Category Archives: Uncategorized

Important Reminders About Market Corrections

It has been a while since the markets have had a meaningful correction.  Over the last 3 years the only meaningful pull back was last fall when the S&P 500 dropped from 2.011 to 1,862; a little over 7% decline.

Most Money Managers would welcome a nice pull back so they could invest a few more dollars into their most favorite companies.  They would love to pick up a bargain.  As volatility returns to the market; as it most certainly will, there are 7 things investors should remember:

1)   Stick with your long-term plan (Short-term market fluctuations should not be a concern when you have a sound financial plan.

2)   Look beyond today’s markets (No one can predict what the market will do or when, so think of it as a store-prices increase when demand is high and drops when demand is low.  The long-term trend is upward).

3)   Don’t let media headlines distract you from your plan (The media focuses on “Now” and not the long-term).

4)   Avoid chasing the latest trends (Jumping from one investment to another can hurt your long-term performance).

5)   Accredited professionals are the best managers (Your portfolio is diversified among a number of investments, and managed by highly qualified portfolio managers).

6)   If your objectives have not changed, neither should your investments (The investments in your portfolio were chosen because they were compatible with your long-term goals).

7)   Volatility is the friend of the long-term investor (Market will offer up great bargains from time to time allowing a portfolio manager to add to some of his best investment to create a great long-term return).

So, again as volatility returns, remember your goals, and don’t let short-term events cause you to disrupt your long-term plans.

Paul Fisher – CFP

Put Money in Your Pocket – Your Credit

As an advisor I help people in many areas of their financial picture.  One area that I have a strong focus on is debt and credit due to my additional activities as a mortgage agent.

We often get caught up focusing on the short-term, such as payments we have to make this week, next month or on something we are going to buy soon.  By thinking longer-term about our goals we can have more for less.  Giving up a little today can pay off in a big way down the road.  That may be in various ways, such as through tax savings, compound growth or the way we maintain our credit.  Today the focus will be on credit.  Building and maintaining our credit can pay off very well over the long-term.   Lenders will give us better terms and interest rates if we have great credit, which can mean substantial savings.  The reverse of this is that if we let our credit slide, the long-term costs can be overwhelming.  Read on to see how your credit score is calculated and by extension what you can do to save yourself money down the road.

I often get questions about credit scoring, ‘Why is my credit poor?’, ‘How do I keep and/or improve my credit?’ and ‘What is an R3?’ are just a few examples.

Many of us are at least concerned about what condition our credit is in.  Most of us have some idea of what our credit is like, however the rules that guide the checks and balances that determine a credit score are not always immediately apparent.  In this short article I am going to outline some of the more common mistakes that I see clients make in my daily dealings with mortgage and investment clients.   Many times the mistakes are innocent.  Innocent or not, credit reporting agencies for the most part don’t care, therefore each blemish shows up on your credit report.  The industry has determined that one of the best indicators of a borrower’s propensity to repay a loan is how well they repaid in the past.   This is one of the more significant facets represented in your credit score.  You’re probably not overwhelmingly surprised by this, but there is more, if you’re still interested read on.

Most people are familiar with the term Beacon score, this term came from Canada’s largest credit reporting agency, Equifax.   Equifax produces a score that ranges between 300 and 900 points, the more points you get the better off you will be.  It is based on a number of criteria.  Some of these criteria are out of your control, such as your age, marital status, number of children and address, to name a few, all of which may indicate varying levels of stability, ability to work or length of time your credit has been established.  It is worth noting that a score of 680 or greater generally provides you with very good borrowing options, above 750 will open doors to the best financing available.  The difference between having a score below 680 and above 680 can be thousands of dollars of interest costs on your next mortgage or other debt.  There are a number of criteria that you can affect.  Here are some tips on keeping your score above 680.

Not paying within 30 days

Repayment history is one of the most significant factors, accounting for around 35% of your score.  Lenders like to be repaid on time, if they are not repaid on time they let all other lenders know via credit reporting agencies, thereby negatively affecting your score and hampering your ability to borrow money in the future.  To keep your payment history in top shape, all you need to do is make minimum payments by the date specified on your statement.

Ignoring small balances

I have often seen people ignore a small balance on a ‘big box store’ card, the minimum payment may only be $10, missing that payment will give you an ‘R2’ (meaning you paid within 60 days), if you do not pay within 60 days you will get an ‘R3’ and so on.  The ‘R’ stands for revolving, like a Line of Credit or a credit card, ‘I’ for instance stands for instalment, this would be a car loan or a personal loan amortized and paid down over a specified period.  The number beside ‘I’ or ‘R’ represents how long it took to make the minimum payment.  A three for instance means you paid within 90 days.  You do not want R3s.  Missing minimum payments on small balances can be very damaging to your credit score.

Leaving balances over or near the limit

Level of indebtedness also makes up a significant portion of your score, approximately 30%.  If you are already ‘maxed out’ your score will be lower indicating to lenders that you should not be lent more money.  Keeping balances at or near limits particularly where high rates of interest are charged indicates mismanagement of your credit.  Keep balances well below the limits, 60% of your credit limit is good target to stay under.  You can use your high limit to make a purchase but should try to reduce the balance to 60% of the limit within a short time period.

Multiple credit reports

I have often had the question, if you check my credit, will my score go down?  It is true that multiple credit reports can negatively impact your credit score, however the purpose of that scoring metric is to target credit seekers, not someone who is going to a couple of places looking for a mortgage.  A credit seeker is essentially someone who is going from place to place trying to get multiple credit cards or other credit over a short period of time.  This is considered risky and unpredictable by credit agencies and naturally will be reflected in that person’s credit score.

Having no credit is not good.  Having bad credit can be worse.

I have heard that bad credit is better than no credit.  This is all relative.  If your credit is so poor it is irreparable for a number of years, I think I would rather be starting from scratch.  With that said it is important to have credit.  Typically two credit streams over a couple years time span is usually the minimum that lenders would like to see (usage of two credit cards for example).  You can be rejected for a loan because you have no credit.  If you are thinking that sounds like a vicious cycle you would be right.  How do you get credit if you don’t have any?  You usually start small, department store cards are the easiest to get.  Once you have one, use it conservatively, wait for the statement, and then pay it.  If you pay off the card before the lender has reported to the credit reporting agency they will report nothing and you will not build credit, hence the reason for waiting for the statement before paying off.

