EP129: The Man Behind the Billions: How to Invest Like a Billionaire (DIY)

How did a legendary money manager turn just $100 into a $40-billion empire?

Today, we are looking at the life and timeless blueprint of Canada’s Warren Buffett, Stephen Jarislowsky, and exploring why his simple approach to investing is the ultimate guide for everyday investors.

If you are ready to stop chasing hype, avoid high investment fees, and master the art of long-term wealth building, this episode is for you.

Speaker 1 (00:00):
How did a legendary money manager turn just $100 into a $40 billion empire? Today, we are looking at the life and timeless blueprint of Canada’s Warren Buffet, Stephen Jarislowsky, and exploring why his simple approach to investing is the ultimate guide for everyday investors. I’m Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. If you are ready to stop chasing hype, avoid high investment fees, and master the art of long-term wealth building, this episode is for you. In today’s episode, we are going to cover the following five topics. We’ll talk about the man behind the billions. We’ll take a look at why investment fees are not your friend. Then we’re going to take a look at the investment philosophy of Stephen Jarislowsky, and then we’ll take a look at some of the things that he recommends that you avoid when it comes to investing. And then can you invest on your own?

(01:13):
We’re going to find out towards the end of this episode. So let’s get started with topic number one, the man behind the billions. Stephen Jarislowsky was born in Berlin in 1925 to a Jewish family. He lost his father at the age of four and the family eventually fled Nazi occupied Europe to the US in 1941. He then studied mechanical engineering at Cornell University and then served in the US Army in 1944 till 1945. And then upon his return, he eventually completed a master’s degree at the University of Chicago in 1946. He then completed his MBA from Harvard in 1949. He moved to Montreal and started working at Alcan as an engineer. That’s where he learned how businesses operate and then briefly ran a publishing house in New York and then returned back to Montreal where he finally created and started his investment firm. Today, it is known as Jarislowsky Fraser.

(02:30):
It is a prominent Canadian institutional investment management and wealth advisory firm. And this firm was started in 1955. And he started by investing $100 of his own money along with his partner, Scott Fraser, who invested $50. Scott Fraser left after 20 years, but Jarislowsky continued to run the firm for another 60 years. And he scaled the original $150 investment to managing over $40 billion in assets. In 2018, the firm was acquired by Scotiabank for $950 million. Stephen Jarislowsky lived a remarkable, simple, and modest life, especially considering that he was a multi-billionaire. He famously never owned a yacht, a private jet, or a fleet of luxury vehicles. He and his wife Gail lived in the exact same house that they purchased in Montreal in 1972. Even at a hundred years old, he proudly told reporters that he still washed his own dishes. He also insisted on driving his own modest car every day until the age of 99.

(03:58):
Instead of hoarding his capital or spending it on personal indulgence, he channeled his massive fortune into his charitable foundation, funding more than 50 academic research chairs at universities across Canada to advance healthcare, economics and ethics. In 2005, at the age of 79, he published his book, The Investment Zoo: Taming the Bulls and the Bears. I highly recommend this book. If you haven’t read it, go out to the library or get it from a bookstore online, and I highly recommend reading this book. Unfortunately, I’m sad to announce that Stephen Jarislowsky passed away five days ago as of this recording on October 8th at the age of 101. But he left us with so much investing knowledge, so much investing wisdom, and so we can all learn from his skill, his experience, and being a successful investor, a self-made billionaire. And so that’s what I’m going to cover in the next few minutes in this episode, and we’re going to learn from the best.

(05:14):
So let’s get started with our next topic in this episode. And so we’re going to start off with talking quickly about fees, investment fees, and then we will jump into his investment philosophy. So the management expense ratio, the management expense fee, is a fee that is charged to you directly when you invest in a mutual fund, an index fund, or even an ETF. Now you can see up on the screen that the fees are going to vary. Of course, mutual funds have some of the highest fees, 1.5% to 3% a year. And that is if it’s going to be 3%, it’s 3% of the total value of that investment that you put in into a mutual fund. We can see that index funds are a little bit better, fees ranging from 0.5 to 1.5% and ETFs have even much lower fees, even as low as 0.03%.

(06:20):
Now I’m going to show you a quick video of Steven Jarislowsky. He’s being interviewed. This video was recorded in 2009 by the Dobson Foundation. And here he talks about fees, mutual fund fees and how they impact your portfolio. So let’s take a listen to this clip first.

