January 6th, 2015

Oil below $50 per barrel…..Nice, unless you are in the Oil and Gas Business!

Greece wants out of the EU…..Not surprising, and may be good for them but anyone owning  Greek Bonds who will likely get zero.

Canada wins the World Junior Hockey Championships!.....Hooray!

Less expensive Oil and Natural Gas is good for most of the economy.  Less expensive to manufacture goods, transportation is less and consumers have more disposable income.  The flip side is the challenges that companies will face who are in the energy industries, including explorers and producers and related service companies.

I am reminded of the ancient Chinese Expression:  Danger = Crisis plus Opportunity.

In 2014 Canada’s benchmark equity stock market index was up in value 7%.

The Canadian dollar has now decreased in value to approximately 85 cents U.S.  In fact, the U.S. dollar has increased in value against all other major currencies while the U.S. economy enjoys solid GDP growth above 2.5% annually, employment numbers improve, albeit inflation remains lower than desired by the Fed.

So what is an investor to do in such unsettled times?  Options include:

Cash…..no return
Government Bonds….2% coupon for a 10 year with a fair degree of risk to capital in the event of an interest rate hike.

Since these two options are unappealing to most, one could then look at owning shares in businesses that pay dividends or pay income in some other form.

Here’s a good example of a great business to be in. 

A bank (any bank) invites you to deposit money, and in return they pay you either nothing or alternately less than 1% interest income.

Next customer walks in and needs a mortgage.  The bank offers to lend this customer money for a fixed term of let’s say 7 years at a rate of 3.5%.

When banks are lending billions, no wonder they make billions in profit given the business model above.

So my message is:  Instead of lending a bank money in the form of a Term Deposit or other like instrument, become a shareholder and be an owner of a great business.

A friend of mine is sailing his yacht in the Caribbean, and just arrived in St. Martin.  In an exchange of emails I couldn’t help but think about how lucky he is to be removed from all the daily media headlines and hyperbole.  His portfolios are built just like yours, with a well thought out plan to meet his investment goals with a low level of volatility.  My friend is missing the day to day volatility, and when he returns to Canada in the spring we’ll meet to review.  Meanwhile, he is able to concentrate on the water, wind, sun, and next port of call!

In order to achieve our goals as investors, we must first of all have a good plan, and then, we must stick to the plan.  Every month brings a new crisis, and each one seems to be dire.  It takes discipline not to react to each event.  If we didn’t have this discipline, we would be selling out after every crisis caused the market to drop, and then buying back into the market after a big run up because of course we feel good when prices are rising, and in short order we would lose an enormous amount of money.

The Richardson Family who owns 1/3 of Richardson GMP, and is ranked as one of the wealthiest families in Canada just announced they have made a very significant new investment in the Canadian Oil and Gas Industry.  They regard the recent drop in commodity prices and company share prices to be a wonderful buying opportunity.  I have noticed that very wealthy families tend to think in time frames like “generations”, compared to others not quite so well off who tend to think in shorter time frames.

This long term view also reminds me of some advice one of the wealthiest

real estate developers in Canada gave me 10 years ago.  I asked him his opinion about what I should do with a piece of land I owned that was designated part of the Oak Ridges Moraine and therefore not able to be developed.  His advice was:  “Don’t worry about it, your grandchildren will be building on this land.”

Our investing theme remains the same, which is to generate income from our portfolios.  Our goal is to earn in the range of 6% to 8% per year.  My opinion is that we are in a period of economic expansion, and as companies earn more profits they will pay out more of these profits to us as shareholders.  As the yield increases, their share prices will also rise giving us a capital gain on top of our income.

We all know that investment portfolios go up and down in value, and that our 6% or 8% annual return is not realized like a straight line going up.  I think often about a study on investor behavior that showed investors are 10 times more sensitive to a 10% loss, than they are to a 10% gain.  Being able to sleep at night is a luxury.  I don’t want my clients lying awake at night worrying about their portfolios.  (It’s hard enough to sleep through the night!

Here are some of the projects we have worked on over the last several months:

- Implemented an Individual Pension Plan (IPP).  I can’t take any credit for proposing the idea to my client, as his accountants were responsible.  This strategy can be implemented by an owner of a company who wishes to super fund his retirement portfolio.  Money invested is tax deductible to the company, and is invested in a personal pension plan for the owner’s benefit.
- SSQ Financial group offers a Segregated Mutual Fund that provides a 100% death benefit guarantee, and 100% market value guarantee.  The Market Value guarantee can be reset twice per year at the investor’s option.  This life insurance product is available to investors up to age 85 with no medical required.  (This is the only product I am aware of in the market with these guarantees, and features.)
- Started working with B2B Trust on our Investment Lending Strategy.  Terms are the same as we have described in previous newsletters:  3 for 1 lending, prime plus 1%, no margin call, payments may be interest only, and a wide selection of investment products.  A couple of benefits over TD Investment Lending, which is there is no limit of a $300,000 loan per person, and secondly, credit score requirements are lower.
- Started working with Manulife Bank on their Investment Lending Strategy which allows professionals who use a corporate structure (i.e. an LLP) to invest.  This is a very effective way to unlock money that is trapped inside a corporation.

Saving a tree or many!  For 20 years we have been sending a hard copy of your investment portfolio statements with this quarterly newsletter.  The feedback I have received is: stop sending so much paper!  (Many clients say they just throw the statements away.)  So, no more printed statements with my quarterly newsletter.

As clients, Richardson GMP Head Office sends you a hardcopy of your investment portfolio statements, and you are also able to access your accounts on line.  If you are not already on line with us, please call Bonnie Wilson at 905-968-1919 or email her at bonnie.wilson@richardsongmp.com and she will set you up.  If you feel that you still need to receive printed statements with this newsletter, let Bonnie know and we will happily oblige.

I hope you are okay with and support our decision to save a forest!

As I close this newsletter, I would like to briefly comment philosophically.  It is often a fine and difficult balance between saving enough money to fully fund our retirement, and living life fully in the moment.  My humble suggestion is to implement your Financial Plan and stick to it, and then try to live life to the fullest every day.

Best wishes to you and your family for a Healthy, Happy and Prosperous 2015.


Sincerely yours,


Fred Banwell