Revisiting the Classic: The Investment Jungle
By Yao Bin
Stephen Jarislowsky was a renowned investor often hailed as “Canada’s Buffett.” He once taught investment courses at McGill University’s business school. Later, he founded Jarislowsky Fraser Limited. Over the long term, the firm delivered outstanding performance and became a leader in Canada’s investment fund industry. Drawing on his five decades of investment experience, he authored the book The Investment Jungle: A Legendary Investor’s Personal Memoir Spanning 50 Years, published in 2005. The book articulates his investment philosophy and insights, offering incisive perspectives on investing.
Investment Principles: Conservative and Time-Tested
Jarislowsky was born in Berlin, Germany, in 1925. His family’s hard-built financial and industrial enterprise fell into the hands of Nazi fascists during the 1930s. Subsequently, his mother decided to move the family to Paris. As the European war dragged on, they relocated again—this time to New York. Soon after, Jarislowsky enrolled at Cornell University. In 1944, upon graduation, he enlisted in the military and participated in the Army Specialized Training Program at the University of Chicago.
After the war, he returned to the University of Chicago and earned a master’s degree in Far Eastern history and culture. In 1947, he applied to Harvard Business School and obtained an MBA. This degree enabled him to join Alcan (Aluminum Company of Canada). There, he learned how a world-class corporation operated its business from a strategically advantageous position near the top of the organizational pyramid. After leaving Alcan, he co-founded Aluminum Compression Company with a partner and also launched mutual funds focused on the oil and mining sectors.
In 1954, Jarislowsky partnered with Jack Brown to establish a company that provided statistical services to various firms by transmitting data. These statistics clearly indicated whether profits were increasing, whether capital investments were yielding returns, and whether a company was fundamentally sound overall. This approach offered a valuable perspective for evaluating management quality and benchmarking a company against its industry peers. From that point onward, he embarked on an investment career that would span nearly fifty years.
In December 1955, he bought out Brown’s stake in the company. Like Buffett, their initial investment amounted to just $100. He then partnered with Scott Fraser, and Jarislowsky Fraser Limited was born. From then on, he diligently managed the firm, growing it into Canada’s largest privately owned asset management company, with over $50 billion in assets under management. This remarkable growth stemmed from a philosophy that remained virtually unchanged—a foundation built on conservative, time-tested investment principles. Specifically, these principles emphasized rigorous industry fieldwork and securities research, focusing investments on high-quality, growth-oriented companies.
Jarislowsky thus constructed diversified, high-quality investment portfolios designed both to preserve clients’ existing capital and to achieve long-term growth. This investment approach consistently generated stable returns—often exceeding market averages—even amid shifting economic conditions. The strategy proved particularly effective in significantly mitigating the widespread volatility inherent in markets. A critical factor behind Jarislowsky’s success was his disciplined focus on investing in time-tested companies with exceptional management, high quality, and strong financial health—all supported by deep industry research.
After serving as the firm’s chief research analyst for nearly four decades, Jarislowsky was confident in his ability to assess the circumstances surrounding an investment opportunity and evaluate corporate management effectively. He did not rely solely on statistical analysis; instead, he conducted thorough examinations of every aspect of a company’s operations. He also believed he understood how to run a company and could serve as CEO of a major corporation. In his view, becoming an excellent investor required a deep understanding of how a company operates and the caliber of its personnel. One must also comprehend the industry itself—how it functions and who the other key players are. In many respects, a company resembles a work of art: one must truly understand it. Misinterpreting its essence is futile; instead, one must focus intently to grasp its true nature. He always maintained that it was essential for the companies in which he invested to have first-rate management and execution teams.
Galislofsky has always believed that a diversified equity portfolio is preferable—primarily composed of stocks from companies in industries exhibiting relatively rapid growth. If we can acquire these at reasonable prices, they will prove to be highly valuable investments over the long term. The core investment principle is simply not to do anything foolish—a maxim equally valid in business management. We do not want to make a poor decision regarding a company and then be forced to live with its consequences for the next five years, only resolving an issue that could have been avoided from the outset. Therefore, it is essential to consistently focus on potential negative factors, as this is where risk resides. Embracing positive aspects comes naturally to everyone, but acknowledging and attending to negative factors is far more challenging. Since we cannot achieve 100% protection, we should avoid concentrating on a single stock and ensure other holdings represent at least a modest portion of the portfolio.
The True Winners in the Stock Market: Achieving Wealth Through Compounding
Who are the true winners in the stock market? They are investors who earn substantial returns without gambling or taking excessive risks. Their investment decisions are grounded in sound, long-term strategies and thorough research. Even when faced with one or two difficult years, they do not sell their holdings. Investing offers numerous pathways to grow wealth, but there are also many ways to waste time—or worse, lose money. If our initial investments perform poorly, it is highly likely this underperformance will persist. Thus, establishing a solid investment plan from the outset and adhering to it rigorously is critical.
