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How to spot a successful investor
Posted on October 2, 2006 by Richard Beddard
Filed Under Investing, Ramblings |
On Thursday I visited City Business library. It’s a public reference library in London. The information I wanted was in Value Line, a peerless source of US stock research. Unfortunately there was a space on the shelf where Value Line should have been. A lady was thumbing through it at a desk nearby. “I’ll be five minutes,” she whispered, “Two…”
The difference between this encounter, and, say a chance meeting at a bus station is that you know you have something in common. A casual browser would put Value Line down pretty quickly. It’s printed densely on paper so thin it’s virtually impossible to photocopy because the page on the other side shows through, and it’s written in an intimidating code only an investor would understand. It’s updated weekly. Reading it is a ritual. A person you wouldn’t glance twice at in any other situation, is instantly identifiable in possession of Value Line. She’s a fellow investor who knows her ADRs from her cashflow.
“That’s fine,” I said, before asking her if she’s a Value Line regular.
She was: “Every two weeks when I’m in London and once a week when I am in New York,” she said.
I won’t use Ms C’s full name because she doesn’t know she is the subject of this article but what follows is the essence of what she told me, while shuffling through the pages of Value Line.
Ms C is an older lady. Her husband died in 1962. All she had was his life insurance policy. She didn’t know anything about company stocks. She divided her money in half, and handed one half to a financial planner. He invested it in funds, and pays her an income. “I don’t do funds,” she said but, “He’s kept up his end of the bargain.” The other half she invested in company stocks, teaching herself. Her first investment was Exxon. Now she owns a portfolio of about 50 stocks, five or six per sector.
She still owns ExxonMobil. At 25% of her holdings it is the only bulge in an otherwise carefully balanced portfolio. She told me her original stock is worth 4,000 times what she paid for it.
Ms C and I said our goodbyes and she left. Before I turned to Value Line I dwelled on a lost opportunity to learn more about really long-term investing. Starting at the time of the Cuban Missile crisis, her profit chart may have faltered like a heartbeat when two presidents were shot, one of them dead, and again when Richard Nixon resigned. Her investments outlived the VCR and may well outlive the CD player. They prospered through war in Vietnam, Iraq, Afghanistan and Iraq again, the 1973 oil embargo, financial crisis in the Far East, the collapse of Long Term Capital Management, an earthquake in San Francisco and the 9/11 atrocity, not to mention a shipwrecked Exxon tanker spilling it’s bile along the Alaskan coastline. None of it shook Ms C out of the market.
“Four hundred times,” a voice interrupted. Ms C had returned to tell me her Exxon stock is worth 400 times it’s original value, not 4,000. “It got there, slowly.”
Happily she had given me a second chance. I handed her my business card, and suggested we talk again.
“Oh! You’re a pro,” she said, when she saw I am a financial journalist.
“No,” I replied, “I’m just one of you.”
What a woeful attempt at humility. As a 40 year-old who didn’t pay much attention to his investments until his early 30’s I am merely an adolescent in investing years.
There are so many lessons to learn from Ms C. But the most important she’s already taught me. It isn’t diversification or discipline though I’m sure she would have much to say about them. It’s that the only successful investors are old successful investors. The rest of us are work in progress. I hope Ms C gives me a call. She said she would, when she’s next in London.
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We’d like to open this blog up to Interactive Investor users, like Angela Frith and Steve Oakley, for the discussion of finance or our website. If you have something to say, and would like to see what other investors think email me: theeditor@iii.co.uk .
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8 Responses to “How to spot a successful investor”
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I’ve had several such encounters over the years.
One I particularly remember, an elderly doctor who told me in 1971 that just after the war he had once helped an old and infirm man to board a train. In gratitude, the old man leaned out of the window and whispered
‘buy East Driefontein’ (a then recently floated South African gold mine.)
Needless to say his investment was repaid many times over from dividends alone.
The doctor’s portfolio then included large holdings in far eastern plantation and mining shares which had been bought for pennies.
The problem is when you start your first investment, if you only have say £3000. You could lose it all on your fist try.!!
Then what?.
To Dr Preller: I love that story. Unfortunately my wise old lady didn’t offer me any tips and being a pig headed youngster (when it comes to the actual stocks I buy) I’d have probably ignored the tip.
To Mr Grimley: That’s a very good question and one I’ll consider at length some time - hopefully I can lend a personal perspective as I started out with £4,000. I won’t have a definitive answer though, not until I’m at least 75
I don’t think that the lady you met was a long-term investor precisely. She didnt buy and hold for 40 years did she? Rather, she has been investing for a long time.
She bought and sold repeatedly. Hanging on to the Exxon (running with her winner, there!) The important thing was that she learned, formed opinions and acted on them in her investment decisions. She obviously was a very good stock picker, though.
Any American investor who invested cautiously, but optimistically, and was well informed should have made money in the last 40 years. I have an American relative, born in 1927, who started with a small inheritance in the 60’s and left a portfolio worth his original sum x 100 in 2001, using exactly that approach. Nothing like Mrs C’s x 400 growth, but not to be sniffed at, I think.
We can only hope that the next 30 years will be as lucrative. They may not be. The era of consistent high growth in the Western economies may be passing.
When I read this thread two things struck me; the performance of companies that Value Line recommend and Steven Grimley’s comments on making your first investment.
Firstly to address Steven’s comment on making your first investment; managing your money is a skilled profession, and like any profession there are lessons to be learnt and experience to be gained. Would you let a Doctor near you if they hadn’t spent years studying and practicing their profession?; would you let a gas engineer repair your boiler if had no qualifications or experience? Therefore, would it not make sense to adopt the same approach when it comes to managing your hard earned savings. If you are thinking about investing your own money, go on an investor education course and then simulate what you have learnt for a number of months until you have developed a strategy that suits you.
Regarding Value Line, as a subscriber you can not help but notice the returns on the stocks that they rank 1 in Timeliness. Timeliness is Value Line’s prediction for the expected price performance of a stock over the coming 6 to 12 months relative to all other stocks in the Value Line universe of approximately 1,700 companies. At any one time there are only 100 stocks that are ranked 1 for Timeliness. So what you may ask. Consider the following, if you had invested in Value Line stocks that where given a Timeliness rank of 1, held for 1 year, starting in 1965, as of 2006 you would have generated a return of approximately 49,000%.
Therefore if Steven adopts the Value Line investment approach like Mrs C did in the 60’s, and compliments it with a solid investment exit strategy, should history repeat itself, over the next 40 years that £3,000 pound could increase in value to £1.47 million. So if you are in your 30’s, there is a good chance that the £3,000 pound investment could carry you through retirement.
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[...] Just because we don’t know about them, it doesn’t mean they don’t exist. I met a lady in the library who’d made a fortune buying and holding through the seventies, eighties and nineties. [...]
Would love to see what people think are the 7 golden rules of stock picking.