That, of course, was a time when the average life of a share in a pension fund was ten
years, in an insurance life fund it was five years and in a unit trust it was two years. Today, even pension funds turn over in two years, unit trusts are on average around ten months and of course the current faith in equity-driven hedge funds is built around their ability to move in and out of the market by the hour. Yet in spite of all the activity, all the brain power, all the computer modelling and the black boxes it remains true today that in a world of low real investment returns, dealing costs are a material factor, so the more you trade the more you have to make to deliver a profit. And it is even more true that in markets as heavily researched as ours are, there are rarely any obvious bargains. That indeed is the message of this piece. To find value you have to be prepared to go where others fear to tread.

Lang sees this pursuit of the unloved in terms of buying or selling risk. There are always dangerous stocks around but the time to move is when they are totally out of favour – a process he describes as buying risk from the market. Likewise, when these recover and get expensive relative to their peers it is time to sell.

His philosophy is simple, though actually remaining true to it is harder than it looks. His starting point is that the stock market is a creature of moods with the violent swings of temperament one normally associates with a Lauren-like hormonal teenager. Bursts of unbridled enthusiasm are matched by plunges into black despair – passionate in pursuit of today’s must have; brutal in rejection of yesterday’s favourites. The stockmarket is like a teenager in that it overdoes it.

When a share is popular it is on the highest of pedestals; when it disappoints it is plunged to the gutter. But we are of course all vulnerable to changes of mood and losses of confidence,
so it follows that patience on its own is not enough for the investor who chooses to bet against the crowd. He or she needs also to be cool and unemotional at all times. That, of course, is where most people come unstuck.

But there is also a mathematical logic behind it. The analysis of investment trends published annually by the London Business School and ABN AMRO says that the average growth of UK equities over the last 100 years with all income reinvested is around 7 per cent. However, contrary to popular belief, it is the reinvested income stream which drives the value. The element of growth attributable to capital appreciation is not much over 1 per cent. Not for nothing did Einstein say that the world’s greatest invention was compound interest. But it still does not stop the mass of market professionals, and indeed those who employ them, being
fixated on capturing short-term capital growth.