The best way to build wealth is by applying the principle of compounding. Start early and aim to select investments with minimal risk that nonetheless offer the potential to double in value every five to seven years. Compounding is a fundamental investment concept governed by a simple rule: if our investments generate an annual return of 14%, they will double approximately every five years. The implications are staggering—over a 40-year working period (from age 25 to 65), an initial investment of $100,000 would grow to $25.6 million. If our investments yield an average annual return of 10%, doubling roughly every seven years, that same $100,000 would grow to $5.1 million after 40 years.
What type of investment best leverages the power of compounding? Galislofsky’s answer is investing in individual high-quality stocks—but with careful avoidance of certain pitfalls. Historically, equities have delivered returns comparable to, if not superior to, any other investment vehicle. Nothing he has witnessed or experienced throughout his 50-year investment career has shaken his confidence in stocks. Galislofsky firmly believes that equity investing represents the optimal path to maximizing the benefits of compounding. He consistently views the stock market as a source of opportunity—a place where we can acquire exceptional investment assets. The underlying philosophy is 'buy low, sell high.' When we adhere to this principle, we truly operate as professionals.
Not everything is worth buying merely because its price is low. Galislofsky’s guiding principle is to invest only in high-quality stocks with largely non-cyclical growth, predictable high earnings yields, and the prospect of delivering strong dividend growth. Keeping this in mind helps us stay on track and avoid being distracted or overwhelmed by other types of stocks, such as so-called 'glamour' or 'star' stocks.
A good investor must have the courage to make choices. The stock market resembles a jungle filled with all kinds of creatures—from elephants and tigers to snakes and monkeys. We need only select the best species to construct a well-diversified portfolio capable of delivering sustainable, low-risk, high-compounding returns. Our task is simply to identify them, purchase them at reasonable valuations, and ensure they remain on the right trajectory. The first point to remember is that if we aspire to become discerning investors, we must rid ourselves of greed and fear and maintain rationality, avoiding the fog of emotion. The second point is to temporarily disregard the overall state of the stock market and focus exclusively on the companies whose shares we own; if those companies perform well, we will become wealthy in due course—even if we hold only a small fraction of their total equity.
Day after day, the stock market resembles the ocean: sometimes calm, sometimes ravaged by storms. Yet everything we observe is merely surface-level, not reflective of underlying reality. On the surface, prices are driven erratically in all directions by sentiment, with stocks typically experiencing average annual price swings of around 30%. Clearly, true intrinsic value does not fluctuate so dramatically; however, herd behavior leads investors to follow blindly, causing sharp price surges or collapses. In the short term, the market acts as a mirror reflecting greed and fear—the emotions emanating from these primal instincts. Over the long term, however, it reflects, 'on average,' the growth of companies that continue to expand earnings and increase dividends.
Galislofsky states that he is not a believer in market-timing theories, nor does he claim to possess absolute knowledge about any particular stock. He relies solely on basic balance sheet data and earnings statistics, which he refers to as the 'skeleton.' But a company is far more than just a skeleton. Most companies are vibrant, dynamic entities—active beehives of activity. Galislofsky believes his accumulated knowledge enables him to assess whether the market as a whole is overvalued or undervalued. This judgment is based on historical metrics such as the price-to-earnings ratio and the market’s average dividend yield. If current market prices fall below historical valuation averages, he concludes the market is undervalued—and vice versa.
A critically important lesson: seek out Abbott Laboratories
Kalishofsky believes that among the tens of thousands of stocks available worldwide, at most only about 50 truly warrant attention. He also does not advocate buying shares in companies that do not pay attractive dividends; ideally, dividends should increase as the company’s wealth grows. Like most living organisms, companies have a finite lifespan. Their purpose is to generate profits, and these profits should be distributed to shareholders.
No one can predict the future. However, it is evident that companies with a track record of strong, sustained performance are more appealing than those lacking such a history. Of course, this trend is not guaranteed to continue—there are no certainties in the stock market. By engaging with a company’s competitors, we can gain the clearest insights into its management, strategy, and products. We aim to invest in companies that are primarily manufacturers of non-cyclical consumer goods.
Consumption of products such as peanut butter, cereal, soft drinks, or razor blades is largely non-cyclical. With the end of the Cold War, these products have expanded globally, supported by robust distribution networks that can effectively launch newly developed or acquired products. As market leaders, these companies enjoy wider profit margins, enabling them to pursue growth while simultaneously returning dividends to shareholders—something second- or third-tier competitors often must choose between. Thus, companies like Coca-Cola, Philip Morris, Unilever, and Kellogg represent the type of businesses worthy of consideration.
Another highly promising area worth exploring is healthcare, particularly the stocks of leading medical product suppliers such as Abbott Laboratories, Johnson & Johnson, Novartis, Roche, Pfizer, and Amgen. These companies are key focuses due to their strong franchises and exceptional research capabilities. In Kalishofsky’s view, this is an outstanding sector, and stocks from within it consistently constitute a significant portion of his investment portfolio.
