Foresight - Winter 2022

The financial market volatility we referenced in our Fall Foresight is unfolding as expected and likely will continue into early/mid 2023. Current volatility aside, we are very encouraged by developing long term major trends as we move into the next economic cycle. We see the potential in:

Major capital spending in renewable energy to combat climate change

Renewable energy generation and energy storage are major components of the investment spending to decarbonize energy creation and provide for the future electrification of vehicles globally. To participate in the global climate trend, our portfolios own the two CI Munro Partner ETFs, the BMO Clean Energy ETF, Brookfield Renewable Partners LP, and Innergex Renewable Energy Inc.

Manufacturing automation to offset a declining workforce as Boomers retire

Most of the world’s major economies are facing the demographics of a declining workforce as the Boomer generation retires. The demographics of an aging, declining workforce can only be counteracted by either immigration or by automation/new technology that allows producers to do more with a smaller workforce. Immigration does not solve this issue globally as it only shifts workers from one economy to another. To participate in this productivity trend, our portfolios hold 13% of equities in the Technology sector, including iShares Global Technology ETF, iShares NASDAQ 100 ETF, iShares Global Industrials ETF and CI Munro Alternative Global Growth ETF.

Infrastructure spending to replace aging bridges, roads, water, and sewers

There are U.S. forecasts calling for US$150Bn a year in infrastructure spending through this decade. The American Society of Engineers reported in 2021 that it saw a funding gap of US $2.6Tr through to the end of the decade which, if left unaddressed, could cost the US economy upwards of $10Tr in GDP by 2039. In November 2021 the US Congress approved infrastructure spending of US$ hundreds of billions. To participate in the infrastructure spending trend, our portfolios hold 10% of equities in the Industrial sector.

Deglobalization trend that requires the security of supply chains

The importance of security of supply chains became very apparent with the shutdown of the global economy during the Covid pandemic. Major investment will be required to rebuild local manufacturing capabilities, particularly in North America and Europe. To participate in this restructuring trend, our portfolios own iShares Global Industrial ETF, Brookfield Infrastructure Partners and Stantec Engineering.

These four long-cycle investment themes will have significant impacts on their respective economies, resulting in increased earnings for companies, higher taxes for local governments and healthy global employment environments. Current market concerns of rising interest rates and high inflation aside, we are optimistic for the coming decade as these major investment themes come to fruition.

The Plough Man & the Astronaut

The Evolutionary Journey to WealthNess

(a sneak preview)

I have spent the past 2 1/2 years writing my first-and-last book on the subject of Personal Finance. The first draft was completed in July 2022 and is now resting with a publisher in the UK. The book is an invitation to a journey...with an end goal of attaining multi-generational healthy Personal Finance. “Evolution” is about the gradual development of something from a simple form to a more complex form, and involves the impact upon successive generations. “Journey” is an evocative term that conjures newness, renaissance, growth, excitement...and tension from the fear of the unknown. “WealthNess” is a term I conjured several years ago to mean: “A state of abundance of health and material possessions to achieve a life well-lived”.

I aspire that the material herein will appeal to a broad spectrum of readers ....as EVERYONE must deal with Personal Finance. As much of this book was written at an Olympic mountain, Whistler, I have borrowed from the ski trail protocol for beginners, intermediates and experts, using green circles, blue squares and black diamonds. While experts can skip or skim over the green topics, I have included advanced topics and ideas that I have conjured over the years that will raise their game. These include the likes of “the H-Factor”, “total savings rate” and “return on contributed capital”. The less-skilled will find lots of useful material in the green circle, and they can avoid glassy-eyed boredom in the black diamond topics.

Throughout the book, you might find yourself wearing different hats, which will impact HOW you respond to the material. Much of the material is aptly suited to single people. Then, there is a chapter on Couples and Money, which aspires to facilitate more congruence in their money decisions and goal-setting. The following chapter aspires to help parents to guide and influence their children’s attitudes to money, which start forming at a very young age. My take is that parenting is the genome of society. The human genome contains all the information needed for an individual to develop and function. Thus, the sum of all parenting produces society.

