Ordinary investors, extraordinary results - MSN Money

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Ordinary investors, extraordinary results

A triathlete, a computer engineer and a 24-year-old fund fan: These three investing stars share the strategies and secrets behind their financial success.
By Kiplinger's Personal Finance Magazine Brett Platt, 34 Started investing: 1997. Focus: Undervalued small-company stocks. What stands out: Sheer performance -- annualized gains of 30%-plus since 1999. His advice: To avoid overload, limit your portfolio to nine to 11 stocks. When Brett Platt first began dabbling in stocks, it was clear, he recalls, that "I didn't know what I was doing." The Dallas-based computer engineer realized he lacked a rigorous investment discipline and stopped investing to avoid hemorrhaging money. Instead of switching to mutual funds or seeking an adviser's help, he bought a small library of value-investing books. He devoured Benjamin Graham's classic The Intelligent Investor and read everything he could find on Warren Buffett. Since the new-and-improved Platt returned to the stock market on August 20, 1999, his portfolio has returned a remarkable 31.63% annualized (yes, he's that precise). In his worst year he made 28%, and in his best, 2005, 41%. With two kids (and a third on the way), a stay-at-home wife and a salary that's never reached six digits, Platt has amassed a portfolio in the low seven digits, 95% of it invested in stocks. Platt sees value investing -- the art of identifying stocks that are cheap in relation to such fundamental measures as earnings or assets -- as perfectly suited to his engineering mentality. That's because bargain hunters, like engineers, analyze "verifiable data" and try to keep emotion out of the process. Platt spends 40 to 50 hours researching each stock before he buys, poring over corporate filings, listening to quarterly conference calls and calling company managers for answers. For example, before investing in two small breweries in Ontario, he researched Canada's beer industry. Among other things, he learned about rules that support beer prices and therefore improve the profitability of small breweries. Platt believes he's more likely to find undervalued shares among small companies, which tend to be followed less closely by professionals. And he limits his portfolio to nine to 11 investments, because an otherwise-employed person "can't understand more than a dozen stocks at a time." He avoids tech stocks, hewing to "simple and easy" industries, such as shoe retailing. He made a bundle on FreightCar America (RAIL, news, msgs), the dominant maker of aluminum-bodied coal railcars, by observing the rising demand for coal. And the farm-bred Kansas native has a special fondness for firms set up as business trusts, especially those in Canada. The trusts must pay out most profits each year to shareholders. "I'm a trust junkie," he says. Platt has some advice for young investors. First, cut back on luxuries so you'll have more to invest. Next, bounce stock ideas off tough critics (Platt seeks opinions from his wife and from other amateur investors at ValueForum.com). Finally, make time at home to research stocks by throwing out your TV. Deirdre Brazil, 24 Started investing: 2003.

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Focus: Index funds. What stands out: Built a mighty nest egg by investing early and often. Her advice: Don't reject an investment just because it's boring. Deirdre Brazil's whimsical spirit is infectious. Her latest passion is belly dancing, and she's been known to drop everything for a trip to Scandinavia -- or even Estonia. Just a few years out of college, she's already considering a career change: leaving the insurance business for medical school. But when it comes to investing, Brazil is plain vanilla. She already has a six-figure portfolio that is invested mainly in index funds. She also co-owns a rental home. Nope, she didn't luck into a financial windfall. In fact, Brazil -- whose family moved from Ireland to Far Rockaway, N.Y., when she was a toddler -- grew up in a household with six siblings and few luxuries.

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When she graduated from the State University of New York at Binghamton in 2002, Brazil had just $1,000 in savings and 15 times that in student loans. But within almost four years' time, she's accumulated $90,000 worth of mutual funds and $20,000 in cash. Brazil isn't pulling down huge paychecks, and she claims she's not even a savvy investor. Her secret? "I'm a saver," she says. It helps that she lives rent-free with her parents. That allows her to invest 65% of her salary. She funnels 6% of each paycheck into a 401(k) plan; then she invests $800 to $1,000 in a handful of Vanguard index funds. Says Brazil: "I pay attention to the market for new ideas, but at the end of the day I put my money into dear old indexes." Soon after landing her first job as an actuarial trainee at Prudential Financial in Newark, N.J., Brazil decided to test her investing legs. "I didn't really understand the differences among most funds," she says. "I just wanted my money to grow safely and without too much work." The investment had to be simple, low-risk and low-cost. She chose Vanguard 500 Index Fund (VFINX) , which tracks Standard & Poor's 500-stock index. The fund's annual expenses add up to just $1.80 a year per $1,000 invested. Once her money began to grow, Brazil was hooked. That first year, she invested $24,000. Today, she owns six Vanguard index funds outside of her retirement accounts, including funds that track an index of small-company stocks and one that tracks a foreign-stock index. Brazil may not have her future figured out just yet, but she knows that the advantages of investing early can't be overstated. Consider this: If she continues investing $1,000 a month and earns 10% a year, she'll be sitting on nearly $9 million when she turns 65. Jeff Blades, 45 Started investing: 1989. Focus: Mutual funds. What stands out: A portfolio that grows steadily, without big fits and starts.

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His advice: Invest in top-flight funds, keep tabs on the manager and performance, then let it be. The Iron Distance triathlon is the ultimate test of endurance. This grueling race includes a 2.4-mile swim, a 112-mile bicycle race and a 26.2-mile marathon -- back to back to back. "It's all about pacing," says Jeff Blades, a St. Louis resident who has signed up for seven triathlons this year. "Simply put, short-term thinkers do not survive." Blades, who works at IBM (IBM, news, msgs), applies the same rigid discipline to investing. Although he admits to dabbling in stocks, the self-described "mutual fund zealot" says he prefers to leave stock picking to the experts. "When I own a company's stock, I feel compelled to follow the company every day," he says. "But if I buy a solid fund with a good track record, I can scrutinize it once a quarter and go about my life." Blades's fund-picking criteria start with low annual expenses and no sales charge. Beyond that, he looks for reputable fund companies and managers with long tenures. Blades avoids overly large small-company funds because of concerns that asset bloat can hamper a manager's ability to buy and sell thinly traded stocks. The funds that help Blades sleep at night include Vanguard 500 Index (VFINX) and Vanguard Health Care (VGHCX), which happens to be the top-performing fund of any kind over the past 20 years. He is zealous about diversification, and he rebalances his portfolio annually to ensure that it does not become top-heavy with the best-performing categories. His top performers include Harbor International (HIINX), which has a solid long-term record. A proprietary real estate fund within his IBM 401(k) plan and his own property holdings make up a little more than one-fourth of his investments. Blades figures that his investments have returned an annualized 15%. His devotion to diversification helped him survive the dot-com crash earlier this decade relatively unscathed. At the height of the bubble, his portfolio was a modest 10% in tech stocks. "Tech was way overvalued," he says. "It was scaring me even when I was making money." One remnant of tech mania, however, remains on Blades's fund roster: Jacob Internet fund, which is down an annualized 20% since the bubble burst in March 2000. "It's my single emotional buy and a reminder that emotion and money make very poor bedfellows," he says, and he means it. He's careful not to get carried away with company stock options and has only 4% of his portfolio in IBM stock. "I believe putting a significant percentage of assets in one stock is dangerous," he says. His tenacity is paying off. This fall, Blades will compete in his 70th triathlon, and if the market performs reasonably well, his portfolio should hit seven digits. For more investing success stories, click here.
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