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].

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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).

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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.

Ginsler Wealth Third Quarter 2022 Client Letter – Opportunity Knocks

(An audio version of this letter can now be found as Episode 11 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 economic and investment climate remained very challenging in Q3, following a very difficult first half of the year. As at September 30, 2022, the U.S. equity markets (as measured by the S&P 500) are just 6% above where they were in February 2020, just prior to the pandemic, after having risen 41% above the February 2020 peak and 107% from the March 2020 lows.

S&P500 Performance Since 2020

The Canadian equity markets (as measured by the S&P/TSX index) are just 3% above February 2020 levels after having risen 23% above the February 2020 peak and 97% from the March 2020 lows.

S&P TSX Performance Since 2020

Canadian bonds (as measured by the S&P Canada Aggregate Bond Index) are down almost 11% this year. Central banks continue to raise interest rates to fight high inflation and Russia continues its war with Ukraine. It is reasonably likely that all the equity market gains made from the time Covid-19 began will be erased. Two and a half years…gone. So, what does this mean?


OPPORTUNITY KNOCKS

While it is easy to focus on the negative, we are focusing on opportunities this environment presents. For GW, this means taking the following actions:

  1. Looking at historic trends, especially equity market returns
  2. Adjusting your portfolio and/or finding new strategies
  3. Putting cash to work (even if just to earn more than bank account interest)
  4. Taking time to plan
  5. Focusing on your health


Looking at Historical Trends

While all client portfolios are tailored to your specific needs, goals, and objectives, in general, your investment portfolios with Ginsler Wealth include more than just traditional stocks and bonds. This diversification has helped insulate your assets from some of the challenges of this year.

However, we still believe that over time, equities should be the highest return contributor to your overall portfolios. What does history say about equity returns following large declines? The table and chart below show that following declines of 25% or more, the S&P 500 (the barometer of the overall U.S. equity market) has historically gone on to post substantial gains.

Chart of S&P Performance Post-25% Declines

Average S&P500 Performance Post -25% Losses

As Ben Carlson says in the article where the above data was reported: “History provides no guarantees for the future, but I do find some level of comfort in knowing that buying stocks when they’re down big like this tends to offer positive outcomes.”


Adjusting the Portfolio and Finding New Strategies

While the data above should provide a level of optimism for equity returns going forward, I do note that the 2022 decline shown in the table above is also the smallest major decline. There certainly could be more pain in the short term. But the current environment has also created opportunities in other areas. These are just a few of the strategies we are either adding to or exploring on your behalf:

  • Actively managed bond portfolios – as interest rates have risen, so too have yields on these portfolios – and we are confident that the managers we utilize are well aware of, and planning for, potential future interest rate increases,
  • Agriculture, infrastructure, and other assets that could perform well in inflationary and/or recessionary environments,
  • Structured Notes that provide dramatic downside protection along with the potential for high interest payments or magnified returns,
  • Cash management opportunities – ways to earn a better return on cash that is sitting in your bank account (see next section).

In finding new strategies, we have spent a significant amount of time reviewing investment opportunities from existing and new managers, exchange-traded-fund providers, and even the banks (see Structured Notes above). We do not make investment decisions lightly. Our due diligence process is detailed, rigorous, and thorough.

For instance, we recently reviewed all the legal documentation (a few hundred pages!) for a U.S.-based fund that could be a good fit for certain client portfolios. In our review, we believed we had found one very important missing word, the missing needle in the haystack. After inquiring, we received the following (redacted) email back from the manager:

“Ginsler Wealth Team – It turns out you were quite correct, and our hilariously expensive NYC attorneys missed a very important word in the XXX clause.” 

You rely on us to be thorough and thoughtful before investing your money. We take this responsibility very seriously.


Putting Cash to Work

We know some investors are concerned about the current economic environment and have been sitting on cash in their bank accounts. This cash earns next to nothing and, net of inflation, its value is being eroded.

Due to demand from existing and new clients, we have compiled a selection of lower-risk, shorter-term “Cash+” strategies that we believe could provide a higher and potentially more tax-efficient return on dormant cash. The chart below provides a comparison of bank high interest savings account rates versus the target return on the Ginsler Wealth cash management mandate.

Bank Savings Rates vs. GW Cash Strategy

We believe a reasonable portion of the target return above should come in the form of capital gains which are taxed at half the rate of interest income. As a result, the net differential return after taxes, relative to the bank savings accounts, should be even higher than illustrated in the chart above.

