Pamela Yoon, CMT, FEA

 

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Welcome to Fill The Gap, the official podcast series of the CMT Association, hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewees' investment philosophy, their process, and decision making tools.

By learning more about their key mentors, early influences, and their long careers in financial services, Fill The Gap will highlight lessons our guests have learned over many decades and multiple market cycles.

Join us in conversation with the men and women of Wall Street who discovered, engineered, and refined the discipline of technical market analysis.

Fill The Gap is brought to you with support from Optima, a professional charting and data analytics platform. Whether you are a professional analyst, portfolio manager, or trader, Optima provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at Optima.com.

Hello, and good morning, Dave Lundgren. August 6, 2021, welcome to Fill The Gap, the official podcast in the CMT Association. How are you doing today?

I'm doing well, Tyler, doing well. Thanks. Nice to see you.

Nice to see you, too. I'm very excited this month for our featured guest, Mrs. Pamela Yoon, CMT. She's a vice president and portfolio manager at RBC Dominion Securities in Vancouver. And it's a little different from some of the guests that we have had on this show before.

We've often highlighted the work of technically-minded investors that are in the media spotlight. But we also want to feature the work of CMT charter holders who are less often known on the wide media landscape. So, Dave, talk to me a little bit about what really stuck out to you from this interview with Pamela?

Well, first, as you just said, was, to me, one of the great things about this particular interview is that I think it's a great example of what we're striving to accomplish with this podcast-- which is to bring notoriety and recognition to those CMTs who are perhaps lesser known, because they're not on CNBC all the time. But they're striving and thriving, using technical analysis on behalf of their clients, either as the analyst or portfolio managers.

In the case of Pam, who is a CMT charter holder, she just does a really good job. And she has a very healthy level of respect for fundamentals. She does deep dive fundamental work on her individual stock selection. But she also has a very high level awareness of the sort of episodic risks that are inherent in equity ownership from time to time and in the benefits the technical analysis can bring to bear when those episodes do arise.

And so she just does-- we're all striving, as investors, ideally, to be somewhat more holistic in our approach, where we're trying to incorporate fundamental and technical. And what I'm pretty most excited about in this particular conversation with Pam is to highlight somebody who is actually thriving doing both using fundamental work, but as well using a technical overlay to really help protect her clients' assets during those episodes where you really need to bring risk management front and center.

Absolutely. Responsible risk management, paying attention to not just the fundamental data but to the market data itself certainly helps Pam improve performance for her clients.

It's funny when I first started working with the CMT Association over a decade ago, I heard so many comments about, oh, sure technical analysis. That's for short-term speculative trading, or that's systematic high frequency stuff.

And the fact is, technical analysis is commonly used throughout the industry in every aspect. It was great to talk to Pam about how she can create concentrated portfolios on behalf of her clients to take advantage of securities that are trending and outperforming.

And she uses the fundamental discipline to back that up, but really, it's the technicals that help her stay with those names in leadership.

One of the things that Pam mentions in our conversation on her website, et cetera, she talks about concentrated high conviction. And that reminds me of the conversation we had with Jeff deGraaf, where he talked about this idea that technical analysis allows you to be almost brash and brave in your investing in managing a portfolio, because it always has that risk overlay that enables you to pretty readily recognize when you're wrong.

So that enables you to actually have a high-conviction, highly-concentrated portfolio, because you know pretty readily when you're wrong, vis-a-vis trend change, and the tools we bring to bear in technical analysis. So that was interesting.

Absolutely. Pam is a great example of that Bull Durham quote in action, play with fear and arrogance, right? The other big takeaway for me, Dave, was just how generous of time and spirit somebody like Pam is. She does a lot of work with Simon Fraser University in scholarships and mentorships for the next generation of investors.

And great to hear her stories, early beginnings, and how she got in finance, and some of the influences she had in her life from other CMT charter holders out there in the Pacific Northwest. So for all of you listening, I hope you enjoy this interview, and fill the gap with Pamela Yoon, CMT, vice president and portfolio manager at RBC Dominion Securities in Vancouver.

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Welcome to the eighth episode of Fill the Gap the official podcast of the CMT Association. On Fill the Gap, our goals are to highlight the value of technical analysis, the value of the CMT Association, but most importantly, to profile analysts and portfolio managers who are thriving as CMT charter holders.

And today's guest is thriving, to say the least. Pamela Yoon is a CMT charter holder, a vice president and portfolio manager with RBC Wealth Management in Vancouver, British Columbia.

Pam, welcome to Fill the Gap.

Thank you. Glad to be here.

Great to have you with us. Tyler and I are very excited to speak with you about your transition over your 25 years in the business, both pre-CMT charter and post-CMT charter. We're sure that's going to be a riveting conversation.

