Tag Archives: investing

My Review of “A Warning” by Anonymous

Posted By Jonathan Chevreau | November 27, 2019

Based on the arrival of my library copy of “A Warning” this weekend, it’s clear that the controversial book about Donald Trump written by “Anonymous” is now in wide circulation, and hence there will soon be a new wave of reviews.

Recall that what amounted to a sneak preview of the book came late in 2018 after the New York Times departed from normal practice and published an opinion piece credited only to “A Senior Trump administration official” that gave an inside look at what those unfortunate enough to be subordinate to Trump have to endure on an almost daily basis. Talk about the worst job in the world!

At 250 pages it’s a quick read. At one level, and as a friend of mine who also got an early copy remarked, there’s not that much new to anyone who has been following this train wreck of a presidency on CNN or MSNBC.

Indeed, many of the early reviews based on pre-release copies gave us a good flavour of what you can expect in this book. My favourite passage in the book used not the imagery of a train wreck but an even more dramatic one of air traffic control. To wit:

‘The day-to-day management of the executive branch was falling apart before our eyes. Trump was all over the place. He was like a twelve-year old in an air traffic control tower, pushing the buttons of government indiscriminately, indifferent to the planes skidding across the runway and the flights frantically diverting away from the airport.’

The book includes eight chapters, beginning with the collapse of the steady state (you remember the “grownups” who were supposed to act as guard rails, many now since departed), moves on to Trump’s numerous defects in character, his Fake Views, his Assault on Democracy, his weakness for Strongmen, and a chapter on how he has divided America with a “New Mason-Dixon Line.” Then he surveys the apologists and his enablers who put ambition and fear over service to country, and ends with an appeal to the Electorate.

Surprisingly, the author isn’t that keen on the prospect of impeachment: even though the book is current enough to include the early innings of the Ukraine scandal. Instead, and perhaps sensibly, the appeal is to American voters to come to their collective senses and vote him out in the 2020 election.

Three years too late?

A cynic might quip that the very title “A Warning” comes at least three years too late. But for anyone who believes another four years of this madness will all but destroy American democracy, the title is apt if understated. Perhaps a Trumpian superlative would be an improvement: something like “An Urgent Warning.” Continue Reading…

No, passive investing is not in a bubble

Posted By Robb Engen | November 21, 2019

There have been many ridiculous statements made about passive investing over the years. None have garnered as much media attention as hedge-fund manager Michael Burry’s claim that passive investments such as index funds and ETFs are the next bubble. He said these index-tracking investments are “inflating stock and bond prices in a similar way that collateralized debt obligations did for subprime mortgages more than 10 years ago.”

“When the massive inflows into passive vehicles reverse, it will be ugly.” – Michael Burry

Such a bold claim from someone who correctly called the subprime mortgage crisis is certainly cause for concern. But when you peel back the layers, Burry’s statement doesn’t make much sense. Looking for a smarter take than that, I reached out to Erika Toth, a Director of ETFs at BMO Global Asset Management, to explain why passive investing is not in a bubble.

Take it away, Erika:

Debunking Michael Burry’s Passive Investing Bubble Claim

I may not have had Christian Bale play me in a movie, and I did not make millions during the financial crisis, but I have spent years now studying market structure and eating, sleeping, and breathing ETFs. Burry’s comments that sparked a media frenzy (and let’s all agree that the financial media loves to sensationalize) echo some of the most common myths and misconceptions I have encountered on the ETF wrapper.

This “passive investing is in a bubble” argument assumes that all the money invested in passive indices has flowed in to the same indices, that hold the same stocks, in the same proportions. However, there are many different types of passive funds and ETFs: some track the S&P 500, some track indices built around low volatility, quality, value, or momentum filters. Some track specific sectors.

Different investors have different investment objectives and motivations. Some want to buy the market. Some require higher cash flow. Some require lower volatility. Some are searching to exploit market inefficiencies in order to generate alpha. Pension funds have to make sure their liabilities are funded. Some investors are searching for companies that meet the highest environmental, social, and governance standards. Some require certain tax efficiencies or credit qualities to be met. Therefore, it is impossible that the entire world’s stock and bond markets would move to 100% passive.

It’s also important to note that individual stock ownership by households (domestic and foreign) accounts for just over half of the equity market: the largest share, by far. Mutual funds (active and passive) own about 24%; ETFs own about 6%. Pension funds would represent about 10% (government and private); and about 8% is owned in other vehicles such as hedge funds. (This is according to data put together by the Federal Reserve Board: see below).

