Rational Advisor

The old adage on every piece of marketing literature “Past Performance Does Not Guarantee Future Results”, is not your average, legal disclaimer. The comment carries an important message for investors and their advisors. And one that is forgotten by almost all investment specialists. Oddly enough this phrase is perhaps the most accurate fortune teller for the markets.

There’s been many studies over the years that have shown that managers who’ve had strong returns in the past may actually incur poorer future returns.

In 1991 - it was the AGF Japan Fund, that had excellent multi year returns, only to be followed by miserable returns

Yet what do you think “smart” investment advisors in 1991, with their computers loaded with Paltrak and other performance tools were telling their clients to buy - AGF Japan.

In 1993 - it was the Altamira Equity Fund - with Frank Mersch great performance numbers - followed by many years of poor performance, and an equity trading scandal

What do you think the “smart” media was telling its public to purchase….

In 1995, after a high double digit return, it was the Dynamic Commodities heavy portfolios that had their limelight (much like today) and they were followed by miserable years

What do you think the “genius” advisors were recommending to their clients - Yep, you guessed it, the same thing they are doing today. For some reason, these bright sparks think it is different this time!

In 1998, it was the AIC Advantage Fund, with Financials etc - Buy Hold and make Michael Prosper, was the motto. Followed by terrible years - it’s lost billions in assets to date

But, what do you think the “brainac” advisors were telling their clients to add to - Yep, you guessed it

Is it any wonder, the public does not feel comfortable with advisors - who choose the latest fad, based on their “Due Diligence” and deep analysis - all based on past performance.

it makes me sick, that the investment public trusts these so-called “Einstein-like” advisors.

Manias, and mini-manias, do occur and they are fed by exceedingly high returns which seduce unsuspecting investors, prodded on by their advisors into doing things that really should stay in Las Vegas. After all, that’s where throwing one’s money away is to be expected.

What should these advisors be doing is understanding that “Past Performance Does Not Guarantee Future Results”. And to explain that every investment, no matter what it is will have negative periods, and understand and demonstrate what that worst investment return could be.

To also explain that although past returns are not predictable, that good investments do tend to perfrom based on the underlying investments growth. ANd most of these are based on sound companies that investors use every day - like tooth paste, like soap, like shaving cream, like medical companies, like banks…

The TSX index traded in swings of more than 1% for 40% of all trading days in 2008 and the US S&P500 index traded in swings of at least 1% in either direction on 53% of the trading days so far. This makes the current period the fourth most volatile period ever, and the most volatile since the 1938 Depression era.

A lot of this volatility is due to the massive amount of mis-information made available to the average investor. Never before in the history of the world has so much information been available to the average individual, who must only supply dedication and a willingness to be rational. Something there emotions do not allow them to have. Many people think a portfolio shoudl be evaluated daily, they need tosee the price appreciation/depreciation daily. If you are trying to beat the other fellow on a daily basis, you are going to hit the “enter” key faster. it’s not new - markets have done crazy things over time. Human beings do things that are entirely irrational, such as i 1987, a998 and 2002. It’s a fools game to watch a portfolio daily.

All of this leads to large concerns for investors, a lot of questions and very little answers. However quite often when the markets are this turbulent, it is normal for investors to wonder whether or not it is time to take a different route. In most cases, if investors are invested in a prudent manner, based upon thioer long term objectives. It would be a mistake to do a hasty short term reaction, because these changes have historically led to weaker performance. In all likelihood the equity markets are more or less in a bottoming process.

With all of the bad news having been priced into the market, it is important for investors to keep in mind that by the time a recession is officially declared, the markets will likely have bottomed and begun their rise. Although it is difficult to watch, the best course of action is to revisit your risk profile with your advisor, and consider adding more.

How much of the recession is now priced into stocks? By the time employers are slashing jobs, (Citigroup just laid off 9,000) a recession is usually well under way. Since 1960, the S and P 500 has fallen an average of 7.8% in the three months leading up to back-to-back monthly job cuts. But six months later, the S and P 500 was higher five out of seven times for an average gain of 9.4%.

