GENERAL ECLECTIC
You may be aware of the core belief we have here at Marche Wealth Management:
We believe that wealth management doesn’t need to be complicated. It needs to be simple.
Sounds simple enough. But what precisely underpins our philosophy?
Well, it starts with this fact: the more you know about the companies you own, the less risky they are to you, because there are fewer things you don’t know. Many publicly-traded companies are indeed complicated, and thus inherently riskier.
So we steadfastly avoid buying complicated companies for our client portfolios.
Take GE, for example. Despite looking at this company several times over the years, I simply could not wrap my head around it. It was a bunch of different divisions doing a bunch of different things. They were in aircraft engines, equipment for the oil and gas industry, medical equipment and power generation – and that is just a very quick glance at their full scope of activities.
Then, during the 2008 financial crisis, one of their divisions, GE Capital, was hit particularly hard, bringing the entire GE behemoth to its knees. The company responded by taking drastic steps toward simplification, perhaps driven by none other than Warren Buffett.
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“Never invest in a business you cannot understand.”
Warren Buffett
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At the time of the financial crisis, GE was perilously close to going under completely. Buffett stepped in with a $3-billion investment to keep them afloat, during which time GE tried to go back to its roots – manufacturing – by getting rid of a cornucopia of businesses including plastics, water, appliances and entertainment (they sold off NBC Universal).
Because they have simplified their business to focus on their core competencies – and have been dismantling GE Capital – GE has become much more interesting to us. But we are still concerned about their balance sheet (they have $100-billion in debt!). We are not ready to invest in them at this time, but will keep watching closely.
Why buy something you don’t understand?
Just as we don’t buy businesses we don’t understand, neither should any company. But they do it anyway – in pursuit of growth. CEOs have a built-in incentive to aggressively pursue growth, often by buying other companies, because growth theoretically will increase the share price, upon which CEOs can receive massive bonuses.
THE CORONAVIRUS
We are closely monitoring the coronavirus news coming out of China. We do not expect that any of the companies we now own will be immediately impacted by it.
But could the virus pose a threat to the global economy? It does create fear and uncertainty, two things the market does not like. Depending on the degree to which it spreads, it could impact global travel and tourism, along with consumer and business confidence.
No matter what happens, we are in a position to capitalize on opportunities that any instability may present. If we feel that the market misprices the risk presented by the coronavirus – if stock prices were to fall lower than we think they should, for example – we are ready to buy.
GRANDE BOLD
I am very impressed with Starbucks’ ambitious sustainability plans. Effecting change in consumer behaviour is very difficult, but that’s exactly what the Seattle-based megabrand intends to do.
Their paper coffee cups, six billion of which are used every year, are not recyclable because they are lined with plastic (the lids are recyclable, and Starbucks has pledged, by sometime in 2020, to eliminate the one billion plastic straws they use every year).
Starbucks has made the bold acknowledgement that any steps they can take to reduce the environmental impact of their cups is not going to be sufficient. So, remarkably, they are trying to figure out how to get their millions of daily customers to use their own mugs.
That’s an enormous change to the brand experience. It won’t be easy for Starbucks to figure out. But we have to remember that Starbucks is the company that dramatically changed consumer behaviour by creating a café culture – a “third place” – that simply did not exist in North America. They can do this.
I would love for us to be invested in Starbucks, as they are clearly a leader, have a very strong brand and of course, a simple, easily-understood business model. But: I have not seen the stock at just the right price, so I will continue to watch it closely.
HARRY AND MEGHAN
My view is that we should not be paying their security costs. I also believe that no matter what happens, their decision to live here at least part time will have a positive economic impact, being a big endorsement for Canada that will raise our profile globally as a great place to live and do business.
TAX PLANNING MADE SIMPLE
Every year, tax planning, including taking advantage of tax shelter opportunities, is more important. Why? Because every year the government reduces the number of tax mitigation opportunities available to us.
Tax planning is especially topical at this time of year, as the deadline for filing your 2019 personal taxes – April 30th, 2020 – is fast approaching.
To make the process as simple as possible for you, attached are Handy Tax Planning Tips for 2020. Have a look if you wish, and please do not hesitate to contact me with any questions or discussion points you may have.
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We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.
Want to discuss any aspect of this month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call, email or visit.
Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated
tyler.marche@rbc.com
1-416-974-4810