Become a Patron Now to Access My Exclusive Content – Top Performers, Portfolio, Watchlist.

My full interview with Benj Gallander of Contra the Heard originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

The key lesson to take from Benj Gallander is that you should constantly question yourself and the broader market. Do not be swayed by heuristics, preconceived notions, or sentiment. Logic should pierce through every investment decision that you make. There’s no doubt, though, that it’s tough to go against the herd. As Benj says in his book The Contrarian Investor’s 13, “Being a contrarian, at heart, is a matter of character. It is by no means for everyone, but for the person who is willing to be disciplined when the common view says, ‘You’re wrong, buddy; don’t you think the time has arrived to see reality?’”

While I do greatly respect Benj’s contrarian approach to investing and have seen how well it works for him, those kinds of stocks do not make up the core of my own investment portfolio. Only about 10% of my portfolio is comprised of contrarian stocks, as I found that over time I was being burned by “dog” stocks — those stocks that got beaten up but then
never turned around or got taken over. Clearly, I am not as good a contrarian as Benj.

Ultimately, you must be the judge as to whether being a contrarian investor works for you. Benj does admit that it can be tedious. “The valuation cycle — from an undervalued, out-of-favour stock at the time of purchase, through the period of recovery to full value and our sale — is irregular. Quite often, the market is slow to appreciate the improvements
in a company’s fundamentals — but when sentiment shifts, it often does so dramatically, as institutions and brokers gravitate towards strong performers and propel them even higher. For this reason, turnaround situations often more closely resemble the so-called J-curve of successful venture capital funds than the more linear progression of their big-cap, ‘growth’ brethren.” Even when the contrarian approach is working itself out, one must be patient and wait for pops in stocks or erratic upward price movements. Contrarian investing can be frustrating and unrewarding for those who do not share Benj’s cool temperament.

Interestingly, Benj tells me that some of his biggest profits have come from takeovers. “At any point in time, the companies in our portfolio will be at different points in this valuation cycle. When it happens that a large proportion of these stocks are toward the end of this process and are appreciating rapidly, we end up with another of those banner years. This natural variability is amplified by the effect of takeovers. Often these occur at substantial premiums and they are responsible for some of our best profits.” Perhaps you can focus more on takeover opportunities than on “undervalued” turnaround opportunities in your own portfolio.

Throughout my interview with Benj I could sense that while he was happy to talk about his achievements in the market, perhaps his heart had shifted to a different place over the years — his wife, two kids, and other endeavours such as being a playwright. But make no mistake, this has not hindered Benj’s performance in the market.

The following is an excerpt from Contra the Heard’s investment philosophy:

• Concentrate on turnaround situations and stocks which are currently unpopular but are likely to regain their lustre
• Focus on stocks that have the ability to increase in value by a minimum of 50%
• Carefully analyze corporations’ financial statements, concentrating on debt ratios and book values
• Analyze management’s ability to achieve stated goals Invest only in organizations that have existed for at least 10 years
• Pick takeover candidates well before takeovers occur, for near-optimal returns
• Normally sell a minimum of 50% of a stock upon achievement of our target, while “market timing” the remainder
• Practice patient investing while ignoring the daily pulse of the market
• Advocate diversification
• Remain independent of any broker, corporation, or financial institution
• Put our money where our mouth is by notifying readers of the Contra the Heard investment letter only of stocks that we actually buy
• Appreciate stocks that pay regular dividends

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.

Subscribe Now to My FREE Newsletter (Join 5,000+ Subscribers!)

My full interview with Ross Grant of Beating the TSX (BTSX) from the Canadian MoneySaver originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

Ross Grant has just inherited the “Beat the TSX” model. Lucky guy. After 28 years of beating the TSX, David Stanley, Ph.D. and long-time contributing editor to the Canadian MoneySaver, is retiring from his post and passing the torch to Grant, who followed the model for years and achieved financial independence early in life. This is a significant milestone, since Beat the TSX has proven itself to be a successful investment model, albeit
an extremely boring one. Boring because the concept is simple and the application easy for any investor to create wealth in the market. In this case, boring = good.

At a Toronto Money Show presentation, David Stanley explained the history of where and how Beat the TSX originated:

In 1991 Michael O’Higgins wrote a book called Beating the Dow. His “Dogs of the Dow” uses an emotion-free method to select high-dividend stocks. From 1974 till 2012 (38 years) BTD has averaged 11.7% vs. 9.1% for the S&P 500 index, an increase of 29%. O’Higgins’s book became an instant investment classic and served to get me interested in investing. After I took early retirement in 1995 I looked at the stock price and total return data for the TSE 35 bluechip index. I was struck by how much the total return index with its reinvested dividends had outperformed share price appreciation. I adapted the structured decision-making process of BTD to the TSE and wrote my first “Beating the TSE” column in 1996.