I don’t think you should panic, but at times like these, you should be very aware of what’s in your portfolio. Moving entirely to cash isn’t the right strategy, because then you’ll miss out on the bottom and what may be the best buying opportunity in the next decade. Instead, make sure that your portfolio is completely solid.

Overvalued investments, and hot managers are not going to cut it in this market. So, if you are chasing performance, just because a manager has had excellent five year results, you may be disappointed going forward.

Let me be clear, here. I don’t know how to predict the markets. I am not a market seer. I don’t know what the stock market will do tomorrow. (And, let me be equally clear, neither does anyone else.) Bad things may happen tomorrow. Certainly, bad things will happen on some days. I’m not saying that the things that were freaking people out a month ago were imaginary, or that they were real but they’re now gone away. In fact, I’m happy to tell you with some certainty that market volatility will continue. You can depend on that.

What I am saying, though, is that some patterns are shockingly predictable. The all to familiar financial disclaimer reminds you that past performance is no guarantee of future returns. And that’s true. But it should also say that you ignore history at your peril, for while it is lacking in guarantees, it is richly instructive.

Our human emotions are predictable

As I always say

‘we are irrational in very predictable ways”

History has taught us repeatedly that times like these are terrible for sellers, and delightful for investors. Markets often over react.

The thing of it is, stock market returns aren’t smooth and straight. You don’t get an average return of about ten percent a year by ringing up ten, ten, ten. You get it by taking two steps forward and one step back. You get it in lumps, all of a sudden. That’s why market timing doesn’t work (and, conversely, why people keep trying). So if you’re out of the market when it makes one of its typical yet unpredictable sprints, you won’t get the reward.

When that happens, it’s time to breathe into a brown paper bag and get back to the genius of investment basics. You get a good return by noticing that the day-to-day price of the market doesn’t have much to do with the real long-term value of the best companies within that market.

And you get an even better return than the market averages by never mixing up three very important facts: Extreme stock market pessimism is great for buyers, extreme exuberance is great for sellers… and stocks are long-term investments.

And if the market has gone down for the last 12 months, it is actually less risky to invest in than a market that’s gone up in the last 12 months.

This bear market will not – I repeat, not — last forever.

Yep, I am off again

This time to meet one of my favrote investment guru’s David Dreman

Here’s an excerpt about him from the web

David Dreman

This expatriate Canadian wrote the book - literally - on contrarian investing. His key finding? You can achieve great results by choosing cheap stocks that the market hates.

After graduating from the University of Manitoba in the 1950s David Dreman got his start as an analyst at his father’s Winnipeg-based commodities trading firm. But Wall Street beckoned and he soon moved stateside where he has run a money management firm in Jersey City, N.J., for decades.

Dreman is perhaps best known as an author. His Contrarian Investment Strategies: The Next Generation deserves a spot on every investor’s bookshelf. But he’s no slouch when it comes to putting his book learning to the test and beating the market. His firm’s large-cap value composite has bested the S&P 500 index by an average of 3.9 percentage points annually over the last 10 years, before fees. His small-cap value composite beat the Russell 2000 by 6.6 percentage points over the same period.

Dreman looks for stocks with low price-to-earnings ratios (P/E). These stocks are typically out of favor with investors for one reason or another. But often that’s because investors have overreacted to bad news. As a group, low P/E stocks have a tendency to bounce back and perform well. In fact, Dreman calculates that U.S. stocks with the lowest 20% of P/E ratios provided average annual returns of 16.8% from 1920 to 2004, beating the market by four percentage points.

You might think that people would look at those figures and be lining up to buy low P/E stocks. The reality, though, is that investing in these firms requires courage. A good example is Dreman’s investment in Altria, the cigarette company formerly known as Philip Morris. Altria has been a phenomenal performer over the long term, but it’s been pummeled in recent years by tobacco-related litigation. You have to be confident in your judgment to buy a stock like Altria in the face of such overwhelming uncertainty.

