Charlie is the “Real” Architect: Lessons from Buffett’s 2023 Annual Letter

On February 24, 2024, Warren Buffett issued his always-anticipated, and widely read annual letter to shareholders. This letter, began with a special tribute to Charlie Munger, who passed away on November 28, 2023, just 33 days shy of his 100th birthday.

Of note, Buffett very clearly, and without any reservation admitted (or revealed) that Charlie was and has always been the brains behind Berkshire’s entire strategy (Buffett calls him the “architect”), while Buffett was (in his own words) simply the “construction crew”.

In other words, while for decades the world has lavished enormous praise on Buffett for being the world’s genius and best investor, it appears that all along, the accolades should have been going to Charlie.

Each year Buffett uses his letter to provide an update on Berkshire’s activities, but – we believe – it is really a platform for him to attempt to educate other investors on how to achieve success. Here are four top themes and lessons that we’ve identified from his latest letter. (All quotes below are from this years letter).

  1. Buy Wonderful Businesses at Fair Prices, Not Fair Businesses at Wonderful Prices

Perhaps Charlie’s most important strategic instruction to Buffett, or as Buffett says “abandon everything you learned from your hero, Ben Graham”. Does this mean value investing is not the right approach? We don’t think so – it just means having an intense focus on the “value” you are paying when buying what you believe to be great companies.

  1. Buy, Hold and Measure for the Long Term

When you do find these wonderful companies, buy and hold them for the long term, with little focus for the daily “and, yes, even year-by-year movements of the stock market.” For individual investors, this means: don’t trade frequently (or speculate), and don’t have an intense focus on short-term results. At Ginsler Wealth, we also believe that even yearly reviews of performance can be too short-term. Investing is a very long-term pursuit. As our Q4 2023 Quarterly Letter pointed out, if U.S. equity investors (as measured by the S&P500 returns) reviewed their investments based on 2023 calendar year results, they would be ecstatic. But looking back just one further year to 2022, their overall 2-year results would be less than mediocre.

  1. Don’t Expect Home-Runs (from Berkshire)

Buffett goes to great lengths in this year’s letter to make clear that Berkshire’s size and lack of options of “moving the needle” means “no possibility of eye-popping performance”. He instead suggests that the future for Berkshire looks like “a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital. Anything beyond ‘slightly better,’ though, is wishful thinking.”

(Secretly, I believe Buffett is trying to signal to readers the type of investor he welcomes at Berkshire, and the type that should invest, or speculate, elsewhere.)

But his forecast doesn’t sound very optimistic. Or does it? You may recall from Ginsler Wealth’s Q2 2022 Quarterly Letter, if an investor can achieve average returns but avoid major losses, resulting longer-term returns could likely be great. In fact, we believe that is the formula for investing success. We advise our clients to expect “reasonable” long-term returns (not homeruns), but with a likely lower chance of large drawdowns. When this approach compounds over many years—not scrutinized over every single month, quarter or even year, as per #2 above—we expect our clients to come out ahead.[1]

  1. Ignore Pundits, Forecasters and the Like

Buffett says “pundits should always be ignored”. As an example, he later says “Neither Greg nor I believe we can forecast market prices of major currencies. We also don’t believe we can hire anyone [emphasis added] with this ability.” Anyone! At Ginsler Wealth, when asked to make any predictions of the future, our answer is always the same: “We don’t know”.

 

Our approach to “not knowing”, is to build diversified portfolios that we believe should perform well, held over the long-term, with less chance of capital loss or impairment. Seems like we’ve been listening to Buffett all along![2]

 

You can read Ginsler Wealth’s summaries of Buffett’s 2022 (last year’s) Letter and 2021 Letter at the links provided.

 

[1] Investing is inherently risky and nothing above should be viewed as a guarantee or promise.

[2] Nothing in this article should be deemed investment advice.

 

Image Credits:

A. Costanza: Dave Quiggle
B. Mosby: Architect Magazine
C. Munger: Lane Hickenbottom/Reuters from Business Insider

Brian Ginsler on the Real Human Project

An Unlimited Podcast twist! This episode is a podcast within a podcast…

This episode sees the tables turned on our host, Ginsler Wealth CEO, Brian Ginsler, as he switches from interviewer to interviewee. Brian is interviewed as part of The Real Human Project by Sam, an AI interviewer, with the goal of helping people share their stories and reveal the “real human” behind each interviewee.

The Real Human Project is on a mission to help people get to know each other better. Through AI-hosted podcast interviews, everyone has an opportunity to make an episode about what makes them who they are. These episodes can then be shared with anyone the participant would like to share their story with. Once an episode has been shared, listeners are encouraged to respond with their feelings about the episode.

The Real Human Project has extended a special offer to all listeners of the Unlimited Podcast: for $50 USD off your very own episode, enter code “Unlimited” at checkout.

To learn more about The Real Human Project, or to get your own episode, visit realhuman.io.

You can listen to this episode here or find us in your favourite podcasting app, including Apple Podcasts, Spotify, Google Podcasts and Amazon Music.

If you like what you hear, please don’t hesitate to rate us kindly. And if there are particular topics you’d like covered, please let us know.

