A penny saved is a penny earned

Peter Hargreaves has never been shy about expressing his views and this book is no exception. He detests meetings, filing cabinets and life companies and never pays too much for anything.

I first met Peter Hargreaves, a co-founder of Hargreaves Lansdown, eight years ago. With the help of my previous editor I went into the interview, which was in the group’s Bristol office, loaded with questions so as not to waste any of his time. The result was an interview that lasted nearly two hours. Afterwards Peter told me it was one of the longest meetings he has held. About two weeks later I was handed a letter my publisher. Peter had written to him saying how impressed he had been with this “new journalist” who had come to meet him. I am not ashamed to say I still have the letter.

After reading In For a Penny, an autobiographical account written by Hargreaves of how Hargreaves Lansdown was formed and grew to what it is today, I value that interview even more. The reason? I know now how much he detests meetings.

“Meetings are the scourge of industry,” he writes. Indeed, he says if the reader went away with no other message from the book they should get the message that meetings are bad for business. “Meetings are where people go to abdicate their responsibilities.”

The above is just one of a number of outpourings from Hargreaves, but what else would one who knows him expect? He has never been shy to say what he thinks and a great strength of his book is its humour, as Hargreaves lets rip at all
and sundry as and when he sees fit.

One of my favourites is the chapter in which he details one reason why the firm did not favour investment bonds. “The problem with investment bonds is that they are produced by life companies and all life companies employ incompetent twerps whose job it is to produce lengthy, unusable, incomprehensible application forms,” he writes.

For Hargreaves success is all about keeping things as simple as possible. He adds: “The one lesson that everyone in the investment business needs to learn is that for every extra question you ask you will lose 5% of your investors. If you ask 20 questions, therefore, you risk getting wiped out.”

In For a Penny is split into two parts. The first part is a chronological journey of how Hargreaves Lansdown was founded in 1981 to become the business it is today. It plots the early career of Hargreaves, how he came to meet his eventual co-founder Stephen Lansdown (which was a lucky meeting as it would turn out), the initial direct mail campaign right through to the foundation of the Vantage platform in 2001, and finally the flotation of the firm in 2007.

However, by plotting the course of Hargreaves Lansdown over the past 30 years, it provides a potted history of how the retail funds industry has evolved over that time also. In chapter five Hargreaves documents how the firm survived the 1987 recession. Given the events of the past year the chapter seems particularly pertinent and many parallels can be drawn.

For example, in the run up to the crash Hargreaves notes the number of extravagant fund launches that were taking place. He also notes the number of investors piling into equities prior to the crash, who subsequently ran to the hilt afterwards.

He writes: “We learned a hard lesson, which is that investment is not like any other industry. When there is a recession in the car industry, car manufacturers sell seven cars instead of 10. In the case of the investment industry, investors don’t buy anything.”

It was during these lean years for the unit trust industry that Hargreaves documents how the business model of the firm adapted. For example, it started selling life assurance policies, before later adding a pensions business, investment trust management and stockbroking services. The firm then switched to be renewal commission based during the Pep wars (starting in 1995) before creating the Vantage fund platform in 2002.

What was interesting to find out, however, was just how close Hargreaves was to merging with another business during the lows of the 1987 downturn. It got as far as a price being agreed, but was then aborted during the due diligence phase. What is also refreshing is how Hargreaves does not take all the credit for how the firm has managed to evolve over time. It was actually Theresa Barry, the group’s first recruit, who dreamt up Vantage during the Pep wars.

“I can categorically state that Theresa has been no less important than Stephen or myself in the development of Hargreaves Lansdown,” he says at the start of the book.

In the second part of the book Hargreaves imparts the wisdom and lessons he has learnt in business and investing so far. These run from getting rid of meetings, to recruiting staff (and not using agencies), to the handling of complaints (which he learnt from a maître d) and to the all important art of controlling costs.

Being frugal and vigilant with costs is important to him. Every penny really does count and it is for this reason the business has managed to survive and thrive. Indeed, he argues the most important message of all in business (apart from never buying a filing cabinet) is to never pay too much for anything. And who can argue with his success?

Given his outspoken nature, Hargreaves and the firm have long been in the spotlight. Some try to knock what the firm has achieved, but given the fact it is still standing after nearly 30 years is testament to his and colleagues’ ability to be flexible enough to adapt. While laugh at loud at several parts, In For a Penny always harks backs to an important lesson. This book is a valuable read for anyone wanting to know how the investment world has evolved over the past 30 years.