Let's start first with how you get into the business. What drew you to the business? And how did you get your start?

Yeah, this is a great question. I did not grow up with stocks, bonds, type of financial terminology in my upbringing. My mom gambled in stocks like a casino. And she used stock tips and sort of methodology when she was trading stocks. And so that was a no-no.

Dad was a civil engineer in the construction business. So I grew up going with Dad to see the highways that he built and the commercial buildings that he'd built. And so it was a family that we understood construction. But I didn't know anything about stocks really, other than it was gambling.

So I didn't want to work in a family business as I was a little girl. I was a girly-girl type, growing up in the '80s, and looking at Vogue magazines. And at that time, it was power suits. And I wanted to be in a power suit, and I wanted to dress in pretty clothes.

And so finance was the place to be so that I could work in Wall Street kind of thought. So then I went and pursued an economics degree. And dad wasn't very happy about that, because I needed to be in a family business.

And so growing up, I loved art, and I loved beautiful things. And I was also very good in the sciences and in math. And so went to university and graduated with an economics degree from SFU-- Simon Fraser University here in Vancouver.

And then when I graduated, I thought I was going to go into the traditional routes of going into banking. One of my buddies in University, a few years my senior, suggested that I come work with them at one of the brokerage firms in Vancouver.

And truthfully, I didn't really know what I was getting myself into. But he said, you're a smart girl. You'll figure it out, so come work for us. And so that was it. Go on to the business and worked in the bullpen that was the brokerage business, very traditional back then.

The early '90s was very sales culture. I saw who was successful, who wasn't, and I knew it was a meritocracy kind of business. And so that was it, yeah, yeah.

You started as a broker?

I started out as an assistant with that buddy. And then in two years, I became a broker. So I was an immigrant-- well, I came to SFU in Vancouver as an international student. My friends didn't have money. I didn't know anyone with money. Yeah, that was my start. So-- [LAUGHS]

First of all, when you mentioned the word bullpen, maybe describe what that is? When I think about the movie Wall Street, which I think came out in 1987, is that what you describe as a bullpen?

Yeah, it was dial for dollar. It was try to get clients, right? That was really what it was. And we buy tickets, and sell tickets, and run to the trader to punch in your order.

Interesting, interesting. So what year did you officially get into the business?

December of '93.

That was sort of the beginning of what ended up being one of the great bull markets in history, right? The peak in 2000?

Exactly. Exactly. That was the--

You must have considered yourself a genius stock picker.

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I didn't really have a lot of clients back then. So it was very sales culture. I was primarily trying to get clients by doing seminars and putting together mutual Fund portfolios. At the time, mutual funds were the biggest invention kind of thing.

The businesses has just changed tremendously since then. But, yeah, it was quite fun.

We have a lot in common in that, probably more than you even would suspect. But my first job was a stockbroker in Canada. I started in 1989, and I remember very well picking up the yellow pages and literally going down number by number, making a hundred dials a day trying to build a book of business.

Exactly. I did that, too. I couldn't go home until I made a hundred dials a day. And so it was one of those things, right? But I think it builds a lot of resilience in us.

It definitely weeds out the ones who don't really want to be in the business. It weeds them up pretty quickly. So in your early years, as you were sort of transitioning into the business and trying to learn your way around, can you highlight any folks or perhaps books that were early influencers to you, that really kind of gave you direction?

In the early days, and in this business day, it's fundamental-based. And so it was the Graham and Dodd, the Warren Buffett sort of the world. And so that's where I went and read Barron's with the Wall Street Journal.

But it was really in the mid '90s around '95-'96, that I met a very good friend, who is a very, very good friend today, Gatis Roze. And we both served on a board together. And he was a great guy. He asked me a lot of questions about what I did, my methodology, and stuff. And that really pointed me out to what technical analysis was all about.

And if you remember, back in the '90s, technical analysis was still treated as witchcraft, voodoo kind of stuff, right? And so he pointed me in the right direction. I dug deeper into it, and that was really the start of it. But then back then, computing power was still quite limited and most charting was done by hand.

As a retail investment advisor, I didn't really get a lot of access to these kind of big powers of the fidelity chart room, that kind of stuff. So they're very, very different days. So that was my early start.

Interesting. And you and Gatis served on a board together for which organization?

With Simon Fraser University. He and I are both alum of Simon Fraser University. I think we serve there '96 to '99, or something like around there.

And of course, Gatis Roze is the author of Tensile Trading. Fantastic book for any of you who haven't yet read that.

Fantastic book. Yes, I give that to everyone who asks me about investing.

Not to date myself, but I'm much closer to his son Grayson Roze, who's also in the business, StockCharts.com. Wonderful family. Great technician.

