propecia psa test

Nelson Smith

Freelance writer. Contrarian investor. Watcher of baseball. Owner of At least my mom thinks I'm funny and/or handsome.

Dec 172014

Here’s Eddie, which kind of rhymes with steady. Does him writing here every week count as him and I going steady? Probably. 

The E-Myth Revisited is a book written by business consultant and writer Michael E. Gerber.  He is a passionate spokesman for igniting the entrepreneurial spirit and promoting small businesses.  I have written a brief review on my website, however, there are several concepts that merit more attention and words than what could be expressed in a short critique.

The most profound yet simple concept that Gerber expresses relates to the three different personalities that reside within the small business owner: the entrepreneur, the manager, and the technician.  This paradigm is important in explaining each role the small business owner plays in the execution of their business plan and how a small business owner can thrive, both professionally and personally.

The entrepreneur is the personality that is visionary and forward-thinking.  It is the hub of creativity, abstract thought, hope, and desire.  The entrepreneur is the optimistic element of one’s essence and is the driving force behind the business.  New business plans, a shift in strategic direction, creating novel products, and similar activities are the fruits of the entrepreneurial mind.

The manager lives in the past.  He thrives on order, planning, and predictability.  The author uses the example of a homebuilder: the entrepreneur is the house-builder and moves on to the next project as soon as the first one is completed while the manager makes the house liveable by mending the issues of the entrepreneur.  The manager is pragmatic, sensible, and provides a practical counterweight to the entrepreneur.  While the entrepreneur is the energetic creator, the manager is the composed maintainer.

The technician is the doer that lives in the present.  He is concerned about the nuts and bolts of a particular task.  Rather than being an energetic visionary like the entrepreneur or a multi-tasking manager, the technician is craftsman that prefers to take things more slowly and each task one at a time.  As such, the technician mistrusts those he works for as they are always trying to get more work done than is desirable.

In essence, the entrepreneur creates the new ideas and initiatives, the manager gives form and discipline to them, and the technician provides the labour and physically creates them.  How these personalities interact will determine the level of happiness and success of a small business owner.  Many people start businesses thinking from the technician’s point of view, as they are angry with their current boss or company for interfering with or perverting their work.  However, the technician soon discovers that their dream of owning their own business was foolhardy, as the technician did not want to assume their roles of entrepreneur and manager, which every small business owner must do to survive and grow.  Managing these personalities and tasks are critical to ensuring a productive and fulfilling enterprise.

Gerber writes within the realm of the small business owner, however, his model can be readily applied to our personal lives.  Models must sacrifice accuracy for simplicity and utility; while Gerber’s thesis lacks detail, the logic and applicability are apparent.  Whether you family and economic unit consists of just yourself, or with your spouse or any number of other parties, the elements of the entrepreneur, manager, and technician are visible within and divided among each person to varying degrees.  Recognizing these aspects is key to promoting fiscal efficiency, developing a life strategy, and promoting fulfilment and harmony.

From a strictly personal finance perspective, the three personalities are easy to discern.  The technician roughly translates into the technical expert, of the person who compares PE ratios, resolutely follows the stock market, can cite contribution limits etc.  The manager evaluates past mutual fund performance, evaluates what brokerage account to use, and is in perpetual fear of the CRA.  This space is where the vast majority of PF blogs exist.  This drives their readership and their revenue.  Sadly, this is largely the extent of their knowledge.

The critical element that is missing is the entrepreneur – the visionary, the strategist, the creative mind.  This is the personality that often gets developed last, if at all, yet is arguably the most important one.  The entrepreneur does not read, nor intensely cares about MERs or RRSPs.  In fact, the entrepreneur likely does not read personal finance books at all.  From a personal finance point of view, the entrepreneur is the personality that is reading about theoretical economics, scouting and evaluating small businesses, carrying a notepad to record ideas, conversing with friends and business acquaintances about a new business venture etc.  This is what is entirely devoid from the PF sphere.  Setting a retirement goal and allocating tax refunds between the RRSP and TFSA is not strategic nor entrepreneurial; it’s pseudo-managerial at best.

Next week’s post will develop this concept more thoroughly and future posts will provide very practical and concrete advice on how to advance your potential within this paradigm.

Dec 152014
"Yo ho ho! There's scurvy up ahead!"

“Yo ho ho! There’s scurvy up ahead!”

Hudson’s Bay Company (HBC:TSX) is Canada’s oldest company, incorporating in 1670 so the English could harvest Canada’s ample bounty of furs rape the wilderness of everything that wasn’t nailed down. King Charles II gave the company exclusive control of what was called Rupert’s Land, which was named after his brother, Prince Rupert. Rupert’s land stretched from Northern Ontario all the way west into now what is British Columbia, some 15% of North America’s land mass. Because of its advantaged position in the fur trade, HBC ended up dominating trade in Canada, especially after merging with long-time rival Northwest Company. Then, in 1869, HBC transferred Rupert’s Land to the newly formed Dominion of Canada, which paved the way for the country’s current form. That was nice of them, huh?

Hudson’s Bay adjusted from its days of fur trading and post building in a few ways. It pioneered the idea of the department store in Canada, building large stores in the downtowns of new cities like Calgary, Winnipeg, Vancouver, Edmonton, Saskatoon, and Victoria in the early 20th century.

From there, the company expanded into all sorts of alternate industries. It got back into the fur business. It acquired real estate. It even got into the oil business, starting in 1926. It grew to the point where the company’s oil subsidiary was the 6th largest producer in Canada by the late 1960s. HBC got out of the oil business in the early 1980s.

HBC also kept expanding its retail operations. In 1960 the company acquired Morgan’s, a retail chain in Eastern Canada, which came with prime real estate in both downtown Toronto and Montreal. In 1978 after successfully dodging a hostile takeover from upstart discount chain Zellers, Hudson’s Bay then acquired the discounter. It held Zellers until 2011, when Target announced it would acquire Zellers’s best locations, shuttering the rest.

The retail business

HBC is still busy these days. The company currently runs stores under the following banners.

