We re-post articles of interest that may help entertain, enlighten, or assist you with your strategy. We also try to add an element of commentary that will help you make good money decisions going forward!

Click through the post, then the “follow” button, and our tweets will get sent to you whenever a new one is added!

Example: IGM, Canada’s largest asset manager, reported earnings yesterday, and beat expectations for the 10th consecutive quarter, and increased its dividend 4.9%. Its stock price fell along with everything else in the “Panic”, but this is an example of a good company that will survive the turmoil, and reward investors over time. IGM yields about 4.75% dividend at current prices, which compares favourably with a 10 year government bond paying only 3%. Buffett also says, “If a business does well, the stock eventually follows”. Telecommunications company Telus also exceeded profit expectations and raised their dividend on Friday.
 
 
“The most common cause of low prices is pessimism – some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer. “
 
My view: There is a lot of pessimism currently, and rightly so. Over 25% of U.S. mortgage holders owe more on their house than what its worth, reducing mobility, which raises unemployment (currently over 9%), and reduces confidence. The U.S debt ceiling argument is mostly political. The debt ceiling has been raised 75 times since 1962, by both parties. This time was a fight due to the election coming in 2012. Europe and U.S. are slow coming out of the financial crisis starting in 2008, and consumers are carrying a lot of debt. Market sell-offs add to the pessimism, beating up consumer confidence even more. When pessimism is high, so is OPPORTUNITY. Buffett says, “Never count out the U.S.” and “(The U.S. system) has unleashed potential as no other system has, and will continue to do so. America’s best days lie ahead…” He also stated that he is a “huge bull” on the U.S., and that it will break out of its troubles, it just takes time. Friday’s job’s report is a sign of the improvement. Analysts expected 80,000 jobs to be created in the last quarter, but this was exceeded, and 119,000 jobs were added. Low prices also create value. North American markets are trading at about 11 times this year’s earnings- an extremely low price by historical standards. This means that part ownership of the economy is cheap compared to history, and the price you pay for a dollar of earnings is low, too (about $11 to buy $1 of earnings, with a chance to grow).

 
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.
 
My view: When pessimism is high, opportunities abound. Your managers are currently rebalancing your accounts to take advantage of the best opportunities, such as the companies mentioned above. If the market went up in a straight line, the returns would be low. Buffett says investing is “simple”, but not “easy”. Remember this when you get the urge to make changes mid-stream. He also said, “Risk comes from not knowing what you are doing.” We know what we are doing. Keeping a focus on your plan, and ignore the short term “noise”.
 
Most importantly, related to you and your family’s financial strategy:
 
Your investments are in alignment with your financial plan, and allocated in a way to provide you with the highest possible likelihood to meet your goals. Fixed income and precious metals have actually performed well at the same time as the recent stock decline, helping your accounts maintain their value. In all but the shortest term goals, there is some allocation to assets that fluctuate in value. This portion is required for you to meet your plan. Inflation protection, growth rates, income for future are huge risks without proper diversification. Buffett suggests we trade some “lumpy”, (but higher) returns for “straighter”, but lower returns. We have made this trade-off in varying degrees, with all our client’s accounts. If you feel your account may not match your goals, give Rita a call (467-4425), and we will set up a review meeting to ensure that this important alignment exists.

So what’s in store?
I don’t have a crystal ball, but it was a happy ending in the summer of 2010. Despite being down 15% at this time last year, most stock markets ended the year with mid-teens percentage positive returns. A balanced portfolio made about 10%. The current challenges have brought oil down to about $80 per barrel (from a recent $115), which should aid a recovery. No two recessions (or recoveries) are the same. The volatility we are seeing now is what drives people away from markets at the wrong time. Stick with your plan, so you can be like Buffett, and take advantage of others’ folly!

Sincerely,

Rob Aitken
The Freedom Management Group
Kenora, ON
August 8, 2011

P.S. Our office location has changed!
We are now located upstairs (Suite 2) at 344 Second Street (Copperfin Building) in the old Agnew and Chapman Optometry office, just down the hall from the Dr. Parrott dentist office. Our phone, fax and emails are all the same. Rita, Lori and I will have a more formal “Open House” at a later date, but stop by if you are in the neighbourhood- we would be proud to give you a tour of the newly renovated office!

One note said thanks for the note, but they didn’t really want to know the details, “as long as my plan for a transition to retirment can still start in November.”

This is a great example of how the PLAN should be the priority. For clients within three years of retirment, we build a cushion to protect against short-term markt turmoil, like we are experiencing now. Fortunately, this client has stayed focused on his plan, without stressing too much about short term events which are beyond his control. Changing course based on short term emotions is a mistake, and can be avoided by stepping back and ensuring your plan matches your account objectives.

