Three Habits You Need to Successfully Save for Retirement: Beware of “Money for Nothing and Chicks for Free*”

 

I’ve always been a gifted academic, fortunate that I see complexity as a puzzle that can be quickly solved.  And long ago I learned to stop suffering from paralysis of analysis to make recommendations and follow through on them.  But having an academic bent or good ‘gut’ instincts for the market means nothing when you’re saving for retirement.

Since I first got into the brokerage business I’ve always struggled with our collective need to “beat” the market, although there is merit in managing risk and opportunity.  In my opinion, building a strategy based on a lottery ticket mentality turns the stock market into an elaborate casino.  I personally don’t like spending time in casinos and I don’t want to work in one.

Don’t get me wrong; I have clients who have made enormous amounts of money speculating.  And they have in the main retained most of it.  They deal with me because I am a source of information and analysis, a set of second eyeballs for their deals, an arbiter of technical trends and a latent conscience.

In my opinion, this doesn’t represent most investors.  As much as we all like to sally forth from the walls of our complacency, taking a risk with a little bit of money, close contact with the time demands, angst and uncertainty of investing in a single speculative stock quickly defeats us.

Frankly, if you think about the last “big thing” in Canadian markets, many investors would have been better off spending a smaller portion of their money on bud and smoking it.  At least they would have been chill.

In my many years in the industry I see three highly effective investment habits over and over that lead to a healthy retirement:

1.    Save Systematically

Either you’re committed or not.

I have seen people with below average incomes saving disproportionally larger shares of their income and amassing huge sums of money.  And I have seen others with large incomes facing the horror and panic of having five years to save enough money to last them for 40.

Saving systematically is a habituation.  If you have the discipline to commit to and keep to a saving program then it is merely a matter of defining what that amount will be for the year and reviewing it to increase it on an annual basis.

If you need a little external discipline, then borrow it to invest, provided you pay it off during the year.

I have seen both approaches work very well over the last 25 years.

2.   Have a Sound, Consistent and Easy Strategy to Follow

There are far too many get-rich-quick schemes out there and they inevitably line the pockets of the purveyors and producers of this garbage.

Some years ago, a friend and colleague reminded me that the market was driven by fear, greed and envy.  Yet successful savers that I have known and come to respect fall for none of these.  That doesn’t mean they don’t suffer from anxiety from time to time, or that they are not tempted to jump on board the “latest thing”.  It means regardless of the temptation or fear, they don’t depart from their strategy.

A sound strategy is one that is replicable, timeless and concise.  We will be talking about building a retirement portfolio using rate reset preferred shares, or new issues, real estate investment trusts (REITs), strip bonds or only bank and insurance stocks in later posts.  They can all form part of a sound strategy singularly or in combination.

Regardless of your short-term risk profile, a strategy like this is built around doing the same thing over and over.  They are not “Dire Straits” opportunities.  You know the ones:

“That ain’t workin’ that’s the way you do it
Money for nothin’ and chicks for free”[1]

3.    Be Clear on Your Goal

Goals can be clear, concise and easy to monitor.  Too many moving parts and the chances that you will keep to a routine that will allow you to meet the goal is lost.

Many years ago, I started working out at a gym.  I had one of the PTs put together an exercise routine for me that focused on upper and lower body on alternate days.  I spent the first month or so trying to learn the “slow, slow, quick, quick” of the dance of the machines.  I became about proficient as I was with waltz classes.  Don’t ask me to dance.

I only became successful when I hired a full time PT that I was committed to 3 days a week.  The goal was to make the work out; I allowed him to guide me through the routine, vary it for maximum effectiveness and he held me accountable for both cardio that I did on my own and my off-day routines.  The point?  I had a goal:  to make every workout I had scheduled and in doing so keeping the PT off my back.

 

Getting Started

The time to start is now.  If you’re like most people, you’re carrying a lot of garbage.

It’s time we sat down and explored your attitudes toward saving and set a measurable and achievable goal to help you start down the road to financial fitness.

I’m not going to promise you that it’s easy.  I can promise you that after meeting you will feel lighter because we’ve helped you take out the trash.  I can also promise that we can set a goal that is both timely and achievable.

Partner Linda Odnokon (437-266-1126) and I (437-266-1125) are both available to explore your financial anxiety.  Give us a call.