In the presentation, David Stanley explained how to implement the Beat the TSX strategy: “The list of S&P/TSX 60 stocks is ordered from high to low by dividend yield, the top 10 stocks are then ordered from low to high price. Stocks are purchased in equal dollar amounts and held for one year or more. Investors build up a portfolio of high-quality stocks purchased at a reasonable cost. No secret sauce, hocus pocus, animal spirits, etc.”

BTSX is both a contrarian and passive strategy: buying into those high-dividend yields implies that those stocks have declined in the market in the current year, and will theoretically revert to their means since they are Canada’s largest and most prominent companies by market capitalization. The BTSX strategy has racked up high annual compound returns, and yes, it has actually beaten the market. Over its 20-year history, BTSX has achieved a 12.26% compound annual return versus the index’s 9.83%. BTSX beat the index by 25%. However, as David explains in his final column for Canadian Money, “BTSX: The Last Hurrah,” this data only reflects the annual average total return. “The strong point of the BTSX system is the influence of compounded reinvested dividends. Those results are much more convincing: $1,000 invested in both the BTSX portfolio and the total return index (benchmark) would now be worth $18,056 for our portfolio versus $10,409 for the index.”

Ross Grant will carry on the BTSX tradition going forward and report its progress. Peter Hodson, owner and editor of Canadian MoneySaver, said to Ross in the editorial piece for David Stanley’s final issue: “Ross, you have some big shoes to fill. But since David hand-picked you for the task, we are sure you will do just fine.” Peter may well be right: at 22, Ross calculated what it would take to retire early, and 21 years later, he reached his goal of financial independence at age 43. Beat the TSX is a strategy that you can easily employ. But before you do, Ross has some additional refinements to the BTSX model that you should follow.

Ross Grant’s 16 Investing Lessons:

1) “The amount you need to live on every year grows, but what you set aside hopefully grows faster.”

2) “Eventually at some point in the future you get to the point where you can take out 4% a year to live on, and still have some money left when you die many years later.”

3) “So for every $40,000 that you want in income, you would need $1 million in your nest egg.”

4) “When you first start, the main growth in your nest egg is due to the annual savings you contribute . . . this balance changes as the nest egg grows in size relative to the annual contributions.”

5) “My 14-year average annual return for Beat the TSX stocks is 12.6%. The simplicity of the process is really what attracted me to it.”

6) “The key aspect of these [BTSX] stocks is the steady and often growing income stream.”

7) “Blue-chip means a well-established company that is paying consistent dividends, and they’ve been consistent dividend payers over time. They also regularly increase their dividends. And they are well diversified in their product line.”

8) “So every January 1, or December 31, you look at the closing prices of the stocks in the index. The index we’re trying to beat is Standard & Poor’s TSX 60, so there’s 60 stocks in it. You rank those 60 stocks by their dividend yield. You put the highest-dividend-yielding stocks at the top and sort them down to the lowest at the bottom. Then you remove the previous income trusts as you find that most of them are all energy stocks. They’re not as stable as your blue-chip companies. You take the top 10 that remain and you invest 10% in each of those 10 stocks. You let them sit there for a year and do it again the next December 31.”

9) “I feel that there’s two aspects that make the BTSX strategy work really well. One is that you limit yourself to big blue-chip companies, which are relatively stable, [and two] there can be some significant capital gains generated in the group of 10 stocks that are purchased.”

10) “A lot of the capital gains from Beat the TSX often come from stocks that are in the lower positions, and a higher percentage of your dividend yield comes from positions one, two, and three.”

11) “If I’m being given 4% in dividends, it is just like ‘money in the bank.’”

12) “If you were getting a dividend of 4% and then it increased by 10% it is like you are making a 4.4% yield on your initial investment.”

13) “What I’ve seen with the BTSX stocks is that their variability is less than the index, which is something that, as an investor who’s been investing for income, I would certainly be looking for and appreciate.”

14) “‘Why don’t other Canadians do it?’ [i.e., early financial independence] I wonder if they don’t know that it’s possible. I know it is a long-term plan and it took me over 20 years to achieve. It’s not a get-rich-quick scheme by any means, and you’ve got to have a lot of discipline.”

15) “First, the most important step was having a plan. Second, starting early. Third, getting above-average market returns. Fourth, minimizing taxes through RRSPs and the dividend income tax credit. And now we have the Tax-Free Savings Account, which is an incredible tool.”