Although I have not covered all the factors that make up a persons credit score I believe this article covers the common ‘trip ups’ that people experience as well as the bulk of what makes up a persons credit score.  The potential short-term pitfalls listed in this article can have long-term impacts that can take years to fix and cost you valuable time and higher interest costs while you rebuild.  Keep shopping, but keep these tips in mind.

Chris Grypma
Advisor and Mortgage Agent
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Time for Taxes!

By Russell Stewart CFP.

We all want our investments to grow and help fund all the things we would like to do now and in our retirement.  One investment we don’t always fully appreciate is the investment in doing our tax returns. Today’s tax returns are far more complicated than they have ever been and it has becoming increasingly difficult to keep up. Certainly the computers and do it yourself software are great but are you really sure you have collected all the deductions and credits you and your family are entitled to.

You have gathered up all your “T” slips and plugged them into your tax software, now here is a partial list of other things for you to consider:

Children under the age of 18 living with you?

They may qualify you for eligible dependant credits or the children’ credit.

Children going to post-secondary school?

You may be able to use some of their education cost on your tax return.

A family member living with you that is over 65?

In Ontario households with seniors may qualify for tax deductions on some of your home improvements. You may also qualify for caregiver credits.

A family member living with you that is disabled?

You or they may be entitled to the disability tax credit.

A family member that is infirm not living with you that is dependent on you for care?

You may qualify for the infirm dependant tax credit.

A spouse/common-in-law partner?

You may qualify for the spouse or common law partner credit.

Do you pay for your own medical insurance plan?

That may qualify you for the medical tax credits.

Did your children play sports? Learn a musical instrument? Take dance lessons?

These and many more activities may qualify for the fitness credit or the cultural activities credit.

Do you have pension income? RRIF or LIF income?

These sources of income may be eligible for Pension splitting.

Do you have a spouse that makes more or less than you do?

One of you may be entitled to the new income splitting provisions in the tax act.

Money in the Bank? Mutual funds? Shares of publicly traded companies? Bonds? Other investments?

These investments run the gamut of tremendously good to absolutely horrible when it comes to your personal taxes.

You may be able to very quickly reduce your tax bill and possibly increase your rates of return by simply making sure you have invested in your Tax Return for 2014. Whether you do them yourself or have a tax professional prepare them take the time to talk with your Professional Investments Representative about your tax return. Their insights might just give you a much better return on your tax investment.

Remember we all have to pay our taxes but “There is no need to leave a tip!”

Investing for the Long Term


By, Rita Dillon, CFP

On any given day, which way the market is headed is anybody’s guess. Historically, equity markets have gone up over the long term. Since 1956, the Toronto Stock Exchange Total Return Index for the top 300 stocks, which includes reinvested distributions, has increased 81-fold.

But markets don’t go up in a straight line. Canadian market watchers have seen a number of dips, troughs and corrections over the years both domestically and internationally. There have been worries, about inflation, worries about deflation and more than a few currency meltdowns – Mexican, Brazilian, Asian and Russian. There have been repeated commodity slumps and sell-offs. These downturns were often temporary, although some have been protracted.

Volatility is inescapable in the short term and can spell doom for the short-term investor. For example, at the time of the Quebec referendum in 1995, Canadian stocks took a nasty tumble before reaching an all-time high just two months later in December.

Tumultuous markets will always make you feel anxious. Anxiety often leads to the temptation to get out while the market is falling, and perhaps jump back in when things are safe again. The problem with that tactic is that it causes you to buy investments when their prices are high or at their peak, and sell them when the price declines, inevitably causing you to lose money. In fact, excessive portfolio turnover combined with a propensity to buy relatively overvalued investments and ignore relatively undervalued ones has caused the average mutual fund investor to underperform over the past decade. (Phoenix Investment Partners Study, December 2000).

Experiencing market volatility is the short-term price of garnering superior long-term potential returns on equity mutual funds. The key to success in earning superior returns is not to lose sight of your long-term goals, remember that equity markets do go up over the long term and employ an effective asset allocation strategy when you and your investment advisor build and manage your portfolio.

Black Creek Global Leaders Fund

Market Commentary Fourth Quarter 2014

The price of oil declined almost 50% during 2014. The price decline has been a gain for consumers around the world and also a transfer of wealth from oil-producing regions to oil-consuming regions. A possible explanation for the price decline could be that the period of higher prices led to higher production of oil at the margin and to lower demand at the margin. There are also a multitude of possible “political” explanations for the price decline: Saudi Arabia sending a message to other producers, a form of sanction on Russia for its aggressiveness, reduced funding for ISIS, etc. However, it is difficult to substantiate these factors. As for where the oil price is headed, we do not know. Cash costs for oil production in the Middle East are much lower than the current price of oil, but lower prices will severely hurt local economies. We believe that oil could settle in the $50-70 range per barrel.

The other significant factor of note for 2014 was the strength of the U.S. dollar. Relative to the U.S. dollar, the euro, sterling, yen, and Canadian dollar depreciated by 12%, 6%, 12%, and 8%, respectively. Some emerging market currencies collapsed against the dollar. The consensus view among investors seems to be “buy U.S. and buy safety.” While the U.S. dollar strengthened against most currencies, the U.S. stock market significantly outperformed most other markets, except for India and China. It is unusual, in our experience, to see strength in both the local currency and local stock market at the same time for any country.

We will definitely see the effect of the strong U.S. dollar on earnings for U.S. companies over the coming quarters. Combined with the fact that profit margins in the U.S. are already at or near historic highs, we believe earnings growth for U.S. companies will be difficult to achieve. In addition, valuations for U.S. equities are high relative to valuations that we are finding elsewhere. We wrote about this in our previous commentary and, over the past 12 to 18 months, we have reduced the U.S. holdings in our global portfolios in favour of new holdings outside of the U.S., even as the U.S. has outperformed.

The economic recovery continues in the U.S., and this region is being seen as an economic safe haven in the face of uncertainty in Europe, emerging markets, and China. The United Kingdom is also showing robust recovery, although there are only limited signs of recovery in Europe at this time. Growth in China is slowing, Japan remains the same, and most emerging markets are seeing either the effect of the slowdown in China or the effect of lower oil prices. We continue to suggest that global economic growth will remain subdued over the next few years, at about 2-3% real growth.