Ginsler Wealth Fourth Quarter 2023 Client Letter – The Coby Edition

(An audio version of this letter can now be found as Episode 32 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

 

To Ginsler Wealth’s Clients:

My last quarterly letter was released on the evening of Friday, October 6. By the following morning, that letter couldn’t have been less important given the horrific atrocities occurring in Israel, and the resulting last 3 horrible months for Israel, Jews around the world, and innocent Palestinians – wholly and solely a result of Hamas’ atrocious attack on Israel and its citizens, and Hamas’ continued holding of hostages.

Because my last letter was just an evening too soon to address and discuss the above, I wanted to use this year-end letter to share a story about another Israel war, an Israeli tank commander, and how Israel and its soldiers conduct themselves.


1967: THE SIX DAY WAR

In June of 1967, Israel launched a pre-emptive strike on three of its neighbouring Arab states to counter what it perceived was an imminent threat from Egypt, Jordan, and Syria.

Egyptian forces were caught by surprise by Israeli airstrikes, and nearly all of Egypt’s military aerial assets were destroyed, giving Israel air supremacy. Simultaneously, the Israeli military launched a ground offensive into Egypt’s Sinai Peninsula. After some initial resistance, Egypt’s President Nasser ordered an evacuation of the Sinai Peninsula; by the sixth day of the conflict, Israel had occupied the entire Sinai Peninsula. (Israeli provisional control over the Sinai Peninsula ended in 1982 following the implementation of the 1979 Egypt-Israel peace treaty, which saw Israel return the region to Egypt in exchange for the latter’s recognition of Israel as a legitimate sovereign state.)[i]

Part of the ground offensive included the Armored Corps of the Israeli Defense Forces (IDF) – IDF’s tank division. During the Six Day War, Israeli Tank Commander Iacov Sucher led a battalion of tanks in the Sinai Peninsula. They were successful in defeating the Egyptian forces and had captured several Egyptian soldiers.

With the heat of battle still raging, and sensing that tensions between his IDF troops and the captured Egyptian soldiers could easily escalate, Commander Sucher climbed to the top of his tank in full view of his troops and ordered that no Egyptian soldier shall be harmed from that moment forward; and any IDF soldier doing so would answer to him.

——————–

Six years later, during the Yom Kippur War, Commander Sucher would fight for Israel once again, this time in the Golan Heights.

——————–

Iacov got married, had two daughters in Israel and then immigrated to Canada, where he had a son. With his engineering degree from the Technion University in Tel Aviv, he eventually became certified as an engineer in Canada.

Almost 30 years after the Six Day War, Iacov went to pitch his engineering services to an architecture firm in Toronto. Upon seeing Iacov, the Egyptian-Canadian owner of the firm said to him, “I know you. Were you in Sinai in 1967?…You saved my life.”

——————–

Twenty years later, upon Iacov’s passing in 2017, during the shiva (the 7-day mourning period following a Jewish funeral) that same Egyptian-Canadian architect knocked on the door of my father-in-law Coby’s (nickname for Iacov) house to pay his respects for the man who saved his life…by doing the right thing.

This is how Coby protected his enemies’ lives during war, and how I believe the world needs to view the actions of Israel and its army today, which embraces life as opposed to terror and death – both then and now.


DO THE RIGHT THING

The work that we do managing your wealth is in no way comparable to Coby’s or any soldier’s actions during wartime. But Coby’s clear example of doing the right thing is applicable to every action we take. Ensuring we act in your best interest is our Guiding Principle, even if it means we don’t look good in the short-term, as illustrated by the example below.

Structured Notes in Your Portfolios

Over the past year – basically from the time interest rates started to rise dramatically – we have been investing on your behalf in securities called “structured notes”.[ii] I have previously written about these in my 2023 Q2 Letter, and 2022 Q3 Letter.

The specific type of structured notes we invest in are called Contingent Income Notes and they pay a high interest payment (e.g., 9-13%, with our client average being ~11%) as long as a certain “reference index” does not fall by more than 30% or 40% (the “Barrier Level”).

We will only buy structured notes where the reference index is an index of the Big Six Banks* or Canada’s large utility companies, as both indices tend to be reasonably stable and have a history of almost never falling below the above-noted Barrier Levels.

Based on almost 40 years of back-testing[iii] of historical returns of the Big Six Banks Index*, (as you can see in the chart below if you look very, very closely at the line along the bottom), the historic probability of missing out on coupon payments has been less than 4% over the life of the structured note. Similarly, based on the same data and history, the probability of losing money (i.e., any impairment of one’s principal investment) on this type of structured note held until it is called or until it matures, has been 0% (zero).

In short, in the current volatile economic and market environment, we are able to generate for you a high rate of interest with dramatic downside protection. But…because of how these structured notes are, well, structured, even though they will return to par over time, shortly after they are purchased they tend to trade below their purchase price. So, although you may be collecting the high income rate, those holdings almost immediately show a loss on your statements and drag down your reported short-term performance.

Put another way, we bought you a security that we know is likely to go down (temporarily), and we earn less in fees since our fees are based on the value of your accounts.

