Brad Brain offers securities advice to clients in the provinces of BC, Alberta and Saskatchewan.
Securities products are provided by Aligned Capital Partners Inc.
Our investment philosophy:
Our goal is to create long-term wealth for our clients by growing their money at a superior rate while preserving capital and minimizing taxes. We do this by following a well-proven and disciplined investment philosophy of buying excellent businesses in strong, long-term growth industries and holding these investments for the long run.
There are many theories on how to create and preserve wealth. Some of these theories can be quite effective. At lease for a while. But when it comes right down to it, there is only one methodology that we have full faith in – Value Investing.
Choose the right heroes!
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or insider information. What’s required is a sound intellectual framework for making decisions, and the ability to keep emotions from corroding that framework.” ~Warren Buffett
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” ~ Warren Buffett
Warren Buffett is one of the richest people in the world. He didn’t acquire his wealth by gambling on some long-shot ideas, or by exploiting some third-world labour force, or by manipulating some tax-loopholes. In fact, he may very well be the most respected, most honest, most ethical capitalist that has ever lived. He’s also made more people millionaires, and billionaires, than anyone else on the planet.
From 1965 to 2004 the Standard and Poor’s 500 Index compounded at an average annual rate of 10.4%. Buffett’s Berkshire Hathaway compounded at an average annual rate of 21.9%, with only one down year. Clearly, outperforming the benchmark by 11.5% over an extended period of time is impressive, but to truly put the magnitude of this feat into perspective consider this: during this time the total returns of the S&P 500 was 5,318%. Berkshire Hathaway’s total return was an astronomical 286,865%.
Buffett’s mentor was a man named Benjamin Graham. Graham developed an investment philosophy designed to shield investors from substantial error and teach them to develop long-term investment strategies. Graham’s book “The Intelligent Investor” outlines these timeless principles, which are just as real and relevant today as when they were first published in 1949. Buffett calls the “Intelligent Investor “by far the best book on investing ever written.”
Value Investing Defined
In simple terms, value investing involves determining the intrinsic value of an enterprise, and then buying the investment at a discount to its true net worth. We are looking for good businesses at good prices, and we are not willing to compromise on either aspect. From this simple definition several principles arise.
1. Own Great Business
If a business is doing well and is managed by people with integrity, intelligence, and energy, it’s inherent value will ultimately be reflected in its share price.
2. Build Concentrated Portfolios
Many investors are over-diversified. This leads to a dilution of the quality of investments, with too much capital tied up in poor investments and not enough in the really good ones. We prefer to find a fewer number of great investment ideas and to take meaningful positions rather than resorting to our second or third best ideas. Approximately 25 businesses are adequate to give diversification to a properly constructed portfolio. Adding more than that does not materially increase the benefits of diversification, but it does increase the detrimental dilution factor.
3. Invest in What You Know
Some investors will make an investment without really understanding why they would want to invest in a business, or even just what it is that they are investing into in the first place. This is a folly. We want to know a business inside and out. It is knowledge that allows us to avoid risk.
4. Ignore the Stock Market
Investment decisions should reflect an opinion of the long-term prospects for a business, not the short-term prospects for the stock market. The stock market is a tool that can be used for our advantage, it is not the arbitrator of our client’s well being. As Buffet says, “As far as I am concerned, the stock market doesn’t exist. It is only there as a reference to see if anyone is offering to do anything foolish.”
5. Employ a Margin of Safety
The key to successful investing is the purchase of shares in good businesses when market prices are at a large discount to underlying business values for any variety of reasons. As Peter Cundhill says, “I am looking to buy a dollar for fifty cents.”
Warren Buffett made reference to this in his 1989 annual report, calling it a “double dip”. This visual reference shows how buying a stock below its intrinsic value can have two benefits. (1) the long term gains in intrinsic value that the companies have achieved; (2) the additional gains as the market corrected the prices of these companies, raising their valuations in relation to those of the average business.
6. Be Patient
Many of history’s great investors have suggested that the key to their success lay not in what they did, but rather in what they did not do. They did not yield to their emotions or to the pressure to follow the crowd. Instead, they focused on the business they owned and watched as their value compounded over time.
There are different ways that we can implement these ideas. We are always on the lookout for good ideas ourselves. We also team up with other like minded individuals, such as Charles Brandes with Brandes Investment Partners, Ned Goodman with Dynamic Mutual Funds, and Peter Cundill with Mackenzie Financial.
Brad Brain and Aligned Capital Partners Incorporated are in no way related to Warren Buffett and Berkshire Hathaway Inc. The opinions expressed are those of the author and may not necessarily reflect those of Aligned Capital Partners Incorporated.
This material is not to be construed as an offer or solicitation. The securities mentioned may not necessarily be considered suitable investments for all clients. Contact your Investment Advisor to discuss your individual investment needs.
Investments, TFSAs, RRSPs, RESPs & RDSPs
- Mutual Funds
- Stocks and Bonds
- Flow through Limited Partnerships
- High interest Savings Accounts (through referral)
- Exchange Traded Funds
Education, Tax and Estate Planning
- We utilize Registered Education Savings Plans and in trust accounts for your children and grandchildren
- We offer tax planning to help you keep more of what you make
- We offer estate planning to ensure that your estate is distributed in the way that you want with the least amount of expense and delay