My name is Mark Goodfield and I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is about income tax, business, the psychology of money and investing topics and is meant for taxpayers no matter their income bracket, but in particular for high net worth individuals and entrepreneurs who own private corporations. I also blog about whatever else crosses my mind; I have to entertain myself. This is my personal blog and the views and opinions expressed in this blog do not reflect the position of Cunningham LLP. I am blunt and opinionated (at least for a Chartered Professional Accountant). You've been warned.

The blogs posted on The Blunt Bean Counter provide information of a general nature and should not be considered specific advice, as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Tuesday, September 21, 2010

Why Didn't You Buy Apple for $25?

As an accountant, I am not allowed to provide specific investment advice; however, today I will discuss Peter Lynch, a famed money manager, and how some basic common awareness will allow novice and sophisticated investors to find growth stocks in their day to day lives.

Lynch was director of the Fidelity Magellan Fund, the largest US mutual fund during his tenure, and was almost as revered as Warren Buffet for his ability to pick stocks. In 1989, shortly before his retirement, Lynch published One Up on Wall Street where he revealed his stock-picking strategies. In 1993, Lynch followed up with a second book, Beating the Street. While One Up on Wall Street discussed specific rules Lynch employed to qualify prospective stock candidates, Beating the Street was more anecdotal.

In Beating the Street Lynch suggested average investors can beat Wall Street professionals by using information they encounter in their everyday lives. Lynch tells the story of how he invested in Hanes (for those old enough to remember, Hanes pantyhose were made famous by the TV advertisement featuring New York Jet Joe Namath in panty hose) after his wife told him about the popularity of L'eggs pantyhose among all her girlfriends.

As an aside, Lynch advised readers to look for spectacular growth in companies that; sound dull, do something disagreeable, or are spinoffs and are buying back their own stock. He cautioned readers to avoid companies touted as the next IBM or Xerox. That advice still stands the test of time.

Anyway, I digress; his point about using information that you encounter in your day to day life struck me as common sense. Day to day information could mean understanding a company in your industry, seeing rapid expansion in the company next door or watching your kids buy iPods.

Think of how much money any of us could have made paying attention to the iPod fad. Kids were suddenly walking around with white wires hanging out of their ears attached to these new fangled “walkmans”. In retrospect, how could we have missed this and not bought Apple? How about any of you with kids who play hockey? Out of nowhere, every child wanted an Under Armour shirt; why not buy Under Armour the company?

After reading One Up on Wall Street I was very cognizant of all these things and decided to follow Lynch’s advice. When a pay toll highway known as the 407 ETR sprung up near me I found out that it was partially owned by SNC Lavalin, a public engineering company on the Toronto Stock Exchange. On my daily drive to work I saw the initial resistance to the highway fees fade as people realized the highway cut down their driving time. I decided to try out Lynch’s concept so I bought some SNC stock at $12. I held he stock for a couple years and the price rose to about $14. Now, keep in mind the 407 was only a small part of SNC’s business, but I figured it would add substantial profit over time. Although I was smart enough to buy the stock, I never said I was smart enough, nor had enough patience, to hold the stock. I got tired of holding and sold out. You know what happened after that? SNC sold their share in the 407 months later for a huge profit and this, combined with a booming global engineering economy, helped the stock reach $50 or more within a couple of years.

Once you wipe the tears from your eyes about my SNC sob story, I think the point is obvious; if you pay attention to what you know and what you see around you, stocks will reveal themselves to you. You don’t have to be a sophisticated investor to get into the market.

And now, an epicurean note for those of you in Toronto who like Thai food. My son, a university student, wanted to learn how to cook better (ok, not better, but to cook something) so he asked my wife if she would find him a cooking class. After looking around, my wife was given a lead about Mengrai Gourmet Thai restaurant in Toronto. Mengrai provides 2 hour cooking lessons organized by Allan Lim, a very helpful co-owner of the restaurant.

Some of the lessons are taught by Chef Sasi, who, according to Sara Waxman of the Toronto Sun, is “the best Thai chef in Toronto.” My wife and son were taught by Sasi’s son Brandon. During their lesson they learned how to prepare lemon grass soup, Pad Thai (Canadian and street style), basil beef and a stir-fry. My son enjoyed his lesson thoroughly and I came later to taste their efforts and they were excellent.

My wife told one of her friends about the experience and she arranged a lesson for her daughter who was also going back to University. They also said they had a great time and enjoyed the food.

We returned a couple weeks later for dinner at Mengrai and thoroughly enjoyed our dinner, it has the best lemongrass soup I have ever tasted. If you want to find out about the cooking lessons or make a reservation for dinner, see www.mengraithai.com

I am a partner with Cunningham LLP, a mid-sized accounting firm in Toronto. The views and opinions expressed in this blog are mine alone and do not necessarily reflect on the position of Cunningham LLP.