Secrets of the quiet American

Don't ride cyclical shares and don't fall for dividends - two of the rules that made KS Janke a multi-millionaire

Berlin, Thursday morning. Feeling lonely and inadequate. Lonely because I'm sitting in a huge convention hall, the only Brit among hundreds of delegates at the World Federation of Investors conference. Inadequate because I fear my O-level German may be a trifle rusty after four decades of non-usage.

Berlin, Thursday morning. Feeling lonely and inadequate. Lonely because I'm sitting in a huge convention hall, the only Brit among hundreds of delegates at the World Federation of Investors conference. Inadequate because I fear my O-level German may be a trifle rusty after four decades of non-usage.

A Germanic gentleman sits next to me, offers a handshake and introduces himself. "Morgan," he says. "V Gates?" Oh dear, mistaken identity. "Please to meet you Mr Morgan," I reply. "Sorry though, I'm not V Gates. I'm T Bond. From England." Puzzlement clouds his face, then he smiles. "You misunderstand, Mr Bond," he says. "I said morgen which means 'good morning' and wie geht's means 'how are you?'."

I was right, my German is a bit rusty. However, I need not be too concerned because, although earpieces and instant translation are provided for all the speeches, almost all the proceedings are conducted in English. We listen as a succession of government ministers, top bankers and other worthies from around the globe give their assessments of world events and how they are affecting the private investor.

Consensus opinion is that the signs are cautious to good for investors in the immediate future, but that the inexperienced operator should be wary of equities and opportunities that look too good to be true. There is also a consistent gloom to the predictions relating to the welfare states in almost all of the 19 countries represented. The simple fact is that the world population is living longer. We cannot expect that the state will be able to provide any degree of comfort for our old age.

Governments see investing in equities as the best way for an individual to keep his or her savings growing faster then inflation, hence their desire to encourage the spread of competent private investors.

There is great excitement among delegates at the prospect of a pan-European market and I have detailed discussions with an international computer group about standardising information on quoted companies. I am no computer whiz so much of the conversation is beyond me but it is encouraging to see the enthusiasm there is for investing overseas.

Thursday evening: after a coach tour of Berlin, a city reborn, I dine with Kenneth S Janke and his family. A youthful 66, Ken is president and chief executive of the National Association of Investors in America. Despite his quiet demeanour, he's a fine raconteur and his investment philosophy and principles have made him a multi-millionaire.

Ken tells me that investing in the US is buoyant. Around 50 per cent of the stocks of companies on the New York Exchange are owned by individuals but 90 per cent of the volume of trades is done by institutions.

Ken says this institutional dealing often has little to do with the long-term prospects of the company being sold and therefore presents an opportunity for private investors. He believes the mutual funds in particular sell selfishly to "window-dress" their results for their investors. "They have to show consistently improving profits," he explains. "So they will sell a stock to present the right results for their portfolio rather than because it is the right time to sell.

"It's worth watching stock sales by mutual funds and examining the reasons. If they are not directly related to the value of the stock it may be an opportunity to buy."

Of the deals done by private investors in the United States, 37 per cent are transacted via the internet. While Ken can see the advantages of this, he warns that there are dangers in out-of-hours trading. Costs can be high and prices can be volatile and often unpredictable.

The few hours I spent with this quiet American threw up some priceless pointers (see below). "I have applied all these rules to my investments for 40 years now," Ken tells me.

"I've stuck to them through recessions, booms and crashes. Believe me, over time, they work." I believe you Ken, I believe you.

The London Stock Exchange was less than enthralled by my criticism last week of the shenanigans surrounding its involvement in the creation of a wider European share trading market. Celia Glynn-Williams, who looks after the interests of the private investor at the LSE, rang me to "set the record straight". She explained that the abortive merger plans with Deutsche Bourse were originally started because LSE shareholders and customers wanted access to a pan-European stock exchange.

Each move in the negotiations had been carried out with the best interests of UK investors in mind and, contrary to City rumours, Celia says, stockbrokers and other interested parties had been fully briefed. The misgivings of shareholders and customers had been fully explained and their queries dealt with.

So, I'm rather mystified as to why the merger talks collapsed. But Celia tells me it was principally because they were girding their loins to fight the OM bid from Sweden. When the dust has settled Celia and I will discuss the implications for the private investor of any developments in the saga.

* terry.bond@hemscott.net

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