The Art of Portfolio Management: Lessons from Tom O'Hara

With over two decades of experience in finance, Tom O'Hara has navigated the highs and lows of the market and now serves as a Portfolio Manager at Janus Henderson Investors. In this exclusive interview with Quartr, Tom takes us on a journey through his unconventional path – from a musician in Sheffield to managing large-cap European equity funds. He shares straightforward insights on the common pitfalls of portfolio management, how real-world business experience sharpens his investment strategy, and why selecting the right boss was the best career decision he ever made. Plus, Tom reveals how a healthy dose of humor keeps him sane in a financial world increasingly driven by noise. Let's jump right in.

Hi Tom, we'd love to start by learning more about your journey. Could you tell our readers a little about yourself and your background?

I'm from Sheffield, a working class city in the North of England. My dad worked in the steel industry, my mum in retail. I had no exposure to the world of finance, but I enjoyed studying economics and took that forward to degree level at Newcastle University. I wanted to stay in Newcastle after university because I was in a band and wanted to be mysterious and artistic for a living. I believe the UK's poor social mobility is one of the reasons why a lot of great bands have come from the North of England, but it turned out mine wasn't one of them.

I got a graduate scheme job at Northern Rock plc which enabled me to stay in Newcastle. It was the first bank to go bust due to the sub-prime crisis that preceded the great financial crisis. I had been there about a year when the drama unfolded and severely impaired my career prospects. And then my band broke up. It was a useful early adulthood lesson in accepting uncertainty. And I probably deserved a cosmic slap from the universe as I was quite pleased with myself after graduation. Nowadays I am humility personified. Like a finance Ghandi.

Anyway, I moved to London on a whim during summer 2008, with no job and very little money. I did a series of uninspiring jobs in order to pay my extortionate London rent, until eventually I somehow got a job as a junior covering mining stocks at Citigroup in 2010. I mostly hated it, but the money was decent. And then, true to that definition of insanity which gets wrongly attributed to Albert Einstein, I did the same thing over and again for nearly a decade across a couple of different banks, while haplessly expecting a different result, until I met my now-retired boss, John Bennett.

John hired me as a 'generalist' analyst on his European equity funds at Janus Henderson. It was the pivotal moment in my career. He was a true mentor, fiercely loyal to his team, and he remains a great friend. Amidst the hundreds of perfect CVs he received (mine wasn't one of them), he decided to give me a shot. I will always be profoundly grateful for his mercurial judgement. I think our shared love of bands from the 80s may have tilted things in my favour.

Let's rewind a bit. How did your interest in stocks and investing first begin?

I only became truly passionate about stocks once I worked for John. I suddenly had proper skin in the game and felt empowered to go and explore an entire European equity market for ideas. I had enjoyed learning the technical aspects while working as a sector analyst on the 'sell side' (excel models, valuation methodologies and all the other stuff that often turns out to be mostly irrelevant in picking stocks that go up), but I never woke up at the weekend thinking about work, or much else really. I was busy enjoying my time off as a young person in East London (an area I would highly recommend to any young people moving to the city).

Sadly for my now long-suffering family and my few remaining friends, these days I'm always kind of looking around me for clues. If someone decides to talk to me about their work at a social gathering, they soon regret it once I've interrogated them on their supply chain, margin structure and go-to-market approach. I particularly enjoy doing this at wedding lunches when the seating plan ensures my unsuspecting neighbour is held captive for longer than an average earnings call. I think that must amount to a certain passion.

Can you tell us a bit more about how you went from being a newcomer to becoming a professional portfolio manager? What were your driving forces, important milestones, and "aha moments" along the way?

I always say that John gave his team "enough rope to hang ourselves". He never micromanaged and never directed us towards specific stocks or sectors. He didn't insist on a specific "process" (which is a massively overused and misused term in the industry). It was simply our job to go out there, find investment ideas and then convince him they deserved a place in our funds. What might the market being missing, or just too impatient to wait for? The culture was very much 'sink or swim'. At times I felt like I was sinking. A few bad calls can really knock your confidence, but you learn to not take it personally, to reflect and learn without dwelling, and to move on. And if you can't manage that, then you simply learn to repress it and leave it to your future self to pick up the pieces.

I think John's approach was a deliberate test of our resilience, which is an essential trait for withstanding the chaos of markets. If you can retain your passion, while frequently getting beaten up by the market, then you're probably in the right place. I think it was also a test of how creatively, or at least pragmatically, we could think. He often used a phrase that he himself had inherited from a mentor earlier in his career: "fund managers are artists". That definitely appeals to the failed musician in me. I have adopted it as my go-to response when colleagues and clients expect me to remember why, when, or how big I bought a stock. John appointed me as a co-PM on his funds in late 2019 and I think it must have been these softer factors that got me there, because it certainly wasn't a perfect record of stock picks. But that's a guess, because I can't really remember.

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Let's shift focus to Janus Henderson and your investment strategy. To start, briefly describe your current investment philosophy and strategy.

