Personal Wealth Management

Why Socialism Does Not Work

Jordan Wilson — Sun, 05 Feb 2012 17:48:13 +0000

For many on the left of the political spectrum, socialism is a great concept.

So why does it not work in practice?

The usual leftist response is that it has just never been properly implemented.

But could it ever be?

Today, a humorous story demonstrating why socialism does not work in the real world.

Sadly, I have my doubts on the validity of the tale.

I know a few professors who deal daily with single students angry over grades. And faculty administration who pressure them to be sensitive to the students. I can only imagine the uproar in trying to actually fail an entire class of students.

But it is a great story.

And how it played out is definitely believable.

If you were in the class, what would you do?

Work hard in the hope (expectation?) that your fellow students would work together to succeed as a whole? Socialism in theory.

Or seeing how the first exam went, decide to join the masses and coast with the pack? Socialism in practice.

Well, actually socialism in practice might involve raiding the grades given to the professor’s other classes. Those who were not willfully part of the experiment.

Take their grades and distribute them to the less fortunate. Sounds fair to me.

Top 10 Best Things About Mutual Funds

Jordan Wilson — Fri, 03 Feb 2012 20:52:56 +0000

Started reading Morningstar’s “Fund Spy” last night.

A gift from the nice folks at Morningstar, so thanks.

In it, Morningstar produces a chart with the top 10 best things about mutual funds.

An interesting list.

I think the stated items are good, but I have problems with the chart itself. It simply lists 10 bullet points that are the “best things about mutual funds.” No caveats, no expansion, nothing that puts things in context for readers.

I see this all the time when reading investment related articles. If you already understand the topic, you read an article and go, “Yep, that makes sense.” But if you do not understand the subject to begin with, you learn maybe half or a quarter of the truth. I have found that knowing half of what I need to know is often as bad, or worse, than not knowing anything.

That is why my posts generally are quite long. In work, I prefer short communication, straight to the point. But those communications are to a target audience who understand the subjects. In this writing, with some readers who are trying to learn about a topic from scratch, I would rather cover as many sides of an issue as I can. If that means overkill at times, so be it.

So what are the 10 best things about mutual funds?

1. Diversification is better than you can get on your own.

Generally true.

Investors with greater wealth can effectively diversify on their own through stocks, bonds, etc. Smaller investors are usually better off using mutual and exchange traded funds to diversify.

However, not all mutual or exchange traded funds are well diversified.

Some Funds Have Limited Holdings and/or High Concentrations of Certain Investments

If you desire diversification through a large number of holdings or limited concentration of the top 10 holdings, you may not get it in all available funds.

Fairholme (FAIRX) has 19 holdings. Its top 10 investments make up 77% of fund assets. CGM Focus (CGMFX) has 21 holdings and its top 10 investments are 64% of fund assets.

Not the same diversification as an S&P 500 fund with 500 holdings. Or a global fund such as the iShares MSCI ACWI Index (ACWI), with its 1200 investments.

Note though that a portfolio can be diversified with 20 to 30 investments. Not the easiest exercise, but it can be done.

Some Funds Are (Intentionally) Non-Diversified

Some funds are highly concentrated in a specific sector or investment style.

As part of your overall portfolio, they can aid in diversification. But on their own, weak diversification.

For example, First Trust ISE Global Platinum Index (PLTM). It invests only in platinum companies. Perhaps a good piece in one’s total portfolio, but very poor diversification if it is the only investment one owns.

2. There is greater transparency than any other managed account.

Well, that depends on the particular managed account.

I would say that the more assets in your managed account, the greater the transparency.

I have experienced tremendous transparency with personally managed accounts. And I know certain mutual funds where transparency has been an issue.

For example, with most mutual funds, there is a lag period between trading and reporting positions to investors. This can lead to window dressing by the fund manager.

3. They bring great management to individual investors.

Questionable to untrue.

Active management has not been shown to outperform passive investing. So why pay for “great” (and expensive) management that cannot consistently beat index funds?

And fund management is not homogeneous. Fund managers come in many shapes and sizes. Not all are great. And some can only be great when their investment style is in vogue.

Some managers are better than other managers in general. Long term results help identify strong management.

But some managers outperform depending on the type of market, fund size, and if their investment style is doing well in that period. Consider the Morningstar Fund Managers of the Year for 2011. There are a variety of factors that determined who the best fund managers were in 2011. If a few of those factors change in 2012, you likely will see a different group of best managers in 2012.

4. Low-cost funds are the best deal in investing.

Yes, that is one of the best things about mutual funds.

But what about exchange traded funds?

They are often less expensive than a comparable mutual fund.

5. They enable you to invest outside your area of expertise.

True. No fault with this one.

However, if you do not understand an investment sector, be careful.

If you know little about say precious metals, how can you compare funds, assess holdings within the different funds, and potential entry and exit points?

Diversification is great, but understand to some degree what you invest in.

6. They are easy to compare.

Also true, assuming we are talking mutual funds issued by recognizable fund companies and cover larger market sectors.

Small funds, funds that specialize in niche markets with few direct competitors, or funds that only trade periodically (e.g., monthly), are not always easy to evaluate or compare.

The more bespoke the fund, the harder the comparisons.

7. Audited portfolios make theft nearly impossible.

I think most mutual funds are relatively safe from theft. But not necessarily because the portfolios are audited.

An audit gives some assurance to the users of financial statements, but they are not infallible.

