Using Financial Advisors

I use an online discount stock brokerage.  Discount brokerages do not offer stock picking advice.  The reason I don't want their advice is because I have not found one which adds value to what I can do for myself.  That does not mean I don't seek professional advice in areas such as estate planning, asset allocation, risk analysis, and tax strategies.  I also realize that I am the exception.  I have managed part, and then all of my own stock market portfolio for more than a decade.

When I do go to see the professionals, it is to get specific questions answered.  If they tell me I need to allocate a percentage of my portfolio to bonds, then I research ways of doing that.  I listen to product suggestions, but choose my own.  Needless to say, a Financial Advisor, in my case, needs to charge me for a plan, because there won't be any product commissions.

Obviously, I am not the best person to ask about what to look for in an advisor, but I do have two additional tests for my advisor that are not often discussed in the media.  For the rest of the questions that must be answered, my suggestion is to google "Questions to ask your financial advisor".  I would never consider doing business with someone who cannot address all my questions to my satisfaction.  Otherwise, I would just keep looking.

I want my advisor to discuss their sell strategy.  Sell strategy?!?  Okay, if not a sell strategy, then let's call it an exit strategy.  The stock market goes up, down, and sideways.  Most people who bought mutual funds ten years ago have very little to show for it.  I believe there are good times to buy and times when it is necessary to sell.  If my broker doesn't know the difference, then I don't feel they are providing any additional value.

It makes no sense to me to just keep pouring money into a market which is either due for a correction, or in the middle of one.  We can make contributions to our investment account without immediately having to divide and allocate the funds.  I recently spoke to a friend whose advisor put him into a pile of bonds.  Now, bonds are something most of us need in a balanced portfolio, but have you noticed what's happening to them lately?  Why not wait for them to bottom for awhile or even break the downtrend before throwing away all that money.

Secondly, I try to be more than modest when filling out any risk assessment tool.  Under no circumstances would I leave such a matter to my advisor to complete on my behalf.  They may suggest it is just a routine formality, but the only way they can cheat and put my money into schemes I don't understand is if they have the paperwork that says I am more experienced than I actually am, and that I am willing to take more risk than I actually want to.  I can not overstate the importance of this one issue.  I would rather have my advisor talk down to me and think they have to explain everything than the alternative.

Too many people have thought they would be protected from brokers who illegally traded their account and put them into products they didn't want, or understand.  Only afterwards did they find out that the company's successful defence was that the products were consistent with the risk assessment documents signed by the client (and later filled in by the advisor).

By no means am I saying every Financial Advisor is out to scam people, but history has shown the really good scam artists can be hard to spot.  As for needing a stock broker, I have learned to make more money mostly without one.

Charitable Giving

At the beginning of the year I committed to setting aside $10,000.00 to invest in the name of charity.  Any money I make by investing that money during this calendar year will be donated to charity as soon as possible in 2012, if not before.  I know that is a little like counting your chickens before they hatch, but I am confident I can come up with some amount of profits between now and then. 

If you have ever seen, or read The Secret, you will know they recommend visualising the amount of money you want to give, and make it seem like it is right now in the present, as if you are already in possession of that amount.  I can attest to the power of visualising.   In my own case I was able to consistently improve my shot making ability in curling by several percentage points, just through the act of visualisation.  There are any number of other sports examples.  If you do not believe you can simply attract money, then it won't work for you.  However, if you do, why not set yourself an aggressive goal and make it happen!

I believe we are being too selfish when we look at the many blessings present in our lives and regard them as being for our own benefit.  Our destiny is not written on some hidden scroll waiting for us to spend a life time of effort trying to discover it.  Rather, I believe our destiny is the result of choices we make every day.  I'm not talking about life and death decisions, either.  We choose our own consequences by the actions we choose.  Choosing to see our blessings as gifts with which we are able to help others who are less fortunate, frees us from the limitations of scarcity. 