I manage a big book of large-cap focused European equity funds. We try not to over-diversify, so we tend to hold around 40-45 names, sometimes less, sometimes a few more. We don't have a style bias, an investment "religion", so to speak, but I do tend to like company names that I can riff on. Airbus becomes 'Airbust' on down days. Elevator company Kone's share price has "found a floor" when the price action is encouraging. Solvay is 'Insolvay' or 'Dissolvay' when I'm winding up a bullish colleague. And so on.

Our strategy isn't confined by specific stocks or sectors. We can hold relatively expensive AI-related stocks alongside cheaper oil, chemicals and mining stocks. The key is clarity about why we're in a stock: under-appreciated earnings upside, valuation, pun-ability of name, quality of management team and the macroeconomic and geopolitical backdrop all play a role in how we select stocks and then size them within a portfolio that we think is the right shape for the current market environment.

Let's dive a bit deeper. If you had to rank the three most important factors influencing an investment decision, what would they be, and in what order?

It would be disingenuous of me to rank selection criteria because I think pragmatism is key to investment, including one's own process. I also don't enjoy regurgitating over-intellectualized stuff I don't believe in. I tend to leave the 'process' section of marketing presentations to my colleagues. I do however think a lot about where we can find an 'edge' for our clients, especially as the structure of the market becomes more distorted and AI is speeding up the gathering, processing and dissemination of information. For us, I think it comes down to 1) time horizon, and 2) one-on-one time with management teams.

Despite the countless papers extolling the virtues of patience in the market, genuine patience is rare. The current market structure is dominated by short-term, computer-driven trades and the flood of passive capital – so much so that long-term, active investors like us only make up about 10-20% of daily trading volumes. We should do everything we can to use that to our advantage. Take the summer 2024 market turmoil we've just witnessed and the outsized share price reactions to individual company quarterly results. It's driven by the market structure more than anything else. If you've got time on your side, it can pay to use it in those instances. Of course, our clients are the final arbiters of our time horizon, because they can take their money and leave us whenever they like. Long-term focused clients are therefore a major competitive advantage to a professional investor.

The second thing is getting "in the room" with the people running these businesses – it can be a great way to build or obliterate conviction in a stock. There's no substitute for a face-to-face meeting, where you can gauge their integrity, motivations, and challenges in a way that doesn't come through in a spreadsheet. Recently, there have been a bunch of 'back to school' conferences, in which the investment banks get a load of companies into a conference centre and then sit them in front of mostly large groups of investors. And the groups are often a reflection of the market structure, meaning a lot of the Q&A is quite short-term focused and most people are wearing gilets.

I feel these group meeting settings are becoming highly commoditized, with the host investment bank immediately broadcasting key takeaways from these sessions across Bloomberg chat. The one-on-one meetings allow for a more natural flow. Management teams will often share insightful anecdotes (sometimes without realizing their true substance), one of which might ultimately prove critical to our conviction levels. The art of conversation is lacking in our industry. A lot of finance-types don't realize just what a peculiar and socially awkward breed we can be. I have seen time and again management teams clam up in group meetings once they’ve been asked in 10 different (and very unsubtle) ways to disclose next quarter's earnings. We at least try to warm them up a bit first before trying that. We can do follow up calls with IR teams on the more mechanical stuff, once we have digested the published materials (or asked the Quartr AI chat), so there's no need to waste precious time with management on that.

When we counted up for 2023, our team conducted around 1,300 meetings with management teams. It will be similar for 2024. We're lucky to be a big book of assets at a big institution, as it tends to get us the time in the room that I believe is so important in helping us leverage our time horizon advantage.

Can you walk us through a typical working day in your role? We'd love to hear about the tasks you usually prioritize and how you manage your time.

There is no typical day, but it's usually always a combination of digesting the macroeconomic and company news-flow, thinking about the "shape" of the portfolio, thinking about lunch, discussing ideas with colleagues, comfort-eating my body weight in ultra-processed foods, meeting company management teams, meeting clients, reciting my children's birthdays so they don't get replaced with stock tickers, researching stocks and of course trading, if necessary. I love to get my head down into a stock, but as a PM there's always a tension with my other responsibilities. And sometimes it can be hard to concentrate in a bustling office. Thankfully, I have mostly great colleagues. We make sure collectively that we're covering a lot of ground.

What tools do you use to help with your daily tasks?

Bloomberg is always on, but I try to minimise it as much as possible. It's an inducement to trade, to make you feel like the world is changing every second and that it requires your immediate attention and action. I receive hundreds of emails every day from the sell side, prompting me to buy this or sell that. Some of it is genuinely thought-provoking and helpful, but it's important to be able to filter. And filter I cannot: I currently have nearly 54,000 unread emails in my inbox, which really annoys my colleagues in IT when it inevitably causes my laptop to detonate every couple of months.

My favourite new tool (although I've been a user for about 2 and a half years) – and the reason I am doing this interview – is Quartr. It's the ultimate productivity tool for stock-pickers. I remember during the COVID lockdowns wanting to listen to a conference call playback while having a run around the park and it basically wasn't possible, despite the tens of thousands of dollars being paid on my behalf to various financial tech platforms. And then finally in early 2022 I came across the free Quartr mobile app. It was a game changer. I have no idea why the outrageously profitable technology service providers to our industry never made it easier to simply access company investor relations materials in one place. Perhaps the oligopolistic market structure stifled innovation.

