Is it a Recession?
Quite frankly, I’m thinking most of you do not really care what the technical definition is of such a thing (most define it as a drop in GDP over 2 consecutive quarters). However, all of you do care about what it means to your portfolios that you are using or plan on using to fund a comfortable retirement… I know I do!!!!
Perhaps it’s time for a little refresher on this economic world that we live in… and some basics about the workings of Wall Street? Back in the day, I felt that there were all these brainiacs out there in the world of high finance who were much smarter than all of us – yes even smarter than me!!! As I get older, I seem to fall back more on lessons learned in my Commerce courses and from a few select mentors who taught me the ropes. I guess the last 35 years or so have made me more skeptical about those high flying financial wizards on Bay Street and more in tune with my university Investment Finance courses.
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High interest rates are not a good thing, regardless of how good it looks on your statement. Today’s scenario is ideal for proving this point. Does anyone actually feel the extra money they make on their GICs in a week will cover the cost of buying a block of cheese with a baguette, a few vegetables, a couple of steaks and a box of wine?? Not to mention the gas you have to put in the car to get there? Inflation right now is rampant and the higher rates are being used to try and keep this problem under control. Yes, higher interest rates are a negative to your overall portfolios and financial health - they are not a positive. Just ask those young people who are soon going to have to renew their mortgages, or the ones that are still hoping to buy a home at these crazy prices.
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To really protect yourself against inflation you need to own stocks. “But Paul inflation is high now and my stocks are down – are you crazy???!!!” Well perhaps I’m a little crazy but that doesn’t make me wrong. Think about it… what is Bell Canada going to do with your phone bill as their costs go up??? They will jack up their prices which adds value to their shareholders. What happens to all the assets Bell Canada owns, inventories, fixed assets? Their value will go up as well. The same holds true for all companies out there – we are already seeing their prices go up at Loblaws and at the pumps – don’t kid yourself, profit margins are also being built into these increases. Don’t loan all of your money to these companies through your cash, bonds and GICs – that is what all of those investments are: loans, either directly or indirectly through the banks to companies so they can go out and make more money than you. The easiest way to view this is simply through the spread at a bank between their GICs and their lending rates. Those spreads translate to profits – so OWN the bank stock, don’t lend money to them so they can make money from your deposits.
All of these things take time to transpire in the markets and that is why you build balanced portfolios for the long term so you don’t have to make bets as to when all of these movements are going to take place. The market is efficient and in time equities will always make more than guaranteed investments. They have to! For the equity market to exist corporations have to make more than the risk free rate or they will eventually go out of business. Who would take on the risk of buying the stock of a company that consistently cannot outperform bonds???
Kristin passed on this analogy to me and I have already shared it with some of you – I think it’s great…
Imagine a person walking up the stairs playing with a yoyo … now instead of looking at the yoyo going up and down (short term market) just focus on the person walking UP the stairs (long term market). I love that and it makes a lot of sense – Liam (Kristin’s son) who thinks he’s pretty funny said that he thinks the person fell down the stairs!!!! Kids these days!!!!
Picking Stocks
I truly enjoy what I do – however, it does come with a lot of pressure. Yes, managing the portfolios of people I care a lot about and that truly believe and count on me can take its toll. This job is certainly not for everyone but I love it … most of the time … and yes even in markets like these – in fact, I think that these are the times where I think I add the most value to my clients. We all want to add value in some shape or form to this world of ours but we can’t all be teachers and nurses – thank God for them!
It would have been interesting how I personally would have fared over my stock picking career versus the average fund manager over this same period. I say average because there have truly been some stellar funds over the years, but there have been just as many dogs. However, even the stellar ones often go through their periods of bad cycles, take Invesco Global Focus, back in the day when this was called Trimark Global Endeavour this was truly a top pick. Today, however, we shake our heads and say why in the heck do I own that???!!!
The same holds true for me with picking stocks – sometimes you take in all the information from the various analysts and you look like a genius, other times you take in all this data from 2 or 3 of your best analysts and you look like a fool … take my Air Canada pick … all the stars seemed aligned, well until they weren’t!!! I like to look at it as if I was early rather than wrong ;). Regardless, it is my job to make decisions every day and they are not supposed to always be right – they just have to be right more often than not!
Personal Thoughts
What a wonderful day! Although the radar kept showing rain (and it certainly did rain several times before the ceremony) 5 minutes before the clouds cleared up and the sun was out ever so briefly as the bride walked down the aisle!!! Really was magical. Yours truly (yes me) officiated the ceremony and I seemed to pass the test – well people told me I did well but perhaps they were only being polite. I also played the song I wrote for them and made it through without bawling – like I did every time I practiced!!! All of this is on YouTube!!! I’m waiting for the royalty cheques to start rolling in!!!
The happily married couple enjoyed a wonderful honeymoon in the Caribbean, however, they were in a terrible car accident on the way home. The driver of another car came across the median on the 40 coming home from Montreal at 1 am and their driver (Paris’ Dad) hit them at 100km/hour … thankfully there were no major injuries, a small miracle … an extra honeymoon memory I’m sure they could have done without!
On a related note … Leah spent 4000 hours making the wedding cake and she did a fabulous job – not only did it look amazing it was delicious!!!!