Don’t believe the hype

DOUG  By Guest Blogger Doug Rowat

When IPOs make the mainstream news cycles I get nervous. Particularly when the newly listed companies provide services or products that consumers use regularly. Lyft and Levi’s being two recent examples. The media coverage of their IPOs has been ubiquitous. But you ain’t seen nothing yet—just wait until Uber comes to market.

Now rookie investors often assume that if they personally make use of a company’s services or products then that company must be a good investment. Further, if it’s an IPO that everyone’s talking about then there’s also a desire to own it because it’s cool and sexy—bragging rights for dinner parties and family BBQs.

While it’s sometimes true that personal usage = good investment, often this is not the case. Remember phone books and Yellow Pages Income Fund? But, more importantly, there are inherent flaws with the IPO structure that generally make IPOs undesirable long-term investments and, in aggregate, not really all that cool or sexy.

One problem is that many IPO companies are unprofitable with relatively short financial track records and, obviously, no trading history where investors can properly evaluate volatility. Company management also isn’t stupid. Firms want to generate maximum dollar value when proceeding with an IPO, so you can bet that market conditions are going to be just about perfect when an IPO is filed. This is one reason why there were almost US$20 billion in energy sector IPOs in 2008 when oil averaged almost US$100/barrel versus only US$13 billion last year when oil averaged US$65/barrel. Companies come to market when the odds, and market sentiment, are heavily stacked in their favour. But what this means for IPO investors is that they’re often buying at the top.

No surprise then that IPOs overall really don’t perform all that well longer term. The godfather of IPO research is Professor Jay Ritter of the University of Florida who’s been looking at IPO data going all the way back to the 1980s. Excluding the first day of trading, IPOs underperform firms of similar market cap by 3.3% annually on average in the first five years post their initial listing. Ritter’s performance data is also confirmed by simply comparing the Renaissance IPO Index, a benchmark that captures 80% of newly public US companies, versus the S&P 500. Again, IPOs significantly underperform. Basically, for every Amazon.com there’s a Pets.com.

Renaissance IPO Index (white line) vs the S&P 500 (orange)

Source: Bloomberg

Now, it’s true that IPOs usually do have great first trading days—all that built up hype and momentum finally explodes on Day 1. However, the truth of our industry is that for the hottest IPOs it remains almost impossible for an average investor to get their hands on a share allocation before trading begins. Like Yeezy Turtledove Ultraboosts on launch day at Foot Locker—you can line up, but you ain’t getting any. Further, even if a retail investment advisor were to somehow get their hands on a small allotment of hot IPO shares, they’re, in all likelihood, only going to give a taste of this sugar to their biggest clients.

And, in our view, that’s just not fair.

_____________________________________________________

Finally, Garth and I don’t consult in any way on what we write in our blog posts, but clearly there’s a common thread to our thinking. A shared brain, if you will. Here’s some proof. Below is an excerpt from one of Garth’s recent posts followed by one of mine. Note the similarities. Garth and I have been to all the market rodeos and have seen all aspects of investor (mis)behaviour. So, listen to us, we know of what we speak. First, Garth:

…let’s acknowledge humans love to think they live in unique times. At heart we’re drama queens. We believe current forces are overwhelming and the outcome will be epic. Therefore we must take extraordinary action. In fact, every time stock markets correct folks panic and think they’re going to zero. They rush into cash, often triggering losses on assets that soon rise again. Fools. But that’s us. We never learn.

And an excerpt from one of my blog posts:

…another interesting truth about investor behaviour is that investors often feel that the world events that they’re encountering right now are the most significant and consequential in all of history. This is pure vanity.

The Cuban missile crisis, the JFK assassination and the escalation of the Vietnam War in the 1960s; the energy crisis, massive US trade deficits and a 10%+ US unemployment rate in the 1970s; a US recession, the attempted assassination of Ronald Reagan and Black Monday in the 1980s; the Gulf War, another US recession, the Asian financial crisis and Y2K in the 1990s; the ‘tech wreck’, 9/11, two more recessions (one massive) and corporate accounting scandals of the 2000s—all of these events weren’t significant? This is to say nothing of the Great Depression, World Wars and atomic bomb drops in even earlier decades. Yet despite all this turmoil, the market advanced and long-term investors made money.