Another concern remains the effect of low interest rates. With capital costs (both debt and equity) so low, there is an incentive for companies to invest at what might turn out to be an insufficient level of returns. This in turn creates overcapacity and more competition for everyone, driving down margins and returns. It could also potentially reduce some companies’ period of competitive advantage. When these conditions of ample liquidity and low interest rates reverse, the impact on many companies may be severe, which in turn may create more investment opportunities.

Aside from these concerns, we continue to find businesses that are leaders in their field, gaining market share, and whose share prices offer us good returns given our expectations of long-term growth and profitability.

The decline in oil prices has had a specific effect on one holding in the portfolio, Galp Energia, and some indirect effects on a few other holdings. It has also given us an opportunity to buy a new holding. Galp Energia was one of the main detractors from performance in the fourth quarter, with the stock down 33% in euro terms. Galp’s major source of future value lies in its ownership of offshore oilfields in Brazil, which are currently being developed but will only add significant cash flows in 2018 and beyond. The estimated cash costs of producing this oil is only $15-20 per barrel, so, once developed, it will be a low-cost source of oil. The current stock price for Galp is approaching the value of its traditional refining, marketing, and gas distribution business together, with little value being ascribed to its oil and gas assets.

Macro investors have decided that lower oil prices are bad for Mexico, so our Mexican holdings (Santander Mexico, Grupo Televisa, and Arcos Dorados, in part) have been impacted by the lower oil price, even though these businesses are not oil producers. Finally, we have bought a new holding in Intertek Group, which provides quality and safety testing services to a broad array of customers and end markets, including oil and gas customers. Largely because of the oil price, we believe the stock has declined to a level where there is terrific value for a good business on a long-term basis.

In addition to Intertek, we added a small holding in Distribuidora International de Alimentacion, a leading retailer in the grocery and healthcare fields in Spain and Portugal. We sold our remaining holding in WuXi Pharmatech, which has been a terrific investment for us since we bought it in early 2012. We added to the holdings in Daikin Industries and ElringKlinger, both of which we began to buy in the third quarter, and we reduced the weightings in Grupo Televisa, Nabtesco, and Oracle. Cash at the end of the year was 4.3%, similar to the level at the end of the third quarter. We also received shares of Hermes International near the end of the quarter, which were distributed to shareholders of Christian Dior. These shares will be sold once the distribution is finalized.

Positive contributors to portfolio performance in the fourth quarter included Christian Dior, Carnival, Oracle, Dialog Semiconductor, and ElringKlinger. Negative contributors included Galp Energia, Arcos Dorados, Gerresheimer, Mindray, and Santander Mexico.

For the year as a whole, positive contributors to performance included Dialog Semiconductor, Nabtesco, Oracle, Biomerieux, and Carnival. Negative contributors for the year included Arcos Dorados, Galp Energia, II-VI Inc., and Mindray.

The strength of the U.S. dollar added positively to the portfolio in both periods. However, because we have generally been selling our U.S. holdings in order to buy companies outside of the U.S., the positive currency effect was dampened. As we indicated in our previous commentary, we have been selling U.S. holdings in favour of ideas that we are finding elsewhere, to the point where only eight of the portfolio holdings are U.S. businesses. This is probably the lowest representation of U.S.-based stocks in our portfolios in decades, and simply reflects the better valuations we are finding in other markets.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. ®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. Published January 2015

The Holidays are Over, Let’s Split!

By, Debbie Hartzman CFP.CLU.CDFA

As the cold gets colder and bills pile up, those of us who help families going through separation and divorce get extremely busy.

With the holidays over and expectations not met, plans start to evolve to make the move towards a marital adjustment.  Although this isn’t something people plan or look forward to, when they make the vow, “until death do us part”, statistics show this scenario to be an all too common occurrence.

As a Certified Divorce Financial Analyst, there are a few good tips I make sure people are aware of.

Aside from the issue of children, custody and access, the financial implications of a split can be the most devastating effect today and into the future.  It is no surprise to those of us who help people who, in this situation feel that the family law is flawed and doesn’t always deliver the intended or best results for all those involved.

In every relationship there is always one person, who has emotionally left the relationship long before the other person even realizes. This means it is not unusual to have both partners in the same place at the same time.

Here are a few tips if you find yourself heading down this road:

  1. Divorcing couples must take ownership of their divorce and what their family’s unique situation requires.
  2. Take the time to understand the process and how it works.  Shop for the professionals you require to make the best of the situation.  This can include a mediator, financial analyst, child co-ordinator, therapist, business valuator, pension valuator, or a home appraiser. The most important thing to understand is the various ways you can arrive at a settlement.  Make sure you hire the right lawyer to take you down your intended path.  Don’t hire a litigator if you are a candidate for mediation.  It will increase cost and frustration.
  3. Identify that divorce is not a legal issue, but more of an emotional issue that wreaks havoc on our lives, finances and relationships.  If you deal with the situation as a business relationship, you will be more successful in coming out with a satisfactory solution.  Making financial decisions out of anger, spite, sorrow, guilt or any such thing is a recipe for disaster and regret.
  4. Tax implications and future values of assets are something else that requires particular attention. Working with a financial professional that understands the laws of property division can elevate issues that otherwise might not show up until it is too late.
  5. If possible, it is wise to make copies all financial documents that you can get your hands on and store them in a safe place, with someone you trust.
  6. If you have joint lines of credit or credit cards, make the issuers aware of the situation. This doesn’t get you off the hook, it just documents dates.
  7. Open up a separate bank account immediately and start depositing your pay into this account.
  8. Keep a diary of dates and times of emails and texts in case you require them for future reference.
  9. Don’t agree to separating assets on a one off basis.
  10. Try to work with one another, not against each other.  Come to an agreement on what you can and leave the professionals to help with the issues that are harder to resolve.
  11. Resolve to get organized. The more on top of your information, the less cost is involved for your professionals organizing you. They can be more efficient and spend their time working through possible scenarios that will serve you better in the long run.

