Her Magazine

February/March 2013

Her Magazine is New Zealand’s only women’s business lifestyle magazine! Her Magazine highlights the achievements of successful and rising New Zealand businesswomen. Her Magazine encourages a healthy work/life balance.

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M AS TE R C L ASS :hot stocks The start of a new year often presents investors with an ideal opportunity to review their investment portfolio The holiday newspapers often feature lists of the best and worst performers of last year, so we can quietly congratulate ourselves for our investing prowess in avoiding the losers and picking a couple of the winners. As we enjoy the summer sunshine, cool glass in hand, we can let our minds wander and contemplate the likely winners for the coming year. And various media will feature headlines that purport to identify the hot tips for the year ahead. If only it were that simple! I am happy to admit that I do not know what the markets will do this year. You may think that this is a weakness – how can a person who makes a living out of managing other people's money not have a view on the market outlook? Well, here's a secret – all those people who profess to know what the markets will bring, don't know either. They just don't admit it. If some of their stock picks perform well during 2013, it will simply be because they were lucky, and the stars were aligned. After investing in New Zealand shares for more than twenty five years, I have learned that investing is an art not a science. You can learn all about the qualities that you must find in a company before investing – a committed, proven management team; a sustainable 54 | www.h e rmagaz i n e . c o. n z competitive advantage (i.e. the company that does something better than everybody else); a track record of growing profits; a strong balance sheet (limited debt so that rising interest rates don't derail the business) – and the share price can still fall. You can find an absolute gem, but it might take three years before other investors recognise its potential and push the share price up. After all, beauty, and in the case of share market investing, value, is in the eye of the beholder. You very rarely find an all-weather stock that every investor likes. And when you do, chances are that the share price will be pushed to unreasonable levels because of the huge demand, thereby raising concerns about whether it's a good buy or not. So how do you know what's hot and what's not? I believe that the safest approach is to construct some investment rules that make sense for you as an investor, and then stick to them. For me, I have determined that earnings (or profits) are the most important determinant of value. Just as location, location, location has become an important maxim for property investment, so earnings, earnings, earnings are a critical factor in share market investing. If a company such as Ryman Healthcare has been able to achieve double-digit

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