This Reader Story comes from Rick Lee. Rick commented on William Cowie’s post about investing, and several readers wanted to hear his story. So we reached out to him and asked if he’d tell us how he became a successful investor. Rick is a 40-something husband, father, retired chartered accountant, blackjack card counter, entrepreneur, aspiring chef, musician, and lover of travel, food and wine.

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At the end of 2008, when the great recession hit my small business, I took stock of what I had, sold off what was unnecessary, and regrouped.

My resources included my wife with a steady job, experience in operating my own businesses, and a drive to succeed in any new venture. I believe that these non-financial resources were more important than the financial ones. But for the bean counters out there, and I’m one of them, my assets included:

  • a house worth $300,000 Canadian and mortgage-free after ten years
  • gold, silver and other assets worth $100,000
  • retirement savings worth $170,000
  • line of credit debt $100,000 (hey, nobody’s perfect)

At the start of 2009 I started listening to library books on CD. My first good investing books were:

  • “Rule #1,” by Phil Town
  • “The Warren Buffett Way,” by Warren Hagstrom
  • “Buffettology,” by Mary Buffett

I learned my values aligned with Warren Buffett’s. He loved doing business as a boy. Warren was frugal, and still lived in the house he and his wife bought when they married. Buffett read five newspapers a day. Personal integrity was paramount to Warren, first for himself, next for managers in the companies in which he invested.

I decided to make Warren Buffett my teacher, and to learn from his teachers as well. Some of the books that shaped Warren’s thinking arrived on my library shelves, including:

  • “The Intelligent Investor,” by Benjamin Graham (he was Buffett’s mentor)
  • “Common Stocks and Uncommon Profits,” by Phil Fisher
  • “Security Analysis,” by Benjamin Graham and David Dodd

Taking control of my own finances

The next thing I did was to fire my wife’s investment advisor. She was with him for 10 years and his returns were negligible. He put her in high-load mutual funds and I got her out. Next I transferred all proceeds to my discount brokerage, and our retirement savings were set up in self-directed accounts that I managed myself.

I put all the cash in money market funds with the highest interest. Next, I researched for our first company to invest. The “Rule #1” investing book had a good set of criteria to detect what was a great company. I added my own personal rule to only invest in companies that pay consistent rising dividends over a long period of time.

I looked at balance sheets, income statements, cash-flow statements and management discussions of results for dozens of companies. I was a chartered accountant and knew how to read the reports. (If you don’t and want to learn, the SEC has an excellent guide written in plain English.)

After six months of reading books and researching several companies, in June 2009 the market signaled for me to get in. I was ready emotionally, and I bought my first position: 500 shares at $11.20 per share of this coal-loading company. This business took coal from trains and loaded it onto ships for export. No debt. Good dividend. It was an easy-to-understand business with a track record of prudent management and a foreseeable stream of revenue and dividends for the next 10 years – just the kind of business I’d like to own. Then I did the financial analysis. My important ratios were healthy returns on equity, conservative debt to free cash flow, and a few others. Then I did the price analysis. My goal was to buy stock only when the market price was less than the fair value of the company.

The stock price of this company was so low that the dividend yield neared 10 percent when interest rates were below 2 percent. I love this company, and eventually the market showed some love too, bidding up the price to $27. While I’ve added to and pared back the position, I’ve collected dividends of $3,800 and realized capital gains of $3,500. I continue to receive 4.8 percent dividend yield and sit on an unrealized gain of $6,300 at today’s prices.

Other companies were researched, bought, and held with the same disciplined approach. Since 2009 we have collected more than $50,000 in dividends. I paid off that line of credit and we are completely debt free. The retirement accounts total over $250,000.

I kept my love of reading about great business ideas and the stable of businesses we owned through stock grew. We are currently invested in, and receive dividends from, a telco, a real estate investment trust (REIT), technology, restaurants, construction, a bank, medical supplies, retail, drug, toys, car finance, engines, helicopter services, chemicals.

Don’t panic

One of the best things I learned was never to panic when stocks sell off. I knew that companies were the way capitalism worked and the GDP of a nation is a sum total of all the wealth-creating companies that were included. Thus the economy as a whole was inescapably “buy and hold.” If the economy weakened, but the company itself stayed profitable, I stayed with it. But if I found a better investment opportunity, only then did I look to reduce or sell completely a weaker investment. A market correction of 10 percent was not problematic if I was predisposed to riding through a 50 percent decline in the stock price due to market volatility.

Some questions to consider before you invest:

  • Are you willing to learn from someone successful, like Warren Buffett?
  • Would you only invest in businesses that you understand and would want to own?
  • Does the business have an enduring competitive advantage that proved itself financially?
  • Would you be willing to own the stock like you would own the business, for many years?
  • Will you commit to learn about the companies you own, visit their stores, read their reports?
  • Can you ignore the market price, unless you want to buy more stock, and buy only when prices were low?

If you can say yes to these, you can become a successful investor.

Reminder: This is a story from one of your fellow readers. Please be nice. After more than a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn’t a professional writer, and is just learning about money like you are. Henceforth, unduly nasty comments on readers stories will be removed or edited.

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