So Pam, as I'm listening, clearly you have drive. You have the resiliency to make it in this business, particularly in those days, and you seem to be a lifelong learner.

Can you tell us a little bit about what is inspiring you now? What do you see on the horizon in terms of great authors or influencers in your life right now that kind of keep that passion alive for continuing to innovate and just get better at the craft?

Gatis continues to inspire me. The work of Amos Tversky on behavioral work, behavioral finance, that's big, especially in the work I do with clients and on the investor behavior psychology. I never really enjoyed psychology when I was in University. But today, applying psychology to the markets, to human behavior, so that's big for me.

Seasonality work. I do a lot of work on that. Cycle theory, I do a lot of work on that. Stuff that Julius de Kempenaer are doing. RRG, that's also fascinating.

Absolutely. So much out there that's directly impactful to your business. I wanted to keep on this thread of education for a while. I looked it up, and you earned your CMT designation in 2017. Is that right?

Yes.

Now, you had already been in the business for 20 years by that point. What prompted your decision to go through a rigorous three-level exam process and study for another financial designation?

So really driven by my friendship with Gatis. And I've always wanted to do that. But during the early part of my career, at the beginning-- the 2/3 part of my career, I had been really more on a survival mode. I was the primary breadwinner in my family.

I was raising two boys. They're and now 16 and 18. And when they were young, it was just-- I needed to run the business. And so when the boys got older, I finally had the time. And so I did the designation.

And truthfully, that was one of the best decisions I ever made, because it gave me a view into what other tools that I didn't know about. It was quite fantastic. And to be able to do the CMT while running money, to be able to apply some of these tools to see how is that going to impact my setups, and how am I going to view this a little bit differently, it was really, really good.

And as of today, I use some of the tools, and some, I don't. Point-and-figure, it was something I never knew anything about. And so it's come in to really helped me a lot to do.

Wonderful were you using technical analysis before you got the designation? And then getting the designation sort of refined how you used it? Am I hearing you correctly?

Absolutely, absolutely. My technical analysis, when I used it earlier, was I would consider it very elementary today. Very, very elementary. Today, it's so much better.

Just doing a little bit of research on getting ready for our conversation, it struck me, just watching your video on the web on the RBC website, there seems to be a bit of a tactical aspect to your approach. So I'm curious if you can highlight what might be the turnover in your portfolio, and how you deal with taxes at the client level, and things like that when you're trying to be tactical.

How tactical are you? What is tactical mean to you, et cetera?

 

I work in a private wealth space. So these are families. Most families come to me with anywhere from one to seven different accounts. So husband and wife registered portfolio, which is taxed.

So I'm here in Canada, so the registered accounts are tax-sheltered. So there are no capital gains on gains and losses within that tax-sheltered account. And then some accounts are tax-exposed accounts.

So when we bring in these clients, I don't put each account in the same allocation. But I would look at the family as a whole and allocate currently about 20% to tactical-- I'll explain a little bit more later-- 20% to tactical. But I could take that 20% and allocate that tactical into the tax-sheltered account.

So that then when I'm trading, I'm not triggering capital gains every time I'm trading. So then going back to that bigger picture mode, currently, I put 20% in tactical and the rest will be in long-term portfolio stocks. The long-term portfolio stocks will be anywhere from 35 to 40 stocks. That's my concentrated position.

In tactical, I use my big picture macro technical analysis, using cycles and chart patterns, to decide if I want to be in or out of the market. Do I want to be risk on or risk off at any one point in time? So when the charts tell me that I need to be careful, then I get out of my tactical position.

Tactical positions are really just broad-based ETFs. It allows me to raise cash very easily. So let's say, I have 20% in FPY today. And the markets are looking overextended. I may say I want to take tactical down from 20% to 15%, or I may take it down all the way to 10%, or even zero.

And I still-- it allows me to raise cash easily. I'm calm. I'm not trying to sell 20% of 40 different stocks. And then now, I'm running around with a chicken with a head cut off. I'm sure you guys know that as technicians, we need to be calm at any given time so that we can make good decisions.

When you're investing on the-- I guess that longer term portfolio, is that a portfolio that's driven primarily by fundamentals, and it's not necessarily buy and hold because you are making individual stock decisions? But in that portfolio, you're likely to let it ride through a global financial crisis or something like that? Or would you actually take tactical action there as well?

Generally, it is a long term hold. However, there will be situations where I would take positions down dramatically.

So for example, in February when the markets were looking iffy, I took tactical cash. And then I also started reducing the weights in the long term portfolio. So by the time March came around, I had 40% cash.

OK. So that's interesting. On the ETF portfolio, do you utilize any of the levered inverse ETFs just to hedge longer to the long portfolio?

No.

OK. And how about thematic ETFs?