While high and rising interest rates are bad for borrowers, they are beneficial to savers.


Taking Time to Plan

When investment gains are challenged, it is a reminder that keeping every dollar is even more important. On the planning side, we have been working with several clients to introduce more tax effective trust and corporate structures. This planning can serve to potentially minimize taxes over time and/or at the time of a business sale, while also protecting the owners of the assets from lawsuits and/or creditors. Doing this structuring work today, could lead to perpetual, risk-free returns in the form of ongoing tax savings.

We are also (continuously) seeking opportunities to harvest investment losses to be used in the future to offset capital gains. While no one enjoys crystallizing losses, when other opportunities present themselves (see above), switching out of current losers can lead to tax savings on future winners.

 

Focusing on Your Health

Finally, while finances and investments are what we do and are important, we aim to be helpful in many aspects of your lives. It is often said that “health is wealth” and we totally agree with this sentiment. As such, through a new relationship with Medcan, Ginsler Wealth clients can now enjoy a 15% discount on Medcan’s flagship Comprehensive Health Assessment, along with three other advanced health tests. Please contact us if you want to take advantage of this. We are also exploring partnerships with other health organizations with the goal of bringing more value to you in the future.

During the past quarter, we also recorded an Unlimited Podcast episode about the state of mental healthcare in Canada with Dr. Juveria Zaheer and Sandi Treliving, both involved with Toronto’s Centre for Addiction and Mental Health (CAMH). Mental health is an equally important component of your overall health, and we hope this podcast episode can help provide some insights into what you can do to help others or manage your own mental health.

 

CLOSING THOUGHTS

As we head into the final stretch of 2022, I don’t believe uncertainty or volatility will dissipate. Our role – on your behalf – is to seek out opportunities this challenging environment presents. I hope you can tell…we are on it.

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

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

Ginsler Wealth Goes to the Movies

With Toronto welcoming the Toronto International Film Festival (TIFF) back to town, we started thinking about our own favourite movies. We know that films and storytelling help us learn, grow, and understand the world, so we thought we’d use a few cherished lines from our favourite movies to help you better understand our business. Over the coming days, we will be highlighting these films and using the opportunity to shed some light on what we think makes us different.

Please follow Ginsler Wealth on your favourite social channel(s) to see these as the curtain is raised.

Key Ginsler Wealth highlights we will focus on:

  1. We’re a different wealth management experience
  2. We look beyond traditional stocks and bonds
  3. We do the work so you don’t have to
  4. We provide holistic wealth, tax and estate planning services
  5. We have an extreme focus on client service

Stay tuned, the show is about to begin!


THURSDAY, SEPTEMBER 8, 2022:

The first feature in our series of favourite movie quotes…

Like Dorothy arriving in the Land of Oz, when you experience Ginsler Wealth, you immediately sense something is different. We are fully independent, unique, and committed to offering a unique wealth management experience for high-net-worth families.


SATURDAY, SEPTEMBER 10, 2022:

The second feature in our series of favourite movie quotes…

One of our key services is managing your investment portfolio. We are proud to be fully independent and unconstrained, meaning that we can invest in a wide variety of asset classes and strategies. Just like cooking shrimp, there’s many different ways to invest your money. We’d like to tell you about some of our favourites.


MONDAY, SEPTEMBER 12, 2022:

The third feature in our series of favourite movie quotes…

We work hard taking care of your wealth, so that you can relax. Whether it’s a trip to the museum, watching a parade, or even a joyride, you deserve to live the life of your dreams. Get ready to twist and shout.


WEDNESDAY, SEPTEMBER 14, 2022:

The fourth feature in our series of favourite movie quotes…

Making financial plans for the whole family can be difficult, but we’re here to make the whole process easier. We are currently accepting new clients, and we think joining us is your density. I mean…your destiny.

 

FRIDAY, SEPTEMBER 16, 2022:

The fifth and final feature in our series of great movie quotes…

We’re closing out this series with one of the favourites of our CEO, Brian Ginsler. Exceptional service is one of our top priorities, and we want all our clients to feel cherished and cared for. We won’t rest until you’ve fallen in true love with our service.

 

SUNDAY, SEPTEMBER 18:

We hope that you’ve enjoyed this series and re-visiting some of the greatest movies of all time. Hopefully you get the sense that Ginsler Wealth is not your “typical” wealth firm. We look forward to highlighting some of your favourite movies in next year’s sequel, so please reach out to us and let us know your favourite movie quotes!

