April 11, 2010
Venture investors look for investment opportunities that show “hockey stick” patterns of growth. In other words, a period of relatively flat growth succeeded by a very rapid and substantial growth in revenue/market share/profit etc.
According to this entertaining presentation of statistics on average incomes, population and life expectancies India and China are well along the path of their own socio-economic hockey stick.
If you have an interest in the economies of Asia and the western world then this Ted talk is worth fifteen minutes of your time.
I am volunteering on the current provincial election campaign in British Columbia. I decided to help out because I think this is likely the most important provincial election during my adult lifetime. For those of you who know me well, you know that I have been saying this for about a year now.
Tomorrow is election day in British Columbia and we have two choices. One takes us forward and the other takes us backward. One will ensure pragmatic management of our province’s finances, the other will squander them through populist leadership and ingrained special interests. One will expand upon eight years of rebuilding, re energizing, refocusing and re-establishing British Columbia as a leader in Canada.
I am a third generation British Columbian was born in Vancouver in 1973. I went to elementary and high school here and have attended both the University of British Columbia and Simon Fraser University. I’ve boated our entire coast and driven a lot of the province as well – as far north as Prince George and as far east as the Albertan border. I’ve worked in small business most of my life having owned two of my own.
British Columbia is a great place – indeed, it is the best place on earth. I believe that fervently.
The only time in my life when I felt I didn’t belong in my home province was in the 1990’s. It was a time when, for the first and only time in our province’s history, British Columbia became a have-not province – our real GDP per capita was $4040 less than Canada’s. It was a time when record deficits were run and our province’s debt load ballooned. It was a time when our income per capita was more than $500 less than Canada’s. And while we as taxpayers were making and keeping less of our own money, it was also a time when our money was squandered on pet projects like the BC Ferries fast cats. Those were dark days for BC.
Where are we now?
1) We are in the grips of a worldwide recession.
2) Our baby boomers are aging. The leading edge turned 62 in 2008 – that means they are going to start retiring, earning less income (and paying less tax) and consuming more services, particularly health care services.
3) Our health care system is stressed.
4) Our universities are struggling under the pressures of deteriorating endowments from thew economic downturn.
5) Our forestry sector, particularly in the northern region where Rebecca and I maintain a home, is dealing with the devastation of their crops with the mountain pine beetle infestation.
But with all this there is a sense of optimism. Notwithstanding our current pressures, British Columbians believe our future is bright. Why? In part, it’s because of the resilience of the people of our province. But I also believe it’s because our provincial government has managed our affairs well.
When I look around and the see the kinds of capital projects our province has been able to undertake even in these difficult times I’m amazed. The Sea-to-Sky highway, the Olympic Oval, the new Skytrain infrastructure, the Port Mann bridge project and innumerable road and highway improvements all over BC (I know, I’ve driven it). We see a BC Ferry operation that has seen remarkable improvements (with boats delivered on time and well under-budget), a port in Port Alberni that is growing leaps and bounds, an airport in Prince George that now has one of longest runways in North America (allowing it bid for the valuable air freight traffic that currently stops in Alaska) and I could on.
With the current government we have leadership that understands there is “no such thing as government money” and we have leadership that has the experience and the track record in successfully managing through difficult economic circumstances.
These are my thoughts. The most important thing to me, though, is that you vote in tomorrow’s election.
Exercise your franchise and make your choice!
January 23, 2009
“Let our advance worrying become advance thinking and planning.” – Sir Winston Churchill
For those of you who do not know me, I have started, managed and sold two start up businesses. My first was a restaurant which grew to about $4 million in revenue, was profitable and employed about forty people. My second business was a computer services firm which grew to $1.5 million in revenue and ten employees.
I sold my restaurant when I was 24 years old and felt like I had the “midas touch”. It was successful out of the gates, was very popular in our community and grew beyond my expectations. That first success had me convinced that I could do it again without much effort. Boy was I wrong. I made a ton of mistakes in my second business and paid for them.
While I could probably fill many blog posts just listing my mistakes, I think my fundamental error was not developing a well thought out plan. I am convinced that, had I put some thoughts on paper before starting my second business, it’s doubtful that I would have ever founded it. This is not because it was a bad business, but more because it was the wrong business for me and what I wanted to accomplish.
