August 23, 2014
March 1, 2009
There is not much good news being published in the stock and bond markets these days. While I have no idea when the current economic malaise will subside, I do have hope that we are closer to the bottom than the top (although I don’t believe I am able to time the market, so I don’t try).
As a class B shareholder of Berkshire Hathaway stock I haven’t been been totally insulated from market meltdown. I was pleased, though, to see that while the S&P 500 was down 37% in 2008, Berkshire was down “only” 9.6% for a difference of 27.4%.
Since 1966 there are only five years where the S&P has come out ahead of Mr. Buffett. Let’s hope Berkshire keeps up this trend even when the Oracle retires.
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 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 30, 2008
I am writing this blog because I wish to stimulate conversation and learn from others. My goal is that through this conversation I will become a better investor and help others become better investors.
While this blog will be primarily about investments and investing, I will also post on administering wills and estates and on politics. I’ll write about planning and administering estates because I have some experience as an executor. I’ll write about politics because the ubiquity of governments has caused them to affect most everything in our lives.
1) Investing and the economy: Managing investments effectively impacts so much in life (retirement, children’s education, independence, bequests). I have managed my own portfolio for about eight years, have had joint responsibility for a second portfolio and act in an informal advisory capacity for a third portfolio. I’m not an investment advisor, but have long taken a keen interest. Through conversations in this blog, I hope we all become better investors (even if you’re Prem Watsa or Warren Buffet you can improve), become financially independent sooner, retire earlier and leave more money to our beneficiaries.
2) Administering estates: Administering an estate is a tough and sometimes thankless job. There are the legal and administrative pieces, which are important, but there are also the wishes of the deceased and personalities and emotions of the beneficiaries which must be respected and managed. I’m going to use my experience as a co-executor for two estates to write about some the challenges and pitfalls and, hopefully, offer some suggestions on how it can “be done right”.
3) Politics: Whether we like it or not, decisions made by our political leadership can have significant influence on our own personal decision making. Government policy will affect investment decisions and will affect how estates are structured. For this reason, I will use this blog to write about politics in Canada, the US (because it directly affects Canadians) and in British Columbia (because I live in BC).
I plan to post regularly and up to three times weekly. I hope you enjoy it, I hope you contribute to it and I hope you get some benefit from it.
December 12, 2008
I’ve been honoured with the responsibility of acting as joint power-of-attorney and c0-executor of an elderly woman’s estate.
The estate is complex. It has significant assets (cash, equities, bonds, real estate and family holding company) and eleven beneficiaries, three of whom directly own voting and non-voting shares in the holding company and eight of whom own non-voting shares. The holding company’s primary assets include a house in which four beneficiaries live and a holiday property that all eleven enjoy.
The elderly lady passed away almost three years ago and my co-executor and I have been administering her estate since. We’re very close to concluding this administration with a final distribution to its beneficiaries.
It has been a tremendously positive experience for me. Not because it’s been easy or because it’s been without challenge. But because it has been hard and has presented innumerable and what have, at times, seemed like insurmountable challenges.
I now fully understand how important an executor is to the successful administration of an estate. An effective executor will improve the prospects of its beneficiaries. An ineffective one will adversly affect the outcome for beneficiaries.
Over the course of time I’d like to write in this blog about my experience in administering this estate. In part because it was such a meaningful process. But mostly because I now appreciate the importance of the role of executor.
We’re all going to die and will, perhaps, have assets to pass on. Some of us will be beneficiaries of estates and some will become executors (I’m an executor of another complex estate). My hope is that you, a friend or a relative gets some value from my experience.