Tough as it is to work through things, it is worth it.  Once on the other side, most people are much happier, however, the emotional pain can make it extremely hard to move forward.  Holding on to negative emotions leads to stress and depression which can add to serious health issues.

A healthy support network of family and friends is most important at this time in your life.

The best way to move forward is to keep your eyes firmly fixed on the future. Know that no matter how bad things seem in any given moment, you will get through it.  Focus on the big picture.  Someday, this will all be behind you.  Keeping your divorce resolutions will lay the groundwork for a financially secure future and a stable foundation for your life going forward.

Debbie is a Certified Divorce Financial Analyst who works with clients to find the fairest and quickest financial solution.  She is the author of “Divorce Is Not Easy, But It Can Be Fair”.

Another uneventful year in a year full of events

By Geoff MacDonald and Tye Bousada, portfolio managers

Looking back at stock market history, most years were just as uneventful as the next even though each year was full of events, drama and intrigue. As they often do, stocks go up even in the face of scary headlines. 2014 was no different. In fact, stocks go up many more years than they go down. So let’s chalk 2014 up to just another year stocks went up.

During each year there will be at least one period of drama. The fear of loss, need for certainty as well as a lack of differentiation between short-term volatility and the kind of risk that really matters causes the drama to be significantly more dramatic than necessary.

As we’ve said before, we don’t deal in drama. And that means we do everything we can to not fall victim to the drama that surrounds short-term volatility.

Decisions in the face of uncertainty

The world is uncertain and most minds aren’t wired for uncertainty. The vast majority of minds are constantly searching for rigidity, clarity and an antidote to uncertainty. In this uncertain world, you have entrusted us with a portion of your hard-earned savings. It’s our job to grow these savings over a meaningful amount of time. In order to do this, we have to make decisions about the future when that future is uncertain.

From a business perspective, some might argue that we’d be wise to try to convince you that we know the future. The simple truth is we don’t. If you turn on a TV, browse the web or read a newspaper, you’ll be bombarded with people trying to convince you that they know exactly what’s going to happen in the short term to things like interest rates, exchange rates, the price of oil or the price of a particular stock. They want to convince you to invest with them and are trying to capitalize on the fact that your mind craves certainty.

We have a different objective at EdgePoint. First and foremost, we want to deliver investment performance at or near the top of our peer group over a 10-year timeframe. To achieve our goal we have to have the self-awareness to know that we don’t know what’s going to happen in the short term. The biggest benefit of realizing that you can’t predict the future is that it frees up your mind to focus on more meaningful endeavours like how to prepare for uncertainty.

Our goal at EdgePoint is to be prepared to thrive under variable conditions over a meaningful period of time, not guess the future. So the obvious question is, how do we do this?

Following are a few things we attempt to do to achieve our goal of having superior performance over the long term, or said differently, what we try to do to be worthy of your trust. This is by no means a comprehensive list, but does include a number of the major things on which we focus.

We try to stay focused on the investment approach

Over time, our approach has delivered pleasing returns to those who have entrusted us with their savings. We believe our approach has been successful because it revolves around identifying a business that can grow in the future irrespective of what happens in the global economy (within a band of reason), and not paying for that growth today. We call the combination of these two things proprietary insights and it’s these insights that sit at the centre of everything we do.

Being at peace with the fact that the future is uncertain allows us to focus on identifying businesses that can succeed even if the future is tougher than everyone hopes. Here’s an example of a business we’ve owned in our global portfolios since inception in November 2008 to highlight our investment approach at work.

Ryanair is Europe’s largest airline. Most people have been pre-conditioned to believe airlines are a terrible business, and in almost all cases they’re right to believe that. However, Ryanair seems to be an exception to that rule. Following are things Ryanair has had to contend with since we first invested in the company six years ago.

  • Oil jumped from US$45 a barrel to over US$120 and hovered at that price until recently
  • Greece, Spain, Portugal and Italy flirted with bankruptcy
  • Winter 2014, one of the worst winters in a century in Europe, closed airports from London to Barcelona for extended periods
  • Two full-blown European recessions
  • Russian hostilities in Eastern Europe
  • Deflationary forces throughout Europe
  • A collapse in tourism across many of Ryanair’s end markets
  • A financial crisis of unprecedented proportions impacted its home market of Ireland
  • Unemployment levels were above 10% in Ireland and in some countries exceeded 25% in Ryanair’s end markets
  • An Icelandic volcano eruption shut down European airspace for a prolonged period during one of its busiest times

When we originally made the investment, we couldn’t have forecasted many of these negative headwinds. However, in spite of these issues, Ryanair increased the number of passengers it carries from 58 million per year in 2008 to close to 90 million per year today, while increasing its pre-tax profits more than sixfold over the last six years. During the same time, its share price increased from approximately €3.00 to over €9.50 and it’s given us a special dividend equivalent to €0.68. This brings us back to the original thesis on Ryanair. In 2008, we believed Ryanair could grow almost irrespective of what happened in the economy and we weren’t being asked to pay for that growth at €3.00 a share. The simplified version of our thesis was that Ryanair’s focus on being a low-cost operator would allow it to grow even if the economy stunk. What gave us this confidence was Ryanair’s cost position relative to its competition. Ryanair’s cost of operation per passenger was, and continues to be, about 50% lower than its closest competitor. As such, Ryanair could offer fares below its competitors’ costs and still make healthy profits. Our research also led us to believe Ryanair would continue to build on its low-cost position increasing the value of its business.

When making investment decisions in the face of uncertainty, we try to identify businesses that can grow no matter the economy and try to get that growth for free.

We try to work with people who understand the true definition of risk

It’s easier to ignore short-term volatility if you don’t associate it with risk. We view risk as the possibility for permanent loss of capital. Unfortunately, many investors associate risk with short-term market volatility.

How do you define risk? Is risk how you feel when stocks go down? Do you have too much debt and lack the liquidity to be as invested in the market? Or perhaps you don’t really understand what you own. Maybe your investment horizon is too short because you need funds in the next year. Perhaps you lack knowledge of market history. Whatever the case, your perception of risk needs to change because stocks do go down and believing negative shorter-term volatility is risk might cause you to turn a normal, regularly occurring event into something much more harmful. You might make decisions that you think will protect you from “risk” but unfortunately create real longer-term risks that are far more harmful than normal short-term market fluctuations.