Speaker 2 (06:40):
It’s really that. It’s what you don’t like is the mutual fund takes no risk, makes money in and out. Well, let’s say that you get a 12% return on a stock and you pay out two and a half percent of that. Let’s say the 12% gets taxed. So you’re left with six. You take two and a half percent out of that, you’re left with three and a half. The inflation is three. You made a half of 1%.

Speaker 1 (07:08):
So as you just heard, the fees are going to impact your portfolio. So if a mutual fund or an index fund or an ETF is going to return 12%, once you calculate out the fees, the taxes, you’re not left with very much at the end of the day. And you can see here up on the screen, I’ve given an example of $5,000 invested in a mutual fund, an index fund and an ETF. And you can see that the cost after one year isn’t too much. So for example, if you’ve got $5,000 invested and the investment fee is 2% a year, well, it’s going to charge you $100. That’s what it’s going to cost you is $100 in fees. Now that fee is deducted automatically from your investment, so it’s taken right off the top. Whether or not the mutual fund made money or not, whether it goes up or down, that fee is going to get collected.

(08:03):
And of course, if the fee is very low, 0.05%, you can see that the cost is $2.50. So when you look at this up on the screen, it doesn’t seem like a very high price to pay for somebody to manage your money for you. However, the true cost of fees is going to depend on the amount you invest initially, your continued contributions, because most people invest every month, every year, and they do that for 10, 15, 20, 30, maybe 40 years till you retire. And then of course the rate of return and then time, like I said, 10, 20, 30, 40 years. What is the true cost of those fees to you as an investor? So let’s take a look at this example. Let’s say you’re starting off with $500,000 today inside of your retirement account, could be a 401 could be an RSP account or even a TFSA.

(09:00):
Let’s say you start off with you’ve got $500,000. You probably didn’t start with that much money, but over time you’ve got that in your retirement account and you’re contributing $500 a month for the next 25 years. And the rate of return is 8.5%. So now you can see that the value of your investment after 25 years of course is going to go up. So I’ve got $500,000 invested at a 2% fee, my portfolio should be worth a little over $2.7 million after 25 years. And if the fee is very low, in the case of this example on the screen, let’s say the investment fee is 0.05%, well, then your value of your investment is going to be certainly higher and you can see it’s a little over $4.3 million. So that’s all good. Sounds great. Your portfolio is going to go up in value over 25 years if you stay invested and you continue to contribute, like we said, $500 a month.

(10:07):
Now what happens once we factor in, let’s take a look at what the fees are going to look like. So here is the cost after 25 years when the fee is 2%, the investment fee, and you’ve invested $500,000, you can see that the cost to you is you are going to end up paying over $1.5 million in fees. And that is a lot of money. I’d rather you keep that money for yourself. And of course, if you stay invested longer, 45 years, you can see that that goes up to $12.5 million. And that is an incredible amount of money that is lost to fees. Now, of course, if you’ve got an ETF where the fee is very low, 0.05%, you can see that after 25 years, it’s almost $50,000 lost to fees. Again, I would rather you keep that money for yourself. And after 45 years, it’s almost half a million dollars.

(11:10):
And if anybody’s interested, I’ve got the link to the website, that’s what I used to calculate what the cost of those fees are if you were to invest in a mutual fund, index fund or ETF. Now, if you want to learn more about this, we have an entire episode dedicated to the impact of investment fees on your portfolio. So I recommend you watch episode number 38. So now let’s continue. Now we’re going to take a look at Stephen Jarislowsky’s investment philosophy. What are some of the nuggets of information that we can use and then you can use in your own life as an investor? So we’re going to take a look at what he recommends and suggests to us. So first off, he recommends to own large high quality market leaders. These are large companies focus on industry leading, very large companies, because if a giant company hits a temporary rough patch, it has the capital and scale to survive and pivot.

(12:21):
A small company is not going to be able to do that. If we hit a recession or a recession that lasts two, three years or even natural disasters or anything negative that could impact a company, a large company most likely will have the resources to survive. So your investment in that company is not going to be negatively affected. So focus on large, sometimes they’re referred to as blue chip companies, large blue chip companies. Next, we want to target a company that has growth, that has a track record of doubling every five to seven years. Now we’re including capital gains and including dividends. So we want to invest in companies that are predictable, steady growth, and looking for non-cyclical businesses. I refer to those as recession-proof businesses, capable of compounding earnings by roughly 12% annually over a decade. So this is coming directly from Stephen Jarislowsky.

