Page 4 of 7

Why I Just Bought A BlackBerry

passport_desk

In the hunt for returns in the jungle of investing we rarely talk about “quality of life”, but it should be remembered that the whole reason for investing is precisely that; to preserve and improve one’s quality of life, either through retirement savings, covering and planning for education or making purchasing a house feasible. That’s what this is all for.

So it’s easy then to get lost in the mechanics of investing. At the charts (see #MarketGlance) the news and the conferences:

https://twitter.com/Walker_Report/status/515164444604006400

This tends to create a disconnect between how we experience the world and how we want our investments to work. For instance I am a big believer in Apple products. (AAPL). I like their phones and computers, I’m in their ecosystem, and as an investor I am impressed at their success as a company. But as a user of an iPhone I’ve started to wonder just how much time I waste under the pretence  of having a highly capable phone.

Apple Stock over the last ten years
Apple Stock over the last ten years

When the iPhone first came to Canada I was struck by the idea that I could look up directions easily, check the internet quickly for information and have access to my emails. When first introduced the iPhone was a tool of productivity. Since then the smart phone market has been flooded and “feature creep” is definitely a term I would use to describe what many of these phones can now do. Meanwhile productivity has taken a backseat to a host of other competing and primarily entertaining functions. In short, I was tired of wasting time on my phone doing nothing.

And along came Blackberry offering, in some ways, a phone that promises to do less fun stuff, and do more work stuff. And while I had shunned Blackberry for years, based largely on my own terrible experience with the older models and their tiny screens, the new Passport seemed to offer me not simply a useful phone for doing work, but also terrible one to watch Netflix on. Because why am I watching Netflix on my phone in the first place?

Are angry birds really the best use of your time on a $1000 phone?
Are angry birds really the best use of your time on a $1000 phone?

We live in an age of giant flat TVs with instant movie watching capabilities, but for reasons beyond me I’ve taken to watching stuff on my phone. So while I love Apple, and believe that they have a great company, I’m hoping that I can improve my quality of life by degrading my phone experience somewhat.

Maybe there is hope for Blackberry yet.

Recommended Read: The End of Absence: What We’ve Lost in a World of Connection by Michael Harris

51BrEAxPAHL

Don’t Be Surprised That No One Knows Why The Market Is Down

Money CanLast Friday I watched the TSX start to take a precipitous fall. The one stock market that seemed immune to any bad news and had easily outperformed almost every other index this year had suddenly shed 200 points in a day.

Big sell-offs are common in investing. They happen periodically and can be triggered by anything, or nothing. A large company can release some disappointing news and it makes investors nervous about similar companies that they hold, and suddenly we have a cascade effect as “tourist” investors begin fleeing their investments in droves.

This past week has seen a broad sell-off across all sectors of the market in Canada, with Financials (Read: Banks), Materials (Read: Mining) and Energy (Read: Oil) all down several percentage points. In the course of 5 days the TSX lost 5% of its YTD growth. That’s considerable movement, but if you were looking to find out why the TSX had dropped so much so quickly you would be hard pressed to find any useful information. What had changed about the Canadian banks that RBC (RY) was down 2% in September? Or that TD Bank (TD) was down nearly 5% in a month? Oil and gas were similarly effected, many energy stocks and pipeline providers found themselves looking at steep drops over the last month. Enbridge (ENB) saw significant losses in their stock value, as did other energy companies, big and small, like Crew Energy (CR).

Screen Shot 2014-09-26 at 11.08.02 AM
The S&P TSX over the last five days

All this begs the question, what changed? The answer is nothing. Markets can be distorted by momentum investors looking to pile on to the next hot stock or industry, and we can quibble about whether or not we think the TSX is over valued by some measure. But if you were looking for some specific reason that would suggest that there was something fundamentally flawed about these companies you aren’t going to have any luck finding it. Sometimes markets are down because investors are nervous, and that’s all there is to it.

Market panic can be good for investors if you stick to a strong investment discipline, namely keeping your wits about you. Down markets means buying opportunities and only temporary losses. It help separates the real investors from the tourists, and can be a useful reminder about market risk.

