Brett Platt, 34
Started investing: 1997.
Focus: Undervalued small-company stocks.
What stands out: Sheer performance -- annualized gains of 30%-plus since 1999.
His advice: To avoid overload, limit your portfolio to nine to 11 stocks.
When Brett Platt first began dabbling in stocks, it was clear, he recalls, that "I didn't know what I was doing." The Dallas-based computer engineer realized he lacked a rigorous investment discipline and stopped investing to avoid hemorrhaging money. Instead of switching to mutual funds or seeking an adviser's help, he bought a small library of value-investing books. He devoured Benjamin Graham's classic The Intelligent Investor and read everything he could find on Warren Buffett.
Since the new-and-improved Platt returned to the stock market on August 20, 1999, his portfolio has returned a remarkable 31.63% annualized (yes, he's that precise). In his worst year he made 28%, and in his best, 2005, 41%. With two kids (and a third on the way), a stay-at-home wife and a salary that's never reached six digits, Platt has amassed a portfolio in the low seven digits, 95% of it invested in stocks.
Platt sees value investing -- the art of identifying stocks that are cheap in relation to such fundamental measures as earnings or assets -- as perfectly suited to his engineering mentality. That's because bargain hunters, like engineers, analyze "verifiable data" and try to keep emotion out of the process. Platt spends 40 to 50 hours researching each stock before he buys, poring over corporate filings, listening to quarterly conference calls and calling company managers for answers. For example, before investing in two small breweries in Ontario, he researched Canada's beer industry. Among other things, he learned about rules that support beer prices and therefore improve the profitability of small breweries.
Platt believes he's more likely to find undervalued shares among small companies, which tend to be followed less closely by professionals. And he limits his portfolio to nine to 11 investments, because an otherwise-employed person "can't understand more than a dozen stocks at a time." He avoids tech stocks, hewing to "simple and easy" industries, such as shoe retailing. He made a bundle on FreightCar America, the dominant maker of aluminum-bodied coal railcars, by observing the rising demand for coal.
And the farm-bred Kansas native has a special fondness for firms set up as business trusts, especially those in Canada. The trusts must pay out most profits each year to shareholders. "I'm a trust junkie," he says.
Platt has some advice for young investors. First, cut back on luxuries so you'll have more to invest. Next, bounce stock ideas off tough critics (Platt seeks opinions from his wife and from other amateur investors at www.valueforum.com). Finally, make time at home to research stocks by throwing out your TV.