Our current situation is not particularly special. In fact, we’re fortunate that no major countries are at war, capital markets are doing well and the global economy is actually quite stable. While risk is always present, it’s really no more severe than it’s been in the past. We just feel that our brand of uncertainty is the worst that the world has ever seen and we make investment errors as a result.

So, maintain a balanced and diversified portfolio, ignore the distractions, relax and go about your life. But you say that you’re special and the times that you live in are the riskiest the world’s ever seen?

Wrong. Get over yourself.

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

 

57 comments ↓

#1 first on 04.06.19 at 1:53 pm

As the article says, stay balanced and diversified is the way to go.

#2 crowdedelevatorfartz on 04.06.19 at 1:58 pm

“But you say that you’re special….”

+++++
But you say that you’re special and the times that you live in are the riskiest the world’s ever seen?

Wrong. Get over yourself.

+++++++

Hundreds of latte slorping Millennials just hit the roof…..

#3 Linda on 04.06.19 at 2:20 pm

Right on, Doug. While we are at it, don’t use the news as a reason to procrastinate over doing what is right for your financial future, either. If you haven’t already got a TFSA, RRSP, savings or begun to accumulate the beginnings of a balanced & diversified portfolio, start one up today. The only reasons to delay are 1) you have been diagnosed with a terminal illness & have been told to put your affairs in order & 2) you literally have no job, no income & no assets of any kind. The second condition can be remedied. Once it is, start building because time is the one thing you can’t get back.

#4 Ron L Tetrault on 04.06.19 at 2:31 pm

So true. When the stuff hits the fan, I find it best to just turn off the media, not go look at my investments, and just sit it out. It has always worked for me.

And now that I’ve been through a couple recessions and very down markets, I know things will bounce back. They always do. Investors are often their own worse enemies, and the reason why many can’t even match average market returns.

#5 Lead Paint on 04.06.19 at 2:38 pm

If that was last week’s forecast it was slightly less accurate than usual.

#6 Trumpocalypse2019 on 04.06.19 at 2:42 pm

That forecast may be off, but only by a matter of days or possibly weeks if we are lucky.

All hell breaks loose in 2019.

PREPARE

#7 Andrewski on 04.06.19 at 2:45 pm

Careful Doug, your truth may have hurt the snowflakes feelings.

#8 Loonie Doctor on 04.06.19 at 3:02 pm

#70 SoggyShorts on 04.05.19 at 10:03 pm
Garth, do you recommend the use of total return ETFs?
If you are going to own a US ETF in a non-reg does it make sense to use to total return version and have pure cap gains instead of dividends to control taxation?

Hey SoggyShorts. They got torpedoed in the recent budget. Exact fallout for those who already hold them is unknown. I would not jump in if not already on board. If on board, it is wait and see at the moment.

https://www.horizonsetfs.com/news/Press-Release/Horizons-ETFs-Assessing-Impact-of-Proposed-Federal

-LD

#9 Reality is stark on 04.06.19 at 3:05 pm

Exactly.
Focus on the obvious and forget the hype.
Since 2008 the public sector has been overpaid.
Doug Ford is trying to examine the problem but he is not tough enough to drain the swamp.
Canada has a cost problem and no one is strong enough to solve it.
Let the dollar hit sixty cents when oil prices drift back to $45 a barrel.
The people are sick and have little resolve.

#10 WUL on 04.06.19 at 3:12 pm

Doug,

You said:

“However, the truth of our industry is that for the hottest IPOs it remains almost impossible for an average investor to get their hands on a share allocation before trading begins.”

$$$…

So true.

I invested in one IPO. In the “silly season” of 1993 in junior oil and gas companies in Calgary. All it took that season to make a ton of money was an engineer, a bean counter, a rock hound, a tool push and a leasehound to start a junior.

My BIL (the gear of the 5 founders) put me on the “President’s List”. I borrowed some money and bought some shares which came with warrants to buy more. Doubled the money in 24 hours, sold the shares, threw the warrants into the kids’ RESP, paid out the loan and bought a new car.

Two years later the company did not exist.

It is the only IPO I have ever participated in. I came out unscathed. Unlikely to see that scenario in Alberta ever again.