Can you say Enron, Allen Stanford, or Bernie Madoff?

8. You can get in or out every day at net asset value.

Two errors here.

If investing in closed-end mutual funds, you may not buy or sell at net asset value. There might be a premium or discount involved based on supply and demand. The less liquid the investment, the greater the potential spreads.

Not every fund allows investors to buy or sell every day.

If you are in a small fund that is fully invested in equities, it may not have available capital to pay redemptions on a daily basis. Or for pure accounting reasons, the fund decides to only process applications and redemptions bi-weekly or monthly.

As above, the more bespoke the fund, the greater the potential for less liquidity.

If you are investing in typical mutual funds from large fund companies, daily trading at net asset value tends to hold. But if you are investing in offshore funds or funds that invest in illiquid assets, you may have issues.

Always read the prospectus before investing.

Learn about any potential restrictions before you write your cheque.

9. Some have track records that are decades long.

True. But investors need to look at both the fund and the fund manager. That is, the person(s) making investment decisions.

Warren has been the sole fund manager of Buffet Mutual Fund for 20 years. The fund has prospered, consistently finishing each year in the top quartile of the fund’s investment category. Warren is an excellent investor, albeit quite a secretive man who does all his own analysis. He has no team working with him.

Excellent track record over 2 decades. A fund that attracts my interest (and money).

One day, Warren is hit by a car and dies.

Needing new management, but wanting to save some money on management fees, Buffet Mutual Fund hires young Matt straight out of college. Talks a great game, but has no investment experience.

Same fund. 20 years of strong performance. But that performance relates to a manager who is no longer running the fund. The new guy has no experience.

Does it make sense to attribute the same results going forward? No.

Fund management determines performance.

Note that the converse is also true. Warren does not die. He just gets tired of life at Buffet and wants to create his own mutual fund. So he sets up Warren Mutual Fund. The fund has no track record and probably limited assets under management. But the fund is not the one making the investment decisions. A guy with 20 years of success is doing it.

When considering actively managed mutual funds, always look at current management.

As an aside, I prefer active managers – funds, managed accounts, businesses, etc. – that use a team approach. And many do. This reduces key employee risk within the management team.

10. You can invest automatically without paying commissions.

Maybe. Maybe not.

Some, but not all, fund companies allow for automatic purchases. That is, periodic direct debits from your bank account.

Of those that do, there may be minimum purchase requirements.

And not all funds allow commission-free automatic purchases.

I would also add that sometimes you can purchase commission-free, but you are charged a fee upon redemption. This might be a deferred sales charge or it may be a penalty for selling within a fixed period of time from acquisition.

Always read the fine print before investing in a specific fund.

Conclusion

Most of the time, the 1o best things about mutual funds will generally hold true.

But not all the time.

As you expand your investing horizons, the probability of encountering exceptions is high.

Remember, the more bespoke or unique a fund, the greater possibility of issues.

With any fund, always read the prospectus and related documentation.

Review the fund company, fund management, and fund itself. Compare it to peers and designated benchmarks.

Ensure you know what you are buying before investing your capital.

Then periodically monitor your investment over time.

If you do your homework now, you improve your probability of success in the future.

Apple First Quarter Results

Jordan Wilson — Thu, 02 Feb 2012 16:26:39 +0000

Apple released its first quarter 2012 results last week.

Interesting stuff.

Yes, the results were impressive, but that was not the most fascinating part.

The Interesting Results

According to the Apple press release:

The Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share.

During the quarter, Apple sold:

37.04 million iPhones, representing 128 percent unit growth over the year-ago quarter.

15.43 million iPads, a 111 percent unit increase over the year-ago quarter.

5.2 million Macs, a 26 percent unit increase over the year-ago quarter.

15.4 million iPods, a 21 percent unit decline from the year-ago quarter.

Not bad.

The Fascinating Part

In 1976, Apple was founded by Steve Jobs and Steve Wozniak.

In 1985, Steve Jobs was considered a “bad Apple” and ousted from the company. Share price fell under USD 2.50 (adjusted for subsequent stock splits) by the middle of 1985.

Apple was not seen as a great investment.

In December 1996, Steve Jobs returned to Apple and took over as interim CEO in July 1997. No great market reaction to either news. In November 1996, Apple adjusted share price was USD 6.03. At year end 1996, USD 4.16. And USD 4.38 on July 1, 1997.

Investors were clearly not impressed with Jobs and Apple.

But then things started to change.

In late 2001, the iPod was introduced. Perhaps an interesting creation, but investors did not think so. At the start of 2001, Apple was worth USD 10.81. By the end of 2001, USD 12.36. And by the end of 2002, USD 7.18. A negative 33.6% return over the two year period.

Did this Jobs character have any idea how to grow a business?

Yet the iPod became a very successful product. And it laid the groundwork for the iPhone and iPad lines. A decade later, in the first quarter results, Apple sold 67.87 million of these 3 items.

Just over a decade ago, there were no iPhones, iPods, IPads, iTunes, MacBooks, et al. Today they account for the bulk of Apple’s success.

And a share price as at February 1, 2012 of USD 456.19. With diluted earnings per share of USD 13.87.

Compare both to the share price at the end of 2002, USD 7.18.

Maybe Steve Jobs had a clue after all.

The Really Fascinating Part

Also known as the relevant part for investors.

Hindsight is 20-20

It is easy to look back and see a great company in the making. And many people you meet in life – especially at parties, in the office, or nephews – will magically have bought the Apples of the world back when they were unloved and worth USD 2.00.