More on my second business in another post.
I often tell budding entrepreneurs that, knowing what I know today, I wouldn’t have invested in myself when I started the second business. Instead of researching a market, identifying a problem, designing a solution, understanding how I was going to make money and assembling the right team I just “went for it”. I’m convinced I did this because I had already been successful once, why not a second time?
Since selling the last business I have come full circle and am now a fervent believer in planning. A business plan doesn’t need to be complex, it just needs to answer a few fundamental questions:
(1) What is the problem?
(2) What is your solution?
(3) How are you going to make money?
(4) Who are you?
I decided to post on this topic because of a recent email exchange with my sister-in-law. For sometime now she has been convinced that an opportunity exists for her to develop a patient advocacy consulting practice. I won’t butcher her business concept here, but suffice it so say that I agree with her (and have recent experience to bolster my point of view) and think she should do it. But, I don’t think she should do it without a plan.
In our most recent exchange she wrote that she was, “at an absolute standstill.” She thought it was because she didn’t know how to market the concept (although there are two physicians who have already agreed she has an interesting business in mind and one specialist has gone so far to offer to help market her business through his web presence). But, in my view, she’s at a standstill because she hasn’t answered the four questions appended above.
She’s going to write the plan and I have offered to act as her sounding board. The hardest part of planning is getting the first words on the paper, so much like she plans to be a patient advocate, I will be her “planning advocate.” I will post on her progress here and hope to be able to announce the launch of her business in the not-too-distant future!
January 10, 2009
Household financial management
I am putting together a financial management system for our household. In the great words of one of Canada’s most respected think tanks, The Fraser Institute, “if it matters, measure it.” We’ll be measuring our budget and keeping it simple.
Here is our system. Use it, plagiarize it, criticize it or tell me what you do.
(1) We put together a system of accounts which is on a cash flow basis (both my fiancé and I receive the cash from our incomes several weeks after we earn it)
a. Revenue which equals our combined income (as opposed to sale of capital assets).
- Cars – including fuel, insurance and maintenance
- Dog – all expenses related to our puppy
- Entertainment – including everything fun except going out to restaurants
- Groceries – all non-restaurant food items
- Household – all expenses related to the roof(s) over our heads
- Savings – in accordance with The Wealthy Barber this should be no less than 10% of your income (I like it to be 10% of gross income, not net)
- Tax Provision – our income taxes are not deducted at source, so we need to put aside enough cash to cover our tax liabilities.
- Travel – personal travel including vacations and trips to visit family
c. Net cash flow
(2) Our accounts are listed in an accordion file folder that holds up to sixteen accounts (good for when we add more)
(3) We collect receipts for everything we purchase whether paid for by credit card or by cash.
(4) When we come home we each file our receipts under the most appropriate account
(5) At the end of each month I enter the receipts into our chart of accounts, give my fiancés credit card receipts back to her for reconciling against her credit card bill. I keep mine for reconciliation. I throw out (recycle) the cash receipts.
(6) We measure our actual results against our budgeted results and determine where we need to make changes.
This is a very easy system to follow, only takes a few minutes per month, ensures you know where your money is going and helps to monitor your savings.
Let me know what you do.
January 4, 2009
It is not pretty, but I have taken a look at my portfolio and its 2008 performance and thought I would post some details here.
Structure – defensive and ready to buy
I hold a combination of equities directly and through index funds. I also own bonds through index funds and hold cash in my registered retirement fund (RRSP’s in Canada, roughly equivalent to the US 401K) and in a non-registered trading account. I trade on my own account through a major Canadian bank’s online brokerage.
I am pleased to say that I think my portfolio is fairly defensive with 32% in cash, 42% in equities and 22% in bonds. At the age of 35 and using the “100 minus my age” rule of thumb I should be 65% equities and the balance in cash and bonds. Over 2009 I expect do some buying, so the composition of my portfolio will likely change significantly in favour of stocks with some additions to my bond holdings too.
Holdings – not sufficiently understood
Admittedly I am bit embarrassed publishing a chart that specifies my holdings. This embarrassment is not necessarily because I think the holdings are bad, indeed, I would not own them if I thought they were bad.