Hoarders believe in scarcity.  I do not.  If I am in the process of helping  others why would I believe I should end up with less, and not more?  Circumstances favour those who help.  We want to reciprocate - it is in our nature.  It is a much used example, but the way to more loving relationships is by giving love freely.  Don't even consider meeting someone half way. Be the example and go all out.  Yes, it may be scary, and not worthwhile every time, but in the end I can promise you that more will come back to you than you would ever have imagined.

Too many people struggle because their focus is inward instead of outward.  Don't be one of them.  Concern yourself with the well-being of others and I guarantee you will be in a better place.  The people you help will be sure to see to it.

I haven't necessarily decided on a charity to give to.  If you have a preference, or have your own story, then please share it.  Be inspiring.  Inspire us all.  I have all of 2011 to make a decision.  Individually, we can only do so much.  Together, we have the power to accomplish anything.  Yes, anything.

 

   

Saving For Retirement

I find the media debate about what is wrong with the pension "system" in Canada to be somewhat amusing.  While the situation isn't funny, I do find it interesting how the politicians and the professionals in the financial services industry can't seem to put their finger on the problem.

In my personal experience, the opening to the pension bucket is too small, while the bucket, itself, is filled with too many holes.

By that I mean, if they really want people to save more, you would think they would make it easier.  When I was making sufficient money to actually top up my RRSP savings, there were too many income restrictions, and no Tax Free Savings Account to do so.  With all but senior executive and government compensation decreasing in real dollars I am afraid that window of opportunity is lost.  At the same time our governments, in my opinion, have done a lousy job of protecting hard-earned Canadian pensions from foreign controlled companies, and even the likes of Nortel.  Besides, given the state of modern computer technology, why are pensions not portable?  Why does it matter where I work, as long as it is in Canada?

The holes in the bucket I am referring to are the enormous commissions, fees, and charges imposed by the financial services industry on people trying to save for retirement.  What is worse, in exchange for all of that hard earned money that could have been going toward people's retirement, we receive terrible advice since most of it is designed to make the institutions money at the expense of the "client".  No person, it has been said, can serve two masters, and since one of the two is directly in charge of compensation, we can guess which one is being listened to.  At the same time, I am expected to save more so, in future, I can help pay for those indexed pensions of our faithful civil servants despite having no pension of my own.

It all reminds me of the debate over why people don't vote in Canadian elections.  The politicians run around acting like little children, while spending like drunken sailors (sorry to slight any sailors out there) on shore leave.  Then, when it comes time to vote they can't understand why everybody has lost interest or any hope of ever seeing any positive outcome.

It has always been my opinion that if people are not acting in the desired fashion then those doing the managing have failed in their job.  We can call people lazy, indifferent, and even ignorant, but wouldn't that tell you they have not been educated, motivated and inspired?  I keep hearing, "Save more, save more!"  I don't think, "Do as I say and not as I do", is going to inspire people in this situation any more than it has in the past.

It's Only Money

I am always appalled to see people in positions of responsibility cutting corners, avoiding regulations, and employing any number of methods of cheating in order to fill their own pockets at the expense of those they were meant to protect. So, if you think I am talking about some third world country, or the past earthquake in China where many innocent children were killed in unsafe school buildings, you would be wrong. No, I can only watch what is happening to the U.S. financial system with a growing sense of horror.

I learned a long time ago through exercises in loss protection that systems are designed in such a way that it takes a minimum of two parties in collusion with each other to defeat the security measures. One, or the other, by themselves is not enough - it takes two. So, the more I see how close the regulators and big money in Wall Street, and everywhere else, have grown, the less I feel I can trust them.

I understand that lady justice is blind, and that things within those circles turn very, very slowly. The result is most of the people who got the world into this mess are still making it worse. The same people who demand exorbitant salaries because they have to spend long hours at the helm navigating the ship, now tell us that despite having received their compensation, and their bonuses, they didn’t actually know what was going on. It wasn’t their fault - nobody knew! Since when is incompetence any real excuse? I can just see me trying that one on my employer! Meanwhile, the regulators are busy running around plugging little holes in the dyke as the water rises higher, and higher.