Yes. So yeah, that's when RRG comes in quite a bit, where--

there you go, you're going to look at.

-- I would look at-- yeah, that's where I would look. And RRG comes in a lot, too, with my longer term portfolio. So, yeah, in a thematic ETFs, they'll be one. If energy is looking like it's coming back into play or biotechs coming back into play, and I can do a quick trade there, then I would put in maybe 10% of tactical into the XLE, or the XBI, or something like that.

And they would be a shorter term kind of trade. So thematic ETF gives me an opportunity to buy and have access to opportunities when I don't have time to research properly. So if I wanted to buy energy, and I didn't really know if I should be buying Suncor or ConocoPhillips, then I would just buy the XLE.

That's exactly what I do. I do the same exact thing. I think that's one of the best ways to utilize ETFs, particularly in the early part of a cycle when you're more, at that point, making almost a macro call if not a sector call and you're just not sure which stocks to buy yet. That's great use of ETFs.

Yeah. Or even geographic allocations. So for example, if Europe's looking good, emerging markets looking good, so it's just fantastic for that.

Right, right.

For all of our listeners, RRG stands for Relative Rotation Graphs. And in fact, just last week, Julius de Kempenaer presented that at the European CMT Summit, explaining the concepts of relative strength over time, and how you can see not just between sectors, but even baskets of currencies or different asset classes together against a single benchmark.

So Pam, when you are doing your tactical asset allocation, how important is the relative performance of the portfolio versus absolute return?

I run money for absolute return. I don't benchmark. I aim to get a rate of return. In the private client space, clients don't care really, I think, whether we're 2% or 3% above index, and what index do we really use.

Here in Canada, do we benchmark against the Canadian index? Do we benchmark against the S&P 500? Do we take currency into consideration? Is this the MSCI? So it is more difficult. But I think at the end of the day, in the private client space, they want to know that they're going to be OK. They're going to reach the financial goals.

So really, for me, I feel that for in my client space, I am trying to benchmark against that financial plan that we make for them. So if we said, Dave, we're going to write a financial plan for you, and you only need 4% to reach your financial goals. Then Dave only needs a 4% benchmark really.

But do I want to only target 4%? No. I mean, if we can deliver 30%, or 25%, or 8%, that's significantly above your benchmark. And so to me, that's how I run money.

Yeah, I respect that answer a lot, given that benchmark is more defined by their risk appetite than by trying to index to any other larger benchmark. Well said.

Right. And then going back to periods of crisis, like COVID or 2008 financial crisis, I go back to the financial plan we do for them. And every year, there's a number to that.

And then we look at the portfolio, and we say, you know, Mr. Client, even though we had a 40% drawdown, or a 30% drawdown, you're still way above the number that we had in our financial plan for you. And they feel better.

So it is that psychology of the client. If they feel better, they're not going to panic. They're not going to do stupid things. And then that also empowers them to think about, how do I take advantage of this opportunity and buy on sale, instead of panicking and doing stupid things.

That's actually a great sort of segue into the question I was just about to ask you. So in your career, having started in the '90s, you have ridden through some pretty tumultuous times, two of which I can think of. You use technicals, but you did not have your CMT. And then one most recently, which sounds like you navigated it pretty well, of course, was COVID, and you did have your CMT.

So I'm thinking 2000-- the unwind of the bubble in 2000, and then the global financial crisis in 2008, how did you navigate those relative to how you navigated COVID-- which sounds like you obviously you raised quite a bit of cash heading into that. So job well done for you on that.

Were there any differences? And was your experience in 2000 and 2008, with those, perhaps, a catalyst to encourage you to get your CMT should such a crisis unfold again?

In 2000 and 2008-- in 2000, particularly, I was running money as an advisory relationship versus discretionary. Advisory, meaning, I had to call clients for the OK to trade. Discretionary, meaning that I could raise cash whenever I wanted, based on the investment policy statement.

Moving to discretionary was key. 2008 was-- 2001, going back to 2001, taught me how to communicate with clients and setting expectations. 2008 was a defining moment for me.

In my reading of the charts at that time told me trouble was brewing. But I could not execute, because I could not possibly call 200 clients to get them to get out. And even if I got them out, I couldn't call them back in to get them back in. It was not humanly possible.

And so 2008 made me think hard about how I would manage money differently. And I made that decision then that I was going to change how I run money, and that I needed full control instead of the advisory role. I only took on clients that entrusted that to me.

So then going back to the CMT, in 2008, I didn't have as good tools as I do today. Today, having the tools, I could go to cash easily. I could pivot. I could move so quickly, and then communicate with clients after. And so it's just been very, very good for me.

Interesting. It sounds again like you might have-- because you use different vehicles in the two different approaches, one being, it sounds like, stocks in that longer term allocation. And then ETFs and the more tactical allocation.