[1] Easy, easy money for nothin’, chicks for free) (I want my, I want my MTV)
(Money for nothin’ chicks for free)

Written by Mark Knopfler, Gordon Sumner • Copyright © Universal Music Publishing Group

[11] Ibid

 

David Chellew and Linda Odnokon have been life partners and in business together for almost 19 years.  During that time, they have mellowed into their respective roles and enjoy working with individual investment clients.  Dave is a Portfolio Manager and Linda is an Investment Advisor with iAS and work out of the co-work space Brightlane on King West in downtown Toronto.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

 

Income Investing: 5 Ways to Raccoon Proof Your Income Portfolio

Linda (@lindaodnokon) and I went camping last weekend, something we’ve never done before together. $1000 later for equipment and a rental SUV to pack it all in, off we went for two days at Rondeau Provincial Park. Although we had never set up the new sleep tent and kitchen shelter, a couple of false starts later we managed to get everything set up within an hour.

There’s something about being a life-long experienced camper that allows you to slip into an easy routine and literally let the cares of everyday life slip away. A few bottles of barley pop later we set about making dinner. Of course, the steak in the cooler was frozen; luckily there was a fish and chip stand just outside of the park gate.

Picking up firewood at the same time as dinner, back at the site we had a great greasy meal and as darkness descended, lit a fire. Sitting around drinking vodka sodas and watching the flames, I thought about putting the dry goods and coolers into the truck. But in the fullness of the night as the flames died down we went to bed.

The next morning, I woke at dawn and went into the kitchen tent to make drip coffee with a new gadget that fit over the stove. Looking down, I realized that we had been visited by raccoons. Little evidence remained of the dry good feast the family had enjoyed. Croissants, eaten. Hot dog buns, mostly eaten but I’m guessing didn’t have the same appeal as the giant loaf of pumpernickel bread, which like the croissants, eaten. Oatmeal raisin cookies? The raccoons left them behind. The double fudge chocolate cookies, eaten. And for a little salt after the sweets, they ripped open a bag of dill pickle chips although I think they would have preferred the plain ripples instead.

By the time I had cleaned up the mess and policed the campsite, stooping and scooping racoon poop, I got to sit down and enjoy that first cup of coffee which was extraordinarily good.

You can only smile at yourself when you make a mistake the way I did. Shame on me for knowing better and not doing anything about it. The second night the family returned hoping to find a feast and instead rifled through the pots and pans; everything was safely put away in the back of the vehicle.

What do racoons have to do with your income portfolio?

After an incredibly long period of ultra-low interest rates (coming up on nine years) central banks the world over has started signaling the end to accommodative monetary policy. At home BOC has raised rates with the promise of more to come.

Many investors I know are relieved that the impact on the market hasn’t been larger. If you read the many commentaries on the subject in the press, non-financial and financial both, I’m not surprised if you’re not seeing the Armageddon scenario hinted at. As a peer of mine oft repeated, “it all depends on the time frame”.

We’ve now seen a fundamental shift in expectations, a tsunami of change, that takes time to manifest itself. We can speak of the Ontario government’s role and the OFSI actions to cool down the housing market in the GTHA, but in my opinion the biggest factor has been a shift in interest rates in the face of an increasingly overextended buying public. While the availability of credit becoming more constrained and more expensive, the first signs of cooling and reversing are evident.

I’m not about to argue the nuances of the whys and wherefores of any issue. I don’t possess the expertise nor the time to develop it. Instead of figuring out how the racoons got into the kitchen tent and went about dining, it was enough that I knew it was going to happen and what I needed to do wasn’t done.

The danger of income investing without paying attention to rising rates is not much different than my racoon experience. You know that something is going to happen but through your own complacency, inertia or competing demands you ignore the steps you need to take.

I suggest to you we are entering a period of rising interest rates. I further suggest that the behaviors that drove many investors to taking on increasing levels of risk in search of yield are going to lead to some erosion of capital.  If you know that the racoons are going to come, it’s time to racoon proof yourself.

5 things you can do to position yourself for higher rates

1.      Bond Yields

The yield curve for all forms of bonds are going to change. As the yields on government guaranteed investments rise, sovereigns, yields on corporate bonds of all types will also go up but so too will the risk spread.

