On the face of it this story has less to do with investing and more to do with Hollywood – and indeed, a movie is said to be in the works chronicling Foxes' star striker Jamie Vardy’s rise from non-league outcast to leading England’s line at this summer’s European Championships. We may even get a real Hollywood ending should England lift their first title since West Ham won us the World Cup in 1966 (sorry, couldn’t resist).
Yet I think Leicester’s success offers a great analogy with stock market investing – it is the equivalent of the get-rich-quick ten-bagger that so many dream about. The thing to remember is that these are, like rank outsiders winning a 38 game season, very rare, and no basis for an investment (or betting) strategy. Indeed I suspect that, for all the losses the bookies may have suffered this season, they will recoup them in 12 months time as every man and his dog rushes to back a rank outsider to win the league next season only to see one of the ‘cartel’ (the two Manchesters, Chelsea and Arsenal) return to the usual script. Reliability usually delivers.
Leicester’s tale is also a clear example of the power of two useful investing styles: momentum and value. Their title winning run didn’t start at the beginning of the season in August, but in April when, rooted to the bottom of the table, they won 7 of their last 9 games to avoid relegation. The form they displayed to survive simply continued, just as share price momentum tends to endure. The champions’ other great success has been building a squad on a shoestring by rooting out players other teams had overlooked – Riyad Mahrez, the PFA player of the year, cost them just £400,000, a fraction of the £32.5m Liverpool paid for the misfiring striker Christian Benteke. That looks much like value investing to me.
Chasing performance by shelling out for overpriced assets often similarly fails investors, whereas making sure all of the right assets are in the right place – asset allocation – usually succeeds. Again, Leicester’s success reflects this – that a well-constructed team (or portfolio) is often greater than the sum of its parts. Leicester may have unearthed some stars, but most pundits suggest it is its team ethos that has allowed its journeymen to unexpectedly triumph. Leicester has also used fewer players this season than any other team, in contrast to its manager Claudio Ranieri’s reputation as an unsuccessful tinkerer. Tinkering can also be bad news in investing, leading to higher trading costs and a portfolio that loses its shape and overall direction very quickly - good for brokers (or agents) but not your wealth.
