The higher the peak, the steeper the fall: 10 investment rules from a Scots grandfather

Samantha Loring: Her story was published before Tsogo had time to tell its 12 000 staff of the departures
Samantha Loring: Rising broadcasting star expanding her repertoire by writing.This blog, on investment rules, is a peach.

One of the joys of my two months at CNBC Africa has been spending a couple of hours a day in the cubicle next to Samantha Loring. Intelligent, curious, hard working and eager to learn, she’s one of the rising stars on the television scene. Samantha also has that critical predisposition towards lifelong learning that separates journalism’s wheat from the abundant chaff. She asked for some suggestions. And has decided to write more. Including an occasional blog for Like the one below which was developed from one of her favourite recent interviews. It’s easy to see why Samantha’s imagination was captured by the on-air chat she had with Stephen Silcock, a fund manager at Investec. Silcock shared the advice he’s been given by one of the smartest stockbrokers ever to grace the old JSE floor. The late Alistair Martin invested in research long before it became popular. In his time, Martin & Co was far and away the best source of investment insight in the country. Research analyst stars like Richard Jesse, Richard Stuart and ex-journalist colleagues Des Kilalea and Kerry Clarke all honed their skills under Martin’s watchful eye. Here Samantha blogs about a very personal legacy passed on to his grandson – 10 rules every investor would do well to follow. – AH   

By Samantha Loring*

Some shows you remember more than others. This episode of Wealth Quest Investment Wisdom was especially memorable. In part because I was having a sentimental day thinking of the pearls of wisdom passed on by my own grandparents. But also because I was struck by a notion that everything changes, yet nothing changes. The financial world has changed drastically since the 1960s when Alistair Martin was chairman and president of the Johannesburg Stock Exchange. But fundamental investment principles, as he saw them, are equally relevant today .

I wonder what kind of a day Alistair Martin had when he reflected on the most important lessons he’d learnt from 60 years in the investments business. Perhaps the memory of a trade gone horribly wrong sparked by watching traders, 60 years his junior, making the same ones?

I say 60 years because this was a man who worked passionately to the ripe age of 87. In his heyday, he managed 1200 clients and was in the office every morning at 4am after climbing 10 flights of stairs to his JSE office for daily exercise.

Martin passed away three months after retiring in 2008. Before that he  not only gave his grandson, Stephen Silcock, a run for his money (initially only allowed to learn by watching over his grandfather’s shoulder, certainly not doing anything) but he also left Silcock a handwritten note entitled, ‘The Ten Rules of Investing’, found crumpled in his old briefcase.

On Wealth Quest we explored them with the help of grandson Silcock, now a fund manager at Investec Wealth. In fact, it’s the same investment house that bought out his grandfather’s second business, Quyn Martin, which he founded with 5 portfolio managers from his first asset management company, Martin and Co.

Martin’s deep Scottish Baritone voice, ramrod stiff posture and army discipline from World War Two might have been intimidating but Silcock remembers his grandfather as a composed, true gentlemen.

Although rarely angry, Martin was a fearless voice prepared to swim into the tide. It didn’t always win him friends. But his accurate forecast of the JSE 1969 crash while chairman of the JSE is unnerving. Back then Martin wrote: “It will be surprising if 1969, as well as providing a continuation of the present buoyancy, does not also produce the quite sickening thud of a major correction. The higher the peak, the steeper the fall.”

For the JSE, 1969 was the Crash of all Crashes, with an average price drop of 35% pricking the inflated bubble.

Silcock says he was a true gentleman who made an indelible impression on anyone he met and had integrity to his core. Like in this tribute to Martin from Bernard Nackan, then financial editor of the Rand Daily Mail: “Mr Martin will undoubtedly be remembered as one of the great presidents of the Exchange. Not only was he at the helm during one of the greatest boom and slump periods ever seen but he was also responsible for significant changes in the workings of the market. Without many of the innovations that he and his committee introduced, and those for which they have laid the foundations, the entire system would have been in jeopardy.”

So from a conservative, disciplined grandfather who predicted an historic crash:

Here are the “Ten Rules of Investing”

  1. The price paid for a share should have nothing to do with a subsequent decision to hold or sell. Silcock would actually physically cover up the share price he bought the stock at before deciding whether to buy/hold/sell.
  2. There are many reasons to sell a share; taking a profit is not one of them. If the share remains a good investment, don’t try to second-guess when it will fall.
  3. The first loss is the best one – admit your mistake, learn from it and move on.
  4. Where there’s a tip, there’s a tap – think about why the tipster is sharing his gem with you. Maybe he wants to offload?
  5. Be aware of averaging downwards; be wary of buying more of a share unless it is on behalf of an initial buyer – to use the equivalent military maxim, never reinforce failure.
  6. Run profits and cut losses – one bad choice that is not eliminated quickly can negate a dozen good choices that improve moderately.
  7. Remember the specific needs of a client – elements such as life stage, financial commitments and risk tolerance.
  8. Never fall in love with a share or sector – many sectors have enjoyed their time in the sun only to underperform in later cycles.
  9. Keep a reasonable balance in your portfolio – a heavy weighting in one or more shares or sectors increases risk.
  10. There are good reasons for not fidgeting with investments generally. Many shares will reward holding out for the long run.

At the end of the show, I asked Silcock whether we’d left out any rules. Apparently his grandfather’s unofficial 11th rule was, ‘Don’t buy gold stocks’. Well if you’d ignored this rule, you’d be deeply in the red with the gold index down 60% in the past 20 months.

* Samantha Loring is an anchor at CNBC Africa. 

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