There is a tradeoff between safety in shorter term time horizons but there is a way to play the curve to your advantage. There is, for example, a steep drop in yield at the inflection point which is generally around 7 years. By cherry picking issues sitting on the high side, as rates go up over time, the decline in duration mitigates or eliminates the risk.

Similarly, trading higher duration high beta bonds (BBB) for lower duration higher grade bonds allows you to preserve much of the yield. Rate reset bonds are particularly attractive in this case – think NVCC Canadian Bank bonds.

Be opportunistic – I can’t tell you with confidence what the shocks in the system will be, but if you look back to the first quarter of 2016 you’ll see the spike in the spread between corporate and government bonds provided an incredibly profitable short-term opportunity. Buying then left you with great quality issuers with much higher yields than you could find in the following quarters.

2.      Preferred Shares

Rate reset preferred shares have been a great way to add yield to your portfolio. If you were like many people who bought them coming out of the great recession, you probably got burned because the interest rate expectations five years out never materialized.

I’ve been buying a portfolio of rate reset preferred shares in the form of a ladder. Knowing which ones to buy is an art and you must be patient because preferred shares by their very nature are illiquid. The yield you will receive is comparable to current yields on recent new issues.

I’ve also been selling recent rate reset preferred share issues knowing full well that the longer duration to reset makes them more vulnerable to price declines.

I’ve also been pulling apart both mutual fund and ETFs invested in preferred shares. Some are better positioned to take advantage of shifts in interest rate expectations than others.

3.      Fixed Income ETFs

Many fixed income ETFs are indexed-based.

I am always surprised to find people already investing in these ETFs because of the high distributions without realizing most of the bonds in the index trade at a premium. That means there is grind – a phenomena where the ETF must pay out more that the yield of the underlying portfolio building in a capital loss. Think of it this way: the ETF pays and declares income at say 3% that you’re taxed on even though you only earned 1.5%.

More importantly, while bonds have been in many cases the superior investment to be in for the last 35 years, the long-term reversal in this bullish trend will ultimately work against you. Fixed income investments based on an index are problematic in that the bond index was never meant to be invested in, but rather a reading on the overall health and condition of that market. Many people are going to experience a decline that is permanent.

4.      Blue Chip Stocks

A great deal of the run up on high dividend paying stocks has been a matter of increasing dividends in a desert of decent yield.

Canadian banks trade at a lower PE than US banks for any number of reasons, but some of it is the much higher dividend payout ratio. While I don’t expect to see the dividends cut, I similarly don’t see there being much likelihood of the recent history of dividend increases. After all banks aren’t immune to consumers in distress.

There’s any number of things you can do such as aggressively writing calls as premiums rise or selling the stock, buying a leap and investing the rest for yield in say the same company’s bonds of the same duration.

5.      REITs

Of all the yield investments that you can hold, REITs have the greatest Yin and Yang in any environment.

When you own a REIT, generally you hold a fractional interest in all its properties. They are fundamentally a flow-through entity and you are subject to all the factors that affect their operation.

Think of it as having not one major risk, but a multitude of balance sheet (refinancing risk, cap rate on asset purchases) and income statement (top line, operating cost) factors that you need to assess.

On the top of that a REIT isn’t just one entity: it describes the business structure that it operates in and describes everything from office, retail, industrial, retirement homes, hotels, apartments, etc. Each of these sub categories are industries of their own.

Generally, I have been avoiding REITs that are sensitive to reductions in consumer spending and have been examining Industrial REITs that are primarily logistics based.

One last thing: there is a natural spread between the yield on REITs and large blue-chip stocks. If for any reason the yields on the blue’s go up from a stock value decline, it will also pressure the yields on the REITs up. It is an inverse relationship just like bonds; yields go up, prices fall.

Conclusion

There is always a risk in making a major call on changing fundamentals. After all there isn’t a person I know that didn’t think that the world of low interest rates was going to last almost a decade. On the other hand, there is sufficient change already showing up to start to move your assets in the right direction.

I’m going camping again with Linda in a little less than two weeks. This time the food goes into the vehicle.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

Value #5 Business and Digital Disruption: Perspective

Value #5 Business and Digital Disruption:  Perspective

Being a single parent when my daughters Cara and Shannon were toddlers meant keeping them on a schedule and providing for them.  Being too busy to enjoy some of the miracles of seeing through a young one’s eyes wasn’t all that unusual.  And being blinded by the stresses, trials and tribulations of everyday life meant that even when I wanted to, I couldn’t.

