Follow smart leaders to win

Sir Selwyn Cushing

They are an elite group whose members are among the country's richest and smartest share investors.

And for this canny club of businessmen, 2005 has been another year of expanding their considerable nest eggs by outperforming the market.

These individuals and family investors - dubbed the "Smart Money Index" by investment adviser and tip sheet publisher David McEwen - collectively own more than $800 million worth of New Zealand shares.

McEwen has tracked the "smart money" investors' share holdings for more than six years. Over that time, their portfolios have made phenomenal gains compared with the broader market.

Between March 1999 and November this year, McEwen's Smart Money Index has gained 130 per cent while the NZSX Top 10 index went up 17 per cent.

McEwen says in the year to November the smart money investors added 18.9 per cent to the value of their portfolios, while the Top 10 index rose a mere 9.9 per cent.

"When you have $100 million to invest, you make sure you have the best financial advisers on hand and if they don't perform you get others," he wrote in McEwen Investment Report, his weekly tip sheet which updates subscribers on the Smart Money Index every three months.

"These people have a good network from which to get high-quality information about an industry or company, all of which gives them a competitive advantage in the sharemarket game."

The portfolios McEwen monitors belong to: Hugh Green, Craig Heatley, Michael Friedlander, Peter Masfen, Sir Selwyn Cushing and his son David, Eric Watson, Phil Briggs and the Todd family.

McEwen told the Herald he decided the group's investments were worth watching after noticing that a certain high-profile, wealthy investor's appearances on a company's share register was often followed a few months later by a significant rise in share price.

"The reason for this appeared to be that they were pretty smart investors. They were obviously successful already, know their way around a balance sheet and have good advisers.

"There's something the rest of us can learn from: if they're smart and have good advisers we can take advantage of that by following suit in terms of what they're buying or selling."

McEwen says one secret to their success is that they are long-term investors who buy more than they sell.

"There has been a lot of research that buying and holding is a lot more successful as a strategy than jumping in and out of the market all the time," he says.

The eight portfolios are diverse, representing the different personalities and investment styles of the owners. McEwen describes Green as having "a keen eye for a recovery share". Green bought one million Briscoe Group shares this year when the stock was near an all-time low.

Masfen has achieved extraordinary capital growth over a sustained period through a broad portfolio focused on industry leaders, many of them with monopolies in their markets.

The Todd family's strategy - "I shouldn't say it's boring" - has been to buy significant stakes in companies and hold them over long periods.

McEwen says the differing investment styles make the index all the more useful to the average investor.

"We tend to find that if a company turns up as a buy on more than one portfolio in any given quarter then that's a pretty strong signal."

An example was Abano Healthcare, which spiked this year after Green and Watson invested in the company.

With an economic slowdown widely tipped to peg the sharemarket back in 2006, McEwen says the smart money investors are already reining in their exposure to New Zealand shares by holding their investments rather than putting new money into the market.

"The time for you and me to start buying in the market would be when we start noticing fresh capital inflows from the smart investors - that would be a good indicator the market had turned."

McEwen says the smart investors' holdings of predominantly quality companies also provide a good hedge against an economic slowdown.

"It's fair to say these guys don't get it right 100 per cent of the time but certainly I've been tracking them now for several years and, on the whole, their average performance is substantially above that of the market. When they do get it right, they tend to make considerable profits."