The Goodwill Investing Journal - Issue #39

Hello everyone!

Apart from seeing people get pumped up about taking proper care of their finances, one of the best things about writing this Journal is actually putting into practice exactly what I’m sharing with you. Section 1 is a prime example.

Anyway, thanks for being here, I really appreciate all your feedback and inspiration week in and week out. If there’s anything you’d like to explore, let me know.

Have a great thanksgiving weekend.

PS the TFSA post from last week had a lot of interest, so in case you missed it, you can read that issue here.

1. Personal Finance

Simple hack to make sure all your investment dollars are working for you, at all times.

→ Automatically reinvest your dividends.

Why is this important?

• Compounds growth: When you reinvest dividends, you're buying more shares, which accelerates growth over time. It’s makes your money work harder for you.

• Maximizes returns: Keeps your money in the market and stops you from making dumb market calls, or worse, allowing your money to waste away to inflation.

• Set it and forget it: No need to decide what to do with your dividends. Let them do the heavy lifting.

• Boosts your total return: Reinvesting combines market growth and reinvesting dividends that greatly improves your Total Return - which is the most important for successful long term investing.

Case study:

If you had invested $10,000 in the S&P 500 in 1980, here are the results today:

1. With dividends reinvested: The final value would be $1,364,135 with a compound growth rate of 11.82%.

2. Without reinvesting dividends: The final value would be $384,865 with a compound growth rate of 8.65%.

Big difference.

This clearly shows the power of reinvesting dividends over time.

It’s extremely easy to set up (see the screenshots below from my Wealth Simple smartphone app), so don’t waste time, open up your app, and Nike it.

🎁 Get $25 when you open a Wealthsimple account. Use my referral code: PRGS3Q

2. Stock Markets

There is a major problem with listening to market forecasters.

As we near the Trump vs Kamala election, the global capital markets are on edge.

This is understandable. Uncertainty fuels volatile markets, where money changes hands at an extremely rapid pace as investors position for what they expect (guess) will happen in the election.

Does anyone remember when Donald Trump ran for president in 2016 and the night he won - which took most of the world by surprise - overnight stock futures fell by 5%, hitting a circuit breaker to limit further declines?

This signaled a wild decline for the next trading day and Japanese and Hong Kong stocks fell 5.4% and 2.2% during trading, respectively, solidifying the narrative of carnage to come.

But what happened when the market opened the next day? Stocks absolutely ripped higher and kept climbing throughout his entire 4-year term.

This is just one example that highlights how market forecasters get WAY too much attention by the retail crowd - because as humans, we listen carefully to bad news while shrugging off the positive as delirious - it’s in our DNA.

Furthermore, anyone who watched The Big Short knows who Michael Burry is - the doctor-turned-hedge-fund-manager who shorted the housing market and made billions on that trade. Christian Bale made this guy famous and everyone thinks he’s a savant. He’s not. It was a great call, but more than a decade later, that’s about all he’s got right.

In January 2023 he posted an ominous tweet: “Sell”

Since then, the S&P500 is up 41%.

It’s about time people stop idolizing hollywood characters and market pundits.

Bill Gross, Gary Shilling, David Rosenberg, Jim Cramer and hundreds more of widely followed market pundits have been calling for the ‘end’ for years, only to be proven wildly wrong.

Indeed, since the day I entered the workforce in 2010 there has been so much negativity on the macro stuff and more often than not I’ve seen a great many people - myself included - fall prey that influence one way or another, ultimately hurting our return potential.

Yet here we are, life is still humming along and things usually work out.

And the S&P500 is up nearly 5x since 2010.

Remember this the next time you turn on Bloomberg TV:

Pessimists sound smart. Optimists do better.

3. Real Estate

When investing in commercial real estate, right after location and property quality, the lease structure you have with your tenants is critical. Two key types of leases you’ll encounter are Gross Leases and Triple Net (NNN) Leases.

In a NNN Lease, common in industrial, retail, and office spaces, the tenant is responsible for covering property taxes, insurance, and operating expenses. This shifts the burden of fluctuating costs away from the owner, making cash flow more predictable. NNN leases provide long-term stability with less overall risk to the property owner.

On the other hand, Gross Leases—common in multifamily properties—mean the landlord covers all expenses related to the property. While this may provide higher returns when costs are stable, any increase in expenses (taxes, maintenance, etc.) eats into the owner’s profits.

And in the last few years, multifamily investment properties with Gross Leases have come under a ton of pressure because operating costs have inflated anywhere from 40-60% while rents have not kept up.

And this is even more challenging in a location like British Columbia where there are very strict rent controls in place, so landlords have been struggling to maintain profitability as their cash flow gets squeezed.

There is no ‘best’ alternative, each has its own merits. But before you go buying commercial investment properties, I share this so you can carefully consider the rental income and expense lines and the implications of the lease profile on your bottom line.

1 Quote

A Question

Who do you think will win the US Election?

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Thank you

Eddie Gudewill, CFA

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