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I was invited to the Fairfax Financial Holdings Shareholder’s Dinner in 2017. It was there that I gave a popular talk on Canadian Capital Compounders Today – 25 Market Beating Stocks. Dollarama was one of those 25 Capital Compounder Stocks. Take a look at Dollarama’s key metrics below, which reinforce why it’s a “capital compounder”.

Dollarama:

Company	CEO / Founder	ROIC (5 Yr)	Compound Return
Dollarama	Larry Rossy	22.0%	55.5%

Dollarama, along with the other 25 Canadian Capital Compounders, have all beaten the market, and share these common characteristics:

• Free cash-flow generative, high return on capital businesses;
• Run by exceptional, and shareholder-oriented, managers who;
• Effectively deploy capital, to grow their business, and continually deliver high rates of return for their shareholders

Note: Compound Annual Return is based on capital appreciation returns since inception on the Toronto Stock Exchange (S&P/TSX), up to April 10, 2017. And the Return on Capital (ROIC) 5-year average is from 2011 – 2016, sourced from Morningstar.com.

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.

I was invited to the Fairfax Financial Holdings Shareholder’s Dinner in 2017. It was there that I gave a popular talk on Canadian Capital Compounders Today – 25 Market Beating Stocks. CRH Medical was one of those 25 Capital Compounder Stocks. Take a look at CRH Medical’s key metrics below, which reinforce why it’s a “capital compounder”.

CRH Medical:

Company	CEO / Founder	ROIC (5 Yr)	Compound Return
CRH Medical	Edward Wright	18.6%	82.4%

CRH Medical, along with the other 25 Canadian Capital Compounders, have all beaten the market, and share these common characteristics:

• Free cash-flow generative, high return on capital businesses;
• Run by exceptional, and shareholder-oriented, managers who;
• Effectively deploy capital, to grow their business, and continually deliver high rates of return for their shareholders

Note: Compound Annual Return is based on capital appreciation returns since inception on the Toronto Stock Exchange (S&P/TSX), up to April 10, 2017. And the Return on Capital (ROIC) 5-year average is from 2011 – 2016, sourced from Morningstar.com.

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.

Are you a Do-It-Yourself (DIY) Investor? Subscribe to my investment newsletter and join close to 1,000 subscribers. It’s free. I do giveaways. And I think you’ll find value… check out my latest issue, “Small Cap Ideas”, and judge for yourself: http://eepurl.com/cM4rcX

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Cheers, and Happy Investing,

Robin Speziale, National Bestselling Author, Market Masters

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In my last newsletter, I posted my talk from the 2017 Fairfax Financial Holdings Shareholder’s Dinner on “Canadian Capital Compounders Today – 25 Market Beating Stocks”. You can read my full talk, if you haven’t already, or listen to it. And email me (r.speziale@gmail.com) if you want the raw file of all 25 Capital Compounder Stocks.

During my talk, I said that I love “finding capital compounders; those stocks in the small-cap and mid-cap space that eventually grow into large-caps, on the foundation of their exceptional wealth creating ability, fueled by expanding book value per share, earnings per share, and free cash flow per share…the challenge, though, is finding these capital compounders when they’re small.”

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Indeed, finding exceptional small companies on the stock market can be tough. There’s little written about small cap stocks in the media, and they have little-to-no analyst coverage. Plus, buying into small caps can often be perceived as risky. But as Peter Lynch said, “the person that turns over the most rocks wins the game.”

Some readers asked where I get my Canadian small cap ideas. I conduct my own independent stock research. However, I do like to validate my ideas with several sources. The 5 growth investors featured in my book, Market Masters, are fantastic sources for small cap ideas. You can read Market Masters to find out more. But today I’m going to list three small cap sources (see below), and explore Gerry Wimmer’sInvestor File small cap ideas in more detail.