Buffett and Dreman on Financials
http://www.lacontra.net/2007/12/30/buffett-dreman-and-financials/

The Six greatest Value investors

http://www.bloomberg.com/apps/news?pid=10000039&refer=columnist_dorfman&sid=av_uz5ifDbJE

The greatest investors ever
http://archives.tcm.ie/businesspost/2004/03/14/story233976334.asp

Really looking forward to it.

While I am there I will also be meeting with
Credit Suisse and Citigroup

Catch up with you later

Rational

A New Way To Save on Gas
The delivery giant UPS thinks that making right turns instead of turning left at intersections can help the environment. Tom Dowdy, a UPS engineer, says the company redesigned its routes so that drivers would make a minimum of left-hand turns. As a result, the company shaved 30 million miles off its deliveries in 2007 and thus saved the cost of 3 million gallons of gas. It also reduced UPS truck emissions by 32,000 metric tons (equivalent to the emissions of 5300 passenger cars).

What makes right turns so much more energy-efficient? Cars and trucks are not idling in traffic—burning fuel and releasing emissions—when they turn right as opposed to left. (Turning right also is often safer, because drivers don’t have to face oncoming traffic to make a turn.) “People can’t control sky-high gas prices,” says Dowdy, “but they can make small changes in their driving habits that benefit them financially and environmentally over time.”

http://www.parade.com/articles/editions/2008/edition_04-06-2008/Intelligence_Report

A good book to read is Don Miguel Ruiz’s The Four Agreements

The Four Agreements are

- Be impeccable with your word.

- Don’t take anything personally.

- Don’t make assumptions

- Always do your best

In particular I liked the 2nd Agreement

“2nd Agreement: Don’t Take Anything Personally.

Nothings others do is because of you. What others say and do is a projection of their own reality, their own dream. When you are immune to the opinions of others, you won’t be the victim of needless suffering.”

Too may times we are taking what other people say to us too personally?

Someone tells us we’re attractive. Someone else tells you we’re ugly.

Don’t take either one personally.

Someone says your funds and investment methods are good someone else say they stink

Don’t take either one personally.

If we’re constantly looking to others for our sense of self and our sense of well-being, we are subject to the moods and whims of others.

They may have had a bad day, and now you’ve let what they’ve said made you have a bad day.

That’s not a good thing. To combat this, we must learn to not take anything personally.

Rational

Managed to settle down from the BC trip

Here are some questions that were asked at the “Town Hall” events that I participated in

I thought they were interesting..

Q - With global based strategic portfolios - having higher content out of Canada, more in the US - How do you see these strategic portfolios performing over the next 2 to 3 years?

Realize first that investing means that there ARE going to be negative returns sometime.

I cannot predict what will happen in the next 2 to 3 years. I am positive that we are holding excellent companies, and that they will continue to provide good earning. I however cannot tell you about the markets sentiments.

I believe that the returns will be decent because of regression to the mean – meaning that returns would come back to normal.

Will it beat an index – I don’t really care – we do not manage to indexes, because indexes carry a certain level of risk that we are not comfortable with. Personally, I think the Canadian indexes overweighting in Energy, commodity and agriculture is scary!

Q - Could we be heading into a long bear market - as per 1965 to 1988. How can portfolios make money through prolonged bear markets?

This is not the first time we have had volatility, and it won’t be the last time either.

About recessions, the average recession lasts about 10 months and it takes about 6 months to determine if it was a recession or not. So, by the time the newspapers have quoted that there is a recession - it’s too late.

Psychologically, moving out of the markets when you think it is a bear market feels good - but, it’s may be one of the worst things to do - look at the past markets. They all recovered when people didn’t think they would.

We’ve had a long winter it seems with this stock market. And just like winter comes to an end with spring, we’ll see a similar event with the markets. There comes a point in every bear market when every bad news becomes common and people begin to shrug it off and then we get ready for a rally

Every recession is also accompanies by a lowering of interest rates - which paves the way for future good times.