The Family Confab chapter is about multi-generational attitudes to money, potentially spanning from great grand children to great grand parents. We encounter the terms Presiding, Leading and Following Generations. It is uncanny how many cultures have different metaphors for the same concept – that the wealth that gets created in Generation #1 seldom lasts through Generation #3. Family Confab is a black-diamond project for progressive families to inculcate sound money values that will transcend those three generations. The “Four Quarters“ encapsulate the life cycle from birth to death that we all sign on for, however undeliberately. The quarters aren't delineated so much by TIME, as by the STAGES that we progress through. Similarly, the stages can’t have titles attached to them because we don’t all follow the path of marrying, having children etc. However, at the financial level, there IS a broader norm...we  grow up through childhood, get educated in some fashion, enter the workforce, acquire debts (like mortgages), (hopefully) start to save, and in the last stages, we retire to become pensioners/capitalists. All of this to say...different hats!

Most of us don’t deliberately think about our relationship with money; rather, we simply act it out day-to-day as we transact in the world of commerce. In his book “Barking Up the Wrong Tree”, Eric Barker notes “Instead of behaviour following our beliefs, often our beliefs come from our behaviours”.

The “evolution” that we referred to above is really just a fancy term for change! Darwin’s famous insights on evolution actually are about adaptation. When Personal Finance management isn’t working out well, things need to change. But cognitive dissonance can mask the failure!

Section Two of the book, “Chrematistics”, will try to uncover your core beliefs about money and wealth. That belief system, perhaps undescribed, draws from your root attitudes, is funded by your root sources and drives your root purposes with wealth. There are chapters that investigate each of these.    

It is a valuable introspection to define your root attitudes about money..where did they come from...how did they form? If they passed on to you from Presiding Generations, was there a financial pathology in your ancestors? Are you a vector of this same pathology to Following Generations? What antidotes are needed to halt the pathogen?

Root purposes start with the Excalibur question: What’s the money for? The absence of a cogent response slays its deployment.

Robert McGarvey offers an interesting thought on Root Sources: “Assets are institutional vessels that capture and store human energy”. 

Over a life-time, funds flow in from a) your labours b) income from your savings and c) blessings passed on to you from others. I like the concept of Financial Silos...building pots of money for working capital, fun capital, retirement capital, loving capital and legacy capital. As mentioned earlier, when you progress through the Four Quarters, your root sources switch from being a worker to being a pensioner/capitalist. If you haven’t done your “saving job” whilst a worker, your capitalist Quarter may be lean...unless source c) happens. In your Second and Third Quarters, you may need to do a Gary Klein pre-mortem, and envisage yourself extrapolated forward to the Fourth Quarter and under-funded... The so-called wake-up call! Again..Eric Barker: “People who contemplate the end actually behave in healthier ways– and therefore may actually live longer”.

Money needs to be considered at three levels: academically, intellectually and spiritually. Academically refers to the textbook learning in home economics, accounting, basic finance and tax, all associated with university degrees. Intellectually refers to drawing upon our gained wisdom and engaging our minds in good decision-making. Eventually, WealthNess takes on a spiritual tone. Look up the word “spiritual” in the dictionary and you will see almost all definitions have religious connotations. However, the etymology of the word derives from Latin for “breath” and is the thing that animates life. In a secular context, spirituality relates to relationships, values and purpose, and attaining a sense of peace. Getting your Personal Finances in order....WealthNess.... may be a cornerstone of secular spirituality as it enriches relationships, values and purpose.

Our McLuhanesque probe will ask the question: What’s the most important thing? ..and then re-ask it with an extra caveat. Chapters in Section Two will also investigate good decision-making and happiness. Full disclosure here: I LOVE good decision-making. Some people are very good at it, and some are awful. I summarily describe life as the giant inner game within oneself. I think it behooves all of us to undertake unbiased introspection on our own decision-making skills. I further think it is wise to “intellectualize” the process, not to “emotionalize” it. What would that look like? In the chapter, we visit various decision-making modes. I think these should be written down and consulted when material decisions need to be made. Perhaps over time, this step can be scrapped if we manage to  integrate these modes into our brain.

