Good Morning & Happy Monday!

It’s been a busy few weeks in the markets, and this past week we also lost one of the world’s most astute investing legends of all time.

Charles Thomas Munger, was an American businessman, investor, lawyer, and philanthropist. In addition to his investing prowess, what I loved about Charlie was his quick wit and his ability to tell stories. He was a man of vision, passion, and a thirst for constant learning, famously quoted as saying “I think a life properly lived is just learn, learn, learn all the time."

"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve." - Charlie Munger

Learning not only helps us continue to evolve individually but enables us to prepare for the inevitable change that is in front of us, always.

As a continuation of my previous morning musing The Great Tsunami, that illuminated thoughts around the greatest wealth transfer of all time. I wanted to share an article I revisited on the weekend, a story that highlights the importance of learning, planning, and preparation as it relates the Family, Business, and the difficulties and challenges of Intergenerational wealth preservation.

Note --- I’m not suggesting you need to read through the article this morning, but it’s worth a read when you can find the time.

What I’m reading - How To Blow $9 Billion: The Fallen Stroh Family

Yes, Charlie is right, learning, planning, and preparation are imperative……not only for our own personal development, but also as we look to our family, their future, and all of life wonderful moments that await them.

Educating your heirs on financial responsibility

One of the biggest challenges with inter-generational wealth is a loss of perspective. In the “shirtsleeves to shirtsleeves” adage, the Sandwich Generation is close enough to the initial wealth creation that they still have some understanding of where that money came from. But the third generation often finds itself divorced from the initial wealth creation, and the values surrounding it.

In our experience at Henderson Family Wealth, most parents recognize their children are interested in learning how to be prudent and how to preserve what they’ve inherited. It does take preparation and planning, not only to ensure every generation involved has a comfortable lifestyle, but also that we are preserving and protecting wealth. In all situations, our heirs benefit from education around what wealth preservation truly means.

Wealth planning presents learning opportunities to sit down with the next generation and talk about family history, family values, experiences with money and sophisticated structures and strategies that can be employed to preserve wealth. This type of preparation can prove to not only bring families together but provide a sense of pride in all that the family has accomplished and look forward to the exciting journey ahead. In all of this work, the continual leaning, planning and progress, one of the most important elements for us all to be mindful of is ensuring we have the right team around us, the right partners and experts that we not only trust, but we enjoy working with, as thoughtful planning takes time and its partnerships that will prove pivotal in ensuring wealth continues to be protected, to build, and will thrive through generations.

“Even when things are going well, we spend most of our time looking forward to the future or thinking about the past” - Sam Harris

Sharpening your Axe

As much as I’m suggesting that it’s important to prepare the next generation through leaning and wealth education. It’s important that we all ensure we all make time to continue to learn as well. Each of us have our own unique goals and definition of what it means to be wealthy. No matter the definition or goals, we all strive to achieve and enjoy wealth.

To do this, we must always be learning, and always be sharpening your axe……as we look forward to the future here are a few suggestions from Ben Meer around personal preparation.

Sharpen Your Relationships

You become the 5 people you spend the most time with….so, choose wisely:

• Find intellectual sparring partners (let axe sharpen axe).
• Resist false kindness: Create an inner circle that will give you honest feedback.
• Avoid energy vampires: Spend more time with people who give you energy and less time with those who steal it.

Sharpen Your Finances

Make your money work for you:

• Cancel unused subscriptions.
• Automate your bills, savings, and investments.
• Pay off debt with the Avalanche Method.
• Budget with the 50/30/20 Rule (50% Needs, 30% Wants, 20% Savings).

Sharpen Your Health

Your brain influences every thought, feeling, and action you take….so prioritize your brain health:

• Take long walks.
• Sleep 7+ hrs nightly.
• Have a strong rest ethic to avoid burnout.
• Hydrate: Drink 0.5-1 fl oz per lb of body weight.
• Rebalance your dopamine with less screen time.

