Hello everyone!

Yesterday was a great day, went back to my Alma Matter at GNS to chat money, finance, and entrepreneurship. An impressive young man named Ryan, a Grade 12 senior, toured me around the school but more interestingly was telling me about his ongoing trading activities (he uses Interactive Brokers and his top pick is PureCycle Technologies), how he uses chat GPT for ideas and research, python coding for data analysis, oh, and he’s also building a rocket in the science lab. What!!!! This kid is going places.

Anyway, so many great questions and seeing these kids get engaged really gives me a ton of optimism for the next generation:

Questions I started with:
- who wants to be an investment banker? (10% hands up)
- who wants to be a self made millionaire? (>50% than half hands up)
- ok, great, but why really do you want to be rich?

Top answers: they want freedom and independence; to be able to do things they want when they want; not be on the classic cycle of 40 hour work weeks and be chained paycheck to paycheck for life; and to do some good in the world.

There it is folks. These kids are already well on their way to being far more successful than my generation. I can feel it. And it’s so exciting.

You can watch the recording on Youtube (30 mins) and download the presentation here:

Hope everyone is doing great.

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Personal Finance

How I would invest my first $1,000 dollars—as a former portfolio manager.

(1) I wouldn’t hire a portfolio manager

Why? Because they charge fees, usually in the range of 1-2%.

When you are starting to build wealth, you should try not to pay any more fees than you have to. Creating wealth takes time, and fees will slow you down. For DIY investors, low cost ETFs are the way to go.

Caveat—while I suggest avoiding portfolio managers, I am not saying they aren’t valuable. Some are, very much so, like the team I used to be apart of (we still maintain family accounts with them). I’ve discussed this at length in a previous issue: Debating the Good and Bad of Financial Advisors.

However, for those early in their money making lives, you want to avoid paying too much in fees.

Plus, unless you have a large amount of money, most Portfolio Managers won’t even take you on as a client. If they do, they will pretend to care about you. But they don’t; not really, and not yet.

They are probably looking at your parents riches and determined you are likely going to get an inheritance of worthy size, and so they want to wrap their arms around you early on.

(2) Open a Wealthsimple Brokerage Account (or Vanguard if you are American)

Do it from your iPhone, it takes 5 minutes.

(3) Open a Tax Free Savings Account (or Roth IRA if you are American)

Growth is tax free, and when you take the money out down the road, also tax free.

This is hugely important and I don’t care who you are or what you do for a living, you MUST have a TFSA. For more information on this point, read my piece called The most powerful wealth creation tool.

(4) Contribute $1,000 to the TFSA from your bank account

Money will transfer in 5 minutes.

Pro tip → set up automatic contributions

(5) Buy an index fund like the S&P500

Why an S&P500 index fund? Because you get hundreds of the best companies in the world, super low cost (basically free), automatically rebalances itself, and virtually no Portfolio Manager will ever beat the performance of this index.

ETFs allow ordinary people to be extraordinary investors.

XSP, XUS, VFV, IVV are the most popular ticker symbols. Pick one and buy it.

(6) If you want to keep 10% in cash

Buy a money market index fund like HISA. Safe as holding cash, with the added benefit that it pays 2.83% interest. Can be held for emergencies or use it to buy more stocks if the market crashes. Having some optionality is great.

(7) Do this every month

If you start earning an extra $1,000 every month, don’t spend it all. Invest it.

Automate contributions, automate the ETF purchases, and automate the dividend reinvestment.

Do this for 30 years and earn 10%, you’ll have $2.3 million.

Summary

1. Open brokerage & TFSA Account

2. Transfer money

3. Buy ETF

4. Do this every month

5. Set up auto contributions

6. Set up auto purchases

7. Set up auto dividend reinvestments

There you have it, an automatic wealth building machine.

De nada.

If any of this is helpful, please share the Journal with your friends and family.

Stock Markets

My Dad sent me a podcast from Steve Blumenthal interviewing Ray Dalio (listen on Spotify or read the transcript).

Dalio, 75 years old and the founder of the world’s largest hedge fund, Bridgewater Associates, is worth $15 Billion and is a renowned macro thinker.

My dad goes: Eddie, what do you make of this rather alarming state of affairs that we all know about, would rather ignore and well expressed by Steve and his expert coterie of commentators? Ps interesting pasted comment below too…

“When you adjust for the value of the dollar, from 1966 to 1984, you had a negative real return on stocks.” 

I love it when people email me stuff like this as it not only stimulates thought but also helps drive content for this Journal (reminder to please submit anything interesting you read or listen to, I respond to every email). I won’t repeat much of the talking points, as I’m responding to my Dad who already listened to it.

