Economist: Business Tips, Crystal Clear

By Jaime Woo

People work hard for their money, but they don’t make their money work hard for them. It’s time to fix that. Economist whips your income into shape with smart, practical advice.

Michael Lee-Chin speaks to a crowd of seventy. Photo courtesy of the ROM.

In tough economic times, people look to business leaders who have experienced—and, even better, thrived through—nasty bear markets and recessions. Veteran investor Warren Buffett has become even more influential and a guiding voice in newspapers, in magazines, and on television. And, on Monday, Buffett’s name was brought up in the Michael Lee-Chin crystal by the namesake of the space.
Michael Lee-Chin, one of Canada’s most successful investors, spoke for nearly an hour, sharing business advice with an audience of seventy at the Lunch & Learn series, held by the Young Patrons Circle at the ROM.
He told the audience how he studied Warren Buffett and gave his advice on success: “Find a role model, beg for the recipe [for success], follow the recipe exactly, and don’t put your thumb print on it until you have surpassed the success of your role model.”
While the audience was mostly thirty-somethings, Lee-Chin’s advice is timely for the fresh-faced class of 2009 ready to take on the world. Too often, well-meaning new graduates try to shake up industries they have had little practical experience in.
Lee-Chin shared five distinguishing factors he felt were common in successful businesspeople:

Own Only a Few Businesses

Lee-Chin believes in the simplicity of owning only a few businesses rather than over-diversification. He once took a fund with hundreds of holdings and trimmed them down to a dozen or two to make it more manageable.
New investors can follow suit and preserve their sanity by keeping only a handful of stocks or an index fund to simplify their portfolios.

Know the Businesses Well

In addition, owning too many businesses makes it difficult to know them inside and out. Lee-Chin was steadfast that you should invest only in companies and industries you understand. When asked if Brazil was a worthwhile investment, Lee-Chin noted he’d never been and, not knowing the market well enough, couldn’t say either way.
This seems like a no-brainer, but investing choices can be guided by emotions that lead investors to chase trends into areas in which they have no expertise.

Make Sure the Businesses Have Long-term Potential

Lee-Chin missed the technology and commodities booms but, more importantly, the subsequent busts because he did not believe in the long-term sustainability of the respective industries.
For new investors, blue-chip stocks may appear boring, but companies like IBM and GE have survived decades (like Buffett and Lee-Chin) and will likely continue to survive. But use common sense: some industries will sunset. Look at North American auto companies that have high legacy costs, are slow to meet market needs, and with inefficient management. Buh-bye long-term.

Use Other People’s Money

To hear Lee-Chin discuss borrowing money can trigger a knee-jerk reaction of “But that’s how we got into this financial mess!” However, there’s a difference between leveraging and over-leveraging, which was the cause of downfall for many companies.
If you’re absolutely sure about your investments and have followed the previous three points, leveraging is worth a thought with interest rates at drool-inducing lows.

Hold for the Long-term

Finally, hold steady. If you own a manageable portfolio that you understand with long-term potential and have leveraged to make a significant gain, why rush to go anywhere else?
Just give us a little credit when you’re putting your name on a fancy piece of architecture.