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Mutual Fund News


Special to The Globe and Mail



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The portfolio

Includes shares in Berkshire Hathaway Inc., Oracle Corp., Raymond James Financial Inc., Cedar Fair LP and Extendicare Inc.

The investor

Thomas Lott has worked for many years as a portfolio manager within the financial industry. He is a committed value investor who has "read everything written by, or about, Warren Buffett, David Einhorn and Howard Marks."

How he invests

Many of the companies in Mr. Lott's personal portfolio have high returns on equity. "These are quality businesses, with large moats [that provide a sustainable competitive advantage] and exceptional management teams."

He buys them when there is "some kind of stress and the stocks are down." To increase his margin of safety, he often puts in bids below the market price - then sits back and waits.

"Most of the time the market price doesn't fall enough, but occasionally I get lucky," he says.

Reported earnings can be misleading. "The only thing that matters in the long run is cash earnings." Also critical: a management team that is good at allocating capital.

Mr. Lott owns shares of Extendicare, a provider of senior-care services, which tumbled last fall.

The market didn't like the sale of the company's U.S. assets. But it brings "a significant amount of cash" and he is confident in management's ability "to deploy it into growth opportunities."

Moreover, the fall has left Extendicare's shares trading at a substantial discount to competitors. And the dividend yield is 6.8 per cent. A yield this high often portends a dividend cut, but in the case of Extendicare, ample cash balances and a noncyclical business offer support.

Best move

Buying Raymond James Financial in 1993 and "not selling, ever."

Worst move

"Buying Allied Nevada, a gold miner, right before gold plummeted."


"Be quick to sell your losers, and hang onto your winners."

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