Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
This article argues that market prices are often wrong, so investors should think against the crowd. The author believes long-term investing is more certain than short-term; for example, low oil prices today may mean higher returns later. He warns that more information boosts confidence but not accuracy. Profit margins can be manipulated, so focus on return on assets instead. Three holdings: Amazon (deliberately depresses current profit for future gains), Coca-Cola (spun off low-margin businesses to polish its own numbers), and banks (looked profitable before the 2008 crisis but were actually using leverage to hide weakness).
One-sentence summary: The author argues that investors must accept the inconvenient truth that "market prices are false signals" and build a cognitive framework different from consensus through contrarian thinking and a long-term perspective (e.g., "uncertainty reversal") to achieve excess returns. [Caution]
The article opens by stating that most investors are destined to lose money, and those who succeed must possess a cognition distinct from the norm. The author quotes psychologist Scott Peck's famous line, "Life is difficult," and draws a parallel to investing: "My suspicion is that there may be a 'read across' from life on the one hand, to success in investments on the other." This means: "I suspect there may be a 'transferability' between life and investment success." The author argues that acknowledging the difficulty of investing is the first step to overcoming it. He then lists several "Inconvenient Truths" he has summarized over his career, emphasizing that successful investors must constantly ask themselves: "what do I know (or think I know) that is different to what others might presume in the same circumstances."
The author argues that current prices are not reliable indicators of value; investors should treat them as "false signals" and judge the direction of their deviation. He quotes Warren Buffett's famous line, "price is what you pay, value is what you get," criticizing business schools for conflating price with value. The author's original words: "the would-be investor needs to hard-wire into his/her mental system the counter-view that the market price is wrong and to re-frame the challenge as being in which direction is it skewed." This means: "Aspiring investors need to hard-wire into their mental system the opposing view that the market price is wrong, and reframe the challenge as: in which direction is it skewed?" He further points out that the expected return of the stock market is positive (around 6.2%), but the distribution of returns is extremely skewed, with most investors actually in the "Loser's Game" rather than the "Winners' Enclosure."
The author warns that more information is not necessarily more helpful; instead, it can falsely boost confidence without improving forecast accuracy. He cites the classic CIA study Do you really need more information?, noting that increased information "increases confidence inappropriately and outcome benefits diminish in consequence, whilst forecast accuracy itself does not improve." The author also introduces the "Fluctuating Pricing Problem": stock prices, like horse racing odds, already incorporate current expectations, so "good companies" are priced higher and may actually underperform. He references Benjamin Graham's "Mr. Market" analogy, arguing that imitation and reinforcement effects can cause odds to fluctuate excessively, turning a "sure win" into a "high probability of failure."
The author proposes the concept of "Uncertainty Inversion," arguing that long-term investing may actually be more certain than short-term investing. Using the current low oil price as an example, he notes that low prices will lead to a future decline in supply, thereby pushing prices higher. The author believes: "Uncertainty inversion allows one to develop a view that is distinctly different to the consensus, and may form part of an enduring theory as to why long-termers have a competitive investment advantage over short-term traders." This means: "Uncertainty inversion allows one to form a view that is distinctly different from the consensus and may form part of a lasting theory explaining why long-term investors have a competitive advantage over short-term traders." Regarding profit, the author points out that profit is more volatile than revenue and is influenced by accounting rules and management decisions, making the concept of "shareholder value" inherently elastic. He proposes his own "jam tomorrow" model, specifically focusing on companies that intentionally depress current profits, citing Amazon.com as the "cheerleader" for this group.
This article is an investment philosophy piece, not a specific operational guide. The author's core advice is that investors should actively seek cognition different from the market consensus, accept prices as false signals, and leverage uncertainty inversion and profit volatility to build a long-term advantage. Institutional perspective bias: As a long-term value investor, the author's views naturally lean toward contrarian thinking and patient holding. Readers should note that this stance may underestimate the rationality of short-term trading or trend-following strategies.
The article argues that using profit margins as a basis for investment screening or valuation has fundamental flaws, and investors should focus on the second derivative of return on assets (RoA), while remaining vigilant against accounting manipulation and leverage effects. The author believes that although, in theory, stock prices should respond positively or negatively to the second derivative of RoA (i.e., the rate of change in the rate of change), the numerator of RoA (profit) can be whitewashed by management, and the denominator (assets) can be manipulated by accountants. The author cites an example: "The best example of the latter was Coca-Cola when it transferred anything that didn’t look like high margin concentrated syrup into a separate listed company." This means: "The best example of the latter is Coca-Cola, which at the time moved any business that did not resemble high-margin concentrated syrup into a separate listed company." Therefore, when RoA rises, investors should assess whether this comes at the expense of suppressing RoA elsewhere in the corporate ecosystem. Additionally, different profitability metrics may send conflicting signals—banks saw a continuous rise in return on equity (RoE) before the financial crisis, but RoA was already declining. The author argues that, in hindsight, regardless of accounting methods, the banking business was deteriorating, and management compensated for the profit gap by increasing leverage.
The author contends that once incentive structures are set, most people will go to any lengths to maximize their own compensation, making the alignment between compensation structures and investment logic crucial. The article notes that any business manager would admit that subordinates have unlimited time to discuss their own pay. The author writes: "It follows that, once this has been set, most folks will follow any course however idiotic which maximises their pay!" This means: "It follows that, once the compensation plan is set, most people will follow any path, no matter how foolish, that maximizes their income!" Although no compensation system is perfect, some are clearly well-considered and more likely to improve shareholder returns. When executives are reluctant to discuss compensation with investors, the author suggests a thought experiment: first listen to the company's strategy, then guess its compensation structure—he believes the result will be close to the truth most of the time.
The article points out that investors mistakenly treat liquidity as risk and incorrectly define liquidity by trading volume, causing illiquid stocks to be priced at a discount, which in turn provides excess returns. The author argues that any heuristic rule adopted by investors can be "exploited" by companies, but even if not exploited, the attribute will be sought after by investors and generate a premium. In recent years, liquidity has been confused with risk and misdefined as trading volume, leading to stocks with low trading activity being priced at a discount. Academic research (e.g., studies by Ibbotson and Chan) reports that illiquid stocks offer premium returns across all investment styles, primarily because they are priced at a discount.
The author's core conclusion is that alpha does not come from intensive individual stock analysis but from "superior thinking"—accepting that alpha is everywhere but hidden in abstract concepts. The author clearly distinguishes between two approaches: one is the currently popular "high concentration/high active share" portfolio (e.g., Berkshire Hathaway's public equity portfolio, traceable back to Benjamin Graham's classroom); the other is his preferred "superior thinking" approach, which builds a highly diversified portfolio based on a single superior idea. The author argues that Graham's "value" portfolio was not concentrated holdings but a highly diversified portfolio based on a single superior idea. Therefore, a seemingly diversified portfolio, if derived from a limited number of ideas (e.g., "low price-to-book ratios hide future excess returns"), may actually be highly concentrated. Institutional perspective bias alert: The author clearly favors the "diversification + single idea" path and criticizes the current industry's pursuit of concentrated portfolios. Readers should note that this may be a defense of his own investment philosophy and product positioning.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Amazon.com | Hold & Observe | As the cheerleader for the "jam tomorrow" model, the company deliberately depresses current profits in exchange for long-term value | No specific data |
| Coca-Cola | Not explicitly stated | As a case of accounting manipulation: spinning off low-margin businesses into separate companies to beautify its own RoA | No specific data |
| Banks (general) | Not explicitly stated | As a case of leverage disguise: before the financial crisis, RoE kept rising while RoA had already declined; management used leverage to fill the profit gap | No specific data |