“The Warren Buffetts Next Door” by Matthew Schifrin.
Fancy yourself getting rich picking stocks? Or maybe just rich enough to afford to a take a great vacation each year or to send your kids to a good college?
Lots of people do — even in these days of market uncertainty. In fact, an estimated 50 million online investors are choosing their own investments these days, up from about 5 million a decade ago.
In his new book, The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard of and What You Can Learn from Them (John Wiley & Sons, $29.95, 194 pages), author Matthew Schifrin introduces you to 10 ordinary people — former truck drivers, engineers, a computer lab manager — who have proven astonishing investment returns by picking stocks better than many of the leading professional advisers and money managers.
He’s talking about 30%-plus on average per year for up to 10 years. And they’re all self-taught do-it-yourself investors, who are taking advantage of rock bottom commission schedules at e-brokers.
Schifrin knows about smart investing. He’s vice president and investing editor for Forbes Media and is in charge of the investing and finance content in Forbes Magazine andForbes.com. This includes its Intelligent Investing section and Financial Advisors Network.
His skills as a financial journalist, honed over two decades plying his trade, his ability to dig down to find the secret ingredients that are vital to becoming a good investor, and his talent to tell a good story, come together to give readers a sense of possibility, perhaps even inspiration, paired with practical take-away investment advice.
And when you’re done marveling at these whiz-bang portfolios, Schifrin serves up a sizeable investment-oriented website resource section to help you chart your own foray into the investment arena.
Each chapter tells one person’s investment journey, strategy and challenges. No two take the same course — one likes to invest in gold, another, in health care and biotech stocks. One likes down-and-out companies poised for a turnaround; yet another is a trader ducking in and out of stocks rapidly.
Schifrin refers to his cadre as “armchair investors” but there’s nothing relaxing about their approach. The core is steadfast discipline and hours of diligent research. They take in reams of information from the Web and elsewhere.
They’re all risk takers, but “they are also supersensitive to losing their own hard-earned capital, so the investment risks they take are carefully calculated,” Schifrin writes. And yes, everyone has suffered a market setback at some point.
Bottom line: “In a world where the vast majority of professional money managers fail to even perform as well as a stock market index fund, it’s worth it for all of us to consider that you don’t need someone else’s advice to improve your financial well-being,” he writes. “You can learn to be a great investor, a Warren Buffett, and you don’t need a lot of money or fancy equipment to do so.”
It should be noted that a few of the investors profiled in this book are “paper tigers” because it’s their virtual portfolio that’s being judged, not real money. And in truth, few of us are likely to have the time or fanatical focus to achieve the kind of stock-picking success the people profiled here have accomplished.
That said, their strategies may help you kick some life into an existing portfolio and encourage you to take control of your own investments. Here are five to consider:
•Do your homework. Many investors rely on tips from message boards to commentary from pundits such asJim Cramer to guide them in their investment decisions. But if civil engineer/investor Mike Koza takes a meaningful position in a stock, he has typically read through at least a year’s worth of financial filings, including prospectuses and annual and quarterly reports. He also spends hours listening to management conference calls that he’s downloaded from the Web. “I no longer watch television. I sleep with 10-Ks and 10-Qs under my pillow, and carry the Wall Street Journal in my back pocket.”
•Simplicity is a virtue. Investor Christopher Rees’s objective is to have only 10 stocks in his portfolio at any time. The idea is to own stocks as though they are businesses and to have deep knowledge of all aspects of the companies’ operations, potential prospects, and pitfalls.
•Look beyond popular investment sites for ideas. Ann Arbor, Mich.-based Computer lab manger Kai Petainen trolls SSRN.com (Social Science Research Network) a virtual library of academic papers for new ideas. GoogleScholar (Scholar.google.com) is another resource.
•Avoid story stocks. You need to remain clinical and unbiased in your approach to investing. Stocks that get a lot of media attention often shoot up very high, then drop like a rock. One example: plastic shoe-maker Crocs.
•Seek out companies with strong business models, preferably monopolies, duopolies or oligopolies.One of investor Randy McDuff’s best picks over his nine years of being tracked by Marketocracy.com is a credit card payment processor MasterCard Worldwide. The company has more than 750 million accounts globally, and half its revenues come from outside the United States.