ETFs themselves are too small a slice of the overall pie to be able to cause a crash in the prices of the stocks they hold; they simply reflect those prices. Those statistics are for the equity market. ETF ownership of the global bond market is even smaller, roughly 2-3% by most estimates.

The theory that everyone will run to the exits at the same time in the event of a major downturn is incorrect, and 2008 is a good example of that. My favourite example comes from Ray Kerzehro, who is Director of Research at independent firm PWL Capital, in the still-very-relevant white paper he published in 2016.

Kerzehro examines how high yield bond ETFs in the U.S. traded during the height of the financial crisis. Keep in mind that high yield bonds are NOT a large cap equity index made up of the largest and most liquid stocks in the world: they are a riskier asset class of lower credit quality and are less liquid as well. So, even in this riskier and less liquid asset class, there was actually no massive exodus from those ETFs.

What happened is that trading VOLUME actually spiked. Buyers & sellers of the ETF units had different views for different reasons, and the ETF structure actually provided price discovery to an asset class where many of the underlying bonds had gone no-bid. Continue Reading…

Is the political heat melting your investment cool?

Posted By Financial Independence Hub | October 17, 2019

By Steve Lowrie, CFA

Special to the Financial Independence Hub

I’ve said it before. So has American financial commentator Barry Ritholtz. Regardless of your political bent, it’s a bad idea to hitch your investment decisions to whoever is, is not, or is about to be in political power at any given time.

Given the upcoming Canadian election and all the related political storm and fury of late, it’s not impossible that we could end up with a minority government in the next election, with the NDP or Greens having the balance of power. As a side note, residents of British Columbia have been dealing with this scenario for the past couple of years. That said, this outcome is just speculation, and this post is not about how you and I may feel about that situation.

This is about the choices we make as investors. As I said in 2016, and I’ll repeat here:

“Even when political news is strongly felt, there will likely never be a good time to shift your investments — neither in reaction nor as a defense. First, no matter how certain one or another outcome may seem, how the market is going to respond to the news remains essentially unknown. Second, by the time you’ve heard the news, it’s already priced into the market anyway.”

I’ve now been a financial advisor long enough that I’ve heard this refrain many times over: “If ‘X’ is elected I’m moving out of Canada!” Over the years and through multiple conversations, “X” has represented candidates from across the political spectrum.

Ironically, a similar refrain is often heard in the U.S.: “If ‘Y’ is elected, I’m moving to Canada!”Which is why Dimensional Fund Advisors provided us with a telling graphic to illustrate how impotent political parties actually have been at helping or hindering capital markets. Continue Reading…

What are the unique skills required for investing in real estate?

Posted By Financial Independence Hub | October 9, 2019

By Curtis Brown

Special to the Financial Independence Hub

Real estate has been an extensive career opportunity for quite some time now. People have successfully made a living out of buying and selling of properties and houses. If you ask anyone who has been in this field for a long time, they will tell you it is not an easy job. You need to have excellent communication and convincing skills to flourish in the real estate market. But the trick is not just selling.

You should also have the knowledge to assess and know when to buy so you can get maximum profits out of it. Many successful real estate agents have had numerous happy clients over the years. It’s probably a good idea to look at the set of skills they possessed to get an idea about how you should hone and develop your skill in investing in real estate.

Understand market conditions and risks

The market has many facets. It can be very stable at one time and volatile the next moment. However, if you look closely, it follows a trend. You should be able to analyze these trends so you can take advantage of all the uphills and downhills. There is no denying the fact that there is always an element of risk associated with real estate. However, since you have decided to enter the game, you might as well take some. In case it pays off, the profits may be much more than expected.

Discipline has been the most important skill

This applies to almost all career choices, and its implication in real estate is even more significant. Discipline and patience are two virtues that you definitely cannot do without. Once you embark on the path of discipline and follow up with your clients religiously, you will be able to track down and understand potential customers easily.

Network and Management skills

Since real estate is all about communication and buying and selling, one thing of paramount importance here is the kind of network that you have. A lot of marketing in real estate is based on word of mouth, and heavy networking will help to build a good reputation in the market. You should also be able to manage multiple properties at once. This is one strategy that most successful real estate agents apply. They deal with more than one home and keep stacking up their profits one after the other. You will have multiple avenues of income through this method. Continue Reading…

10 ways to get retirement ready

Posted By Financial Independence Hub | October 3, 2019

By Mark Seed

Special to the Financial Independence Hub

You’ve worked your entire life. You put some money away; invested, watched that money now and then over time.