Screen Shot 2014-09-26 at 11.19.50 AM

So was last Friday the start of a big correction for Canada? My gut says no. The global recovery, while slow and subject to international turmoil, is real. Markets are going to continue to recover, and we’ve yet to see a big expansion in the economy as companies deploy the enormous cash reserves they have been hoarding since 2009. In addition, the general trend in financial news in the United States is still very positive, and much of that news has yet to be reflected in the market. There have even been tentative signs of easing tensions between Russia and the Ukraine, which bodes well for Europe. In fact, as I write this the TSX is up just over 100 points, and while that may not mean a return to its previous highs for the year I wouldn’t be surprised if we see substantial recoveries from the high quality companies whose growth is dependent on global markets.

Forget Scotland, Canada is Playing Its Own Dangerous Economic Game

house-of-cardsIn a few hours we will begin finding out the future of Scotland and the United Kingdom, and we may be witness to one of the most incredible social and economic experiments  in the history of the Western World.

But while many suspect that a yes vote for Scottish independence may cast an uncertain economic future, it shouldn’t be forgotten that as Canadians we are also going through our own uncertain economic experiment. According to a survey conducted by Canadian Payroll Association and released this month, 25% of Canadians are living paycheque to paycheque, with nothing left in their accounts once their bills have been paid for.

Screen Shot 2014-09-18 at 4.57.44 PM

In addition, the majority of Canadians have less than $10,000 set aside for emergencies and these numbers get (unsurprisingly) worse as you look at various age groups. Young Canadians are the worst off, with 63% saying they are living paycheque to paycheque between the ages 18 to 29.

But when it comes to planning for retirement, the numbers are significantly more dire. More and more Canadians are expecting to delay their retirement, citing insufficient funds for their retirement nest egg. Even as people (correctly) assume that they will need more money to last them through retirement, 75% of those surveyed said they had put away less than a quarter of what they will need, and for those Canadians getting closer to retirement (north of 50), 47% had yet to get to even a quarter of their needed savings.

None of this is good news, and it undercuts much of the success of any economic growth that is being reported. While the survey found that people were trying to save more than they had last year it also highlights that many people felt that their debt was overwhelming, that their debt was greater than last year and that mortgages and credit cards by far accounted for the debt that was eating into potential savings.

The report has a few other important points to make and you can read the who thing HERE. But what stands out to me is how economies and markets can look superficially healthy even when the financial health of the population is being eroded. This is a subject we routinely come back to, partly because its so important, and partly because no one seems to be talking about it past the periodic news piece. Our elections focus on jobs, taxes and transit, but often fail to begin addressing the long term financial health of those voting.

From The Desk of Brian Walker: The Hardest Part of Retirement

rrsp-eggThe moment you retire you are expected never work again.

Think about that for a minute. Every dollar you’ve ever EARNED has been EARNT. Your bank accounts will never be replenished again from your toil. All of your income from here on will be the result of your Canada Pension and OAS, any private pensions you are a part of and your savings. This is your life and your future boiled down to a number.

And as most companies stopped defined benefit pensions, many Canadians have had to turn (usually out of necessity) to investing in the market to grow and fund their retirement.

I have yet to retire, although I admit to being closer to it now than I was 20 years ago when I started this business, and I have to acknowledge that I find the prospect of retiring frightening. Work has occupied most of my life, and while I enjoy travelling and have a number of hobbies I have developed over the years I wonder if they can fill my days. But the thing that always sits at the back of my mind is about the money.

Because regardless of how well you have done in life there is always the potential to lose money in the markets, but so long as you are working you can replenish some of those losses. Once you have retired however, that’s all there is. A financial loss can be permanent in retirement and its impact will last the rest of you life, defining all your future decisions.

photoFor my currently retired and retiring clients the thing that has surprised me the most is that while these concerns are very present, they sit alongside a concern that should really be receding: market growth. For all the worry about protecting their retirement nest egg from severe downturns and unforeseen financial disasters, many investors are still thinking like they are accumulating wealth and have twenty years until they retire.

When it comes to investing, retirees need to be looking at investments that fit the bill of dependability and repeatability. Dividend paying stocks, balanced income funds and certain guaranteed products offer exactly that type of solution, kicking out regular, consistent income that you can rely on regardless of the market conditions. And as more and more Canadians head towards retirement we are seeing a growing base of useful products that fit these needs beyond the limited yield of GICs and Annuities.