J.D. “WUL” Rockefeller

#11 BC Renovator on 04.06.19 at 3:20 pm

Great Blog post. Thanks

#12 Shawn Allen on 04.06.19 at 4:05 pm

Math Question – Multiple Choice This Time

Math question

Scenario: You put $10,000 into an RRSP and get back 40% or $4,000 refund and so your net cost is $6,000.

Say it just only doubles to $20,000 over a decade or whatever and you take it out over a couple of years at a 35% tax rate. So you get $13,000 and pay $7,000 tax.

Your net $6,000 investment more than doubled to net $13,000 when the RSP doubled.

Question: What was your tax rate paid on the gain when your $10,000 RRSP (that cost you $6,000 net of the refund) doubled to $20,000 and you got back net $13,000 after tax? Hints: $6000 in a Tax Free savings Account that doubled would be worth $12,000. Of course $10,000 in a TFSA that doubled would give you a net $20,000.

a) 35%, obviously

b) Negative 16.67%

c) Negative 8.3%

d) 100% since all tax is theft

e) all of the above

#13 tccontrarian on 04.06.19 at 4:15 pm

“Finally, Garth and I don’t consult in any way on what we write in our blog posts, but clearly there’s a common thread to our thinking. A shared brain, if you will. Here’s some proof. Below is an excerpt from one of Garth’s recent posts followed by one of mine. Note the similarities. Garth and I have been to all the market rodeos and have seen all aspects of investor (mis)behaviour. ”

“So, listen to us, we know of what we speak.”
++++++++++++

Yes, but also be wary of GroupThink. It can happen to even the most brilliant minds!

Re IPOs – I participated in 2 over the past couple years, both in Cannabis sector. I made sure that insiders (with a good track-record) were putting their own money at the same levels as I was, and things worked out well.
But generally speaking, ‘buyer beware’! I read somewhere that increased IPO activity has a strong correlation to a topping market.

TCC

#14 kothar on 04.06.19 at 4:22 pm

A few years ago the IPO for FaceBook came out. There was big hype and it went down in the first month….but if you hung in you were handsomely rewarded. I remember on here blogs exposing to not even bother going for it.

#15 TurnerNation on 04.06.19 at 4:27 pm

Of course the clients are jumpy. Advisors should treat up to 25% of their client base as paranoids.
I met a fellow, long term P0t smoker, gave it up for that reason. Literally was ruining his body;s best asset.

Kanadians can’t get enough…as I said this country is doomed to low productivity for that reason and more.
Sold out. To UN population kontrol methods:

https://www.theglobeandmail.com/cannabis/article-sold-out-legal-marijuana-producers-arent-providing-enough-of-the/

#16 AK on 04.06.19 at 4:52 pm

“Lyft and Levi’s being two recent examples.”
====================================

In Levi’s case, these guys have a brand and everybody wears jeans.

But in Lyft’s case, I have no clue as to how they managed to price it at 24 Billion ? They have zero assets and the competition is enormous.

#17 AK on 04.06.19 at 4:59 pm

“While risk is always present, it’s really no more severe than it’s been in the past. ”
=====================================

Totally agree. I can tell that by looking at the line ups at
Dunkin’ Donuts, which never recede.

#18 Figure it Out on 04.06.19 at 5:48 pm

“Hundreds of latte slorping Millennials just hit the roof…..”

Eh, I don’t think so. In finance and political economy, nobody tries to convince young customers they’re special. They don’t have any money, and old people want them to do more or less what the old did when THEY were young (buy houses, get a job, don’t question the tax system).

The “special times” pitch is aimed at people with lots of money (i.e. older), either to sell them dumb investments or dumb advice. It’s the fear of losing what you have that makes the pitch work.

#19 Ace Goodheart on 04.06.19 at 5:52 pm

When you guys quote yourselves in blog posts you sound like that Gardiner kook from “motley fool” (oh kooky man kooky man lend me your comb).

IPOs are a means of cashing out. You’ve worked hard on a company, it made money, you have a name. Time to pull some cash out. Who do you think gets all the money from the IPO? The investment bank takes their cut. The original share holders get the rest.

