John O’Connell and I really enjoyed our MoneyShow live webinar.

We started with the Davis Rea Investment Counsel Chairman & CEO’s take on the GameStop phenomenon, and the implications for the broader market.

Then we delved into John’s 10 Profitable Rules of Investing for All Market Conditions.

These are philosophies, strategies, techniques, and mental approaches he has developed over his more than 35 years managing people’s financial futures.

We received some thoughtful questions from our viewers, which John adeptly answered.

And, Davis Rea Investment Counsel is offering a free, no strings, second opinion consultation on your portfolio. Check that out at 45:50, or email

You can also sign up for our free Uncommon Sense Investor newsletter:

MoneyShow Segment Rundown:

3:10 – GameStop and implications for the broader market

5:07 – 10 Profitable Rules of Investing for All Market Conditions

28:00 – Q&A including discussion about Brookfield Asset Management, office REITs, technology stocks, Canadian dollar.

45:50 – Special Offer from Davis Rea Investment Counsel

Transcript: 10 Profitable Investing Rules for All Market Conditions

Rule #1

Mark: Let’s get to Number One. We’re going to call this 1 and 1A. It comes by way of Warren Buffett. One is don’t lose money. 1A is don’t forget rule number one. Basic stuff.

Investors are in the market to make money. Oftentimes they lose money by engaging in certain habits when they don’t need to be losing money. So what’s the key with that?

John: I think it’s a good place to start.

I mean, it sounds obvious, don’t lose money. But the reason why investors lose money is because they get involved in activities that they don’t actually really understand that they’re getting involved in.

They buy things they don’t understand. They’ve been told to buy something. Oftentimes, the people that lose money are buying things on margin.

The bottom line is you need to make sure that you have a reason for investing in something.

And so, if you lose money because you panicked or you were given bad advice, and then you don’t feel comfortable with it, it’s very, very hard to recover from losses.

So, you’ve got to remember why you’re doing something and make sure you have a game plan in terms of doing it.

And not losing money is knowing what it is that you’re doing and why you’re doing it.

Rule #2

Mark: Now, something that would go along with that would be our Second Rule, which is having a plan and sticking to it.

We talked to Chris Mayer, who is an investment manager in the United States, and author as well.

He wrote the book 100-Baggers, and we interviewed him recently. He basically said, and I’m paraphrasing him here, but,

“Don’t get caught up in all the day-to-day financial news and noise and have your face right up against the screen and agonize over the Fed and agonize over the markets and the economy and interest rates.” 

He calls that “a pathetic waste of time”, which may be an exaggeration. Obviously, you want to keep track of things, but have a plan and stick to it. Stick to some kind of framework and a structure.

John: I think it’s really important. I mean, first you have to know why you’re doing something. When you’re investing, you have to have an end goal in mind. It can’t be just to make money.

It’s to make money for what? How much do you need to make? Why do you need to make that? What’s your savings plan? Where are you in a market cycle within reason?

But also, there’s so much information being blasted at us these days that it’s easy to get blown off course.

People are screaming at you, “Hey, pay attention to this. WallStreetBets is saying that. The Wall Street Journal’s saying this.” Business News is saying something else.

And it’s easy to get blown off, what the reason was for you doing something in the first place. Have a fundamental reason and a plan in terms of why you’re investing. Is it for your retirement?

Make a plan and stick to it.

Mark: Now, back to Buffet, he has said many times that I don’t really care what happens in the market day to day and nor should investors.

He also says, and this is just generally, you want to be skeptical of forecasters because they’re often wrong, and be skeptical of people who are postulating that a certain stock is going to do a certain thing and get to a certain level.

Obviously, you want to take in all the information, absorb a lot of information, but then make your own decisions.

John: Absolutely. I think it’s really important. You have to do your own homework, but you have to listen to a certain number of people that talk about common sense or, as we say, uncommon sense. Do your research.