– Gerry Wimmer’s Investor File
– Mawer New Canada Fund
– Pender Small Cap Opportunity Fund

Gerry Wimmer – I recently stumbled upon Gerry’s site, Investor File, and was amazed with his investment track record. Since November, 2011, Gerry’s Top Ideas “produced an average upside of 239% to date with no losers; no stock picks have negative returns; four (now 6) takeovers/privatizations at a premium to stock price; and paid out a combined total of $0.65 per share of dividends”.

Here are Gerry’s top five “high-point” share price performers over the past five years (stats recorded on January 2, 2017):

– Questor Technology Inc. (TSXV: QST) +1,215%
– WANTED Technologies Inc. (Takeover) +478%
– RDM Corporation (TSX: RC) +453%
– Intrinsyc Technologies Corp. (TSX: ITC) +246%
– Quorum Information Technologies Inc. (TSXV: QIS) +245%

1/3 of Gerry’s 18 small cap picks became future takeover targets. His latest small cap pick that was taken over was RDM Corp. Gerry explains, “Investorfile blog was one of the very first documented opinion providers on the merits of investing in the shares of RDM Corporation following its turnaround. Since we first introduced this stock as a small cap value investment opportunity at a price of C$0.88, Deluxe Corp’s proposal to acquire RDM Corporation at C$5.45 values this stock at 519% higher. If you include the dividends paid to RDM shareholders during our coverage period, the total investment return rises to 708%.”

Obviously, I wanted to learn more about Gerry’s stock picking strategy and process, and to share my findings with you, so I called him up. Gerry explained that his background was working at a boutique investment banking firm as a research associate and then in investor relations. He put that collective knowledge to use when he started Investor File in 2011, where Gerry shares his small cap picks with subscribers. I recommend that you subscribe to Gerry’s Investor File Newsletter. It’s free. And it’s invaluable. As a private investor, based in Toronto, Canada, Gerry is a shareholder in all of the companies that he covers…

So, what’s the secret behind Gerry Wimmer’s small cap stock-picking success? He shared with me these key principles  (rough notes):

– Limits stock picks to micro cap / small cap universe
– Non-resource stocks only (many of Gerry’s picks are in the Technology sector)
– Stocks have little-to-no institutional ownership / analyst coverage
– Companies are illiquid (not many shares are traded on the stock market)
– Creates a “hot list” and starts accumulating shares when “the time is right”
– Invests in companies “wisely”; employs a value-driven valuation system, where companies usually have a 6X or lower Enterprise Value – to – EBITDA, (EV / EBITDA)
– Current operations must be cash-flow positive or cash-flow break-even
– Percentage of cash per share makes up a significant portion of the stock’s total market capitalization (share price x outstanding shares)
– All of his picks are considered ‘growth stocks’
– Companies have very little debt, and lots of cash on hand, so they’re not as vulnerable to economic down-cycles
– Company financials are easy to understand, with most revenues generated in the western world
– Management doesn’t generally have to raise cash as their business growth can be self-funded through operations
– Shares outstanding is usually fewer than 100 million, but he prefers companies with fewer than 50 million shares outstanding
– Companies enjoy recurring revenue from their products and / or services
– Patiently accumulates positions in companies over time, three months in most cases, as most stocks are illiquid
– Sells portions of his stake to take profit off the table after a big run-up in the market, or would sell a full position when there’s fundamental business change, or when management has over-leveraged its balance sheet with debt
– Contacts company executives, and asks about: expansion plans, sales strategy, management experience, etc. Likes “boring management”. Doesn’t like CEOs who worry about the stock price more than the business, or when there’s diverging views of the business among the executives
– He doesn’t ‘swing at everything’. Gerry has only invested in 18 top ideas over 6 years, averaging 2-3 picks per year

Again, you should definitely subscribe to Gerry’s Investor File small cap picks. And check out his top predictions for 2017 (I’m personally most interested in Intrinsyc Technologies):

1. Caldwell Partners International (TSX: CWL – C$0.96)

Caldwell Partners International is a premier executive search firm whose focus is on the high end of the employment search market. While revenues were up marginally in fiscal 2016, Caldwell Partners profits were down as the Company weathered several challenges. That said, Caldwell Partners implemented cost reductions initiatives and the Company’s profits could rebound significantly in 2017. Of note, the Company’s insiders, CEO, CFO and Directors have reported buying the stock (on the open market) over the last several weeks. Caldwell Partners will report fiscal 2017 Q1 results next month. The Company pays a quarterly dividend with current yield of about 8.25%.