I am embarrassed because I have not done nearly enough research on my holdings. I own index funds and have not dug deeply into each fund’s holdings. Consequently, I do not really have a handle on whether I am properly diversified. Additionally, I have not performed the necessary financial analysis to determine whether my equities actually create shareholder value commensurate with their risk profiles or whether they erode it.
What a year. My non registered account is down a mind numbing -19.21% and my RRSP (the money I plan to retire on!) is down a slightly less unnerving -16.09%.
The only solace for me is that according to Google Finance, the S&P TSX Composite is down more than -33% and the S&P500 was down almost -37% for the twelve months ended 2008. So I am only slightly less unsuccessful than the S&P. Most certainly nothing to write home about.
2009 – “You only tell who is fishing naked when the tide goes out.” – Warren Buffett
I have put together an investment discussion club comprised of five friends and myself. All six of us come from different professional backgrounds (an entrepreneur, an Accenture consultant, the director of fiscal studies of a major Canadian economic think tank, the CFO of a small technology company and a director of business development from a battery supply company) and we range in age from 35 to 47.
What we share is a keen interest in our investment portfolios. We will not necessarily invest together and we are not putting any money on the table, so it is not an investment club per se. What we will do is discuss investing strategies, methods for putting our personal portfolios together, tools for assessing investment opportunities and we will discuss specific investment recommendations.
Our group’s expectation is that we all become better investors and reach financial independence sooner as a result of our learning.
My hope for myself is that the group impresses sufficient discipline on me so that I will properly assess my portfolio, put more structure into its construction and take the time to review the financial performance of current and proposed equities.
Over the course of the year I’ll continue to post my portfolio’s performance. If I have done my job properly then I should do far better in 2009 (after removing the effect of a far improved market (hope springs eternal, right?)).
December 17, 2008
My good friend Aaron Cruikshank posted to his blog today a note on the role of the free markets and government regulation in the current economic fiasco. My post is in response to his (which can be seen at http://friuch.com/wordpress/when-the-going-gets-tough-leaders-point-fingers).
The seeds were sowed for this fiasco in 1938, reinforced in 1968, 1977, 1999 and again after 2000 by Greenspan’s low interest rate policy. Yes, business people got drunk on the sub-prime and ABCP markets and I never excuse egregious business practices. But the fact of the matter is that this crisis was created by government, reinforced by government and encouraged by government. Those calling for more regulation are asking for more trouble…eventually.
Fannie Mae was created in 1938 to “support the national commitment to housing” and, more importantly, to backstop “the inability or unwillingness of private lenders to ensure a reliable supply of mortgage credit throughout the country.” Read: sub-prime loans.
1968 to 1970
In 1968 the US government converted Fannie Mae into a private shareholder owned company and in 1970 created what is now know Freddie Mac. Freddie Mac’s purpose is to compete with Fannie Mae (yes, a government owned institution competing with a shareholder owned company) and specifically to purchase mortgages, package them up into securities and sell them. The thinking was that if lenders knew they could sell mortgages onto Freddie Mac that this market would remain liquid.
Jimmy Carter created the Community Reinvestment Act (CRA) which was established to “encourage” private banks to end their “discriminatory” lending practices. The CRA was created to ensure all Americans, regardless of their ability to repay loan obligations, were able to pursue the American dream of home ownership. The CRA audited books of chartered banks and would consider a bank’s loans to sub-prime borrowers when authorizing additional branches or mergers and acquisitions.
So you’re a bank that’s forced to lend to people who can’t afford mortgages. But there are these convenient behemoths that will purchase these toxic obligations from you, thereby eliminating your exposure. And if you don’t make these loans then you can’t add branches or merge with or acquire other banks. Management has a responsibility to shareholders to grow their wealth, so what would they be forced to do in order to grow? Adhere to the CRA.
In his infinite wisdom, Bill Clinton exacerbated an already distorted lending environment by putting pressure on Fannie Mae to expand its loans to sup-prime borrowers. I can’t find a reference, but my understanding is that his administration actually set minimum sub-prime quotas for Fannie and Freddie. adding fuel to the fire!
No doubt there was malfeasance in the private sector and I want to reiterate that I don’t obfuscate this commercial greed with pious business practices. But I’ve read too much from too many periodicals and newspapers blaming the free markets. Make no mistake about it, this recession was brought on by Democrat and Republican administrations dating as far as back FDR’s New Deal.