There is this cool bar downtown Toronto where all the weirdo private company exec’s like to hang. If you talk to the right person you might meet the next Jeff Bezos or Bill Gates. They will sell you shares of their worthless start ups for very little.

Every so often one of these folks ends up being the CEO of BlackBerry (they actually hung out there and some folks did buy shares in the very early BlackBerry at that location).

Most IPO sellers are just folks trying to survive as they’ve run out of money and desperately need someone to invest in their ideas.

#20 Long-Time Lurker on 04.06.19 at 5:52 pm

>Good article, Ryan. (Doug, hee hee!) This is relevant:

https://dailyreckoning.com/the-lyft-ipo-is-rigged/

Zach Scheidt
BY ZACH SCHEIDT
POSTED
MARCH 25, 2019
The Lyft IPO is Rigged!

THE GAME IS RIGGED!

…Back when I was at the hedge fund, it was my responsibility to handle all of the IPO business that our firm took part in.

I would go to the road shows, grab lunch with the executives of the new companies, place calls to the brokers in charge of the deals, and I would literally call in favors that were owed to our hedge fund to ensure the best treatment possible when it came to the hottest deals.

So when I say this market is rigged, I know exactly what I’m talking about.

Here’s how the typical process works…

A company decides that they want to sell shares to the public for two primary reasons:

Reason #1 To Go Public — The company wants to sell shares to raise capital so they can open new stores, hire more workers, or become a stronger business.

Reason #2 To Go Public — Company insiders — AKA founders and private equity owners who got in before you or I ever had a chance to invest — want to sell part of their position at a top-dollar price to lock in a big profit.

Unfortunately, the latter accounts for a large portion of these transactions. And unsuspecting individual investors who buy these shares are usually the ones handing them their profits.

That’s because the men and women on Wall Street — with their millions of dollars in research capabilities and their endless connections — know exactly which IPOs are strong businesses looking to grow and which are full of insiders looking to cash in on their investment.

You on the other hand probably do not have these insights, which puts you at a serious disadvantage when it comes to making money from these exciting transactions….

#21 Long-Time Lurker on 04.06.19 at 5:54 pm

>Bad news, Felix. The survey’s out. Like we didn’t know already.

https://www.pressherald.com/2019/04/05/dog-owners-are-much-happier-than-cat-owners-survey-finds/

Dog owners are much happier than cat owners, survey finds

Pet owners and non-pet owners are equally happy (or unhappy) but among pet owners, there is a big difference.

BY CHRISTOPHER INGRAHAM
THE WASHINGTON POST

…In 2018, the General Social Survey for the first time included a battery of questions on pet ownership. The findings not only quantified the nation’s pet population – nearly 6 in 10 households have at least one -they made it possible to see how pet ownership overlaps with all sorts of factors of interest to social scientists.

Like happiness.

For starters, there is little difference between pet owners and non-owners when it comes to happiness, the survey shows. The two groups are statistically indistinguishable on the likelihood of identifying as “very happy” (a little over 30 percent) or “not too happy” (in the mid-teens).

But when you break the data down by pet type – cats, dogs or both – a stunning divide emerges: Dog owners are about twice as likely as cat owners to say they’re very happy, with people owning both falling somewhere in between….

#22 Wise Sugar-Free Cracker on 04.06.19 at 6:24 pm

“But what this means for IPO investors is that they’re often buying at the top.”

I’m guessing you’re a buying at the bottom sort of man?

#23 crowdedelevatorfartz on 04.06.19 at 6:35 pm

Unbelievable how much the markets have roared back since Dec31st.

The “balanced and diversified” portfolio is doing just fine…but my “negative Nelly glass half full” pessimism worries that something this good… shall pass.
But.
I’m doing better than friends who unloaded and sit in cash despite my plagaristic comments after reading Garth to……. “wait it out”.
Ya gotta love market volotility…it gives us complacent Boomers a few more grey hairs.

Totally off subject; but our lack of precipitation in March is being made up in one day in April

#24 Felix on 04.06.19 at 6:44 pm

@20 Long-Time Lurker

>Bad news, Felix. The survey’s out. Like we didn’t know already.

https://www.pressherald.com/2019/04/05/dog-owners-are-much-happier-than-cat-owners-survey-finds/

Dog owners are much happier than cat owners, survey finds

=================================

What this very bad research study forgot to do is assess the IQ of the dogs and their humans.