Maybe if we can focus first on that longer term allocation-- of course, no specific names are needed-- but just more generally speaking, can you describe what would represent an ideal setup for you from a fundamental perspective? Is it more growth or is it value? And then what technical tools you use to then help navigate the entry and exit?

Sometimes, the ideas come from a bigger picture, macro strategy. So I may be thinking that I want to have access to the medical technology area for whatever reason. I'm looking for a high-margin type businesses that have a technical setup where it's corrected to a certain point. But I use Wyckoff type work quite a bit, where--

Oh, interesting.

-- I'm looking-- yeah, yes. I manage-- I don't manage a lot of money. 250 million that's small in the bigger scheme of things. I'd like to play that David-Goliath thing. So I want to see institutional fund flows. I want to see your accumulation distribution.

I want to see that if I think that someone like a Fidelity or Wellington is going in and accumulating this position, I don't want to be that speedboat in front of them. And then if I see that they're decumulating it a lot, then I want to be that speedboat in front of them as well.

I am fast, I could exit a position in 10 minutes, whereas Fidelity takes them, what, six months to exit the position.

So I look for high-margin businesses. I look for growth, but I want to look for an opportunity to get it. And then sometimes, I also want to see find stocks that have been building a long base and had done nothing for . years.

But then suddenly, something changes on the fundamental side, and I see volume coming in. And then I want-- and then I also see earnings increasing. So those are just the best setups but harder to find. Some stocks in my portfolio look like that, where it is a longer term base, and then I want to ride it up for a longer term.

And then sometimes, it is more of a shorter term growth type of business, where I can get it at a cheaper entry point, and then I buy it higher.

Just like a pullback in an uptrend or something like that?

Yeah.

And then in valuation, is that something that you consider on the individual stock side? Or is that more-- because of you're more into on--

Not too much.

-- growth? Yeah, exactly.

No, but I would go back, and I say, there's a chart-- cycles work chart that I use a lot. And I use it with all my clients. It's that secular bull, secular bear, the two-decade chart. You know what I'm talking about.

Sure.

Rob Sluymer uses it quite a bit. And so depending on whether we're in a secular bull or secular bear-- so today, I believe we're in a secular bull that started in 2013-14. We probably have another 7 or 10 years left in it.

And so in a secular bull market, I want to be mostly in growth-oriented types of stocks. I want to go for offensive types of behavior. Whereas, if we're in a secular bear market, then I want to be more defensive. And then so I would rotate the stocks into probably a little bit more value-oriented oriented plays with dividends, et cetera, et cetera.

So I run money that way. I really look at the bigger macro picture, and I can pivot easily. Is this using tools?

In relation to the tools, when you think about what you do use from a technical perspective, it sounds-- you mentioned earlier, when you were getting your, or perhaps after you get your CMT designation, that there's some things that you do use, some things that you don't use, which is I think is common for all of us.

There's a lot of things in the curriculum that I value, but I don't use just because it doesn't dovetail with what I'm trying to capture. So that's completely understandable. But what you do use is a pretty eclectic group of things, whether it's Wyckoff, and cycles, and the RRG, which is a fantastic tool.

When you sit down with a client to explain to them technical analysis, I would assume that you don't run them through a dissertation on Wyckoff, so in your 30-second elevator pitch, how would you describe technical analysis and how you would plan to use it for them on their behalf to help them grow and protect their wealth?

So technical analysis is just price and volume in my opinion. Fundamental analysis is great when I'm trying to buy a business from, let's say, Tyler, and I want to know the valuation of a company-- how profitable, et cetera, et cetera.

But then in the markets, in the publicly traded market, I don't care how cheap your company is. If nobody wants to buy your stock, you can be undervalued for 10 years. Nobody wants to buy a stock, and I would be fired so fast by my clients if I underperform for 10 years. Even two years, I'll be fired. Right.

So our clients hire us to make them money. I can't just sit there, and say, well, you know, it's undervalued. All these stocks are undervalued. I'm not Warren Buffett. I don't really have that kind of time running my own money to do things like that. We're here to make money.

So that's really what it is. And so I feel that, as a portfolio manager, I'm a generalist. I look for stocks that are growing. I'm here to protect wealth when we're in a secular bear. When we're in a secular bull, then I'm here to grow. And so I want to outperform over the long term.

Very well said. And Pam, just staying on this thread about how you interface with clients, big bull and bear regime shifts, it often takes a lot longer for the psychology to catch up. How do you coach clients to take advantage of points where maybe there's a sentiment extreme, but there's a point of lower risk versus market tops where you're at a place of maximum risk and yet the sentiment is very frothy.

How do you coach them away from some of those heuristics and bad mistakes that we all make, with respect to markets?

