Preparing for radio! Fun 20 minute podcast discussing my book with Tellwell Publishing, the company that brought it to life. Key topics: Inspiration for the book. Examples of valuable investing lessons integrated into the book. Experience’s getting my kids started at ages 13 […]
*10-year growth compares 2017 to 2008. Example, Royal Bank’s 2017 dividend was 1.8 times larger than in 2008. This blog is the 7th in my series with Grainews. It beings together all previous columns written. Please share with others on your social media if you […]
Stocks for FUN and PROFIT: Questions and Answers about adventures of an amateur investor Fans of this site will know for many years now, I’ve reviewed a host of personal finance and investing books. Over years, these books have improved my financial IQ, matured my […]
I came across two articles this past week that deal with housing affordability and values across Canada. They are very much worth reading. The first one is from the Royal Bank discussing affordability. Housing in Vancouver and Toronto are now at their record worst level […]
(Photo: Pexels) This is an excerpt from my latest newsletter, expanding on how fear based media and marketing have become so prevalent.
As I was leaving my book signing session on Saturday, the radio news featured a clip that went something like, “Experts predict that if global warming continues BC forest fires will reach levels four times greater than the record 2017 fire season.” I googled BC forest fires to get a few facts. Since recording started in 1950, last year was indeed the worst on record consuming 1,200,000 hectares of forest. The previous record was set in 1958 with 855,000 hectares consumed. I also learned there are 95M hectares of forest in BC. Therefore in the worst two years since recording started, which were separated by 59 years of time, 0.9% and 1.3% of BC forest burned. If it got four times worse than 2017, 4.8M hectares or 5.0% of the forest would burn in a single year. I am clearly no expert on BC forests, but what do you think the probability of that would be?
In no way do I wish to be-little the 2017 forest devastation in BC. Like 2016 levels in Alberta, both situations were disastrous. I merely wish to ask the rhetorical question, “Why does the news media focus so much on sensationalism and the negative side of issues, and what’s bad rather than what’s good?”
Why do political parties focus so much on the disaster that will occur if we elect their opponent, rather than what good will occur if we elect them? Why has negative advertising become so prevalent in elections?
When you buy virtually anything but groceries these days, how does the conversation typically end? It usually goes something like, “Would you like the extended warranty so if anything goes wrong you’re covered?” My inside voice usually thinks, “So you’re admitting selling a crap product?” But my outside voice is polite and simply says, “No thank you.” Why does marketing often orient towards what bad might happen, if you don’t buy a product or service?
Let’s think about a couple of other issues. My profession is agriculture. Never have we supplied such high quality food at such low prices, in such an environmentally sustainable manner. Yet we remain mired in a twenty-year fear based debate around genetically modified or genetically enhanced organisms (GMO’s). It is so easy to create fear in people’s minds, that while there has never been a human health issue traced back to GMO’s the debate rages on. Large commercial interests selling “organic food” are often behind the fear based marketing campaigns. Bye-the-way, all food is organic. I don’t have much interest in eating in-organic dirt. Another perplexing agricultural related topic is the supposed environmentalists focus towards glyphosate. Yet this herbicide is instrumental in the ability to farm in an environmentally sustainable fashion as it significantly reduces the need for tillage, an operation that requires diesel fuel and causes the release of carbon and water from the soil. Glyphosate is produced by my fiercest competitor so I have no love for the company from a competitive standpoint, but I recognize the tremendous value this product brings to agriculture and thus all food consumers. There is always room for improvement, and agriculture is constantly searching for new and better ways to improve efficiency and environmental sustainability.
The pipeline debate is another focused on fear. Fear of an oil spill is real, but very low. The facts support that pipeline is significantly safer and more efficient than rail, which is much safer and more efficient than truck. Supposed environmentalists protest the general usage of fossil fuels, yet I’m pretty sure most if not all use fossil fuels themselves. How do they heat their homes? Fossil fuels have significantly enhanced our quality of life. Are there negatives? Sure, as with all things there are both negatives and positives. It just seems that we are in an era where the negatives are given significantly more credence than the positives. Many nations on earth don’t enjoy the standard of living we have in Canada, and these supposed environmentalists are trying to prevent other societies from enjoying the economic and quality of life benefits, of an abundant supply of safe energy.
