Book Review > The Artful Stock Picker

Confrontation with his mortality triggered Peter Hegarty to write down his investment strategies for the next generation of his family. This book is the result. In the introduction, Hegarty suggests that this book is for people who probably own shares but want more information to become more self-reliant. I feel that it achieves this aim. It is written in a direct and engaging style, and his advice and recommendations appear sound. Peter Hegarty's experience comes from working in the financial industry, teaching finance at tertiary level and owning a significant share portfolio.

The book consists of two sections: the first half is how and what stock to select using both fundamental and technical analysis, the second part is an examination of some of the stocks in his portfolio. Each chapter within the first section commences with a point-form synopsis and concludes with a point-form summary. Interjections and helpful hints from the author appear in boxes within the main body of the text and are not intrusive. There is a logical order to the chapters in section one, progressing from stock selection to when to buy.

Hegarty's advice on stock selection centres on buying shares as though you are buying a partnership in the business. In fact chapter's two and three are titled You are buying a business and Management. He buys shares in businesses that have a "sustainable advantage that is a barrier for competitors" (p.14) and prefers those with small boards and managers with a large stake in the company. "The most common feature of my best buys was the quality of their management." (p 284)

Another chapter is dedicated to his thoughts on the usefulness of various ratios and other figures quoted on balance sheets. What could be rather dry and tedious is well written. Hegarty distrusts profit results and regards "tax paid as the most trustworthy figure in a company's reports." (p 60)

Other chapters include What price to pay, Building a portfolio and When to sell. The recommendations in these chapters rely on his argument that you are buying a company because you think the business model, the product and the management are sound. Hegarty argues that because "the market overreacts to news" you shouldn't sell just because the price falls and also advocates "buying a great stock when it stumbles". The quality of the business he buys into underpins everything.

Hegarty uses fundamental analysis to select stocks and technical analysis to decide when to buy them. Chapter eight, Technical analysis, is an introduction to the following chapter, Charting patterns. Each pattern is explained using real examples and the behaviour of the many players in the market. Hegarty argues that "all useful chart patterns can be seen with the naked eye from the raw data" (p 132) and contends that this is just as reliable as any of the proprietary charting systems available.

Nineteen stocks from Peter Hegarty's personal portfolio are examined in section two of this book. Individual stocks are discussed using a consistent format that includes what price the author bought them, why he bought them, his assessment on whether it was a good buy or not, and what to do now. The final chapter, On reflection, pulls everything together and the best and worst buys are assessed. Peter Hegarty's honesty makes this an informative section. He concludes, "There is no magic formula which obviates effort and the will to learn."

I have few negative criticisms. Careful editing ought to have rectified an unexplained abbreviation and an incorrect ASX code. A reference to a "Livermore feel" for stocks was meaningless to me, and surely this sort of vernacular should have been screened by the editors. And in some chapters I found the hierarchy of the sub-headings was indistinct, perhaps an alternative font would have been better.

Hegarty has written for an audience that is familiar with the stock market and acknowledges that this is not a text for beginners. So the glossary may be helpful for some readers. It was a book I could not put down and I would highly recommend it. It succeeds because it is a candid account of how one person invests in the stock market.

Anthea Turkington is a member of the AIA.