Another question came from a couple who are contributing to the funding of their financial goals each month. She asked if it was a good idea to stop the contributions until markets calm down. My reply was to stick with the program. When prices are lower, the same fixed amount contributed in regular duration buys MORE. This has the impact of lowering their average purchase price, which makes future gains larger. It takes the timing out of the equation. Usually the best time to invest is when you have the money, and in this case, monthly seems to work.

A final question came about from a mention of managers taking advantage of this market turmoil, and treating it as an opportunity. The client was curious how our money managers could find opportunity in this seemingly difficult and painful environment (markets down 10% in a week.) There are several ways:

1. The managers can sell high priced assets, and purchase lower priced assets on sale (bonds and precious metals have performed very well, and other stocks poorly recently). This also allows the manager to maintain their target asset allocation- or investment mix. In this environment, that means selling high priced assets, and buying lower priced assets.

2. The managers can replace existing holdings in the account with holdings that are likely to rebound better (also known as upgrading the quality of the holdings). This opportunity may not have been available earlier.

3. The managers can deploy cash that was in the account, or new money added to the fund from periodic deposits. This allows the manager to put new money to work with the best opportunities.

Hopefully this note will help explain where we should focus. We will endeavour to keep our cool when everyone around us is losing their cool!

Focus on your plan- if you are feeling stress- give us a call at (807) 467-4425, and we can discuss how the current turmoil may be impacting your plan.

Support the Kenora and Lake of the Woods Regional Community Foundation!
100% of entries are being donated to the foundation, due to the generosity of the sponsors.

There is a 5km walk, 5km run, and 10km run.

Registration starts at 8:30 am, races start at 10am.

Thanks for your support!

www.klwcf.ca

D is for Diet, A is for Attitude, R is for Renewal (rest, recreation, retirement, resilience), and E is for Exercise. He considers A (attitude) the most important. He alludes to the planning and decision making related to the other compnents as critical- so attitude carries the most weight.

In Ben Stein’s recent interview with 80 year old Warren Buffet (one of the world’s wealthiest investors), he talked about corporate succession, and also complimented Buffett’s energy and youthful appearance and attitude. Bortz would argue that Buffett is a good example of the “Paradox of Work”. Studies have shown that most of us spend more time in “flow” (a type of engagement) at work (50-60% of the time) than at leisure (where 18% if time is in flow, and more than 50% is in boredom mode). This is the paradox- we are more engaged while at work, but we yearn to be in leisure, where we feel less engaged. People like Buffett (who obviously doesn’t need more money, and had in fact donated most of his money to charity) realized that he loves what he does, so he will do it till he dies. Since he spends more time doing what he loves, utilizing his skills, interacting with people, where he is challenged, he is likely to die later than had he “retired” at age 60 or 65. The caveat is that one must find work that one finds engaging, challenging, enjoyable, and inspiring.

Of the 1200 centarians in one study, only 10 described their lives as “easy”. Bortz says, “Only those who disregard society’s advice to slow down lived to 100. Seven percent worked over 90 years, 92% worked over 60 years. Only 3.5% retired at age 65.” Work appears to be one of the keys to longevity.

More info can be found at his web site, starting with his 100 tips to make it to 100

Bortz also suggests careful planning. Believe you will be 100. Begin with the first step. Who you get to be depends on what you envision in your plan. Your future (financial or physical) is NOT pre-determined! (Exercises like the Freedom Process and the Life Extender exercise can help if you are unsure where to start (contact me for more information on these).

Bortz also encourages staying connected. “Having strong social relationships strengthens the immune system, extends life (more than does quitting smoking), speeds recovery from surgery, and reduces the risk of depression and anxiety disorders….Even people who think they don’t want a lot of social contact still benefit from it…”

“Of all your resources, your health is your most precious- more precious than your money, your house, your friends.” Feedback from clients has been consistent with this message.

Bortz also talks about brain chemistry, and how exercise counteracts the chemicals that cause depression. Bortz states, “An adequate physical exercise program requires no more than 3 hours out of 168, only 2% of the week’s time. Three hours of life can be gained for every hour of exercising- a good bargain, no?”

Don’t assume you will check out at age 70 or 75. Bortz states, “Matters of fate have become matters of choice.” With careful planning, working the plan, making adjustments, living optimistically, being engaged, you can make it to 100, too!

You can tell I am a big fan of creating a vision, strategizing a plan, making adjustments, celebrating progress, and updating the plan. Perhaps that is why I enjoyed this book so much!

For more information, see his site, starting with 100 tips to make it to 100- http://www.walterbortz.com/daretobe100.php

The Chinese curse says, “May you live in interesting times.”

Whether you feel “cursed” or not, the last two or three years have definitely been interesting!

In the course of our daily conversations with clients, and our interaction with all types of media, it seems as though there are two distinct world views.

The majority view, perpetuated by the media and politics, is one that believes the world is getting worse. (For a more optimistic view, see my summary of Matt Ridley’s great book, The Rational Optimist here)

The minority view is held by people who know that the world is getting better!