It would be easier for us to find something else to buy, or stick to only traditional asset classes, or heck, even just hold GICs! But that wouldn’t be doing the right thing. We are willing to show weaker performance and earn less fees in the short term to ensure your long-term investing success. This is because we are confident that these structured notes will deliver double-digit returns with dramatic downside protection[iv] – which is not easy to find these days!


JOMO AND FOMO

Speaking of short and long-term, the end of this calendar year may be a good time to re-assess your appetite for risk – by reviewing the short and (slightly) longer-term performance of the U.S. equity market.

As you can see in the chart below, 2022 was a terrible year for U.S. equity investors with a volatile ride ending in a negative 18% return. Aside from continuing volatility, 2023 was precisely the opposite of 2022, primarily driven by the Big 7 technology stocks (as detailed in my last quarterly letter), with the S&P 500 Index up 26%. This means – for most investors who were invested in the U.S. market throughout 2022 and 2023, their annualized return was about 1.7%.


Ginsler Wealth clients likely experienced JOMO (Joy Of Missing Out) on dreadful equity performance[v] in 2022, but conversely, may have experienced some FOMO in 2023…missing out on the full upside of 2023’s equity performance, given the much more diversified portfolios clients tend to have here at Ginsler Wealth.

Going into 2023, we were concerned about the resilience of equities. That concern hasn’t abated as we enter 2024. We believe the right thing to do for you is tactically diversify across numerous asset classes and strategies to first, protect against losses, and second, to grow your wealth prudently.

 

If Coby taught me anything during my time spent with him, it is to always do the right thing. And now more than ever, it seems like we need more Cobys in this world.

Wishing you unlimited health, happiness, and peace in 2024. Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

——————————

[i] General historic details sourced from Wikipedia and with the help of ChatGPT.

[ii] For the balance of this letter, please recall that our clients have different investment goals, objectives, and risk tolerances, and therefore will have different portfolios, (and different results), which may not include some of the strategies detailed herein.

[iii] Back-tested index data provided by Bank of Nova Scotia. November 2023. Historical results may not be indicative of future results.

[iv] See endnote (iii) above.

[v] See endnote (ii) above.

Ginsler Wealth firmly stands with Israel

Following the abhorrent terrorist attack by Hamas in Israel on October 7, we have been watching the situation in Gaza and Israel with great concern. Ginsler Wealth does not wish to recite history or debate politics at a time like this. These are not our areas of expertise. But what we believe should be extremely clear to all humans, is that the killing, torture, and abduction of innocent civilians can never be justified – and the perpetrators of such acts must be stopped.

Most of all, we wish for peace and stability for all in the region – especially those who have had no involvement with or support of terrorist activities.

In addition to being vocal in our support of Israel, we have thought hard about how we can take action to support Israel in this time of need. As mentioned above, politics is not our expertise; but investing is.

So over the past week we have been speaking with the leadership of Canada-Israel Securities – the organization that sells Israel bonds in Canada – and have confirmed our ability to purchase Israel bonds on behalf of our clients. Ginsler Wealth will also waive our fees and cover any transaction costs for any Israel bonds purchased by our clients.

Israel Bonds are backed by the full faith and credit of the State of Israel, which has always made interest and principal payments on Israel bonds since the first bond was issued in 1951—regardless of any instability or war they have faced.

While making a donation is certainly the most impactful way to assist Israel, “investing in Israel” may be the next best way to provide financial support for a period of time. And Israel needs our support now more than ever.

 

Ginsler Wealth Third Quarter 2023 Client Letter – Misunderstood Edition

(An audio version of this letter can now be found as Episode 29 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

As you all know, Ginsler Wealth produces The Unlimited Podcast, featuring investment and other topics we think would be of interest to you. This is especially true when we feature some of the managers and strategies we invest in on your behalf.[i] I love interviewing our guests and putting these together for you. I hope you enjoy them as well.

One of my favourite podcasts is Revisionist History, hosted by the famous journalist and author, Malcolm Gladwell. At the beginning of each episode, Malcolm describes his podcast as: “my podcast about things overlooked and misunderstood.”

As we take stock of the investing and economic landscape in 2023 so far, I would like to share with you what I believe is overlooked and misunderstood.

MISUNDERSTOOD: THE U.S. EQUITY MARKET HAS HAD A GOOD 2023 SO FAR

Looking at the S&P 500 Index, the main barometer of the U.S. equity markets, one might conclude that U.S. (public) companies are having a good 2023 – up 13%. This “misunderstanding” has been widely reported on so I can’t take credit for it. As you likely already know, the performance of seven large tech companies[ii] (which comprise more than 28% of the index’ weighting) has been strong. The “equal weight” S&P 500 shows quite a different picture – with the market up only 1% year to date. Excluding the Big 7, it’s been a pretty poor year so far.

MISUNDERSTOOD: CANADA’S EQUITY MARKET PERFORMANCE IS BROAD-BASED

The chart below shows the performance of the S&P/TSX Composite Index, the broadest measure of Canadian equity market performance, along with the performance of the S&P/TSX 60, which only includes some of Canada’s largest 60 public companies.[iii] The two lines are almost indistinguishable from each other and show a meagre 3% return year-to-date. We don’t appear to have the issue of a few large companies materially contributing to equity market performance.