How can portfolios make money through prolonged bear markets – by concentrating on companies that we all continue to use during a recession – I mean will you give up brushing your teeth if there’s a recession, or having a shower – No!

Q - Real Estate is better than investing in the stock markets - why should I invest in the markets.

Real Estate is like any other investment class - you have to hold it in proportion.
Most people that have made money in real estate have held it over 20 to 30 years. - Well, if they held their investments over that same period they also would have done better

Many people forget about factoring in costs when it comes to Real Estate, but they jump on costs for mutual funds called MERs.

You also have MERs for Real Estate, they are called property taxes, utility bills, Insurance, maintenance costs - all of these have to be paid every day. I mean the property tax is being paid physically each month, but it’s based on your daily usage - similar to a fund’s MER.

So when you are looking at the increase in value of your house, also subtract out the costs that you have for it - these are called the houses MERs

TANGIBLE assets like Real Estate, Gold and INTANGIBLE assets like stocks tend to be negatively correlated - when real estate is rising the stock markets tend to not do as well, and vice versa

If we look at last time we saw something similar to what we are seeing now it would be the late 1980’s. The S and L crisis is almost an exact parallel

And all of that started in the early 1980’s

TANGIBLES CYCLE 1978 to 1982 - In late 1970’s US went off the gold standard - all of a sudden gold shot up to $800 an oz, people rushed into gold, inflation soared to around 15% and in order to flight inflation interest rates had to rise, mortgage rates were at 18%, then the bubble burst around 1982 fuelled by speculators. Gold fell dramatically. Inflation started to creep down. People got disappointed with the TANGIBLE asset call gold and dumped it for the INTANGIBLE ASSET called stocks.

INTANGIBLES CYCLE - 1982 to 1987 - Helped by falling interest rates, and the popping of the TANBIBLE Asset gold, stocks began to rise and they rose till about 1987 when they reached their bubble status fuelled by speculators . At that time everyone thought INTANGIBLES like stocks would continue to rise - then on Oct 19th, 1987 - Program trading led to the popping of the speculative bubble. Investors became scared of stocks, seeing a 20% decline in one day! And the recessionary threat that was imposed was met with lowering of interest rates. And investors rushed out of this INTANGIBLE asset called stocks into the next TANGIBLE asset called Real Estate.

TANGIBLE CYCLE - 1987 to 1991 - The scare of the 1987 stock market crash and lower interest rates led investors to look for TANGIBLE assets that were different from stocks - and they jumped into Real Estate. Real Estate prices increased, again fuelled by lowering interest rates. In fact Real Estate had three or four of its best years ever. Toronto real Estate was increasing at the rate of 20% a year at times. Banks lent out money to mortgages like crazy, and the lending created the S and L (Savings and Loan) crisis in 1991 - The Real Estate bubbled collapsed again fuelled by speculators. There was a lot of bad lending into too high priced real estate property markets. The over extension of credit that helped fuel the booming property market, also generated a lot of bad loans and you saw, many institutions wither on the brink or going bankrupt.

INTANGIBLES CYCLE - 1991 to 2000 - Investors rushed out of property markets, and chased the next INTANGIBLES cycles - stocks. This went on a-la the previous INTANGIBLES cycle, until the speculators again began to dominate, and we got the technology crash of 2000. To get out of that recession the bankers agreed to lower rates, and avoid a recession - they did, and that helped fuel the next cycle which we are in now - THE TANGIBLES cycle of Real Estate, Gold and commodities.

TANGIBLES CYCLE - 2000 - Present. Just like every other cycle this too will burst because of speculators, an set up the next INTANGIBLES CYCLE - we are already too long in the tooth into this cycle.

You have to realize that the S and L crisis in the 1990’s is exactly like what we are going through now. You had a property market that turned down in 1990’s, a lot of loans that already were not safe, and a lot of defaults and foreclosures - and the response from the central governments at the time, was the same as every time this happens - cut interest rates pretty drastically, inject a pile of liquidity into the markets, get the lending flowing again, restore some confidence, get the economy back on sound footing and provide that stimulus.

