Book Review > Masters of the Market - Secrets of Australia's Leading Sharemarket Investors - 2nd Edition

Investors are fascinated by the strategies and insights provided by the world’s great investment gurus – hence the popularity of books by or about the top stock pickers such as Warren Buffet, Benjamin Graham, Peter Lynch, Charles Munger, John Templeton and Humphrey Neill.

Australia also has its top investors and many of us would like to know who they are and what their formulas for success are.

If we could determine who the top 16 or so stock pickers are and if we could get an interview with them what would we like to know about them? What questions would we ask of them?

Do they have common traits? Do they have similar backgrounds? Are they risk oriented? What insights can they offer us? Where do they feel we are at present in the business cycle? Are they fully invested at present or do they have large holdings of cash? How did they weather the 1987 stock market crash? Does success relate to size of their portfolio? To what extent do their views of management capability/expertise feature in their stock selections? How would they describe their stock picking style? Are they avid readers? Do they seem to have an inherent stock-picking capability or do they possess skills that any investor can develop? Do they focus on trends? What characteristics do they look for in future winners? Does gearing or short selling play a part in their success? Do they have diverse or concentrated portfolios? What have been their best and worst trades and why? What investment books would they recommend? How long do they hold stocks? What are the strengths of a top investor? How did they develop their expertise? What trends do they see impacting on share prices in the future? What shares do they regard as future ‘winners’? Do they model themselves on other investors? Are they long-term investors or traders? Do they spend much time studying balance sheets?

The average investor has little opportunity to meet the top professional investors and put such questions to them so it is a great opportunity to have a book like ‘The Masters..’ whereby the authors have interviewed their sixteen Masters and asked just such questions of them.

About the authors: See review of first edition above.

Although the present edition of the book was recently published in 2005 there was an earlier edition of the book published in 2003 and this edition revisits most of the original interviewees to see how they have progressed with their stock-picking skills in the intervening two years. Two of the original interviewees did not participate and there is an addition of three new Masters who were voted in by the original fifteen masters.

The resulting interviews indicate that there is no one path to success, and no secret formula. The interviewees again confirm that investment styles in many ways reflect the individual’s personality.

Certainly a large proportion of the group would be classified as value investors but there are big variations in style. Some are contrarian in approach; some rely heavily on extensive reading and research whereas others spend as much of their time as possible meeting managers, directors, attending meetings, speaking to customers and clients so as to pick up the feel of the market.

Many of the group have an accounting type background and have usually found their way into fund management via accounting, stock broking, and work as a share analyst or via a legal background.

Apparently Robert Maple-Brown, the first Master portrayed in the first edition of the book was said by many of the readers to be “…their favourite or at least the fund manager to whom they could most relate…Maple-Brown’s conservative philosophy of value investing with an eye for the long-term undoubtedly has broad appeal.” (p.112). However as also mentioned on page 112 of this second edition, “The potential disappointment for readers this time around is that Maple-Brown has since retired from day-to-day stockpicking. Even so, Maple-Brown is not that hard to find. He still owns about half of the firm that bears his name, Maple-Brown Abbott. And he still spends half his week in Maple-Brown Abbott’s Sydney offices, as well as chairing the firm’s monthly investment strategy meeting”. The point is made on page 113 that “With its main balanced fund (investing in all the asset classes), Maple-Brown Abbott hasn’t done quite as well as the average of its peers in recent times. Then again the bull market conditions since March 2003 haven’t been ideal for Maple-Brown Abbott to be a sizeable outperformer. Maple-Brown Abbott tends to show its true colours when other funds are underperforming during bearish market periods.”

Although many of the Masters are value investors the focus of their ‘valuing’ can vary markedly. Maple-Brown Abbott for instance “In recent years …has also diversified …to include Asian and Pacific funds” (p.113). Maple-Brown also employs a contrarian approach, “…by buying stocks that have fallen hard” (p.114). Peter Guy’s value investing strategy is to invest in small cap stocks at about the time they enter the inflection point (p.61) on the company value life cycle so as to maximise a stock’s growth potential. Andrew Sisson on the other hand has concentrated solely on the top 50 companies in Australia and is fully invested (p.86). Sisson also uses the derivatives market – using options to synthetically short shares – using short calls and long puts to have synthetic positions against bonds (p.97). The technique for Alex Waislitz is to diversify and spread risk, have exposure to the resources sector and gain leverage by taking strategic positions on company boards. Tim Hughes states that by holding 40% of his funds in cash he has total flexibility until the picture becomes clearer.

Sir Ron Brierley and Gary Weiss gain value by exploiting legal loopholes of the type they used when they focused on AGL.

Successful investors usually have a sound appreciation of trends and ‘Masters’ provides some useful insights into their views on inflation, interest rates, appropriate holdings of cash and the relevance of the roles of China, India, Brazil and Europe for Australia.

The ‘Masters’ opinions on investing in aquaculture and biotechnology, particular listed investment companies, recommended books to read, indexing, absolute vs. relative investing, the future world oil scenario, provides much food for thought.

‘Masters’ is a stimulating and thought provoking read for anyone interested in investing. However one has to keep in mind that the selection of the ‘Masters’ just like the selection of some of the portfolios of some of the Masters interviewed, was effectively the work of a committee, and a different committee might have come up with an entirely different selection of Masters, not necessarily of those specialising in the Fund’s Industry. Another committee might have even come up with a few Mistresses of the Market – but perhaps that’s another book.

Paul Frost is a member of the AIA.