  • Hudson’s Bay (90 stores)
  • Lord & Taylor (49 stores)
  • Saks 5th Avenue (39 stores)
  • Outlets (Saks Off 5th) (78 stores)
  • Home Outfitters (69 stores)

HBC acquired Saks 5th Avenue during the fourth quarter of 2013, meaning it only has three quarters worth of sales with the two combined entities. Based on the first three quarters of this year, management expects total sales of between $7.8 and $8.1 billion (all dollar figures are CDN $, unless noted), with an “normalized” profit of $580 to $620 million. Normalized profits are simply EBITDA.

Regardless of whether investors use management’s numbers or traditional accounting metrics, the future looks strong. Recent results saw same store sales growth rise 19.2% at Off Fifth, 1% at Saks, and 1.7% across Hudson’s Bay and Lord & Taylor. Growth is especially being driven by the company’s websites, which collectively grew 73% YOY at the combined Hudson’s Bay and Lord & Taylor banners. Saks also had strong web results.

There is significant potential going forward for HBC to bring the Saks brand to Canada. It already has plans to open a Saks location in its flagship location in downtown Toronto during the first half of 2016. Other locations are planned in many of the company’s downtown locations across the country, with plans to open up to 7 Saks locations, 25 Off 5th outlet stores, and launch corresponding websites for both brands. Management plans for this to happen by 2018.

Aggressively growing Off 5th has another advantage, allowing slow moving luxury merchandise in higher end stores to be shipped to outlet centers rather than simply reduced to clear at the store in question. This should allow the company to get a higher price for its slower moving items.

Put all this together, and the company expects to growth both revenue to $10 billion by 2018 and grow EBITDA by 10-12% annually along the way. Keep in mind that, based on the company’s current market cap of $4.33 billion and its net debt of $2.85 billion (which includes operating leases), the company currently trades at an EV/EBITDA ratio of approximately 12x.

For a retailer, looking to grow 10-12% a year, those aren’t bad numbers. But what if I told you that the company’s retail business was simply gravy, and that at current valuations, you’re getting it for free?

The opportunity

Remember all that real estate HBC acquired over the years? It turns out it’s worth a lot of money.

In late 2013, HBC entered into an agreement with Canadian retail real estate giant Cadillac Fairview to sell its crown jewel property, located on Queen Street in downtown Toronto. This real estate is among the most valuable in the country. It raised $650 million from the deal.

That’s not all. Recently, management looked to raise capital to fund renovations to the Saks building on 5th Avenue in New York City, which might be the most valuable piece of retail real estate on the planet. As part of the deal, the lender got the building appraised.

It came in at $3.7 billion (U.S.). Needless to say, HBC easily got the $1.25 (U.S.) billion loan it was looking for.

I don’t want to understate how important this is. Converted back to Canadian Dollars, the Saks building in New York City is worth $4.1 billion. HBC only paid $2.9 billion (including assumed debt) for the whole company back in 2013.

Saks doesn’t just come with a fancy New York building either. It also owns real estate across the U.S., including 156,000 square feet on Wilshire Boulevard in Beverly Hills. This is also extremely valuable real estate.

There’s more. As part of the company’s acquisition of Lord & Taylor in 2006, HBC owns its flagship location in New York City, which is on 5th Avenue, just a few blocks south of the Saks building.

Additionally, in Canada, the company has held on to some of it’s valuable real estate acquired over the years. Highlights are:

  • 674 Granville Street, Vancouver. 637,000 square feet over 9 floors, located close to the financial district and a shadow anchor to Pacific Place, one of Canada’s best grossing shopping malls.
  • 585 Ste-Catherine Street, Montreal. 655,000 square feet over 9 floors, located on Montreal’s busiest retail street.
  • 200 8th Avenue SW, Calgary. 449,000 square feet over 7 floors, located just one block away from Calgary’s LRT line.
  • 73 Rideau Street, Ottawa. 335,000 square feet over 6 floors, located in the Byward Market area, the main retail and entertainment district.
  • It also owns other locations in Canada, most notably its building in downtown Winnipeg, which is 656,000 square feet. That building has been declared a heritage site, making it difficult to sell. Less than half its area is currently in use.

Locations in Victoria, Edmonton, Saskatoon, and Regina have been sold in the past.

Put it all together, and what’s this real estate worth? Well, it depends on who you ask.

A report by Canadian analysts M Partners puts the value of the real estate at $15 per share, or approximately $2.7 billion. These reports came out before the Saks building was appraised at $4.1 billion. I think they’re a little low.

CEO Richard Baker thinks the value of the real estate is a lot more, telling reporters the company believes the real estate is valued at $7.3 billion, or $40.55 per share.

A recent report from RBC put the value of the real estate at $8 billion, which is a little over $44 per share.

Shares currently trade at $23.36 on the Toronto Stock Exchange. As you can see, there’s a bit of upside opportunity if the value of the real estate is ever unlocked.

Extracting the real estate

Management has been very clear in its plan to monetize the real estate assets. They did so with the sale of the Toronto location in Q1, as well as more recently with the 20 year mortgage on the Saks building.

Management has also been clear it intends to create a REIT at some point with these assets. Not only have they hinted numerous times when talking to reporters, but the company’s newest CFO has experience doing exactly that during his time with Empire Group, owner of Sobeys stores in Canada, as well as the controlling shareholder of Crombie Real Estate Income Trust.

Just how much upside can we expect from such an announcement? Fortunately, Canada’s retail space has a couple examples of companies that have done this before.

On December 6th, 2012, Loblaw Companies announced it was spinning out $7 billion of its real estate into a new REIT called Choice Properties. Here’s how the stock has performed since, compared to the TSX Composite.

Screen Shot 2014-12-10 at 11.57.54 PM

Loblaw’s first surge happened when it announced the plan, the second when the REIT officially traded. Loblaw still retains more than 80% of all the REIT’s shares.

In May of 2013, Canadian Tire Corporation announced a similar plan. Here’s how its stock has done since.

Screen Shot 2014-12-11 at 12.01.17 AM

Both Loblaw and Canadian Tire were up more than 40% a year after the REIT announcement.

There is the danger that HBC’s shares have already gone up in anticipation of this, but I consider those risks small. There were plenty of rumors Canadian Tire was the next to spin-off a REIT after Loblaw did it, and it still saw a nice pop in share price. Remember the old adage: buy on rumor and sell on news.