So what we ended up seeing then was a massive injection of liquidity that often takes years to work its way through the economy and eventually it finds its way into stocks.

So, a good reason why the mid to late 1990’s had above average returns was because of the Savings and Loans crisis in the early 1990’s - the massive injection of liquidity that took years to filter through the economy to stocks.

There are just too many parallels between this time and then.

This one was brought about by a market decline in 2001/2002, people moved from stocks to real estate, as a result we got a boom in real estate. It was 2003 and we got back to the highs of real estate seen in 1990 - 13 years later!

I don’t think we would have had the Real Estate sector increase if it was not for the 2001-2002 market downturn - the money left the stock market and went into Real Estate.

Now with the downturn in Real Estate, especially in the US, foreclosures and the massive injection of liquidity by central governments around the world - I don’t think this is going to be any different.

We will find that in years hence, we will see above average returns in the stock market.

The massive injection of liquidity now, will also filter through eventually to stocks.

It’s hard to quarrel with history to say that it didn’t happen because it did.

The decline of 1987 benefited Real Estate, we saw aggressive lending and speculation in Real Estate cause the next downturn in Real Estate, and lots of bad lending and institutions failed, and there was lot of liquidity injected into the markets at that time. Same as this time.

When investing another format to think about is am I investing in “Necessities” or “Accessories”

Necessities are things that we require all the time irrespective of what is happening in the world. Necessities also provide consistency of income irrespective of what market cycle you are in.

What are examples of Necessities - Bonds, dividends - to provide income. toothpaste, soap, shaving creams, vegetables, fruits, protein - Toilet paper etc

Accessories are things that you don’t need but get excited about having. - emerging markets, Oil, gold, earrings, jewelry, candies, sugar etc

The markets also tend to go from Necessities to Accessories. There’s periods when “Accessories” do well, and people are excited by a particular story - such as increase in Oi prices, increase in Gold, the out performance of Canada. And then there are periods when because the accessories surprisingly fell - that Necessities become back in vogue.

Personally, I feel more comfortable with investing in Necessities - because these you need ALL the time. They just don’t become as exciting at certain times, and then investors decide not to invest in them. Necessities also provide a level of certainty, which is not provided by the accessories.

In a period of economic weakness, “accessories” are thrown out and avoided. While the “necessities” are things that consumers cannot let go.

Consumers, as their job prospects weaken, as employment rises, as they begin to save ore and spend less.. will stay away from the Jewellery stores, stay away from the movie houses, stay away from the luxury brand stores, Harley Davidson’s and will embrace Wal-mart, No-Frills, Loblaws, Johnson and Johnson, Proctor and Gamble.

So, when investing thing “Necessities” or “Accessories”

Rational

There’s been a lot of talk recently about Bear markets, and investors have been confused as to what they should be doing. Many of them led by the media’s constant drivel on “The World is coming to an End”. it’s as if, we’ve never been through a down market before. Realize that a downturn in the markets is common, and not unusual.

In a down stock market, the first instinct of too many investors is to give up the picnic basket to the bears. In investment terms, that means they rush out of their Sound Intellectual Framework based portfolios to the seeming shelter of bonds, GICs or cash.

It’s a classic case of what we call “chasing performance,” leaping for a ship that may already have sailed.

There’s a better way to get through these sluggish markets: a well-considered policy of asset allocation pointed for the long term.

Asset allocation requires a long-term presence in a mix of asset classes, geographic regions, investment styles, and capitalization ranges, including growth stocks, value stocks, bonds, and cash, along with frequent portfolio rebalancing. Asset allocation does not employ market timing, which might be considered a diametrically opposite approach.

