Tuesday, August 5, 2008

The Investment Zoo Chapter 9: An Investor, Not a Gambler Be

Jarislowsky advocates investing in individual stocks over buying the market however there are a lot of things he doesn't do with investing. He doesn't invest in companies where he can't understand the products or where he isn't sure they would be competitive within a few years or if he is unsure if a new innovative entrant could significantly hurt their business. He also has never shorted a stock.

Knowing the people who manage a company is all-important before making an investment. You want 24-7 managers, people who put the business first day after day and are not distracted from the job at hand. The competence and integrity of people who manage your companies is crucial.

You can do well with smaller companies but you need to pay very close attention to the quality of people running the business. Jarislowsky advises to own small percentages of any one company to limit the damage if something goes wrong. He cautions that a little stock volume can really push small cap shares up and down by large percentages so be ready for the swings. Jarislowsky suggests that the best small cap investors are skilled in picking out management talent.

He counsels that having a great management team in place today is not enough; you need to ensure that your company has the best talent available for the future as well. A wise and very old Swiss director once told Jarislowsky that the two most important things for a director to watch are "Do we have the best management in the industry? Will we have the best management in the industry?"

Besides management, actions of large shareholders and board compositions (seen in previous chapters), Jarislowsky advises to keep an eye on debt levels of a company. Overextending through expansions or acquisitions can leave a company vulnerable. He also believes that most acquisitions do not work out due to huge cultural differences between the merging entities.

No comments:

Follow by Email