Tag Archives: Disruption

Baking, Sourdough and Martha Stewart – Is There Room Today for Investing in Stocks and Bonds?

Cara used to call me “Martha Stewart”.  I supposed it was partly her age and being embarrassed at having a mom-dad at home.  I had single parented for a decade by this time and I didn’t want the girls to be somehow disadvantaged because their primary care provider was a guy.

In the days before the richness of online recipes and apps, my “go-to” was a tattered copy of “The Joy of Cooking” and I’ll admit that reading the basic skills part at the beginning of the book coupled with my proclivity to measuring in “about” rather than precise amounts, and sometimes skipping steps, led to as many failures as successes.

In time I started to watch Martha Stewart on TV and slowly built the skills and confidence to master the basics.  And it helped me affirm that my tastes, while decidedly masculine, were appropriate.

My quip back to her was “fine, you can’t have any of the chocolate chip cookies I’m making”, or something like that.  I always felt insecure raising the two girls alone and worried that I would somehow fail them.  I was pro-feminist before I knew what that meant and supported them in whatever choices they made.  If that meant walking to the school to pick one up with her bass baritone sax because the truck was broken down yet again and I didn’t have the slack to get it fixed or making homemade cookies because it was cheaper than store bought, so be it.  The important thing was to make sure that they didn’t miss out or do without.

I read and posted an article recently about a growing trend in making the perfect sourdough bread.  I was intrigued by this group of male tech-employed millennials, their search for perfection and the precision with which they undertook baking that perfect loaf.  I’ll admit that some basic skills coupled with my recent experience with a food delivery service leaves me in the artisanal space and the world of food excellence, but I doubt I have the temperament to pursue the perfect loaf.

One of our CSI members is working through the process of launching a beer bread business, baking sourdough bread from the leavings of the beer making business.  Looking beyond conceptually the impact of both a green and circular economy and how he is creating value from something that was destined for pig feed or the big organic digesters the city runs for bio-waste, I was struck by how the opportunities for making and selling artisanal bread are limited by scalability issues.  The excellence of the product lies in part in the lack of preservatives, so its shelf life is limited, the margins of the product are such that there is no room for sales returns and finally the product is a one-off so there is no suite of artisanal products that can be wholesaled.

If anyone can figure out how to ramp this business up it is Dihan.  He is doing enough to have perfected his recipe and approach, has examined his options and is exploring what avenues are available to him.  I strongly suspect that his final choices are going to rest in both technology and the disruption that technology is causing in the area of fulfillment.

Consider for a minute what the process is for you in bread fulfillment.  You could go to Costco and buy Costco sized bread products.  You can buy the same product at your local grocer, but (bread scandals aside) at a higher price.  Or you could nip into your local convenience store and pay a higher price still.  From bakery to retail, you are largely unaware of the steps and effort to make, ship, stock and manage that inventory so that wherever you buy it, it is easy and convenient.  Well maybe not Costco – but who shows up to Costco just to buy bread?

What you’re buying isn’t something full of wholesome goodness, but a product designed to remain fresh for a lengthy time.  I can buy a loaf of pedestrian whole wheat or some douchie version, but I guarantee you that the last slice two weeks from now is going to be as fresh as the first slice that I took out.  No mouldy nor desiccated offering as it sat out on my counter; truly a marvel of food engineering.

Over the course of two decades I have heard the cries of foul from my peers complaining about discount brokers. Like the male millennial purveyors of the ultimate sourdough experience, there are those that find enjoyment in constructing and managing their own portfolios.  Others with less discipline but more experience are like the home-made pierogi crowd who through years of making them know just the right mix and texture to make the perfect dough (hint, save and use the potato water). They don’t need us to be order takers.  In fact, the DIY group can do it far more cheaply and effectively than I can.

Our chosen profession is in the advice-giving channel; our value proposition is in the experience.  I am toying what it means to be “artisanal” using stocks and bonds as the base ingredients, but I share the same struggle as the beer-bread entrepreneur.  I’m just not sure how I fulfill the client experience in a world of tighter margins and packaged goods.  In fact, I may be convinced that back-to-the-basics is better but don’t know how to communicate that.

So yes Cara, maybe I haven’t lost my Martha Stewart tendencies.  I just haven’t figured out how to make it work for me.

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, Centre for Social Innovation at Queen and Spadina 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.

 

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.