Unless they are wearing genuine Rolexes and driving fancy cars, take their words with a grain of salt. Because Apple did not really start to take off as an investment until 2006.

Any truly smart investor could have made a bundle investing between 2001 (introduction of the iPod) and onwards. Most did not.

But was it their fault?

Forecasting is tricky business

Investors did not realize the future impact of the iPod and other product lines from the early 2000s. If they had, it would not have taken until 2006 for the stock to really soar.

Investors did not realize the impact that Steve Jobs would make in his return.

And not just investors.

Professional analysts who are supposed to understand the industry.

Apple management and Board members who thought Steve Jobs was hurting the company.

If industry experts, analysts, and Apple insiders did not know what would ultimately result under Steve Jobs, it is difficult to imagine ordinary investors getting it right back then.

Corporate Management

Corporate management is crucial to a company’s success. Leadership, vision, creativity, drive, etc., are all important attributes in good management.

Yet what about Steve Jobs?

World beater in the 1970s. Corporate destroyer in the 1980s. “Not him again!” in the 1990s. Creative genius in the 2000s.

Sometimes that is a tough thing about individual leaders.

Maybe Apple made a mistake tossing him aside in the 80s.

Maybe Jobs was hurting the company and needed a break from Apple. Perhaps the time away allowed Jobs to become the leader he was in the 2000s. Maybe if he had not been ousted, Apple would not have had the success they did.

Good management is key to success. But assessing who is the right manager at the time may not be easy for investors.

It Makes Investing a Complex Pursuit

Looking back, it seems that the success of Apple is a no-brainer.

That Steve Jobs was a genius and visionary.

But as you can see from the share price changes and perception of Steve Jobs over the years, it was not always so clear. In fact, the consensus may have leaned more to the opposite side of the spectrum.

Assessing a company’s future based on current events is a difficult business.

Another reason that I generally recommend a passive investment strategy. One that invests not in individual companies, but rather in well-diversified mutual and exchange traded funds.

Where is the Next Apple?

But if seeking individual companies, is there another Apple out there?

Which companies today have depressed share prices and shareholders yelling for change in leadership?

Is Research in Motion (RIM) and its line of BlackBerry products a future Apple? Its share price is down about 75% over the last year. The co-CEOs of the company were ousted in January. Neither RIM nor its shares appear to have promising futures.

Given media analysis of RIM today, it is hard to believe Apple was once in very similar straits.

So have you invested in RIM this week?

Probably not. It is tough to invest in a company that looks weak. Difficult to buy when conventional wisdom says not to. But often that is the precise time to buy shares.

RIM is not a company I am fond of. As one of my associates who is a significant shareholder knows too well, I recommended that he sell over two years ago. And keep reminding him of that. Of course, he also has substantial holdings in Apple, so I do not expect to see him at the soup kitchen anytime soon. So more soup for me.

Regardless of my opinion, I am interested to see where RIM stands a decade from now.

I know not whether it will soar high again or crash further. The only thing I do know is that if it does rise again, my nephew will have bought shares last week. As will many other experts.

And if it fails, I know that my nephew will have shorted the stock.

Easy Ways to Mess Up Retirement

Jordan Wilson — Mon, 30 Jan 2012 21:09:10 +0000

Many readers are a long ways away from retirement.

Messing up on retirement is not yet on one’s radar.

But it should be.

And the sooner you realize how people mess up retirement, the easier it is to avoid problems.

Consumer Reports outlines “7 Easy Ways to Mess Up Retirement”.

Good points. Ones that are relatively easy to avoid if you know they exist.

1. Not Having a Plan

You fail to plan, you plan to fail.

Different financial professionals recommend varying ways to plan. But all agree that you need to plan. If you meet one that says you do not need to plan, run do not walk.

I believe that creating an Investment Policy Statement is a great way to plan.

An Investment Policy Statement incorporates your unique investor profile. That is, your current financial situation, investment objectives, financial constraints, investing time horizon, phase in your life-cycle, and personal risk tolerance.

From this, you can then develop a comprehensive investment strategy that meets your needs and and unique personal situation.

2. Not Having Alternative Plans

The Investment Policy Statement cannot be a one and done document.

As life changes over time, the Investment Policy Statement must be reviewed and updated.

You win $5 million in a lottery? That completely changes your retirement planning.

You get convicted of drunk driving and lose your $100,000 a year job? That also impacts your retirement planning.

And it is not just you. Governments can change tax rates, devalue the currency, adjust access to social welfare programs, etc. Your company can introduce stock option plans, reduce the company pension scheme, go bankrupt, etc. The economy can experience inflation, high unemployment, high gas prices, etc. Investment markets can change significantly over time.

There are so many variables that can impact your life. Many which you cannot control.

You need to monitor and amend your Investment Policy Statement as required. An annual review at minimum. Also, anytime there is a material change in your life.

If a change in strategy is warranted, then make those changes.

3. Not Knowing What You’ve Got

You should prepare a comprehensive balance sheet as part of evaluating your investor profile in the Investment Policy Statement.

Make sure it is comprehensive.

Many people forget things.

A typical omission is a home you own. Investors do not forget that they own the house, but they do often forget to include it when calculating their current asset allocation. Make sure you include yours as part of your real estate allocation.

4. Underfunding Accounts

I do not think that you can save enough each year.

Studies consistently show that individuals do not save enough for retirement.

