You can earn 2176% - This deep value fund manager did it
Would you have liked to earn a total return of 2176% over the past 19
years? I am sure you would and it’s possible as John Tidd Kimball manager
of the Horizon Growth Fund proved.
Here is more information on the fund’s performance:
Horizon Growth Fund Quarterly Letter August 2019
Horizon Monthly Report August 2019
The last few years have not been easy (for all value investors) but the
overall return has been outstanding.
About the Horizon growth fund
Here is some more information about Horizon.
They have an outstanding 19 year track record as bottom-up, deep value
stock pickers that take big positions in their best ideas.
The fund has a flexible mandate that allows them to invest in markets
worldwide including hedging.
They currently have more than USD 130 million in total assets under
management. Which includes a lot of their own money making them partners
of their investors.
Horizon also has an interesting Twitter feed which you can look at here:
I also wanted to know more about John
I have been reading John’s fund letters for a few years and was often
amazed at where in the world he finds interesting deep value investment
I wanted to know more about John and his investment approach and was really
pleased when he agreed to the following interview.
Here is the interview
Describe your investment philosophy?
John Tidd Kimball: We are Value Investors. It’s in our DNA.
We look for deep undervalued securities all around the world and we take
investment decisions based on several factors such as long term growth
potential, debt level, cash generation, liquidity, returns on equity and
Our proprietary research process, independent mindset and confidence in our
ideas have been key elements in our success during the last two decades.
How do you typically find ideas and what is your selection process before
an idea gets added to the portfolio?
John Tidd Kimball: As bottom up fundamental analysts, we start by screening
the entire universe of active public equities and rank those with good
ratios. The classic ones are Price to Book, Price Earnings, Price to Cash
Flow, Net Debt to Equity, Return on Equity and many other.
Once we have interesting candidates we then go ahead and quickly analyze
10-20 years of the financial history, estimate our first approach of the
intrinsic value and calculate the expected return. Throughout the years we
have developed an internal template that allows us to focus in what really
matters and get a quick idea on the potential of the company.
If we believe the investment is still interesting then we analyze in detail
all the information we can get, not just from the financials and notes but
from news, competitors, industry, general outlook of the economy,
regulations that might impact, etc…
During this phase we also have a first contact with the company and usually
try to speak with the Management team. This allows us to get a big picture
of the business, ask some detailed questions to understand even better the
financials and also to assess the quality of the management team.
Once we are convinced with the idea, we select those with good long term
potential, low debt, good cash generation (and good usage of cash), good
ROE and trading at low valuations.
What main indicators and ratios do you use in your selection process?
John Tidd Kimball: We use the classic indicators such as the Price to Book,
Price Earnings, Price to Cash Flow, Net Debt to Equity, Return on Equity
and many others.
It’s also important how these ratios are combined with each other and the
coherence between them.
The two most important are our expected return and risk level (net debt to
How important is defining your investment universe correctly for investment
John Tidd Kimball: We have a broad investment universe. We search for
investment opportunities all around the world.
This is very important since it gives us the flexibility to go into markets
with interesting valuations and sometimes not very well followed. This has
allowed us to keep finding excellent companies at very good prices no
matter the economic cycle of specific countries or regions.
What are your ideas concerning portfolio composition and the value of
individual holdings in relation to the portfolio?
John Tidd Kimball: We are more stock pickers than portfolio managers. We
try to limit risk to specific sectors, countries etc. to have our risk
How do you size position size in your portfolio? (Equally weighed /
John Tidd Kimball: We don’t follow a special rule. It depends on the
expected return and conviction.
We have had large position weights in the past with mixed results and now
run trying to run a more balanced portfolio.
We don’t target volatility and I guess if we did it would be more
volatility seeking. Probably one can make good returns from buying volatile
Describe your biggest investing mistakes and what you've learned from them?
John Tidd Kimball: I am always amazed at how many mistakes we make and
still have a pretty decent track record.
Just to give a specific example, we learned the hard way about the
regulatory and political risk associated with financial investments during
a crisis, especially with banks. These entities with highly leveraged
balance sheets can turn out to be good investments but also can get you
killed and destroy shareholders value by issuing shares in the worst
How concentrated is your portfolio? Do you follow any key risk-management
guidelines in managing your portfolio?
John Tidd Kimball: The general guidelines is that whenever we find a
company with good potential and an interesting risk-adjusted return, we are
not afraid of concentrating the portfolio.
However, our concept of concentrating has change a bit during the last two
decades mainly because of the size of our fund and the liquidity risk it
For the Japan and Micro cap funds we run a more diversified portfolio since
we try to manage those with a more automatic screening and selection
We are also about to start advising a new UCITS Fund in Spain which will
also have a diversified portfolio allowing a daily liquidity NAV and a
reduced risk profile.
What is your view on the use of stop-loss strategies?
John Tidd Kimball: We don’t use stop-loss strategies and don’t recommend
If the price goes down and nothing has changed on our investment idea it is
very likely we will increase our position. And if nothing has changed and a
position has gone down substantially we need to be buying more.
What do you think of short selling?
John Tidd Kimball: We don’t do short selling either.
We try to focus our brains in what we are good, and that’s finding long
investment ideas. We have index hedges in recent years and it’s been a
sizeable distraction and to date a drag on performance.
Hopefully the divergence between stock and bond prices will be resolved
What is your 80/20 investment strategy or principle? (The most important
20% you must do to get 80% of the highest investment returns)
John Tidd Kimball: Pick good investments.
Don’t panic in a downturn and better yet when you see everyone else
panicking have the confidence to be fully invested in equities.
How did your portfolio perform over the financial crisis?
John Tidd Kimball: During the 2008 the portfolio declined 25% vs the MSCI
World ex US Total Return (in USD) that decreased 44% and the S&P that
How did you manage the financial crisis or any large decline mentally?
John Tidd Kimball: The financial crisis was a special case for us. We
sensed something wasn’t very right at the moment and began accumulating
cash a few years earlier.
When the downturn began, the cash protected our portfolio and the impact
wasn’t extremely painful.
Moreover, it allowed us to invest the necessary cash at very opportune
prices. That’s the reason why we had such an outstanding post-crisis
performance of 125% and 44% during 2009 and 2010, respectively.
One of the most mentally challenging crises was actually at inception.
Back in 2000, when we began managing the Horizon Growth Fund, we were
investing in south Asian countries.
During the Asian Financial crisis, equity prices were on the floor and so
was the currency. Many interesting opportunities were found. However,
during the year, prices kept falling and our first year we had a
performance of -38%.
Despite this, we never thought about quitting. We were convinced in the
value investing philosophy and that the equities we selected were good
investments in the long run.
And so it did.
The next year we had a small double digit gain but the following two years
were very good, with +52% and +174%, during 2002 and 2003, respectively.
The key is picking good investments and having confidence in what you are
If you were a private investor with about €50,000 to €100,000 to invest how
would you go about it?
John Tidd Kimball: It depends on many factors such as the return
objectives, risk profiles and constraints (including taxes), but given that
I’m a long term investor, I would have a portfolio or fund that definitely
includes equities on it.
Nowadays it’s the only type of investment I see with interesting long term
Anything else you would like to mention?
John Tidd Kimball: Investing is a fascinating and stimulating activity. At
Horizon we have a constant drive to improve our skills and abilities and
that makes this all very interesting.
John, thanks for your time
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