The retail and distribution logistics sectors can also yield strong stocks, though this is a more nuanced area. For instance, leading pharmacy chains have demonstrated excellent, time-tested performance. However, retail concepts often have limited lifecycles that are difficult to extend. Top-tier food retailers have proven more likely to endure over the long term compared to department stores or specialty shops. If one identifies a high-quality company early—such as Walmart or JDB Group—it can deliver approximately 15% annual growth for many years.
It is difficult to find consistent 15% growth in the banking or insurance sectors, but such growth does exist. In this domain, the primary focus should be on industry leaders. When well-managed, scale translates into lower unit costs and competitive advantages—a dynamic that has driven a strong trend toward mergers and acquisitions.
Kalishofsky recommends a diversified investment strategy across industries, though without overdoing it. There is no reason why roughly 20% of capital cannot be allocated to a single important category. Therefore, a portfolio comprising four or five broad categories, supplemented by select specialized sectors—such as entertainment, communications, and electronic equipment—can be well-balanced. What should be avoided is straying beyond the boundaries of these established industry groupings.
Many companies in the high-technology sector perform exceptionally well for many years before collapsing—examples include Wang Laboratories, Unisys, and Digital Equipment Corporation. The key to investing in this sector lies less in evaluating current products and more in assessing whether the company attracts top-tier, innovative young talent from graduate and engineering schools. Microsoft and Cisco achieved success through this approach, just as Intel, Nortel Networks, or Ericsson did during specific periods. One should select the best companies but remain on the main investment highway—never veering onto side roads, no matter how attractive the scenery may appear.
The cornerstone of Kalishofsky’s success is selecting stocks of industry-leading companies and holding them for many years. If a company misses its earnings target in a given year or two, there is no cause for alarm—this is entirely normal. Unless a company 'manages its earnings' (a euphemism for manipulation), it will inevitably experience both favorable and unfavorable periods. Most companies, even the best ones, must continuously reinvest in themselves.
For many companies, products launched in the preceding three to four years may account for 40% to 50% of total sales. In the pharmaceutical industry, once drug patents expire, companies face competition from generic alternatives. Consequently, if a company lacks compelling new products to replace aging ones, its growth may slow or stall. However, if its research and development capabilities and overall management quality remain at the industry’s highest level, there is no need for concern on this front.
If we can buy a stock while its price is undergoing a significant but temporary decline, the pace of our compounded progress will accelerate—and vice versa. Garislovsky once purchased shares of Pfizer during such a period of deceleration, and as a result, his investment quadrupled over the following four years.
Investing cannot guarantee success in every instance. Garislovsky once bought shares in Reynolds Metals, United Airlines, and Abbott Laboratories, forming what he called his 'three-stock story.' The first was clearly 'a rather poor investment,' the second fared little better, and only the third proved successful. The principle of compound growth worked powerfully for Abbott, whereas it had far less effect in the other two cases.
This led Garislovsky to realize that attempting to profit from stocks while ignoring the principle of compound growth inevitably incurs a high cost—or reduces investment success to mere luck. In Abbott’s case, however, he believed it was not luck but patience, along with attention to certain fundamental principles, that drove the outcome. Abbott was a consistent winner: unlike the other two companies, it operated largely in a non-cyclical industry, and its compound growth rate was predictable—capable of doubling earnings within a five- to seven-year horizon.
In fact, if its average growth rate were significantly higher, it might eventually attract stronger competitors into the market. However, Abbott’s management was sound and steadily built its competitive advantage. It maintained a robust pipeline of new products, invested effectively in research, and operated an excellent sales network. It exemplified the kind of company that delivers predictable or growing earnings, achieving an optimal level of compound growth. This has been one of Garislovsky’s most important lessons over the past fifty years: seek out Abbott Laboratories and avoid Reynolds Metals or United Airlines.
Maximizing our purchases of undervalued stocks clearly enhances the potential for compound growth. If we acquire stocks at a discount and they subsequently rise to fair valuation, we effectively get a 'free ride' on the upward price movement. Conversely, if we buy overvalued stocks, our returns diminish when they revert to fair or below-fair valuation. Numerous strategies align with this principle, and if properly executed, they can generate strong medium- to long-term market returns.
In the stock selection process, the quality of a company’s management should be a key consideration. For any company, having strong management today is insufficient; it must also work diligently to ensure strong management tomorrow. Well-managed companies have a substantially higher probability of success compared to poorly managed ones—even if the latter possess valuable assets, investors should generally avoid them. Some companies may achieve exceptional long-term success, yet still experience significant short-term price volatility, even within a diversified portfolio of 40 to 50 stocks.
Garislovsky specifically emphasized that he would not invest in a company’s stock if he did not understand the products it produced. He would not buy shares if he could not assess whether the company’s competitive advantage would endure over the next year or two. Likewise, if he lacked confidence about whether technological innovation might render an entire industry obsolete, he would refrain from investing in companies within that sector. Remember, we are seeking investments that offer low risk and high compounding returns over the long term. We are not chasing windfall profits, nor are we gamblers—but we must always acknowledge that all investments carry some degree of risk.
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Editor /rice