GAZETTE As chairman of Formula Growth Fund, John Dobson has been helping a cozy group of 350 families make money on equity investments.

John Dobson learned the most important lessons of investing at a young age. From the time he was a baby, his father put $100 a year into stocks for him. By adulthood the money had grown into a tidy sum, making a lasting impression on Dobson about the value of equity investing and the magic of compounding.

For over 40 years now, Dobson and his associates at Formula Growth, a small Montreal money-management firm, have been investing in stocks and letting compounding do its work. The results are astounding.

The Formula Growth Fund founded by Dobson in 1960 began life with an initial stake of $134,000 collected from 11 Montrealers who were looking to invest in markets outside of Canada. By the end of last year, the fund had assets of $452.8 million.

The fund's unit value soared from $9 in 1960 to $4,293, representing an annual compounded rate of return of 16 per cent over 42 years. That compares with 6.9 per cent in the corresponding period for the Dow Jones industrial average.

But don't look in your newspaper for a mutual-fund listing for Formula Growth. You won't find it. By Dobson's own admission, this is a very cozy club that's closed to the public.

He estimates there are roughly 350 families that hold units.

"Of those people, I would know 90 per cent of them. They are our friends and ourselves (the money managers and support staff)," said Dobson, 73, chairman of Formula Growth. "It operates like a mutual fund, but it's an overgrown private club."

The goal has always been to build wealth for the unitholders, not to become a publicly traded mutual-fund company with the accompanying sales and marketing machinery, regulatory hoops and paper work to go through.

And by keeping things small, Formula Growth has been better able to invest in the kind of companies it likes.

Those are small, fast-growing U.S. stocks that Formula Growth jumps into before the big boys on Wall St. show up on the scene.

Dobson and the firm's four other managers, who also run a separate fund for institutional clients, are looking for companies whose per-share earnings grow by at least 20 per cent a year, yet can still be had for a reasonable price.

Formula Growth - which works closely with another Sherbrooke St. firm, GBC Asset Management - unearths its diamonds with help from a network of contacts in the U.S., including regional brokerage firms and friendly money managers.

Growth investing, especially small-cap growth investing, is a risky business.

To reduce that risk, Formula Growth Fund is diversified across a large number of stocks.

A glance at the 150 or so stocks that make up the portfolio turns up precious few familiar names. "In simple language. what we're trying to do is find a stock before Merrill Lynch comes along."

Besides his investing activities, Dobson also operates the John Dobson Foundation, which he uses to promote his free-market economic views. He has given millions to universities, notably funding the Dobson Centre for Entrepreneurial Studies at McGill.

Dobson recommends that average investors stick to companies that have products and services they understand, and, most importantly, are growing profits. But, he admits, it's not an easy game.

Unfortunately, his growth formula is available to only a select few.

- macdonald@thegazette.southam.ca