 

 

Note that Ginsler Wealth and this campaign are in no way affiliated with nor endorsed by TIFF. This campaign will make use of popular culture references for marketing purposes, should not be taken literally, and is not investment advice.

The Key Lesson of Benjamin Graham’s “The Intelligent Investor”

The “intelligent investor” is one who knows what type of investor they are.

With world equity markets swooning once again, I thought it would be an apt time to review my key takeaway from one of the best investment books ever written.

I recently re-read The Intelligent Investor by Benjamin Graham, who is known as the father of value investing, as well as the teacher and mentor of Warren Buffett. The publishers of all recent editions (there are many) have added the following to the cover of each book: “The classic text on value investing.” I think a more apt addition to each cover would simply be: “The classic guide on choosing what type of investor you are.” While this may not sound as exciting as reading the formative guide on how to succeed at a particular style of investing, I do think my title better encapsulates Graham’s intention with this book. I am not convinced that Graham was trying to teach investors how to value companies. I think he was trying to teach investors how to value themselves.

First, a little history… the book was written in 1949 at a time when, according to Graham, common stock ownership was not actually common in portfolios of institutions nor individuals. In fact, it was written at a time when security analysis was just becoming something of a profession. Graham writes “the various societies of analysts […] have well over fifteen hundred members.” Today, 25,000+ firms employ more than 160,000 CFA charterholders. Graham had experienced The Crash of 1929 as an investor, managed through it arduously, and then effectively dedicated his life to managing his investment partnership and educating future security analysts through his perch at Columbia University.

The book is 250 pages long and it is important to note that before there is serious discussion of security analysis, there are 108 pages laying the groundwork for readers to make the following key decision: Are you going to manage your investments yourself and strive for high returns (Graham called this person “The Aggressive Investor”)? Or are you going to either let an advisor manage for you or strive for generally good results (Graham called this person “The Defensive Investor”)?

“The investor’s choice as between the defensive or the aggressive status is of major consequence to him, and he should not allow himself to be confused or compromised in this basic decision. The aggressive investor must have a considerable knowledge of security values—enough, in fact, to warrant viewing his security operations as equivalent to a business enterprise. The majority of security owners should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embark upon investing as a quasi business.”

I found it interesting that the phrase “margin of safety” – the rallying cry of value investors for decades –  is only mentioned for the first time on page 241 of 250:

“Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, margin of safety.”

I also found it amazing that most of Graham’s comments on investing, markets, forecasters, and risk could have been written yesterday rather than over 70 years ago. I guess the more things change, the more they stay the same:

“Through all its vicissitudes and casualties, as earth-shaking as they were unforeseen, it remained true that sound investment principles produced generally sound results. We must act on the assumption that they will continue to do so.

In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, ‘This too will pass.’”

The final sentence of the book reads:

“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”

I worry that this phrase may be misunderstood by some readers. Satisfactory seems to take on a derogatory meaning when in reality, for almost all investors, Graham was encouraging satisfactory investment results. He believed the pursuit of satisfactory investment results is the prudent, conservative way to grow one’s assets. For those to whom satisfactory returns are actually not the goal, Graham’s guide warns that one will have to put significant “study, effort, and businesslike resources to bear to achieve – with no guarantees – superior results.”

Ultimately, Graham’s “intelligent investor” is one who understands what she is striving for, and what she is equipped to achieve herself, or not.

That conclusion should not be surprising. It’s the title of the book.

 

Postscript:

Graham details very clearly in his book the role of the advisor:

“[To…] use his superior training and experience to protect his clients against mistakes and to make sure that they obtain the results to which their money is entitled.

The leading investment counsel firms make no claim to being brilliant; they do pride themselves on being careful, conservative, and competent.”

Sounds like an apt summary of my firm, Ginsler Wealth. For the “intelligent investor” who appreciates that they need help managing their wealth, we are here.

 

Note: this article should not be considered investment advice.

Finding Unique Investment Opportunities with Daniel Zwirn from Arena Investors on The Unlimited Podcast

On Episode 8 of The Unlimited Podcast, Brian Ginsler speaks with Daniel Zwirn, Chief Executive Officer & Chief Investment Officer of Arena Investors LP. Daniel co-founded Arena Investors in 2015 to bring creative solutions to those seeking capital in special situations. With a mandate unconstrained by industry, product or geography, Arena has become a ~$3.4 billion global investment firm focusing on special situations asset and credit investments in corporates, real estate, structured finance, and corporate securities. Daniel and his team have become well known for their ability to develop pragmatic, very precisely-structured investment opportunities in complex situations where others can’t or won’t.

