Monthly Insights, March 2017

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1 Monthly Insights, March 2017 BY STEPHEN BISHOP OF RAYMOND JAMES LTD. Stephen Bishop & Associates Raymond James Ltd Commercial Street New Minas, Nova Scotia B4N 3E1 T: Lovitt Plaza 368 Main Street Suite 107 Yarmouth, Nova Scotia B5A 1E9 T: UPCOMING EVENTS Business owners save the date and mark your calendars: May 16, 2017, 6:30 p.m. Old Orchard Inn Conference Centre, Greenwich, NS OR May 17, 2017, 6:30 p.m. Rodd Conference Centre, Yarmouth, NS Keynote Presentation by Tom Deans, Ph.D., New York Times Top 10 Best Selling Author of Every Family s Business. Tom delivers a compelling case for why families and business owners should clearly map out an exit plan for their businesses. Please RSVP by April 30, 2017 with Heather Bishop at or Heather.Bishop@raymondjames.ca Business owners struggling with succession planning The topic of succession planning is becoming a common and growing issue for many business owners. Often these individuals have a significant portion of their net worth tied up in their businesses. As they get older and approach their retirement years, the issue of how to exit their business by either selling it to a family member or to an external buyer is one that needs to be properly addressed and planned for. In many cases this is a very stressful and emotional process, as family businesses are unique and come with a multitude of family and personal issues that larger corporations do not need to address. Seventy-five percent of family businesses have a maturing owner who is considering retirement in the next 10 years. However, the majority of these businesses do not have a formal succession plan. Business owners need to learn about transferring the responsibility of their business, including discovering their options in the event of a sale, disability or divorce. In light of this growing need, and from my observations working with my clients and in my contacts who are business owners, I have contracted Tom Deans, PhD, New York Times Top Ten author of Every Family's Business to present at two events in May I strongly believe that all business owners need to gain more insight and start the planning conversations regarding what will be required to successfully exit their businesses someday. Tom Deans travels around the globe and has spoken in over 20 countries. He is a keynote speaker at many top business conferences in New York City and Las Vegas and has appeared on a multitude of radio and television shows to discuss the topic. At this event Tom will cover: - How to protect your wealth and plan ahead - The importance of your exit plan to the future of the business - How to avoid family difficulties as you prepare to retire This event will be of interest to small- to medium-sized business owners and their spouses/partners, entrepreneurs, CEOs, CFOs and consultants. Because the seating is limited, you will need to pre-register for this event. For additional information, please click on this link which will take you to my website event page to RSVP and reserve your seats.

2 Memoirs of extraordinary popular delusions and the madness of crowds In April I will have logged my 31 st year in the investment business. It has certainly been an interesting career. What began as a career of stock and bond trading, slowly evolved toward a business that is geared toward retirement planning, estate planning, financial planning and professional money management services. We went from only dealing with those who wanted to trade stocks and bonds, those who understood the game and the risks involved in this activity, to people simply wanting to invest their savings to produce long term average returns. Most clients now want to grow their savings for when it they are needed to sustain their lifestyle when they are older and in their retirement years. My 31 years have allowed me the privilege to work closely with some exceptional clients and I have developed many long-lasting friendships. My years of dealing with other people s money have also allowed me to experience a number of other interesting human emotional characteristics that, well, let s just say have been quite enlightening. The current investment environment is causing many individuals to suffer from what I will describe as an emotional madness. It s not any individual s fault. It is just what has become a reality for them. This madness is a product of people doing things they should not be doing in hopes of receiving an end result that they desire. I believe that this madness stems from risk taking to achieve their goals, when this risk is not an emotionally tolerant piece of their psyche. I believe that some people have put themselves in a place that in a simple term, is not who they are. The manner in which the world economic landscape has evolved has produced, in some cases, a very difficult challenge for people to manage their expectations, perceptions, and subsequently the emotions of what is reality. As you know, any conversations we have been having in recent months have all comprised of risk tolerances, realistic rates of return and time horizons. Because of what I am seeing, and in my quest to always learn more and to try to understand the human mind better, I am currently reading an interesting book that is providing me with some insight on why today is becoming a difficult period for many of my clients. This book is very well written in simple language and provides several past historical examples that are helping me relate to today s environment. Here are a few of quotes from the books preface: - In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. - Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. - Men, it has been said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one. If anyone is interested in this book, it s an interesting account of a number of historical events. These events reflect on, and confirm, how mad we humans can become at times. It is titled, as stated in my headline Memoirs of Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay LL.D. There is only one minor issue with this. You see, it was published in So you won t see him interviewed on T.V. of hear him on the radio. But what has always, and likely always will, exist are the same recurring patterns of the human mind crowd madness. I wonder what his observations would be today with the latest presidential election in the USA or world stock markets and the economic manipulations of interest rates and the economies by the world s central banks?