2. Questor Technology  (TSX: ITC – C$0.66)

Many investment pundits are forecasting that companies who service oil industry as a group will perform well in 2017. This is due to an expected gradual increase in oil prices. Questor Technology is a leading provider of high-efficiency waste gas combustion systems used primarily by Oil & Gas companies to meet clean air emission requirements.  We expect sales and, more so, rentals of Questor’s combustion systems to grow in 2017 from increased spending by its customers. Also, the Company expects the first sales of its new product technology in the waste-to-heat power market to occur in 2017.

3. Intrinsyc Technologies  (TSX: ITC – C$1.87)

We said that Intrinsyc Technologies will have significant organic revenue growth in 2016, and it did. however, we think the growth will continue in 2017. Intrinsyc shares in the commercial success of its customers by earning recurring revenues from computer modules sales and/or design royalties in correlation with the production ramp-up of new high-tech products. We expect several of Intrinsyc’s customers will be launching commercial production in 2017. Intrinsyc Technologies is a product development company in the high technology space.

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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I was invited to the Fairfax Financial Holdings Shareholder’s Dinner this year. I also gave a talk there on “Canadian Capital Compounders Today – 25 Market Beating Stocks”. That dinner was last night (April 19) and today (April 20) was the Annual FFH Shareholders Conference, aka the “Fairfax Lollapalooza”. Prem Watsa’s (Founder and CEO of Fairfax Financial) big day is commonly compared to Warren Buffett’s / Berkshire Hathaway’s annual shareholder conference, which has been coined “Woodstock for Capitalists”. Did you go to the FFH Conference?

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Anyway, I thought you might be interested in my talk. Here it is:

***

Canadian Capital Compounders Today – 25 Market Beating Stocks
~ Fairfax Financial Shareholder’s Dinner, April 19, 2017

The Maple Leafs… If the Maple Leafs were publicly traded on the TSX they’d be in bubble territory. Too much euphoria. And too much downside. I wouldn’t buy. But perhaps I’m dead wrong and The Maple Leafs have been a “value stock” all these years.

Hi everyone, my name is Robin Speziale, and I’m the author of Market Masters.

Tonight I’ll be talking about Canadian Capital Compounders Today – 25 Market Beating Stocks.

I’m a growth investor. Growth at a Reasonable Price. Which means that I’ll invest in a company trading at 30 P/E if its EPS growth rate is 30% or greater, for example. I say this because most so called “value investors” would just balk at that 30 P/E and move on. And I especially love finding capital compounders; those stocks in the small-cap and mid-cap space that eventually grow into large-caps, on the foundation of their exceptional wealth creating ability, fueled by expanding book value per share, earnings per share, and free cash flow per share.

The challenge, though, is finding these capital compounders when they’re small. For example, I’m certain some of you probably found Fairfax Financial Holdings when it was a smaller, yet largely unknown company, trading at $175 per share in the year 2000. But most investors at that time were probably thinking about stocks like Bombardier, Loblaw, and CIBC; those large caps with less runway for growth but more analyst coverage, as well as retail investor awareness. But as Peter Lynch said: “The person that turns over the most rocks wins the game.” By the way, if you did invest in Fairfax Financial Holdings (FFH) shares in 2000, well done, because you’re up 235%, beating the TSX’s 64% return over that same period, as well as the performance of those aforementioned stocks.

