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A View From Here January 2011

January 11, 2011 • Print This Article

The greatest price you pay is the price you pay for money - Dr Tomas Scott.

Our Accounts

2011 marks the 23rd year of helping individuals manage their investments. I believe that it took at least 10 of those years to find what I believe is the proper way to do so...holistically. By this I refer to owning individual securities and fixed income investments rather than structured products such as a mutual fund or wrap account. If last year was an indication of anything, it would be that our patient, value-based approach culminated into one of our best performance years ever; exceeding the returns generated by the TSX Index, The Dow Jones Industrial Average and the S&P 500 index...by a significant margin. This was achieved without the benefit of one of our most passionate investment holdings which remained flat over the past 12 months. All good things in time I suppose.

Our long-term goal remains to over-fund your financial needs. This will take time, but our record of success suggests that we are on the right track.

Understanding Risk

It is my belief that many do not truly understand risk and maintain what they believe is a conservative investment stance, holding a portfolio of structured products. Further, I have been told that owning individual securities increases risk. Interestingly, I have rarely (dare I say, never?) met a mutual fund or structured product that has outperformed anything. In fact not only has the performance remained subpar, but there is a tremendous amount of imbedded fees (most often between 2 - 3 percent) that tends to detract from the overall performance. If one were to look back on their investments and ask; "Would I have been better off in a GIC offering low single digit returns over the past 5 years?" then perhaps its time to re-evaluate the level of risk that you are actually taking. What many consider as risk-free money (Gov't bonds or GIC's) yields less than 3% for a 5-year term. If you have any exposure to the equity markets, you should have exceeded this number over that period for the increased risk you are taking...even with the panic of 2008-2009 factored in.

I often wonder if our equity portfolio is considered higher risk. I believe strongly that it is not. Of the 10 investment positions we currently recommend, 5 of them carry no debt whatsoever, 6 of them pay dividends exceeding what you would receive in a 3-year GIC, and 4 of them hold cash balances in excess of 10% of the entire value of the company. Further, earnings in 8 of these investments are increasing by double digits. The opportunity has always been to buy $1.00 for $0.50 while maintaining the conviction to hold it for the time it takes for this to be recognized. Over the past 12 months, we felt that there was no reason to make any major changes to your account and in 2010, that patience paid off.

My Jerry Maquire Moment<

Perhaps the highest risk one can take over a long period of time is owning an under-performing portfolio of assets. In fact if you think about it, the performance for the past two years alone has increased the wealth in our investment accounts by a pretty significant margin. Add this to the many years that we have been achieving returns and it is quite material. It's just hard to follow, because it occurs slowly and many confess that they do not fully understand how to read their statements. But even if you do follow the accounts closely, the increases are subtle when expressed over a month-to-month period. For those who have been under our tutelage for 5 years or longer, it would be beneficial to look backwards and see the growth in the value of your accounts. Imagine if you had anemic returns? It would probably look like the same number a half decade ago.

It is important to understand that investment advisory is a very large business. In fact over 40% of the entire North American workforce is engaged in one way or another in this industry. Think of the immense amount of advertising from financial institutions. Surveys and expensive consulting firms have determined that there are two major desires of their target market. One, the investing public does not want to see fluctuating risk and two, they hate to pay fees. So, structured products are created which imbed the fees and are sold through financial institutions and the value of your investments tends to go nowhere.

Has a bank advisor ever asked you if you wanted to change your current deposit into a GIC tied to an index or a mutual fund? Want to know why? Because the imbedded fees are more profitable than what can be earned if you hold your money in secure deposits. Most importantly, do these products increase returns? Many who hold accounts with these type of portfolios of under-performing assets are made to feel that they are safe and a fee structure that is out of sight, is out of mind. Moreover, it is hard to understand month-end statements, which tend to be innocuous, displaying graphs and charts that distracts from the reality of anemia. Interestingly, there is no more or less risk holding your assets at any regulated brokerage firm in Canada, but there remains a perception that there is, so many hold their assets only at large financial institutions.

I understand that most investors who use financial advisors do not follow nor truly understand their investment holdings, which is why they use an advisor in the first place. We take pride in providing the best possible service and performance that we can. Further, we believe that the best way to achieve our holistic approach is to keep our fee structure up-front and provide returns however good or bad they are. We are not cheap, but most often, "the greatest price you pay, is the price you pay for money."

Our practice provides us with our living, but we own the exact same shares that we hold on your behalf in our own investment accounts. As such we look to build our own wealth through the same assets. Our ideal clients are people who are not tied up in the day to day movement of their investments, but rather the lever of time to achieve the long-term goal of creating wealth for the future. In other words, you are busy living your life and require a professional to help you make sense of this entire financial world. We are your partner in that respect to look after this aspect of your life, so you do not have to spend too much time worrying about it.

Thank you for respecting our opinion and following our advice. The last 12 months has provided us with a stellar performance and we look forward to 2011 as another step in our stated goal of overfunding your retirement.

All Good Things,

Adam

Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.

 

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