16) “Buying index exchange-traded funds is better than mutual funds, because you don’t have the MER that’s dragging down the return.”

Subscribe Now to My FREE Newsletter (Join 5,000+ Subscribers!)

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.

Become a Patron Now to Access My Exclusive Content – Top Performers, Portfolio, Watchlist.

My full interview with Bill Ackman of Pershing Square originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

I know what you’re thinking: “Bill Ackman doesn’t belong in this book; he isn’t Canadian.” In my mind, though, Bill is almost an honorary Canadian, since he’s been heavily involved in the Canadian market through three large and notable plays: Wendy’s/Tim Hortons, Canadian Pacific Railway, and Valeant. While each of those Canadian investment plays is unique, they all underscore Bill’s multi-faceted activist methodology at Pershing Square Capital Management. The first, Wendy’s/Tim Hortons, was a breakup play. The second, Canadian Pacific Railway, was a turnaround play. The third, Valeant, is a growth or “platform” play.

Bill capitalized on all three of his Canadian investments, which is why in my first email to him, I asked, “Do you have a love affair with Canadian companies?” Honestly, I didn’t expect to hear back from the man who heads Pershing Square Capital Management, with close to $20 billion in assets under management. Bill’s one of the most high-profile hedge fund managers in the world, and it seemed unlikely he would take time to talk to a kid from Toronto rather than U.S. media outlets like CNBC or Bloomberg. Not to mention I had emailed Bill during a period in which his Herbalife short had attracted the attention of the media, the FBI, and the SEC. He must have been busy. But since my mantra is “Don’t fail to try. Try to fail,” I went for it. Just two minutes after I sent Bill my “Canadian love affair” email to ask if he would be willing to be interviewed, he responded: “Sure.”

As I prepared for the interview, I started to think that while Bill’s Canadian investments are excellent market case studies, the way in which he invests and then realizes value in companies is out of reach to most, if not all, common investors. Bill is an activist investor with deep pockets and strong influence. He can and does push the board of directors and management at companies to make changes that will positively affect operations, and as a result, raise stock prices. Take Canadian Pacific Railway, for example. Yvan Allaire, executive chair of the board of directors for IGOPP, the Institute for Governance of Private and Public Organizations, summed up Bill’s CP play quite eloquently in the Financial Post: “In 2011, Pershing Square Capital Management, an activist hedge fund founded by William (Bill) Ackman, acquired some 14.2% of Canadian Pacific Railway’s outstanding shares and proceeded to require several changes in the management and governance of the company. The CP board resisted fiercely his entreaties. A memorable proxy fight ensued, which was won by Pershing and resulted in a new CEO, new board members, and a new strategy for CP. Results of this palace revolution were, in share price terms at least, remarkable — astounding, actually. From September 2011 to December 31, 2014, CP’s stock jumped from less than $49 to north of $220, a compounded annual rate of return of 62% (including dividends).” The average investor won’t be able to accomplish something of that magnitude. So, I asked Bill how an investor with limited resources could replicate the activist approach, to which he replied, “You can ride the coattails of shareholder activists.” Investors can indirectly employ the activist approach, by directly buying the stocks that successful activist investors hold in their portfolios, along the lines of Som Seif’s Best Ideas Fund. In fact, Som includes Bill Ackman’s highest-conviction positions in that fund.

Bill is a busy man, and he occasionally had to pause our telephone interview (Bill’s office is in Manhattan), to address people as they came into his office. However, Bill is a talented enough multitasker that he was able to hold the thread of the conversation while carrying out his business. He was archetypal Bill Ackman: confident, articulate, and to the point — everything I had come to expect about Bill from his television appearances. I highly recommend that you watch the CNBC clip “Billionaire Showdown: Bill Ackman vs. Carl Icahn,” to get a better picture of Bill’s attitude, demeanour, and train of thought.

Bill Ackman’s 13 Investing Lessons:

1) “I was a passive investor, and then I saw an opportunity for a company to do something that would create more value, and that made me into a shareholder activist, which wasn’t planned.”

2) “For us the most important thing is what we call ‘business quality.’ We’re looking for a simple, predictable free cash flow generative dominant company.”

3) “The moat is usually created by brands, unique assets, long-term contracts, market position, or perhaps some combination of all of these factors.”

4) “We’ve done a couple of real turnarounds, but in most cases it’s about optimizing a business as opposed to completely transforming it.”

5) “With most of our investments we’re investing in a great business that has perhaps gotten a bloated cost structure, or that has not thought about its business correctly and maybe over-invested in parts of the business or has not allocated capital correctly, or perhaps has lost focus and owns assets it should sell.”