We also will fantasize about the elusive pursuit of happiness and visit learned literature and world surveys. The research has not found a clear correlation between income level and happiness, after a (relatively modest) base-line income amount. What is clear is that the income/happiness correlation issue isn't about the amount of income, but its relativity to others. Time was when that only involved the 200 others living in your village; today with global media, you might say it involves millions or billions!

However you slice and dice these various takes on happiness, it seems to distill down to one thing: attitude...the trait, not the state. We can interpret that as either delightfully, or annoyingly, simple! 

Section Four is about planning. You will start this Section with a pop quiz to flush out your “Rumsfeld” factor....what you don’t know you don’t know about your Personal Finance. This is the kick-starter to Festinger’s cognitive dissonance. We will address planning across the ages and stages... the Four Quarters, and the psychology of the transitions.

At some point, it may be prudent to polish the crystal ball and undertake a full-fledged Financial Plan, which will answer many questions, including ones you hadn’t even thought of. Life’s second BIGGEST question is “Will I have enough”? (Pop quiz to guess what life’s BIGGEST question is?) and a proper financial plan should answer that. Sometimes the root retirement question is driven by someone’s intense desire to quit their job. The Plan result may give comfort that things will work out alright whence employment income ceases. However, by definition of simple math, the longer one works, the better off they are...financially speaking! The Black Diamond folks may enjoy my solution to this conundrum: The H Factor, which uses the same financial plan BUT uses a different discount rate for future cash flows, based upon qualitative life factors. You, the unhappy worker, get to choose a different (higher) discount rate for your Planner to use, which will lower the future cost of not working. I call this your Freedom Index.

Section Five is an uncomprehensive crash course on investing. There is a multitude of books on this topic and, indeed, some very good ones! So, I do not aspire to compete with these in this book. I encourage metaphors to both design principles and engineering, as if building your home. It is beautiful when large, complex things succinctly can be distilled to simplicity. Nick Murray takes us there with the simple guiding questions: “Who do you love and what do you love”? Followed then by the question “What’s the money for”? I aspire to add insight to the body of investing knowledge by introducing some useful innovations on rates of return.   

The ages and stages eventually bring us to the Fourth Quarter. The bookshelf on longevity is growing rapidly, with many wise thoughts. Yuval Noah Harari gets our attention here in his book Homo Deus: “People will have much longer careers, and will have to reinvent themselves again and again, even at the age of ninety”. Joseph Coughlin speaks to the dislocation of seniors, particularly in the West, leaving them in need of affilial social institutions ...that perhaps don’t even exist at present. I introduce a term “80 minus X”, where X is your current age, and the formula hails a clarion call to get on with living life to the fullest in those remaining functional years. We visit the Japanese term “ikigai”… “the happiness of always being busy”. The longitudinal Terman project observed that seniors’ regrets were more about things not done than things done to unhappy results…. hats off to the Bucket List film with actors Nicholson and Freeman. In this self-absorbed era of “selfies”, the Fourth Quarter is a great time to engage in extrospection. This might start with what I call the “Helping Hand”...looking at the relationships in one’s life. I reflect on a client whose Dad was “always asking questions”.

This seques to Section Six on Legacy, which a dictionary defines as “Translating and extending your values or accomplishments in ways that help others to find future success”. I doubt many of us see our will in this light! An Estate Plan has a form, a substance and a spirit. The form rests with your Estate lawyer, the substance is who gets what when you draft your final will. The spirit, however, is your true legacy. If you haven’t addressed the benefits of Family Confab earlier in life, now is the time..and its never too late! As the Presiding Generation, you still have the opportunity to inculcate your heirs with WealthNess, thus seeding Family prosperity until the meteorite strikes! Lastly on this topic, I speak to legacy outside the Family to the world at large. I created the concept “N+1” to add one extra residue beneficiary in your will..charity. With the resulting tax break on a donation, the “cost” to your Family heirs is significantly reduced, and you have telegraphed your value system.  

As you turn the last page, I hope you conclude “I feel like I just earned a PhD in Personal Finance”.

Throughout the book, I interpose various “Sketches in Personal Finance”..stories from the trenches over my 45 years. Many of these are happy, success stories; others are unhappy, failure stories.