Saturday, March 25, 2006

Learning from the Newspaper

One of the things I always try to do, is learn from some of the good columnists in the financial pages. I tend to place less importance on temporal "stock tips or picks', than long term strategies. Picks come and go - and there are lots of them - but the best strategies help long-term performance and also change a mindset. Both are key to bettering oneself as an investor.

I'm lucky enough to read The Globe and Mail, and there's an infrequent column there by money manager Avner Mandelman, whose firm, Giraffe Capital, specializes in value-oriented tech situations. For those with the entry fee - $250,000 (CDN) - you get some outstanding performance. For readers of his column, you also get some advice on how to improve your long-term performance, some of which has come through Mr. Mandelman's own "school of hard knocks", including a recent confession that he originally "decimated" his own annual bonus not just once, but three times, by following standard stock-picking advice.

This led Mr. Mandelman on a journey to meet with successful private investors to learn their secrets. After an epiphany from legendary investor Jim Rogers brought it all together, Mr. Mandelman arrived at these five simple rules for outperformance:
  1. Look only for extraordinary opportunities; as a small investor, you don't have to invest if you can't find them, you can stay in cash.
  2. There aren't many extraordinary opportunities available - if you can't find them, then stay in cash.
  3. Be extraordinarily selective in buying and selling, and even in choosing stocks to research - the majority of stocks (at their price of the day), aren't even worth thinking about.
  4. Focus only on stocks in which you have special knowledge, or an exclusive niche. If you don't, those that do will take your money.
  5. Focus ruthlessly on price. Even if everything else is great, but the price isn't also great, then pass, and keep your cash.
There's probably nothing here that's extraordinary knowledge, but the discipline to maintain that it is "where the rubber hits the road". Giraffe once sat on 70% cash for the better part of a year, while awaiting extraordinary opportunities - which of course ultimately arrived.

Thanks to Mr. Mandelman for reinforcing these obvious truths (aren't all truths obvious, once they're laid down in a cogent, cohesive, manner?)

Keeping your cash while awaiting extraordinary opportunities - a simple wealth-creating strategy.


The Confused Capitalist

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