However, in 2023, Canada has experienced a similar issue as the U.S. Two of Canada’s largest tech stocks – Shopify (once Canada’s largest company) and Constellation Software – have contributed over 3% of Canada’s stock market performance so far in 2023. This means that the rest of Canada’s public companies, measured as a whole, have had a negative 2023.

OVERLOOKED: BONDS HAVE FAILED YET AGAIN TO ACT DIFFERENTLY THAN EQUITIES

For those invested in the “traditional 60/40” stock and bond portfolio (not Ginsler Wealth clients), 2022 was a horrible year, as both stocks and bonds moved in the same direction: down. This year has been more of the same. The chart below shows that so far this year the performance of the broad-based equity and fixed income (bond) indices are quite similar. (As you know, your Ginsler Wealth portfolios (also) include alternative investment and income strategies, with the goal of generating reasonable returns while not necessarily acting similarly to traditional stocks and bonds.)

MISUNDERSTOOD? CONSUMER SPENDING IN THE FACE OF LOWERED FINANCIAL CONFIDENCE

Given the pace of interest rate increases over the past year, it is surprising to me that consumers continue to feel good about current business conditions (Present Situation Index line below), but less surprising that they aren’t feeling so great about the near future (Expectations Index line below) …

Given consumers’ bleak expectations for the future, I would have expected to see (and government central banks are desperately hoping for) spending to slow down as people brace for impact. But what is happening instead? The highest spending levels in history continue. An October 1st Wall Street Journal article’s title says it all: American’s Are Still Spending Like There’s No Tomorrow.[iv] It is very hard to tame inflation if people don’t slow their spending.

PUTTING IT ALL TOGETHER

Putting all these “things overlooked and misunderstood” together: we have equity markets that appear stronger than they actually are; bonds suffering alongside equities[v]; and persistent inflation causing consumers to expect tougher times ahead, but spend in a way that could very well lead to more interest rate increases, or at the very least, keep current rates higher for longer.


INVESTING IN GICs

So, is the best approach today to simply take advantage of 5%+ Guaranteed Investment Certificate (GIC) rates? This is perhaps the most misunderstood course of action in long-term investing.[vi]

There are pros and cons when investing in GICs:

Pro: you are guaranteed to earn the stated interest rate.
Con: you are guaranteed to earn the stated interest rate.

In fact, the list of cons continues:

  • You will give away more than half your return[vii] to CRA, and therefore may not even earn an after-tax return above inflation,
  • You may need to lock your capital away for an extended period of time without being rewarded with a liquidity premium in the form of higher returns, and
  • You will potentially miss out on larger returns from other, more favourably-taxed, asset classes.

In short, for many investors, investing in GICs is the safest way to potentially not meet your long-term investing goals and objectives.

 

While the outlook may be uncertain (hint: it always is) and consumer expectations are being lowered, remember (as I reviewed in my last quarterly letter) that we are spending our time managing your investments with a focus on reducing volatility, protecting the downside, seeking tax-efficient high income-generating investments, and capitalizing on potential market stress/distress.[viii] We do the above while always maintaining exposure to equity markets[ix] as well because we don’t believe in trying to time the markets. We know from past history that equity markets will be the first to rise (and likely dramatically) upon the first hints of better times ahead. This should not be overlooked or misunderstood.

 

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

 

[i] For the balance of this letter, please recall that our clients have different investment goals, objectives, and risk tolerances, and therefore will have different portfolios, which may not include some of the strategies discussed on The Unlimited Podcast or detailed herein.

[ii] Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, NVIDIA, and Tesla.

[iii] The S&P/TSX 60 is a subset of the S&P/TSX Composite. It has 60 constituents and represents Canadian large cap securities with a view to reflecting the sector balance of the S&P/TSX Composite.

[iv] Article may be behind a paywall and not viewable if you don’t have a WSJ subscription. Sorry.

[v] Listen to The Unlimited Podcast Episode 17: Bonds… Just Bonds with Richard-Usher Jones to learn how bonds work and what happens to bond prices as interest rates rise…they go down.

[vi] If you have shorter-term cash needs, by all means invest in shorter-term (and ideally cashable) GICs.

[vii] For investors in the highest income tax bracket.

[viii] See endnote i above.

[ix] Also see endnote i above.

Ginsler Wealth Second Quarter 2023 Client Letter – Driver’s Training Edition

Ginsler Wealth 2023 Second Quarter Update

(An audio version of this letter can now be found as Episode 24 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

The first half of 2023 has been a scary one.

Not because inflation continues to be more persistent than expected, or because central governments have continued to raise rates and will likely do so again, or because of the ongoing Russian war with Ukraine, or that in the face of all of this, U.S. technology stocks, especially the largest seven of them, seem to be in their own bubble.

No, the first half of 2023 has been a scary one for me because my sixteen-year-old daughter got her G1 driver’s license permit at the beginning of the year.

Because I am now in “driver training mode”, I’ve become more attuned to my own driving actions that have become second nature to me – in order to help teach my daughter how to become a good driver.

It dawned on me that beyond the basic skill of controlling the vehicle, safe driving is all about math, or more specifically, probability: the actions you take to drive from A to B to maximize the probability of arriving safely at your destination.

