Tips from a value investing legend

Good stock pickers come in all shapes and sizes. And most will tell you that patience is the key to success. If that’s the case, then the superstars in the field of value stock investing are the most patient guys on the planet—many of them waiting a lifetime for big returns.

We can all learn a lot of investing lessons from them. I know I learned a lot from one particular value investing legend at this year’s value investing conference in Toronto—namely, Tony Fell, retired chairman of RBC Capital Markets and former chief executive officer of Dominion Securities. Using just a few of these wise words to find your own buried stock treasure could yield stupendous returns a few years down the road. The key? Patience.

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Tony Fell’s keys to success

It takes 20 years to make an overnight success—meaning that in value investing, slow and steady wins the race. “Shareholders should act like owners of a company,” says Fell. “It pays to find a good business with a good, solid CEO at the helm, and stick with it.
The real money is made over 10 or 20 years or more. So long holding periods for a prized company is a great strategy to make money. Quick growth, like that found in Northern Telecom and Valeant, quickly fizzles.
Focus on companies that have a culture of cost control. “It’s easier to make money with a company that can control the downside,” says Fell.
When there’s a merger or acquisition, watch to make sure the company whose shares you hold is keeping the best people. “Better to have fewer, more capable people at the top for steady profit growth,” says Fell.
Companies who weed out non-performing executives do better over the long term. A company should do this consistently and should have executives face up to poor performance.
No one can predict an economic or financial crisis—so be prepared. “If you think you’ve seen the last one, be patient,” says Fell. “There’s one just around the corner.
Focus on companies that have conservative, non-aggressive accounting practices. This bodes well in tough times.
Look for companies with good growth and good cash flow.
Invest in shares of companies that put the client and customer first. Your company will be rewarded with loyalty and a solid reputation.
Ethics and integrity is a company’s most valuable asset. Ensure the companies whose shares you buy has a solid code of conduct and a stellar reputation for honesty. The recent Wells Fargo cross selling fiasco is a good example of when a board of directors lets its ethical mandate slide.
Canadian banks are superstars. “They are selling at low prices based on dividends and price-to-earning ratios,” says Fell. “Their loan books are far more disciplined than they’ve ever been. Corporate loan books are in excellent shape and residential mortgages, if times get really tough, are guaranteed with CMHC insurance. They’re strong buys.”