Good Mornin’,

I trust everyone enjoyed the post March Break weekend!

Our little Henderson Family managed to get away to Ellicottville for a few days last week, our annual family ski trip! Despite this unusually warm weather, we managed to find snow….. for a day! Yes, we had to adjust plans slightly, as the weather this year certainly hasn’t cooperated for lovers of the snow. Despite the weather, we had a wonderful time with the kids, and it was great to continue the March Break family tradition,

While we were travelling, I did find it interesting to see a significant drop in vacationers this year. Perhaps it was weather related, or perhaps we are starting to feel the realities of the current economic climate. Over the last few quarters, rising stocks and bonds helped Canadians become wealthier, despite slumping home prices. According to Stats Canada, our household net worth climbed 1.8% in the fourth quarter of 2023, shored up by a 5% jump in the value of household financial assets. That asset-value surge is the biggest since 2010, excluding the pandemic. Meanwhile, debt accumulation slowed to the lowest pace in more than three decades, as the rapid rate hikes we saw last year deterred mortgage borrowing. Economists polled by Bloomberg expect the Bank of Canada to start cutting in June, while traders don’t see a reduction in the cards until July.

The numbers suggest that many Canadians are benefiting from asset diversification at a fraught time for personal finances, given the threat posed by higher interest rates and rising debt payments. Still, as we know, not everyone is reaping the benefits. The accumulation of assets and liabilities is not distributed evenly across wealth quintiles as most wealth is held by relatively few households in Canada. That said, overall, it is encouraging to see that the higher rates are working and average household debt burden (debt as a proportion of disposable income) declined for a third consecutive quarter to 178.7 per cent. This means that Canadians’ after-tax income is growing at a faster rate than debt. As Robert Kiyosaki famously suggested

“It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”

The Algebra of Wealth

Also, while away, between boardgames, babies, and bonfires, I managed to find some time for some reading. I was fortunate enough to get a sneak been at Professor Scott Galloway’s next book, The Algebra of Wealth. Touching down on bookshelves in late April, the author “Prof G” is a founder, professor, parent, and mentor - and we agreeably share similar philosophies as it relates to wealth, human behavior, and our approach to investing. In line with my view that True Wealth is comprised of our finite resources - our time, our energy, and our capital - Professor Galloway’s observation is that there are four variables our wealth: focus, stoicism, time, and diversification.

Without spoiling the book for you, I will walk you through some key concepts as he is both eloquent and thoughtful in his approach, and it’s certainly relevant for us all as we look at our overall wealth plans for the journey ahead.

“I know a lot of people who make an extraordinary amount of money, but few people who are rich.” Galloway suggests…..his view of the meaning of rich is “having passive income greater than your burn.” Prof G says that “people on a path to money focus on their earnings; people on a path to wealth also focus on their burn.” “Joseph Heller famously said “It takes brains not to make money.”, which may be true, but it definitely takes brains to hold onto it (money).” The Professor’s view is that “it’s not your income, but your income-to-expense ratio, that determines if you’re rich.” His observation is that there are four variables in the algebra of wealth: focus, stoicism, time, and diversification.

Wealth = Focus + (stoicism x time x diversification)

Focus

“Intelligence and talent are correlated with success, but the strongest signal of future success is your perseverance and resilience…… Focus on putting yourself in a position to be financially successful and focus on your relationships…… family and friends are essential to long-term happiness, and the most important relationship is with your spouse….. Don’t keep score, and bring forgiveness, generosity, and engagement.”

Stoicism

“Determine what you can and can’t control……. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security……. Our society of superabundance makes this difficult…… The most powerful forward-looking indicator of your financial freedom is not how much you earn, but how much you save.”

“Time is the fire in which we burn” - Delmore Schwartz

Time

“It is our most inflexible and valuable commodity, the one thing with which you should not be generous. Squander money, you may earn it back. Squander time, it is gone forever.”……..

Re investing: The long term is our ally, the short term our nemesis. The gangster authority on time, Albert Einstein, supposedly remarked that compound interest is the eighth wonder of the world. Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships. Change the timescale of your life, and you change your life.”

“Know what you own, and know why you own it.” - Peter Lynch

Diversification

“Investing over the long term pays out, but there are always dips along the way. Diversification is kevlar — with it, bad decisions will still hurt, but they won’t prove fatal…... Diversification, in other words, is your bulletproof vest…… In the end, my kevlar has been not allocating more than 10% of my net worth to any one investment. That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.”

Professor Galloway provides us with these principles to ponder……focus on what matters, be a stoic in the face of temptation, use time to your advantage, and diversify your investments.

"It’s your road, and yours alone, others may walk it with you, but no one can walk it for you." - Rumi

The times, they are a changin’

As the winter season continues to melt away, and the spring air gets us moving again, the rejuvenation can be a reminder that change is afoot and that the opportunity for growth and renewal accompanies each new season. If we look at Professor Galloways four variables in the Algebra of Wealth, we can look at our own plans and incorporate the principles. From a stoic perspective, understanding that we often imagine we have far more control than we really do in an important reflection. We imagine this because it makes us feel comfortable. We only control two things, our thoughts and our actions.

“Some things are in our control and others not. Things in our control are opinion, pursuit, desire, aversion, and, in a word, whatever are our own actions. - Epictetus

As we look to the seasons forward, it’s no secret that we all want to improve, want to be better, want to have better habits, live better, think better, invest our resources better. The key being that we need to align our priorities with action. In life, there are often two sets of priorities

• The priorities you think you have
• The priorities your actions show you have

From a wealth perspective, if we can understand our priorities, and understand what is indeed within our control, we are then able to intentionally invest our time, our energy, and our capital in a diversified way that enables continued growth. With understanding and planning, you can apply your own principles and create your own unique formula for wealth.

Bob Dylan said it best when he was asked about wealth…..

“What's money? A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do.”

As you look forward and plan be sure to focus on your priorities and actions, invest your resources astutely, be ready for change, and be sure you are spending your time wisely.

Be well and enjoy the moments,

G. Derek Henderson