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My full interview with Jason Donville of Donville Kent Asset Management can be found here and originally appeared in my national bestselling book, Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca.

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Jason Donville’s 22 Investing Lessons:

1) “You can get the macro thesis right but still not get the stock picks right.”

2) “If I’m adding to a position or subtracting from a position, I don’t want the market to know. Because I don’t want people to front-run me.”

3) “Where the growth of the world is coming from is new product development in knowledge-based industries. Whereas 99% of us already have chesterfields and maybe 1% of us are going to replace our chesterfield.”

4) “Think about the market as a baseball game. Let’s say there’s nine innings in the game. We’re now six years into this bull market. You never know until it’s over, but we’re probably in the seventh or eighth or ninth inning of the baseball game. That’s usually a bad time to own financials.”

5) “The time to buy financials is after the market’s been crushed.”

6) “We base decisions on adjusted ROE as opposed to stated ROE because the stated ROE doesn’t take into account the difference in the dividend policies of all these different companies.”

7) “First we look for companies with ROE greater or equal to 20%. Second, we look for companies in that high-ROE group that are sustainable based on the competitiveness of their products. Third, we assess management’s ability to allocate capital at those companies. Once we validate those three things, we typically find companies that we can invest in.”

8) “Return on equity can be broken down into three pieces through DuPont analysis. You’ve got good ROE and bad ROE. We want to make sure that the ROE is good ROE.”

9) “You can fake good ROE in one year. But to achieve high ROE seven years in a row is tough. . . . So when I see a company that has achieved an ROE of 23, 22, 23, 24, 23, 22, over the past seven years, without even knowing what industry they’re in, I go, ‘Wow! There’s something in place here.’”

10) “If you’re thinking of investing in two companies and you run the numbers over the last seven years on both companies and you put them side by side, the good company will leap off the page at you.”

11) “The great enemy of a high-ROE company is competition.”

12) “Most of the companies we own have people running them that are very good capital allocators. Because if you can keep your ROE over 20% year after year, you almost by definition are a good allocator.”

13) “Our biggest tool for risk mitigation right now though is put options on the TSX. That’s an insurance policy. That won’t protect me from a 30% correction but it should protect me from a 10% correction.”

14) “In Canada, the mid-cap segment is probably the most inefficient part of the market.”

15) “Measuring growth in terms of return on equity and book value per share is a better methodological way than measuring growth in terms of earnings per share.”

16) “If you focus on companies where the net worth of the business is growing at a very steady clip then the share price chart will take care of itself as long as the ROE stays intact.”

17) “If you’re a good stock-picker, concentration works in your favour, and if you’re not, you should own an ETF instead.”

18) “We don’t buy turnarounds. It might be because we don’t have the muscle. We wouldn’t own enough stock to be able to push for a turnaround.”

19) “I continue to look for great companies that are fair price as opposed to cheap stocks.”

20) “If you want to be a great investor, then study the great investors and pick one that fits your style and then master that style.”

21) “Your style of investing has to fit your personality type.”

22) “I’m buying awesome companies and just hoping that they’ll be awesome forever. I get to hang out with the really great CEOs all the time as opposed to having argumentative discussions with mediocre CEOs who aren’t doing a very good job running their companies.”

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.