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The list behind me is of 25 exceptional canadian capital compounders [see the table below], many of which I hold in my own stock portfolio. They’re all still publicly traded on the TSX. I don’t include past top compounders like Paladin Labs, which under Jonathan Goodman’s leadership, was close to a 100 bagger (100x)… in other words delivering a 10,000% cumulative return. $1.50 invested in Paladin at its founding was worth $142 nineteen years later. Amazing. And so are these companies:

Company	CEO / Founder	Compound Annual Return
CRH Medical	Edward Wright	82.38%
Dollarama	Larry Rossy	55.53%
New Flyer Industries	Paul Soubry Jr.	43.33%
Computer Modelling	Ken Dedeluk	41.80%
Constellation Software	Mark Leonard	38.18%
Premium Brands	George Paleologou	29.68%
Stella-Jones	Brian McManus	26.92%
Alimentation Couche-Tard	Alain Bouchard	26.78%
Tucows	Elliot Noss	26.57%
Savaria	Marcel Bourassa	25.13%
MTY Food Group	Stanley Ma	22.25%
Gildan Activewear	Glenn J. Chamandy	20.72%
Stantec	Robert Gomes	20.34%
Pollard Banknote	Douglas Pollard	19.94%
Richelieu Hardware	Richard Lord	19.82%
CCL Industries	Geoffrey Martin	18.09%
Metro	Eric R. La Flèche	17.87%
Saputo	Lino A. Saputo Jr.	17.66%
Lassonde Industries	Jean Gattuso	16.77%
Canadian National Railway	Luc Jobin	15.77%
TFI International	Alain Bedard	15.38%
Photon Control	Scott Edmonds	14.76%
Brookfield Asset Management	Bruce Flatt	13.21%
Enghouse Systems	Stephen J. Sadler	12.05%
Logistec	Madeleine Paquin	10.30%

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To the average stock picker, not all of these 25 companies will be known, but their returns, nonetheless, have been market-beating, all compounding at rates higher than the S&P/TSX’s long term 9.8% compound annual return. The average compound annual return among these 25 stocks is 26%. With a range from 10.3% (Logistec) to 82.4% (CRH Medical). And these figures don’t even include dividends; just capital appreciation. I like to think that there’s a strong correlation in the long run between a company’s return on capital and its share price performance. The average ROIC of these 25 capital compounder stocks is 16% (that’s a 5 year average).To name a few of these exceptional canadian capital compounder stocks today: Dollarama, Constellation Software, Alimentation Couche-Tard, Savaria, MTY Food Group, CCL Industries, and Lassonde. It’s important to note that you won’t see any oil & gas or mining companies on this list. I call companies in those sectors “capital destroyers” over the long run. They’re cyclical ‘price takers’, meaning their prospects are dependent largely on commodity prices.

Some of these 25 companies still likely have considerable runway to grow. Whereas others don’t, because of the law of large numbers. Obviously, a company cannot compound at the same high rate forever. For example, Brookfield Asset Management, which is a large $48 billion dollar company.

So, what are the commonalities of these 25 capital compounder stocks? It would be great to use this knowledge to find the next compounders…

I’ll first reference Chuck Akre’s “three legged stool” – the three foundations of “Compounding Machines”, as he calls them:

“The first leg of the stool has to do with the business models that are likely to compound the shareholders’ capital at above-average rates, combined with leg two, people who run the business who are not only exceptional at running the business but also see to it that what happens at the company level also happens at the per share level–and then leg three, where because of the nature of the business and the skill of the manager there is both history as well as an opportunity to reinvest all the excess capital they generate in places where they earn these above-average rates of return.”

And to Chuck’s last point, “reinvesting all the excess capital…”, we know that CEOs really have 4 choices in deploying capital: invest back in their business, acquire/ integrate new businesses, buy back shares, and/or issue/or raise a dividend. Outstanding companies do the first three incredibly well; re-invest in the business, acquire/integrate great companies, and buy back shares over time. In my opinion, and this isn’t true in all cases, but companies that issue high dividends have conceded that they can’t deploy that cash as effectively to earn high rates of return. This is true of most large-caps.