3 We have become a society of instant everything, access to information of all sources and online shopping with two day deliveries right to our doors. We know what everyone else is doing with their personal lives thanks to social media via Facebook, LinkedIn, Twitter, Snapchat and so on. We have accepted this instant society and it will not stop unless society chooses to do so. We as individuals are the only ones in control of what we do and how we think. Why is all this relevant to investing? My answer is that it parallels the need for people to take back control of how they view things and put them in perspective as it relates to investing ones savings. For example, if one is a long term investor, that person needs to maintain a long term view and if it is the case, stop looking at their account values every day. A long term investor, by definition, means one does not need immediate access to the funds in the short term. If one has their time horizon properly defined, their tolerance for declines in value (month to month, year to year) properly defined and the rate of return one expects based on these two points is realistic, then what happens over the short term is just what is going to happen. It s the way it works. It s when this activity and the emotional feelings become bothersome, is when one needs to step back and reflect and revisit what it is they are doing and determine why it is troubling to them. An investment professional can only base their advice on the information the client provides on their individual goals and views. If this information has been poorly communicated or if it has changed, the advisor needs to be updated so they can adjust things accordingly. When I started in this business, those who bought stocks did so because that s what they wanted to do. Not because they believed that it was what they had to do to make more money on their savings. At that time, and for many years after this, interest rates on deposits and bonds were high. People didn t need to buy anything other than GICs and bonds to make a decent return on their savings. People bought GICs and bonds because they could get a reasonable return on their monies with no risk to the capital. They didn t need to enter the world of equities and the risks of the stock markets. Some people are just not cut out for taking any risk at all. As time passed, interest rates dropped and more and more people wanted to continue to receive the higher rates of return they had enjoyed on their guaranteed deposits. I witnessed over my career the proliferation of more mutual fund companies and financially engineered products, many of which I have long lost track of. They have come and gone. Many merged or were bought up by the big banks in their quest to dominate the Canadian financial landscape. There is a reason why financial services exist and why people are directed toward the managed asset services. What one needs to remember is that when one is not satisfied with the interest rate on a guaranteed deposit and explores the alternatives the guaranteed part is gone. There are no guarantees on anything other than what is stated to be guaranteed. This brings us to today. I can confidently say that the average person who is investing money in Canada lacks the knowledge and time to manage their own portfolios. The average investor relies on professionals to guide them. How do I know this? Well it s because that is what I do every day of the week, and you may recall how long I have been doing this Risk (or the tolerance for risk) appears in many cases to have become the missing psychological link in this quest for higher rates of return on investments in today s world. In last month s commentary I referred to a sample of rates of returns when considering various risk profiles in order to help educate clients on realistic expectations. We are in a very volatile period in global history and specifically as it relates to the investment landscape. As Charles MacKay states in his book, mankind has a long history of becoming delusional and following the herd. My job as it relates to my clients is to insure people stay solid and sound in their thinking regarding what they hold in their Raymond James accounts. That the holdings comply with their personal tolerances for declines in values in light of their time horizon, whether that is a 0% or 50% or 100% tolerance for declines. It s not about what is available to invest in. It s about what is suitable for one to invest in.

4 The stock markets of the world could go significantly higher from this level. They could also go significantly lower. No one can tell you this. Which is why the necessary pieces of consideration one needs to fully understand before making any kind of investment, as well as to reassess where they are in life currently are: 1) How much of a decline in the value of the investment can one tolerate from this period and moving forward? 2) How long will the money be invested for? 1 year, 5 years, 10 years, etc.? 3) What does one feel is a realistic rate of return should be on the invested money, based on the risk one is taking and the time the investment will be held for? Over the past 31 years I have personally been a successful investor. I have also invested into ideas that turned out to be losers. I invest in a number of different things. I invest in stocks, mutual funds, bonds (when attractive), hedge funds, real estate, collectibles and so on. Everyone is different and has different views, risk tolerances, time horizons, needs and desires when investing their money. When it comes to the relationship between risk and the potential return on the things I invest in personally, I completely understand what can happen, be it positive or negative. I know that an investment can go down in value and possibly how much at any given point in time. I understand some investments need to be held for a very long time for them to work out and that if I change my objective, I can lose money. I also understand that there will be times that I am wrong about what I invested in and I will have to revisit the facts and make any changes and move forward. It s a changing world and when things change, a person needs to weigh the facts and change too. Since the November 2016 election of Donald Trump, US stock markets have been on an upward trend that had the major US market averages hitting record highs. Recently the markets have sold off and the speculation is now whether the rally continues or is it over and will we now get a major correction. Personally in the short term I don t know. But what I do know is that over longer periods of time markets go up and markets go down. The madness of crowds has always been involved in both these trends. Let s all try not to be part of the madness and stick to fundamental parameters of what is suitable risk and return expectations for you. If you have any questions regarding your Raymond James accounts or any of the current holdings in relation to what the risk is and what you can expect, please contact me.

5 Need help with your 2016 tax information? As always we are here to help with any tax information required regarding your Raymond James accounts, i.e. any tax slips or information you or your tax preparer confirmation on. Please contact Lisa Muise in my Yarmouth office or Heather Bishop in my New Minas office. Quote of the month "The four most dangerous words in investing are: 'this time it's different.'" Sir John Templeton Follow market trends and history, but don't speculate that this particular time will be any different. For example, a major key to investing in a particular stock or bond fund is its performance over five years, nothing shorter. Please feel free to contact me if you have any questions or would like to discuss any of the items in this month s commentary. Thank you, Stephen Bishop This newsletter has been prepared by Stephen Bishop and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. No recommendation of any product or service would be made without a thorough review of an individual s financial goals and risk tolerance. This may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to. Securities-related products and services are offered through Raymond James Ltd., Member-Canadian Investor Protection Fund Insurance products and services products and services are offered through Raymond James Financial Planning Ltd., which is not a Member-Canadian Investor Protection Fund.