During the company’s 3rd quarter earnings report last week, management stated they intended to make some sort of announcement about extracting value from its real estate by the end of the fourth quarter. Thus, investors willing to get in and out quickly could be looking at nice gains for just a short period of time. Or, they could sit around and own a retailer which has decent growth prospects and trades at a pretty reasonable valuation.

Either way, HBC is undervalued, and a catalyst is coming. Looks like a good buy to me. Disclosure: I own shares of HBC. 

Dec 142014

Let me tell y’all a story about my days working in a grocery store. Gather round, children.

When we moved from a smaller to a larger location, we expanded the number of areas in the store with shopping baskets from one to something like five. There was the usual location right by the door when people would first come it, but then we’d have little stacks of baskets set up throughout the place. There was a little stand in produce, one by the meat department, one in frozen foods, and one or two more. This differs very much from most stores, which just have their baskets in one place.

Why does this matter? Often, people will come to the store looking for one or two items. Then, if your incremental displays are doing their job, people will start buying other stuff. Soon, the guy who goes to the store for milk and eggs has his hands full of stuff.

This is where baskets come in. If this customer spots a basket, chances are he’ll deposit his haul and one and continue shopping. If not, he’ll head up to the cashier, hands full of items. It’s a matter of making it easy for people to buy things.

Knowing this lesson, you can imagine my frustration when it came to buying a fancy coffee maker for a certain someone’s Christmas present (NICE WORK, YOU ALL SPOILED THE SURPRISE). I Googled, found a decent price from London Drugs, and did my usual strategy of searching for a promo code. I was rewarded with an $8 instant savings on shipping, which made it $20 cheaper than Amazon. Alert Bezos his site sucks.

But then, the damn promo code wouldn’t work. Since the company auto-generates a new one for every new customer (instead of using something simple like FREESHIP) it was a convoluted mishmash of letters and numbers. Oh, and I couldn’t copy and paste it from the email, because the promo code was generated at text. Nice work, London Drugs. Tell Bezos I love his site again.

I eventually got it to work after inputting the 16 digit code with dashes, but that doesn’t matter. What should have been a pleasant shopping experience annoyed me to the point where I’m telling the 4 people who regularly read this. All because London Drugs didn’t make it easy for me to use my promo code.

It doesn’t matter what business you’re in, make it easy for your customers. What’s the point of offering something like a promo code if it takes me four tries to get it right?

Song I like and therefore you should too

I’m thinking of putting the Littlest Hobo song in every blog post I write from now on. I can see no potential ill-effects from this plan.

It’s Taylor Swift, engaging in some solid domestic abuse. Yikes. I thought she was trying to move away from the whole crazy Taylor thing.

The Office quote

Michael: If I had a gun with two bullets, and I was in a room with Hitler, Bin Laden and Toby, I would shoot Toby twice.

What you might have missed

In 2011, I predicted that the death of traditional cable from Netflix was greatly exaggerated. At the time, shares of Shaw Communications were trading at around $21 each. Including dividends, they’re up more than 15% annually since, and that’s even after cord-cutting has become more popular. So yeah, don’t bet against the cable company.

Nelson’s so funny

Tweetdeck is a hot circle of garbage on the Mac. Hell, most everything is terrible on this thing. As we speak, my cord is being held together by electrical tape like some sort PIECE OF GARBAGE I SWEAR TO GOD I’LL KICK TIM COOK IN THE UTERUS IF I EVER MEET HIM.

“I want to make goals for 2015, but do so in the douchiest way possible. Anybody have any ideas?”

The more you know

Ah, Wikipedia. It’s better because anybody can edit it. And if there’s one thing I know about creating stuff is the more people you have on it, the better it gets. WIKI MY DIKI, YO.

The 1913 Rock Island Independents season was the team’s sixth season in existence. The season resulted in the team posting an undefeated 6-0-1 record and claimed the mythical “Illinois State Championship”.

Ah, yes, the mythical Illinois State Championship. What every little boy who has ever picked up a pigskin dreams about.

Kevin O’Leary’s stock pick 



Every week, Kevin O’Leary is kind enough to supply us with a stock pick. Take it away, Kevin.

This week, Mr. Wonderful’s stock pick is none other than Suncor Energy, the largest oil company in Canada. It’s cheap, pays daddy a dividend, and I’m pretty sure somebody’s died while working for them. Raping the earth while pissing off every liberal on the planet? NOW WE’RE TALKING.

Sad to hear about my former Dragon’s Den co-star Brett Wilson’s battle with prostate cancer. Because I’m Mr. Wonderful I sent him a bottle of my finest O’Leary wine along with some whale tears, which I hear are supposed to be helpful for people in his condition. I then offered to buy all of the deals he did on the show for a very generous ten cents on the dollar. AND HE SCOFFED AT ME. So I did what any reasonable man would do. I murdered his dog and drank its blood.

Babe loosely related to finance

These are police officers in Russia. No word on whether they all look like this, but I’m going to assume they do.

In Soviet Russia, selfie takes you.

In Soviet Russia, selfie takes you.

If anyone needs me, I’ll be breaking the law in Russia.

Time for links

Not finance related, but I thought this massively long piece from Slate called The College Rape Overreaction was pretty interesting. Does questioning the seriousness of the college rape issue make me a rapist? Probably.

I liked this post over at Young and Thrifty about lifestyle deflation and how even the super rich don’t need all the luxuries of life to be happy. Except Bill Gates. I bet his house is bad-ass.

I just Googled it. He does have a bad-ass house.

Over at, I wrote some words about telematics insurance, which is cooler than Chuck Norris doing whatever it is Chuck Norris does. Punching people, I assume. Bullying isn’t cool :(

Remember how I used to write a bullish post each week on BlackBerry, with the hopes of encouraging you suckers to buy shares and make me rich(er)? Apparently I’ve now moved onto Penn West. This one talks about the massive amount of insider buying.

Here’s how you can be like Donald Trump and Barbara Corcoran, except they won’t pay you to be on TV. Well, unless you’re exceedingly attractive, which I am.

Speaking of famous people, Vanessa now regularly appears on South Korean radio. You all will be happy to know the very first thing I said when she told me about it was a face for radio joke.