Clients don't know stock markets generally. So I show them history of the stock market. So I go back to that favorite chart of mine. I could link it to you so that you can link it in the show notes later. But it is that long term cycles at the secular bear, secular bull.

I tell them the story. I show them the SPX, the S&P 500 for the last hundred years, and I show them periods in the '40s, '50s. And then I also show them the '50s to the '70s, where we had a secular bull market. And I show them that within the secular bull and bear market, there will be bull and bear market within them.

And that when our client's first experience in investing, when, in which period, matters in their psyche. So I coach them to say that if you got into the business in the '90s just like I did, or started investing in '90s, you've only seen positiveness. And so you know what to do. And then during the secular bear of the 2000s to 2013, then it's a different environment if you got in there.

So if you started investing in let's say 2006 or '07, you're fearful the entire time the market went up, but it's going to crash again. And so when the markets broke out in 2013, '14, I would be talking to a lot of prospective colleagues, and they're still scared that we're going to see it crash down to 2009 kind of levels.

They keep thinking that it's going to crash, it's going to crash, is the market too high, market too high? They're Just too scared. And then it's normal human behavior that by the time you're 10, 15 years in, then fear of missing out comes in, and you jump in with both feet but then maybe it's too late.

So I teach them that this is the history. This is human behavior. The market are beautiful because as long as humans are participants in the markets, we will always have opportunity to make money, because humans are driven by fear and greed.

Well said.

Right? It's a very human behavior, is that when we're fearful, we're fearful, we're fearful. And then suddenly, they flip to greed. And then when everyone jumps in with this greed, that's when the smart money takes money from the dumb money.

I'm not putting, saying anybody's dumb. But I'm just saying in general, smart money takes money away from the dumb money, and puts them into the smart money's pocket.

Teaching clients about history, and these cycles, and to let them know that this is what is going to be happening and this is-- clients need to be aware of these things happening. And then I view my job as a coach to the elite athlete. Our clients are smart people. They just don't know the business.

So I'm here to coach them to not do stupid things, and to be smart when the opportunity exists for them to be smart. But I always go back to that chart, because that chart is just human behavior.

Very well said. That coaching process, beginning with history, explaining to them sort of what they can expect, you've removed all of the jargon from technical analysis, and yet the price and volume of the picture is still important.

How long does that process take with your clients? Does it happen in the very first Meeting Is it a succession of sort of coaching before they come on board?

Yeah, it happens at every first meeting. So I don't pitch anything. I always jump to that chart. I say, I want to teach you first. This is what drives my thought process. And so I spend time talking about my favorite chart. I call it my favorite chart.

And then at every review meeting, I go back to that favorite chart. Sometimes, clients just don't care, and they just glaze over. And that's OK, too. But at any one time when they're fearful, they want to talk about the market, I always go back to that favorite chart. I reference that a lot in my client communications.

I communicate very often to my clients. Minimum once a month, they hear from me so that puts them at ease, to know that Pam's taking care of things, that she's not out playing golf, and that they don't need to be fearful.

Yeah, well said.

Because I hear that a lot from prospective clients, that they would say, oh, I never hear from my money manager. I don't know what they're doing. And so that's why I think that the more you communicate in non-jargony language that they can understand, put them at ease.

During COVID in March, with 180 clients, I probably had five clients that called. And that was it. My phone didn't ring.

Good for you. That's a job well done. The last episode that we recorded has not been published yet at the time of this recording. So you will not have known this yet, but our last guest was Andreas Clenow. One of the things we talked about was, in his books-- I don't know if you're familiar with him, but he's written a couple of real important books on momentum and trend following.

In both books, he dedicated the-- perhaps not quite the latter half, but maybe the latter third of each of those books, actually walking through the month by month P&L of the strategy, which really brings to light what it actually takes to actually experience and live through what you refer to as your favorite chart.

So I'm curious, when you show them that favorite chart, do you just show the chart to them with the expectation that just the visual of seeing that markets go up over time no matter how bad things get, they always come back, et cetera?

Or do you actually give them the statistics to show that in order to get this 7% or 8% compound return over the last 30 or 50 years, you had to sit through this drawdown, this was the volatility, these were the things that happen? How detailed do you get in your explanation of your favorite chart?

No, I don't have those stats. It's just a visual. The visual shows the secular bull, the secular bear, and then I have a regression line over the last hundred years or so to show that over the entire period, you're looking at an 8% long term growth rate in good at that time.

And I also explain that in a secular bull market, you're looking at, historically, 10% to 35% types of returns, turns average annual. And then in a secular bear, you're looking, at best, 4% to 5% types of returns.

I explain to them that when we are in a secular bear kind of period, we want to be defensive. So it's a different strategy. In a secular bull, I want to be offensive. I want to look for growth, and we are currently, I believe, in a secular bull. And I don't think we're going to be ending anytime soon.