To me true environmentalism supports the judicious use of all available tools while constantly searching for enhancements, more sustainable and efficient or alternative methods, in order to enhance the lives of all peoples and societies.
Last month’s issue discussed how fear impacts the investing world. This issue expands the topic, hopefully illustrating how fear impacts many facets of life. But why is fear and negative based marketing so prevalent? Why are the negatives given so much more credence than the positives? I think it is because we humans react much more easily to fear, than facts. Which headline will garner greater attention? “The market plunged five percent today as investor’s stampede for cover,” or “The market declined by five percent today which is a fairly normal occurrence?”
Yes, unfortunately it is much easier marketing fear than facts. My little rant isn’t going to change this phenomenon. I have however found it beneficial to listen and read with a healthy sense of skepticism, and think about whether an article is fear or fact based.
(Photo courtesy of Microsoft Clip Art) This blog is the 5th in my series in Grainews. It beings together all previous columns written. Please share with others on your social media if you find it informative, and if you have read my book please write a […]
(Photo courtesy of Pexels)
This was the fourth column in my series for Grainews.
There are many reasons to diversify outside of the country.
My first three columns have covered a lot of ground, but there is more to cover. The stock market presents endless learning opportunities, but we want to keep our approach simple and effective because we have our farms to run and our lives to live. The first column covered the advantages of a TFSA; the second instalment discussed how to start a small portfolio of up to $15,000. The third one covered the most fundamental investment principle, “The Rule of 72,” which highlighted how money compounds over time.
This column will take portfolio construction a little further to discuss the importance of international diversification with sectors that are almost absent in the Canadian market. When I was growing up almost a half century ago, the Canadian economy was described by the term “hewers of wood and drawers of water.” The discussion at that time was the need to diversify our economy away from basic resources, and yet here we are 50 years later with the same debate raging on.
Our economy remains highly dependent on basic materials. The three biggest sectors in the Canadian market are financials, representing 35 per cent of the market, with energy coming in at about 20 per cent and materials at about 12 per cent. Energy and materials are much smaller than five years ago, not because our economy has diversified, but because they have performed so poorly through the 2014 to 2016 commodity collapse. This poorly diversified economy is a key reason to diversify our stock holdings outside of Canada.
Other important reasons to diversify out of the country are currency diversification and the ability to own world class companies outside the financial and resource sectors. Most of our physical assets are invested in Canada. Stocks represent a very simple way to own assets outside of our home country. International diversification will also stabilize portfolio performance as we look to build a portfolio that requires little maintenance, one that does well in up markets and is resilient during downturns.
The taxing details
Two important considerations with foreign stocks are currency conversion and dividend withholding taxes. Look for a financial institution that allows both U.S. and Canadian currency TFSAs. With small accounts it may not be necessary, but as your account grows it is better to avoid paying conversion costs every time a dividend is paid or you buy and sell a foreign stock. With a U.S. dollar-based account, you only pay the conversion cost upon depositing and eventually withdrawing the money.
It isn’t an ideal time to convert money to U.S. dollars, with current exchange rates, but probably a necessary evil if you’re just starting out. I started investing in foreign companies, way back in the 1990’s and remember converting currency at a punitive $0.63 level. The experience was instrumental when our dollar reached relative parity from about 2005 to 2014. I spent that decade almost entirely focused on foreign investments, thinking our dollar at par was not situation normal. During that time frame I built our portfolios to about 65 per cent foreign which is very unusual for a Canadian investor, as most investors exhibit home country bias. This heavy foreign exposure served me well during the commodity collapse that severely affected the Canadian market.
Dividend withholding taxes are a smaller consideration. Foreign countries tax dividends of foreign investors at varying rates. The U.S. is 15 per cent, the U.K. is zero for Canadians, but some countries are as high as 35 per cent. There is a tax treaty such that Canadians don’t pay U.S. withholding taxes in retirement accounts, but that doesn’t apply to TFSAs or RESPs. Thus our RRSP is built on Canada and U.S., and our TFSA on Canada and U.K., completely avoiding withholding taxes, a good thing unless you like taxes! If just starting a TFSA, our current construction project, I wouldn’t worry about this nuance yet. Just focus on building the strongest edifice possible.
My next instalment will continue the effort to build out a prospective TFSA portfolio with actual stock suggestions for up to $115,000, the current maximum contribution for two people. I felt it was important for readers to understand the groundwork before construction commences.