Warren Buffet just reads a lot of newspapers. He reads a lot of annual reports because he wants to just understand what it is that he’s investing in, why he’s investing in it, is the future bright or is the future not bright?

We have to remember the globe spins in a positive direction. Human nature has been to improve gradually over time. So making good long-term plans is a pretty solid foundation.

Rule #3

Mark: This brings us to your Third Rule of Investing, think like an owner. I think we were talking before, that Amazon is a good example.

For example, if you own Amazon, you’re not just owning a stock. You’re not just owning something that’s flickering on your screen every day, you’re owning a business.

You own a slice of a business. You want to think like an owner.

John: Yeah, absolutely. I mean, you have to think about it.

Two of the richest men in the world right now are Elon Musk and Jeff Bezos, and they don’t care about the stock price.

What they’re doing is they’re thinking about what should they be doing and what is the business doing? How’s it progressing? How’s it innovating?

How’s it adapting to the problems that exist in the world? These businesses are living organisms that go on for a long, long period of time.

So really, as part of your plan, you have to really know what it is that these companies are doing. Amazon is getting into cloud computing, entertainment. It’s not just a delivery company.

They’re a private label. They’re providing a marketplace for other people. They’re getting into podcasts. You have to really understand what these businesses are doing, why they’re doing it and want to say,

“Do I want to own that kind of business? Is it durable? Do they have a competitive long-term advantage? Are they investing the money to actually survive the potential changes that everybody’s worrying about in the short-term?”

Rule #4

Mark: All right, John, Rule Number Four, 10 rules of Investing to Profit in Any Kind of Market with John O’Connell, Chairman, CEO of Davis Rea Investment Counsel.

This one’s interesting, pay up for great companies.

We’re going to use Apple as an example. I can look back to my time at BNN, hosting the Market Call shows when we would have certain guests who had a very strict discipline.

They were usually value investors, and they would say, “Well, I like this company, but I don’t want to buy it above 15 times earnings. I’m going to wait for it to come back to 15 times earnings. Not going to buy it at 25.”

Well, would you agree that companies, good companies, often trade at a premium for a reason, and then they never get back to 15 times earnings.

So sometimes maybe you have to get away from that discipline. And if you want a great company, you have to pay up for it.

John: Absolutely. We own a company called Thermo Fisher Scientific. They’re a medical instrumentation manufacturing company. It’s always traded at 25 to 30 times earnings. It always looks expensive.

A number of years ago, we had some new clients that came in the door and we looked at it and said, “It looks expensive.” The stock was at $200 or something.

It was trading at 24, 25 times earnings, maybe even 30 times earnings. We bought it. Today it’s at $550 a share.

Great companies always trade at premiums. There has to be a reason, why would that premium ever really go away?

I mean, there’ll be cyclical swings in premiums, highs and lows, but as a general rule, good quality companies will always maintain a premium valuation.

Warren Buffet said, who’s a deep, deep value investor player, has said he’d rather pay a high price for a great company than a low price for a lousy company. And I think there’s a lot of truth in that.

Mark: It seemed as if Buffet was late to the game with Apple, but turns out he wasn’t. He got into it several years ago, finally, and-

John: Tripled his money.

Mark: Yeah, that’s all. You wanted to make a point about Apple. It did have a period around 2018 where the markets doubted it. “Well, the story’s worn out”, and the stock didn’t do well for a while.

John: I’ll give you two examples. Apple, 2018, Apple went from $50 down to about $35 and people were saying, “Oh, they’ve lost their mojo. They’ve lost their innovation.

But if you actually were paying attention to the iPhone upgrade cycles, but also what they were doing behind the scenes in terms of developing new technology, developing their own computer chips, that stock is a triple from that point in time.

You look at Disney, what possibly could have gone right for Disney this last nine months with the shutdown? Their game parks were closed, the theatres were closed.

But three or four years ago, they had made an investment in BAMTech. It’s like a Netflix kind of technology.

So lo and behold, in basically 90 days, Disney turns on the switch and they set up 90 million subscribers.