The Changing Face of Consumerism and Technology: Disruption, Diminishment and Disappearance

 

mini-wheats

Linda and I were talking two days ago about losing our Saturday morning delivery of the national newspaper. For all the comfort of having it in your hand and sipping coffee while outside its storming, more likely than not I’ve already read the articles online and the paper moves from front door to recycling. I think the bigger issue is a business model that is falling by the wayside and the effective diminishment of the very thing that newspapers are all about, the newsroom, while the organizations struggle to continue to offer a product that fewer and fewer of us care about. Is the cancellation of our home delivery merely one more sign of a troubled company?

One of my favorite Sunday morning recreations is walking up and down Queen Street West counting the number of stores and restaurants that have gone out of business. Rent is often blamed for the demise of many of these businesses, some open for little more than weeks, but in my opinion it has more to do with relevance in the online age. After all ordering on Amazon is far more convenient and more price competitive. When I go into one of these retailers my experience had better be superlative given the options available to me, and all too often it falls short of even adequate. More importantly, in a rapidly changing landscape, evolve or perish, and many of them are fixed in their perception of what the market is rather than letting the market dictate what they should be.

Changing buying habits of the millennials are also held up as a reason for the rapid shifts in our consumer society. If anything they’ve taught me to be more astute and demanding; all my habits and preconceptions about how my world works have been turned on its head as I’ve looked more closely about how shifts in consumerism have affected everything from media to retailing, manufacturing to logistics. I am not sure it is the generation itself or the fact that they are more closely allied to technology driving the change.

Vegas

I didn’t realize how significant my urban lifestyle has informed me until a recent trip to Las Vegas for the Life is Beautiful Music Festival. Over the course of six days I grew more and more frustrated looking for a satisfying foodie experience (funny how fast foodie has entered my MS Word dictionary). Our experience on Fremont Street was something generationally challenging – often heard was how cheap the food was (it wasn’t) and how large the portions were (I’m sure I could have fed a family of six on what would appear on one plate), as if my physique which is more akin to Humpty Dumpty than Adonis and white hair meant that I was generally interested in trough feeding. We did find some King Street West experiences to satisfy our palate and conscience but frankly would have ranked the fare bottom tier compared to what I’m used to. We also heard from many about the great food on the strip but frankly for the price point versus offerings, I would rather wander around my city. I didn’t go there to eat.

A couple of road trips during our stay meant a ubiquitous trip to Walmart to buy a cooler and food and frankly as disconcerting as the shopping experience was at least we were able to cherry pick some decent and healthy options. The bigger shock was the plethora of convenience single serving foods we saw and how the price points were more amenable to budgets than was healthy eating.

Consumer Spending

Consumers are responsible for the majority of economic spending and growth. Leaving aside the obvious excesses, there is little doubt in my mind that the competition now is not amongst companies in the same industry fighting over a slowly growing market share, but rather new competition for the aggregate consumer dollar.

I will admit to spending on convenience. We have a cleaning service come in once a week to do our condo. I like to be able to order my groceries online. And who likes laundering sheets and comforter covers – we send those out at the same time our dry cleaning is picked up. On those occasions we haven’t planned the night’s meal we’re as likely as anyone in our neighborhood to go out and either buy take out or eat in at one of the local restaurants.

What dictates how we spend our discretionary dollar now has everything to do with the duality of convenience and excellence. And we grumble every time one of those two dimensions fail; as soon as a better opportunity presents itself we’ll embrace it. And if that opportunity is online (like our groceries or dry cleaners) then that will be our preference.

On Sugar and Cereal

I recently made the weekly trip to our local Shopper’s Drug Mart to pick up some staples – milk, bananas, etc. I snagged a box of sugar cereal and without thinking boldly carried it to the cash. Lots of yoga-wear sweaty people were in the store that Saturday morning and the looks I received left me feeling sheepish, until, that is, I looked behind me and saw several of them with the same box of sugar carefully hidden in their arms.

I have no doubt that a smaller market will exist for these former stalwarts of the weekday breakfast table, but more as a guilty pleasure than as a significant staple. And as the next generation comes of age never having known the ubiquitous presence of some crisp or pop, even that diminishing market will disappear.

Bringing it Home

Technology makes embracing a new way of living easier and the adoption faster. It also creates a new definition of what a market is. In business school I learned about both the economics of substitution and competition, but I have never seen how pervasive the competition is for the consumer dollar. It is no longer from competitors in the same industry.

What I know for sure is how to spot companies that are going to excel – those that focus on speed of convenience, price and excellence are going to win. The rest are merely grist for disruption, diminishment and ultimately disappearance.

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. 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.