You know Grumpy Cat, that stupid internet meme that’s always showing up on Reddit and annoying you? Turns out that’s one rich cat. Freedom 35 blog has the deets. If you’re upset about Kim Kardashian’s wealth for doing not a whole lot at all, that cat is going to make you murder one of its cousins.

Noted contrarian investor Vitaliy Katsenelson wrote a pretty convincing piece about Tesco, the UK retailer more beaten-up than Tracy Morgan’s bones. I’ll write more about retail stocks next week, in what pundits are billing as the “lamest Christmas gift ever.”

And finally, it’s almost 2015, and you cannot buy things from Target’s Canadian website. God, just close those stores down already. Target sucks.

Have a good week, everyone.



Dec 122014

Because, hey, we haven’t had one of these in a while. This might be fun.

I’m looking to make money by selling some of my old things. Do you have any suggestions?


Look, I’m not opposed to people selling off their unused crap. Lord know that I have enough of it, and I don’t really have much junk. If you ever want a wake up call of just how much unnecessary crap you own, just go live in a foreign country for a while. You’ll realize that you only brought over a suitcase full of stuff, and you still don’t even use it all. And then you haul it back across the ocean because, hey, no sense throwing it out.

So I get it. I really do. Selling your crap on Kijiji is a perfectly acceptable way to meet potential serial killers in public places (or at home, if you’re frisky). But for the love of God, stop tricking yourself into thinking you’re making money. You’re not. At best you’re selling assets, and even that’s a stretch. It takes a special kind of pathetic to think of clothes and televisions as assets.

When it comes to buying stuff, you exchange money for an item. Unless you’re some sort of super consumer who knows all the good deals, you’re not selling the item for anywhere close to what you paid for it. But since the $100 original price left your wallet months ago, $50 seems like found money in comparison.

Sure, you could make the argument that you “enjoyed” the use of the item for those months, and therefore the investment is justified. Don’t scoff, the whole “no college education is wasted” thing comes from the same mindset. But if you really enjoyed the item, why are you selling it?

As we all know, the attitude of buy all the things (or vacations, which have put enough people in the proverbial poorhouse as well) often goes hand-in-hand with crippling consumer debt. Which is why I have a great solution:

Be a smarter consumer in the first place.

As for where to sell your stuff, it’s not hard. Locally for the big stuff, eBay for the little stuff.

I’m looking to buy Suncor or Imperial Oil. Oil prices are down, so it’s time to load up, right?


I like where your head’s at, Robby boy. But I wouldn’t buy the two biggest oil companies in Canada.

As we all know, the health of oil companies are based on the price of crude. At this point, crude has three separate paths it can take:

1. Crude can keep going lower

2. Crude can flatline at $60

3. Crude can start creeping up

If you think crude is going to keep going lower, it’s time to avoid the whole sector. Suncor and Imperial Oil will survive the downfall, but that doesn’t mean their shares will be a good investment. They’ll just fall less than the alternatives, like Penn West.

If you think crude flatlines at $60, much of the same thing happens. The strongest in the sector will probably go up a bit, but not nearly as much as the rest of the market. At that point people might start taking what little gains are offered, pushing back down the price.

Most investors think crude will eventually recover, and are making bets accordingly. If crude goes back to $75 or $80 in 2015, the so-called stalwarts will be higher. But the high-risk laggers of the world will go much higher. Remember when I talked about coin flip investing? Oil right now has that kind of risk/reward profile.

Even if you’re not into turnaround stories, there are still some cheap big oil companies. Husky has a decent enough balance sheet, and so does Cenovus. But they’re in the oil sands, which is now considered a high cost area (true, but it’s all up front cost). And if you look hard enough, there are debt free mid-cap players with plenty of cash.

I’m looking very closely at a couple of other mid-cap names currently, and will share my findings.

Littlest Hobo theme song — great song, or greatest song?


She loves this song. And how can she not? It’s great.


You rag on dividend growth investors on Twitter sometimes. Why do you care so much?

A concerned follower

It’s not that I hate dividends. I just gave y’all a portfolio full of stocks that pay them. I’m happy to invest in stuff that regularly pays me to own it, provided that I think I’m getting the assets at a discount to fair value. Reitmans is one of my largest holdings, and it pays me a nice enough dividend.

But what gets me is when these guys do nothing but stay in their own little cocoon and celebrate the GODLINESS of the almighty growing dividend. These people have the time, see, because they don’t actually bother to research stocks. They look at the P/E ratio of Exxon Mobil, see it’s trading at 12x trailing earnings, and say OH HO HO I’M A GOING TO THE STORE TO BUY ME SOME DIVIDENDS, MARTHA. There’s no thought put into it. It’s almost as if the dividends are just there, waiting to be picked off the money tree.

The best part is when they back test their theories. They choose stocks that have done well over the last 10, 20, or 30 years, compare them to the S&P 500, and once they discover the inevitable outperformance, it gets used as a justification for buying these stocks going forward.

In response, I present this.

Screen Shot 2014-12-12 at 1.31.16 AM


That’s a 20-year chart for Citigroup, from 1986-2006. We all know what happened after that.

Apparently I’m the only one who used to read dividend growth blogs back in 2006-07. EVERYBODY was recommending Bank of America and Citigroup.

That’s the problem with back testing your theories. It’s one thing to try and figure out what works. But it’s completely another to just keep plugging in numbers and scenarios until you find something that fits your narrative.

Remember, looking forward is far more important than looking behind. I’m not saying that you need to identify the freaking housing bubble in advance, but just keep in mind the risks a company has going forward. No matter how good the investment looks at the time, those risks still insist.

Dec 102014

It’s Eddie time, yo. 

The primary purpose of last week’s Bezos and Skilling allegory is to advance the idea of not just investing in the long term, but to evaluate how you value your time and investments on a personal level.  For example, given you had spare cash to invest, the majority of PF bloggers would espouse one of or a combination of the following:

  • Pay off debt
  • Put it into your emergency fund
  • Invest it in index funds within your RRSP (really advanced ones would suggest you re-invest the tax savings into paying off your mortgage)
  • Put it into a TFSA

Fine, but brutally simplistic, myopic, and frankly of little value.   Taking any option listed above would have very quantifiable pay-offs.  Retiring debt would lower your cash holdings on the asset side of the balance sheet but decrease liabilities as well.  Any other would leave the overall assets to liabilities and equity balance equal; cash would merely be turned into investments.  Accounting aside, your financial or loan officer would immediately and easily notice the change. Slow clap.