It’s because they had made the investments and we stuck with the company because we thought it was a good long-term value that was making investments into the future.

That’s what investors have to stay focused on. Great companies taking the long-term bets.

Mark: Just back to Apple quickly. I was actually on the air at BNN in 2011 when it was announced that Steve Jobs had died.

Of course, several days after that, we started hearing, well, the company’s lost its soul. The company would never be the same again.

There’s another example of, had you listened to that rhetoric, you would have missed out on a huge run in the stock.

John: Yeah. I mean, imagine what would happen if Elon Musk were to pass away. He’s wrapped his whole ethos around that company, but there are thousands and thousands and thousands of employees.

Apple’s a massive employer and I think that… You look at the former CEO of Disney retiring (Bob Iger). These companies are breeding quality leadership within them.

That’s one of the primary roles and functions of a board of directors. And these companies are a lot more durable than just one person.

Tim Cook had been running supply chain for Apple for years.

Anybody that had been paying attention to the amazing logistics that Tim Cook had been doing for Apple would know that company was going to be in great hands.

Rule #5

Mark: All right. Moving along to Rule Number Five, buy cheap companies and not broken companies. This is the opposite of what we were talking about, paying up for great companies.

You want to look at a company that may have stumbled for a couple of quarters for whatever reason, but they’re still a strong company.

The underlying fundamentals are still there. Avoid the ones that maybe look inexpensive, but they’re value traps.

Maybe they’re in a dying sector, the company’s dying and we don’t quite see that yet. So how do you differentiate between those two types?

John: That’s another really important differentiation. For a number of years back in 2017, 2018, Google had gone nowhere for two years. Their profits kept going up and up and up, the stock price didn’t move.

So essentially, the company is getting cheaper and cheaper and cheaper. People were worried about certain things. They were worried about competition. They were worried about some regulatory issues.

And then, all of a sudden, they announced another great quarter and the stock goes up 40% in a day. It was kind of silly.

But it’s really important that you want to stay focused on, why has a company gotten cheaper?

Has a stock gotten cheaper because there’s something material that has changed with the company, or has it gotten cheaper because people are just ignoring it right now? There’s a nice new shiny object over somewhere else.

We’re seeing that right now where some people thought GameStop was a cheap stock. Now maybe GameStop was cheaper than it should have been.

Maybe it’s not going to zero right away, but it’s a company that’s severely constrained with its future outlook.

So people turned it into a bit of a game and have weaponized a distinct part of the whole marketplace right now.

But so, the moral of the story is, think about why is something cheap. There can be value traps. GameStop may be a value trap. I don’t know.

But you know what, you want to focus on companies that have gotten cheap for the wrong kinds of reasons.

Rule #6

Mark: All right. Rule Number Six from John O’Connell. These are 10 rules of Investing to Profit in Any Kind of Market, our topic today, buy right and sit tight.

This is paraphrasing Jesse Livermore, the famous speculator/investor from about a hundred years ago, whose writings are still looked at today.

Essentially, Livermore said he made most of his money just buying the right kinds of companies and sitting on them, not trading.

He learned not to trade too much, and he saw his peers doing the same thing. So buy right and sit tight.

To accompany this, we have a quote from Warren Buffet and he says something along the lines of, if you’re not thinking of owning a stock for 10 years, don’t even consider owning it for 10 minutes. 

John: I think that the whole trick, you look at the richest people in the world, they have bought good quality companies and rode them for long, long periods of time. They’re not timing the market.

As Buffet also says, it’s not timing the market, it’s time in the market. I think the important thing is just to buy great companies.

Maybe you pay too much for them right now, but they’re going to keep growing. You stick with them. You don’t pay taxes.

You don’t get blown out of them because somebody’s telling you something, somebody is screaming at you to get in or get out.

You buy great companies and you let them run. Because it’s hard to find good investments.