In this episode, we discuss with Daniel the Arena approach to seeking the “highest return per unit of risk”, some diversification myths, and how to find special investment situations. Brian also gets Daniel’s thoughts on the importance of transparency in completing due diligence, with specific examples around Bridging Finance and Bernie Madoff.

This episode can be found 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 Second Quarter 2022 Client Letter – Wimbledon Edition

(An audio version of this letter can now be found as Episode 7 of The Unlimited Podcast by Ginsler Wealth. Use the link provided or find us on your favourite podcast app.)

 

To Ginsler Wealth’s Clients:

In my first ever quarterly letter, I said that I would not be providing constant updates on the prices of world equity and bond indices as that information is readily available, well, everywhere. But we have just witnessed a historically bad start to a calendar year. The S&P 500 (the barometer of the U.S. stock market) had its worst first half (“H1”) in over 50 years, being down over 20%, and bonds[i] may have had their worst H1 in history, down around 11-12%. The typical “60/40 portfolio” of stocks and bonds was not a great performer so far this year.

So with the summer here and Wimbledon in full force, rather than focus on stocks and bonds, I thought I’d focus this letter on my favourite pastime, tennis.

 

GAME

“Tennis matches are not won with great shots. They are won with many, many pretty good shots.”

—Allen Fox, Think to Win

In early April, I had COVID and kept away from the tennis courts for a few weeks to refrain from exerting myself. As such, I defaulted on all my club’s tennis ladder matches for that month and was demoted to a lower box on the ladder. Not a horrible situation given that I hadn’t played in weeks, but I figured it would be easy enough to win my way back to my higher box.

My first match back was against a very athletic woman who got off to a tough start, down 0-3 to me. But after those first three games, something changed, and I lost the next five in a row. I was attacking and hitting what should have been winners, but she was running everything down and just “pushing” the ball back. The shots coming back weren’t difficult nor winners, but they were high lobs, consistent, exhausting and stayed “in”. This bought her time to recover between my shots. Her defensive play became a game of “Who Would Miss First”, and with a final score of 8-5 in her favour, it was clear that the pusher/defensive player in this match was the winner.

 

SET

Here’s a test: Consider the situation in which your opponent hits a crosscourt forehand that lands deep in your forehand corner, as shown in Diagram A below[ii]. What should you do? Should you hit the ball back crosscourt, right to where your opponent is? Or down-the-line into the wide-open side of the court? (See Diagram B below).

Diagram A

Diagram B

In almost all cases, the best response is to hit the ball back crosscourt directly to your opponent. This is because tennis is a game of probabilities and percentages. The net is lower in the centre (less chance of hitting the net), the court is longer when you hit diagonally (less likely to hit the ball out), and you are in a better geometric position to defend against your opponent’s next shot (less chance of losing to a “winning shot”).

Unlike most other sports, in tennis if you make a mistake, your opponent gains a point. This does not happen when a hockey player misses a goal attempt, when a basketball player misses a shot, when a baseball player strikes out, or when a football kicker misses the uprights. Unless you are in the lead, a lost point in tennis always means a deficit that needs to get recovered and then exceeded in order to win.

 

MATCH

“The player without a strategy on the tennis court is like a ship without a rudder.”

—Allen Fox, Think to Win

The story and test above are meant to draw parallels to investing and how we approach investing your assets. Both speak to the importance of being defensive, carefully attempting winning shots, and focusing on not losing (money).

Being Defensive

Any investing involves a level of risk, but a defensive investor will ensure their portfolio is comprised of a variety of asset classes and strategies with the goal of having those strategies act differently from each other, especially in challenging times like the ones we are experiencing now. While currently stocks and bonds are struggling, our client holdings of Canadian mortgages, venture debt, music royalties, long/short market neutral funds and SPAC arbitrage strategies have held in, and many have generated positive returns in 2022 so far[iii]. (Of course, all clients don’t hold all of these strategies as each client portfolio is unique and tailored to your specific risk tolerances and goals & objectives).