I would humbly suggest that you expand your horizons and research other avenues to wealth.  RRSPs are all fine and dandy, but the returns from the stock market are generally moribund and it is difficult to borrow against holdings in a RRSP.  Consider that capital gone and useless until age 65.  From my research on franchises, the average payback period is between 1 to 2 years, or a return of 41%-100%.  It would be more work, yes, and the barriers to entry are higher, but it beats Enron stock.  With access to the right information, the financial metrics and implications of many franchises can be had.

One of the most unquantifiable returns is that of education.  I’ve harped on this before and will continue to do so, but let me briefly describe a personal decision that I (and my wife) made.  Last year, I was 10 years into a 25 year career in the armed forces.  I could have stayed and collected my pension at 42 years old (like most PF bloggers would have), but I released and cashed it out.  We moved cities, bought a house on her self-employment income, became pregnant, and started our new life.  I did not have a job and I committed myself to a $60,000 Executive MBA.  Everybody questioned the value of the MBA, as the returns were murky, and suggested I take a more traditional approach.  A short term philosophy would have suggested so, but I was going with Bezos and going long term.

It turns out they wrong and I was right.  I got my first and second jobs because of the MBA, my mentor is a COO at a billion-dollar oil company and has helped me immensely, and I am doing due diligence on business ventures with my classmates.  The returns are not yet quantifiable, but I am absolutely certain they would have been better than any ETF that a couch potato investor would have recommended.

Investing in education can be thought of as precarious as the returns are not guaranteed and not easily computed.  However, I suggest you take a Bezos-like approach and have confidence that it is the right move without having the financial metrics to support it.

If you want to go down the education and skills route, I suggest the following:

  • Take a basic financial accounting course – this is one of the best ways to become financially literate.  This will introduce you to concepts such as income statement, balance sheet, cash flow, net income, debits and credits etc.  This will help you immensely, as you will see the parallels between it and personal finance
  • Take a managerial accounting course – managerial accounting focuses on internal costs rather than for financial reporting.  You will be introduced to concepts such as variable and fixed costs, operating leverage, and contribution margin.  Also very important stuff.
  • Take a basic finance course – whereas accounting focuses on past financial transactions, finance is future oriented and teaches valuation, cost of capital, debt and equity concepts etc.

While some people would recommend a HR or operations management course, the three listed above are must-dos in my opinion.  You will find your way thereafter.  As your mind gets primed, thoughts of RRSPs and emergency funds will dissolve into irrelevance.

It is evident that I espouse a long term approach to life and investing.  Sometimes that requires making investments of time and capital into solid yet less quantifiable ventures that are based on intuition.  Jeff Bezos followed this approach while building Amazon.  Skilling, criminal actions aside, myopically focused on share price.  Unless a company wants to make another public offer or a shareholder’s revolt is imminent, I never understood the logic of a CEO focusing so intensely on share price.  Similarly, as long as you personally are not on the cusp of bankruptcy, it is often times best to make strategic investments, like skills development and knowledge acquisition, than toss money into the inflexible pit known as the RRSP.

Dec 082014

A couple of weeks ago, I wrote some words about borrowing to invest. And like all my crap high quality bloggenin’, I’m sure all of you were literally on the edges of your seat in anticipation.

I promised a model portfolio if enough people (>0) were interested, so here we go.

(Note: if you signed up for the Financial Uproar weekly newsletter, you got a special peek at this article a day before everyone else did. That’s kind of a neat feature, right? The sign-up form is on the right if you just can’t wait to get your thrice-weekly serving of bad jokes)

A few things about this model portfolio before we start:

  • Unlike the Uproar Fund, this portfolio is much more… conventional. No weird small-caps.
  • The stocks chosen for this portfolio will pay dividends. As you’ll remember I’m dividend agnostic, but I think it’s important you get paid to wait when you’re paying interest on a HELOC.
  • We’re going to assume the total portfolio is worth $75,000. Like I mentioned in the original post, I’d only recommend a 50/50 split between borrowed and your own assets. So you put up $37,500 and the bank puts up $37,500
  • The assumed interest rate will float at Prime, which is currently 3%.

That’s about it. I’m going to go with approximately 15 different positions with a small cash component, because math is hard. First, a list of the companies chosen. These aren’t in any particular order, and we’ll use Friday’s closing prices.

Extendicare — The company operates assisted living facilities, also known as the place where Grandma fills her Depends for 5 years before she kicks it. They’re in the process of getting out of the U.S. business, which is crummy. Think lawsuits and whatnot, probably after everyone laughed at Grandma crapped herself.

Cenovus Energy — One of the largest oil sands operators, where it regularly rapes the environment. This pisses off James Cameron, for… some reason. Go back to making Avatar not suck, you knob. Anyway, Cenovus has some big growth projects planned, but they’re in jeopardy if oil craters any further. The expansion projects, that is. Not the stock. It’s a fine operator.

TransCanada Corporation — One of Canada’s largest pipelines. It got the nod over Enbridge because of the upside potential from Keystone XL, the power assets, and the activist investors looking to break up the company.

Calloway REIT — I like the idea of having retail exposure, but there aren’t many that I’d find appropriate for somebody looking for steady dividends. So let’s go with Calloway, a retail REIT which almost exclusively has Wal-Mart as their anchor tenant.

Wells Fargo – There needs to be some financial exposure, and the U.S. seems to be doing pretty well. So let’s take the advantage of adding some U.S. exposure to the portfolio.

Power Financial – Power Financial has a nice dividend, has exposure to insurance and wealth management, and trades at a discount to the sum of its parts. Plus, I’m pretty sure the CEO is named Max Power.

IBM — It’s hard for me to like technology as an investment, but the stock is still a cash flow machine. Buffett is long the stock, and it’s literally been around forever.

Rogers Communications — I think the whole telco sector is a little overvalued, but hey, it’ll do well if the market goes down. Well, compared to everything else, at least. Plus, you get to own a small slice of the Blue Jays, which will undoubtedly disappoint us all come April.

