"What would you say was the most extraordinary thing about Leicester City winning the Premier League title?" asked the chairman of the improbably-sized investment company Prandeamus Asset Management when I dropped by to see him this week.
"Aside from the fact you know about something football-related, I find it hard to look past the 5,000-1 odds at the start of the season," I said. "Why - what else has caught your eye?"
"The various investment-related lessons you can draw from their victory, of course," the chairman replied. "I'm surprised that has passed you by." "It's not passed me by at all," I protested. "One absolutely certainty in this world is you do not have a 5,000-1 outsider winning a major sporting trophy without various businesses looking to draw out some sort of link with Her Majesty's financial services industry - and so it has come to pass.
"We therefore find, for example, the good, good people of Tilney Bestinvest skipping effortlessly from Leicester's title win to ‘the fund underdogs who are taking on the big beasts of the investment world's premier league'. They point out how it is a ‘quintessentially British trait to love an underdog and in recent days it has been the success of Leicester ...'"
"No, no - let me guess," the chairman interrupted. "Has Leicester's success by any chance ‘captivated the nation and prompted a wave of admiration, with the plucky club triumphant this season over enormously wealthy super clubs that have become global brands and are among the top 10 wealthiest football clubs on the planet'?"
"Almost word for word," I nodded. "And from there, they moved to the UK Equity Income sector - ‘widely regarded as the premiership division of stockmarket investment funds' - and the ‘big beasts' such as Woodford Equity Income, Artemis Income and Threadneedle UK Equity Income, which together make up a third of the sector's total assets."
"Which makes which fund Leicester?" asked the chairman, his tone betraying a shade too much interest in my answer. "I wouldn't get too excited," I warned. "Tilney Bestinvest in fact picked out three UK equity income offerings - those of Ardevora, Evenlode and Unicorn." "Oh," said the chairman disappointedly. "So not Prandeamus UK Equity Income then."
"They were talking Premiership rather than Vanarama Conference" is what I didn't reply, choosing instead to go with: "Well ... maybe the next time Leicester win the Premier League, eh? Anyway, let's move on to the trio of lessons Schroders was able to draw from the Leicester triumph, the first of which is that the world is unpredictable and, like Claudio Ranieri's managerial career, markets and economies have their ups and downs.
"Next up is the behavioural finance angle - the idea that most Premier League clubs are ‘anchored' to high prices while continually rising prices have created a ‘herding' effect. Leicester on the other hand did not - or could not - chase what Schroders calls ‘the glamorous and expensive names that were overanalysed by the market' ... and from there it was of course but a hop to value investing.
"My favourite leap, however, was the last one - from Leicester's small, more concentrated squad of players in which the manager has great conviction to, well, I am sure you can do the maths. But, I'm being rude - what particular Leicester lessons will Prandos be sharing with the investing public over the coming days?" "What are you on about?" said the chairman.
"I was referring to lessons I can learn myself. The most obvious, I believe, is there is a salary level at which employees evidently stop listening to their boss. In top-level football, to judge from how some of those ‘big beasts' have stuttered this season, it looks to be around £100,000 a week. And, while that is a bit more than the Prando's going rate, the lesson is clear - at some point high salaries become counterproductive."
"It's a bold insight," I said. "Will you be using across all of Prando's?" "I'll be using it across all of Prando's employees," the chairman said carefully. "If I am right, it'll see us up among the ‘premiership division' of asset managers in no time - and certainly before Leicester next win the Premier League, you sarky so-and-so."