Stupid canine creatures appeal to the lowest IQ echelons of the human species, and so of course they can live together in a state of perfect ignorant bliss.

Like attracts like.

#25 NoName on 04.06.19 at 6:44 pm

#13 kothar on 04.06.19 at 4:22 pm
A few years ago the IPO for FaceBook came out. There was big hype and it went down in the first month….but if you hung in you were handsomely rewarded. I remember on here blogs exposing to not even bother going for it.

Now that you mentioned fb, imagine how much more you would made on fb if you wated few weeks, ipo was 40-ish , probably lower, low was around 18 if memory serves me right. Buddy of mine did exactly that, had to take 2nd to pay taxes..

Ipo are good thing, but lately valuation are bit funny…

#26 Anonymous on 04.06.19 at 6:50 pm

Question about IPOs and ETF investing:
When an IPO takes place, at what point does an ETF (index ETF) that would usually have this new company in the index, actually need to buy the shares? For example, at what point would a NASDAQ tracking ETF have to buy Lyft shares?

When an IPO at a 20B valuation takes place it can really change a cap-rated ETF holdings.

Does the ETF usually rebalance immediately or can it wait until prices stabilize?

#27 Bombs Away! on 04.06.19 at 7:12 pm

Every time the world economy starts to look shaky – out comes the fireworks.

Keep your eyes on the press. I

It is amazing to see how quickly the cogs of commerce turn when some geo-political and oil tensions are thrown into the spokes.

#28 akashic record on 04.06.19 at 7:15 pm

The diversified portfolio strategy is aimed for low risk investing, in exchange of low gain.

None of the billionaires became one with diversified portfolio, it would require multiple lifetime.

Billionaires are mostly John Galt-type people, entrepreneurs, or more simple speculators, like currency traders. But they are all speculators, usually the herd follows them, not the other way around.

IPOs give some of the taste of the John Galt-feeling” for the mostly diversified portfolio players. Sometimes one can get lucky.

Too bad the whole system is rigged, as Doug points it out, for insiders, though even they can get a surprise. According to anecdotes, billionaire Icahn unloaded to his Lyft stake to fellow billionaire Soros, who got stuck with the IPO-d shares, that turned red, for 180 days.

#29 Shawn Allen on 04.06.19 at 7:28 pm

Diverified Portfolio Strategy

#27 akashic record on 04.06.19 at 7:15 pm
The diversified portfolio strategy is aimed for low risk investing, in exchange of low gain.

None of the billionaires became one with diversified portfolio, it would require multiple lifetime.

************************************
Absolutely true, but the bell curve showing the distribution of returns has two sides. No pure index investor does any better than the index, let alone get into the top 0.01% of investors, nor do any do worse (before costs).

Trying to beat the index can make sense if you have good reason to think you have an edge. Otherwise not so much, except for the entertainment. Many people believe they do have an edge. Some do.

#30 Doug Rowat on 04.06.19 at 7:40 pm

#25 Anonymous on 04.06.19 at 6:50 pm

Question about IPOs and ETF investing:
When an IPO takes place, at what point does an ETF (index ETF) that would usually have this new company in the index, actually need to buy the shares?

In the case of the Renaissance IPO Index, which is also an ETF, IPO shares are included after the fifth trading day.

–Doug

#31 Ace Goodheart on 04.06.19 at 7:45 pm

Is that the weather forecast for Alderaan?

#32 weinerS on 04.06.19 at 7:49 pm

One reason to think that our current situation could be special, is that in no time in the last 150 years have there been two simultaneous events occurring, either one of which could see a retreat in global markets for a period of years, not mere months: 1. The aging population in the world’s two biggest economies, namely the U.S and China, as well as Europe and Japan. 2. The incredible debt burden of both the world’s economies and their citizens. We may truly need a paradigm shift, like AI or Nanotechnology, similar to the advent of the PC in the 1980s, to keep the stock market party going with these natural obstacles.