Pizza Pizza — Everyone likes pizza, right?

TransAlta — TransAlta is probably the cheapest power generator in North America. It’s trading at a decade low, easily has enough free cash flow to cover the bonerific yield, and should benefit from electricity rates going up in Alberta.

Saputo — Because you’ve gotta have at least one growth stock with a low yield. Saputo has good expansion potential since the dairy business across the world is pretty fragmented. Insert your own ‘milk comes from boobs’ joke here.

Rogers Sugar — I am irrationally attracted to the sugar business. What’s not to love? It has steady revenues, government protection from imports, and there’s only two players of scale in the whole country.

Bank of Nova Scotia — I’m not a huge fan of the Canadian banks, but I’ve been known to be wrong about this kind of stuff, so you’ll want to own at least one. I picked BNS because of its large international exposure.

General Motors — The portfolio needs a little industrial action. GM is cheap because of the recalls, and low gas prices should also help. Plus, more U.S. exposure.

Bombardier — This one is a bit of a high-flyer. Get it? High flyer? It makes planes. Its fortunes pretty much rest on the CSeries program, which is scheduled to begin deliveries in 2015. The market, however, is a little skeptical.

And that’s it. Remember, the portfolio is worth $75,000. Let’s see how it looks in table form.

Screen Shot 2014-12-07 at 5.43.13 AM

A couple of notes. First of all, I took the U.S. stocks and converted both the amount invested and expected dividends into Canadian Dollars, using an exchange rate of $1.13. But the share price remains in U.S. Dollars. When I update this fund, I’ll convert the amounts again, keeping it consistent with exchange rates. But only to the nearest penny. I’m not a masochist.

There’s a few hundred bucks in cash laying around which isn’t really accounted for. I’ll use it, plus the proceeds from dividends, to reinvest into something new come March 1st, when I’ll update this next.

The IBM outsized position is on purpose. I’m bullish on IBM.

Keep in mind that the portfolio is designed for income first, and capital appreciation second. Yes, I realize the danger of doing this during a zero interest rate world, but leverage 101 says we want to get the loan paid off quickly. Ideally our imaginary borrower is able to service this loan on their own while reinvesting the dividends, but we’ll give them the option of withdrawal.

And that’s about it. Feel free to critique or to tell me how awesome I am in the comments.

*Disclosure: I own Rogers Sugar. Family members own Power Financial preferred shares and Bombardier preferred shares.

Dec 072014

If there’s one thing I like to talk about, it’s value investing. Well, that and boobs.

And like I’ve alluded to approximately 13.3 billion times, you need to spend a lot of time reading if you’re going to be good at it. Now that I have time on my hands, I spend easily a couple of hours per day researching potential investments, running stock screens, and just generally not wearing pants. I’ve probably spent more time looking at TSX Venture stock balance sheets than you have with your kids.

And what have I learned, besides that maybe I should go outside a little more? There are value ideas everywhere. Literally everywhere. There are hundreds of under-loved companies out there, waiting for someone like you and me to just love them, dammit, why won’t you LOVE THEM? There are dozens of oil stocks that are selling for under the value of the oil in the ground, let alone any of the other assets. And there are even more companies that are poised to grow earnings significantly in 2015. I tend to focus on the first two categories, but that’s just me.

There are so many opportunities out there. And yet, many of the so-called “value investors” I follow very rarely say a damn thing about what they’re buying. Instead, all I see is these guys criticizing companies, putting down other investment ideas, and generally being unhelpful.

There’s one I follow who has been pounding the table on a Canadian housing bust and being long Fiat for the better part of a year now. Other than that, I can’t find a damn thing he’s bullish on. It’s fine to be bearish on stuff, but what’s more profitable — finding stuff you hate (but won’t short), or finding a stock trading at a discount to its intrinsic value?

Of course, the dividend crowd has been guilty of this for years. They’ve figured out the basics, established positions in the 25 or 30 dividend aristocrats that they’ll own forever, and now have all sorts of time on their hands. So what do they do? They engage in pointless debates about the tiniest details of dividend growth. There are plenty of value guys who are starting to do the same things.

I realize this may be somewhat ironic coming from the guy who is well known for “attacking” other bloggers, but whatevs. We already have enough think pieces of what makes a value investor. Focus on some damn companies already.

Song I like and therefore you should too

This is a previously UNRELEASED SINGLE from Michelle Branch, AKA Nelson’s imaginary girlfriend when he was 20.

I just looked, and apparently she’s single again. I’m glad, because it would make me feel bad to have an imaginary relationship with a married woman.

The Office quote

Michael: Yes, it is true. I, Michael Scott, am signing up with an online dating service. Thousands of people have done it, and I am going to do it. I need a username. And… I have a great one [types]. Little kid lover. That way, people will know exactly where my priorities are at.

What you might have missed

On Monday, I announced the newest stock I bought for The Uproar Fund, and said some jokes about slathering oil on my supple chest.

On Wednesday, Eddie talked about the danger of CEOs focusing on the company’s stock price, rather than growing long-term value.

And on Friday, I talked about why fixed income ETFs should be an option for that part of your portfolio.

From the old stuff, here’s a post where I pour some cold water on the whole “oh, if only we educated the kids, all our personal finance problems would go away” mantra that seems to be a thing. No. It’s not that easy. We tell kids not to get STDs or smoke marijuana, yet I’m pretty sure some of them are doing that.

Nelson’s so funny

Two Office jokes in one link dump? I’d say this thing was going downhill, but we’re already 3/4ths of the way down the Grand Canyon.

The more you know

Hi Wikipedia, is it okay if we take your content and then not donate to keep you alive? Thanks so much.

Male’ Sports Complex (Ekuveni) is a multi-purpose stadium in Malé, Maldives. It is used mostly for football matches. Sports Complex in Male’ consisting of indoor and outdoor basketball courts, tennis courts, two football fields, volley area, and cricket area. The Football Association of Maldives House, Offices of Maldives Basketball Association, Maldives Cricket Board, Athletics Association and Maldives Badminton Association are also located in this complex.

Male only? Can y’all excuse me while I inform the ladies at Jezebel? I’m sure they’ll have a reasoned and not least bit emotional response to this.