6) “In a market, most stocks are based on people’s estimates of next year’s earnings: analysts’ estimates.”

7) “If there’s one business making $2 billion and another business, or another subsidiary, losing $1 billion, people will look at it and say, ‘Oh, it’s got $1 billion of earnings.’ But that’s not the right way to think about it.”

8) “If you take a more skeptical view, CEO compensation tends to be correlated with the size of the company that you’re running, so you get to be paid more if you’re running a bigger business. You can also justify a bigger airplane.”

9) “[Turnaround strategy:] The key things are, one, finding a good target. A good target is a great business that’s undervalued because of under-management. Two, figuring out and finding the right person to run the company. And then a big part of the execution, which is three, is getting ourselves in a position where we can install that management and have meaningful influence going forward over the company.”

10) “We’ve had a very favourable experience in Canada in pretty much everything we’ve done.”

11) “You can’t necessarily buy at the activists’ price, but once they announce the investment you can invest in it alongside them. And oftentimes stocks don’t go straight up, so there’s an opportunity to buy it again at a cheaper price.”

12) “We’ve avoided businesses that are hard for us to predict with a high degree of confidence.”

13) “I would really encourage people to invest in the highest-quality businesses that they can identify in the market. Make sure you buy them at attractive prices. And hold them for the long term.”

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.

Subscribe Now to My Newsletter (Join 3,500 Subscribers!)

My full interview with Bill Carrigan of Getting Technical originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

“I’ll be the old guy with the black jacket on,” said Bill Carrigan the day before we met at the Grimsby food court for our interview. In hindsight, the Grimsby food court was not the ideal location for our interview — it was small, noisy, and busy. So, before the interview got started, I asked Bill to raise his voice and talk as close to the recorder as he could throughout our conversation. He complied, but not until he got a cold-cut sandwich from Mr. Sub, and a double double from Tim Hortons, both of which he ate and drank through the first half of the interview. I didn’t mind the munching or the noisy atmosphere, though. This was pure, unadulterated Bill Carrigan, the “straight shooter.” He was honest, brash, and, above all, chock-full of bang-on observations about the market. I was able to watch some of Bill’s astute predictions from our interview play out in the stock market over the next couple of months. I was awe-struck. Bill is a genius — although, to the people around us in the food court, Bill probably came across as just an old guy with a black jacket on.

Bill is very pessimistic about both the markets and the investment industry, questioning the way in which they operate. To illustrate, his Twitter bio reads, “With 30 years’ experience in the investment industry I have learned to never get sucked into a compelling story — leave it for the Investment Sheep. Baahhh humbug.” During our interview, he expounded upon the compelling story of the month: Patient Home Monitoring (PHM). Sarcastically he said, “We’re all going to be rich, we’re all going to make a fortune. Nobody’s going to lose buying that stock.” I guess that’s the opinion of Bill’s Investment Sheep. Clearly, PHM ranks high on Bill’s shitstorm meter.

If it doesn’t become obvious during the interview, Bill is also a fan of the immensely popular Canadian mockumentary TV show Trailer Park Boys, where the character Jim Lahey often uses “shitstorm” in reference to any dire situation fuelled by Ricky, Julian, or Bubbles, the trailer park’s hellions. Truth be told, I was against any form of technical investing in my early days of investing. Today, while I don’t use technical investing to ultimately inform my final stock selection, it does help me validate my investment decisions. I leverage technical analysis to assess a stock’s relative strength, as well as monitor its moving-day averages, and support or resistance levels. Bill has lots more technical indicators to share, many of which could very well become key inputs into your stock selection process. What’s especially intriguing about his technical investing framework is that he combines technical indicators to uncover future takeover plays.

Bill was a technical sub-advisor to Stonebrooke Asset Management Ltd., which manages the Hybrid Investment Program under the Elite Wealth Strategies for Union Securities Ltd. During his time there, Bill made five astute technical selections that were eventually the subject of takeover bids: Gerdau Ameristeel, El Paso Corp., Biovail Corp., Viterra Inc., and ShawCor Ltd. He has been writing a business column on technical investing in the Toronto Star since 1997, and continues writing the Getting Technical Market Newsletter, which he founded in December 1998.

Bill Carrigan’s 16 Investing Lessons:

1) “Usually when the compelling story gets very compelling, the stock has pretty well peaked. . . . The biggest mistake investors make is getting sucked in by a compelling story.”

2) “If you buy into a long base [i.e., consolidation] and it’s a decent stock, and it’s overlooked, the worst thing that can happen to you is nothing.”

