How Does WISEplanning Select Businesses?

Back in the day, Peter Flannery looked at multiple sources without the understanding that he has today about what a successful investment looks like.  Back then, it was popular media, other advisers, fund managers, specialist news letters, successful investors and even scuttlebutt talk where businesses were raised as the next hot tip sort of thing. 

What WISEplanning has learned over many years is that it is not where we invest but rather how we invest. 

These days, whilst we are still looking for other investments, having been investing for many years, Peter now has a full complement of businesses in which to invest and whilst again, we still look for other investments, we are also in the process of scaling back on our existing list. 

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:

1. Compare price and value (these days this is close to the last step in the process, rather than the first);
2. Look for steady earnings growth;
3. Check the dividend payout ratio (looking for businesses that retain 50% or more of earnings); and
4. 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.

WISEplanning has also further developed the economics of investing which we now apply to, not only direct shares, which effectively are just big businesses listed on the share market but also residential property and small, closely held businesses. 

Whilst this is getting off the track a bit, it means that as we help our clients to work toward total financial independence, starting from scratch for many, we have a methodology that is not only reliable and safe, but it works.  Our clients achieve real financial independence over time.  Part of it, of course, is because they are progressive anyway.  The tools research methodology and help that we provide does make a real difference though, in terms of their long-term outcome.

Where we are now is that we have gradually advanced the offerings provided by WISEplanning, so that what were once just financial services are now more advanced programmes.  For example, the programme called Wise Asset Management (WAM) has progressed from being a portfolio management service to an investment and asset management programme, taking into account our clients’ investing behaviour.

In practical terms, we have been able to assist many of WISEplanning clients in this programme, to permanently adjust their investment risk preferences, which in turn allows them to adopt a more advanced investing strategy, which in turn allows them to achieve better returns longer term.  This is quite difficult to measure in the short term but that does not matter.  We know that growth assets offer better returns long term than fixed interest and cash.  We also know that smaller businesses grow faster longer term than larger businesses generally. 

What we are getting to is that WISEplanning clients with a “toward advanced growth strategy” or “advanced growth strategy now” are reducing diversification and invest in smaller businesses, which interestingly is where Warren Buffett started off back in the day.  It requires a substantially different level of skill and is not suitable for those with a more academic or defensive approach to investing and their life in general, but is certainly attractive to those with an appropriate investing strategy (and supporting behaviour).  

Therefore, these days, we are looking to scale back on the number of larger businesses that we offer clients whilst maintaining an ongoing improvement of the quality of those businesses.  Obviously, by removing some businesses that are of lesser quality compared to others, we automatically lift the quality of the total offering. 

Unfortunately, we also have good businesses that are taken out (e.g. takeovers etc) but that helps to reduce the investing pool.

Anyway, WISEplanning’s focus is now on smaller businesses in order to cater to my clients looking for a more advanced approach to investing.