This past Friday I took the day off work and got to slow down a bit accompanying my oldest grandson, Alessio, on his adventures.  Going to see the dinosaurs at the Royal Ontario Museum (ROM) was as much about the journey there and back and giving him freedom to wander around the galleries that caught his interest.

I couldn’t help but notice that as much as we say that ‘childhood is wasted on children’ it was the parents who were rushing around ticking off the requisite destinations and once arriving rushing to and fro making sure to hit all the high points and exhibits.  Childhood is more often wasted on them.

As a grandparental I not only have the luxury of time if I wish to take it, but the great advantage of living close to many enriching opportunities, and can seek the opportunities to see the world through a two-year old’s eyes.

The fact that the ant crawling along the cracks of the sidewalk in Queen’s Park was more exciting than the prospect of seeing the dinosaurs at that one point shouldn’t have surprised me.  I was fascinated by Alessio’s focus on the insect struggling to climb up and around mountainous boulders in its path that to us were smaller than pebbles.  Only when he had satisfied himself by removing the “boulder” was he prepared to move on to his next adventure.

We all move about with blinders on.  I’m not sure we could cope with the constant bombardment of stimuli if we didn’t.  But if having perspective means having a broad vision, doing so from the tunnel of our own needs, experiences and expectations limits us to the often-heard refrain, “I should have seen that” or “I knew that!”

If there is one value that the advice-giving channel has as a competitive advantage, it is our ability to create and maintain perspective for our clients.  It doesn’t serve as a governor or limiter on actions or client behavior (in other words a conscience).   Instead we can provide a balance from which to make more informed decisions.  What a client does with their money is not my concern, but telling them the consequences of their decisions is.

Blowing past the blinders in social media can be difficult.  How far do I push provocation?  How blunt do I need to be?  What should my image be?  If I can’t get past people’s elaborate paradigms, particularly as wholesale change threatens the very foundation of those elaborate mental structures, how can I ask them to see my perspective as valid even though I resorted to some sort of shock approach?

Surfing through my morning social media take, I continue to be surprised by the depth and breadth of “sex, drugs and rock and roll” in messaging.  The seven deadly sins, or as a friend, mentor and supervisor from earlier in my career summed it up, “fear, greed and envy” are equally prominent.

My thirst for perspective, whether dealing with the sloppy commodity markets or with the specter of looming interest rate increases, is a combination of experience and an academic thirst for knowledge.  Communicating it and blowing past investor’s preconceptions is both a function of making bold statements and using bold imagery.

In fact, of the five values that forms our professional value proposition, it is this one that I work hardest at and yet the images we choose to use have the biggest impact.

But what I cannot do is rely on sex, drugs and rock and roll.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

Value #4 Business and Digital Disruption: Professional Experience

Fidget Spinners.

I want one.  After all what better mindless activity can I find that will keep me amused for hours that requires little or no skill.  And who knows, maybe I can get a premium one made of matt aluminum alloy that has lights so I can really get into it?

For all the controversy that is as predictable, like the corrupting power of the hula hoop in one single season in the 1950’s, or so said parents concerned about the perceived link between sex and toys, fads in children’s lives come and go.  My only disappointment is that Alessio, my grandson, aged 2, is too young to take part in it or I would have sufficient rationalization to jump on the bandwagon and endeavor to remain a cool gramps.

Excesses are seemingly hardwired into us.  Whether it is blockchain currencies, or Toronto real estate prices, or for that matter the recent plunge in oil prices, the madness of the masses and whole industries that promulgate the trends are part of the human condition.

But I am no more able to tell you how long excess can exist or what the post-excess fallout might look like than you can.  Many of us easily spot excess but that is more of an observation of the human psyche.

I have a commentary written about Blackberry that I leave up to keep me humble.  Living in my own cognitive dissonance I jumped into a Blackberry Z10 believing that it would solve all my answers, eschewing an iPhone 5.  I lost out on two key realities.  One, iPhone, by comparison, was a breeze to learn and use.  Secondly, I started to understand the disruptive nature of technology, particularly mobile technology, first hand.

Linda, life and business partner, used to tell our adult children that we were expecting a letter to Santa and that whatever they asked for had to be available on Queen Street between University and Dufferin.  This year, half on a lark, we told them that if it wasn’t available on Amazon they weren’t getting it and to send us their wish lists.

