Lessons from the market masters

I’ve always believed strongly that investors would be more successful by copying how the professionals choose and manage their investments.

Similarly, people should avoid taking advice from reporters, many of whom are as financially inept as their readers. Present company excepted, of course.

In his new book, Market Masters: Proven Investment Strategies You Can Apply, author Robin Speziale provides great advice from the pros. No, I’m not in it. Maybe I’ll be invited to contribute to Speziale’s version 2.

Speziale, age 28, won a national stock-picking contest when he was in high school. The author talked to some of Canada’s best money managers. The result is a massive book full of investing wisdom. These pros, collectively, manage billions of dollars of wealth for Canadians.

“I wanted to meet the top investors in Canada,” Speziale said. “I like to teach. Distilling the top investors’ strategies into easily readable content was fun for me.”

This may be ‘easily readable’ if stock picking is your passion, but the vast majority of people would find it information overload. The book is 600 pages long, and often technical. However, if stop-loss orders, fundamental analysis and balance sheets turn you on, this book is for you.

The 28 interviews in Market Masters reveal how these pros invest, their golden rules, pitfalls to avoid and lessons learned from their mistakes. These rules and lessons can be invaluable to the serious investor.

I asked Speziale why he wrote this book. “If you want to be successful at anything in life you should study what successful people do,” he said. “Isaac Newton said, ‘‎If I have seen further than others, it is by standing upon the shoulders of giants.’ I sought out the experts, the people who do this for a living.”
Here is some of the advice that stood out for me as ideas that can help people do their financial planning and investment strategies to achieve the retirement of their dreams.

Emotion-less discipline: The pros have a process and are disciplined in their adherence to it. This enables them to leave their emotions on the sidelines. That’s a good thing as emotions are the enemy of investors.

Once you create an appropriate portfolio you should stick with it regardless of market conditions. Only change your investments if there are changes in your personal situation – your risk tolerance, timeline and goals. That keeps you from abandoning the markets during crashes.

Be patient: Long-term investing is a marathon, not a sprint. “Practice patient investing while ignoring the pulse of the market,” Contra The Heard’s Benj Gallander told Speziale.

Investing requires at least six years. I have many clients set up a high-interest account for short-term money and then different investments for money with a longer timeline. If you can’t stick it out for six years then you shouldn’t be investing.

Read ‘em and reap: “I read anything and everything,” says Francis Chou, who has about $1 billion under management at Chou Associates Management. “Nothing is irrelevant.”

What you need to know is different from what Chou does, but you should have a basic understanding of personal finance: debt management, cash-flow management, insurance, general investing strategies, product basics. Anything beyond that is optional. My clients don’t care about corporate financial statements. If they do, we’re not a good fit.

Risk management: “If you’re a genius in our business, you’re right 60 per cent of the time,” says Norman Levine of Portfolio Management Corp. “That’s why you have to have a diversified portfolio. You’re going to be wrong a lot.”

Diversification is important but beware of de-worsification. Too much diversification can be almost as harmful as too little. If you’re buying mutual funds, five or six funds is usually sufficient.

Market Masters is a book that delivers. Or, as James O’Shaughnessy, author of What Works on Wall Street, notes on the back cover: “[It] provides a wealth of insight into what it takes to succeed as an investor.”

Written by Wayne Rothe

Wayne Rothe, Certified Financial Planner/Branch Manager, Wayne Rothe & Associates Wealth Management, Manulife Securities Investment Services Inc., [email protected], 780-962-1146, Spruce Grove, Alberta. These comments are the author’s and not necessarily those of Manulife Securities. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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