  • This is why I adjust my speed (up or down) to get out of another car’s blind spot = lower probability of that car turning into me,
  • This is why I stick to major streets versus taking the highway if the travel time isn’t materially different = avoid the higher probability of major injury if something goes wrong on the highway, and
  • This is why I take an extra few seconds to start driving after the traffic light turns green = minimize the probability of getting hit by a driver running through their newly-turned red light.

With my newfound focus around probability as it relates to driving, over the past quarter I’ve been similarly attuned to how we use the same concept when managing your investment portfolios. Given some of the scary items listed above, we have been particularly active this quarter adjusting client portfolios and introducing new strategies; actions we believe should increase the probability of (a) protecting capital,
(b) minimizing volatility, and (c) generating attractive returns.

In one of my early client letters I stressed that “uncertainty is the only thing I know with certainty”. We acknowledge this uncertainty and combine it with facts and probabilities to arrive at what we believe are the best investment decisions.[i]

  

LET’S START WITH FACTS

The most important fact to reiterate is that interest rates have increased dramatically and rapidly since early 2022.

Chart of interest rate increases since 2022

Increased interest rates make borrowing more expensive for companies and homeowners, among others. A few months ago, I attended a lunch featuring Tiff Macklem, Governor of the Bank of Canada. He was extremely clear that unless and until inflation returns to 2%, he will not cut rates and may, in fact, continue to raise rates. His goal, like other central bankers around the world, is to inflict sufficient pain on companies and individuals, until they dramatically reduce spending. That is a fact.

However, it shouldn’t be a surprise that these initial and swift interest rate increases have yet to achieve Mr. Macklem’s goal. Companies and individuals with floating rate debt can handle increased interest costs for a period of time. Those with fixed rate debt maturing soon will face a harsh reality in the form of dramatically higher borrowing costs upon renewal.

It is our view that interest rate cuts will not be coming soon. This means there is an increased probability of companies’ earnings being lower for some time.


EQUITY MARKETS AND LOWER PROBABILITY

With the above fact(s) stated, clearly the probability of strong equity returns should be lower. So, what happened so far in 2023? The equity markets rallied of course! More specifically, technology stocks rallied, with the NASDAQ Composite Index up 32% and the S&P 500 up 16%, both dominated by the seven large tech giants[ii].

Was this outcome a highly probable forecast on January 1 of this year. Definitely not; and it may not last.

If not for the current excitement around artificial intelligence (AI), equity market performance would likely have been far more in line (and in fact, below) the equal-weighted S&P 500 return of 6% (as opposed to the “regular” S&P 500 that gives more weight to its larger constituents) and the S&P/TSX here in Canada, which was up 4%.

While investors and the media often focus on the latest exciting news (markets up in 2023 – yay!), it is important to remember that equity markets still have quite a way to go to make up for a dreadful 2022. See chart below.

The last point is a great reminder of why it is so important to minimize losses and protect capital when investing. Climbing out of a hole is much harder than avoiding it. The NASDAQ requires a positive 50% return to recoup its 33% losses in 2022. Even its blistering 32% performance so far this year won’t cut it.

We believe the short-to-medium term outlook for equities remains rocky with a higher probability of weaker performance.


FACTS & PROBABILITIES: ACTIONS WE ARE TAKING

Most of our clients are long-term focused investors. When we look at the long-term performance of equities and of the many equity managers we review on an ongoing basis, we find that (good) long-term results tend to all coalesce around the very high-single-digit range. However, in the current environment where we believe equity returns may fall short of this long-term average, and do so with elevated volatility, we have been focused on (and initiating or increasing allocations to) strategies with many of the following characteristics:

  1. Lower volatility = higher probability of generating the target return with smaller fluctuations
  2. Downside protection = higher probability of not losing capital, or losing less capital
  3. Owning higher-ranking securities = higher probability of recouping capital and collecting all interest
  4. Asymmetric return profiles = lower probability of downside relative to the upside potential
  5. Tax-effective = focusing not just on pre-tax returns, but after-tax returns as well
  6. Capitalizing on distress = more specific to the current higher interest rate environment

Interestingly, we continue to uncover opportunities that have many of the characteristics noted above and can also generate pre-tax investment returns similar to, or greater than, equities[iii]. Some examples you may see (or may soon see) in your portfolios include:

Canadian Mortgage Strategy

This strategy has generated a consistent 9%+ return each year since its inception and since we started adding it to client portfolios. It has zero negative months in its history. It issues shorter-term (generally less than one year) mortgages at conservative loan-to-values. The principals who own and run this mortgage lending business have committed $15 million of their own money to absorb any losses that may occur (there have been no losses so far). Has characteristics 1, 2, 3 and 4 listed above.

SPAC The Unlimited Podcast by Ginsler WealthArbitrage Strategy

One of the best examples of an asymmetric return profile. Listen to our recent Unlimited Podcast episode: What is SPAC Arbitrage with Jamie Wise to truly understand this strategy. It exhibits downside protection characteristics with upside opportunity. Has characteristics 2, 4 and 5 listed above.

Bank-Issued Structured Notes

Securities that pay a high contingent income (generally between 9%-11%) as long as a reference portfolio (typically the performance of the Big Six banks) doesn’t fall more than 30%. Has characteristics 1, 2, and 3 listed above.

