March 27th, 2011


The Investment Zoo by Stephen Jarislowsky

Dad gave me this one. Although sometimes interesting, it's really not a useful book for the individual investor. If anything, this is a guide for how to be an institutional investor. You'd think there'd be useful overlap, but there isn't much. There's a chapter on the importance of corporate leadership:
"Actually, it's not that complicated. But what it takes is face-to-face knowledge of the people in an industry, and especially those in the best managed companies. You have to go out and meet them at regular intervals and talk to them."

Yeah, well I've pencilled in some quality time with Jeff Immelt next week at the gala dinner at the Yacht Club.

(Now, what Jarislowsky might have told you, but didn't, is that you can often find transcripts of the quarterly meetings between a corporation's executives and the financial analysts. Hopefully the analysts will be asking vital questions, and you can judge the answers for yourself. This may not be face-to-face knowledge of the executives, but it's the closest you're gonna get.)

Jarislowsky often has the fault of mentioning, without explaining, things. 'Don't screw up and invest in something like Bre-X!' But what's Bre-X? What was wrong with it? How would people recognize it in another stock? I mean, if you're the CEO of a Canadian investment management company, you probably know all about Bre-X, but I didn't.

He does offer some more actionable investment advice. Forget bonds and cash... put it all in stocks. No mutual funds, either.
Pick non-cyclical, non-commodity, non-tech stocks that are blue chips with excellent management, a history of good dividends, and established historical growth that doubles share price in 5-7 years. Fire and forget, and (for the most part) don't sweat the ups and downs. All you'll do is make commissions for your broker if you sway whichever way the wind blows.
If all goes optimally, you can turn $10K to $2.5 million in 40 years.

It's interesting to look at some of his choices, like Abbott Labs (ABT)

1-year return: -9.21%
5-year return: +9.48%
10-year return: +10.46% ... seems pretty anemic... +1% per year?

43-year return: +5754.46% - that's more like it, though that's still not quite doubling every 7 years.

I'm amenable to his outlook, but he seems really superultraconservative. And maybe that's why he's a billionaire after 50 years of this.