Yet instead of living it up for everything you’ve worked so hard for you’re counting coins to make ends meet.

I don’t want this to happen to me. I don’t want it to happen to you either.

Inspired by an article I read some time ago, why retirement might not work out for you, I’m going to go on the offensive: here are 10 ways I plan to get retirement ready.

Retirees or prospective retirees please chime in!

1.) I will favour stocks over bonds

Most retirees are worried about out-living their savings. With inflation as a massive wildcard in our collective financial future, this fear is not unwarranted.

One way to combat inflation is to own more stocks (for growth) than bonds (for income security when equities tank) in retirement. You could argue that a 70/30 stock to bond split might be a good starting point to enter retirement with.

I own 100% equities in our portfolio now. We have that bias to equities because I consider my future defined benefit pension plan “a big bond.” Eventual Canada Pension Plan (CPP) and Old Age Security (OAS) payments in our 60s will also be part of our fixed-income component.

Got a pension plan? Lucky you. Consider that a big bond.

Here is when to take CPP.

Here are the facts about taking OAS you need to know.

While it might be scary (for some) to watch the volatility of your stock portfolio go up and down like a yo-yo short-term, owning a nice blend of stocks and bonds should help you combat inflation rather well.

What % of stocks and bonds and cash do retirees out there use today?

2.) I will embrace diversification

Diversification is important when it comes to investing because by doing so, you can enhance returns while reducing the portfolio risk long-term. A pretty great deal.

For most of us, diversification means an appropriate mix of stocks and bonds, a blend of small-cap, medium-cap, and large-cap stocks; owning various sectors of the economy; owning stocks from countries or investing in economies from around the world.

It can also mean owning assets that are not always correlated to common stocks, like real estate investment trusts (REITs).

Source: NovelInvestor.com

While diversification will never guarantee you big profits, it will help you eliminate the risk of investment losses given that not all assets move in the same direction at the same time.

When it comes to getting ready for my semi-retirement, I may consider owning some low-cost, all-in-one asset allocation Exchange Traded Funds (ETFs) to increase the diversification across my portfolio while simplifying my investing approach for my senior years.

These are some of the best all-in-one ETFs to own.

3.) I will consider a die-broke plan

My parents are very fortunate to have defined benefit pension plans and have a bit of RRSP/RRIF money to draw down in the coming few years. I’ll be working on their strategy this year.

They also own most (not quite all) of their home.

With good planning and careful spending in their 70s, they will definitely have enough money to live comfortably for a few more decades: thanks to their workplace pensions and government benefits.

However, they are not planning to leave any inheritance: and that’s more than OK with the kids (!).

They have a die-broke or at least a near die-broke plan to around age 95

I think this makes great sense. Working backwards (from age 95), you can calculate a more measured approach to spending money now while earmarking some funds to fight any longevity risk.

At the end of the day, as our lawyer said recently to us when we closed on our condo purchase: “it’s only money.”

Figure out your estate plan and work backwards. I suspect in doing so that will help your retirement preparedness.

Do retirees reading this site have a die-broke plan or an estate plan?

4.) I will track my spending (in more detail)

Ideally, all any retiree would need to know is: is enough money coming in to cover what expenses are going out?

Consider the following as part of your back-of-the-napkin calculations:

Do you have a rolling monthly credit card balance? If so, you’re spending too much.
Do you have a growing line of credit balance? If so, you’re spending too much.
Are you able to keep a cash wedge or an emergency fund topped up with cash? If not, you’re spending too much.

To get to retirement in the first place, you probably needed a budget. There is no reason why you shouldn’t keep one throughout retirement.

I plan to up my game in the coming years, to keep a more detailed tracking log of our spending as we enter semi-retirement. This will allow me to better forecast any travel expenses we intend to incur.

For now though, I believe this is a better way to budget.

How do you budget?

5.) I will rely on multiple income streams

Canada Pension Plan (CPP) and Old Age Security (OAS) won’t be enough for us. It might not be enough for you.

While a base-level of income security will be provided from both government programs, for most adults who have worked and lived in Canada for many decades, the sum of this income probably won’t be enough to cover all housing, food, transportation and health-related expenses.

By relying on multiple income streams, beyond government benefits, this will increase your chances to meet retirement income needs and wants.

Here are our projected income needs and wants in retirement. Do you know yours?