I show them the periods of the '90s-- the '80s and '90s, where we had the crash of '87. We came back down to that longer term regression line during the secular bear type of regression line.

So I draw these trend lines to show them in a very visual format. They see it, and then when we're living through it, I go, this is-- I'm going back to that chart I showed you. We're still good.

I like the way-- it was either you or Tyler mentioned that it's almost coaching. And you, in particular, said, coaching an elite athlete. I think that's a brilliant way to phrase it. And I think that's the value that whether you're a portfolio manager on the institutional side, or in your role with a client facing role.

Because it's one thing to pitch the strategy and to show the returns and things like that, but to not really invest the time in making sure that the client is as versed and sort of sold on the strategy over time and what the month by month return stream might look like, to not spend that time is a disservice-- not just to you as somebody who's trying to build a business, but it's a disservice to the client.

Because when the strategy does go awry-- which it will. It always does-- that's when you really need the client to really hunker down, and not only panic out of the strategy, but add money to it.

 

That gets to the behavioral aspect of it. If you can invest the time with your clients to head that off and educate them about it ahead of time, that is just incredible value. So good for you.

And I tell them that you will have drawdowns. You will have 20%, 30%, 40% drawdown. That's my job to worry about it. Your job is to look at the cash in your bank account. And if you have opportunity to send over cash, listen to my tone in my communication.

I am not able to reach out to 180, 200 clients by phone. But I will communicate very quickly to you by my emails, and so you need to listen to my tone. If I'm pounding the table, then you need to pick up the phone, and say, hey, Pam, I got a shit ton of money sitting in my bank account. What do I do with it?

And so that's what happened during COVID, is that clients phone. And they said, I have money. What do I do? But the only challenge that we had during COVID, with new money, was-- and we worked around it quite well-- is that the US dollar spiked up to about 25 Canadian.

And I execute about-- oh-- between 90% to 100% of my portfolio is in US dollars. And so for me, it was a little bit more challenging. So at that time, we would then need to execute in a currency hedged ETF and kind of park it in an ETF at that time, because I didn't really want to buy USD at 1.45% with Canadian dollars. But I wanted to have market participation.

So lots and lots of things that sometimes I can use ETFs for. It may not be part of the models, but you make do, because the opportunity is there. It was a great opportunity in March, April, May.

Your ability to pivot and adapt, particularly in the face of currency risk, must help build trust with your clients-- that they can see you making clever moves for them and on behalf that may not have been part of the original plan or strategy.

Can you tell us just a little bit about other ways in which you build that trust with clients so that they are fully invested not just in the portfolio, but in you and your ability to execute on their behalf?

OK. So communication's key, and the other thing is that all my wealth-- apart from the home I live in-- is invested in exactly the same strategies as my clients. I don't have any other investments. No private equity, no other kind of investment portfolios. I don't even have any other real estate investment portfolios.

I have full confidence in everything I do. I communicate to clients that I'm running my own money, my own wealth, and I'm here to make a lot of money while I'm alive. And I love to have similar minded clients to come along with me for the ride.

I'm not interested in being all things to all clients, to all people. Some clients are obviously not going to be a fit, and some clients will really enjoy their time with me. So I promise open and honest communication. My clients have full access to their portfolio online. They see all my trades if they wish.

So that communication-- I do what I say, I communicate often-- I think that is key. It's really not the performance of the portfolios or anything. It's nice that they get great performance, but it's just the communication I think, making sure that they understand why we do what.

Life is not a bed of roses. Investing is not a bed of roses. And sometimes, I would tell clients that I'm struggling with this and this. And so the USD-CAD is always an issue. A buck, 45, coming down to a buck, 20 at one point a few weeks ago, a few days ago. That's challenging, because that negates some of the gains.

But I still feel that in US dollars, I have access to the whole world instead of being only in Canadian stocks. So I'm fine to lose some in my foreign exchange if I can get a better return, because the world's my oyster.

Honesty, transparency, authenticity, and great communication. That's a fantastic takeaway, I think, for all advisors out there. And certainly, you've shed some light on the ways that technical analysis-- particularly when you remove the jargon-- can really just help your clients understand long term perspective and also the human nature that's at play in all of these markets.

As we're coming to the end of the interview, I wanted to switch gears a little bit. I've learned so much from Dave Lundgren over the years, and yet have never taken his class. He taught for five years at Brandeis University, and I can hear in your voice-- and even as we touched on Simon Fraser University at the outset of the conversation-- that you're very committed to mentorship, to teaching and leaving a legacy for the next generation.

So can you talk to us a little bit about some of the programs that you developed and some of the work that you do on the mentorship side?