The process of ordering, wrapping and labelling was done in about 1 ½ hours from the comfort of the den, for 4 adult children, 2 significant others and finally a grandchild.  The hardest part was the daily stop at the concierge in our condo to retrieve the boxes, unpack them and put them under the tree.

Where professional experience plays a role is knowing when a trend is real and being smart enough, credentials notwithstanding, to be able to step back and admit that you don’t know and dig deeper into cause and effect.

The same is true of history repeating itself.  Yes, it does, but never the same way in the same place twice.  Yet, I work in an industry that constantly points to the past as if surely will repeat itself.  We’ve had almost nine years of record low interest rates and many of us made the mistake of believing, simply because it has in the past, that interest rates would eventually rise.  9 years in and maybe, just maybe, we’re finally seeing the signs of reversal.  There’s a reason regulators force us to use an expression akin to “past performance is not necessarily indicative of future returns” when talking about returns.

I am fortunate enough to have a formal education in business.  I am blessed with an insatiable curiosity.  And I know, if I relax and leave myself in an environment that is constantly changeable and fluid that I won’t lock myself into some sort of intellectual brain freeze.  After all, dogma once suggested that all swans were white or that the earth was flat.

Being a professional in an age of digital disruption means abandoning the academic and entrenched biases in our business communicating observations in new ways and in new mediums.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

 

Value #3 Business and Digital Disruption: Simple Answers

If I can’t leave you with that “smack yourself in the head, why didn’t I think of that” feeling, then I’ve failed.

All too often in the past I took what was self-evident to me and dressed it up in ‘tails and top hat’.

If I look at my success as a university lecturer, it was that I could build a simple paradigm for my students and bolt on or take off the complexity as it was necessary.  Instead I have been altogether too prone to dress up my ideas in finery, but a pig in a gown is still a pig.  Too bad you’re now focused on the pig.

This past weekend I spent a lot of time surfing through videos and making notes on what moved me, what inspired me and what amused me.  In every case, the proposition being communicated to me was short, simple and direct.  Leaving aside classic videos of fails for which I have an infinite patience and morbid fascination, I found myself flipping to the next one if the video failed to stay within the tight boundaries.

Even the ‘crystal kid’ stuff I used to tease Linda mercilessly about was interesting.  In every case, and I twice typed the video scripts out to be sure, they averaged three minutes in length, had less than 250 words of dialogue and regardless of their production value stuck to three points.

Let me use early retirement as an example.

Our ability to retire is dependent on three things – how much will I need, how much I can save and how much I already have.

I can take any of those three things and break them down into three more, and those three, three more.

What doesn’t help is that all that extraneous data muddies the fact that the three most important variables must be answered before any active consideration of the rest.  And if in the interests of proving how smart I am if I write a thesis and try to introduce all those extraneous points all I’ve done is disquieted you, frustrated you or bored you.

If I’m reaching out to you in a digital world, I am altogether too conscious of how easy it is for you to click your mouse without ever having to say, “next”.

So, what are my three principals of simple answers:

  1. If you can’t provide simple communications you don’t know the issue;
  2. If you can’t frame simple communications you don’t know your audience;
  3. If you won’t speak simply you’re too busy trying to impress yourself.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund  (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

Value #2- Business and Digital Disruption: Communication, Much Like Investing, Should Be Direct

I had a peer in the early part of the last decade whose idea of selling life insurance was to hold a Bic lighter up, sparking it, and then looking at the flame say, “this is your life.”  Promptly extinguishing it he would add “and then you die.”  As blunt as that little ‘show and tell’ was, I was never sure what point he was trying to make.

I’m sure you’ve had experiences of what I have always called ‘smoke and mirrors’, where frustratingly you’ve been brought through a process, all the while waiting for the sales pitch and a presumptive close.  I’m not talking about sitting through a couple of hours trapped in a time share seminar, desperate to leave only to be confronted by the toughs guarding the door.  As often as not, those ‘toughs’ are our own value system and respect for the time and effort of the person pitching us.

I don’t know how many times I’ve walked into the tiny offices of the back of a bank branch, to sit down with the manager, only to have him or her ‘hmm’ing and um’ing” staring at their computer screens, clicking the keys, repeating the same sub-verbal noises.  Don’t you just want to reach over and rip the screens around so you can see what personal financial pornographic images he or she are staring at?

