While this recommendation may come as surprising or unconventional, I would like to promote a recent habit I’ve had and suggest that investors consult their partners as a compliment to whatever stock picking style or process they use.
In a few posts I’ve discussed some interesting perspectives that I’ve gained from my long-term girlfriend “Claire.” (Although that is not her real name, for sake of privacy I’ve decided to use this in reference to past and future posts)
After watching me invest for some time now and having observed my passion for business strategy, she’s taken an increased interest in our financial future and felt for some time that she’s wanted to contribute. Though she’s completing a fulltime degree in a non-financial university program we discuss our finances, our future together and independent expectations of what we wish to accomplish. Close attention has been paid to my conversations with her about my wish to retire early and together focus on family, pay down my first home within 10-15 years, become debt-free at an early age and grow a portfolio of investments that create a tax-efficient income in order to provide us with financial flexibility in future years. The benefit for us is that my career and hers (both in healthcare) will offer us a unique flexibility in how we want to organize our schedules for family and children, vacations and an eventual retirement.
Value, as I’ve often said, can be found in a wide range of circumstances that goes well beyond the stock market and personal finance. Finding a prospective partner who shares similar views as you with respect to finances can provide considerable value to both of you over your lifetime together. Finances are often cited as one of the main factors in determining divorce among married couples and let’s face it; money is important. There will always be times when two people disagree over how to save or spend their individual or mutual incomes, but compromise and communication are important elements to include in any solution. Money affects our behaviour in almost all situations and can often lead to economic abuses and leverage within relationships when not utilized properly. Financial stress impacts not only our adult relationships but also those of children and creates tension within the entire family. Two parents may feel they are sheltering their children from their financial issues by discussing or arguing behind closed doors, but children are very conscious from an early age of the impact money has on their lives and those around them.
Decisions and discussions around finances are important and every healthy relationship should have them. It’s important to talk about your expectations for living standards, consensus to each monitor spending, emergency fund composition, planning retirement and general topics amongst you both. The importance of finding a partner whom you can compromise equally with may go a long way in deciding the fate of your relationship and how meaningful that time is to one another. Often couples avoid the discussion of finances because of the stresses that revolve around bills and budgeting, but getting your financial relationship in order can go a long way to strengthening your personal relationship and you won’t need an expensive therapist to tell you that. Even if a spouse wishes to have no involvement in managing finances you should each have an understanding of what you wish to accomplish and how that will be attained.
From a young age Warren Buffett was inspired by the concepts of value and the teachings of Benjamin Graham who in many academic circles is considered the father of the value style. Buffett’s teachings are well documented through his annual letter to shareholders, his public comments and his financial achievements. But what helped Buffett is often the overlooked aspect of what has made him so successful: his strategy is simple, targeted and opportunistic. In recent conversations with a few investing peers I’ve had to swallow some pride and acknowledge that I might not be the best or brightest investor in my family for very long if things keep up…
Since mid-November Claire’s contribution to our Dividend Growth portfolio is up over 12.5% (including dividends) which spanks the performance on the rest of my holdings on nearly a 3:1 ratio. Her stock picking process has become eerily similar to the Oracle of Omaha’s long-term success: simple, targeted and opportunistic. Of course her unique perspectives as a woman have added an interesting element to the portfolio that I may or may not have been able to accomplish on my own. She doesn’t need hours of research, the latest technical wizardry or any complex quantitative model to arrive at her choices. If she doesn’t like the business it’s out. If she doesn’t understand their products or services it’s out. If it doesn’t pay her a dividend it’s out. If the investment doesn’t contribute meaningfully to diversification or fits within our DivG portfolio then it’s out. What allowed her to come to these decisions on her own?
To start for some time I’ve had a very detailed list of documented teachings on the Oracle of Omaha and an equal focus on his sidekick Charlie Munger over the years. This has always formed the basic foundation of my Value Rules as well as teachings from other mentors and personal experiences. After reading the document, asking questions and applying her own experience, Claire now views investing as she has in my previous post on Shopping Stocks. You buy a good business for the long-term and avoid all the short-term noise that might get caught up in the markets. She also loves the idea of being paid by a company to hold the stock and in her mind the strategy simply “makes sense” more than any other. She doesn’t need to beat the market, create wealth today or worry about how much she’s spending on fees. The companies are simple to understand, have clear objective and operate in a visible manner that she can see in her daily activities.