The downside of these products is that they are all but certain to be constrained when it comes to growth. They simply will never grow at the rates of some companies, certain investments or aggressive markets by design. That’s a good thing, but nearly a quarter of a century of investing have instilled in many Canadians a Pavlovian response to the idea that investing must equal growth. But investors will be much better served by looking past desire for an ever expanding portfolio and towards investments that secure their long term income.

I’m not suggesting that once you retire you stop participating in the market, or that having any growth in your portfolio is wrong, or that it represents some kind of fault in your retirement planning. What is at stake though is controlling and protecting your savings and lifestyle by making your investment portfolio subservient to those needs over growth focused market participation. Your retirement could last almost as long as your entire working life, and easily as long as the amount of time you saved for your retirement. There will be plenty of things to worry about in retirement, and lots of other financial needs that must be addressed; from comprehensive estate planning to out-of-pocket health care costs. Why complicate your retirement needs by worrying about whether your are participating fully in bull markets, or worse, bear markets?

 

If you would like to discuss how we can help your retirement needs, or how we can re-tune an account for retirement please send us a note!

Russia’s Trade War Shows Europe to be The Better Economy

Putin-SmirkSince I first wrote about the Ukraine much has happened. Russia has been unmasked as a bizarre cartoon villain seemingly hellbent on destabilizing the Ukrainian government, assisting “rebels” and being indirectly responsible for the murder of a plane full of people. All of which came to a head last week when it appeared that Russia might have just started a war with the Ukraine (still somewhat indeterminate).

Russia’s moves with the Ukraine may have more to do with challenging the West, and some of the other recent militaristic actions show that may be its real intent. Russia announced in July that it would be reopening both an arctic naval base and a listening post in Cuba built back in the 1960s. Combined with many heavy handed tactics at home including essentially banning homosexuality, Putin is making a brazen attempt to assert its regional dominance and stem the growth of Europe’s influence in the most aggressive way it can. To some extent this seems to be working with his own population, but it isn’t making him popular globally.

Europe’s response to Russia has been to hurt it with economic sanctions, which since the Ukrainian situation first began have been escalating in severity. Two weeks ago Russia responded in kind. How? By banning food imports from sanctioning nations.

If you don’t know much about the Russian or European economies this may seem like potent response from one of the BRIC countries and major global economies. But Europe is a big economy, and agricultural exports don’t make up a significant part of GDP, with the same being true for the United States. And while sanctions targeted at farms can be politically dangerous (farmers are typically a well organized and vocal lobby) the most interesting thing about these sanctions is what it tells us about the Russian and European economies respectively.

First, Russia imports a great deal of food, mostly from Denmark, Germany, the United States and Canada. So sanctions imposed by Russia are really going to hurt the Russians as food prices begin to rise and new food suppliers (expected to be from Latin America) have to ship food farther. But more interesting is the sanctions Russia chose not to impose. Europe is heavily dependant on oil & gas for its energy needs. So why not really make Europe feel the pinch and create an energy crisis? Because Russia needs oil revenue.

16% of Russia’s GDP is made up from the oil and gas sector. Beyond that oil and gas make up more than half of Russia’s tax revenues and 70% of it’s exports. In other words Russia can’t stop selling its oil without creating an economic crisis at home every bit as severe as in Europe. Banning imports of food and raising the cost of living may not be the ideal outcome from sanctions you impose, but it is mild in comparison to creating a full on catastrophe.

By comparison Europe starts to look very good, and it’s a reason that investors shouldn’t be quick to write off Europe and all its recent economic troubles. It’s a large and dynamic economy, filled with multi-national companies that do business the world over. It is backed by stable democracies and a relatively prosperous citizenry. By comparison Russia is a very narrow economy, dependent on one sector for its economic strength run by a (in all but name) dictator with an incredibly poor populace. A few years ago it was quite trendy in the business news to write off Europe as a top heavy financial mess, and while I wouldn’t want to dismiss Europe’s problems (some of which are quite serious) it’s important to have some perspective about how economies can rebound and which ones have the flexibility to recover.

Why Malcolm Gladwell and TED Talks are a Terrible Way to Understand the Economy

The last few years have seen a slew of books that explore ideas about how nature governs far more of our lives than we might care to admit. Books like Stumbling On Happiness by Dan Gilbert and The Righteous Mind by Jonathon Haidt both explore the way that the subconscious mind governs many aspects of our lives. Meanwhile a number of other books like Malcom Gladwell’s Blink and Steven Levvitt and Stehpen Dubner’s book Freakonomics are working to explain the secret rules of economics in our lives. Book’s like this tend to distill highly complicated ideas down to bite sized stories, simplifying complex data into snippets of wit and good storytelling and removing the scientific uncertainty that may accompany many of the findings the books claim to show.