Annual returns and intra-year declines


Bars represent annual returns

Dots represent intra-year declines

Source: Standard & Poor’s, FactSet Research Systems Inc., J.P Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refer to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Calendar-year returns shown from 1980 to 2013 and 2014 year-to-date. Data as at September 30, 2014. Guide to Markets – U.S.

But what could be more harmful than the feeling you get when stocks go down? Real harm comes from any action you take that increases the probability of not having enough money for your retirement. Here are a few that come to mind:

  • You like to spend and don’t save
  • You save, but don’t have a sound investment plan to keep up with inflation
  • You save and have a reasonable financial plan but you don’t stick to it because you encounter fearful feelings when things get a little volatile. That fear causes you to forget about the risk that really matters (running out of money) and you focus on the perceived “risk” around shorter-term volatility

We often espouse the benefits and serenity investors experience when they realize shorter-term volatility is not risk. We try to surround ourselves with the right people and believe we have the best, most informed investment partners in the business. Flows into our investments demonstrate this. Despite a decline in the markets from September 18 to October 15, 2014, when the the MSCI World Index dropped almost 6% and the S&P/TSX Composite Index fell over 10% (returns in C$), our fund flows remained consistent with the weeks preceding the drop when the markets were viewed as “safe”. In contrast, periods of short-term volatility like this will often cause investors to panic and either stop investing or pull their money from the market.

Based on this behaviour, we’d like to think our investment partners have knowledge of market history, are aware shorter-term volatility occurs every year and know it’s their discipline and knowledge of the past that prevents them from converting this temporary event into a permanent loss of capital.

The chart below shows an unfortunate reality. The average investor’s performance is worse than every asset category and barely beats inflation. Combining our time-tested investment approach with the long-term discipline exhibited by our investment partners to date, we collectively have a chance to change the look of the chart below for our valuable partners.

20-year annualized returns by asset class (1993 – 2013)


Source: Bloomberg. Bonds: Barclays Capital U.S. Aggregate Bond Index; Oil: Bloomberg WTI Cushing Crude; Gold: Bloomberg Gold Spot Price per Troy Ounce; Homes: S&P/Case Shiller U.S. Home Price Index; Inflation: U.S. Consumer Price Index; Average investor returns: calculated using Dalbar fund flow information. The average investor return is the average of equity, fixed-income and asset allocation investor returns. S&P 500 Index is a broad-based, market-capitalization-weighted index of the 500 largest and most widely held stocks in the U.S. All returns annualized and in US$.

If the only risk that really matters is longer-term risk, which for most of us is at least 20 or 30 years, there are few periods where real returns have been negative. Everyone might point to Japan, but try to name another. The beauty of longer-term bear markets that wreak havoc on our long-term capital is they’re not only rare, but they don’t affect all markets. If the average investor understood what risk really is and understood how rare these longer-term bear markets are, we’d have much less drama in the stock market.

We try to remember that time is the friend of a great business

We believe we own many great businesses; however, there are few as recognizable to every person reading this commentary as Tim Hortons Inc. (now called Restaurant Brands International Inc.).

Below is a chart showing the growth in annual earnings per share (the portion of the company’s profit allocated to each outstanding share) of Tim Hortons over time. To illustrate, if you owned one share of Tim Hortons on January 1, 2007, your share of the 2006 profits would have been $1.43. By 2014, your share of the profits increased to $3.38. As the profits per share go up, the value per share usually follows.

 Progression of profitability


Source: Bloomberg. Annual adjusted earnings per share in C$. FactSet Research Systems Inc.: Q4-2014 estimate source.

Two of the most important reasons Tim Hortons is a great business are that it has had, and continues to have, many growth opportunities and requires very little capital to grow.

Here are some opportunities for growth that we see for Tim Hortons:

  • If you consider the number of stores per capita in Ontario and assume other provinces achieve the same level of penetration, Tim Hortons could grow its retail locations by 28% in Canada alone. This assumes no other stores are added in Ontario.
  • Tim Hortons has barely scratched the surface of the U.S. market with most locations concentrated in the Northeastern U.S. Over time, we expect it will expand into other areas of the U.S.
  • Tim Hortons is constantly innovating so its customers spend more. 15 years ago you probably wouldn’t have thought of Tim Hortons as a place to have lunch but today it does more business at lunch than any other quick-serve restaurant in Canada (including McDonalds and Subway)

In addition to capitalizing on growth, Tim Hortons is in the favourable position of not having to invest a lot of capital to generate that growth. Said differently, Tim Hortons is primarily a royalty company. So for every cup of coffee sold, the franchisee kicks back a portion of the sale price to Tim Hortons. In most cases, the franchisee puts up the money to build a Tim Hortons and that same franchisee pays Tim Hortons a royalty on everything they sell for the right to use its brand.

A company that’s very profitable, has lots of opportunities for growth and requires very little capital to grow is usually a great business. We knew this in 2008 when we originally purchased Tim Hortons at $27.15 per share and we also knew it when Burger King showed up a few months ago and offered us $65.50 per share in cash and 0.8025 common shares of the new company for the right to merge with it. As such, we continue to own Tim Hortons today as part of the larger company called Restaurant Brands International (which contains both Tim Hortons and Burger King). We continue to believe time will be the friend of Tim Hortons/Restaurant Brands.

When making investment decisions in the face of uncertainty, we find it helpful to remember that time is the friend of a great business.

We try to remember that our goal is different than most investors

Most investors want to reap large financial gains but don’t want to stray from the normal path unless it’s to the upside. We think this goal is completely unrealistic. In trying to make decisions about the future, we realize that in order to achieve outsized returns, you can’t look like the index you’re trying to beat. In fact, beating an index sometimes requires you look wrong in the short term to be right in the long term.

Let’s return to Tim Hortons to expand on this point. Below is the same graph we just showed demonstrating the progression in earnings per share for Tim Hortons over time but we’ve superimposed the share price on the original graph.

Earnings growth and share price volatility


Source: Bloomberg. Annual adjusted earnings per share and stock price in C$. Decline in stock price does not include reinvestment of dividends. 34% decline: 12/10/2007 – 11/20/2008; 20% decline: 01/02/2009 – 05/22/2009; 12% decline: 05/10/2011 – 08/08/2011; 22% decline: 05/07/2012 – 12/04/2012. Stock price as at December 12, 2014. FactSet Research Systems Inc.: Q4-2014 EPS estimate.