Preferred Equity Issued by Asset Based Lender

A unique find, this specialty finance company with a ~$2 billion loan portfolio and over 6,000 business borrowers, issues preferred equity to investors that pays 12% per year[iv] in the form of dividends, which are taxed more favourably than regular interest income. This equity ranks as the most senior obligation of the company after its senior bank debt. Has characteristics 1, 2, 3, and 5 listed above.

Stressed and Distressed-Focused Strategy

This is perhaps the most “tactical” new addition to our roster based on our view of the coming stress for companies caused by higher interest rates and lower customer spending. This $100+ billion global fixed income manager has a smaller, dedicated strategy aimed at capitalizing on stressed and distressed corporate bonds. Has characteristics 3, 5 and 6 listed above.

What do all the above strategies have in common? In our view, they offer a higher probability of helping our clients arrive safely at their investment destinations, with a lower probability of getting into an “accident”[v].

—————————-

Following on the driving theme of this letter, in our efforts to constantly bring you more value, our Ginsler Wealth Partners Program has been expanded to include an exclusive offer on a specialty, high-end car-detailing service, along with offers/discounts from a few other new partners. Your private weblink was in our client only email communication (or reach out to us directly).

—————————-

Wishing you a wonderful summer. And please wish me luck as the driver training continues.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

 

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

[i] For the balance of this letter, please recall that our clients have different investment goals, objectives, and risk tolerances, and therefore will have different portfolios, which may not include some of the strategies detailed herein.

[ii] Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla, and Meta (Facebook) comprise approximately 27% of the weight of the S&P 500 Index and 45% of the weight of the NASDAQ Composite Index as at June 30, 2023.

[iii] Represented by the longer-term performance of equities, past performance of the strategies under review and Ginsler Wealth’s expected target returns for these strategies. Specific results are not guaranteed.

[iv] The precise securities issued are Common Shares of the company’s Canadian funding entity. 12% is the current dividend rate, which we expect, but is not guaranteed, to continue.

[v] All investments come with risks and uncertainties, and nothing herein should be taken as a guarantee of future results or returns. Past performance is no guarantee of future results. Some or all of these strategies may not be appropriate for certain client portfolios and some of these strategies are only available in non-registered accounts or at certain minimum investment amounts.

Ginsler Wealth First Quarter 2023 Client Letter – Well Done Edition

(An audio version of this letter can now be found as Episode 20 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

To Ginsler Wealth’s Clients:

Back in 1998 during my last year in the Ivey Business School’s HBA program, I organized a large event for the school, which I thought went off very well. A few days after the event was over, I got called in to see Lawrence Tapp, the Dean of the school. Nervously, I made my way to his office where he sat me down and said: “Brian, job not just done…but well done.” Phew. I’ve never forgotten that phrase.

Fast forward 25 years, a few weeks ago I was at Pearson airport at 6am for an early flight with my son. Prior to the flight, we sat down and ordered breakfast off the iPad ordering system. My friends who know me well will know that I like all my food well done…well done eggs, well done potatoes, well done toast, well…you get the picture. (And yes, I am a pain at restaurants).

A few minutes after ordering, I realized that I hadn’t specified my “well done” preferences electronically so I walked to the open kitchen area where the chef was cooking. Remember, this is 6am and I’m sure catering to my particularities was likely not high on his list of things to care about. When I called to him and asked about making everything well done, he didn’t look very pleased to speak to me and said that the food was already ready.

The food as delivered was not well done but I figured I’d make the best of it. After the first bite, to my surprise, I heard the chef call to me from the kitchen area and ask if everything was ok or if I’d like it cooked a bit more. Since he was asking, I let him cook it a bit more and when it was returned to me the chef smiled as he watched me take the second bites with delight.

The chef got the job “done” originally. He delivered what I ordered, and he could have moved on. But he didn’t. He ensured my meal was cooked to my liking and in doing so he got the job not just done…but well done. I thanked him verbally and gave him a tip in excess of the entire cost of the meal.

I explained to my son that there is a magic in exceeding expectations.

I use this same “well done” phrase with our growing but small team at Ginsler Wealth. If we are going to provide you with great service and value, we have to exceed your expectations.

How are we doing on this front? I would like to hear from you.

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This past quarter, in addition to managing your portfolios, we have been very busy taking care of your other wealth management needs. This included updating tax and holding structures, updating wills, and introducing tax effective insurance solutions – all with the expert external partners we work with. For families that utilize our full family office services, we also rolled out technology that enables us to organize and manage all your critical financial documents, accessible at all times via a desktop and mobile app.

By the examples below, I’m encouraged that we are on the right path to delivering our services done well:

  • This past quarter, five different families asked me to be an executor of their wills. (Unfortunately, due to potential conflict of interests, we can’t do this, but we will always be available to support the appointed executors.)
  • In our specific desire to find a forum to allow you to hear from the investment managers we work with, along with other topics, last year we launched The Unlimited Podcast. In January, we learned that the podcast was ranked by Spotify in the Top 20% of Most Followed and Most Shared podcasts globally in 2022.[1]
  • And just recently, we were notified by Wealth Professional, a publisher focused solely on the Canadian wealth management industry, that Ginsler Wealth has been named an Excellence Awardee and finalist for The Avenue Living Asset Management Award for Portfolio/Discretionary Manager of the Year. While we care far less about what our industry thinks than what you think, we are proud to have garnered this recognition early in our journey.