We now have Quartr Pro on our desktops which is very exciting. Being able to apply AI functionality to calls and transcripts has been an enormous efficiency gain in helping us conduct research, appear prepared for company meetings when we're not, carry out due diligence after these meetings and just generally be more on top of things. In fact, I've just asked Quartr Pro what questions I should be asking one of the world's largest luxury companies when I meet them tomorrow. The suggestions were worryingly excellent. I am compelled to mention here that JH's official message is that you will always need people to make the most out of AI.

What do you think the most common mistakes are among portfolio managers?

Confirmation bias, emotional attachment and reacting to the short-term madness of markets, are some of the (many) mistakes of being a PM that spring to mind. But it's a job in which you're always finding new ways to make mistakes. I think for us specifically, since we consider one-on-one time with management teams so important, we have to be careful not to feel an unhealthy sense of loyalty to those management teams, or be charmed by them. Apparently I can be quite cynical, which presumably helps.

In your opinion, what are the most commonly misunderstood "truths" about the stock market?

It's not rational, it's stupid, at least in the short term. My feeling is that it is only going to get more chaotic as the market structure becomes increasingly skewed to short-term and computerized participation. I recently read a paper by Cliff Asness on this very topic which certainly resonated with me. By "read", I mean I quickly glanced over the abstract and then uploaded the PDF for Claude to summarise for me and efficiently confirm my already-formed opinion. "Loose opinions, strongly held", or something.

We see so many examples that point to market instability. A company's share price reaction after results isn't necessarily a reflection of the company's real value or performance, yet the price movement often becomes the headline, and narratives are crafted to justify it. A lot of the time it’s just noise. I think it’s important not to play that game if you don't have to. You risk making your job (or your personal investment activities) quite absurd and ultimately unfulfilling.

As we know, development and improvement are an ongoing pursuit. In which specific areas are you currently working the hardest to improve, and why?

I'm trying to be more efficient with my time, to make more space for detailed stock research. Whatever the macroeconomic or monetary environment, there are always a number of single stocks that will move up or down 50% over a year or two. We need to maximize our chance of finding those. It's one of the reasons I love Quartr – it has greatly enhanced the efficiency of the time I spend researching stocks and freed up more time to dither and procrastinate. It has almost completely done away with much of the time-consuming manual, non-thinking elements of the research process, because I can just ask the AI chat to bring the information to me.

What are your overall goals with your investments?

To give my clients a better outcome than they would get investing in an index, over the long term (ideally we're given at least 3 years). On a personal level, I do some stock specific investments (in parts of the market outside of my professional remit) and some private investments (I co-own a Sheffield brewery, a pub, a podcast production company and I have a couple of exciting tech investments…). I believe my involvement with real businesses helps me as a professional investor, because a stock isn't just a spreadsheet and a quarterly earnings report. My biggest personal investment is in the funds I manage at Janus Henderson.

A brief overview of your current portfolio. Describe your top positions and briefly explain why they are your largest holdings at this time.

One of our largest positions is CRH, an Irish-born building materials business that recently moved its primary listing to New York (it still has a UK listing, which we hold). Most of its EBITDA is made in the US, where it has dominant market positions across lots of states. Aggregates and cement don't travel very far before the transport costs of moving something so heavy wipe out any profit, so you get a lot of locally consolidated markets which allow for strong pricing power. And as one of the biggest highway builders in the US, CRH is also one of the biggest beneficiaries of the Infrastructure Investment and Jobs Act (IIJA) that was passed by the government in late 2021 and led to a bump of about 40-50% in funding for the roads. The IIJA funds have only recently started to hit the ground, so to speak, so there's decent revenue and earnings visibility for the next few years. The US is also a really strong market right now because of onshoring of manufacturing, plus all the data centres being built by the hyperscalers. This all needs heavy materials. So you could say CRH is an AI stock…CR-AItch.

We like the business model, the consistency of profit growth over time and we like the US exposure. We got to know the management team and believe they are strong operators who will act in the best interest of shareholders. We trust them not to give us any nasty surprises. We were also attracted to the valuation: we think we're getting a medium-term defensive growth business (i.e. not very economically sensitive) thanks to the multi-year tailwinds I mentioned, but at a valuation closer to a lower quality cyclical business.

Do you have any good "insider tips" for a beginner (someone who hasn't come as far in their development journey as you have) that wants to improve as an investor?

Not really, just find what works for you. Use Quartr to explore the market. And make sure you choose your boss carefully. That's the best decision I ever made (of the ones I can remember).

Thank you for your time, Tom. Before we wrap up, do you have any book recommendations you'd like to share?

I do not recommend any books on investment. But here are some absurd, farcical and fun reads: Brave New World (Aldous Huxley), Hard-Boiled Wonderland and the End of the World (Haruki Murakami), Breakfast of Champions (Kurt Vonnegut), The Count of Monte Cristo (Alexandre Dumas) and Transition To Tomorrow – Annual Report 2018 (Wirecard).