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Trevor Shannon

1600 Carling Ave.
Suite 700
Ottawa, ON
K1Z 1B4

Investment Philosophy

After all my education and all my experience I have come to the conclusion that all you need is a general education to be good at the narrow art of stock picking.

Math – understand a decision tree; algebra as it applies to real life,

Accounting - understand its limitations,

Statistics – understand the normal distributions,

Micro-economics – view this like an ecosystem – what is required to be good at occupying a niche,

Physiology – remember that we are all programmed to be the same genetically,

Geometry - will teach us the lessons of economies of scale

Psychology – remember when evaluating a decision that at any one time there will not be any one person viewing the work of a very ordinary magician who doesn’t see a lot of things happening that aren’t happening and not see a lot of things happening that are happening. The reason why that is that the perceptual apparatus of man has shortcuts in it. The brain cannot have unlimited circuitry. So someone who knows how to take advantage of those shortcuts and cause the brain to miscalculate in certain ways can cause you to see things that aren’t there.

I also believe that the efficient market theory is roughly right; no one can know everything about everything all the time. Therefore I view the market as a pari-mutuel system. Think of the market like the horse track – everybody goes there and bets and the odds change based on what is bet. Occasionally you will find the right horse to bet on; bet heavy when you find it. I believe it is important to build concentrations in the companies that exhibit the right characteristics.

I am one of many who contend that I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches – representing all the investments that you could make in a lifetime.

After all, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for 40 years, you’re not going to make much different than a 6% return-even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.

The investment management business does not operate this way. I think the reason why we have such idiocy in investment management is best illustrated by a story I tell about a guy that sold fishing tackle. I asked him, "My God, they’re purple and green. Do fish really take these lures?” And he said, "Mister, I don’t sell to fish.”