Chris Rees was featured in The Warren Buffetts Next Door, a book about self-directed investors outperforming the market. It’s a feat that Mr. Rees continues to accomplish with ease.
Now in his 70s, he continues to invest in deep-value stocks – those selling for less than the break-up value of the company – on which he has reported an average annual return of 18 per cent for the past 31 years. For the same period, investing star Warren Buffett’s Berkshire Hathaway investment holding company is trailing Mr. Rees with an average annual return of 12.5 per cent.
But the septuagenarian has other things on his mind these days besides stocks.
It always seemed a shame to him that a “lifetime of accumulated knowledge, experience and wisdom vanishes in a split second” when we have – as Shakespeare put it – “shuffled off this mortal coil.”
So, he has written a book on what he has learned about investing, entitled: The Rees Approach: A Beginner’s Guide to Making Money in the Stock Market. He hopes his children will find it helpful.
Mr. Rees follows four main investment rules:
1. Own stocks valued at no more than “one times net tangible assets,” which means that if the company is wound down and the parts sold off, shareholders would at least get their money back.
2. Avoid companies where net debt is higher than 1.5 times EBITDA (earnings before interest, taxes, depreciation and amortization).
3. Limit portfolio size to 10 stocks, but diversify by pairing trades with offsetting influences. (For example, oil and airline stocks react differently to oil prices.)
4. Invest in times of distress. Accumulate cash in euphoric markets, when stocks are overpriced, and reinvest in depressed markets.
Mr. Rees has a daughter who is nearly 20 and not yet familiar with investing. He also has a son in his 40s, who recently took up day-trading in crypto.
Another son, Daniel, is almost 12 and lives in Europe. His dad lives in Thailand, so they communicate over a considerable distance. To interest Daniel in investing, Mr. Rees has funded him $1,000 for a small portfolio; Daniel gets to keep money earned from investing the $1,000.
“We started a few months ago and have agreed to hold a ‘One Year Money Race’ in 2023,” Mr. Rees told The Globe and Mail. His son’s “account” is with “Dadbank” and Mr. Rees sends Daniel a list of stocks to choose from.
His son is up 5 per cent and outperforming Dad, who is up only 1 per cent. “He has a lot of fun with that.” Mr. Rees said.
Asked how he is able to beat his dad so far, Daniel replies: “When you have one of the best investment teachers like my father, some of his students can outperform him – but I don’t know if it will be easy to do it for a whole year.”
Saving and investing were the farthest things from Mr. Rees’s mind when he was young. At 16, he left his home in England to travel the world in search of adventure. To support himself, he worked odd jobs in high-currency countries so he had more purchasing power to enjoy life in low-currency countries.
By the early 1990s, Mr. Rees’s travels had taken him to Florida, where he decided it was time to get serious about having enough money for basic things like dental care. He spent many days in a library reading everything about investing; at night, he tucked a copy of The Wall Street Journal under his arm and went to work at a restaurant to wash dishes. The waiters and cooks thought this was hilarious and merited “ridicule,” Mr. Rees recalls.
The motivation for writing the book on investing was to leave a legacy. Not just for beginners such as his children and other young persons, but also “bottom-of-the-ladder people looking for hope” like he was back then.
These days, Mr. Rees hasn’t been buying much lately, only nibbling a little on Intel and Verizon. He has 12 per cent of his portfolio in cash and will buy more of these two stocks if their prices go lower.
Just two picks in his portfolio are trading below their purchase price. One is Knot Offshore Partners, which operates shuttle tankers in the North Sea and near Brazil. It trades at about half book value.
The other is Obsidian Energy Ltd., his largest holding. “I’ve been to hell and back multiple times with Obsidian and … have endured two oil price crashes and years of pain,” Mr. Rees said.
But he believes Obsidian’s impending share buyback will put a floor under the price around US$6 and that the stock is a good buy at today’s price if the WTI price of a barrel of oil “averages around US$80 for 2023.”
The Rees Approach: A Beginner’s Guide to Making Money in the Stock Market can be found on Amazon.ca.
Larry MacDonald also writes at Investing Journey