#33 Ronster on 04.06.19 at 8:48 pm

Doug,

Since you don’t consult with Garth, then you would be unaware how often I have asked that “threads” be turned on for this pathetic blog. Please make it happen! This way your readers, that pay your virtual salary, would be able to comment on individual posts rather than having to obfuscate the comments section. Such a simple thing to do … why wouldn’t you do it? Your readers would very much appreciate this.

Thanks in advance for making this happen…

#34 John in Mtl on 04.06.19 at 9:00 pm

#31 weinerS on 04.06.19 at 7:49 pm

Quote:
“We may truly need a paradigm shift, like AI or Nanotechnology, similar to the advent of the PC in the 1980s, to keep the stock market party going with these natural obstacles.”

Like self-driving electric cars, or 5G cellular ?

Oh, in Canada it’ll be the advent of the 100 square foot condo for $350,000.00

#35 Rargary on 04.06.19 at 9:37 pm

Doug’s grande finale to his blog today struck a familiar Garthy chord. Lol. #3 Linda, what timing! I started my TFSA this weekend and poured $4,100 into stocks… wish me luck! #19 Trumpocolypse… shhh please! I want my 1st experience as an ETF /stock investor to be positive!

#36 BC_Doc on 04.06.19 at 9:53 pm

Happy Saturday Doug and Garth.

Billy Joel also said it too.

Cheers,

BC_Doc

https://youtu.be/eFTLKWw542g

#37 Moore's Bacon on 04.07.19 at 12:05 am

I’d like to bet Mr. Rowat has some investments beyond Hockey Cards and ETFs. Otherwise, why write about things that are off the actual radar screen?

#38 Peter Kestler on 04.07.19 at 12:56 am

I also have a shared brain, with my wife. Once, at a social meeting with clients in the entertainment industry ( a rowdy bunch of scatterbrains at best, these and dentists are the worst investors because of the huge amounts of money they make in lump sums), my wife passed by and opined “why not just buy the stocks that go up ?”.

It hit me, all the research and experience , all the education and certification, pretending we had some control over what we did was just a load of pseudo-intellectual , egoistic hooey. My wife was right, the only methodology to apply to investing is to only buy the stocks that go up, simple. Now I live and invest in a state of zen simplicity. Happy wife, happy life, Ommmmmm…. buy buy buy. Anyone can do this.

#39 drydock on 04.07.19 at 3:29 am

DIRE WARNING , AAAAAAAH AAAAAAAH AAAAAAAH.

https://www.bitchute.com/video/pxys3gc73Olc/

#40 Darren Shotz on 04.07.19 at 5:40 am

While Trudeau continues to screw Canada out of billions in revenue Trump buries us pipelines. Does anyone think Trudeau will go down in history as anything other than a disaster?

https://www.breitbart.com/politics/2019/04/06/donald-trump-to-issue-executive-order-to-cut-regulations-ramp-up-pipeline-construction/

Trudeau might think he’s making a noble gesture. He might think he’ll get a prestigious position in the globalist afterbirth of socialist EU compartmentalization in Bruxelles? He’s a pariah in Canada, where’s he going to go? So for the love of Pete, why is he trying to kill Canada knowing he’s likely the most hated PM in history?

#41 Archit Kochar on 04.07.19 at 5:49 am

This sounded like an emotional blackmail. Could you explain why we trust your judgement also. Just because we are emotional fools I guess?

#42 The Road to perdition - part deux on 04.07.19 at 7:53 am

Vancouver unravels

https://wolfstreet.com/2019/04/06/update-on-the-housing-bust-in-vancouver-canada

#43 jess on 04.07.19 at 10:03 am

time does tell

Did “the prosecutor failed to advise Wilson-Raybould that she had agreed to receive additional information from the company and neglected to update her Sept. 4 memo to the then-attorney general.”

=======
the bandwagons
https://www.cnbc.com/2018/06/15/theranos-chief-elizabeth-holmes-arrested-on-federal-criminal-charges-.html

https://www.icij.org/investigations/implant-files/

https://www.icij.org/investigations/implant-files/canada-netherlands-halt-sales-of-cancer-linked-breast-implants/

#44 Doug Rowat on 04.07.19 at 10:05 am

#36 Moore’s Bacon on 04.07.19 at 12:05 am

I’d like to bet Mr. Rowat has some investments beyond Hockey Cards and ETFs. Otherwise, why write about things that are off the actual radar screen?