Market timers are always trying to predict market highs and lows and get on the sunny side of the swings, a nearly impossible task. We’re constantly bombarded with market timing advice from pundits and newsletters, but if these gurus truly knew how to time the market, they wouldn’t have to peddle newsletters. They would have created a fund company and built excellent management firms, like Dreman, Marsico, and Mawer. While many people may agree with this intellectually, bear markets have demonstrated the ability to quickly transform otherwise rational asset allocators to fidgety market timers. They believe that some tinkering is needed, that something must be broken. Investors who originally set their investment horizons at 10 years or longer begin to analyze their portfolios on a monthly or even weekly basis. This always gets you in trouble because in the short term, performance is exaggerated. During expansions, your expectations soar too high; in recessions, you expect too little.

In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
– Benjamin Graham, The Intelligent Investor

Trying to time market swings is a classic investor mistake during bear markets. Another is refusing to make portfolio changes. Certainly, you don’t want to make a change just because something is out of favor, but you do want to make sure that you own quality investment managers. In a time of excess gains or a “bubble” environment, not all investment managers will match the market’s exuberance. Some, due to their investment philosophy of not overpaying for sound investments or disinterest by investors may lag the market. In recessions, on the other hand, some otherwise solid managers may be forced into lower performance because their sound investments stocks are also affected by the market investors percptionsunexpected bankruptcy due to lack of growth. Still others will fold because of unstable foundations. We saw this when the dot.com boom went dot.down, showing just how speculative many Internet and technology companies were. In bear markets, it’s vital to shed shaky investments and reinvest your dollars for the long term into sound portfolios.

A third classic investor mistake during bear markets is converting all or most assets to cash as a presumably safe haven. On the surface, this seems like a prudent strategy, since cash isn’t actually losing money. But if cash assets are earning you two percent, and inflation is running at 2 percent - your seemingly safe investments are losing you considerable buying power after taxes. Moreover, market recoveries happen quickly. You don’t want to be exclusively in cash when the rebound begins.

It may seem a bit yogi-bearish to say it, but long-term investing works over the long term. Over the short term, anything can happen. Consider the typical business cycle which, as it relates to the stock market, usually consists of three phases. The first is expansion, when the economy is growing and taking stock prices with it. As with all market phases, the pendulum usually swings too far, resulting in overheated stock valuations.
The second phase is recession, when the economy cools and stock prices fall. Here again, market movement is excessive, and stock prices decline to an undervalued level. In the business cycle’s third phase, recovery, investors again begin to look forward to increases in corporate earnings and a corresponding bounce in stock prices. Stick with your investments throughout the business cycle and you may well be rewarded for your patience. Try to chase the ebbs and flows of the cycle and you’re in a dangerous guessing game.

“Our patience will achieve more than our force.”
– Edmund Burke

How, then, should you invest, and what should you expect in a bear market? Consider these the three fundamental principles of bear market investing:

• Own quality.

• Don’t be afraid to invest in struggling investments. If you’re investing for the long-term, you want to employ a system of buying low.

• Reallocate your portfolio regularly to reflect an emphasis on diversification and long-range thinking. Don’t get greedy. As the market recovers, take profits on a systematic basis. If the market keeps rising as you engage in rational profit-taking, so what? When you’re happy with your results, it doesn’t matter what the broader market is doing. And if you can’t rebalance yourself then make it automatic. Don’t let your expectations be distorted by those years of uncharacteristic gains; they’re just as aberrant as years of dismal loss.

See your advisor. The best time to see them is when you are most concerned.

A successful asset allocation strategy requires a commitment to keep a designated percentage of assets invested in their respective classes, regardless of the current performance of those classes. Inevitably, some asset classes and subclasses perform better than others over the short term. But today’s underperformers typically are tomorrow’s stars.

“An optimist is a person who sees a green light everywhere, while a pessimist sees only the red stoplight. The truly wise person is colorblind.”

Rational

Wow, back from a whirlwind tour of BC

Where did I go?
Penticton, Kelowna, Kamloops, 100 Mile House, Williams Lake and Prince George

This is an exceptionally beautiful part of our country, and I strongly encourage everyone to get out to these areas and see the wonder of Canada.