So the natural question evolves- How can we transform our view from one of pessimism to one of optimism?

As Winston Churchhill said, “The pessimist sees difficulty in every opportunity. The optimist sees opportunity in every difficulty.”

Generally, those who have created their optimistic vision of the future, for the reasons that are important to them, and regularly celebrate and update their progress, share the optimistic view. These people also tend to be more resilient in the face of obstacles. When a roadblock occurs, they adjust their course, and move on towards their destination.

People with a pessimistic view of the future generally aren’t sure where they want to go (no goals) or aren’t sure of how to get there (no road map/directions/plan).

If you feel like you may be in the pessimistic group, let’s get together and create or update your vision of the future (this link describes the steps).

Our feedback and experience provides evidence that this is the best method to take advantage of the opportunity to secure an optimistic, confident, and clarified ownership of your future.

Call us at (807) 467-4425 and speak to Rita to line up an appointment!

Matt Ridley is a scientist, but this book could definitely be described as an economic text. His 359 page description of a 100,000 year view of history, trade, innovation, and especially on human behaviour challenges the reader to think in a new and unique way. It might help to be a bit of a human behaviour geek to enjoy this book, too. It has a graduate school textbook feel to it- although I found it mostly entertaining and thought-provoking. Keep in mind its pretty heavy going for a beach-read.
He provides compelling evidence that our ancestors progressed and eventually thrived based on the creation of trade.
Exchange, invention, and specialization eventually proliferate, and a result, creates “time”. Everyone enjoys more, and as a result, prosperity increases, and the general standard of living of society goes up.
Another example is the comparison of using gas and oil as our modern day “slaves”. Our “inventions” replace human labour, allowing for more free time.
He also suggests that city dwellers are better for the ecosystem, since country dwellers take up more space and use more energy. He suggests self-sufficiency leads to poverty, since larger populations tend to “interconnect” and innovate more than smaller populations. Humans require trade, numbers, and innovation to succeed.
He provides compelling evidence that the average human now enjoys better lifespan, more food, less disease, more income, and a better life in general than at any time in the past. His reasoning for the slower progress in places like Africa are due to things like limited property rights, too much government bureacracy and corruption (stifles innovation), and general inefficiency of their economic systems.
He seems to support freer trade regimes, suggesting this will allow for superior innovation.
His answer to global warming seems to suggest that we will be smart and rich enough to come up with ideas to combat the problem, rather than inefficiently spending now, on things like carbon offsets, which will reduce growth. He suggests that we’ll innovate along the way- there will be more progress than we can currently imagine- just as there has been in the past.
Regardless of where your bias’ lie, the book provides ample evidence that the doom sayers of the past (who have been mostly proven wrong so far), will likely continue to be proven wrong in the future, as we continue to innovate, increase productivity, and the size of the global economic pie continues to increase. It will be beneficial to incorporate this philosopy into our financial strategies, too!
Bill Gates (philanthropist and chairman of Microsoft) had a different view on a couple points. Gates took exception to Ridley’s evidence that smaller companies are more innovative, and that aid to countries like Africa is innefficent. He and Ridley had an interesting essay exchange in the Wall Street Journal recently. Here’s
Ridley’s View:and Gates View in WSJ

In the last year, more frequently, we have met with families that make good incomes, but are struggling with the day to day management of the cash flow. Poor day to day decisions leads to frustration and bigger challenges with cash flow, and as a result, ends up deferring progress towards all important financial objectives.

As a result of observing this experience with our clients, we have established a new process that will work either alone, or in parallel with The Freedom Process. It will focus on cash flow management and provide a system of actions and tools that will help clients gain confidence and control of their cash flow situations. It will be valuable to families of all income levels, at all stages of their lives.

Part of the success of the plan will be the having the benefit of an “accountability Coach” to offer leadership, and creative suggestions to help overcome ongoing challenges.

We envision having this process provide a HUGE benefit to many clients, and will accelerate the accomplishment of most financial goals.

Call Rita at (807) 467-4425 to find out more about the program, and to get a complimentary introduction package. Today!

More than 70% of the companies that reported earning in the past quarter EXCEEDED analyst expectations on profitabilty. Employment levels in North America (where most of us hold our investments) have improved. Despite the pullback, we are still break-even for most accounts on a year-to-date basis, and substantially ahead of where we were a year ago.

The best way to overcome the fear at a time like now is to revisit your financial plan. It will provide the foundation for your decisions, and prevent emotional short-sighted decisions from hindering your progress. Stick with your strategy- since it is designed to provide you with the best opportunity to accomplish your goals. If you haven’t had your plan updated recently, (or worse yet, have no plan!) give us a call at (807) 467-4425 and talk to Rita about setting up a meeting. Feel free to check out the other sections of this site, too.