3) “If a stock’s going sideways, but the accumulation distribution lines are still slightly rising, that tells me that there’s smart money buying the stock.”

4) “Never sell a stock just because it’s ‘expensive.’ Because, oftentimes, expensive stocks simply get more expensive.”

5) “The stocks that are cheap, they just keep getting cheaper. ‘Cheap’ means it’s cheap for a reason.”

6) “Basically anything in a bear market should make a new low within a six-month window of twenty-six weeks. To me that’s the definition of a bear. So if you have a market that trades down, makes a correction, and then doesn’t take that low within six months, then it’s not a bear.”

7) “Half of the activity of the stock can often be [the money manager’s] money, so the stock’s rise can be a self-fulfilling prophecy. He’s the one driving the stock higher. But then eventually it comes time to sell. And when everybody wants to sell, who’s left to buy?”

8) “If you think there’s money going into the group [of stocks], you want to be there early. However, if there’s an exchange-traded fund that covers the group, you’d be better off to buy the exchange-traded fund.”

9) “I like to deduce the signals that are not popular. Very corny and old-fashioned signals. The most old-fashioned signal is a trend line. It’s hardly ever used today. . . . Is it going up or going down? All a technician wants to know is, is it going up, is it going down?”

10) “I never use the [death] cross. What I use is the difference — when the 50-day moving average gets too far above or too far below the 200-day moving average, that’s all I care about.”

11) “One of the rules of the dominant theme is that it persists for a generation or more and it also has to be investible. [Also], dominant themes can pop and return in different forms.”

12) “When you buy options, you need to get three things right: which way’s it going to go [direction], when it’s going to do that [time], and to what extent it’s going to do that [magnitude].”

13) “Point-and-figures are . . . very reliable, but hardly anybody uses them. So when you have a tool that works that hardly anybody else uses, then use that tool.”

14) “Usually when a stock is going up, you’ll see one press release a week. And then when things start to go bad, you get almost one press release every day. When the press release machine really starts to crank, you’ve got to be really careful.”

15) “The financial press is looking for headlines or news that people are going to be interested in reading. They really like to focus on a crisis. Usually the crisis occurs at the end of a move, not at the beginning.”

16) “Roll-ups have these tremendous growth acquisition stories. But they’re using their stock prices as currency. Eventually these stories come to an end.”

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 Peter Brieger of GlobeInvest Capital 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.

***

Peter Brieger would tell you that it’s time in the market and not market timing that matters most for investment success. He has a long-term investment horizon. Peter holds high-quality stocks as long as they deliver ample returns. This is the reason why Peter has a sweet spot for income-producing securities that provide a consistent dividend stream.
With 50 years in the industry, it’s hard to fathom just how many dividend cheques Peter has received for himself and on behalf of his clients. In addition to dividends, there’s capital appreciation. The Canadian stock market has gone from $800 to $15,000 in that time period. Imagine buying into the market at $800, and then selling out at $1,000, on the belief that after a 25% return, markets were “too lofty.” That’s the major downfall of timing the market. Not only can you miss prolonged run-ups in the market, but significant short-term advances, too. Based on my analysis in Lessons from the Successful Investor, the S&P 500, from 1871 to 2009, delivered positive returns 72% of the time, while negative returns only 28% of the time. That means that for every ten-year time horizon, you can expect seven years of positive returns and just three years of negative returns in the market. These findings can be extrapolated to the TSX, as the returns in Canadian and U.S. stocks are similar. From 1934 to 2014, compound annual returns on Canadian stocks were 9.8% while 11.11% on American stocks. And, importantly, over that 80-year period, an investment in Canadian stocks has grown 1,597-fold despite 13 recessions, double digit
interest rates, and several world crises.

Peter has worked in the top financial centres in the world — Toronto, London, and New York — as a research analyst, then market strategist, and then portfolio manager. He started GlobeInvest in 1988, with the mandate to invest in high-quality businesses that benefit from global operations, in which he requires that 50% or more in revenues come from non–North American markets. Now, Peter finds himself at a crossroads. While his passion remains the market, investing, and making money for his clients, he recently sold his firm, GlobeInvest, to Christine Poole. Peter jokes before the interview starts that he’ll “stick around as long as Christine still needs me.” But if I was a betting man, I’d wager that Peter would come in to the office whether or not he was being paid. As a result of the sheer amount of time he’s had in the market, the seventies-ish Peter is the market. He’s an asset.