In four periods during the last seven years the share price fell by more than 10%. The business kept growing, earnings kept going up, and yet short-term fears crept into the equation. As the share price fell many investors found themselves paralyzed because they didn’t know the value of the business and/or didn’t want to commit to buying more of a business whose share price was going down. They were fearful of having performance that diverged in the short term from the index.

Our goal is to build wealth over ten years so we saw the short-term decline in price as an opportunity to buy more of a great business for less. We added to our position in Tim Hortons during three of the four periods and weren’t worried our performance might diverge from the index in the short term.

Share prices will fall in the short term for all sorts of reasons and many aren’t company specific. If you know the value of a business, you can take advantage of price declines to build wealth. To do so, you have to know more than the value of the business. You also have to be comfortable with the notion that your performance might look different than the index.

When making investment decisions in the face of uncertainty, we find it helpful to remember that to meaningfully beat a benchmark over ten years, you can’t look anything like a benchmark.

We try to remember that we’ll make mistakes

Decisions can be nerve-racking because the outcome is never known at the time of the decision. It’s the fear of making a mistake that sometimes interferes with the decision process itself. At EdgePoint, we make decisions based on facts and then apply sound reasoning to those facts. In order to maintain confidence in our judgment, we must first get comfortable with the idea that every year we’ll make mistakes. Here are the holding period returns (in C$) of some of our dumbest investments over the past six years:

EdgePoint Global Portfolio

  • Connaught PLC: -68%
  • Western Union Co.: -26%

EdgePoint Canadian Portfolio

  • BlackBerry Ltd.: -76%
  • Lululemon Athletica Inc.: -11%
  • Anderson Energy Ltd.: -57%
  • Vero Energy Inc.: -49%
  • Pace Oil & Gas Ltd.: -63%

At the beginning of every year we believe we own the best collection of businesses. However, it’s the realization that some of those ideas won’t work out as planned that makes us diversify our Portfolios by business idea. By having a collection of different ideas, we try to limit our exposure to inevitable errors in judgment.

We’ve written extensively on the importance of diversification in the past. For more of our thoughts on this topic, go to chapter five of our Investor Day 2012 video in the Resources section at While the discussion is focused on Cymbria, it represents our overall philosophy on diversification.

We try to live in a narrow emotional band

The best portfolio managers live in a narrow emotional band. They never get excited when things are going their way, and never get down when things are moving against them. They stay focused on the facts.

The markets are irrational due in large part to the human emotions of fear and greed. The best example of this is how the markets fluctuate by significant amounts over short periods. Businesses don’t experience wild changes in value daily, but when you add emotion to the mix, their stock prices suddenly do.

At the end of every day commentators will pontificate about why the markets did what they did that day, but it’s almost all nonsensical noise. We have yet to hear a commentator tell their audience the truth, which would sound something like this: “The markets gyrated a lot today, but the underlying business values didn’t really change all that much. The root cause of the gyrations was reporters like me reporting stuff of little value which somehow had an effect on the human emotions of fear and greed.”

When making investment decisions in the face of uncertainty, we try to remember that shutting out the noise is a valuable skill.

We try to surround ourselves with sharp thinkers

It’s tough to find individuals with the right blend of passion, intelligence and energy in this business. We are fortunate to work with three people who have just the right mix. Ted Chisholm, Frank Mullen and Andrew Pastor add a lot of value to your EdgePoint investment because they each bring different personalities, perspectives and skills to the table every day. We work as a cohesive team with each member contributing in their own unique way. While it isn’t decision by committee, we do work as a collective, and in our minds we wouldn’t be where we are today without the contributions of each team member. Making decisions in an uncertain world can be easier when you’re surrounded by some of the best thinkers in the business.


The world is uncertain, and we appreciate that you’ve entrusted a portion of your savings to us in this uncertain world.

We continue to approach investing in these markets with measured confidence, value your trust in us and look forward to building your wealth over the long term.

Annualized returns as at December 31, 2014:

EdgePoint Global Portfolio, Series A

YTD: 18.71%; 1-year: 18.71%; 3-year: 23.98%; 5-year: 14.92%; since inception: 18.58%

EdgePoint Canadian Portfolio, Series A

YTD: 9.39%; 1-year: 9.39%; 3-year: 14.56%; 5-year: 10.07%: since inception: 16.49%

EdgePoint Global Growth & Income Portfolio, Series A

YTD: 13.91%; 1-year: 13.91%; 3-year: 18.02%; 5-year: 12.28%; since inception: 15.36%

EdgePoint Canadian Growth & Income Portfolio, Series A

YTD: 8.36%; 1-year: 8.36%; 3-year: 12.17%; 5-year: 9.06%: since inception: 13.75%

Source: Bloomberg. Major market indices referenced include MSCI World Index and S&P/TSX Composite Index.

EdgePoint Investment Group may be buying or selling positions in the above securities. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Please read the prospectus and Fund Facts before investing. Copies are available from your financial advisor or at Unless otherwise indicated, rates of return for periods greater than one year are historical annual compound total returns including changes in unit value and reinvestment of all distributions, and do not take into account any sales, redemption, distribution or optional charges, or income taxes payable by any securityholder, which would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This is not an offer to purchase. Mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale. This document is not intended to provide legal, accounting, tax or specific investment advice. Information contained in this document was obtained from sources believed to be reliable; however, EdgePoint does not assume any responsibility for losses, whether direct, special or consequential, that arise out of the use of this information. Portfolio holdings are subject to change. EdgePoint mutual funds are managed by EdgePoint Investment Group Inc., a related party of EdgePoint Wealth Management Inc. EdgePoint® and Owned and Operated by InvestorsTM are registered trademarks of EdgePoint Investment Group Inc. Published January 9, 2015.

EdgePoint Q2 Summary

EdgePoint investment commentary 2nd quarter, 2014
Our commentary is atypical this quarter. If you’re looking for our insights into your Portfolios or
discussions of businesses you own, please skip this commentary and go directly to our
YouTube links. There you’ll find video of our discussions from Cymbria Investor Day held on
May 21st, 2014. While specific to Cymbria, many of the topics will be relevant to your Portfolios.
The sections which will be of particular interest to you will likely be Chapters 5 to 9.