Kevin O’Leary’s stock pick

kevin-olearyEvery week, Kevin O’Leary is kind enough to supply us with a stock pick. Take it away, Kevin.

Nelson, my stock pick this week is Rogers Sugar, because if there’s anything I need, it’s a little extra sweetness. Now let me tell you about the first season of Dragon’s Den. Mr. Wonderful had just finished tearing a pitcher a new one for an outrageous valuation, and he was none too pleased. Called me a bald asshole, he did.

What was I to do? I did what any reasonable man would do — I murdered him and drank the blood of his dog. Cute dog too, a nice Labrador Retriever.

Whatever. I was doing him a favor.

Babe loosely related to finance

It’s a cheerleader.


Ladies, seriously. Why are you even trying out for these things? Not that I don’t approve, but still. If you want stuff like this to go away, stop taking the field in outfits like this.

Time for links

I bought some Canadian Oil Sands this week. Like another stock I’ve been recently buying, Dream Office REIT, it isn’t really the kind of stock to qualify for the Uproar Fund, but some of you might be interested in it. Here are words about why I bought it, over at Motley Fool.

I’m writing over at now, about all sorts of personal finance, mortgage, and real estate related stuff. One of my first pieces is about mortgage life insurance, and how it kinda sucks.

A big story this week was about a Rolling Stone article which graphically depicted the gang rape of a University of Virginia freshman back in 2012. As you’ve probably heard by now, it looks like the victim isn’t telling the whole truth. In case you needed more evidence Rolling Stone sucks, check out this article depicting how rich white sports owners are bad.

Don’t Quit Your Day Job continues to riff on the same post he discussed last week — just how much thanks should you give the people who helped you financially? I’m on record saying you’d be a sucker not to take help if it was offered, but be humble about it.

101 Centavos has a post everyone who researches stocks can appreciate. You start off looking at one company, and soon you’re checking out a random company two sectors over. It’s the blog equivalent of my buddy Tony in the bar on a Friday night with the ladies.

And that’s all she wrote. Have a good weekend, everyone.

Dec 052014
"This is not what I meant when I said I wanted to go to the gym to check out hotties."

“This is not what I meant when I said I wanted to go to the gym to check out hotties.” — The guy in the back

Now that my parents are getting to the point where they have more grey hairs than brown, they’ve started making some portfolio adjustments. My Dad’s day job is managing his real estate, and so he’s begun the slow process of selling off some of his property. My Mom has cut back to only working 2-3 days per week, and yet still doesn’t cook me dinner and ship it to Korea. Don’t worry, I’ll get her back at Christmas.

But the biggest change, at least for the sake of this blog post, is how they’re repositioning their portfolio. Now that the market is flirting with yet another record high, they’re taking some profits off the table and buying bonds, REITs, and preferred shares instead. Retirement is less about risk and more about income, so they’re making that switch. Plus, ol’ Nelly has to protect his inheritance.


And so I started going about making that change for them, and discovered a few things.

First, it’s hard to pick individual preferred shares. Many of the Canadian usual suspects are yielding less than 5%, and face rate resets over the next couple years that will push the yield down even further, into the high 3 to low 4% range. That’s not very exciting, especially since I could easily put together a pretty high quality portfolio of boring stocks that yields somewhere around 5-6%. There’s room for those kinds of equities in a retiree’s portfolio, but I’m of the belief that the majority should be in bonds. Say a 60-40 split, with about 20% of the portfolio in equities with growth potential.

So I decided on a pretty simple little income portfolio for them. It goes like this:

  • 25% Horizon Active High Yield Bond ETF (TSX:HYI)(MER: 0.61%)*
  • 25% iShares Bond Index Fund ETF (TSX:XBB)(MER: 0.33%)
  • 25% Claymore Preferred Share Index (TSX:CPD)(MER: 0.49%)
  • 25% iShares REIT Index Fund (TSX:XRE)(MER: 0.60%)

*HYI is actively managed, with the majority of its holdings in the U.S.

The fees are a little high on the first and last picks, but you get the picture. This portfolio will yield right around 5% annually, which is about as good as you’re going to do in this market. I might add a couple of other asset classes (like U.S. municipal bonds), but for the most part that’s gonna be the basis of their fixed income portfolio.

You might be thinking such things as “Nelson, why are you doing things this way? Are you finally coming over to the indexing dark side?” Don’t worry, little one. I’m still as active of a stock market guy as you can get. I’m not about to dump everything and buy the market, especially at an all-time high.

But when it comes to fixed income, I’m more beaten than a rented mule. I could probably build them a half decent portfolio, but I just can’t be bothered.

Now that’s not to say they won’t buy individual stocks. They still own Rogers Sugar, which I think is one of the most underrated businesses in Canada. They also own a smattering of preferred shares and REITs I find to have good value. But going forward, the only individual names I’ll be buying will happen when I reinvest the dividends. The bulk of the rest will be in ETFs.

Let’s assume I have $100,000 in a fixed income portfolio. I can buy 20 preferred shares/bonds/REITs and probably get a 5% yield pretty easily. But is it really worth my time to monitor that kind of portfolio for only $500 per year in fees? I’m not sure it is, especially in the world of quasi-fixed income. I’d rather just set it and forget it.

There’s not only the opportunity cost of my time, there’s also the opportunity cost for the capital. If I were to slowly take a few months to deploy the $100,000, I’d be missing out on a couple thousand bucks in interest. Unless interest rates spike soon, it makes much more sense to put that money to work, collect dividends, and then sell small parts of a position to take a position in an individual stock.

I probably have the time to manage a fixed income portfolio. I’m not sure I have the expertise. Is having my folks pay 0.5% on their assets worth it to me so I don’t have to learn? I think so. By the time you factor in my time, the answer is pretty clear. I think the ETFs are the better option. For that part of your portfolio, I’d suggest you do the same.

Dec 032014

This week’s post is about esoteric investing philosophy and decision-making using two CEOs as comparables.

Last week, I wrote that it is necessary to invest strategically, particularly in investments that are difficult to quantify (although I would rephrase that specific point in my last post, the spirit would remain the same).  It is on this point that I would like to explore further this week by using the allegories of current Amazon CEO Jeff Bezos and former Enron CEO Jeff Skilling.