So, Pops, here are my thoughts:

Ray is one of the smartest in the room. No question. His theories on the economic machine, debt cycles and empires make great sense, his investing prowess is among the best, and his book Principles is excellent. Therefore, worth listening to.

I agree, the US is in a massive debt crisis—and while the gloomy picture painted by Ray is a real concern, I always remember Buffet’s response when asked about the potential for the US to default on it’s debt during his Annual Meeting in the midst of the 2020 pandemic:

“No. If you print bonds in your own currency, what happens to the currency will be the question,” said Buffett. “But you don’t default. The U.S. has been smart to issue its debt in its own currency.”

Indeed, the US Treasury is much different than a person’s check book - the latter can’t borrow and pay it off by printing their own money. Equally so, other competent countries who hold debt in US Dollars. Therefore the US is uniquely different than the rest of the major nations.

Obviously currency depreciation is a real factor. And so I go back to the necessity of owning stocks (ETFs), for they are the most durable and highest returning asset class the capitalist system has to offer. Over a long period of time, they outperform inflation. Also, people are waking up to the vagaries of fiat currency; this is why Bitcoin is gaining ground on Gold. In 2017 you could buy 1 Gold Ounce with 1 Bitcoin. Today, you can buy 33 Gold Ounces with 1 Bitcoin.

So are we on the verge of a major crisis? Maybe, maybe not. But everything in this world, including wealth and richness, is about relativity. So while the US currency itself is debasing away by constant issuance of fiat—i.e. the denominator gets bigger and bigger—you have to compare against the alternative. And there simply is no other nation on earth that can match the economic dominance of the United States (for now at least). Also interesting to note Dalio not only owns Gold but also some Bitcoin as a hedge against the currency issues.

Also the quote about the S&P500 showing a negative real return form 1966 to 1984 is actually wrong. I calculated the data myself and found the real return was positive over that period. 19% total return, which equals (1) percent annualized—small—but the comment was factually wrong. Sometimes you need to spot check what people say out loud to serve their point—including yours truly!

Anyway, I’m droning on a bit here.

Couple finishing thoughts:

1. Noteworthy that Bridgewater’s top holding is the S&P500 ETF.

2. If US Bonds are in such a precarious position, why does Buffet own more short term US Treasuries than the Federal Reserve itself?

3. Buffet has said in his letter’s to shareholders: “Never Bet Against America”.

Personally, I’m with Buffett.

Real Estate

A newer investor to our deals asked a question yesterday as it relates to Trump Tariffs and our industrial acquisition: 

Question: I know we covered this in our chat a few weeks back, but do you have a good sense of the revenue breakdown of our tenants with respect to US vs. Canadian clientele?  Obviously lots going on with our trade relationships and wondering if we’ve analyzed any potential impacts. 

Answer: great question… lots happening out there and hard to discern noise from reality. While we'd love to have data breakdown for revenue, we do not. Tenants don't have an obligation to disclose revenue sources by dollars or percentages. But through the tenant interviews I was able to understand that a ‘large majority’ of tenant businesses service Canadian customers.

We also looked at each website/linked in profile (as available) to get a better sense as well. Our top 6 tenants out of the 16 (about 50% of the income) predominantly service Western/Canada. Only two of the 6 (#3 and #6) indicate American exposure. One services highway fleets in both Canada and US but is a home grown Edmonton business and I imagine the bulk of their biz is above the border. So I’m not sure how tariffs would impact them directly. Another sells conveyor belts in W Canada and added a location in Chilliwack to service growing customer base in W Canada and US. Headquartered in Edmonton so again I’d hazard to guess most of their revenue is Canada based.

The next thing with all this discussion is what are the 2^nd and 3^rd order effects of the tariffs going to be on interrelated industries across Canada? I’d love to give you a smart answer but I’m not sure anyone can do the right calculus to figure out the impact as of today or what will happen tomorrow.

We go back to the strength of the leasing market for this type of product, low vacancy rate, high absorption and the diverse roster of tenants with no single tenant representing greater than 10% of our rental income.

Anyway, hope this helps and we will be attentive to all the tenants as we start managing this property next week.

1 Quote

A Question

Are you worried about the state of economic affairs/trump/geopolitics? Have you made any drastic changes to your investment portfolio based on your views?

Me—none at all. I maintain automatic S&P 500 weekly purchases, private real estate, Bitcoin, and a cash reserve for emergencies and optionality.

_____________

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Thank you

Eddie Gudewill, CFA

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