The real problem is people will want to see some accountability within the system, or else it will only be a matter of time before they start to take matters into their own hands. Many may be lying low hoping to eventually invoke the statute of limitations, but I don’t know if you have ever noticed, but if you really, really anger someone, they can take a very long time to forget, if ever! Now I am not inciting riots, or even believe that violence is ever the proper solution, but how much, how far, do they think people are willing to go?

Do the cheaters actually believe they are all that much smarter than everyone else? The crisis is past. Next year will be better. Apparently time in the market is the financial services solution for anything and everything. Given enough of it, all manner of problems can be solved. It sure as hell removes any and all responsibility!

What actually got me on this rant was the notion that it is not where a company is domiciled that is important.  Instead, it is a matter of from whence the income streams originate. By that logic, almost any U.S. company that does business with growing third world countries is a huge investment opportunity. I am even told stock valuations for U.S. companies are favourable these days. The problem as I see it, is, to invest in those companies listed on the U.S. stock exchanges (since they are domiciled there), I have to buy shares in U.S. dollars. Given the time it is going to take for the return of any real confidence in the U.S. dollar (and not just panic buying), why do I want to forfeit much better opportunities? I know there is no shortage of snake-oil salesmen who want us to believe in their product, but me, I’m not buying.

Given the fact I can buy Exchange Traded Funds (another hugely untold story within the traditional financial services industry) in Canadian dollars which provide investment opportunities from all over the world, why would I participate in the current madness involving the currency of the place which was once the greatest exercise in capitalism on the planet? Surely I am not alone when I say, without accountability, I'm not willingly going to hand over any of my hard earned money.  Sorry. Nothing personal - it’s just business. It’s how business used to be, and still should be conducted. After all, the rest of us less-than-powerful people are held accountable for how we spend our, and most especially, other people’s money.

Up, Up, and Away?

To believe that Qualitative Easing will heal the U.S. economy is to fail to comprehend the magnitude of the demographic shift that is taking place.  Qualitative Easing makes it easier for financial institutions to borrow money.  The lack of borrowing is the symptom, rather than the cause of the issue.  The real underlying cause is the shift in the habits of the Baby Boomers from being spenders to becoming savers.  The savings rate in the U.S. took a jump with the drop in stock markets, and more importantly, the price of homes.  The Baby Boomers are a group who are running out of time to prepare for retirement, whatever form that may take. 

I have read much about the maturing of the "me" generation resulting in a surrendering of the need for stuff in favour of basic values.  I don't believe the change is coming from the inside, but rather the outside.  Demographic research shows the peak spending years in a person's life is around the age of fifty.  One half of Baby Boomers reached that point in 2007.  Every passing day results in even more Baby Boomers leaving behind the age of peak spending than those who have not yet done so.

Check out this definition of a Ponzi scheme I lifted from the U.S. Securities and Exchange Commission website. "A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity."

Now, I am not saying what the Federal Reserve is doing is engaging in non-legitimate investment activity, but I think one can begin to see the similarities between the actions of the Fed and those of people engaged in a Ponzi scheme.  I fail to understand how more borrowing is going to solve the current debt crisis.  To me it is not a coincidence that the problems in Japan can be linked to the same demographic shift.  Sure, they made some serious errors in handling their situation, but any resolution can only come when we address the cause rather than attempting to treat the symptoms.

Being raised in the country, I have long been familiar with the saying, "You can lead a horse to water, but you can't make 'em drink".  Flooding financial institutions with cheaper money helps the financial institutions, but says nothing about people's need to borrow.  Still, it will probably take the experts a few months to discern the tea leaves and make any determination as to the effectiveness of QE2, this second round of Qualitative Easing. 

Bottom line for me is I am not participating in this stock market "rally".  The big reaction in the markets smells to me of a short squeeze.  After that, there is no telling how long before the denial turns into disbelief.  When it does, I will be betting against the markets, at least in the shorter term.  My prediction is the markets are going to end up lower than where they are presently.

Going To Pot?