On interview day, I walked into Peter’s spacious office to find him slouching comfortably in a giant red leather chair behind his enormous wooden desk, clearly in his element. I saw a cane leaning on the desk to his right. A poster to my right caught my eye, a photo of an old bi-plane that had crashed into a tree. A caption read Money management and aviation are in themselves not inherently dangerous. But to an even greater degree than the sea, they are terribly unforgiving of any carelessness, incapacity, or neglect. Before we started our conversation, Peter riffled through and organized several stacks of paperwork on his desk, preparing the material that he would later use in the interview to explain his investment process. In his distinctive, growly voice, Peter went on to share with me some of the most crucially significant milestones in not just Canada’s market history, but that of the world. I felt like a student. And Peter Brieger was the master teacher.

Peter Brieger’s 15 Investing Lessons:

1) “Once I’ve decided that I like an industry, I focus on the leaders.”

2) “Aside from any macro-economic inflation or disinflation indicators, I focus on micro-economic factors.”

3) “I . . . look at . . . the shape of the yield curve. Nothing will kill an economy and stock market faster than a flat or inverted yield curve because they are usually the forerunner of a recession.”

4) “There are two sources of investment returns: income and capital gains.”

5) “On a global macro-economic basis, if you take a look at the world demographics, we like emerging markets long-term. Why? Because, with the exception of China and a few others, the emerging economies have the same demographic trends we had in North America in the fifties and sixties.”.

6) “One can gain exposure by investing in major international companies that have at least 50% of their business in emerging markets.”

7) “I believe it was Professor Jeremy Siegel of the Wharton School who pointed out that long-term stock returns were between 6% and 8% but half of that return came from dividends and their growth.”

8) “My biggest theme now is water. I think water’s the next oil, and fortunately we’ve had good luck with water companies that have been taken over. [However], water is not the next three-month, six-month, or one year story — it’s a twenty- to thirty-year story.”

9) “If you believe the emerging market story, their populations will demand a higher standard of living, especially with better quality foods. So we review fertilizer, seed, and agriculture equipment stocks.”

10) “The basic truth is that if you give 10 different money managers the same information, you may see 10 different reactions.”

11) “I think book value matters less. . . . It’s what the assets produce that actually matters.”

12) “If the price takes a hit, we quickly determine whether that hit was a one-off or something more serious. If it is the former, we buy. If we think it is the latter, we don’t buy.”

13) “Earnings’ growth must be what powers markets upward.”

14) “People’s time horizons have drastically shrunk. They want instant gratification through returns. That’s not investing — it is sheer speculation. ‘Slow and steady wins the day.’”

15) “Staying with a discipline is key. From time to time it may seem not to be working but, assuming it has been well thought out, it will serve you well in the long run.”

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.

Macro or top-down investors generally base their decisions on current or future economic events. They start their selection process by analyzing asset classes, themes, markets, sectors, and industries, before (if at all) moving on to analyzing individual companies. Macro investors may very well pick a basket of stocks that fit their top-down profile or macro prediction.

For example, if an investor predicts that water will be a scarce and profitable resource in the future, then he or she will invest in stocks that operate in that sector currently. Because of this, macro investors are generally different in their approach than bottom-up investors (value investors, growth investors, or fundamental investors).

The inherent risk in top-down investing is in the case that one’s macro prediction does not materialize (perhaps water utilities do not become a very profitable business). In that example, the associated positions that were invested in to initially capitalize on that macro prediction do not achieve the expected returns for the investor.

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.

Subscribe Now to My FREE Newsletter (Join 5,000+ Subscribers!)

Want to see My Best Stock Ideas for 2020?  Learn More.

My full interview with Derek Foster; The Idiot Millionaire originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

Derek Foster is an “idiot.” He saved, then invested, and then quit the rate race at age 34. He spent his twenties backpacking across Europe, Australia, and New Zealand, and lived a number of years in Asia. Who does that? He should be broke, living paycheque to paycheque, and working a dead-end job until he’s 65. Instead, he’s independently wealthy, having amassed around a million dollars in investable assets.

While Derek has branded himself as the “Idiot Millionaire,” he’s anything but — Derek is very, very smart. He uses the “idiot” angle to inspire the average Joe or Jane Canadian to achieve their own financial independence. And he sells a lot of books in the process. Stop Working: Here’s How You Can! propelled Derek into Canadian financial folklore. I was enthralled by Derek’s path to financial freedom, and have read most of his six books. Today, he touts buying strong dividend-paying companies. But dividends alone won’t propel you to the million-dollar mark. There’s more to it, and it’s all revealed in my conversation with Derek.

