All posts by Financial Independence Hub

App-based banking: the ‘new normal’ for Canadians

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By Vineet Malhotra

Special to the Financial Independence Hub

It has often been said that necessity is the mother of all invention, and if there’s anything the world has faced over the past few years, it was a lot of necessity. Whether it was how we exercised or worked from home, the pandemic forced the world to reimagine old habits and reconsider our ways of doing, well, everything.

Banking was not exempt from this re-evaluation, as evidenced by a recent survey by the Canadian Banking Association (CBA) which found that 65% of Canadians used app-based banking in the past year, up from 56% in 2018, and 44% in 2016. These numbers represent a massive shift in less than five years.

With limited banking options throughout the pandemic, consumers further embraced online and app-based bank platforms: not only did they experience the benefits, but they were also forced to redefine what services they thought were possible through an app. It was delivering the unexpected and hearing our clients say, ‘I didn’t know I could do that online!’ that helped push and motivate our team at Simplii Financial to offer more.

Through the pandemic, consumers saw firsthand just how much banking technology has evolved and experienced how easy it was to do things online like sending money abroad with Simplii’s Global Money Transfer or applying for a mortgage. They quickly came to realize that online banking was not just for simple money transfers, or deposits, but rather for more sophisticated financial transactions as well, all right at their fingertips.

Why the surge in app-based banking specifically?

The two main reasons for the rise in app-based banking come down to convenience and time.  The desire and the need for convenience have taken over our lives: more than ever we expect we can do things from wherever we are, whenever we want.  Whether it’s depositing a cheque, transferring money, or making bill payments, many Canadians now understand that an app makes all those tasks easier and faster. Even more complex services are starting to move into the digital space – like mortgage applications which can now be completed digitally, or by phone.

Who is driving the surge of app-based banking?

App-based banking now comes second only to digital banking in use and we expect it to grow. According to the CBA, the surge is largely due to Gen Z and Millennials. Nearly half of Gen Z (46 percent) and well over one-in-three Millennials (37 percent) are using app-based banking as their primary banking method. Continue Reading…

How to avoid the 7 Biggest Mistakes that Entrepreneurs Make

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Why picking stocks is so hard: Lessons from a stock market analyst

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By Anita Bruinsma, CFA

Special to the Financial Independence Hub

Picking stocks is really hard.

If you’re a DIY [Do It Yourself] investor, buying individuals stocks is risky. Even if you own 15 or 20 stocks, which will give you some measure of diversification, you have to choose the good ones. Which stocks do you choose from the 1,500 available on the Toronto Stock Exchange and the 2,400 on the New York Stock Exchange?

There are so many factors that influence how a stock performs and the average investor doesn’t have the time, skills, or inclination to consider all of them, or even most of them.

Casual stock pickers appear to focus on the current trend or outlook for the company’s product. For example, electric cars (Tesla), at-home workouts (Peloton), and e-commerce (Amazon).

It might feel “easy” to pick a stock based on this trend factor. You can see that electric cars are getting more attention and are part of the solution to the climate crisis. When Beyond Meat was gaining new restaurant customers like McDonald’s with its Beyond Burger, excitement and optimism was high. Seems like an easy decision: go with a company that has momentum.

The temptation to buy stocks on this premise is understandable. You can make a lot of money over a very short period of time. Easy riding. But often these stories die out and reality sets in. It could be that the cost of making the product is too high, demand for the product slows, or the company over-extends itself and runs into cash-flow problems. When optimism meets reality, stocks plunge.

After becoming a public company, Beyond Meat rose 400%. It subsequently crashed from US$234 a share to about $25 today. It’s down 83% over the past year alone. Similarly, Peloton rose by 550% during the pandemic due to the frenzy around at-home workouts, but has fallen 90% since its peak at sits at about $11 a share. Reality set in.

Professional stock analysts and money managers with long-term perspectives look beyond this surface-level excitement. It’s important that demand is there, but there are a myriad of other factors to go deeper on.

In my 15 years picking stocks for a large Canadian bank, I learned an incredible amount about equity research. Here are just a few of the things that professional analysts consider:

Demand: The demand for the company’s product is one of the first things to look at since revenue is the lifeblood of any business. Whether the product is women’s clothing, running shoes, fast food, oil, electricity, or credit cards, you need to have a view on what future demand will be. Although you can develop a theory, nobody actually knows what will happen, making this seemingly simple metric unknowable.

Profit margins: How does the company’s profit margin compare to peers in a similar business? Are margins expanding or contracting? What are the main drivers of profit margin and are there risks to those drivers? For example, how would a 10% rise in fuel prices impact the margins of Air Canada? How do currency fluctuations change the profits of importers like Dollarama?