I strongly believe that most national governments will substantially reduce benefits in their social welfare programs. This may be due to clawbacks, higher thresholds, increased entitlement ages, etc. High government debt levels may also result in higher tax rates attaching to withdrawals from private pensions.

I also think there may be problems for individuals who are part of defined benefit corporate pension plans. Many of these are not fully funded.

Of the 341 companies in the S&P 500 index with defined benefit pension plans, 97 percent are underfunded, according to a Credit Suisse analysis. Despite generous contributions last year, Credit Suisse estimated the plans’ liabilities at $458 billion at the end of 2011, an 86 percent increase from a year earlier.

Others rely on very optimistic returns to justify their funding levels.

The median expected rate of return on pension-plan assets at companies in the S&P 500 has dropped from 9.1% a decade ago to a still-high 7.8%

Among major public-employee pension plans, the median assumed return is 8%

Is that realistic given recent rates of return on cash, fixed income, and equities?

Consider a corporate plan projecting a long-term average annual rate of return of 8% and holding 50% stocks and 50% bonds.

With the Barclays Capital U.S. Aggregate bond index yielding around 2.2%, a 50% allocation to bonds contributes 1.1% annually to the portfolio’s overall return. Stocks have to make up the remaining 6.9% for the entire portfolio to hit the 8% target.

If stocks gain 10% annually, a 50% allocation to them will provide 5% of return, not the 6.9% needed. For this hypothetical portfolio to return 8%, stocks need to gain an average of 13.8%. That would be nice—and unlikely. Over the past 10 and 20 years, respectively, the Dow Jones U.S. Total Stock Market Index has returned 3.9% and 8% annually.

The probability of meeting these assumed rates of return is low. That means more funding problems for these pensions. And potentially payment issues for fund participants.

Try to maximize contributions to personal pension plans, then save through non-registered investment accounts. It is not wise to rely solely on your government and company pensions.

The sooner you begin to contribute, the less money you will have to invest over time.

5. Wimping Out On Risk

Many investors, especially young investors, are too cautious in their risk levels.

I am not telling you to take your savings, run to Las Vegas, and put it all on black 26 at the roulette table.

But investors should understand the relationship between risk and expected return. Then take an less emotional approach to investing.

I do not think individuals need to become investment experts. But it is helpful to spend a little time learning about the investment process. It will definitely help in your planning and investing for retirement.

This could also be a good time to work with a competent financial planner. Someone that can assist you in making more rational investment decisions. Yes, it will cost a little today. But the returns may be well worth the price.

6. Ignoring Fees

Expand this to cover all investment costs – transaction costs, mutual fund sales charges, portfolio management fees, administrative and operating expenses, and income taxes.

I would also factor in financial planner support. Either commission based or fee only planners.

Lower costs equals stronger performance.

However, do not sacrifice service and portfolio performance just to find the cheapest options.

7. Depending on Home Equity

Traditionally, the family home was a key source of retirement capital.

At some point, the home owners would sell their house, “trade down” to lower cost accommodation, and live in part off the cash proceeds.

That system worked well for many years. But as we have seen over the last decade, it is not a guaranteed strategy.

Maybe housing prices will rebound. I think over the mid to long run that they will, on average, strengthen. Now may be a good time to buy if you are looking for long-term appreciation.

But it is not a given. There will be fluctuations over time based on general economic conditions, government legislation, etc. There will also be differences between real estate markets, as well as within specific sectors.

I stated above that we cannot be certain that government and corporate pension plans will provide the same benefits in future as they do today.

I think prudence should also apply with the future realizable value of your home. Do not plan to live off your home proceeds. If real estate bounces back, great. If not, you will be prepared.

Conclusion

As I like to say, hope for the best but expect the worst.

Plan for your future.

Start saving today.

Invest in low cost diversified products, such as index funds, that meet your investment goals.

Do not rely on governments, company pensions, or home, to provide for your retirement.

If you are going to err, better that it be on the side of caution.

I would much rather see clients complain to me that they saved way too much by the time they retired. Instead of seeing them struggle to live in retirement because they did not save enough.

Investing Philosophy in 10 Words

Jordan Wilson — Sat, 28 Jan 2012 22:18:59 +0000

Can you summarize your investment philosophy in 10 words or less?

Can anyone?

After all, investing is a complex subject.

The Wall Street Journal’s Total Return personal finance blog asked some high profile finance professionals, “Can You Sum Up Your Investing Philosophy in 10 Words?”

10 word investing philosophies make interesting and easy reads. Even for my attention deficit disordered nephew.

Easy reads. But some of the responses may make you think for a while.

My 10 word investment philosophy?

Proper planning.

Match market returns.

Saskatchewan Natural Resources

Jordan Wilson — Wed, 25 Jan 2012 19:30:27 +0000

As discussed in Saskatchewan Economic Success, natural resources are a key driver for the province’s current economic success.

Learning about Saskatchewan’s natural resources is important for many different people and for multiple reasons.

And not just for those living in Saskatchewan. Or only the natural resource sectors.

Natural Resource Knowledge

It is useful to understand as much as possible about the industries that drive one’s economy. Government policies, market issues, etc., have a big impact on lives and wealth. Residents of Saskatchewan or people living in any region where resources are important can prosper by learning about their key industries.

If you live in an area with natural resources, there is a strong probability that you will work in one of the sectors.

Maybe you plan on becoming an accountant, lawyer, banker, investment advisor, etc. But you likely will be working for a company in industry. I would much rather hire a Controller who understands about mining issues (if I run a mining company) over one who does not.