"Stupid is as stupid does", says Forrest Gump.  First, the government blind-sided investors with the reversal of their position on income trusts.  Then, the Alberta provincial government drove energy companies out of the province with punitive increases in royalties. After that the government blocked the sale of MacDonald Dettwiler for (seemingly valid) reasons of national security.  Now our government has stepped in to block the sale of Potash Corporation.  This, while extolling the virtues of a "business friendly" environment.  Do they not understand that foreign investors, like kids, listen to nothing we say and notice everything we do.  After all, the way to tell when all too many politicians are lying is when their lips are moving.

While we can argue whether, or not, we are business friendly, we cannot say we are investment friendly.

Personally, I did not want the BHP Billiton deal to be accepted.  I thought the bid was too low.  I felt BHP was trying to take advantage of the situation and steal a valuable resource at a rock bottom price.  But, it doesn't matter what I think, or necessarily what some government minister thinks.  The only people with a say in the matter should be the share holders.  If, collectively, they didn't think the deal was fair, then it is up to them to say so.

It was abundantly clear that public sentiment was not in favour of this deal.  What bothers me, though, is any government that would make choices that further their own political agenda, regardless of the impact on shareholders and Canada's reputation at large.  I know people will say it doesn't make any difference in the long run, and perhaps it won't.  It isn't this one incident that concerns me, however.  It is the growing trend of saying one thing while actually doing another.

I even appreciate the patriotism that compels people to want to hold onto this valuable Canadian resource.  Whoops, did I say Canadian?  Did anyone point out the fact it is already an American company, with a head office in the U.S.?  Different politicians and labour leaders were quick to point out that other jurisdictions would never allow such an important national resource to be taken over.  My question to them is, "How is that working for their economies?"  Would you rather adopt the Russian economy?  How about the U.S.?  Perhaps any of the European economies, most especially Portugal, Italy, Ireland, Greece, Spain, or the U.K.?  I have to believe one of the most important catalysts to growth in this country has been, and is, foreign investment.

We should all demand governments with vision, one's not afraid to deviate from the herd and stand for real principles and not just follow public opinion of the day.  Not that I believe Canada is the only country to blame.  If the world economy is currently on a downswing, as anybody but those trying to hawk debt would believe, protectionism is surely alive, well, and on the spread.  Do we really want to repeat the mistakes of the past?  As Forrest would say, that would just be stupid!

Newsflash: Canadian GDP Slowing!

At the same time we close the books on the best September for the markets since the Great Depression, we get word that Canadian GDP slowed in July.  Now, I am the first to admit that one month does not a trend make.  What strikes me most, however, is how the two can occur in the news at the same time.  I have been unable to justify to myself, the lofty returns of the TSX since around the time of the "flash crash" back in May.  I was beginning to wonder if everyone knew something I didn't.  Now, the floor that was propelling us upward seems to have dropped away from beneath us.

Imagine my surprise that nobody seemed to take into account that things would slow down after the introduction of the HST in BC and Ontario.  Who would have thought that people would try to spend their money on products and services ahead of the introduction of a new tax, pulling demand forward?  And, who could have predicted the implementation of the new taxes would slow down an already damaged economy?

There's more.  Look at the sectors that slowed the most.  Manufacturing, retail, construction and forestry all posted declines.  Can we guess why?  Could it be the result of problems in the economy of our single largest trading partner to the south?  Who could have predicted that?

How big are these sectors when it comes to providing Canadians with employment?  What does that say about our economy going forward, the taxes our governments were planning on collecting to cover deficits?

Anyone who has heard of a Price/Earnings ratio knows the relationship between growth and price.  The price of a share divided by the earnings per share gives us a number.  Said another way, the earnings per share multiplied by that number results in a price for a share.  That multiplier number is directly correlated to the growth rate of the company.  The faster the company is growing, the bigger the multiplier.  The growth rates of companies in Canada are usually highly correlated to the growth rate of the country's GDP.  If our countries GDP is slowing, the multiplier number used to determine the price of companies' shares will shrink.  When prices drop, the market contracts.

It would appear the market is headed in one direction while the economy may be headed in the opposite one.  The situation has to resolve itself, as the two can not continue to oppose one another for very long.  My guess is it ends up poorly for the market.  If we had only known!