Nick McDonald: Fund manager shares some secrets

Specialist Jay Woods is reflected in a screen at his post that shows five years of the Dow Jones industrial average, on the floor of the New York Stock Exchange. File Photo / AP

When researching the top performing investment funds in New Zealand as recorded by Morningstar, one name is at the top of each list with the best percentage returns over one year, three years and even five years - Pie Funds. As a by-product of such stunning investment returns, Pie Funds was also named by Deloitte as the 15th fastest growing company in New Zealand in 2013.

Pie Funds is the brainchild of businessman and fund manager Mike Taylor.
Nick McDonald tracked Mike down to talk markets, strategy and success.

How did you get started in financial markets?

Born and bred in Auckland, the son of an airline pilot and nurse, growing up I had to forge my own trail in investing as it wasn't a topic discussed at the dinner table. Like most Kiwis who lived through decades of property inflation and experienced what the 1987 crash did to the New Zealand economy, my parents viewed the share market with suspicion and were very cautious of my interest in equities. Despite this, they lent me $10,000 in the late 90s with 10 per cent interest and strict repayment terms to get started. After 10 years' perfecting my investment strategy and philosophy, I decided to turn my hobby into a professional career.

And this led you to start your own investment fund?

Yes. I started Pie Funds because I believed that most fund managers were serial under-performers and if I ripped up the rule book, and created a funds management business that focused on client returns first and foremost, I would excel.

I also saw an opportunity to launch a specialist small cap investment firm. In 2007 when I started, there were no small cap specialists in New Zealand and today there is only one, Pie Funds.

You have had a stunning track record since inception, what is the secret to your success?

Our goal is to focus first and foremost on client returns, and to provide investors with outstanding client service. We offer our investors a unique approach to funds management, and this sets us apart from the rest.

I live by a philosophy my father passed on to me at a very young age, which is "the only place success comes before sweat is in the dictionary". He also said "a business doesn't grow by putting your feet up on the desk and waiting for the money to roll in". I believe that you reap what you sow, and this sparks my desire to succeed. I remember telling the first friend whom I'd convinced to invest with me "the only risk in life is not taking one". He said I was crazy, but that is why he gave me his money.

Has it all been plain sailing or have there been tough times as well?

There have been tough times of course but I know that to be successful you can never give up. You have to want it passionately and inherently believe you can achieve. To keep Pie Funds going in the tumultuous years of 2008 and 2009, I didn't pay myself at all, sold my car and hocked furniture on Trade Me. At the nadir of the crisis I remember thinking to myself "I am just going to keep going until they turn the lights off". I wasn't prepared to give up on my dream.

Can you pick out any single moment as your most memorable experience in the markets?

Late 2008, arriving at work in the morning to find the DOW off another 1,000 points overnight then watching the Australian open. Stocks just gapped down in a vacuum. I was in complete shock. The crazy thing was, the very next day, companies that had fallen 20 per cent were up 20 per cent, the volatility was unbelievable and it was frightening to hold positions at the end of the trading day.

Many people never start trading/investing for fear of failing. What is your view on that?

My fear of failure has been a key determinant in motivating me to succeed, whether in passing an exam, running a race, or growing a business. In 2008, I never viewed the Global Financial Crisis as "why me", but tried to position myself to be in the best place when it ended. I did this by doing as much research, investigation and internal debate as is possible for someone with severe stress, sleep deprivation and with a new baby! (My son was born in 2008).

Perseverance, determination, and a deep-seeded self-belief, as well as my willingness to take a risk, are key factors that have shaped my investing career.

My parents, who are now in their 70s, still worry about equities but they are great fans of Pie Funds since their investment has grown their retirement savings.

What else does it take to succeed in an area that so many fail?

I think in order to succeed as an investor or trader it is paramount to have both a healthy body and mind, and I believe that discipline breeds success. A better process generally leads to a better outcome so you need to continually reassess your thinking. Very early on you need to establish what your investment strategy is, define your investment process, and then ensure that it's simple enough to be repeatable.

Investing successfully is all about educating yourself. Understanding what risk is, removing emotions and staying within your circle of competence.

Where do you see the markets heading in 2014?

Trying to forecast a company's earnings more than six months out is a difficult thing to do, let alone trying to forecast markets. Therefore, trying to determine what the whole market will do in 12 months is impossible as there are so many factors which influence prices. However, I can say that the current extremely low interest rates are supportive of equity prices. This appears unlikely to change in the short term.

What is the single most important piece of advice you could give a new trader/investor?

When the investment case changes negatively, you need to cut your investment immediately. Don't put your head in the sand and ignore the warning signs.
To learn more about you people should visit?

Our website at www.piefunds.co.nz

Nick McDonald is a New Zealander teaching everyday people how to trade the worlds markets via his company Trade With Precision.