Balance sheet: There is a lot of crucial information to be gleaned from a balance sheet such as inventory levels, cash in the bank, and how much is invested in hard assets like factories. Most importantly, the balance sheet shows you how much debt a company has and how it has changed over time. High levels of debt have taken down many companies.

Track record: Investing in a company with a track record reduces your risk significantly. Looking at revenue growth over a period of 5 or 10 years will tell you how sustainable the company’s product sales are. Analyzing the change in profit margins tells you whether the company has a scalable business and whether the management team is properly managing its costs. Newer companies lack this information and looking at only two or three years’ worth of data does not give you enough information.

Qualitative information: Companies that trade on the stock market are required to publish certain documents like the Annual Report and Annual Information Form. These documents have a ton of information about how the company operates, the risks it faces, and how it reports its earnings. These documents can reveal risks that you might not be comfortable with. For example, you might learn its main manufacturing facility is in an unstable country, or that it gets one of its main inputs from just one supplier.

Taking all of these factors into consideration (and allowing for a plethora of wildcard factors), an analyst will come to a conclusion about the quality of the company. If they like the outlook, it goes on the “maybe” list. But that’s not the end of it: the analyst then needs to decide how much the stock is worth. This is the realm of valuation, and valuation is a combination of math, art, and clairvoyance.

And finally, there’s all the stuff we don’t know. Despite regulatory requirements to disclose all “material information,” there are a lot of things going on within a company that we will never hear about. When talking with investors and the public, the management team’s objective is to pump up its story to get more people to invest – always apply this lense when you hear a CEO or CFO talking.

Let me share my experience with two companies that demonstrates the importance of doing proper research before buying. This is a story of two companies that made their sales numbers look great using fraudulent tactics: Valeant Pharmaceuticals and Luckin Coffee. In one case, I did extensive research and analysis and decided I didn’t believe the numbers, and in the other, I didn’t do the required work and chose to believe the story. Continue Reading…

How to stop comparing yourself to Others: 12 Tips

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What is one tip to help stop comparing yourself to others?

To help you stop comparing yourself to others, we asked personal coaches and thought leaders this question for their best advice. From practicing gratitude to asking yourself questions that challenge you, there are several things you may put into practice to help you stop comparing yourself to others.

Here are 12 tips to stop comparing yourself to others:

  • Practice Gratitude

  • Look Back and Count Your Gains

  • Admire Your Differences Instead

  • Override Your Dissatisfaction With Positive Affirmations

  • Celebrate Others

  • Take a Break from Social Media

  • Remember Everyone Has Their Challenges

  • Identify and Celebrate Your Own Strengths

  • Practise Meditation To Stay Grounded in Yourself

  • Focus on Your Own Personal Growth

  • Choose To Practise Good Values

Ask Yourself Questions That Challenge You

Practice Gratitude

When you regularly practice gratitude, you don’t have time to focus on what others have. You’re not inclined to compare yourself to them or think about what you lack. With a gratitude mindset, you’re focused on what you have, and how appreciative you are of having it. Gratitude resets your mind and redirects your energy towards building up more of what you already have rather than trying to catch up to someone else. — Chris Abrams, Abrams Insurance Solutions

Look Back and Count your Gains

It’s easier said than done, but try thinking about or even making a list of the things you used to want that you have or are closer to having now. For example, maybe 10 years ago you wanted to be moving up in your career and getting closer to buying a house. Rather than beating yourself up about what your friend or that person on Instagram is doing, ask yourself what you’ve already achieved that a past version of you would be proud of, or what you’ve learned that a younger version of you didn’t understand.

When you frame challenges and comparisons this way, you’re not only able to see your strengths and what you’re capable of much more clearly, but you’re also setting yourself up to be a better version of yourself as opposed to a better version of someone else. — Gigi Ji, KOKOLU

Admire your Differences instead

When you compare yourself to others, you mentally put yourself below them. You convince yourself that you don’t have something that someone else does have and you take your power away. But, if you admire your differences instead of comparing them, you put positive energy out into the world and that gives you the power.

The power to appreciate what you have, the power to learn from what others have, and the power to choose how you view the world and yourself in it. It’s easier to be positive than to be negative, so take the easy and healthy route and admire someone instead of comparing yourself to them. –– Staci Brinkman, Sips by

Override your Dissatisfaction with Positive Affirmations

Drown out the comparisons with positive affirmations. The moment that you start to compare yourself to someone, think of something that you do well and tell yourself that instead. It’s a simple trick, but over time, your mind gets the idea and will stop seeing yourself as less than, and instead as equal to, and the comparisons will fall away. It will take time, and it feels funny at first, but it’s a reminder that we’re our harshest critic, instead of our greatest support, and the latter takes practice. — Tony Staehelin, Benable

