My full interview with Michael Sprung of Sprung Asset Management originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.
Michael Sprung must have been both the shyest and smartest kid in class. You know, the kid who coasted through school with A-pluses without much effort. Well, Michael would go on to study actuarial science, which — based on what it takes to grasp and fulfill the curriculum — is right up there with rocket science as far as I’m concerned. After that he obtained an MBA and then qualified as a CFA. Today, Michael is still relatively shy. He looks exactly how you might expect an actuary to look: white shirt, black slacks, black shoes, and tidy white hair. The thick lenses of his glasses enlarge his eyes. He is soft-spoken. Our interview starts slowly, but Michael opens up as he gets more comfortable with me and the format. The more he talks about investing, the more he comes to life.
Investing happened to be Michael’s calling. He could have very well become a salaried actuary employee at an insurance company, tucked away into a neat little cubicle. Instead, he founded Sprung Asset Management, and as Sprung’s president, Michael’s got lots of interesting stories, insights, and forecasts on investing in the market. Reading the transcript of our interview later, I realized that of all the interviews I had conducted, his transcript was the most cohesive and succinct in its raw form. Michael is a man who thinks clearly and articulately, and who speaks the same way.
Michael Sprung is a student of value investing. Michael’s “school” was his first employer, Confederation Life, where he learned value investing and worked under value managers who would go on to storied careers of their own. “Anyone who went to Confederation Life would consider themselves value investors today,” said Michael during our meeting. Michael and I met in a small, spare meeting room. We pulled our chairs up close and then began with the click of the red button on my recorder.
Michael Sprung’s 11 Investing Lessons:
1) “Our core philosophy is trying to minimize downside risk. . . . Risk is a two-edged sword.”
2) “When you see that retail investors are all rushing in and that people are lining up to buy something, that’s usually a good time to sell out.”
3) “The whole key to value investing is to buy often when stocks are unpopular, when people do not recognize the inherent value in those companies.”
4) “There’s always the question of whether you are too early or too late [investing in a value stock], but as long as we are fairly convinced that a company has the wherewithal and good management to be a survivor, we don’t mind being too early.”
5) “If you buy a stock and all of a sudden it goes down 15% or more, the real question at that point becomes, were you wrong or is this an opportunity to buy more? We try not to look at the short term very much at all. We look at everything with a three- to five-year time horizon or more.”
6) “Around 1999, I made a bet with some portfolio managers that over the next four years Manulife would outperform Nortel, and they thought I was a fool. Nortel was trading at 120 times earnings. Anyway, Manulife outperformed in that period. I won the bet.”
7) “Look for those companies that have deteriorating leverage or margins relative to their competitors — that’s usually a sign that a value trap is going to develop.”
8) “‘A lot of investing is winning the loser’s game.’ You just try to make fewer mistakes than your competitors. And as long as your winners outweigh your losers, you’re doing well.”
9) “In the long term, Efficient Market Theory has some application. Though in the short term there are anomalies within the system where stocks do get mispriced. Hopefully you’re prepared enough to catch those anomalies.”
10) “The worst mistake that I see retail investors make is to become value investors when that’s popular, and then all of a sudden become growth investors when that’s popular. You get whipsawed on making changes between macro-economic sector rotation and micro-economic stock selection.”
11) “Investing success, like any other discipline or profession, is achieved through the rudimentary core knowledge that you need to know. It’s in the application — how you think, your discipline, and whether you can stick with that discipline.”
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.