I’m rocking my Yeezys as we speak.

–Doug

#45 Balanced on 04.07.19 at 10:36 am

Hi there
Been reading this blog for a very long time.
I agree with most of the advice given here.
However, I have often wondered given the fact that so many Canadians do not have savings nor pensions and buy a single asset and live pay check to pay check. Why you insist on a balanced portfolio and rent. Who can afford that? Should your advice not be for the millions in trouble rather than the few with balanced portfolios?

On another note I do find this blog dishearting at times, you keep,saying the world has faced many crisises in the past and we have survived. And yet you continue to write about a housing melt down. I think one post you indicated up to 30 percent of Canadians will be underwater as housing declines. And you wrote 60 or 70 percent of Canadians live pay check to pay check.

In conclusion can this really end well? The world has more debt then anytime in history. We have no collective savings, the housing market in Canada has more debt than our GDP. And yet you call us vain in worrying about today and focus on long term?

I am not saying run out and buy gold nor keep thousands in the mattress but the debt can never be paid off without a default or run away inflation.

Every newsletter I read except yours predicts a recession in a year maybe delayed because of the election how deep no one can predict, but will throwing money out of a heleicoper save us next time?

#46 crowdedelevatorfartz on 04.07.19 at 11:36 am

@#44 balanced
“Should your advice not be for the millions in trouble rather than the few with balanced portfolios?”
+++++

Unfortunately the “millions in trouble’ are more interested in immediate gratification a la Facebook posts than long term strategic thinking.

Nothing new there, its human nature.
Hence the “grasshopper vs ant” fable.

https://en.wikipedia.org/wiki/The_Ant_and_the_Grasshopper

#47 Shawn Allen on 04.07.19 at 11:45 am

RRSP tax advantage / disadvantage?

So no one has a comment on my number 11 that seems to show a realistic? scenario of negative tax on the growth in the net after-refund cost of investment in an RRSP? Yes, negative income tax.

This despite the so-called loss of the lower tax rates on dividends and capital gains. (Lower does not beat zero or negative.)

Where are those that argue that the RRSP is only a tax deferral method, not a tax avoidance vehicle when used as designed. That is, when used by middle and high income earners to save during their working years and used for retirement income when (actually and perhaps sadly) most will indeed be in a lower or at best same income tax bracket. This is especially true for anyone without a work-place pension beyond CPP.

I know that some who read this blog already understand the math. But maybe the penny can drop for a few more.

#48 -=jwk=- on 04.07.19 at 12:00 pm

Hundreds of latte slorping Millennials just hit the roof…..

Millions of boomer conversative voters, who have been convinced that it is ‘end of days’ unless they vote PC, just hit the roof. The millenials know the only thing constant is change, and they accept that, and work with it to crate the change they want. It’s those desperately cling to faded memories of ye good ole time that need this message…

And Shawn the RRSP contribution isn’t ‘net 6000’. It’s 10,000. That’s all your money.

#49 Doug Rowat on 04.07.19 at 12:39 pm

#44 Balanced on 04.07.19 at 10:36 am

Why you insist on a balanced portfolio and rent. Who can afford that? Should your advice not be for the millions in trouble rather than the few with balanced portfolios?

In conclusion can this really end well? The world has more debt then anytime in history. We have no collective savings, the housing market in Canada has more debt than our GDP. And yet you call us vain in worrying about today and focus on long term?

I am not saying run out and buy gold nor keep thousands in the mattress but the debt can never be paid off without a default or run away inflation.

Every newsletter I read except yours predicts a recession in a year maybe delayed because of the election how deep no one can predict, but will throwing money out of a heleicoper save us next time?

I write on whatever topic I feel like. I don’t owe you anything.

And I can’t tell you with certainty when a bear market will strike, but bear markets last a little over a year and bull markets last about 6-7 years. This has been the average going back to the 1920s. If you don’t like these odds then you shouldn’t be invested in capital markets.