It is also relevant for individuals who invest in any of the natural resource sectors. Not just individual investors based in Saskatchewan or Western Canada.

Not Just Natural Resources

The same logic holds if you live, work, or invest in areas that rely on tourism, forestry, computer technology, real estate, telecommunications, etc.

Learn as much as you can about that industry.

It will help you better assess economy in which you live.

It will make you a more attractive employee to current and future companies.

It will strengthen your analytical skills for investing.

It will potentially aid in investing in more exotic assets.

Prosperity Saskatchewan

I came across a relatively new blog that might help in learning more about Saskatchewan’s natural resources.

Prosperity Saskatchewan intends to provide news updates, information, and commentary on issues relating to Saskatchewan’s mining, oil, and gas sectors.

The blog is new and I do not know the blogger, Eric Anderson.

I cannot say right now if Eric’s content will be beneficial or not. I hope that it is and I intend to monitor his site over time. Once I get a representative sample of content, I will report back as to the usefulness of his posts.

Being optimistic, I am providing the link now and hope you will check it out for yourself.

As blogging is not always the easiest of tasks, I wish Eric all the best in his endeavour.

Saskatchewan Economic Success

Jordan Wilson — Tue, 24 Jan 2012 21:01:39 +0000

My wealth management business is based in Saskatchewan, Canada.

Within Canada, the Saskatchewan economy is doing quite well. The main reason is that Saskatchewan has substantial reserves of natural resources.

But it is more than that. After all Saskatchewan had resources since the dinosaurs liquified.

So why the good times now?

Significant Natural Resources

Oil and natural gas reserves are strong. I expect the oil sands sub-sector to grow as well.

Mining is also a big industry, especially potash and uranium. Diamond mining may be another leader over time.

Part of the strong economy is due to just sitting on these reserves. Luck of the draw.

But unless someone wants to buy your product, it has little real value.

Strong Global Demand

Part is due to global demand and high resource prices.

Over recent years, demand for various natural resources has been strong. As a result, prices have risen, bringing in higher revenues and improved profits.

This attracts new companies into the sectors. They hire staff and stimulate the local economies. It also adds to government coffers in higher amounts of personal and corporate income taxes and consumption taxes.

Again, some luck of the draw.

I worked in the oil patch when the price per barrel was under $14. Not a great time to be an oilman. Over the last 40 years, there has been significant volatility in oil prices. Today is good. We shall see what next year brings.

Business Friendly Governments

Part of the growth is due to the current (relatively) conservative provincial government being more business friendly than socialist predecessors. And that is not a political statement, simply the truth.

No luck here. Only good government. Well, at least better government than before.

Government regulations and tax laws can help or hinder economic development.

A Keystone Rant

Political considerations play a role. Look at the Keystone XL pipeline. Environmental issues trumped (for the moment) a steady stream of oil from an ethical supplier, construction jobs building the pipeline, increased employment at the U.S. refineries, etc.

Pure political foolishness. Especially from environmentalists who “believe” the environment is better off by having Canada build a pipeline to Vancouver, then ship the oil across the world via tanker (that run on love?), and be processed in environmentally safe Chinese refineries.

Yep, it is all about keeping the environment clean. Really it is. Honest.

Enough of the rant. Back to Saskatchewan.

Pro-Business Brings Exponential Returns

When I grew up in conservative Alberta, Alberta was extremely prosperous. Saskatchewan, with arguably better resources, was not business friendly under its socialist regimes. Being in the oil industry in Alberta during the 1990s, the differences between the provinces were stark.

And the economies of each province reflected these policies.

You never needed (and still do not although it is getting better) a border sign between Alberta and Saskatchewan. You immediately knew which province you were in by the quality of the roads. Anyone from Alberta or Saskatchewan knows exactly what I mean.

I articled with Price Waterhouse in Calgary, Alberta. A majority of my fellow articling students were from Saskatchewan. The reason; that was where the jobs were. The brain drain from Saskatchewan to provinces with stronger economies was enormous. Future accountants, lawyers, engineers, etc., were not building business in Saskatchewan. Instead, they were benefitting Alberta, British Columbia, and Ontario. And the taxes they paid on their incomes went to pave Alberta highways rather than those in Saskatchewan.

Alberta, in turn, flush with royalties from their natural resources, increased their revenues further from income tax and new resident spending. As such, they were able to lower income tax rates, thereby attracting even more company head offices and individual residents.

Additionally, there was no need in the past for provincial sales tax in Alberta. This enticed Saskatchewan residents to save 5% (7% prior to October 2006) on many purchases by shopping across the border.

A vicious cycle. The winners grow and grow while the losers suffer.

Pro-Business Does Not Mean Slash and Burn Policies

Occasionally, I meet people who think that corporations and pro-business governments want nothing more than to gobble up every last resource today, fill their pockets with wealth, and leave a scarred planet for future generations.

I really find those arguments tedious, not to mention mendacious.

Alberta had pro-business policies in the 1980s and 1990s, when I worked in the oil patch. Profits were encouraged.

But heaven help you if you did not properly reclaim the land after shutting down a well or mine. Substantial oversight from government went into this area and penalties were steep. Also, from my experience in the industries, most executives are decent people who want the best. Yes, there are occasionally bad actors, and yes accidents happen, but the number of problems in developed countries is extremely low given the sheer volume of work.

