This week I'm in seventh heaven. I'm in California at a small conference at Stanford with my favourite Central Banker in the world Raghuram Rajan.
Here's a picture
A 100 years ago this week the naval might of Britain and Germany met in World War One’s greatest confrontation at sea – the Battle of Jutland, 1916. The news in the UK this week is filled with details of this war at sea and analysis of what actually happened as the two enemies faced off against each other for the control of the shipping passages of the North Sea.
Britain going into World War One was THE acknowledged world naval power. Going into the Battle of Jutland, British power was superior in strength to the German navy. Britain had 50% more ships (151 to Germany’s 99), better weaponry and more experienced commanders.
In the end Britain lost about double the amount of ship tons than Germany and lost over 6,000 men in the day’s firing while Germany lost just over 2,500. One of the most shocking aspects of the British losses were that the ships went down within minutes with no time for the sailors to escape.
There wasn’t a clear winner declared but when the British fleet returned home they were booed and shockwaves went through the British people that their solid naval fleet was in truth so vulnerable. The mood towards the war at home was one of defencelessness.
For a hundred years fingers have been pointed and repointed as to why Britain with her obvious superior naval strength lost so many more men and why the ships sank so quickly that day. Theories have included faulty battle strategy and poor ship design. In the run up to the centennial a lot of research resources were devoted to exploring these causes.
Modern imaging technology and research concluded that the British and German vessels were equally seaworthy. Yet a German ship with 24 hits was able to limp back to port while a British ship with just 7 hits sank in 90 seconds. This scenario was repeated across the battle. British ships sank quickly with fewer hits and all their men on board.
The commanders of the British ship in their haste to fire at the enemy relaxed safety procedures on the ships. Typically strong flash doors would be kept closed between compartments on the ship. This way as parts of the ship were hit, fire and heat could not spread to the highly inflammable magazines and armaments compartments. In the Battle of Jutland these flash doors were left open to speed up the movement of magazines and cordite from the hull of the ship to the gun turret. A few hits were then all it took for fire/heat/shockwaves to reach the weapons at the bottom of the ship and BOOM - nearly instant self destruction.
When the economic powder kegs blow up, what are the flash doors you need to use? What are the safety procedures you need to have in place?
As shown by the Battle of Jutland, firepower and brain power are meaningless if you don’t use common sense and safety procedures. Investing with safety was a key theme at the annual London Value Investor Conference I attended a few days ago.
Prominent value investors presented companies that might be currently underpriced, typically looking for quality companies that are underpriced. This gives them a margin of safety in times of trouble. Held over the long term these quality companies that are underpriced should recover to a higher share price.
As a caveat these are the investing ideas of the various speakers at the conference. You should do your own research!
These were my two favourite ideas...
Elekta - radiotherapy machines for cancer treatments
Perrigo -- generic medicine for supermarkets and pharmacy branded medicines
Other ideas presented included: Zoetis, Ryanair, Easyjet, Ocado, CRH, Royal Mail, Cielo.
Annette from Burgundy Asset Management the only female speaker I’ve seen present at the conference in all the years I’ve been going, called this strategy “winning by not losing”. The Germans exemplified it at the Battle of Jutland.