Here are some of my main viewpoints

- top on investors minds was the volatility around themarkets and their investments. What I found was that those advisors who had made it a point of talking about volatility up front, instead of promoting past returns were appreciated.
- People were concerned about how will they do in the future - this is understandable especially in such volatile times - becasue we tend to extrapolate recent negatives to the long term - remember the investment world is there to find companies and investments that will produice in the futuure, adn sometimes those opportunities are best seen when everyone else is dumping good companies just because of soem short term headline news item such as “LArge Bank Write-offs” Come of it, this isn’t the only time that banks have written off debts - and wll this sub-prime stuff is NOT the end of the world!
- People generally have tow 2 choices when investing a) invest in the markets and accept volatility or b) invest in GICs with no volatility, and higher taxes.
- The problem with today is that most people want to hear the word “Guarantee” - well the word “Guarantee” is being palyed around with - because even dumb investments like Portus, which at the time was one of the hottest investments being sold by advisers, we re being bought because of that magic word “Guarantee” - and well, it fell flat on it’s face and took a lot of people down with it. So the word “Guarantee” can be mis-leading.
- Advisors seem to be trying to do what’s easy instead of what’s right, they are getting caught up and believing in the sales pitches being thrown at them. This has always been very dangerous in the past. Now, it’s all about the key words “income”, “guarantee”… Well, let me explain to you, there is NO perfect investment. And when something seems too good to be true - guess what IT IS!
- I think a day of reckoning will get come, when the truth eventually comes out, and all the misdeeds being carried out now will come to the forefront. This has happened every time in this industry - Note :Advisors getting excited about Real Estate funds in early 90’s, Technology funds and Demographics funds in early 2000’s, Portus in mid 200’s, Income Trust funds last two years, and even before that - Paid up premiums in Insurance policies! This new love affair with a certain product is no different than those times.
- Remember what the easiest thing to sell is, is not necessarily the right thing to do. And if all you are doing is pumping the clients with the product-du-jour are you a planner or a salesman.

Had a fantastic time, with my good friend Mr. Gooder, would strongly recommend other advisors listen closely to him and how he does his business - great balance of life - especially around the midriff! He is a straight shooter, and has very little tolerance for BS.

Met a lot of new guys, and am impressed on their adherence to managed money, and solutions management instead of being fund jockeys - it seems the key secret to these good advisors was “relationships” and not product pumping!

Had great investment Town Hall events in Kamloops anD Williams Lake - large turnouts. A Town Hall is where the investing public gets the opportunity to ask us questions about the investment world, our process, and what needs to be done or not. It’s really our opportunity to talk to the public about what we do, and then hear their concerns and responses.

IN Williams Lake got together with my hunting friend G Hannas, and saw a picture of his 59lb Salmon - now that’s a challenge for all your East coast fishermen. G say’s the bigger fish are out of the west. Hopefully some of the East coast guys will be able to come to the Western conference at Whistler and meet with G Hannas and sort it out for once and all - who has the bigger fish! I’m staying out of it, because apparently I’ve been told size doesn’t matter…

Prince George was the most Northerly point I went to, and it’s booming up there. Talked to some officials before I had left, and they had told me that planned real estate and commercial building was going up. They have an International Airport, and there are plenty of jobs. I had the lucky chance to share the flight back to Vancouver with J Ross. And we talked about various viewpoints, in particular the need to stay true to a particular philosophy, and not get deviated by the media, product pushing companies etc. Keeping a simple practice and having good balance of life is possible and J Ross is a great example of that.

In Vancouver caught up with Jean Roux and had a birthday cake thanks to Ann, Jean Roux from Langley is one of my favorite advisors - always got a good smile on his face, and it’s very difficult to keep him from not being positive.