So, to conclude, these 25 Canadian Capital Compounders; which have all beaten the market, are:

• Free cash-flow generative, high return on capital businesses (16% ROIC – 5 year average);
• Run by exceptional, and shareholder-oriented, managers who;
• Effectively deploy capital, to grow their business, and continually deliver high rates of return for their shareholders (26% Compound Annual Return average)

Some of these exceptional managers are: Larry Rossy (Dollarama), Mark Leonard (Constellation Software), Stanley Ma (MTY Food Group), Alain Bouchard (Alimentation Couche-Tard), and Bruce Flatt (Brookfield Asset Management).

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But perhaps most importantly, these companies have sustainable competitive advantage, whether that be through the industries in which they operate, their operating models, distribution network, niche products/services, regulatory advantages, patents, technology, and brand/goodwill, etc. Not only does competitive advantage allow these companies to compound shareholder wealth for a long period of time, but they have strong and enduring balance sheets capable of funding growth, and avoiding crashing in economic downturns. Indeed, these 25 capital compounders seem to have staying power, as their public life is 15 years on the market, with hopefully more years of out-performance to follow.

If you want the raw spreadsheet of all these 25 capital compounders I can send that to you. Simply send me an email and I’l provide file, which includes these 25 capital compounder stocks, their cumulative returns, compound annual returns, ROIC (over 5 years), and number of years on the market.

I hope you pick up a copy of my book, Market Masters, if you haven’t already. It’s available on Amazon.ca, Indigo.ca, and in store at Indigo, Chapters, and Coles.

I’d like to thank Sanjeev Parsad for inviting me to the 2017 Fairfax Financial Shareholder’s Dinner. Thanks for listening.

***

– Robin Speziale, Bestselling Author, Market Masters

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Don’t forget to check out my Youtube Channel. Here are the 5 most popular videos:

• How I Built a $300,000 Stock Portfolio Before 30
• What I Learned From Canada’s Top Investors
• Bill Ackman’s 13 Investing Lessons
• My 10 Best Stocks (YTD – 2017)
• Beating The TSX (BTSX)

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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This past week was interesting. I got my haircut beside Conrad Black. So I told my barber, “Give me the ‘Conrad Black Special'”. Mr. Black smirked. What intrigued me was that he pays $21 bucks for a cut just like most of us. This week I also launched my new YouTube Channel.

The first quarter of the 2017 calendar year has come and gone. I already shared with you my 2016 Best Performers. And below are my Top 10 Stock Performers for 2017 year-to-date (January – March).

A Couple of Takeaways (2017 YTD):

• 3/10 stocks are return best performers from 2016 – Tucows, Savaria, and Canopy Growth Fund
• These 10 stocks, as well as my entire portfolio, are segmented based on three categories: Mis-Priced Large Caps, Capital Compounders, and Speculative Takeovers. Read More
• My overall portfolio (+6.79%) beat the S&P 500 (+5.53%), Dow Jones (4.55%), and S&P/TSX (1.70%) benchmarks. But my top 10 stocks were up 31.90% on average
• In the next couple of weeks I’ll allocate new capital to some of these top 10 stocks (see below)
• National Beverage Corp (65.48%) is surging on the strength of its product line – LaCroix, which is a sparkling water – huge growth!
• My biggest loser overall in my portfolio, Under Armour, dropped 31.91%. I bought in too early into this mis-priced large cap stock

My Top 10 Best Stock Performers (2017 YTD):

Company	Ticker	YTD 2017 Return
NATIONAL BEVERAGE CORP	FIZZ	65.48%
TUCOWS	TC	44.84%
PHOTON CONTROL	PHO	40.39%
GREENSPACE BRANDS	JTR	32.53%
SAVARIA CORPORATION	SIS	28.78%
APPLE INC	AAPL	24.05%
FACEBOOK	FB	23.46%
ALIBABA GROUP HOLDING	BABA	22.80%
NEW FLYER INDUSTRIES	NFI	20.18%
CANOPY GROWTH CORPORATION	CGC	16.52%

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.