You look at the S&P 500, for the first nine months of of 2020, five or six stocks, really, basically just plowed the market higher, Amazon, Apple, Netflix, Google, Amazon, because they’re great companies.

And so, there’s no reason to think that they’re going to stop being great companies in the next year. So buy them, keep with them.

Rule #7

Mark: Let your winners run. Let your flowers grow, basically, is the idea. Think long term. You want to buy stocks that you’ve thoroughly researched and you believe in them and you want to allow them to work.

Now, Number Seven, I’m not saying this to you directly, but you’re not as smart as you think.

This is about overconfidence. This is about confirmation biases and reading things that play into the scenario that you want to hear.

Behavioural finance studies have shown that men especially are often overconfident in their investments.

John: It’s probably the biggest killer in investments, is to be overconfident. There was talk a number of years ago about echo chambers on Facebook.

And now we have echo chambers really taking place on social media, about investing in the stock market. I’m not saying it’s a bad place to get information from.

But what I am saying is it’s important to always be challenging your investment thesis.

Really the most valuable people for you to be talking to when you’re thinking about your investments is people that don’t agree with you.

You want to be actually investigating what is potentially wrong with my investment thesis. So you want to hear from people that disagree with you because they may be challenging you.

They may be bringing new opportunities to you.

But if you’re in a room and part of a gang, trying to beat something or take over Wall Street, you have to really consider, what is it that you’re trying to accomplish?

Stay true and focused to the discovery of the investment opportunities and always being curious and making sure that you’re not being part of a crowd and staying well informed.

Rule #8

Mark: All right. Rule Number Seven was you’re not as smart as you think. Now, Number Eight, rule of investing. Don’t be part of the herd.

Think independently, be contrarian, and avoid acting on the latest news and making the classic mistake of buying high and selling low.

John: I mean, there’s all kinds of examples of this going on in the marketplace right now. I think the most important thing to realize is that the crowd isn’t always wrong. Stock prices, or average indexes, tend to appreciate over time.

There’s no question about that. Human wellbeing has improved over the long period of time.

But underneath the surface, there’s a lot of destructions taking place. Schumpeter’s creative destruction’s taking place.

I think it’s really important that you make understand that the herd can be right, but the herd can also take things to excess.

You have to make sure that that excess is not playing a role in your investment philosophy.

And that once again, you’re always challenging your investment thesis, being open to new ideas, and questioning whether you’re actually right or wrong.

Mark: And knowing that markets often overshoot on the upside and overshoot on the downside, which we saw play out in March, April.

John: Absolutely. I mean, those interviews that we were doing on the founding of Uncommon Sense Investor saying, “This is probably a really great buying opportunity.”

You don’t know when you hit the ultimate bottom, but you do know that investors were throwing certain things out in the garbage can.

The pandemic was not going to affect Facebook. It was not going to affect Google. It wasn’t going to likely affect Microsoft. It sure as heck wasn’t going to affect Amazon.

So you knew that there were some great buying opportunities down at those kinds of levels.

You just didn’t know when they were going to recover, and you didn’t know if they were going to get a lot cheaper.

Rule #9

Mark: John’s rule Number Nine, check your emotions at the door. This goes to fear and greed. Emotions are your enemy in trying to be a successful investor.

Know when you want to buy and when you want to sell, especially if you’re trading. We’re dealing primarily here with investing, not so much trading and speculation.

So fear and greed are the two classic human emotions in the stock market.

There’s a lot of so-called FOMO going on right now, a fear of missing out. And you could argue there’s a fair amount of greed too.

John: I mean, fear and greed are the most powerful drivers of human psychology, really. You’re never going to get rid of it. It plays an important role.

We’re seeing a lot of greed being displayed in the marketplace right now, a lot of FOMO, which is really a form of greed. It’s one of the 10 bad things in the Bible, I believe.

And so, I think that you really have to stay focused on, this is not a war. You’re just trying to make a consistent long-term return that’s consistent with your investment objectives.

