return on total capital employed as opposed to simply a high return on equity through the use of debt;
4. The market does 95% of the work for you -- your problem is not to duplicate research but to identify errors of logic in company valuations;
5. Against the market at any point in time, that which looks statistically cheap is probably dear and vice versa. This is caused by insiders driving share prices in the short term;
6. Only invest in companies where you would be prepared to work for the chief executive;
7. If you don't understand the product or service -- don't invest in the company;
8. Working full-time in investment, you will probably only see two to three outstanding investment opportunities in a year -- be prepared to wait for them;
9. Minimise portfolio turnover; and,
10. Entertain your broker at your expense rather than his -- that will improve his advice dramatically.
Rushbrook held a concentrated portfolio of mainly British and American companies, including Alliance Trust (LSE: ATST), Royal Dutch Shell (LSE: RDSB), BP (LSE: BP), GlaxoSmithKline (LSE: GSK), and British American Tobacco (LSE: BATS), and the fund currently holds 14% cash.
Personal Assets has a policy, successfully implemented thus far, of always increasing its dividend.
Personal commitment
Something that set Rushbrook apart from many fund managers was his personal investment in the funds he managed; having 'skin in the game' is important in aligning the manager's interests with those of his clients, and he even borrowed money to do so.
In an interview with Jonathan Davis in 1992, he castigated fund managers who don't put their money where their mouths are. "Over my entire investment career, any time I have been involved in running anything, I have taken as much [of an equity interest] as I could afford. I have never invested in anything other than companies I have been on the board of, or investment trusts I have been associated with."
In comparison to many of the Investment Greats we've looked at in this series, Rushbrook's assets under management -- less than £200m -- were relatively tiny. But his influence extended far beyond the funds under his control, as his clearly expressed and often contrarian opinions were valued by investors of all varieties.
More investing greats:
John Bogle | George Soros | Ben Graham | Jim Rogers | Warren Buffett | Anthony Bolton | Jesse Livermore | Jim Slater | Charlie Munger | Peter Lynch | Carl Icahn | Philip Fisher | Ken Fisher | John Neff | John Templeton | Mark Mobius | Neil Woodford | T. Rowe Price | Bill Miller | Robin Geffen | David Dreman