When we first began this process she asked me to go through my entire DivG watchlist and give her a brief synopsis of each company, what it does, its competition and why the company was on my watchlist. She then began looking to what I already owned and what sectors I lacked significant exposure to. She then read through the SA’s on the list of stocks that made sense to her and asked me to determine a FMV for each so she could contrast and compare which were undervalued.
After accompanying me on a few corporate tours she now has a unique approach of using her common sense and womanly perspective to shed new light on prospective investments. When she began in November the first stock on her list had to be a wealth management company for the simple reason that like her grandparents; people were getting older and wouldn’t have the time to manage their investments on their own. I already had positions in BNS, TD and RY (who recently acquired PH&N), but she stated early on that she wanted the best of the best: IGM. The first three questions I was asked to investigate for her position in IGM were “How much money do they manage and make from fees”, “How many women financial advisors do they have?” and “How many women sit on their board?” I couldn’t help but smile. She now knows each and every rail crossing that she owns a stake in within the city through her shares in CNR and continues to share with her friends that she owns a part of the parking lot where a new Walmart Supercentre has been built in North London whenever they go shopping together. She also enjoys reminding my sisters’ boyfriend (who lives in Montreal) that the building in which his office is located is also something she owns a part of.
In her class on Food Management she’s led discussions on the impact of the subprime mortgage crisis, concerns on Canadian long-term care REIT’s and her perspectives in my upcoming post on Taking Stock in SC left a profound impact on two friends contemplating a decision to invest in shares of the popular Canadian drugstore. After hearing her analysis and perceptions on the company they both went out and bought shares the very next Monday.
Her questions at times have even left me with a blank stare when I realize that even I don’t have the answer…yet. She had read an email from Scomac back in January about a company called Russel Metals he mentioned and immediately made the observation that we didn’t have anything in metals yet. Her first concern upon assessing the long-term health of the company was the current dividend in excess of 8% and whether it was at risk of being cut. Through my analysis of RUS I was confident that management was committed to sustaining the dividend through this point of their cycle as they had historically in the past and had adequate resources to fund the dividend through cashflow. Add in their strong balance sheet with virtually no debt and she didn’t bat an eyelash when she told me to buy it. Thirty percent later (including dividends) and remains happy with her choice.
Of course, no investor would complain when she now enjoys watching the occasional Market Call on BNN with me and starts adding perspectives to my own analysis to stocks in my Value Portfolio that I hadn’t considered before. An example of this was her perspective of Loblaws’ retail potential when grocery shopping and her belief that they weren’t maximizing opportunities and how if she was in charge she’d do a few things differently.
She’s also had an impact on my recent reflections towards the amount of time I spend concentrating on the markets and the structure of my portfolios. I’ve realized now that when we spend time together talking about investments, we’re investing directly into our relationship by sharing a common interest with the intention of securing our future financial freedom. Of course in doing so I’ve gained a better understanding of balancing the time I spend with my investments in contrast to spending time with her and my family. These tools within our relationship can be applied to other segments of our lives and parallel the understanding and respect we each have for one another. We of course don’t/won’t always agree on certain things as many couples occasionally find in their lives, but how we work through a disagreement as rational adults helps to strengthen a bond that we continue to build upon.
A nagging concern remains at the moment though when she checks my spreadsheet and notices the relative performance of some of the holdings versus others. A business degree, ability to save and education means nearly nothing to her in the arena of relative performance and she enjoys pointing out a time or two that she’s “propping up” the portfolio with her contributions and recent returns when the majority of my holdings since early last year were initiated in financial stocks.
The most startling realization from all of this since she’s started? Not only does she view herself now as an empowered investor who is a woman, but she views these companies from the perspective of an owner. I’ve lost count of the number of times she’s asked while shopping, reading or hearing about a company she might be interested in if they trade publicly or might be a potential investment. Of course there is one clear benefit to having my own Buffett than having the real one – mine is much better looking.