Our ability to achieve the above – for your benefit – emanates from our deliberate decision to operate Ginsler Wealth as a fully independent wealth management firm. We only answer to one group: our clients. We decide what content to share with you via our podcast; we decide the level of breadth and depth of financial advice to provide; and we have no constraints on the investments that we can consider for your portfolios. I believe the latter enabled us to do a good job protecting your capital throughout 2022.[2]

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Speaking of investments, you no doubt are aware of the continued volatility and instability in some areas of the financial system, most notably the unbelievably swift collapse of Silicon Valley Bank (“SVB”). SVB was the largest bank failure since the Great Financial Crisis in 2008. Interestingly, equity and bond markets are positive both since the start of the year and since the day before SVB’s failure. This is a good reminder that while there is always plenty to worry about day-to-day, the markets are forward looking and in the long-run, push through the short-term noise. By now you should not be surprised to hear that while we may have taken some action in your portfolios over the past quarter, we have not made any dramatic changes during this time.

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At a time when some of our independent peers are either being bought or…um…given away to a big bank, we remain undistracted and resolutely focused on getting the job well done for the most important people in this relationship – all of you.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

[1] Source: Spotify. Year-end statistical summary. January 10, 2022.

[2] Reminder that our clients have varying risk tolerance and goals & objectives. All Ginsler Wealth portfolios are customized for each client and therefore all portfolios will have a different performance experience as a result.

Buffett Gets Mean…in a Passive Way

Warren Buffett’s 2022 Shareholder Letter was released on Saturday (February 25, 2023). Each year I provide a summary of the key takeaways from the letter but I’m starting to feel like an angry parent scolding their children and saying “I’m not going to repeat myself. I’m not going to repeat myself.”

Warren must be feeling the same way…except he’s starting to get somewhat ornery. His use of italics, in particular, adds an additional layer of emphasis.

So below I share just a few of Buffett’s key comments – some of which I rephrase or elaborate further to get even more to the point – while others I leave as is, because I think his frustration comes through clearly.

How Many Times Can I Tell You The Same Thing?

Buffett: “Charlie and I are not stock-pickers; we are business-pickers.”

Rephrase: I am one of the richest men in the world. I am viewed as the greatest investor of all time. I tell everybody every year exactly what I did to get rich, stay rich and get richer. But most of you ignore me – which is why [the prices of] “marketable stocks and bonds are baffling”. Stop day trading and trying to predict the future and just buy (and hold) companies with “long-lasting favorable economic characteristics and trustworthy managers”.

Following Accounting Reporting Rules Leads to Misleading Information

Buffett: “The GAAP (Generally Accepted Accounting Principles) figure, absent our adjustment, fluctuates wildly and capriciously at every reporting date. The GAAP earnings are 100% misleading when viewed quarterly or even annually.”

Buffet spends a few paragraphs (and a table) highlighting why GAAP reporting of Berkshire’s results are not to be relied on…all leading up to the kicker…

“Mindless” Media

Buffett: “…their [GAAP earnings] quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.”

This a good and more direct reminder by Buffett that media is not a positive influence on investor behaviour, that media are not financial gurus and likely don’t fully understand financial statements and results, and are not necessarily acting or reporting with investors’ best interests in mind.

But You Also Can’t Rely on Companies’ Adjusted or Operating Earnings Figures

Buffett: “Even the operating earnings figure that we favor can easily be manipulated by managers who wish to do so. Reporters and analysts embrace its existence as well.”

[For Berkshire, operating earnings is income calculated using GAAP, exclusive of capital gains or losses from equity holdings.]

Rephrase: You [individual investor] can’t rely on GAAP reporting, you can’t rely on management reporting, you can’t rely on the media reporting, and you can’t rely on research analysts. So take a page from my mentor Benjamin Graham’s investment bible The Intelligent Investor and decide whether you want to make investing your full-time job and figure this out yourselves, or just buy exchange-traded funds (ETFs) or hire an honest investment counsellor (like Ginsler Wealth 😊) to take care of this for you.

Share Repurchasers are Not Evil and Should Not be Subject to Tax

Buffett: “The math isn’t complicated: When the share count goes down, your interest in our many businesses goes up. Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect. When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”

[Demagogue definition: a political leader who seeks support by appealing to the desires and prejudices of ordinary people rather than by using rational argument.]

Wowsers! That last line is a doozy and while the interwebs are speculating he is referencing Joe Biden and his 1% tax on share buybacks, Berkshire has denied that so far. However, Buffett also details in his letter the $32 billion of federal income tax paid by Bershire in the past decade: “When it comes to federal taxes, individuals who own Berkshire can unequivocally state ‘I gave at the office’.” – implying that the government shouldn’t need to tax Berkshire investors even further.

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Buffet is 92 and Munger is 99 (Buffett provides a good list of Munger quotes in the letter) and this letter may have been more direct than those of the past. But I am disappointed in both of them. They could have enormous influence in changing the way investors, politicians, and the media act. But instead, they write a somewhat direct letter and then – like their approach to all their investments – they remain passive. With, dare I say, a shorter time horizon left for both of them, I think they need to actively repeat themselves…but louder.