Key points from my town halls and discussions

1. We meddle too much in our investments and we tend to throw in the towel too quickly

Investors always want to over manage their investments. When in fact, the best investors out there have demonstrated their ability - just for the reason that they do not over manage - think of Buffett, Dreman, and others - Simple portfolios with simple philosophies. There is some slight tactical moves, but nothing dramatic. Investors get panicked by market upsets and excited by market exuberance - and decide to chase hot performance, and fear underperformance.

As an example, people are getting caught up in recent years underperformance for certain investments, and thinking that something is wrong. Well. Something is - it’s with all the one’s with the higher returns, because they’ve taken on a risk that will be hard to maintain.

In 2000 a certain Fund returned 5.9% (nothing great)
IN 2001 it returned 4.3%
and in 2002 it returned -4.7%

Nothing great to talk about three years of not so great performance, ho hum, is how many thought of it.

Meanwhile the managers kept on doing their stuff, and just picking up companies that made sense.

For three years investors thought something was broken.

Well it wasn’t

In 2003, the performance was a whopping 21%

investors started to notice it, and invest in it, even though the return of 21% was built on companies that were bought in 2000, 2001 and 2002

In 2004 they did 11.7%
In 2005 they did 12.2%
In 2006 they did 13.0%

Man, were those numbers great! This investment was smoking, and investors loved it. Even though the investment company continuously warned investors not to get excited, and that these returns were due to investments made in 2000-2002 when the markets were lower.

The managers in the investment got worried about the markets and started to be more conservative, in fact, they reduced the positions that were hot items in the portfolio. Became more concerned about the over-valuation in the markets - and guess what they markets continued to go up. But, not this fund - most investors thought something was broken - well it wasn’t just like it wasn’t in 2000. It’s just that the managers were worried about the markets over exuberance

So in 2007 it did -0.6%

And then they won an Award Lipper Tactical Balanced Award in Canada, for their excellence in management.

But note, the investment had three miserable years, had negative years as well. But, its because of those miserable years, and the negative years, that they were able to produce higher returns in the subsequent years.

The investors had done the opposite, choosing to leave it when the performance was poor and chase it when the performance was high. Had they have just remained with it, they would also have been party to the award winning results.

It’s not about the performance alone, it’s about adding to the portfolios in times when the performance is poor. Our natural tendency is to run away from these types of investing. When in fact, that is when we should understand them better and take the opportunity of lower prices for excellent businesses.

Realize that investment can drop because of market problems, but the chance of a basket of investments, especially those containing bonds and equities going out of business, or going kaput - on the same day - is pretty remote. So why do investors bail out of sound investments? Part of the answer is that new investors continually and consistently and dramatically underestimate their ability to handle volatility. So when you choose your investment program please take just as long to understand the amount of volatility that can happen - and don’t believe words like “guarantee” because guarantee does not mean lower volatility - just ask the Portus investors

You need an investment strategy, a timeline and a goal in mind. Risk comes from not knowing what you’re investing in.

2. Investors sacrifice quality for lower costs.

There’s a huge amount of wasted ink on MERs (Management Expense Ratios) and how lower is better.

Well it so happens that I was reading an interesting article today on the New York Times

Here’s the link

http://www.nytimes.com/2008/04/15/science/15titanic.html?_r=1&oref=slogin

It talks about one of the main reasons The Great Titanic ship sank, was not just because of an unforeseen ice berg, but also because of the lower quality, cheaper rivets that were in place. It seems like the ship builders decided to cut costs and look for cheaper rivets. These are the small things that actually hold the ship together.

So, by looking for the cheapest possible rivets, the builders short changed the travelers, eventually leading to their deaths. All on a ship that “could not sink”

Had they paid attention to the quality, instead of “just” the cost - perhaps Titanic would be around today - and we wouldn’t have to watch that Leonardo DiCrapio movie!

All MERS are really

Expenses / Total Assets

Since it is a fraction, the larger the item on the bottom gets, the lower the MER

So, if you really want to lower the MERs its very simple invest more, put more assets in. The larger that becomes the lower the MER - simple! And when you are comparing MERs compare them to similar size investments - Not the huge ones to the small ones.