John W. Dobson, the founder of one of Canada's most successful long-term mutual funds, Formula Growth, was a pioneering growth investor and a fervent champion of free enterprise. While a private individual who gave few extensive interviews, his investment philosophy and core beliefs have been documented, primarily through the book Up and to the Right: The Story of John W. Dobson and His Formula Growth Fund and the enduring principles of his firm. An initial investment of $10,000 in the Formula Growth Fund in 1960 grew to an astonishing $12 million, a testament to his profound success. [1]

Attributed Quotes from John Dobson

While direct quotes are not widely publicized, his official biography and company materials attribute to him a clear and concise investment thesis:

  • On the core activity of his fund: "Finding companies that are growing earnings at a rapid rate. In a nutshell, that's what we do-and the record shows that we're good at it."
  • On the risk and reward of his strategy: "But the potential return is much greater. We are swinging for the fences more than your garden variety investment house."
  • On the source of investment ideas: "The bottom up approach could lead you into sectors, because growth occurs in some industries."
  • On his philanthropic and educational mission, John Dobson's mantra was to "help students make a living around their passion." [2]

Key Learnings from John Dobson's Investment Philosophy

The following are core principles and learnings derived from the strategy John Dobson implemented at Formula Growth Ltd. and his broader life philosophy.

On Identifying Winning Companies

  1. Find Tomorrow's Market Leader Today: The ultimate goal of his growth investing strategy was to identify and invest in companies like IBM or Microsoft in their nascent stages. [3]
  2. Focus on Small to Mid-Cap Stocks: Dobson believed that smaller, innovative businesses offered higher growth potential than larger, more established companies. [3][4]
  3. Look for "Aggressive Owner-Entrepreneurs": He sought out companies led by passionate founders who were deeply invested in their own businesses. [3]
  4. Insist on High Management Ownership: A key criterion was a high degree of stock ownership by the management team, ensuring their interests were aligned with shareholders. [3]
  5. Target Nimble and Un-bureaucratic Businesses: Growth companies, in his view, should be agile and responsive to the marketplace without the constraints of a large corporate structure. [3]
  6. Prioritize Innovation and Customer Focus: The companies he invested in were typically leaders in product development and design with a strong focus on their customers. [3]
  7. Seek High Growth in Revenue and Earnings: A primary indicator for investment was a track record of revenues and earnings growing at a faster rate than the broader economy. [3]
  8. Employ a Bottom-Up Approach: Rather than making broad bets on entire sectors, his firm focused on selecting individual securities based on their specific merits. [4][5]
  9. Be "Macro Aware": While the focus was on individual companies, the firm maintained an awareness of the broader economic landscape.
  10. Invest in the Dynamic U.S. Economy: The Formula Growth Fund primarily focused on the U.S. stock market, which was seen as the most dynamic and enterprising economy in the world. [3]

On Portfolio Management and Strategy

  1. Capital Protection is Central: Despite being a growth investor, protecting capital was a core tenet of the overall investment philosophy. [4]
  2. Diversify, but Not Excessively: The fund typically held between 60 to 80 securities, ensuring diversification across various industries. [4]
  3. Use a "Script-Based" Investing Style: Investments were tied to measurable catalysts and clear price targets, providing a disciplined framework for buying and selling. [4]
  4. Transact Only in the Best Ideas: The firm would analyze over 2,000 ideas a year but only act on the top 15% of long/short opportunities. [4]
  5. Don't Be a Market Timer: The focus was on the long-term potential of the businesses, not on trying to predict short-term market movements.
  6. Embrace Volatility for Higher Returns: Dobson acknowledged that investing in emerging growth stocks entailed higher risk and volatility, but accepted it as the price for achieving greater returns.
  7. Continuity of Staff is Invaluable: He believed that the experience gained by career investors over several full market cycles was a key reason for the fund's success.
  8. Focus on Investing, Not Marketing: The firm's primary objective was to grow assets through capital appreciation, not through aggressive marketing campaigns.
  9. Align Interests with Clients: All officers, directors, and employees at Formula Growth owned a substantial number of units in the fund, ensuring their interests were directly aligned with their investors.

On Philosophy, Entrepreneurship, and Economics

  1. Believe in Self-Reliance and Free Enterprise: These were core values that guided both his investment decisions and his philanthropic activities. [1][6]
  2. Champion Entrepreneurship as an Economic Engine: He believed that fostering entrepreneurial studies and outreach was a powerful way to stimulate economic development and create jobs. [7]
  3. Promote Entrepreneurial Education in Universities: He established The John Dobson Foundation in 1986 to support entrepreneurial programs at universities across Canada. [7]
  4. Advocate for Lower Capital Gains Taxes: He actively campaigned for the reduction of high capital gains taxes, presenting a brief to the Canadian Senate, believing it would unlock investment and economic growth. [5]
  5. Give Back to the Community: His immense success was matched by his significant philanthropic contributions to education and community initiatives, particularly in his native Montreal. [5]
  6. Pursue Your Passions: Beyond investing, Dobson was a passionate golfer who played on hundreds of courses worldwide, embodying a belief in living a full and enthusiastic life. [5][7]

Learn more:

  1. Up and to the Right : The Story of John W. Dobson and His Formula Growth Fund by - eBay
  2. John Dobson | Faculty - Clark University
  3. Formula Growth Fund Performance
  4. Formula Growth Hedge Fund Performance
  5. Honorary degree citation - John W. Dobson - Concordia University
  6. Up and to the Right: The Story of John W. Dobson and His Formula Growth Fund - Craig Toomey - Google Books
  7. John Dobson - www.chafuen.com