Us having just published an essay about unfair prejudice of controlling shareholders against their minority brethren we are especially pleased that Aberdeen Asset Management’s star manager Hugh Young begins his list of the top ten tips to boost your portfolio with the stipulation that one must identify who controls a company and appraise their treatment of minorities (Daily Mail 29th September, 2012).
Mr Young goes further listing nine of his ten other points, to wit:
2. Companies are about people as much as assets. Sir John Rose was the outstanding CEO who turned around a hitherto moribund Rolls Royce plc.
3. Balance sheet strength is critical. Premier Foods plc over borrowed just before a financial crisis in order to buy a competitor. It almost became insolvent as a result.
4. Know what you are buying. Facebook’s IPO lacked credibility because it was far from clear how it would grow revenue in order to justify the price tag.
5. Be wary of over ambition. Even with a strong balance sheet too much imperialism can lead to financially damaging consequences as was the case when Rio Tinto bought Alcam in 2007.
6. Think long term. Equity investment is about investing for at least ten years. Balancing equities with government bonds say 50:50 reduces an investor’s time horizon making a blend of the two theoretically advantageous.
7. Benchmarks are tools for measurement and not the means of devising an asset allocation.
8. Take advantage of irrational behaviour. As Warren Buffet said in 2008, be greedy when others are fearful and visa versa. On this basis an investor could skew the 50:50 allocation towards more or less risk.
9. Do your own research or use carefully selected experts who make recommendations based upon good fundamental analysis.
10. Focus on industries. Uniliver’s Lipton, Vaseline and Hellemans have been market leaders for over a century. Look for unique selling points or differentiation which complement all of the previous nine points.