What’s far more interesting is how useless much of this data is. Take for instance this video from Vox.com about the statistical benefits of being good looking.

While much of the data seems interesting it isn’t exactly helpful, especially when we consider that this is in aggregate and doesn’t likely reflect your reality.

In fact many of these theories don’t reflect reality the way they hope. Freakonomics co-author and economist Steven D. Levitt found this out when they attempted to bribe students to improve their grades. While they did get some positive results, the reality was it was far from a resounding success. Even with an opportunity to earn $200 a week if the children continued to improve their grades many simply didn’t take the opportunity.

You may have never heard of Hernando DeSoto, but the Peruvian economist is sought after around the world for his insights about poverty and property rights. His book (which I love) outlines some of the most convincing connections between lack of property and the ability to improve one’s standard of living. His argument was that if squatters were given ownership over their home they would have collateral to borrow against and could start or improve their businesses. However, when in 2004 the World Bank carried out a program in Peru to test DeSoto’s theory that land titles would lead to more lending by banks. In actuality it failed in its entirety, with bankers unwilling to lend against the only asset of an impoverished family.

An actual simple truth is that life is unbelievably complicated and its hard to understand and know what governs many of the elements of our lives. Whether the question is nature of nurture, economics or social sciences in the end we seem to know very little about what drives some of the biggest events in our lives. In spite of the number of times these theories prove to be wrong, our media has come to speak more and more in absolutes. It is getting to be so that you can’t get on television or in government unless you claim to know all the answers without doubt.

Meanwhile there seems to be an actual deficit in useful information that the media ignores. For instance, a more intriguing statistic is that in a recent poll by Gallup, less than 25% of Americans were able to correctly identify what has been the most successful type of investment (You can do the quiz here). Over a third of Americans haven’t taken any steps towards planning their retirement and I’m sure that number is similar for Canadians. There is a knowledge gap opening up, where knowledgable investors will be able to save on average 25% more than less prepared and less knowledgable people, a reality that could be addressed by the news, but is being perpetuated through bad journalism.

 

Why Apple is a Good Lesson on Investing

Over the last few years some elements of the stock market have seemed fairly crazy. Tech stocks, often belonging to social networking sites like Twitter, have had an unbelievable run. Meanwhile Apple Computers (a favourite of mine) have frequently been heavily criticized for declining revenue growth and slowing sales numbers. Business commentators like to point to the growth in Google’s Android phone platform and its large share of the mobile phone market as proof that Apple’s days as a global leader are past.

However with Apple’s most recent earnings report out there are some important things to take note of. The chief reason that we invest in companies is because they make money, and Apple is currently one of the most profitable companies around. How profitable? Take these statistics published today in Slate.com.

If Apple’s iPhone was it’s own company it would be larger than 474 companies on the S&P 500 index and would have revenues in excess of Amazon, Coca-Cola, McDonalds, Google and E-bay. iphone.png.CROP.promovar-mediumlargeThat’s just its phone division. The iPad, whose sales numbers are definitely plateauing if not declining is still a valuable business netting $5.9 billion in revenues, greater than Facebook, Twitter, Yahoo, Groupon, and Tesla combined. ipad_1.png.CROP.promovar-mediumlargeMac Computers, which earned less than the iPad division, still garnered an impressive $5.5 billion. Even the iPod, now almost totally forgotten in the midst of smartphones and iPads still earned an impressive $442 million, 77% than Twitter’s $250 million in quarterly revenues.

Apple’s stock has periodically taken a licking, but has been beating its way back to its previous high (partly due to a recent stock split and dividends periodically being paid), but its story is an important cautionary tale.

Apple Stock Price
Apple Share Price History

Good investing comes from choosing companies that produce revenue and retain growth potential, in other words focusing on the fundamentals of investing. Despite naysayers, that’s exactly the kind of company Apple has been. So why does Apple get so much negative attention? Because predicting the fall of a Goliath is exactly the kind of thing that makes news. Whether it’s true or not is irrelevant in the news cycle, but it is a source of bad investor advice, and should serve as a cautionary tale to investors considering taking financial advice from business news.