 

Image credit: Nati Harnik, AP.

The Unlimited Podcast in the Top 20% of Most Followed and Most Shared Globally

With 2022 #spotifywrapped, we were pleased to learn that The Unlimited Podcast by Ginsler Wealth was ranked by Spotify in the Top 20% of Most Followed and Most Shared podcasts globally. We are pleased that so many listeners are enjoying our content and we continue to seek your feedback on guests and topics of interest to you.

A summary of key 2022 Spotify stats for the podcast include:

  • Top 20% of most shared podcasts globally
  • Top 20% of most followed podcasts
  • Ginsler Wealth created more podcast content than 77% of other creators in the Business category
  • The podcast is listened to in 17 countries

If you are not already following The Unlimited Podcast on your favourite podcast app…why not?! We have an exciting line up for 2023. Stay tuned. And thanks for your support and confidence.

Ginsler Wealth Fourth Quarter 2022 Client Letter – All Weather Edition

(An audio version of this letter can now be found as Episode 14 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)


To Ginsler Wealth’s Clients:

Earlier this past quarter, I went on my annual Fall canoe trip in Algonquin Park. There is a core crew of us that have been doing this together for 25+ years. Over the years we have moved the trip from June (too many mosquitos and rain), to July/August (too busy/too many people), to late September/October when the park is much quieter, the bugs are all gone, the air is crisp, and the leaves are changing colours on the trees. It is a beautiful time for a canoe trip…unless the weather doesn’t cooperate.

While you may recall this past October being an unseasonably warm month, leading up to our trip the Algonquin weather was looking very uncertain. But we are quite experienced, we have all the gear, and we know our roles and routines.

When we arrived at the Portage Store on Canoe Lake for departure, we were already layered up in our clothes. It’s always easy to remove layers while on the lake; not so easy to add. It’s critical to be able to adapt and adjust quickly.

The second we started paddling away from the dock, the rain started.

Portaging

When we arrived on our final lake of the day, we explored a number of potential campsites before choosing the one we thought was laid out best, had a shielded campfire area, and good position on the lake.

Once the winning campsite was chosen, we began our setup process immediately. The tent was put up, including a protective extra tarp (angled “just so”). Another tarp was hung to create a covered area for sitting and to protect wood and supplies, should the inclement weather continue.

Tarp over tent.

Then the hunt began. We spent a few hours in the woods searching for, chopping, and sawing firewood in 3 sizes: smallish kindling, medium twigs and branches for building the fire up, and larger logs for sustaining. You can never have too much wood on a canoe trip. It goes much faster than you think, especially in bad weather when you might not have a chance for a second search.

My friend Jeff is responsible for the fires throughout the trip. He completely rebuilt the firepit, creating a protective wall of rocks. I am the head chef. And Todd is the overall organizer and equipment supplier.

All our experience, preparation and setup proved critical this trip. We experienced rain, torrential wind, hail, and snow (yes!). And luckily a few nice moments of sunshine. Being experienced and prepared enabled us to enjoy a trip that for most novice or amateur canoe trippers would likely have been a disaster. The good news is that the weather next year has to be better than what we experienced this past year!

Brian on trip

PREPARING FOR 2023

Why am I telling you the story of my canoe trip in my year-end letter?

We have just experienced a very difficult year from an economic and investment standpoint. The war in Ukraine continues. Equity and bond markets (typically the only asset classes in most non-Ginsler Wealth portfolios) experienced significant losses. Central banks, especially in the U.S. and Canada, have raised interest rates at a higher and faster pace than perhaps any time in history in an effort to curb inflation, and it doesn’t appear that they are done yet. The effect of this will likely be a recession in 2023 (if there isn’t one already hiding in plain site).

As we “check the weather” for 2023, it is looking like it will be inclement. To navigate 2023, we believe you need: experience, the right investment toolkit, and an ability to assess your investment options and make sound decisions. None of us know exactly what investment and economic weather we are going to experience. So, in our view, most investors[1] should be entering 2023 with an “All-Weather” portfolio – a portfolio that can provide a reasonable level of downside protection, some income along the way (like firewood, you can never have too much income), and the opportunity for growth and gains if and when the sun comes out.

My last quarterly letter focused on opportunities we see in this environment. Those views haven’t changed, and we are implementing such in your Ginsler Wealth portfolios. GW client portfolios are typically allocated across a variety of asset classes – not just stocks and bonds – and we believe have the All-Weather characteristics highlighted above.

We are layered up and have raised the tarp over your portfolios for whatever weather 2023 brings. Whether it rains or shines, Ginsler Wealth has you covered.[2]

View from campsite

Wishing you unlimited health, happiness, and prosperity in 2023.

Thank you for your trust, support, and confidence. We are available 24/7 should you need us.

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

 

[1] All investors, and Ginsler Wealth clients, have different investment goals, objectives, time horizons, and risk tolerances. As such any investment recommendations or statements made herein may not be appropriate for all investors and/or clients.

[2] Investing involves material risk and uncertainties and nothing herein should be considered a promise or guarantee of investment results.