–Doug

#50 The Real Mark on 04.07.19 at 1:11 pm

“#39 Darren Shotz on 04.07.19 at 5:40 am
While Trudeau continues to screw Canada out of billions in revenue”

How has Trudeau “screw[ed] Canada out of billions in revenue”? Does Trudeau control world oil prices? Did Trudeau severely over-invest in upstream Alberta O&G capacity to such an extent that it could not possibly be delivered to the actual marketplace with the transportation methods reasonably available?

O&G execs need to collectively look at themselves in the mirror and come up with solutions. The displeasure with “Trudeau” is largely not rooted in reality.

So no one has a comment on my number 11 that seems to show a realistic?

If you have an argument (about RRSPs, for example), why not make it up-front Shawn Allen? I know you like to ‘educate’, and that’s all fine and dandy, but its pretty clear that any response could’ve been potentially deemed wrong based on variations in assumptions in the circumstances under which a RRSP was contributed to, or withdrawn from. The reason you didn’t receive a response likely related to the simple lack of desire of the relative few weekend participants to get into lengthy and indeterminable debates with you.

For the record, negative taxation is implied with your numbers, but I question the realism of your numbers under most scenarios. Especially since the 35% tax bracket, for someone >65, typically implies a reduction in OAS entitlement.

#51 Vampire Studies on 04.07.19 at 1:12 pm

46 Shawn

“So no one has a comment on my number 11 that seems to show a realistic? scenario of negative tax on the growth in the net after-refund cost of investment in an RRSP? Yes, negative income tax.”

I was waiting for your (normally) logical explanation
on this one.

But you’re caught in some accounting mumbo jumbo
“….negative tax on the growth in the net after-refund cost…”. So of course it’s negative if realized in the lower tax bracket.

Which is, as you correctly point out, the idea.

#52 Shawn - cleanup on comment 44 on 04.07.19 at 1:15 pm

Blogger Balanced has stated

“The world has more debt then anytime in history. We have no collective savings….”

May Shawn be with you…..

#53 Ace Goodheart on 04.07.19 at 2:10 pm

So enjoying the nice warm weather this weekend, but with the fear at the back of my mind “Trudeau is going to tax the crap out of us for this”

You see, Ontario is not supposed to have warm weekends in April, according to the Liberal govt. This is a climate anomaly, which has to be addressed by taxing Ontario residents back into the stone ages. We are not supposed to be able to go outside of our houses until June, and warm weather is only supposed to be here for three months per year, June, July and August.

Any warm April weather must be taxed back where it came from. Carbon taxes must be upped, until the warm weather disappears and is replaced by cold and snow and ice.

Oh, and BC is also in for another tax whallop. Apparently they had a wind storm on Vancouver Island over the weekend. Wind storms in BC also must be combated by massive amounts of taxation. This weekend’s storm will be dealt with by an increase in housing taxes, another uber tax on expensive digs, and an increase in the general taxation of everyone in the Province.

I am growing to fear weather in Canada. I don’t think I can afford many more warm days or wind storms. The taxes resulting from them, are just too much….

#54 crowdedelevatorfartz on 04.07.19 at 2:29 pm

@#47 jwk ( no relation to JWR)
“The millenials know the only thing constant is change, and they accept that, and work with it to crate the change they want. ”

++++++
Millenials are so wise.
I guess that’s why they are sitting at record levels of debt at record low interest rates…..
Very creative.

Just curious.
When they “crate the change they want” , do they ship it Fed-Ex?

#55 Alberta Oil on 04.07.19 at 3:01 pm

“#49 The Real Mark” – If brains were gasoline you’d be hard-pressed to ride a moped around a Cheerio.

#56 Remembrancer on 04.07.19 at 3:49 pm

#47 Shawn Allen on 04.07.19 at 11:45 am

This is not a very interesting discussion and I typically don’t engage with a “there are many who…” argument, but there is no hidden trick here as this is literally what RRSPs are advertised for – you contribute and defer taxes from the 48% bracket and withdraw and pay taxes at say the 24% bracket – no accounting hocus pocus, no trick…

So what is the point of this socratic exercise?

#57 Dragonslayer on 04.07.19 at 6:40 pm

So true, Doug. Reading Pierre Berton’s “The Great Depression” right now. Absolutely chilling. Should be required reading in school so kids know what real hardship look like.
Knew it was rough but had no idea how bad it actually was. God forbid it ever happens again.