Investing: Why You Should Make $25 Mistakes

Starting-out advice from global investor Paul Sutherland.

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When Paul Sutherland was 17, a family friend gave him $2,000 to test his investing legs with the instruction that he could keep any profits over 11.2 percent. It was the 1970s, and stocks were in the midst of a long bear market, but Sutherland made out by trading gold, silver, U.S. and foreign coins, and paper currency. Today, he's the chief investment officer of the globally focused Utopia Funds, based in Traverse City, Mich. Recently, I asked him about global investing, hot sectors, and which funds he likes. Here's his advice for investors starting out (followed by a Q&A):

• First, you learn the basics. Read Security Analysis by Benjamin Graham and David Dodd. If you don't have time to read it, just look at the pictures!

• Pick a mutual fund you like, and look at what companies it owns. Read the fund's annual and quarterly reports, and find out why it sold one company and bought another. We're looking at putting together notes on the companies we hold, so shareholders can see why we make buy and sell decisions. Nothing teaches like looking over a successful person's shoulder, and then thoughtfully trying it yourself.

• Really, I say, just start investing. Make some mistakes with $25. My 13-year-old son, Keeston, told me a few days ago he wants to invest in silver. My wife, Amy, said, "Keeston, you have silver-mining stocks in your Utopia fund" (he puts $25 from his allowance in each month). He says he wants to put it in his treasure box. So I'll give him some books to learn about silver. We might go to a few coin dealers, and he can buy 1 ounce of silver for around $20. It's great education, because everything in investing connects: environment, people, geography, history, politics, and—oh yes—stocks, economics, and finance, too.

Why invest in a global fund, instead of two separate funds—one that invests in U.S. stocks and the other in international stocks?
I harken back to when I was in my early 20s. I would watch and read everything John Templeton, the famous global investor, did in his Templeton Growth fund. He made millions while others were losing their shirts, believing the paradigm that all you needed to do was invest in the U.S.A. and let those companies invest overseas—or not. As Sir John said, it is "common sense" to look everywhere for investment opportunities. To invest otherwise, you're assuming the world is not global.

So at Utopia Funds, our core belief is that every portfolio should be globally managed without any restraints, such as geographic, market cap, industry, or asset class. Of course, we have very disciplined constraints on the quality of the companies and investments we make, and we're very price sensitive. I learned early that you've got to buy low and sell high or you won't make any money, regardless of how good the investment sounds or looks on paper. That said, we won't own companies that, as their primary business, make cigarettes, porn, promote violence, or make things to kill people.

Seriously, why would you want to have owned Ford Motor instead of Toyota 20 years ago? As a global investor, if I like airlines because oil prices drop, it's not just American Airlines I could invest in; it's also Lufthansa. Also, not investing in only one country reduces risk.

What's an example of a sector or industry you're investing in right now where the global advantage is paying off?
Independent News & Media comes to mind. They are in an industry that is very out of favor: advertising-supported newspapers, radio, and outdoor advertising. This company has millions of people worldwide reading, looking at, or listening to their products every week. They own 20 percent of the most-read newspaper in the world, Dainik Jagran, which is published in India, where literacy is rising fast.

We feel that many media companies are going to be able to expand globally. The New York Times has the International Herald Tribune; Washington Post/Newsweek Interactive publishes in Korea, Japan, and other countries. Today, with the Internet and printing presses that can configure content from anywhere, information has no borders, and good, timely, trustworthy information is more valuable than gold.

Which funds (or fund managers) do you admire?
Of course, Sir John Templeton, and Franklin Templeton Investments, although I wish they had more offerings that are lower cost, no load, and without all the marketing expenses that make them a more expensive deal for smaller investors. That said, I would still pay up for their Templeton Global Smaller Companies fund. I think Steve Leuthold's funds are great, and I like Dodge & Cox (however, they're so big, it's hard for them to maneuver, but they are sure better than indexing.)

I really admire Jean-Marie Eveillard, who manages the First Eagle Global fund. First Eagle doesn't really have lower-cost products managed by Eveillard for smaller investors, but I love to read his reports, and his products are better than an indexed portfolio or [exchange-traded fund], so I would pay up to own his fund. Steven Romick manages the FPA Crescent fund, which I think is well managed and a good deal for smaller or larger investors.

In the above group, Eveillard is the only one I'd consider a true "price matters," go-anywhere global investor. Really, there are not a lot of real global funds out there with seasoned, proven managers. A lot of fund groups have decided they need a global fund to sell, so investors need to be aware of that. Global investing takes experience and training, so investors need to look through the prospectus or at the manger's 10-year or better track record as a global manager.