21 Investing Lessons From Peter Hodson of 5i Research

Investing

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My full interview with Peter Hodson of 5i Research originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

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Peter Hodson finally hung up his hat in 2011 after wrangling up tremendous returns in the Sprott Growth Fund. “It was a high-risk, small-cap growth fund, like a cowboy fund,” he says. After a disagreement with Eric Sprott over the fund, followed by a 62% drop in 2008, Peter finally decided it was time to ride out into the sunset. During the resource bull run from 2002 to 2007, Sprott Asset Management was a high-flying firm. As Peter quipped, his experience at Sprott Asset Management could be a book on its own.

Today, Peter Hodson is CEO of 5i Research Inc., an independent research network that provides conflict-free advice to individual investors. The five Is stand for integrity, independence, individuals, investments, and insight. “We’re just trying to use our experience to help people,” as Peter puts it. Through 5i Research, investors can get access to many easy-tounderstand research reports, written for the average investor, with a simple rating system from F to A-plus. Additionally, the company offers over 28,000 questions that have been answered by Peter, as well as three model portfolios to follow. And it seems that Peter got trigger-happy  again, because he recently announced the introduction of the Growth Portfolio model, in addition to the Income and Balanced-Equity models. Once a cowboy, always a cowboy.

Peter’s still got a good shooting hand, judging by his ability to pick off new high-flying stocks in today’s market. For example, Peter picked Amaya Gaming before many investors even knew it existed on the exchange. It was April of 2013 when Peter said, “Three very good acquisitions have set Amaya up for excellent growth, and it is wellpositioned to benefit from legalization of online gaming. Revenue growth will be big this year, and the company is becoming profitable. It is wellmanaged, has excellent shareholder support, and is a relatively unique name in Canada.” Following that recommendation, Amaya went on to post a whopping 500% gain through 2015.

It will be interesting to follow Peter’s new growth stock picks. The Growth Portfolio holds 22 securities and is initially biased toward the technology and health care sectors, two areas that Peter expects will remain strong in the near term. As Peter explains, “these are also usually the more growth-oriented sectors.” Peter is also the owner of Canadian MoneySaver, a fully independent financial magazine, published since 1981, which is chock-full of quality investment features written by Canadian experts in the industry.

Peter and I arranged to meet for the interview at Coffee Culture in uptown Waterloo. Memories of my University of Waterloo days flooded over me as I drove down King Street. When I arrived, I ordered an iced coffee, secured a table, and waited for Peter. When he entered the coffee shop wearing a tan leather jacket, black shirt, and jeans, it felt almost like a scene from a cowboy flick, the lead walking in through the swinging saloon doors seeking either a drink or a showdown. Our conversation was as entertaining as it was insightful, although no one was thrown through a saloon window. Peter is a funny guy who has a fun and compelling way of presenting his stories on the market.

Peter Hodson’s 21 Investing Lessons:

1) “The best lesson is losing money, so I learned some really good lessons.”

2) “I saw everybody do the exact wrong things for the exact wrong reasons. I saw greedy people get killed, and I saw fearful people get killed.”

3) “That ‘do nothing’ lesson was huge for me, especially when I became a fund manager. The tendency to do something because you’re getting paid is really high.”

4) “Corporations think differently than investors. As a corporation, you don’t really care what the stock’s doing right now.”

5) “Sometimes it doesn’t even matter how good of a company you are; if you’re in the right sector, you’re automatically hot.”

6) “I’ve probably made more money from this philosophy than anything else: you have to take a stock from $2 and go to $4, and then be willing to buy more of it at $4 than you bought at $2.”

7) “There’s this really sweet section of companies that go from $50 million to $100 million in value. At $100 million, people care. At $50 million, they don’t care, but it’s exactly the same company.”

8) “You have to take that leap of faith and convince yourself that you’re right.”

9) “We had a whole portfolio of 200%, 300% potentials, and of course they’re not all going to work; some are going to flame out badly. So we needed the big giant ones to make up for the ones that went to zero.”

10) “One of my mantras is not to sell too early. You know, you’re never going to get a Google or an Apple, or any 50-bagger, if you sell too early.”

11) “I assume every stock I own could drop 50% tomorrow.”

12) “If it’s an A-rated stock, you can own it for 10 years, and not even care. The market will go up, the market will go down, the stock will go up, the stock will go down, but through it all, it’s a fundamentally secure investment that’s not priced ridiculously high and that’s not one you have to worry about.”

13) “Every time I saw one of my stocks go down I would basically ask myself, ‘Why are people selling? Are people selling because of earnings? Are they selling because they’re worried about the market? Or are they selling because it’s down?’”

14) “I think in periods of time there’s massive inefficiency. Over a longer period of time it’s more efficient though.”

15) “We barely make any changes ever, because if we’ve chosen right, we shouldn’t make any changes.”

16) “On the tech side, if you’re in early on a theme, then it works well for you. [But] it’s harder for Microsoft to grow at a fast rate, whereas it’s easier for the little guys to grow.”

17) “Put yourself into a position to ask yourself, ‘Why am I selling?’ But more so, ask yourself why the other guy’s buying it from you. Are they buying it because they think it’s going up? If yes, then maybe you should rethink your position.”

18) “Companies that grow their dividends are vastly superior to companies with high-dividend yields. Don’t get sucked into the 8% yield. Buy the 1% yield that’s going to go to 2%, 3%, 4%, 5%.”

19) “If you consistently invest then it really doesn’t matter if the market goes up or down. At the end of 10 years you’ll have a good average price.”

20) “If I had a dollar for every person who said, ‘I’ll sell when it breaks even,’ I’d be a bazillionaire. Breaking even is a bad investment strategy.”

21) “One of my best techniques to finding a great stock is to just look at new highs. When you see a new high, ask yourself, ‘Why is that a new high and what’s the deal with that?’”

MarketMasters

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.

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