Part 2 – My Favourite Takeaways from The Investment Zoo

Thanks to many of my dedicated readers for your excellent comments and feedback on my recent post: Part 1 – My Favourite Takeaways from The Investment Zoo.  I enjoyed writing that post and it sounds like quite a few of you enjoyed reading it 😉

No doubt, few octogenarians have the wit, wealth and smarts of Stephen Jarislowsky.   He is definitely a Canadian icon.  I guess it’s not surprising given Jarislowsky’s stature that he and another financial icon, Warren Buffett, have a lot in common.  From their approach to investing to living a frugal life (living in the same, small, unpretentious home for decades is just one example), these billionaires share many of the same philosophies.

Another thing these mega-rich 80-somethings have in common is their love of metaphors.  Maybe that’s because metaphors are the language of business or maybe that’s because metaphors can pack a powerful punch to any message.   Regardless, these are the pros-pros at it and Jarislowsky certainly demonstrates his mastery of this in The Investment Zoo.

For a parrallel of what I mean, first check out what Warren Buffett said in his 2008 letter to Berkshire Hathaway shareholders:

…He likened shareholders who lost money when the stock market plunged by more than 50% to “small birds that strayed into a badminton game”, resulting in being “bloodied and confused”.

He went on to say that “economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel”-referring to the massive bailout package costing trillions of dollar to save the economy from collapsing.

Humm, sound familiar to today’s markets anyone? 🙂

Now check out one of Jarislowsky’s comments in The Investment Zoo – one of my favourite takeaways from the book I might add:

“A good investor has the courage to make choices.  The stock market is a bit like a zoo.  There are all kinds of animals, there, from elephants to tigers to snakes to monkeys.  You only need a few of the best species to build a good diversified portfolio that will provide sustainable, low-risk, high compound earnings.  All you need to do is find them, buy them at reasonable prices, and make sure they stay on track.”

Priceless and timeless stuff really.

The Investment Zoo had a host of great messages and then some.  Like I said in Part 1, just like a great Canadian stock, I would recommend The Investment Zoo as a strong buy for every DIY investor, especially those who are focused on dividend-paying stocks.  Give it a read, you won’t be disappointed!

Here are my other favourite takeaways from The Investment Zoo:

“I am equally suspicious of mutual fund salespeople and financial advisors.   I am not part of the current mutual fund vogue, which through slick advertising sucks in all kinds of small, unsophisticated investors.   Assume the average mutual fund (and there are as many as there are stock market listings) earns the 100-year average return in stocks of an annual 5 to 6%.  Now if you operating costs plus commissions absorb 2%, you take all the risk for a 3 to 4% average real return and this is eventually taxable even in a deferred tax plan.  Thus between 33 and 40% of your return after inflation, but before tax, goes to the manager.   Simply put, most mutual funds are very expensive, with up to half your expected long-term gain siphoned off in fees at no risk to anyone but you.  In a bull market mutual funds may make sense – but in a bear market or flat market these are usually poor vehicles.”

“Once your initial plan is underway, anything you earn later can be far more readily spent, since once you have sown the seeds of a good investment plan, compound growth will take care of the rest.  Why this is not taught in high school I will never understand, because it is far simpler than most of the things – totally useless later – that you have to absorb and regurgitate in class.”

“The stock market day-to-day is like the ocean:  sometimes calm, sometimes stormy.  But all you see is the surface not what goes on below.   Clearly, real underlying values don’t change that much – but the “herd’s” perception does.  One year gold is all the rage; the next it is junior oil stocks or real estate empires.  In the short term, the market simply mirrors greed and fear, and the perceptions emanating from these two emotions.   In the long term, however, it manifests growth “on average”, reflecting the performance of the companies that continue to grow, earn more, and pay even higher dividends.”

“Panics, once you examine the reasons for them, are rarely justified.  But panic, by definition, is irrational.  Panic is a short-term emotion.  And as such an investor should not give way to it.”

“The crux of your success will be selecting leading companies’ stocks and then holding on to them for many years.  While you cannot go to sleep, and there is a place for monitoring, there is no reason to panic if a firm has earnings that fall short in a given year or two.  This is quite a normal phenomenon.”

“Out of the many thousands of stocks I can choose from worldwide, I therefore really only need look at 50 at most.”

“I also do not believe in buying companies that do not pay attractive dividends.  Nobody can forecast the future.   But it’s obvious that companies that have a strong uninterrupted record are more interesting than those that have not.”

“Stay disciplined and stay on the main highway – don’t look all around.  You are not seeking an emotional fix – unlike at the casino, you don’t invest for the entertainment value but rather to make safe and sound money in the long term.”

Well said Stephen 🙂

OK, your turn, share your comments!