The value of sound advice
By Tye Bousada, portfolio manager

There’s a fair amount of uncertainty in the markets today. Will China slow further or won’t it? Will
the situation in Iraq escalate causing the price of oil to spike further? Are valuations too
stretched after more than five years of a bull market? Where will interest rates be a year from
now? Will corporate profit margins return to a more normalized rate from what appears to be an
elevated level today?

Although these are all valid questions, they are short-term risks. Our investment approach,
which we’ve written about extensively in the past and will address aspects of later in this
commentary, has helped us navigate through a variety of historical risks and we believe will
continue to serve us / you well over the long term.

With this as a background, we believe the biggest financial risk you face is not outlined in the
first paragraph above. The reality is the biggest single financial risk that you face is that you’ll
live a long time.

If it is your goal to live a long life, then it’s our belief that a good financial advisor can help limit
the financial risks you’ll inevitably face on the road to achieving your goal – so you can actually
afford to live that long life.

Let us state up front that we aren’t cheerleaders for the entire financial advisory community.
According to Advocis, the Financial Advisors Association of Canada, there are over 90,000
advisors in this country, and we deal with only 3% of them at EdgePoint (Source: Advocis).
The hard reality of math is that over 45,000 advisors in this country are below average and 85,500 don’t rank in the top 5%. If we asked you whether you’d prefer to have an advisor in the top 5% of their field or the bottom 95%, the answer would be obvious. Therefore, it shouldn’t surprise you that when we started EdgePoint, we set out to deal solely with those advisors who had the ability to add the most value for their clients over the long run.

We thought we’d spend some time during this quarterly commentary discussing why we partner with the advisors that we do. More specifically, we’ve attempted to identify a few of the key attributes that we look for in advisors before we try to partner with them. In our observation, advisors with these attributes have generally been more successful at helping their clients meet their financial goals:
Attribute #1
The advisors we try to partner with are more focused on getting you to Point B and less focused on the stuff around Point A.

You’re at Point A today and have a financial goal, which we’ll call Point B, sometime in the future. Many investors are in search of the secret path of success to Point B. You know the path we are talking about – the magical low volatility, high return investments that can double your money in a flash, and never make you feel uncomfortable to be invested in them. Here’s the problem with that path, we aren’t aware of anyone that has found it – ever. However, in spite of the fact that the path is pure fiction, the vast majority of the financial services industry attempts to make you believe they can offer it to you.

The reason the industry is successful at selling the average investor the wrong thing at the wrong time is because many investors focus on all the noise around Point A (the predictions, the obsessive search for trends and the intense scrutiny of day-to-day market activity), and the majority of the industry plays on that short-term focus. For example, during periods of fear in the capital markets, the industry will try to sell you investments that promise “low volatility and guaranteed rates of return”. The problem with this strategy is these investments are already expensive because everyone else is buying them. Likewise, when everyone is enthusiastic about the future, the industry will try to sell you whatever currently has the best performance. Again, not because it’s necessarily good for you, but because it’s easy to sell.
Getting caught up in all the short-term noise around Point A means a lot of investors make financial decisions that will result in them never achieving their financial goal (or Point B), because a good chunk of the financial services industry is geared towards selling products that play on the human emotions around Point A.

Since the inception of EdgePoint, our Portfolios have not been easy for financial advisors to sell. First of all, EdgePoint has not been a household name like many other companies in the industry. Secondly, we haven’t tried to become a household name through advertising, choosing instead to re-invest the money that we could have spent on fancy commercials into lower fees for you, the end investor.
Thirdly, we told the financial advisors we were thinking about partnering with that the performance of EdgePoint Portfolios could be volatile at times as the markets gyrated.

One of the most important things an advisor can do to help their clients reach Point B is to recommend what their clients need instead of what makes them feel good in the short term. When your advisor convinced you to invest in EdgePoint Portfolios, they believed it was what you needed. Prior to your advisor talking to you about EdgePoint, you had likely never heard of us. You had never seen a commercial from EdgePoint. No one was talking about us at cocktail parties or your kids’ soccer games. To boot, your advisor was likely recommending EdgePoint Portfolios during a time when the markets were volatile and when most investors would have preferred to buy a “low volatility” investment like a government bond.

Instead of taking the easy path and selling you what made you feel most comfortable around Point A, your advisor tried to identify what you needed to get to Point B, and sold you that instead. Their focus on your Point B is the first way that an advisor adds value for you.

Attribute #2
The advisors we try to partner with have convictions and invest behind them.

There are over 16,212 funds in Canada to choose from (Source: The Fund Library). Your advisor has to sift through all these investment alternatives and find the ones best suited for you. They constantly gather facts and apply reasoning to those facts to come up with convictions that they can invest behind.
The gathering facts part usually involves reading all sorts of material from investment management companies, analysis of historical results, interviews with investment management representatives (including portfolio managers) and industry analysis.

The reasoning part is a little less scientific, however, no less important. Reasoning is judgment based. Their judgments allow them to form convictions which form the basis of their recommendations.
Advisors with a high conviction approach stand behind an investment philosophy and core set of beliefs that they stick to through the inevitable ups and downs of the markets. These convictions aren’t always popular and at times will seem difficult to defend. But, convictions built from extensive research and sound judgment result in the development of recommendations that advisors can have confidence investing behind.

The advisors that we partner with understand and believe in the EdgePoint investment approach, and have the conviction to recommend it. This investment approach can briefly be described as follows:
We’re long-term investors in businesses. We view a stock as an ownership interest in a company and endeavour to acquire these ownership stakes at prices below our assessment of their true worth.
We believe that the best way to buy a business at an attractive price is to have an idea about the business that isn’t widely shared by others – what we refer to as a proprietary insight. We strive to develop proprietary insights around businesses we understand. We focus on companies with strong competitive positions, defendable barriers to entry and long-term growth prospects that are run by competent management teams. These holdings generally reflect our views looking out more than five years. We firmly believe that focusing on longer periods enables us to develop proprietary views that aren’t reflected in the current stock price.