Jeff Bezos was a New York investment banker when he saw the potential of the internet in selling books.  Quitting his job and moving to Seattle in 1994, he founded Amazon and became a pioneer in the emerging internet retail sector.  Under Bezos’ strategy of “get big fast”, Amazon’s popularity and revenues soared.  It quickly became the dominant player in its industry and one of the most recognized brands in the world.  Investing millions of dollars in warehouses and digital infrastructure, Amazon’s competitive advantages were logistics, order fulfillment, and customer service.  In the run up to the dot com crash of 2000, the company still had not posted a profit.  During the meltdown, Amazon’s share price decreased from a high of $113 to a low of $15 and the company’s survival was questioned.  Even after the company had survived the crash, it would take until 2009 for the company to have positive income.

Despite the volatility in share price and continuous criticism, Bezos insisted that the stock market and the negative income were of little concern to him.  Routinely questioned by shareholders, analysts, the Amazon board, and investors, Bezos was adamant that as long as Amazon maintained sufficient cash on hand and was cash flow positive (which is different from being profitable), the share price did not concern him; Bezos knew that he was making the right long term moves for the company.  It was difficult to quantify the returns of his investments in digital infrastructure, but he knew it increase the company’s competitive advantage and would pay off handsomely in the future.  It was a tough sell to Wall Street, which dissected companies on a quarterly basis and expected quick returns.  Bezos was undaunted, always taking the long view, and continued to build Amazon and was recently named the best performing CEO in a recent article by the Harvard Business Review.

Bezos’ long term, value-driven approach is starkly contrasted by ex-Enron CEO Jeff Skilling.  Skilling graduated from Harvard Business School and joined a prestigious consulting firm before being lured to Enron by Kenneth Lay, the future chairman of Enron.  Skilling revolutionized Enron by creating not only new departments, but new economies and industries, including gas trading.  He rose through the ranks of Enron and became its CEO.  However, Enron was built on unethical and illegal conduct, such as accounting fraud, earnings manipulation, and investor deceit.  Once the darling of corporate America, Enron’s frauds were exposed in 2001 and slid into bankruptcy.  Skilling was convicted of numerous charges and is now in prison.

Skilling’s priorities at Enron were the exact opposite of Bezos.  Skilling’s primary focus was on Enron’s share price.  Even though Enron had made a multitude of financially terrible but legal deals and was perpetually in danger of running out of cash, Skilling’s obsession was on Enron’s market capitalization (share price multiplied by the number of shares).  When walking into Enron’s headquarters, the up-to-the-minute price was prominently displayed at the entrance.  Almost every Enron employee had the ticker on their desktop and it was said that Lay was euphoric when the price increased and near catatonic when it decreased.  Skilling loathed hard, cash-producing assets and was never focused on anything beyond the meeting earnings targets of the current quarter; his focus was on short-term earnings.

Given the fate of both men and both companies, it’s easy to side with Bezos and his focus on the long term rather than share price.  However, in the 1990s, virtually everybody would have sided with Skilling.  Enron was named the most innovative company in America five years in a row and provided returns to shareholders well beyond that of Amazon.  Quantifiable and concrete returns, although not known at the time and fraudulent in Enron’s case, are better than investments in “strategic infrastructure”.  Share price is what the market watches, not long term initiatives.  By the rather strict scope of this brief case, Skilling’s priorities were proven wrong.

Next week’s post will extrapolate lessons from the experiences of Bezos and Skilling and adapt them to a personal, rather than corporate, perspective.  Until then, try to draw your own lessons and we can compare notes.

PS There are those who question Bezos and if Amazon can actually be a supremely profitable company.  Like any public figure, Bezos does have his detractors and this post does not endorse or challenge Bezos’ overall performance as CEO.  This post restricts itself to each CEOs internal metric of performance, with Skilling lauding share price while Bezos downplaying it.  It’s not difficult to condemn Skilling, but it does not necessarily mean his focus on share price, and hence short term shareholder value, is wrong.

Dec 022014

A career in counseling can lead down many different pathways. Someone who holds a master’s degree in counseling has multiple options for refining and furthering his or her career. It could be that working in the local school system is desirable, or helping people get over their drug addictions holds interest. Whatever the final focus may be, a master’s degree can help open more doors to employment overall. Following are five places to find employment after earning a master’s.


Local School Systems

Schools need counselors for children of all ages. The counselors’ job is to help those who are in need of overcoming emotional trauma, deal with bullying issues, and offer guidance in a career choice. Sometimes it can be as simple as lending an ear to a student who needs someone to talk to. School counselors can find themselves wearing many hats during a career in a local school system. There is a broad spectrum of needs in the school system, and a counselor who has the requisite training from a master’s program is equipped to deal with them all.

Rehabilitation Agencies

These agencies help a spectrum of people with the needs of daily life. This can include helping patients who have undergone a life-altering surgery learn how to live their new lives, the elderly who are coping with living on their own, and prisoners who are dealing with emotional issues. Counselors in these positions help people to adjust to their new way of life with as little emotional trauma as possible.

Residential and Outpatient Facilities

People who are overcoming drug addiction need help with leaving behind their past lives and beginning a new one. Living life free of drugs is not easy, and a counselor provides the needed guidance to help them learn how to move forward. This can include working with patients who are living in a rehabilitation facility for extended periods of time, or are coming in on a voluntary, or outpatient, basis.

Clinics and Private Practices

Both the government and private practices hire counselors. Private practices tend to focus on family and marriage therapy, mental health, rehabilitation, substance abuse and behavioral disorders. Someone with a master’s degree with a focus on any of these avenues can find employment within the private sector. Some may prefer to work in these types of atmosphere for a more predictable clientage and pace.

Local Governments

Local, state and federal governments have need for counselors in any number of specialties. This can include mental health, substance abuse, vocational rehabilitation and more. Work may be found in hospitals, jails, and courts. These are areas where people seek help for problems, or are ordered to undergo counseling by the court system.

Getting a master’s degree in counseling opens up more doors for employment, and offers the opportunity to specialize in a preferred career path. It makes it possible for a graduate to work in the private sector, or for the government, and find ways with which to help those in need.