(13:25):
It’s in his book. I mentioned the book at the beginning of the episode, and this is good information that we can take back and use it for our own investing approach. Next, he recommends to favor stocks over all other assets. Over a long-term horizon, stocks vastly outperform real estate, bonds, gold, and even art. Jarislowsky warned that cash and fixed income assets inevitably lose their purchasing power to inflation and taxes. Then you want to start early and hold for decades. You want to be a long-term investor, and the sooner you start, the better off you’re going to be. Let the power of predictable compound growth do the heavy lifting for you. And he maintained an incredibly low portfolio turnover rate, which means he was not constantly buying and selling stocks every single day. Don’t be a day trader. You want to invest for the long term and look for quality companies.

(14:34):
Treat bubbles, we’re talking about stock market bubbles as harvest time and slumps as buying opportunities. Never buy into emotional market euphoria. Take profits when equity values get disconnected from reality, especially during a bubble, and use market downturns to aggressively buy high quality companies at a discount. So what he’s saying here is you can buy low and sell high. So you want to buy low and there’s going to be a lot of opportunities to do that when the market is down and then sell high when there is a market bubble and the market is at its peak. So buy low and sell high, that’s where you’re going to maximize your profits. Then he recommends to read the annual reports yourself, stay fully informed on the businesses you own, and he famously warned investors to completely avoid companies that use legal gibberish, and he’s got that in quotes, or unnecessary dense language in their financial disclosures.

(15:43):
So that’s very true. You want to stay away from companies that are using a lot of technical jargon. They’re trying to confuse you sometimes and understand what you’re investing in and keep your costs low. Be highly skeptical of high fee mutual funds. Jarislowsky routinely stated, don’t pay high fees for pedestrian results. Excessive fees and hyperactive trading structures quickly eat away lifetime compounding returns. And that’s why I talked about fees first, right? That was the second topic in this episode today. So that’s very important. You want to keep the investment fees as low as possible. And if you’re investing on your own and you’re staying away from mutual funds, index funds and ETFs, well, right there you’re going to save on not having to pay those management expense fees. And demand exceptional corporate governance. Invest only in strong, honest management teams that prioritize shareholders. He preferred companies where executives were developed internally and where board members personally owned a significant amount of stock.

(16:59):
So this is also very important. You want to look at companies that have strong and honest management. Next, focus on dividends. And you can see up on the screen here, this is a direct quote from his book on page 95. And Steven Jarislowsky talks about the importance of dividends. And he says here, I quote, “So to me, dividends are important. Management, workers, the banks, the tax collectors, the community, everyone gets paid, even the board of directors. So why not also the shareholder?” And he continues to say, “Nobody can forecast the future, but it’s obvious that companies that have a strong uninterrupted dividend record are more interesting than those that have not.” And there you have it. Those are the investment philosophy, investment strategy ideas from Stephen Jarislowsky. You can see them up on the screen here. Own large high quality companies, target growth that doubles every five to seven years, favor stocks over all other assets, start early and hold for decades, treat stock market bubbles as harvest time and slumps as buying opportunities, read the annual reports yourself, keep costs ultra low, demand exceptional corporate governance and focus on dividends.

(18:35):
And we’re going to wrap all this up into the 12 rules of simply investing later on in this episode, but for now, let’s move on to our next topic. Now, what are some of the things to avoid when it comes to investing? So again, we’re going to go to Stephen Jarislowsky. We’re going to go straight to his book, page 106. And I’m going to share with you a couple of things that he mentions just on one single page on things to avoid as dividend investors. Other than once early in my career, I have never sold a stock short. That is sold something I did not own, hoping to buy it back at a lower price. So we can see here that Stephen Jarislowsky is very clear on shorting stocks. He does not do it. Let’s move on to the next thing to avoid when it comes to investing.

(19:30):
I have never been a momentum investor, that is buying a stock with a strong upward price curve, hoping that I can get out before it reverses. So this is a very good point here that he’s talking about, trying to avoid timing the market or timing when the stocks are going to go up, hoping to buy a stock that’s on an upward trend and keeping an eye on it. That just takes a lot of time, a lot of effort, and that is not something he recommends for do-it-yourself investors. Next, he says, “I have never purchased shares of companies whose products I do not understand.” And he continues and he says, “I have never bought stock of companies when I felt that I could not judge how competitive the company would remain in a year or two.” So this goes back to the philosophy of understanding what you’re investing in.

