For Brent Vandermeer, the secret to being a sophisticated investor is simple.
Take your time, says Mr. Vandermeer, who is portfolio manager and executive director of Vandermeer Wealth Management, part of HollisWealth Inc. in Ottawa.
"Time in the market is actually the secret," he says. "That's the Holy Grail, isn't it?"
What Mr. Vandermeer means is that the old-school virtues of planning, patience and perseverance will usually win out over tricky formulas and trading algorithms in the long run for investors.
In a sense, it's counterintuitive, he admits. To be sophisticated is to be straightforward; sticking with tried-and-true investment models can keep a portfolio at the cutting edge of performance.
"I know it sounds like it's pretty simple for high-net-worth clients, but getting it right is actually quite hard," says Mr. Vandermeer, who manages portfolios on a discretionary basis. His clients pay him an annual fee and give him the discretion to make trades on their behalf without him having to contact them every time he makes a market move.
"I'm a value investor at heart," he adds.
Mr. Vandermeer follows principles set out way back in the 1930s by Benjamin Graham and David L. Dodd, professors at Columbia Business School in New York. They wrote the classic Security Analysis, which advocated fundamental analysis when considering which securities to buy or sell.
There's still no substitute for looking at the fundamentals, such as a company's balance sheet and its line of business and the general trend of the economy, Mr. Vandermeer says. He notes that the method works for Warren Buffett, who says he has read the textbook four times.
Mr. Vandermeer says he has nothing against the other leading way to look at securities, technical analysis. Technical analysts chart price movement and other market data as opposed to looking at the business of a company or sector.
He's also not bothered by investors' secrets on Wall Street and Bay Street such as the "dark pools" – those opaque, private exchanges where large institutional investors trade huge blocks without disclosing what's going on to the public, keeping significant activity beyond the prying eyes of retail investors.
"They were created for a reason," he says, to avoid huge shifts in share prices when a major institutional transaction is taking place. "The point is that they have to be governed so that the side effects don't hurt other people."
A sophisticated trader doesn't need to be hyperactive. "Warren Buffett doesn't look to be known as the top trader in the last six months," Mr. Vandermeer says. Like Mr. Buffett, he tends to look for investments in companies and sectors that he understands, then applies fundamental analysis to them.
Even this is no longer as easy as it used to be, he says. "Think of the health-care sector, for example. It's a sector that I invest in. There's a growing demographic that uses [health-care products and services]. I wouldn't say I understand all that the companies do, but I understand enough of it to know that they do good work, there's growing demand and there's that demographic push behind what they do."
The idea is to look for "businesses that have a big moat around them. They have sustainability in their business model and their cash flow. For example, in health care and among energy companies, you have a fair degree of certainty that they'll be around in five years. You can look at cash flow, do your number crunching and come up with a fair share price," he says.
He has a high opinion of exchange traded funds (ETFs) offered by companies such as iShares or Vanguard. "They really get it right," he says. It's also a good idea to hold some bonds; while their returns aren't always great, "you need the airbags" if the stock market ever crashes, he says.
Technology stocks and tech-sector ETFs are also uncertain to him, he says, because the ground in that field is constantly shifting. "I can't say we'll be using that exact company in five years to do our tweets," he says. The technology may remain the same but there may be different companies that thrive.
"You've got to understand what you own and you've got to understand why you own it," he says.
Mr. Vandermeer also places great importance on financial planning. "A lot of wealth can be created outside of the markets by doing good planning, he says. "It contextualizes everything, explains what the point is to all this [investment]."
Sophisticated investors watch for general economic and demographic trends, but they don't stay glued to day-to-day events, he adds. "The idea is not to base your investment decisions on the latest news about Hong Kong." While news can affect some tactical allocations, reacting all the time "does not work, at least not repeatedly and not consistently enough."