Instead, I sit there growing increasingly irritated to the point where their behavior has so masked communication I don’t hear much.

I suppose that given my years of experience in my industry coupled with snow white beard and head of hair in a ponytail I have a little more leeway than younger professionals.   You can ask my peers, who seemingly wait during and after a corporate presentation for me to say something blunt or outrageous.  Don’t get me wrong, I’m always prepared and pursue a genuine line of questioning because I’m interested.  At the same time, if I remain silent it sends a stronger message to those that know me.

If you look at what appeared to be a frothy real estate market in Toronto earlier this year, or the trials and tribulations of Home Capital Group (HCG), Warren Buffet’s rescue of HCG, or the recent run up in block chain currencies, I am blunt if I’m asked.  But I don’t elaborate my response because I am a fundamental investor and every one of those is at best highly speculative.  I’ve worked through the Asian Currency Crisis of ’98, the dot com bubble burst of ’00, corporate malfeasance of ’03 and the biggest of all, the financial crisis of ’08, and been burned on the more speculative aspects of the market.  That is not the market I choose to be in.

Blunt talk means nothing.  Direct communication on the other hand is formulated around issues of audience interest and suitability.  I don’t like communication that panders to the seven deadly sins.  And I don’t like communication where a seller is trying to hide their motive behind ritual and stealth.

The digital marketplace is fascinating in that rather than dealing with people in close geographic proximity the whole of the market is open.  And as focused as I want to be, I can let my message narrowcast into a market that is sufficiently large, albeit specialized, that I can make a good living in it.

And I can be direct and honest in my writing.

If ideas are my currency, plain and direct communication is my mode.

Industrial Alliance Securities Inc. (IAS) is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.

 

Value #1 Business and Digital Disruption: Idea Generation and Communication

Linda (@lindaodnokon) and I often have arguments about how often I give away my investment ideas for free.  Love of my life and business partner, I often frustrate her or lose my temper, but I fail to explain myself fully.

Ideas mean nothing without the ability to execute, and we have that capability in spades.  Nor does anybody benefit from taking advantage of an idea on their own; they have no idea when that thesis comes to an end nor will they subsequently benefit from the next idea, and the one after, and the one after that.

There is a whole industry out there dedicated to selling investment ideas.  It doesn’t matter what the quality is, and for the average investor something like the Motley Fool is superlative whereas some of the shills, otherwise known as newsletters, are nothing more than sensationalized pieces of poop, preying on baser emotions of fear, greed and envy.  Without subscribing for or paying for enriched content, you don’t get access to the ideas.

What is more important is that the ideas that appear in the press, whether publications like the Globe and Mail, or on business news networks like CNBC, or even newsletters good or bad, quickly result in a crowded trade.  I would love to be in a place where my opinion could move a market, but that’s not going to happen.  On the other hand, I won’t crowd the trade – I make money not on selling the ideas, but in executing timely ideas in an efficient and compliant way.

I have built a considerable business on at least five occasions relying on selling the “big idea”.  I’ve used seminars, cold calling, referrals and prospecting of friends and acquaintances. I’ve built extensive explanatory communications to make sure that I could explain both the complexity in simplest terms and in an ego gratifying way show that I can take all those disparate parts and package them up into something elegant.  And inadvertently I’ve built into those projects their own obsolescence – markets, tax regimes and economic conditions change, but a well-built structure is worthless because you can’t renovate the bones that it has been built on.

Information has become so much more freely available.  But as communication has disrupted tightly constrained paradigms, I have more freedom than ever to communicate timely ideas that cumulatively represent a whole that is unique. I can let the body of my work, the constant flow of ideas, cumulatively to represent a dynamic “big idea”.  And I don’t have to spend endless amounts of effort explaining myself, because either an investor will have to rely on my expertise or do the heavy lifting for themselves.

(CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC). iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates.

This information has been prepared by David Chellew, Portfolio Manager for Industrial Alliance Securities Inc. (IAS) and does not necessarily reflect the opinion of IAS. The opinions expressed are based on an analysis and interpretation dating from the type of publication and are subject to change. Furthermore, they do not constitute an offer or solicitation to buy or sell any the securities mentioned. For more information about IAS, please consult the official website at www.iasecurities.ca. David Chellew can open accounts only in the provinces where he is registered.