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The process of Aberdeen Asia Pacific star Hugh Young has stood the test of time.

Here the Euro Stars AA-rated manager shares some of his secrets. 17394?ref=citywire-global-shooting-gallery-list#i=1 Rule 1: Who controls it? When considering a company, the first question you need answered is it? who controls

The second is do you trust them? Minority shareholders are just one of many compan y stakeholder groups (others include employees, the government, suppliers, banke rs and major shareholders such as a founding family). While you should not, as a minority shareholder, expect priority over the other stakeholders, you should expect to be treated fairly. And this depends on whethe r you can trust whoever controls the company to act in a fair manner. It requires a certain amount of faith, but the best way to judge whether the con trolling party will act fairly in the future is to see whether it has acted fair ly in the past. Those that have a good track record of equitable treatment of minorities should be held in high regard. Until they slip up that is, though in my experience past behaviour is a pretty accurate predictor of future behaviour. Note: Business cartoonist Fran Orford supplied the cartoons for the Aberdeen man ager s investment rules. Rule 2: People not Assets A company is essentially a group of people with a common goal, namely to create the best possible product at the best possible price. This is what I call quality . Sure, companies need fixed assets but they are worthless without people. Once on e thinks in these terms, one can appreciate that predicting the long-term perfor mance of a company is all about assessing the quality of its people. Rule 3: Balance sheet strength Companies fail largely because their businesses are poorly financed. A strong ba lance sheet tells you many things. Most importantly, it tells you that the compa ny is very unlikely to fail. But balance sheet strength is not just about the liabilities. It s also important to look at the assets. What a company does with its cash is very instructive. Do es it have too much? Is it gambling with it by investing it in exotic financial instruments? Cash generation is paramount but, once generated, a company must invest it wisel y, keep it safe or pass it to shareholders. A balance sheet is like a backbone; it tells you about the character of a company. Rule 4: Understanding You don t have to understand how silicon chips work to buy a silicon chip maker, b ut you do have to understand what they are used for, as well as some of the basi cs of manufacturing process such as the inputs and costs.

On the other hand, simple products like mortgages can be wrapped in businesses t hat are hard to understand. If there is something about a business that doesn t make sense, such as how an ind ustry with low barriers to entry creates profits well in excess of the cost of c apital, walk away. As the old adage goes, if something looks too good to be true , it probably is. Rule 5: The dangers over overambition It is often tempting for companies to expand capacity or even invest in areas ou tside their core area of expertise. One should be very wary of such ambition, as it naturally means a reduction in f ocus on core capacity, let alone the implications for balance sheets. A focus on the top line tends to be great for stakeholders such as employees, suppliers an d bankers, but rarely for minority shareholders. Rule 6: Think long term Unless you need your money back soon, you should think long term and avoid getti ng caught up in the daily noise of markets. This is for two reasons. First, it makes sense to align your own investment time horizon with that of the companies in which you invest. You ll find that all good companies and even some bad ones have a long-term perspective. If a company bui lds a factory, for example, it expects to generate returns from it for at least ten years, as you should from its shares. The second reason is as they are largely be worried about is company s long-term Rule 7: Benchmarks The worst reason in the world to buy something is because somebody else did. Thi s is essentially what you would be doing if you allowed your portfolio to mimic the benchmark index. A company s weighting in the index tells you only what has happened in the past, n ot what will happen in the future. Furthermore, there is a lot of rubbish in mos t benchmarks that with a little hard work can be avoided. Successful investing requires thinking differently. This may at times feel uncom fortable but you should learn to embrace the feeling as a sign you re on the right track. To put it in the simplest terms, to beat the benchmark you must deviate from it. Rule 8: Irrational behaviour The efficient market hypothesis is nonsense. Markets are driven by humans, human s are irrational, thus markets are irrational. Occasionally, something happens and investors panic. You should take advantage o f these instances, not join the stampede (or, if you are going to rush for the e xit, be the first.) Think of a 20% fall in a share price as you would a 20% sale at a department store, an opportunity to buy cheap. Rule 9: Research that short -term price movements are mostly inconsequential about temporary loss (and gain) of capital. What you should permanent loss of capital and this is all about assessing a business prospects.

In the case of the medical or engineering professions, for example, there is usu ally a precise standard for a given procedure. In the investment industry, while this may be true with respect to, say, ethics, when it comes to investment decisions, not following others is the key to succe ss. Indeed, you want to be ahead of the herd, and this means doing your own rese arch. Broker research has its uses, but it is no substitute for doing your own analysi s and coming to your own conclusions. It s about being accountable for your decisi ons as much as anything. Rule 10: A competitive advantage Some industries produce more economic profit than others. How much economic prof it a sector or industry tends to produce is often a function of how difficult it is to enter. High entry barriers can therefore provide a sustainable competitive advantage fo r incumbents. Take banking. Unlike retailing or steel manufacturing, there are a ll sorts of obstacles to starting a bank. Not only does one need licences from o ne or more regulators, but one has to build up trust with depositors as well as a network of companies to lend to. As such, banks tend to produce excess returns on capital which can often be sust ained over the long term. Assuming, that is, that they stick to the simple busin ess of lending and deposit taking.