Our approach is deceptively simple. We buy good, undervalued businesses and hold them until the market fully recognizes their potential. Following this approach requires an ability to think independently, a natural curiosity necessary to search out new ideas and a commitment to embrace the thorough research required to uncover opportunities the market doesn’t fully appreciate.

The deceptive part of our approach is that sometimes you need to look wrong in the short term to be right in the long term, and that isn’t always easy to do or support if you are an advisor. As mentioned earlier, our performance since inception has been pleasing but hasn’t always been easy to support. Since our inception in 2008, we’ve had three different periods where we looked dumb. These periods resulted in us trailing our respective benchmarks. Your advisor had conviction in the approach and our ability to execute against it. As such, they continued to recommend that you hold your position, or in some cases even suggested that you add to it, which would have resulted in an even more pleasing return for you.

It’s their ability to act on their convictions that leads to the second way that your advisor adds value for you.

Attribute #3
The advisors we try to partner with live in a narrow emotional band.

The best portfolio managers live in a narrow emotional band. They never get excited when things are going their way, and never get down when things are moving against them. They stay focused on the facts. The same is true for the advisors, who in our judgment add the most value.

The markets are irrational due in large part to the human emotions of fear and greed. The best example of this is how the markets fluctuate up and down by significant amounts over short periods of time. Businesses don’t experience wild changes in value on a daily basis, but when you add emotion into the mix, they suddenly do.

At the end of every day, commentators will pontificate about why the markets did what they did that day, but it’s almost all nonsensical noise. I’ve yet to hear a commentator tell their audience the truth, which would sound something like this: “The markets gyrated a lot today, but the underlying business values didn’t really change all that much. The root cause of the gyrations was reporters like me reporting stuff of little value which somehow had an effect on the human emotions of fear and greed”.
Shutting out this noise is a valuable skill. The resulting narrow emotional band keeps your advisor focused on the important stuff for you.
Attribute #4
The advisors we try to partner with understand emotional biases.

As humans we’re hardwired with behavioral biases. Many humans, including yours truly, suffer from behavioral biases at times when it comes to financial decisions. Changing our genetic makeup to free ourselves of these biases is not an option, so the next best thing is to be aware that they occur. Awareness helps us fight them. As portfolio managers, we frequently have to consider whether our judgments are impacted by any of the following biases. Similarly, our advisors regularly question whether they or their clients suffer from one of the following:

1. Confirmation bias – the tendency for people to favour information that confirms their beliefs
The effect is usually stronger for emotionally charged issues (like money). This can lead to misplaced confidence when it comes to investment decisions, which in turn often results in investors never reaching their Point B goal.

2. Loss aversion – the tendency to strongly prefer avoiding losses to acquiring gains
As investors, we hate losing money much more than we love making it. Volatility in the capital markets, however, is a fact of life and most investors need some small part of their portfolio invested in businesses in order to achieve their Point B financial goal.

3. Recency bias – the tendency to extrapolate recent events into the future indefinitely
EdgePoint Global and Canadian Portfolios have returned compound annual rates of return of 18.01% and 18.06% respectively since inception. It’d be wrong to extrapolate this into the future when planning for your Point B. A scary example of this is a story that Nick Telemaque, one of our internal EdgePoint partners, told me the other week. Nick recently met with an advisor whose client was suffering from this bias, wanting to make an investment decision based on how well the markets had done over the last six months. In our judgment, this is a sure fire way to not achieve your Point B plan.
4. The planning fallacy bias – the tendency to over-estimate our planning and execution skills
In the book “Thinking Fast and Slow” by Dan Kahneman (a book given to us, your portfolio managers, a few years ago by Bob Krembil), Mr. Kahneman outlines what he calls the planning fallacy. It’s the tendency to underestimate the time, cost and risks of future actions and at the same time overestimate the benefits of those actions. This bias can lead people to save less than they need to today with the belief that everything will work out in the future. Unfortunately this failure to save adequately jeopardizes their ability to achieve their Point B plan.

Many wouldn’t think that psychology could play such an important role in financial well-being, but being aware of these biases is important. The advisors we try to partner with have experience identifying and working through these biases with their clients.
The best portfolio managers in the world can’t predict the stock market. The best they can do is create the circumstances for success through the application of their investment approach and let the outcomes play out. Like portfolio managers, the best advisors can’t predict the future either. Instead of an investment approach to fall back on, they have a framework of positive attributes to help them create the circumstances for success. In our judgment, the advisors with these attributes have a better chance of getting their clients to their goals at Point B. These attributes are tough to develop, and that’s why we only partner with a minority of the industry.
A reminder
As mentioned at the beginning of the commentary, if you’re looking for our insights into your Portfolios or discussion of businesses you own, then please go to our YouTube links.
We’re mandated to include standard performance here only because Tye references since inception returns in his commentary. If it were up to us, we wouldn’t bother. We measure investment success over periods of ten years or more and place little value in the short-term investment results shown.
Annualized returns as at June 30, 2014:
EdgePoint Global Portfolio, Series A
YTD: 6.06%; 1-year: 23.84%; 3-year: 16.98%; 5-year: 14.22%; since inception: 18.01%
EdgePoint Canadian Portfolio, Series A
YTD: 9.17%; 1-year: 26.34%; 3-year: 11.11%; 5-year: 14.69%: since inception: 18.06%
EdgePoint Investment Group may be buying or selling positions in the above securities. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Please read the prospectus before investing. Copies are available from your financial advisor or at Unless otherwise indicated, rates of return for periods greater than one year are historical annual compound total returns including changes in unit value and reinvestment of all distributions, and do not take into account any sales, redemption, distribution or optional charges, or income taxes payable by any securityholder, which would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This is not an offer to purchase. Mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale. This document is not intended to provide legal, accounting, tax or specific investment advice. Information contained in this document was obtained from sources believed to be reliable; however, EdgePoint does not assume any responsibility for losses, whether direct, special or consequential, that arise out of the use of this information. Portfolio holdings are subject to change. EdgePoint mutual funds are managed by EdgePoint Investment Group Inc., a related party of EdgePoint Wealth Management Inc. EdgePoint® and Owned and Operated by InvestorsTM are registered trademarks of EdgePoint Investment Group Inc. Published July 3, 2014.