Here’s what I presented at the 2017 Canadian Investors Conference:

Robin Speziale_CIC 2017_What I Learned From Canada’s Top Investors-Market Masters

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First off, I launched my new blog on March 1st. And these are the 5 most popular posts so far.. have a look if you’re interested:

• My Interview with Francis Chou
• How I-Built a $300,000 Stock Portfolio Before 30
• 22 Investing Lessons From Jason Donville
• How to Find Tenbaggers
• 15 Investing Lessons from Benj Gallander

Also, on March 1st, my friend Sean Cooper released his first book – Burn Your Mortgage. Maybe you’ve heard of Sean. He was all over the news because he paid off his mortgage…at… 30! In his book, Sean chronicles how he did it. Not everyone will have the motivation to pay their mortgage off so quickly but it’s an interesting read nonetheless. I endorsed Burn Your Mortgage, and had actually inspired Sean to write the book in the first place, walking him through the publishing process.

We all invest in stocks and are obviously passionate about the markets. And some of you may also invest in real estate too. So, I asked Sean to write a blurb on investing in real estate vs. stocks.

This is what Sean had to say:

A common argument is that it doesn’t make sense to buy a home in a big city. That renting is a lot less expensive and the way to go. As real estate blogger Garth Turner so bluntly put it, “Why would any person want to buy a condo in Toronto or Calgary or Vancouver and actually pay twice the monthly cost than it would take to rent the same unit?” Kevin O’Leary of ABC’s Shark Tank shares a similar view. Mr. Wonderful has gone on record saying you’d be an “idiot” to buy a home (I guess I’m king of the idiots, since I not only bought a house in a big city, I paid it off). We’re told we’d be better off renting and investing.

When it comes to the performance of real estate versus the stock market, the findings seem to back this up. The average price of a resale home in Canada was up 5.4% from 2004 to 2013. Over the same time, the S&P/TSX Composite Index posted a 7.97% return. It seems pretty clear: you’re better off renting and investing than you are buying.

So why isn’t the debate over? Because it’s flawed. It ignores the power of leverage. Leverage is a fancy way of saying you’re borrowing the bank’s money to invest in something that’s expected to go up in value. You’re leveraging when the bank lets you borrow up to 95% of a home’s value. The bank doesn’t let you borrow this much money for stocks. Why not? Because real estate is seen as a safe, long-term investment. (It’s also because of collateral. If you lose all your money in the stock market, the bank has nothing, but if you default on your mortgage, the bank can sell your home to recover some or all of its money.) Here’s an example that shows the power of leverage: Let’s say you bought a home a decade ago for $250,000, with only 10% down ($25,000). You later sold it for $400,000, making $125,000 in profit (for simplicity’s sake, we’ll ignore associated costs such as mortgage interest, mortgage insurance, property taxes and closing costs). Even though your home only went up in value by 60%, that’s a 500% return on your initial investment (down payment) of $25,000. Try finding that kind of return in the stock market!

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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Do you regularly review your portfolio holdings? I view my stock holdings as actual stakes in businesses (because they are). Thus, every serious investor should practice disciplined portfolio management. Why? Businesses aren’t forever. Business go through cycles. And businesses can be hit by serious issues. Take TD for example. TD has recently come under scrutiny for allegations of its sales practices. DBRS explained:

These reports include allegations, by both current and former employees of TD, of aggressive sales practices, creating potentially unethical and illegal activity in TD’s Canadian retail bank. The allegations of misconduct, while not currently at the same level, are reminiscent of what transpired at Wells Fargo & Company last year that came to public attention following settlement agreements reached with the Consumer Financial Protection Bureau, as well as other parties. Following the settlement, Wells Fargo & Company has been subject to negative media coverage, increased U.S. government scrutiny, litigation, as well as senior management changes. 

