Entries from June 2018 ↓

Near misses

DOUG By Guest Blogger Doug Rowat

Back in early 2009, when I was a fresh-faced, wide-eyed young analyst at HSBC, I’d occasionally sneak into the office lunch presentations, which usually featured a company or portfolio manager promoting a new investment idea. But this was during the financial crisis, the S&P 500 had plunged 57% from its 2007 highs and my personal portfolio lay in tatters. So, to be honest, I mostly attended for the free lunches. One afternoon was different however. Horizons ETFs was presenting alongside Dennis Gartman, publisher of the incredibly popular investment newsletter, The Gartman Letter. Free lunch or not, I wanted to be there.

I mean this in the most flattering way, but you could always tell the popularity of an investment newsletter by the regularity with which hardcopies were left around the bathroom stalls (this was an era before smartphones). The Gartman Letter was always lying there and it was a good read. Horizons and Gartman were presenting that day to promote the new Horizons Gartman ETF (HAG-T) and it was a packed boardroom.

After a lengthy preamble from the Horizons sales rep, Dennis Gartman was called up to speak. I was sitting across from Gartman and it appeared that he had fallen asleep. At the very least his eyes were closed and he had to be nudged to attention. No doubt the marketing tour must have been long and grueling, but this certainly struck me as a bad omen.

Ultimately, the ETF was shut down due to lack of investment and poor performance. Morningstar reported the following back in 2013:

Horizons Exchange Traded Funds Inc. announced that it will be terminating three exchange-traded funds effective at the close of business on Friday, March 22, 2013.

The oldest of the three closing funds is the $6.6-million Horizons Gartman ETF HAG, which was launched in March 2009 to provide exposure to the investment strategies of The Gartman Letter, an investment newsletter founded by Virginia-based author Dennis Gartman. Since its inception, the fund has produced a disappointing return of -5.9%.

The Horizons Gartman ETF (white line) vs the S&P 500 (yellow) and S&P/TSX Composite (orange)

Source: Bloomberg

To achieve a negative return after launching an investment product at one of the most advantageous start dates in history takes some work, but even from the beginning it was clear that things weren’t going to go well for Dennis after he got into an epic dust-up with Globe and Mail columnist Fabrice Taylor. Taylor wrote a column critical of HAG, which prompted a response from Gartman. Below are a few highlights of their back-and-forth emails in November 2009:

Dear Mr. Taylor, I read your note on my performance a short moment ago, and I have one or two major problems with your comments. Firstly, I was never contacted by you regarding my performance, although your note says that I refused to speak with you. That is simply not true. Secondly, I never called Mr. Buffett an idiot. The notion that I called Mr. Buffett an idiot was something that the internet spun up and out of control after a speech I gave earlier this year in Spokane, Washington. …[M]y performance was stellar in my Canadian fund until two instances in recent weeks wreaked havoc upon me. One was the surprise purchase of Marvel Comics, which was my largest short, by Disney and the second was the massive one day collapse of Molson’s on a day when its earnings were stellar and yet the stock fell 11%…. Regards, Dennis Gartman

Taylor responded the same day:

Dear Mr. Gartman: It’s an inauspicious start to our dialogue that you call me a liar though I am happy to supply you with my cell phone records, which will show that I did indeed call you twice last week and left a message. I’m not lying, so please don’t say or otherwise imply that I am. We’re not going to get along at all if you do. As for telling the truth, here is a quote from the Wall Street Journal, June 19, 2009: “The Oregonian reports: `Warren Buffett is an idiot,’ he [i.e. you, Dennis Gartman] said, emphatically, in a short interview after the speech. `Shame on Warren Buffett. That’ll be a good quote for your article.’” This isn’t something manufactured in the Internet’s vortex. It’s you speaking to a journalist. Is the Oregonian lying? As for your pair trades and your unfortunate short sale of Marvel, who cares? The numbers speak for themselves. Sincerely, Fabrice Taylor

It’s Taylor’s last line that I find most instructive for investors. Investors tend to get overly focused on their near misses when they should be reflecting instead on their own poor judgement or an overall failed strategy. As R.L. Reid from the University of Exeter in his article “The Psychology of the Near Miss” states: “A near miss is a special kind of failure to reach a goal, one that comes close to being successful. …[F]ailure to reach an anticipated goal produces frustration which acts to strengthen ongoing behaviour”. In other words, near misses can inhibit an investor from recognizing that they may actually need to pause and change their strategy—or worse, inhibit them from recognizing that they may actually be unable to win “the game” at all.