Sharpen Your Time

Time is a currency you can't afford to waste……how to make it count:

• Focus on the 20% of activities that lead to 80% of your results (Pareto's Principle).
• Make no your default: If it's not a 'hell yeah,' it's a no. (Credit: Derek Sivers)

Sharpen Your Skills

The more skilled you are, the more efficient you'll be at creating value.

Actions:

• Carve out 30 minutes to read daily
• Practice a skill deliberately for 30 minutes daily.
• Listen to a podcast or audiobook during your commute.
• Pretend everyone was sent to teach you something.
• Apply the Feynman Technique to remember what you learn. (Simplify concepts, teach them to a child, and fill in knowledge gaps).

Maintaining your 'ax' is a continual process. It involves:

• Regular Learning: Stay curious. The world is ever-evolving, and so should your knowledge and skills.
• Self-Care: Prioritize your well-being. A burnt-out mind is like a dull blade – ineffective and prone to causing accidents.
• Feedback and Reflection: Regularly assess your progress. Constructive feedback is like a whetstone for your skills.
• Tool Upgrading: You can shovel snow for three hours or invest in a snowblower and quickly remove it in 30 minutes. Where are you using shovels in your life rather than snowblowers? Learn more about practical materialism.

And now, to the markets

The month of November finished on a high note, marking one of the best months this year for global equity and fixed income markets. This strength reflects growing confidence that inflationary pressures are easing, central banks are largely finished with their rate hikes, and economic growth is moderating in an orderly fashion, even in the face of tight financial conditions. In the spirit of learning, I focus this week to the Canadian banks, all of which recently reported quarterly results. After the market commentary, I’ve also included a few ideas that will help us start to sharpen our Axes for the year ahead.

Throughout the year, expectations for the Canadian banking sector have been overwhelmingly negative. That helps to explain the group’s lackluster stock performance year-to-date. The anticipated turn in the credit cycle is a key factor, with a growing number of households and businesses expected to struggle with debt repayments as a result of higher interest rates.

This quarter’s bank earnings suggest credit trends are deteriorating, evidenced by delinquencies rising across various loan categories, including automotive loans and credit cards. Banks also made sizeable additions to their provisions for future credit losses as they continue to prepare for challenges that may lie ahead. However, the turn in the credit cycle has been gradual compared to some investors’ expectations, suggesting consumers and businesses have, on average, weathered higher interest rates as well as can be expected so far.

Elsewhere, the banks face the ongoing challenge of expenses that are outpacing revenues. While banks have benefitted from higher interest rates, new customers and deposits, and growth in credit card balances, these gains have been offset by higher expenses related to things like staffing, regulation and technology. In response, a number of banks initiated restructuring efforts aimed at long-term cost savings, incurring charges related to these actions this past quarter that should prove to be temporary in nature.

Commentary from management teams painted a picture of reserved optimism. Banks are bracing for a continued deceleration in growth as higher interest rates continue to work their way through the economy. Management teams acknowledged the wave of mortgage refinancings that are expected to intensify over the next few years. But, some also suggested it may not be as painful should interest rates decline over the next few years as the market expects. Regardless, the banks believe they are prepared to weather the storm as they have bolstered their balance sheets by allocating increasing amounts of capital to their reserves. They have also started to make progress towards containing costs, which should strengthen future profitability.

Overall, we see the bank results as neither concerning nor inspiring. The results weren’t as dire as some anticipated and banks have demonstrated a level of prudence as they prepare for a range of economic scenarios that could develop. Pressures are indeed likely to mount with an increasing number of customers facing higher costs of living. Nevertheless, these headwinds are reflected to some degree in the valuations of the bank stocks, which sit near historical lows.

In our view, the banks reflect the broader economic issues that exist in Canada. Namely, growth is sluggish, but not terrible. Higher interest rates are having an impact but there are limited signs of significant stress at this time. We continue to be patient and vigilant with the Canadian equity allocation of portfolios as we navigate through a challenging but manageable outlook for our domestic economy

Change is inevitable but the direction of change is our choice

“As we near the end of 2023, there's never been a better time to sharpen your ax.

You'll enter 2024 fully equipped, ready to cut through life's challenges with ease and grace.” - Ben Meer

Be well and enjoy the moments,

Derek