I’m not saying to dump your TD shares if you own any. I don’t give recommendations. However, what I want to stress is that all investors should be well aware of what’s going on with the companies in their portfolio. I’ll explain how I go about portfolio management (it’s my shortcut). Every now and again I’ll go back to Philip Fisher’s 15 Points to Look for in a Common Stock, which was a short, but very important chapter in his book, Common Stocks and Uncommon Profits…

(As an aside, Ken Fisher, Philip Fisher’s son, endorsed my book, Market Masters. He’s a great guy. Billionaire. But very humble).

…Anyway, I’ll scan my stock holdings, validating them against Fisher’s 15 points (see below), and then decide whether to hold, dump, or buy more shares in the companies that I own. In my opinion, Philip Fisher’s “points” will save you money. His advice might sound ‘common sense’, but let’s face it, common sense isn’t common, or at least, some investors allow greed and fear to cloud their judgement from time to time. Imagine if you had used these 15 points to evaluate RIM/BlackBerry before its fall from grace (see point #14). Or Valeant before its implosion (see point #15). Or any other dog stock that might still be sitting in your portfolio – see all points. (I’ve been a victim of holding declining stocks too). Alas, here are the 15 points you can use to review your stock portfolio on a regular basis.

Philip Fisher’s 15 Points to Look for in a Common Stock:

1) Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?

2) Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?

3) How effective are the company’s research and development efforts in relation to its size?

4) Does the company have an above-average sales organization?

5) Does the company have a worthwhile profit margin?

6) What is the company doing to maintain or improve profit margins?

7) Does the company have outstanding labor and personnel relations?

8) Does the company have outstanding executive relations?

9) Does the company have depth to its management?

10) How good are the company’s cost analysis and accounting controls?

11) Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?

12) Does the company have a short-range or long-range outlook in regard to profits?

13) In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?

14) Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?

15) Does the company have a management of unquestioned integrity?

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.

My full interview with Randy Cass of Nest Wealth originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

Randy Cass’s booming voice fills a room. Randy likens himself to Jim Cramer, the host of CNBC’s Mad Money. I disagree with that comparison — Cramer is obnoxious on Mad Money, whereas Randy Cass is dynamic but well spoken. Randy became a household name, at least among Canadian business watchers, when he co-anchored the show Market Sense on BNN with Catherine Murray. The show was a success. While both anchors were highly adept in the financial markets, their personalities were almost complete opposites, with an effect like the dynamic between Kevin O’Leary and Amanda Lang from the long-running CBC show The Lang & O’Leary Exchange. Randy Cass’s tenure on Market Sense wasn’t as long-running as Catherine’s, though, as he departed the show after three years, in 2012, to focus his energy on Nest Wealth, a robo-advisor company. Nest Wealth provides investors access to low-cost, high-quality managed investment accounts at the click of a mouse.

This is how Nest Wealth works: first they get to know you and your financial goals, second they invest your money in low-cost ETFs, and then third, they monitor and rebalance your portfolios. The philosophy that drives their investment accounts is based on the Efficient Market Theory (EMT) and the idea that passive investing beats active investing. With the exception of Som Seif, who actually develops ETFs that track the market, Randy is the only other individual featured in this book who actually stands by EMT, which was popularized by Burton Malkiel in his book A Random Walk Down Wall Street. This is what Randy has to say on the topic: “Studies demonstrate that over the long term, passive investing — building a portfolio to perform like the market instead of trying to beat it — does better than active management.

Over the last five years in Canada, nearly 80% of actively managed Canadian Equity Funds failed to perform as well as the S&P/ TSX Composite.” Compelling data like this makes Nest Wealth’s mandate to “be the market” instead of “beat the market” a viable option for investors. The active managers in this book have for the most part beaten the market, but the evidence is clear: the majority of managers won’t grow your money faster than the market. All portfolios in Nest Wealth are built on three rules by David Swensen,
the chief investment officer of Yale University, as available on the Nest Wealth website:

1. The investor should maintain a portfolio allocated to six core asset classes and be diversified. (These include domestic equities, emerging market equities, international equities, government fixed income, real-return bonds, and real estate.)