(20:33):
If you don’t know how a company is making money, then you should not be investing in it. Okay. Next, he talks about, “I have not purchased shares of companies and industries where I was not fairly sure that new innovation could not knock them out. Thus, high tech, apart from the very, very strongest companies in market position and management ability, I have always counted too risky for me.” So here he’s, again, staying away from companies he does not understand. This is similar to what Warren Buffet has done and continues to do. And so you want to invest in companies only where you can understand how the company is making money.

(21:20):
So now we’ve learned how to invest like Stephen Jarislowsky, and we’ve learned what to avoid when it comes to investing. So then the question we want to answer now is can you invest on your own? Is this even possible to be a do-it-yourself investor? So for this, I’m going to go back to the book because that is the ultimate source and we’re going to look at page 111, and I’m going to tell you exactly what Stephen Jarislowsky says about investing on your own. He says, “First of all, don’t complicate things with a lot of variables that you will have to keep track of. Keep it simple. Avoid frequent trading, develop long-term rather than short-term policies. Don’t try to guess the length of market cycles and forget strategies that require a lot of knowledge or constant research and don’t get led astray. There are siren songs all around you.

(22:27):
All kind of intermediaries will want you to part with your money. Don’t be sold, be a buyer. The game I suggest is not very complicated and it works. You can paddle your own canoe with great confidence.” So that is a great way to end off our episode today. You can hear exactly from his own words, “You can invest on your own with confidence.” Keep it simple and ignore all of the noise out there. And you can use the Simply Investing approach to help you become a confident investor and retire early. You want to invest in quality dividend paying stocks when they are priced low, and this is going to help you build a resilient portfolio that provides you with growing dividend income each year. So how do you do that? By following the 12 rules of Simply Investing. The rules are designed to lower your risk, save you time, and help you earn more.

(23:40):
You can see the 12 rules up on the screen right now, and I’m going to just go through them very quickly and you’ll see how parallel they are and how similar they are to Stephen Jarislowsky’s investment philosophy. So the way this works is if a company fails even one rule, skip it, move on to something else. So before you invest your hard-earned money, make sure that a company passes all of the 12 rules that you see on the screen here. Rule number one, do you understand how the company is making money? If not, skip it. Rule number two, 20 years from now, will people still need product and services? Rule number three, does the company have a low cost competitive advantage? Rule number four, is it recession proof? Rule number five, is the company profitable? Rule number six, does it grow its dividend? Can it afford to pay the dividend?

(24:39):
Is the debt less than 70%? And rule number nine, avoid companies with recent dividend cuts. Rule number 10, does it buy back its own shares? Rule number 11, is the stock priced low? And rule number 12, keep your emotions out of investing. So if you’re interested, we have an all-in-one solution, our Simply Investing web application and our Simply Investing Dividend course. The web application applies our Simply Investing criteria to over 6,000 companies in the US and in Canada every single day. So you can immediately see which companies are high quality companies and which companies are overvalued today, and so you can ignore them. So the app is going to save you a lot of time. We also have the Simply Investing course. There’s 10 modules. It’s a self-paced course. Module one, we cover the investing basics. Module two, we go over the 12 rules of Simply Investing in Detail.

(25:40):
Module three, you learn how to apply the 12 rules to any stock anywhere in the world. Module four, we show you how to use the Simply Investing web application to save time. Module five, I show you how to place your first stock order step by step. Module six, you learn how to build and track your own portfolio. Module seven, you’re going to learn when to sell, which is just as important as to know when to buy. Module eight, how to reduce your fees and risk, especially when it comes to mutual funds, index funds and ETFs. Module nine, you are going to get your own action plan to get started with investing right away. And module 10, I answer your most frequently asked questions. So if you’re interested in our all-in-one solution, you may want to write down our coupon code SAVE10SAVE10. It’s going to save you 10% off of our subscription, whether it’s monthly or annual, and you can save some money that way.

(26:42):
If you enjoyed today’s episode, be sure to hit the subscribe button, hit the like button as well. And for more information, take a look at our website, simplyinvesting.com. Thanks for watching.