Building an investment case the Lego way

This Christmas, it turns out The Value Perspective has something in common with one of the world’s most popular toy brands – we do not want to risk missing out on a good idea just because its time has not yet come


Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

This Christmas season will see almost 30 Lego sets sold every second.

So says this National Geographic Kids blog, which also tells us that, laid end to end, the number of Lego bricks sold in a year would reach more than five times round the world.

Furthermore, there is now estimated to be a ‘population’ of more than four billion Lego mini-figures while enough Lego bricks exist for each person on the planet to have 80 to play with.

However you present them, the numbers surrounding what Brand Finance has ranked the world’s most valuable toy brand in 2017 and 2018 are pretty extraordinary.

And yet, according to David Robertson’s Brick by Brick: How Lego Rewrote the Rules of Innovation (2013), the business founded in 1932 by carpenter Ole Kirk Kristiansen came within a whisker of going under less than 20 years ago.

Apparently Lego standards are so exacting and consistent that a brick produced today will still fit with one made in 1958.

When a new CEO was brought in after the company became somewhat becalmed in the mid-1990s, however, his solution was essentially to abandon the brick and plunge into the video game market that had seemed to have turned the heads of the world’s children for good.

Within a few years, Lego’s finances had plummeted but, cometh the hour, cometh the man – in this case, a young former McKinsey employee called Jorgen Vig Knudstorp.

Lego almost fell to pieces

Initially, his warnings of impending financial disaster were ignored but, in 2004, after it became clear to everyone that Lego was, as it were, falling to pieces, he became the first person outside the founding family to run the company.

Over the next decade or so, Knudstorp refocused on Lego’s roots – going ‘back to the brick’ – and went on to oversee a textbook corporate turnaround.

In a 2016 interview with the Financial Times, he “gives each of the five phases he has led Lego through since 2004 a pithy description – survive, purpose, let growth loose, step up, leap – before adding: ‘I apologise for the management lingo.’”

Obviously we love a good corporate turnaround, here on The Value Perspective, and we love Lego too – doesn’t everyone?

We are also enjoying all our fun facts about the company – did you know its name derives from the Danish phrase ‘leg godt, meaning “play well’? – but can we find something to help this all play well with how we approach value investing?

Well, we are certainly going to try.

How does this relate to value investing? 

In articles such as Investment edges, we have discussed how we maintain a database of every company we look at, with all the information held in a consistent format – in effect, putting all our analysis in cold storage until such time as we need it again.

As a result, we have an archive of businesses where we have calculated what we believe to be a fair valuation and thus a suitably attractive ‘target price’ at which to buy in.

These profiles are sitting and waiting in our database should, at any point and for whatever reason, a company’s share price happen to drop significantly.

At that moment, we can dust down our existing analysis, update it for the new news and immediately be ready to go to work – and, what is more, this archive is only becoming more powerful with time.

The more work we do, the richer our archive becomes – and is why one passage from Brick by Brick really resonates with us, here on The Value Perspective.

Describing how management strove to get Lego back on track, it says: “As the review process unfolded, it formed a kind of loop: generate lots of ideas, get feedback, and keep refining until the concept was shelved or combined with another idea for further exploration.

“The stakeholder group never killed an idea outright. If a proposal was too abstract or pushed the brand in the wrong direction, [Lego] would instead consign the concept to its file of ‘101 Lost Opportunities’ – promising concepts that had proved problematic and were never launched but might someday spark a glimmer of an idea for a breakthrough product.”

The Lego bosses understood the power of good ideas – and they did not want to risk missing out on one just because its time had not yet come.

Like almost every Lego brick – the accuracy of the manufacturing process apparently means only around 18 bricks in every million produced fail to meet the company’s quality standards – that is something that really clicks with us, here on The Value Perspective.


The stock mentioned above is for illustrative purposes only and is not a recommendation to buy or sell it. 


Juan Torres Rodriguez

Juan Torres Rodriguez

Research Analyst, Equity Value

I joined Schroders in January 2017 as a member of the Global Value Investment team. Prior to joining Schroders I worked for the Global Emerging Markets value and income funds at Pictet Asset Management with responsibility over different sectors, among those Consumer, Telecoms and Utilities. Before joining Pictet I was a member of the Customs Solution Group at HOLT Credit Suisse.  

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