2. The investor should rebalance the portfolio on a regular basis.

3. The investor should, in the absence of a confident marketbeating strategy, invest in low-cost index funds and ETFs.

During the interview, Randy explained that he had suffered a bout of disillusionment,
as we all do in some form, upon first entering the workforce. He started as an articling intern at a law firm, but saw that the career path to becoming a partner was fraught with stress and that the long days wouldn’t magically vanish once he “made it.” One Sunday morning, he was working across from a senior partner, and he realized that he would
still be working Sundays at a law firm no matter how much success he had. The difference between Randy and the average person is that Randy actually made a crucial change in his life to redirect his path. He actually wrote to Jim Cramer, got his surprisingly astute advice, and then from then on, blazed a path through the investment industry.

Prior to founding Nest Wealth, Randy managed quantitative portfolios at the Ontario Teachers’ Pension Plan and institutional assets at Orchard Asset Management. Randy’s last startup, First Coverage, developed a proprietary technology-based system that measures the effectiveness of information given by the sell side to institutional investing clients. It won multiple awards as a top startup, including a financial services Morningstar award for best use of technology in Canada. First Coverage expanded into the United States and the U.K. and was ultimately sold to a U.K. company in 2011.

The interview with Randy is informative, though I’ve removed parts of some responses in which Randy sounded too much like a salesman for Nest Wealth to keep the information balanced. What you’ll glean, instead, is the effectiveness of Randy’s entrepreneurial drive and a strong foundation in the markets, as well as the merits of the Efficient Market Theory. As a bonus, Randy shares his experiences with FX trading — a job that he can laugh about now.

Randy Cass’ 16 Investing Lessons:

1) “We would leave stop-losses on [FX trades] because we couldn’t let a currency trade run without any risk management because we would lever, and so you could get your head handed to you otherwise.”

2) “Currency trading was all about picking up nickels and nickels and nickels and nickels on every transaction.”

3) “If you were right, the odds of getting stopped out before you were right three months down the road were high. So FX didn’t seem to have the mental stimulation that I was looking for.”

4) “The most successful fund at Orchard Asset Management was a closed-end fund that employed an arbitrage strategy. We built an entire system that captured the differences in value between closed-end funds and the underlying assets the closed-end funds had within it.”

5) “If you know a lot about a particular area, at some point you can’t keep doubting yourself.”

6) “[Stocks don’t] always have to come back. We see that in Canada’s many tech companies over the last decade.”

7) “Markets can materially shift for a variety of reasons and the lesson there was that if you’re going to play that game, if you’re going to try to fundamentally out-think everybody, you can’t be captive to whatever your old thought process was.”

8) “It’s incredibly hard, next to impossible, to actually beat the market on a consistent basis.”

9) “We believe that with ETFs it’s not about performance, but whether it does what it says it’s going to do. Does it mimic what it says it’s going to mimic? Does it have good liquidity? Does it have low fees? Does it have minimized tracking error?”

10) “Trading in and of itself right now is a technology arms race. It’s about who can get their hold in the market the fastest. It’s about who can co-locate their server the closest to the exchange. It’s about who can build something that can do billions upon billions of procedures faster than the other guy’s computers.”

11) “Passive beats active. It’s hard to come out ahead when you trade.”

12) “There are very smart people who do exceptional things on a semifrequent basis.”

13) “Benjamin Graham would probably still be Benjamin Graham, but the odds of becoming that person as a retail investor are stacked against you today.”

14) “Over five years 90%-plus of funds will underperform the benchmark. If you stretch it out to 10 years it becomes an almost certainty that you underperform the benchmark.”

15) “When you look at all the studies, there’s a reason that every legal document has to say, ‘Past performance not indicative of future performance.’ It’s a fact.”

16) “If we had a thousand people sitting with us right now, I could have them stand up and flip coins and guarantee that one of them is going to get 10 heads in a row. If you’re going to try and do this [i.e., invest in the markets], you need to understand that the odds of you being the guy who can consistently outperform the market doesn’t compensate you for the risk that you’re going to take to actually try it.”

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.