It’s dumbfounding to me the fervent support governments are getting for the tremendous “investments” they are making in their economies. My greatest fear is that, because Joe Q. Public is so afraid, governments around the world have been given a once in a lifetime opportunity to grow, grow, grow and to reach much deeper into our pockets.
Governments drink their own kool-aid and really believe in their destinies as the solution to all society’s ills. Giving them a blank cheque to bail us out of this mess will only perpetuate what was has been created by FDR and encouraged by Carter, Clinton, Bush and Greenspan.
Isn’t it time to let the market purge the irresponsible players (it will be painful, I know) and let a sensible market take over?
December 10, 2008
Some have suggested that by not supporting the Liberal, NDP and separatist coalition in Ottawa, Canadians are saying its “illegal” or “unfair”. Some have said we in Canada don’t belive in majority rule, democracy or in decision making through deliberation.
I don’t agree and here are some thoughts on why.
In Canada we really haven’t had more than 50% of the popular vote support the winning party since 1917 (yes there have been interregnums like Brian Mulroney’s 1984 victory), I don’t believe that by expressing opposition to the coalition assembled by the Liberals, Canadians are indicating it is “illegal” or “unfair”. Certainly this Canadian believes it to be shameful – not unfair, not illegal, but shameful.
What the Liberals did was give the Bloc Quebecois, a party created with the purpose of breaking up this great country, a veto power over the federal government. And they afforded this separatist party that influence simply as a result of the Liberal’s intrinsic believe in themselves as Canada’s natural governing party.
None of energy, the environment, the economy, the crumbling health care system, the wars abroad or anything else excited the Liberals enough to threaten to fall a government or to form a coalition. What did get them into a froth? The prospective elimination of taxpayer subsidies of political parties in form of a $1.95 for every vote they secured.
This coalition is a manifest representation of the Liberal Party’s fervent and excited need for power.
Canadians believe in responsible government which requires the confidence of the House of Commons – parliament. This confidence in and of itself infers that a majority of the lower house must support the government. It is a characteristic of the first past the post (FPTP) system that permits a party to form government with the support of the majority of parliamentarians and not the majority of the people. Just because we have FPTP does not in and of itself suggest Canadians do not believe in majority rule.
Canadians believe in hiring people, letting them get on with their job, rewarding them for success and reprimanding them for failure. Our system has an inherent job review every four or five years (or every three years in the case of Jean Chretien). Do a bad job, get fired. Do a good job and, maybe, get re-hired. In between, get to it
As an electors we want to have confidence in the people we elect. If we are constantly called up to “deliberate” then why even elect a government? Just leave the bureaucracy in place and have all policy decisions made by internet polls. That is the ultimate decision by deliberation.
Now, I have long preferred the American system of checks and balances – particularly when one party is in the White House and another holds the majority (not a super majority) in Congress. Even though he is the most powerful man in the world, the US President has far less direct power there than our Prime Minister. Through the PM’s power to appoint and fire his cabinet, appoint and fire heads of crown corporations, appoint judges all over the country and, effectively, to push policy through without recourse is too much power in the hands of one man.
England’s Prime Minister is somewhat less powerful because his or her caucus appoints or fires the leader (and I understand that the leader representing the majority of the lower house and has its confidence becomes the PM). This ensures that the party leader and, in the case of government, the PM must keep their caucus onside.
The disappointment that this Canadian feels toward the parties that didn’t vote for Harper’s economic update is not sparked because they didn’t support him. My disappointment, and disgust, materialized firstly because of what the Liberals, NDP and separatists were voting against (subsidies for themselves) and how they were proposing to express their non-confidence (giving the separatist party veto power over a proposed coalition government).
The coalition that the Liberals put together provides a veto to the BQ and the BQ’s purpose is to break up this great country of ours. This unacceptable for Canada.
There are some very bright, well read and articulate people suggesting that, because of the machinations in Ottawa, Canadians believe the coaltion to be “unfair” and “illegal”. Many of their arguments are throught through very well and communicated in very convincing ways.
However, I think they are drawing some broad conclusions that are wrong. Canadians believe in democracy, responsible government and a commitment to run our country that is in the best interests of…our country. These interests do not include giving veto power to separatists with the avowed goal of breaking up our federation.