Celebrate Others

Many people do compare themselves to others these days and that tends to make them more self-absorbed. One way to stop that attitude is to celebrate others’ achievements. You can avoid the comparison syndrome by focusing on other people and learning to be happy for them in their moments. This can take some practice. It may not feel good at first because many are motivated to draw attention to themselves. However, you will care less about where you stand in society the more you learn to focus on other people. Focusing on others will make you happier and then the comparisons don’t have as much power over you. — Bruce Tasios, Tasios Orthodontics

Take a Break from Social Media

My top tip to stop comparing yourself to others is to take a break from social media. Social media is likely only one place you compare yourself to others, but it’s a big one. If you scroll on your phone for a few hours a day and in that time, feel bad about yourself, it’s time to take a break. Disconnect from social media for a bit and focus on yourself! If you choose to get back on social media, unfollow anyone who makes you feel bad about yourself. — Macy Sarbacker, Macy Michelle

Remember Everyone has their Challenges

Comparing yourself to others is fruitless because everyone has their own set of challenges. These challenges are often not visible to those on the outside. Individuals can never hope to know the struggles of others by comparing themselves to the success they see on the surface.

Wanting what others have lacks perspective because we often do not know what other people are carrying with them. A successful executive may appear to have a wealthy lifestyle when in reality they have the misfortune of tumultuous family life or chronic illness. Comparing yourself to others is pointless when you are unaware of what others are truly dealing with. — Katy Carrigan, Goody Continue Reading…

Recession or Stagflation?

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By Dale Roberts, cutthecrapinvesting

Special to the Financial Independence Hub

Many economists and market experts are suggesting that the outcome for 2022 and into 2023 might be that we experience a recession or stagflation. That’s not a good choice we might think. And of the two ‘options’, we might prefer a recession. A recession might do enough to quell inflation. And we do have to stomp out inflation hard the first time. That is, central bankers have to raise rates aggressively enough to hurt the consumer enough to reduce demand and get inflation well under control. If they let inflation fester, it may resurface and cause even more trouble as it did in the 1970’s stagflation era. Recession or stagflation, who knows what we will get. The idea is to be aware and prepared.

Recession or stagflation?

In the Globe & Mail (paywall) Ian McGugen asked the question: What comes next: stagflation or recession?

Given that it may be the very unfortunate war in Ukraine that pushes us over the edge I suggested that a Russcession is coming. From Ian …

As anyone who has read a bear-market headline has gathered by now, the economic outlook is turning ugly. The question that lingers is just what form of ugliness it will take.

In one scenario, soaring interest rates and climbing oil prices clobber the economy, leading to a painful but short recession that stamps out today’s roaring inflation.

In another scenario, a recession may be averted, but inflation isn’t. The economy stumbles along in a stagflationary funk as rising prices continue to ransack consumers’ wallets.

Of course, we don’t know what we’re going to get. We can also add a soft (economic) landing in the mix. The central bankers raise rates and make enough noise to spook the consumer enough to bring down inflation while not creating a recession. Or perhaps we get a soft and quick recesssion? Who knows? Nobody knows.

That’s why we prepare for the the unknown, for a future that we do not know.

A must read: the new balanced portfolio.

The history of bears and corrections

Here is a post that looks at the history of stock market corrections and bear markets (a correction of 20% or more). As of this writing (originally in mid June) U.S. stocks recently tipped into bear market territory. Canadian stocks are now in correction mode (down 10% or more).

It is important to be aware of the potential for portfolio decline, and also to know how long you might have to grin and bear it as you buy stocks on the way down.

And yes, if you’re in the accumulation stage, you’re a buyer. Building wealth can be and should be super easy, but it can be emotionally taxing. Maybe a better way to frame it is that building wealth is super easy, keeping that wealth is not so easy.

Stock market corrections and bear markets are wealth building turning points. We need to hang on to our past gains (don’t sell). Corrections and lower stock prices are wonderful long-term wealth building opportunities. Some of the best buying opportunites are offered during corrections and bear markets.

Not cheap, yet?

And sure, U.S. stocks are not that cheap. From Scott Barlow, citing a Goldman Sach’s report: Despite the 18% YTD S&P 500 decline, equity valuations remain far from depressed. The median S&P 500 constituent’s P/E ratio of 18x ranks in the 87th percentile since 1976. For context, in March 2020 the median stock’s P/E was 14x .

Translation: at current valuations, U.S. stocks were still more expensive only 13% of the time, from 1976. That said, it is near impossible to time the markets. The dollar cost averager will find very good value along the way. The dollar cost averager will be buying at the market bottoms and will be lowering their average cost per share.

And recently I offered that Canadian stocks are looking good with respect to valuations.

And how about international markets?

Keep buying.

The upside of rising rates

Our savings account rates and bond yieds will increase. They are increasing. At EQ Bank many GICs are now above 3% and even 4%.

Stocks are looking better but there may be more pain to come. Continue Reading…