The truth is that Derek Foster was a prudent saver who made some great calls in the market, from leveraging up on a cigarette company, piling into income trusts, taking advantage of the Canadian/U.S. dollar parity, and selling puts. He made these great calls by taking what the market gave. My favourite line from our interview comes when Derek describes his advantage in the market: “It’s not foresight. I’m opportunistic. The opportunity was there and I took it while I could.” One can glean Derek’s investment mantra in his words — he isn’t a value investor or a growth investor or a macro investor. Derek is a market “taker.” Derek himself would tell you that anyone can use his “simple investment strategy that any six-year-old can follow.” But as you’ll soon learn, there’s a higher learning curve to beating the market. Here’s how a sophisticated investor amassed around a million dollars in the market by 34.

Derek Foster’s 16 Investing Lessons:

1) “With the exception of tech, the market leader usually stays the market
leader for many years.”

2) “Even though the cigarette industry’s volume is going down 1 to 2% a year, it doesn’t matter because the prices increase 5 to 6% a year, so they’re actually making more money.”

3) “I was a very avid saver. I saved a high percentage of my income throughout my life. Probably about 70% of my paycheque.”

4) “You have to take what the market gives you.”

5) “I look for quality. I look for a company that I feel has a sustainable competitive
advantage . . . And then after that I look for a good price . . . Once I find that stock, ideally I want to hold that stock forever.”

6) “I don’t think my portfolio’s ever gotten above 25 stocks. Usually that’s where it tops out.”

7) “Most companies increase their dividends over time, so in actuality my standard of living increases slightly every year in perpetuity.”

8) “I have sold put options on companies I want to buy. Also, I have sold a couple of covered calls on companies that I’m thinking of dumping.”

9) “I look for a moat: a reason that the company can continue to make obscene profits for years into the future. Unfortunately, there’s not many of those companies out there. In the world, there’s probably a hundred or even less than that.”

10) “Stocks are almost like wine — they get better with age. Oftentimes, you’re looking for businesses that have been in business for decades or ideally even over a century.”

11) “It’s not foresight. I’m opportunistic. The opportunity was there [buying U.S. stocks with the CAD at parity] and I took it while I could.”

12) “The advantage that young people today do have, and I’m a huge advocate of, are the Tax-Free Savings Accounts (TFSA), which weren’t around when I was young.”

13) “Baby boomers’ kids have left the house and they’ll dig a little deeper in their pockets for higher quality.”

14) “I stick to my circle of confidence. Because I’m not that bright, my circle’s fairly small, but that’s okay as long as I stick within that circle.”

15) “That’s the secret to why the rich get richer — the second million, and then the third million, and then the fourth million all get easier and easier and easier.”

16) “Only a fool, somebody who’s really stupid, would not change when the circumstances change.”

Subscribe Now to My FREE Newsletter (Join 5,000+ Subscribers!)

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.

Subscribe Now to My Newsletter (Join 3,500 Subscribers!)

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.

***

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?’”

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.

Subscribe Now to My Newsletter (Join 3,500 Subscribers!)

My full interview with Martin Braun of JC Clark Adaly Trust originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

***

You know that saying, “Don’t judge a book by its cover”? I was reminded of that adage when I met Martin Braun for the first time. As I walked into the colourless JC Clark offices, Martin greeted me with a somber hello, wearing jeans and a pressed shirt and sporting a beard. Martin walked me over to the room where we would hold our interview. Before we started our conversation, he opened a can of Dr Pepper and ripped open the wrapper of a granola bar. I don’t know many adults who drink Dr Pepper these days. Was this his lunch? Martin was cool as a cat, to the point that it almost seemed as though he had checked out of work. But again, don’t judge a book by its cover. Instead, judge Martin by his returns.

The JC Clark Adaly Trust, which Martin runs, has achieved 15.83% compound annual returns since inception in 2000. Clearly, he’s beat the TSX by a wide margin. Martin’s cumulative return since 2000 is 875%. If you had invested $100,000 with him in 2000, he would have made you a millionaire by 2015. In his best month, Martin achieved a 21% return. In his best year, Martin achieved a 57% return. And in 2015, a year that was
marred by market volatility, Martin was already up 17% by June. In other words, don’t underestimate Martin. It’s true that he makes investing look easy. But don’t be fooled — the market is a very complex and treacherous place, and Martin has found a method that works for him.

Early in his career, in 1988, Martin joined Gluskin Sheff + Associates, where he spent 10 years being responsible for the analysis and management of the Canadian and U.S. equity portfolios. But Martin struggled. That may seem surprising in light of his current returns, but it’s because, as Martin explains it, “I started out as a value investor.” It was only when he found himself sitting on the sidelines and not participating in the spectacular gains others generated during the bull market that Martin converted to a GARP (growth at a reasonable price) investor. After his epiphany, Martin decided to leave Gluskin Sheff + Associates and strike out on his own, co-founding the Strategic Advisors Corp.

