Legendary Investor Tony Fell's 11 Rules of Investment Success

Tony Fell is a legend in Canadian wealth management circles.

He spent pretty much his entire career at Dominion Securities, rising to the Chief Executive position in 1980. He orchestrated taking the company public in the 1980s and its eventual sale to Royal Bank. Fell was particularly proud of only selling 67% of the company to Royal Bank, leaving a certain amount of freedom for a company with a highly independent culture.

Royal Bank eventually acquired 100% of its prize, finally consolidating it on its balance sheet in 1996. He relinquished his title as CEO of RBC Capital Markets in 2000, but he remained Chairman of the enterprise until his retirement in 2007.

Fell remained active in Canadian business after his retirement, including serving on the Board of Directors for BCE, CAE, and Loblaws. He was also generous with his time for several non-profits, sitting on boards and helping with fundraising efforts.

I had known about Tony for years, but I never really took the opportunity to really get to know his wisdom more intimately. What I found was a man full of investment wisdom with a simple, timeless message of buying good companies, at reasonable valuations, and waiting for them to execute.

In 2017, he was the keynote speaker at the Value Investing Conference at Ivey Business School, a talk that has a mere 703 views on YouTube. This was a terrific speech that summarized Fell’s nearly 60 years of investing experience.

Allow me to summarize that talk into 11 ridiculously simple value investing principles, including taking a closer look at a half dozen Canadian companies Tony felt were excellent buys in 2017.

I think y’all are really going to like this.

Tony’s 11 investing principles

Without further adieu, I’ll turn it over to Tony. Here’s a summary of his top investing principles:

1. Implement an investing strategy you can stick to over the long-term. “Most investors just do not have the patience to stick with great companies through the ups and downs to realize truly outstanding long-term investment returns.”

2. Think like an owner. “Invest for the really long term as opposed to opportunistic in and out traders who really have no interest in the business at hand.”

3. Embrace a concentrated portfolio. “You are best advised to find a few companies and a few management teams and a great chief executive and a business that you like and take a major interest in it on a long-term basis.”

4. Focus on companies with a continued focus on keeping costs under control. “If you’re the lowest cost producer, or even in the lowest quartile in your industry, it gives you a huge competitive profitability edge.”

5. Find the right metrics. “In our experience, return on capital and return on equity wins. Hands down.”

6. Invest in people. “We learned over the years that if you don’t have the best and most capable people, you are dead in the water.”

7. You can’t forecast a crisis. “I have experienced six major financial, real estate, commodity, or banking crises, none of which were generally forecast by economists or market pundits.”

8. Insist on conservative accounting. “Sooner or later, aggressive accounting always catches up with you.”

9. Free cash flow is key. “Focus on companies which are earning -- or have the potential to earn -- substantial free cash flow after normal capex.”

10. Be wary of acquisitions or companies that grow too quickly. “Often the best acquisition is the one you don’t do.”

11. Look after your customers. “In any business your reputation for ethics and integrity and for treating clients fairly is by far your most valuable asset.”

Fell’s 2017 top picks

The beauty of discovering wisdom like Tony Fell’s a few years after the fact is you can use it to determine how successful his strategy would’ve been. Tony made it easier than that — he provided a list of stocks in his 2017 talk that he thought demonstrated those all-important investing principles.

A quick examination of those top picks tells us he’s onto something. 

His first top pick was Fairfax Financial (TSX:FFH), a stock your author avoided for years because I just wasn’t comfortable with CEO Prem Watsa’s investing ability. I admittedly swung and missed with that one — Fairfax is up 163.38% since April 2017, for a CAGR of 14.84%.

(All results assume reinvested dividends)

Up next he picked Loblaw (TSX:L), saying then-CEO Galen Weston “transformed” the company and was only in his mid-40s, giving him plenty of time to keep building. Loblaw stock is up 187.02% since Fell recommended it, for a CAGR of 16.26%. Weston is now the Chairman, but his fingerprints are still all over the company.

They can’t all be winners. Fell’s next pick was BCE (TSX:BCE), pointing out specifically the great job done by then-CEO George Cope. Cope retired in 2020, replaced by COO Mirko Bibic. BCE has stumbled lately, but your author is still a long-term believer. The stock is up just 9.14% since Fell’s talk, for a CAGR of 1.26%.

Fell was a big fan of CREIT, which was acquired by Choice Properties (TSX:CHP.un) in 2018. Although I can’t be certain Fell would also be a fan of Choice Properties, the company does have qualities he likes — including a solid balance sheet, a long-term mentality, a relatively low payout ratio, and a large ownership stake by the Weston family. Yes, the same Weston family that owns Loblaw.

Choice Properties is up 37.70% since he gave his talk, for a CAGR of 4.68%. Considering the REIT is down some 20% since its all-time highs in 2022, I’d argue today is a great time to buy.

His next choice was Canadian Natural Resources (TSX:CNQ), which he described as having a “really great management team.” This was also a terrific pick, with the investment returning 243.38%, which translates into a CAGR of 19.27%.

Finally, somewhat predictably, Fell revealed his final pick — Canadian banks. He described Canada’s largest banks as “wonderful vehicles to generate long-term shareholder value. You just have to be patient.” Using Royal Bank as a proxy for Canadian banks — I think Fell would approve — the stock has returned 83.69% for a CAGR of 9.08% since 2017.

Assuming an equal weighting of all six stocks in Fell’s list, and the portfolio would be up 106.31% in seven years, for a CAGR of 10.90%. The TSX Composite (as measured by the ETF XIC) is up 69.57% during that time, for a CAGR of 7.84%. Put simply, Fell’s top picks crushed the market, and that’s despite at least one pretty big swing and miss.

Bonus: More Tony Fell

I discovered another great Tony Fell resource in my research.

During his days at Dominion Securities, Fell and other members of his management team made several acquisitions of other brokerages. He also passed on dozens more.

He distilled decades of merger and acquisition experience into one document, which successfully throws cold water on most acquisitions. Fell’s message is simple: you have to be extra careful when acquiring competitors. Most deals simply don’t work.

It’s a great resource for investors too.

Enjoy!

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