Fabulous. I take in mentees once in a while, and it just gives me so much joy when I could pay it forward. I've had good mentors in the past, and so, yeah, and teaching them that these are the things I'd like you to look at.

For me, teaching is not about me telling them what to do. It's about pointing them in the right direction, to ask them questions so that they can go dig-- go down their own rabbit hole. Not how I started, really. My friend Gatis never really taught me, this is what you need to look at, or this is da, da, da, to do. But it was really just asking me questions, and I'm doing the same thing.

And Gatis is a great friend, great teacher. And so same thing. So I would point them to say, well, you want to ask this question, that question. And so what makes you do that? And then the other thing I have done is that I like to see more people find out more about the CMT program.

The CFA is world-famous. Every kid who interview with me, wants to do the CFA or is doing the CFA, and they've never heard of the CMT. And so I started an award at my alma mater, Simon Fraser University, in 2019 to award the year to anyone enrolled in the CMT, CFA program. So I'd like to see more of that.

I also taught a class just four years ago on behavioral finance at SFU. That's really a lot to do with technical analysis-- how investor behavior, market behavior, price and volume, the markets, and really applications of theory. So quite exciting stuff.

Congratulations to you, Pam, for taking the initiative. It's not always easy to carve out even more time when you live such a busy life. But those mentorships are going to pay dividends in the lives of lots of youngsters. So thank you for all of that service.

You're welcome.

Just curious on the behavioral side, particularly where you're client facing. What would you say were like the top three biases that you see investors confront the most? And then what are some of the strategies or discussions you have to kind of help them navigate them?

Back to that favorite chart again. So if I was an investor that started investing in 2006, the markets go up 2007, I feel good. And then 2008 happens, 2009 happens, and I go, oh, this is terrible. The market is terrible. I only lose money.

Or if I invested in 1999, let's say, and I've been investing for 10 years, and the markets gone nowhere. So your bias is that the markets go nowhere, and you're not going to buy-- you're not going to invest in the markets, because they don't go anywhere.

And then but if you invested in 1981, '82, all you've seen-- or in 1974, at the bottom of the market there, you had 25 years before it topped out. And then you believe the markets will never go down. Those are very common biases--

So would you refer to that--

-- in the private client space.

Is that recency bias? Is that how you would refer to that? When you're-- having taught, is that the terminology you would use?

Exactly. Recency bias.

Yeah, I think that's one of the bigger ones. Any others, like a couple others, that you think that clients struggle with?

The fear of missing out kind of thing. I don't know what the word is.

Call it FOMO.

[LAUGHTER]

I'm not so much of an academic, but, yeah, in real life, that's what it is, right? My brother-in-law is at 30%. I've only done 15 different kind of thing. Everyone's chasing cryptocurrencies today, not really understanding what it is.

Is it right for everyone? Not quite, maybe, I don't know. So, yeah, clients are-- that's quite common.

Yeah.

Mm-mhm. Fantastic. This has been a really informative conversation, Pam. We really, really appreciate your time. Is there anything that, given the opportunity here, is there anything that you'd like to leave for the CMT Association members to ponder, or prospective investor, or anything like that, that you'd like to have them take away from this conversation that you want to really emphasize?

Always remember that price and volume matters. The markets can be expensive, overextended, et cetera, et cetera. But the markets are always correct.

I think that we, in the finance, are smart people. We wouldn't be here if we weren't smart. And I think it's that ego, because we're so smart, that ego is something that will kill us if we don't know how to check that ego.

And so I've learned over my career that I always need to check my ego when it comes to the markets, because the markets will always humble you if you don't follow what the markets say.

I may have done all my work. And I think I'm very smart, I'm very right. But the markets are always telling me something. And so if the markets say it's going to go down or if it's going to go up, then I better just continue following it.

But be careful. Have my stops in place, mental stops in place. And so, yeah, that the markets will always humble us.

Wonderful advice.

My battle scars.

That's some great advice, great reminders. Thank you very much for that.

As Ned Davis wrote--

You're welcome.

It's about making money, not about being right.

Correct, correct.

Pamela, this has been such an honor and a privilege for Dave and I to get to know you, get to meet you. And I know our audience has a lot to take away, particularly for those who are client facing. And we will definitely get your favorite chart in the show notes.

Looking forward to a lot more work together, certainly, with the academic partner program the CMT launched. We'd need to connect with Simon Fraser University and make sure that we keep things going for the next generation.

So with that, Dave and I want to thank you so much for your time today in joining us on episode eight of Fill the Gap.

Thank you.

Thanks, Pam.

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Fill the Gap is brought to you with support from Optima. In addition to candidate study of the official CMT curriculum, Optima provides a full video course on all of the material that candidates need to know for each level of the CMT exams.

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