With the summer here, I can think of no better time to review your portfolios, with Ginsler Wealth and with other advisors, and determine if you are comfortable with how your portfolio is constructed. If you are not already, getting a bit more defensive via the addition of alternative strategies may be a good idea.

Carefully Selected Winning Shots

Part of the game of tennis and portfolio management should entail taking a few carefully selected winning shots, ideally where the upside potential is asymmetrically higher than the downside risk (think certain tech stocks or some digital assets). This is where outsized return opportunities generally lie. We do this selectively for clients where appropriate, but as my tennis instructor tells me: “go for winners when you are comfortably in the lead”. Investors need to be very careful here as you don’t want to be investing where the probabilities are not in your favour…

What’s an example of a low probability shot? Back in June 2020, I wrote a LinkedIn article called: What’s an investor to do now? In it, I used the example of Netflix:

 

…assume the average high-quality S&P 500 company ultimately trades at a multiple of 15x earnings. Netflix currently trades at ~9x revenues and ~85x earnings. What would it take to grow into its valuation?

At its current market capitalization, if Netflix traded at a P/E of 15x, its net income would have to be ~$12 billion. For net income to be ~$12 billion, at its current operating margin, revenue would need to exceed $85 billion (a 4-fold increase from here, or >30% revenue growth per year over the next 5 years). Recall that Netflix grew revenues to $21 billion with little competition for much of its existence. And you know what they say…“the first $21 billion is always the easiest.”

Netflix’s current valuation combines comedy, drama, suspense, thriller and horror.

 

In other words, the probability of Netflix’ share price continuing to rise, of Netflix being a winner from that point forward, was low. Netflix stock has fallen by 59% since the day of my article and ~75% from its subsequent high reached in November 2021. This example is not to say that Netflix couldn’t have been a winner or can’t be a winner in the future. The point is to highlight that investors need to be careful to not load up their portfolios with too many lower probability investments.

Don’t Lose Money

“As a tennis player, you have to get used to losing every week. Unless you win the tournament, you always go home as a loser.”

—Stanislas Wawrinka

As mentioned above, in tennis if you lose a point, your opponent’s score increases. This often puts you in a hole you must climb out of. Similarly, in investing, most of the time your investments will not be hitting all-time highs. And, especially in times like these, many may be losing money. The key is to avoid or minimize those losses because to return to “breakeven”, you always have to earn a higher percentage return than your percentage loss as shown in the chart below.

Returns Required to Recover from Losses

The only way to completely avoid losses, is to completely avoid striving for returns. In the absence of doing that, focusing on minimizing losses is key. This is what we are focused on for you every day.

 

“I never look back, I look forward.”

―Steffi Graf

With the first half of 2022 behind us, we will continue our extensive review of all investment strategies we allocate to, and as always, we are also reviewing a number of new strategies that may benefit in both a rising inflation and interest rate environment.

 

We hope you all have an enjoyable summer, where you can enjoy the sunshine, and focus on yourselves and your families. As Rafa says about tennis, and perhaps applicable to investing in 2022 so far…

“Is only a tennis match. At the end, that’s life. There is much more important things.”

―Rafael Nadal

In case you are wondering, I took my lessons learned in that first match and won all the rest of the matches in May…and moved back to the higher box. Phew…now you can enjoy your summer without worrying about me and my tennis game.

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

Sincerely,

Brian singnature

Brian Ginsler
President & CEO

 

“Tennis begins with love.”

―Anonymous

 

 

 

The Unlimited Podcast, featuring David Rosenberg

In case you missed it, in June we released an episode of The Unlimited Podcast, featuring David Rosenberg, President and Chief Economist & Strategist of Rosenberg Research. We discussed the history of “Breakfast with Dave”, traits of successful people and the secret to Dave’s success, Economics 101, inflation today and what’s causing it, and Dave makes one of his boldest predictions to date regarding the Canadian housing market. You can find details here or by searching for “Ginsler Wealth” on your favourite podcast app.

Stay tuned for more episodes coming this summer.

 

 

 

[i] As measured in the U.S. by the iShares Core U.S. Aggregate Bond Index, which was down about 11% in H12022, and in Canada by the iShares Core Canadian Universe Bond Index, which was down about 12% in H12022.

[ii] Situation adapted from Think to Win, The Strategic Dimension of Tennis by Allen Fox. HarperCollins. 1993. Pages 22-23. Diagrams from same text.

[iii] Of course, past performance is not indicative of future performance.