As an investor, own your performance. It’s a result of YOUR decision making. And if those decisions have crippled your performance, you probably took on too much risk.

Balance and diversification. THAT’s a can’t-miss strategy.

See? Free lunches still exist.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.


There’s no 20% go-away foreign buyer’s tax in Washington States. No speculation tax punishing people from, say, California or New York who want to own a property there. Seattle, a bustling and growing city, has no empty houses tax forcing owners to become landlords. No luxury tax on high-end homes. No socialist state government, either. But the governor and senators are Dems while the Congresspeople (as we say in Canada) are red.

So here’s the news: 26% of all apartments in downtown Seattle are empty, while across the line in Vancouver there’s a vacancy rate of about zero. In Washington state’s premier city tenants are in the driver’s seat, as landlords are giving away free rent, gift cards, free cable and other incentives to attract them. In one week a local reporter found 112 area apartment buildings offering free rent.

A year ago Seattle had the fasting-rising rents in America, thanks to its thriving tech industry and the incredible buzz the city has generated among young workers, supported now by a world-class entertainment zone. But no more. Out of 25 top US markets for rent growth, this city now ranks 22nd. Rents, in fact, are dropping – after soaring over 7 years to the extent the average two-bedder now goes for $2,000 a month.

Vancouver comparison? Well you’d be lucky to find a nice one-bedroom place in downtown VYR for two grand, with two-bedroom units averaging $3,100 – a 50% increase over Seattle. The average house in that city, by the way, costs less than $850,000, or about half that in the delusional metropolis to the north, now being made even more expensive by Comrade Premier Horgan and his tax-and-spend disciples.

The vacancy rate in Seattle is not because the city’s in the decline, by the way. Quite the opposite. The home of Amazon (the second most valuable company on the planet) has the 4th strongest economy in the US, and the third-highest wages. With a metro pop of 3.8 million, it’s about 50% bigger than Vancouver, and yet manages to have more affordable homes. The median household income in Seattle now tops $80,000 U$, while the media in Vancouver is under $67,000 in Canadian Tire money. And foreign (mostly Chinese) buying has been as big an issue in Seattle as in the Lower Mainland. Despite that, governments have resisted a kneejerk call to restrict people from Beijing (or Vancouver) from purchasing there.

So here’s a bigger city with a better economy, a larger population base and more affluent families, and yet taxes are lower, houses 50% cheaper, and landlords are showering tenants with freebies. Huh?

Draw your own conclusions. But it’s hard to escape the obvious – markets correct on their own, and are only made worse by political interference. In Seattle when lease rates hit that $2,000 threshhold, they met resistance, especially with a lot of new supply coming on stream. In other words, supply and demand allowed rents and house prices to increase dramatically, then correct just as intensely.

In Canada, and especially BC (Bring Cash), governments for years tried to stimulate, promote and goose real estate with a bevy of incentives, freebies, grants, tax credits and deductions, and now are skewing everything with an onslaught against housing. Obviously, it ain’t working. Cheaper properties now cost more and expensive ones cost less, but are still unaffordable. Sales are plunging and listings swelling amid record family debt plus a vast number of people with all their net worth trapped inside house equity. The bottom line is that nothing gets cheaper by taxing it more.

How did we lose our way?

Well, so much for the argument rates won’t jump in a few days. An increase in the cost of mortgages and lines of credit is now a certainty on the 11th, as the central bank pulls the trigger for the fourth time in recent months. Concerns that Trump would eat Canada have been overshadowed by the economy itself, which just increased for the seventh time in eight months.

That shot the market odds of a rate increase back up to 80%, goosed the loonie almost a cent, and threw some gas on Bay Street. The performance surprised most economists (they are easily startled) who had expected thoroughly crappy Spring weather across most of the country would depress activity. Plus, of course, Donald. He turned Canada’s crank over the last couple of months by dragging out the NAFTA talks, slapping on steel tariffs, dissing our government and musing about destruction of the domestic car business. Despite that, this proud nation of aquatic rodents and birds named after a foreign-owned parka company soldiered on.

By the way, in Seattle they can lock up a mortgage rate for 30 years, and write the off the interest from family taxes that just went down.

Yeah, me too.