Canada’s The Globe and Mail highlights Larry MacDonald, a retired investment advisor, who communicates his investment strategy by maintaining a virtual portfolio at Marketocracy.com:

RANDOLPH McDUFF

AGE: 43

OCCUPATION: Retired investment adviser

PORTFOLIO: International stocks, including MasterCard, Novo Nordisk, Aeroports De Paris, Beijing Capital Airport, Bayer AG, Canon Inc., Guangshen Railway, Saputo Inc., Butterfield Bank, and Keytech Inc.

INVESTMENT RESULTS

Mr. McDuff”s investment strategy is working exceptionally well, as highlighted by a virtual portfolio he is running on marketocracy.com. Called the RMG Value Catalyst Fund, it has returned 37.5 per cent on an annualized basis from inception in late July of 2000 to early March of 2008.

This puts his portfolio in the top 10 of the 50,000-plus portfolios tracked on marketocracy.com, and way ahead of the S&P 500 index’s annualized return of zero per cent over the same period. His second virtual portfolio, RMG Value Oriented Growth Fund, is also in the top 10 with an annualized return of 24.8 per cent over the same period.

HOW HE GOT STARTED

When Mr. McDuff was 13 years old, an uncle suggested he invest in the stock market. “I didn’t know the first thing about investing, so I started reading The Globe and Mail on Saturdays, at my public library, to get a bit of an education,” Mr. McDuff says.

After graduating from the University of Manitoba in 1986 with a bachelor’s degree in economics, Mr. Duff became an investment adviser. Fourteen years later, still in his mid-thirties, he had accumulated enough capital to take early retirement and pursue his goal of building wealth at a faster pace, using his own research.

INVESTING STRATEGY

Mr. McDuff, who lives in Winnipeg, focuses on global companies. Coverage by brokerage and institutional analysts of many international companies is non-existent or poor, so good companies can often be found trading at modest valuations. Also, companies with ample free cash flow are sometimes ignored by the professional investment community because they don’t need the help of investment dealers to raise funds.

His preferred investments have sizable barriers to entry (e.g. monopolies or oligopolies), fortress-like balance sheets, and catalysts that can accelerate cash flow and attract research coverage. The companies also have modest valuations according the “forward EV/EBITDA” ratio. Specifically, their projected enterprise value (debt plus equity) stands 10 times or less to projected EBITDA (and are below levels for peers).

BEST MOVE

“I’m most pleased with an investment in Aeroports De Paris, which is up 100 per cent in the past 18 months,” reported Mr. McDuff recently. Traffic is growing for the airport as more East European countries join the Europe Union. Rental income should trend upward due to an expansion of airport retail space and development of the company’s tracts of commercial land in the south of Paris.

WORST MOVE

Within the past two years, Mr. McDuff lost 20 per cent on his holding in UnitedHealthcare. He normally sells an investment “when the business model deteriorates,” but he gave management the benefit of the doubt and it did not come through as expected.

Tags: Marketocracy