And for those who argue that killing one polar bear is too much, well I cannot really respond. I respect your opinion. And when you shut off your iPhone or iPad that was made in Chinese sweatshops, then shipped by cargo plane or tanker from China to your country, then trucked across the roads to your local store (where the planes/tankers/trucks run on unicorn kisses), we can have a conversation about priorities.

If, as a nation, we decide to live life plowing our fields with our horses and fishing from streams, I shall happily don my overalls. I shall also spend my evenings by candlelight quickly learning Chinese dialects, as they will be running our countries 几乎立即 (almost immediately).

No Resources? Be Creative

Even regions not flush with natural resources can prosper with effective government policies.

Outside of well-fed cows producing milk for chocolate, Switzerland lacks natural resources. A land-locked country, relatively small population, really not much going for it outside of tourism. Yet the country identified areas of opportunity and implemented laws to promote these areas. For example, strong personal privacy laws in their banking sector created the best location for banking.

Historically, the same applies to insurance in Bermuda, the fund industry in the Cayman Islands, or diamonds in the Netherlands.

Even within a country like the United States, pockets of innovation stand out. Looking for a corporate tax haven? Consider the state of Delaware. According to Wikipedia statistics, “over 50% of U.S. publicly traded corporations and 60% of the Fortune 500 companies are incorporated in Delaware.”

Saskatchewan Economic Success

In a nutshell, these three key factors are currently working in Saskatchewan’s favour.

A large supply of natural resources, strong global demand for these resources, and a government that is working to make Saskatchewan an attractive place to run a business.

Whether that continues remains to be seen.

But as they say in Saskatchewan, “let’s make hay while the sun shines.”

Then once the sun sets, drink a ton of Pilsner and dance around with watermelons on their heads (although this might not be part of the official adage).

This analysis is not overly in-depth. More for information than anything.

And there are other factors that also have played a role. For example, an Alberta government that became less attractive over time, causing companies to look elsewhere for opportunities. Waning interest in nuclear energy. High unemployment in other regions, providing manpower to expand operations in Saskatchewan yet avoid skyrocketing wages. And so on.

I would also say that although the current Saskatchewan government is an improvement over the socialist regime, it still can take many steps forward to be truly pro-business. So I would not consider this a ringing endorsement of the provincial government. Not by a long shot.

Make the Most of Your Job Interview

Jordan Wilson — Sun, 22 Jan 2012 19:21:45 +0000

Many applicants for the same job share the same traits.

Similar education, technical skills, and experience.

Makes sense seeing as how applicants respond to a well-defined job advertisement.

Wanted: MBA with a minimum of 10 years post graduation experience working with South American government debt instruments.

Candidates who make it through the first cut will likely be quite similar on their resumes. A possible exception might be one’s preference for Samba versus another’s love of the Tango.

But you probably will not see too many nurses, music teachers, new MBAs, or those with no fixed income experience, reach the interview phase.

If you want the position, you need to distinguish yourself from the other applicants.

Monster.com provides Five New Skills Job Seekers Need which offers good tips to separate yourself from the herd.

Pain Spotting

What is the real reason the company is hiring?

That is crucial to understand prior to entering the interview.

What problem is the business facing? What are their short, medium, and long term objectives? What do they really need in hiring for the open position?

What is stated in the job description might be different from reality. The more senior the position, the more often this is true.

Do your research before the interview.

Study the company (obviously). But not just the firm. Look at competitors, the industry, government impact, the economy, even the people that you will meet.

Do your own SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). Then match your own skills and experience to your analysis.

Demonstrate how you can meet both the company’s stated and underlying job requirements. If you do, you will have a big advantage in receiving the job offer.

Storytelling

You are interview number 16 this week and the 4th today.

All the (male) candidates are wearing the same black or navy blue suits, white dress shirts, and conservative ties. As if they were processed off a Brooks Brothers conveyor belt.

No criticism here. You never know when that ear piercing or hot purple socks will rub someone the wrong way. Much better to be safe (and boring) than unique (and jobless).

All the candidates also have the same experience plus or minus.

If you stick to straightforward facts you may be lost in the crowd.

The interviewer must see you as a person, not as just another candidate. And one that stands out in his or her mind a week later when deciding which of the 16 cookie cutter candidates the company wants back.

Stories help make a long term impression. Actually, let me restate that. Relevant stories help make a long term impression. You need stories that address the company’s real needs and show that you are worthy of the job offer.

Be Precise in Your Stories

When providing an example or anecdote, be as precise as is possible. “I have a strong work ethic” will not cut it. Nor will “I worked to reduce costs in my department last year.”

Instead, provide details. Verifiable details. Where you have the back-up data in your briefcase if challenged.

Be Memorable in Your Stories

I like stories that are different. Every accountant applying for a Controller position has stories of how they cut costs, supervised and trained staff, worked with sales teams to create budgets and business plans, etc., etc., etc. Been there, done that, bought the pocket protector.

But what about the accountant whose firm had many clients and suppliers in Latin America. He decided to spend a month in Peru improving his language skills to better deal with third parties. While there, he ended up meeting some fellow students and next thing you know he was hiking the Inca Trail. That feeling of looking down at Machu Picchu from the Sun Gate after dealing with altitude sickness, difficult terrain, and long daily treks, made the adventure a highlight of his life.

All the while with his pocket protector safeguarding his ball point pen.

