Frequently Asked Questions
What WISEplanning has learned over many years is that it is not where we invest but rather how we invest.
The methodology that he adopted as a value investor revolved around the basic four step model that he learned from Warren Buffett and his teachings. This is not the model that he uses but this is what Peter started with back in the day:
- Compare price and value (these days this is close to the last step in the process, rather than the first);
- Look for steady earnings growth;
- Check the dividend payout ratio (looking for businesses that retain 50% or more of earnings); and
- Check how well the business uses its capital, as measured by return on capital and return on equity.
The above is where Peter started out 15 – 20 years ago when Warren Buffett was not the household name that he is today.
Our methodology now is more advanced and includes the economics of the business.
The way we approach this is to look for generally a small firm rather than a larger firm because they tend to be more cost-effective.
For example, Jamie Cross in Invercargill (WISEplanning is based in Christchurch) is a good example of a low-cost accountant who is knowledgeable, but whose cost structure is a good match for smaller investors. I’m not suggesting you deal with him necessarily, although you could. You might also prefer someone in the area that you live in.
The next phase of locating someone to work with is to check that you can have an easy, free-flowing relationship of trust.
This involves interviewing possibly two or three different accountants at different firms. The questions would obviously revolve around, what services they offer, how they work with their clients. You would also want to know what types of clients they usually work with and
how they would describe their ideal client.
Further, it can be beneficial to ask a couple of tough questions such as, have they ever had situations with clients that didn’t work out as expected? The idea is to drill down, to ask about one or two specific situations. What we are looking for here is not so much what their answer is but rather how they answer. We are looking to see whether they are defensive or show other characteristics such as not accepting responsibility where they were at fault. Remember this is an exercise, where you are looking for someone you can trust.