Tag Archives: Stocks

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.


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.


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.

Building a Business Village One Engagement at a Time


I’ve often thought about business framed around the idea of the village – a grouping of individuals bound by a commonality. I suppose if you go back far enough in time you’ll find those bonds were one of obligation to one’s master but when I think of village I think of the parish church, local pub, general store and the family doctor.

As parochial and quaint, as pastoral and seemingly unchanging those societies are, in my opinion they continue to exist in part because of an intransigence to the new. Try to be an outsider or agent of change. They are fundamentally designed to keep norms, and norms are safe. And those norms are master to all.

I recently watched a community coalesce around conflict. The condo I live in was dealing with a potential threat to our way of life. A developer on an adjacent lot wanted to convert part of our drive into a lane way to allow deliveries and garbage service – I should add that our drive is private property. Both the management company and the boards of the various constituent condos supported the developer. A number of individuals stepped up and had the measure defeated soundly.

In the threat to the community at large, support in opposition coalesced around a few key leaders. Sans conflict, we revert into intransigence, enjoying the benefits of having most of our needs taken care of by the invisible hand of the condo. As the threat recedes, our complacent norms reassert themselves.

That brings me full circle to the idea of community in business.

If I think back over the years of management education and organizational experience I’m struck by the emphasis on the elemental impersonality of it all. Think of it this way – most businesses see themselves like an advertisement. They choose to be perceived by the way they present themselves in the hope that they offer sufficient appeal to the buying public to meet their needs – to sell a product or service. The public aren’t part of their community.

In the process of self-discovery over the past year and a substantial effort at rebranding our emphasis a key part was on boiling down the essence of what we stood for, who we are presented in an honest and forthright manner.

What my business partner and I, and our marketing guy, seem to be struggling with right now is how to build the business out going forward encouraging engagement. Linda is successful in attracting people who want to be part of her circle, to be part of something larger. I am affable and intense at the same time and rely on my intellect to guide through what can be a pretty confusing landscape. Rob is just finding his feet as a social marketer applying skills he’s acquired going through the process of building a startup.

Where we have failed is not acknowledging that we three form a community that’s part of a larger one. I can talk about target market and business proposition until I’m blue in the face but it doesn’t change the fact that to be successful going forward I, we, have to be conscious of how business has to be operate going forward.

It is easy to galvanize a group and provide leadership in the face of crisis. I can fall back on the very elements that has in the past built successful business practices – fear, greed and envy, as a peer and mentor once hammered at me, but a community can’t be grow unless the process is built on something more sustainable. Living and working in a state of perpetual crisis, or conflict, is inherently unhealthy; creating both dependencies and fear are mere manifestations of that.

So what is it then to try to build a successful business around the sense of a larger community? I don’t know but I’m willing to find out. And I’ll be finding out one engagement at a time.