I doubt this story will be told by any other candidate. A memorable tale with plenty of visuals. Plus it displays strong work traits: desire for self-improvement; customer and supplier support; language skills; motivation; ability to tackle new challenges; an active and energetic lifestyle.

Characteristics sought by companies for almost any open positions. So this is a story that can be used in a variety of scenarios.

Using a Human Voice

I understand what Monster means, but do not always agree with them.

I hate buzz words. The only thing I hate worse is when individuals use buzz words but do not know exactly what they mean.

If you interview with me, everyday language is perfect. So long as you can convey your point.

Unfortunately, there are many, many, many managers who love buzz words. Interestingly, they are usually the people that throw in these terms to hide the fact they have no real clue what they are talking about.

“We need to reevaluate our corporate paradigms to ensure that we continue providing a best of breed experience to end-users. That means taking a green fields approach, under a blue sky, where we sow a variety of seeds to see what grows.” Jibberish.

I was at an offsite to create a Mission Statement for our 600 person organization. 8 senior managers and only 2 actually knew what a Mission Statement was. Outside of the lovely Swiss background and excellent meals for 2.5 days, not a lot was accomplished.

I am convinced that many of these guys get paid by the buzz word. And to get the job, you need to bond with them. So if someone interviewing you for an open spot uses technical mumbo jumbo, you had better use it yourself.

Showing Relevance

Most applicants use only one resume for all their submissions. Reviewers can tell.

Big mistake.

Create one master resume that holds every possible scrap of information about you. A file with all your accomplishments, evaluations, raises, etc.

Then create a unique resume for every specific position that you apply for.

When I am reviewing a resume, I do not want to wade through all your minutiae to find the relevant gems relating to the job.

It is 10:00 p.m., I have a beer in hand and there is a hockey game on in the background. You are resume number 763 on my list. Make my life tough and it is quickly on to candidate 764.

Be clear, concise, and address the key job requirements and you will get my attention. I will appreciate your efforts and I will definitely be imagining you sending me well-drafted memos and reports. Suddenly you have moved up on my list of potential employees.

Knowing Your Value

You do not want to discuss compensation in the early parts of the interview process.

But at some point in time the conversation will arise.

You have researched the position, company, industry, etc.

Spend some time researching your own value given your skills and experience.

Summary

When preparing for your next job interview, remember these recommendations.

Thoroughly research every aspect of the open position.

Understand both the stated and underlying job requirements.

Tailor your resume so that it best shows how you meet the needs of the company.

Use language that you are comfortable with. Minimize overused buzz words.

Develop precise examples and colourful but relevant anecdotes to support your candidacy in a memorable manner. Look for stories that can be used in response to multiple questions.

At times, you may be in doubt as to a company’s true needs or what stories are relevant in a given situation. If so, always remember the key employee characteristics most companies seek regardless of exact job function.

They will help keep you on the right path for your next job offer.

Be a Kick-Butt Entrepreneur

Jordan Wilson — Fri, 20 Jan 2012 16:41:40 +0000

Many readers aspire to become successful entrepreneurs.

Most never take the chance.

“I do not have a great business idea.” “I am not a high-tech person like Steve Jobs and those are the only areas for young entrepreneurs.” “I do not have the money to launch a new venture.”"I have too much on my plate to find time to start a new business.”"I have no experience running a small business.”

There are tons of reasons why would-be entrepreneurs never actually become small business owners. So it is always good to read examples of how people in the same shoes as you (or worse off), managed to succeed.

Inspirational Entrepreneurs

CNNMoney.com provides some good role models in Be a Kick-Butt Entrepreneur. If you need inspiration to start a small business, these people should provide a boost.

Note that the small business cited do not require degrees in rocket science or more investment capital than possessed by Bill Gates.

The keys to success are ….

Well, how about we let the entrepreneurs tell us themselves.

Keys to Entrepreneurial Success

Halfaker & Associate

Army Captain Dawn Halfaker lost an arm while serving in Iraq. She “worked her butt off” to build a consulting firm for defence contractors. Today it has more than 100 employees.

“Have a vision. Follow your passion. The money will come,” she said.

Elohim Cleaning Contractors

Single mother Sirena Elohim gave birth to twins while still in high school. Starting with $200 in seed money and working from home she began a cleaning service for construction sites. Today the business has 60 employees and sales of $2 million.

“Have a dream, but write it down. Then find a mentor* to help you make your plan a reality.”

*Note to nephews everywhere – uncles make terrible mentors.

Delicious Bite

Susan Cabrera had a business idea but could not attract capital. She finally funded her venture through family and began a company making Latin meals. Today, Delicious Bites are in more than 700 stores and sales will reach $1 million for the year.

“The storms may be strong, but there’s always an umbrella” and tenacity, she said, “No matter how many rocks you encounter on the road…just jump over them and keep your goal in sight.”

Native American Intellectual Property Enterprise Council

At “rock bottom”, David Petite found himself living in his car. But with “a personal commitment to better his life” and an “angel investor”, Mr. Petite set-up a small technology company. Today, he has received “50 patents worldwide” for his business.

“I learned to see failures as great lessons,” he said. ”Look in the mirror and say ‘I am going to make a difference for the people around me’ and you will be rewarded,”

Hacienda Mexican Foods

Lydia Gutierrez and her husband intended to create a national business selling Mexican foods. That is, until her husband died unexpectedly. On her own, Ms. Gutierrez continued to build and expand the company. Today, Hacienda Mexican Foods has annual sales of $10 million.