You’ve got to keep the emotions out of it because the emotions stop your brain from thinking. There’s a chemical reaction that literally makes your brain not function well.

And so, you really, really need to make sure you stay dispassionate about things. That’s going to allow you to make good decisions.

The important thing is that people only get fearful when they’ve overextended themselves or done things that they don’t really know why they did them in the first place.

But it goes back to one of the very first rules about knowing what it is that you’re doing and why you’re doing it, and what you’re investing in.

Think about it like buying that whole company and make sure that you don’t let the emotional aspects of it drive your investment decision making.

Mark: Is there a checklist that investors could use, say, if they’re sitting at their computer screen, they’re thinking of buying company X and they’re probably acting a bit impulsively.

Is there a checklist to say, “Okay, before I click the button, bing, bing, bing, these three things,” that kind of thing?

John: I’ve been around this business since 1985, so I’ve seen every major crisis. I’ve hit the top 20 of the top 20.

I remember coming home in ’08, ’09 and going like, “I don’t know if financial system is going to live.” I always take things to extremes to try to see, is this possible?

I remember in ’08, ’09 when the financial crisis was really, really, really taking a toll. I looked at my office window and I saw people driving back and forth to work.

And I thought, “They’re not going to stop doing that. People are going to still keep buying hamburgers at McDonald’s, and there’s still going to be children’s entertainment, family entertainment, through Disney.”

It really helps to ground you when you think, what is it that we actually are really doing when we’re buying companies, those companies continue to operate and function, regardless of what’s going on out there in the world?

This pandemic is a classic example of you shut down the economy, but you still have to eat. People still went to McDonald’s. The drive-throughs were packed.

So it’s really a great opportunity for investors to really say, “It’s a good idea to check your fear and emotions at the door.”

Rule #10

Mark: Right. You hold for Davis Rea Clients, primarily, companies that are exposed globally. They’re large caps. They’re the types of companies people touch every day in various different types of sectors.

And maybe we’ll get to some of that during the Q and A, which is coming up.

All right, Number 10 of John’s, rules of investing here. Stay diversified. We’re going to show you the S&P 500 and the Russell 2000, so different kinds of indices here.

Basically, this is to show you that in the Russell 2000, it really can show you the underlying strength or weakness of the economy and of the market.

And you don’t want to really… I mean, sure, you could look at the Dow, but that’s 30 stocks. That’s not really that representative of the broader US economy.

John: I think those are short-term charts and they certainly show that when the S&P 500 was recovering from the big sell-off in March, April, it took the much broader geographically and economically diverse stock index, the Russell 2000, a lot longer to recover a lot of its gains.

In fact, it really only did so back in November. So, whereas the S&P was actually on to new highs.

If you go back and look at the Russell 2000 from 2015, 2016, all the way to 2018, it was in a very big, broad trading range, even while you saw the S&P 500 marching on to new highs.

And so, people start saying, “The economy is doing great. Donald Trump is saying, “Look at the stock market.”

But the audience that he was speaking to, the people that run those small businesses that were public companies, Russell 2000, they weren’t getting and seeing the full benefit of it.

It tells you something, that the economy is very narrowly focused. It was really only growing at 2% for the last 10 years.

It’ll be able to grow at that kind of rate with a longer term after this fiscal stimulus burns off.

There’s always a bull market somewhere, and there’s always opportunity to be investing your money somewhere.

So if the S&P 500 looks expensive, maybe look down at the Russell 2000, look at those smaller companies to be investing.

That’s what we’ve actually seen recently, a rotation because that creates its own opportunities, like Apple. Amazon.

Well, Amazon, Microsoft, Google, they really went nowhere from September to January.

Now, obviously, they’re starting to reverse themselves because those great big growing companies, they always come back and regain that premium valuation.

Mark: And then, the stocks in your portfolios that haven’t been doing as well came up to fill that void, financials and some of the other companies.

All right. So those are 10 Rules of Investing to Profit in Any Kind of Market from John O’Connell. Very good.