Over the next seven years, as Strategic Advisors’ president and portfolio manager, he managed the Adaly Opportunity Fund (now rebranded the JC Clark Adaly Fund). In those early days, Martin’s core strategy was purely risk arbitrage. He explains in the interview that during the early 2000s, merger and acquisition spreads in the market were often overlooked, and so one could capture 20% spreads on a consecutive basis. Once the market became more efficient, though, and squeezed those spreads, Martin shifted to what remains his strategy today: growth at a reasonable price. Martin is a high-conviction investor, so his hedge fund is usually limited to under 20 stocks. Those stocks can be described as highgrowth, small- to mid-cap companies that are on the verge of making it
to the big leagues. Martin has a knack for finding and then investing in companies before they make rapid price advancements in the market.

Martin Braun’s 21 Investing Lessons:

1) “I’ve learned that being a value investor is very often a bad idea because a lot of value stocks are value traps; they lure you into the position because they’re ‘cheap.’ But in actual fact they’re cheap for a reason.”

2) “Growth is the key driver in the markets. [But] it’s the combination or synthesis of all three — growth, value, and catalysts — that create, for me, the investment thesis that I’m looking for.”

3) “You have to make some concessions to the fact that the market’s much bigger than you and that you need to figure out the market; the market doesn’t have to figure out you.”

4) “Every time a company announced it was being acquired it would go into that database and we’d just go trolling through the database looking for the best spreads with the least risk.”

5) “It didn’t take me very long to figure out that I didn’t just have to trade on announced deals. I could also trade rumoured deals or theoretical deals.”

6) “A good hedge fund manager is not limited by those little boxes where you need to play within a specific sandbox. You can do whatever the spirit moves you to do.”

7) “In the mid- to late nineties and then after the crash, I couldn’t just sit there and say, ‘This is what I do and I can’t do anything different.’ Something works for a while and then it doesn’t work. Then it works again, and then it doesn’t. We adapt.”

8) “I invest in a handful of businesses, not a whole bunch of them, and get to know them really well. . . . ‘Just put a few eggs in the basket but watch the basket very closely.’ I’m looking for 20 good stocks.”

9) “Once you’ve learned so much about that business don’t put just a couple bucks in — put a lot of bucks in. If one of those stocks goes off the rails then you’ll be one of the first ones to realize that it’s coming off the rails, and push it out the door before everyone else.”

10) “I want to invest in a company that most people don’t appreciate how good it is or how good it’s going to be. Sometimes it’s already achieved something special but people don’t realize how good it truly is.”

11) “It takes a certain skill to be able to execute. It’s one thing to say, ‘I’m going to do this,’ and it’s another to actually do it. The stocks that I didn’t make money on or I lost money on was because I misjudged management.”

12) “Don’t invest on the basis of a tip. Do your own research. Even if someone tells you that you should go buy some shares, don’t just go, ‘Okay!’ and buy some shares.”

13) “Try to get as close to the business as possible. Maybe it’s a consumeroriented
business and as a consumer you can check it out and see if it makes any sense to you as a consumer.”

14) “I think that, generally speaking, the research and the commentary from media is very bad. You generally don’t want to do what they tell you to do.”

15) “Reading the paper thinking you’ll find some good stock ideas is very treacherous. By the time those stocks make it to the mainstream media they’ve probably been largely exploited and there’s not much money left for you.”

16) “You might get lucky the first time or the second time, but you’ll get wiped out by the third time. It’s like a guy who goes to Vegas and gets ‘hot.’ Day One at the table he cleans up. Day Two he breaks even. Day Three he gives it all back to the house, plus some.”

17) “I always think about the risk first. If I can deal with the risk side then I find that the return side tends to take care of itself.”

18) “There’s a lot of cheap optionality embedded in stocks. In other words, you’re not paying for this happening, and you’re not paying for that happening; you’re paying maybe a little teeny bit for a third thing and maybe a little bit more for a fourth thing happening to the stock. If any of those four things were to happen you’d make good money because the market’s not really paying for them.”

19) “If the market was paying for 75 cents and the company makes 90 cents, then, ‘Oh. The market’s happy.’ and the stock goes up.”

20) “I figure my upside is at least three to one of my downside. That’s all you want to do when you put together a portfolio: make sure the ratio of the upside to the downside is in your favour.”

21) “The best money managers are quite whole-brained in their approach. They can somehow synthesize the analytics side with the intuitive side of the brain.”

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.