Lydia believes respecting her employees is the key to her success. “Those that walk with others never walk alone,” she said. She added that hopeful entrepreneurs should seek out a mentor. “Everybody needs their own angel,” she said.

ViSalus

Ryan Blair began his odyssey in a “L.A. crack house”. Investing “his last few dollars” to buy back a failed company, Mr. Blair started anew and retooled the business model. Today ViSalus earns $20 million annually.

“I couldn’t ever accept failure as an option,” said Blair. “Give your idea a shot. You have nothing to lose and everything to gain.”

Lessons For Aspiring Entrepreneurs

1. All the cited entrepreneurs had significant obstacles in the way of their success.

War injury, teenage pregnancy, lack of capital, living in a car, husband dying, crack user. All these small business owners had problems equal to, or likely greater, than almost everyone reading this post.

I might exclude my niece and nephew from this group as both have major hurdles to surmount. My niece is actually a very bright girl. But having had to endure such a brother these last 20 years must have done some permanent damage. And my nephew, well let’s just say that he was snowmobiling at the lake the day God was handing out skill sets.

2. The business ideas were not earthshaking.

Consulting in your area of knowledge, cleaning service, food preparation, weight loss.

With the exception of Mr. Petite, the entrepreneurial ideas were quite simple and did not require advanced technical expertise.

3. The businesses were not overly capital intensive.

There is no clear information in the article on most of the start-up costs. But when you look at the business models, they are all scalable operations.

Start small (single person consultant, $200 working out of a bedroom, etc.) and build the business over time.

Initially, it appears no public offerings, no huge bank debt, etc., were required. To the extent capital was needed, family and/or angels were the answer.

You may have to give up a bit of ownership and/or control to a third party financier, but it can accelerate your growth. Just go into any arrangements with your eyes wide open. This is the business of the venture capitalist and he will have the edge in negotiations. Do not sign a bad contract and then wake up one day to find that you have been ousted from your own company.

4. Clear vision, solid planning, hard work, and learning from mistakes are the keys to success.

You may have the best idea in the world.

But if you lack any of the above, you have a high probability of failure.

And you may not require the most unique or high-tech business idea.

But if you have a vision, plan, and proper work ethic, you have a better chance of success.

Emotional Investing Decisions

Jordan Wilson — Thu, 19 Jan 2012 19:02:52 +0000

Investing based on emotions or instincts is a difficult issue.

So challenging that an entire field, Behavioural Finance, examines how investor psychology and emotions affect investment decisions.

Recently I read an article where the author believes that financial planners prefer clients with little investment knowledge. That way, it is easier to sell them whatever you want.

Yes, there are financial planners, brokers, etc., that operate this way. But in my experience, good financial planners would rather deal with well-educated investors.

And often the reason relates directly to emotional investing.

Rational Investors Are Better Investors

Investors who better understand the investment process have an easier time investing rationally. Investors who appreciate modern portfolio theory. The concepts of diversification, asset correlations, investment risk, asset allocation, etc.

By knowing the underlying principles behind successful investing, investors can make more rational and appropriate investment decisions.

A decent Investment Policy Statement should incorporate these aspects. It will help keep the investor focussed on the big picture. Especially during turbulent times.

The Investment Policy Statement allows investors to examine their unique personal circumstances and then create an asset allocation strategy that meets their investment objectives and constraints.

What Jim Cramer or the other media talking heads are screaming through the television play no part. Nor does the investment that made your sister-in-law some money five years ago.

Unfortunately, the vast majority of investors (yes, even many “sophisticated” ones) get caught up in this sort of emotional investing.

These investors want to fill their portfolios with the flavour of the day. The same investment everyone else is chasing. The end result usually is a bursting investment bubble.

Or they focus on past successes that may no longer be suitable in today’s world.

Are Your Investing Decisions Based on Emotions or Instincts?

The Vanguard Group offers a short video addressing this question. It is well worth watching.

Key comments in the video, include:

One of the biases that behavioral finance talks about is this selective attention to information: That in making a decision, you’re only listening to really confirmatory views about what you already believe.

Selective attention, also called “confirmation bias”, is a problem for many investors.

If you are simply looking for positive reinforcement on a decision that you have already made, feel free to “research” in this manner. But if you are truly trying to arrive at the optimal conclusion, keep an open mind. Consider all information, even if it does not coincide with your preconceptions.

be very careful about predicting the recent past, the information you have about the recent past, to the future.

Yes, trends can occur over time. Strong management today may continue in the future. Companies with monopolies yesterday may also have monopolies tomorrow. So look to the past for clues as to future events. That is much of how one researches investments.

But do not automatically assume that past events will continue. Sadly, this is another problem with many emotional investors.

Circumstances shift over time and their impact on investments change. Gold has performed very well in recent years. But has it reached a peak or will its relatively high returns continue?

Just because gold has performed well in the past does not mean it will continue to do so. You need to examine factors today to assess how they will impact future results.

Personal Wealth Management

Why Socialism Does Not Work

Related Posts

Top 10 Best Things About Mutual Funds

Related Posts

Apple First Quarter Results

Related Posts

Easy Ways to Mess Up Retirement

Related Posts

Investing Philosophy in 10 Words

Related Posts

Saskatchewan Natural Resources

Related Posts

Saskatchewan Economic Success

Related Posts

Make the Most of Your Job Interview

Related Posts

Be a Kick-Butt Entrepreneur

Related Posts

Emotional Investing Decisions

Related Posts