Growers or show-ers?

DOUG  By Guest Blogger Doug Rowat

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I attended a presentation on the eSports industry a few weeks ago.

For those not familiar, eSports is professional video gaming. Guys (mostly) who used to play video games alone in their basement, still play video games alone in their basement, but now make some serious coin doing it. Apparently, more people watch (yes, WATCH) eSports than watch Major League Baseball. In a few years, I was told, eSports will eclipse the audience of the National Football League.

As I stared at their PowerPoint presentation showing various columns moving astronomically higher, I was reminded of how often I’ve seen the same presentation. Different metrics, different industries, but always the same charts dazzling the audience with breathtaking growth rates.

I could have been at a presentation on robotics, genomics, e-cigarettes, 3-D printing, solar power, cyber security, healthy lifestyle (avocados!), nanotechnology, blockchain, cannabis, online gambling, electric vehicles, self-driving vehicles, the circular economy, smart homes…and on and on. Years earlier it would have been presentations on the oil sands, rare earth metals, income trusts or China.

Last month, I had a client contact me suggesting that we invest in plant-based food companies (“huge growth”). And then, just a few days ago, I got this email from a start-up seeking, of course, moolah:

The company is raising $2m now and $4 million concurrent to a RTO [reverse takeover]. They’re cash flow positive, will be profitable in November and have great momentum as they continue to sign up school districts to facilitate the buying of tickets to local events such as football, basketball, prom, etc.

That’s right, this company’s business model is, in part, taking a cut of high-school prom ticket sales. Once again, the growth opportunity is spectacular.

So, there are literally waves upon waves of speculative, theme-based investment ideas. The pipeline is endless and all of these companies promise the same thing: mind-boggling growth.

Naturally, some of these niche, theme investments work out spectacularly well (for example, it turns out that the Internet IS a big deal). But many don’t, at least not so far. Here’s the bath (or round-trip) you might have taken in the past couple of years in robotics, 3-D printing or cannabis. Incidentally, I could have shown many more examples. An investment in nanotechnology, for instance, has become just that—nano—with most related ETFs and indices having been liquidated or discontinued in recent years.

Robotics: growth potential doesn’t mean investment returns

Source:Bloomberg; Global X Robotics & Artificial Intelligence ETF (BOTZ) 2-year price chart

3-D printing: growth potential doesn’t yield investment returns

Source: Bloomberg, 3D Printing ETF (PRNT) 2-year price chart

Cannabis: growth potential doesn’t equal investment returns

Source: Bloomberg, Horizons Marijuana Life Sciences Index ETF (HMMJ) 2-year price chart

The point is you can’t pretend to know which of these niche investments will fail or succeed, or certainly not how to correctly time all of them. And, if you were only drawn to the PowerPoint charts going up to the sky, you’d have put your money into all of them. But the amount of research effort required to truly discriminate the good from the bad is enormous and, even if the due diligence could be conducted thoroughly in every case, the timing risk would still remain incredibly high.

It’s much more practical to build a portfolio with diversified, high-quality assets positioned across many geographies and many industries. And, equally important, to hold assets that have long and readily available trading histories. An extensive trading history is one of the best ways to identify the long-term risk and determine inflection points. With a long trading history, volatility becomes more transparent and predictable, and entry points easier to establish.

So, was it kind of fun to sit in that eSports presentation and learn about what will be driving the attention and interest of 18-25 year olds who use terms like ganking, zerging and jungling? You bet.

But would I ever directly invest our clients’ money in eSports? Never. I’ve been burned by too many sexy growth charts. And with zero trading history, it’s a blind gamble.

To paraphrase Dwight Eisenhower: It’s good to be on the train of the future, but if your timing’s wrong, you’ll be lying on the tracks in front of it.

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

 

73 comments ↓

#1 Remembrancer on 11.02.19 at 12:01 pm

Doug,

Great analysis. While eSports may be too narrow, how broadly would you look at the impact to incumbents by movements in entertainment overall – from say carriers Rogers, Bell etc, networks ABC/NBC/CBS and their affiliated sports empires vs. Twitch, Youtube/Stadia et al? Or is it more platform fragmentation a la Netflix, Amazon Prime, Disney, Apple etc?

#2 Flop... on 11.02.19 at 12:09 pm

Robax, here is a recent howmuch article that you might be interested in reading.

Or not!

It touches on your point of the rise of eSports compared to more traditional sports.

As a former semi-professional football player, I don’t see some of the sports on t.v nowadays as sport.

Darts?….not a sport.

Poker?…not a sport.

Video games?…not a sport.

If you can’t make the other guy bleed, it’s not a sport.

I guess you could throw a dart and hit your opponent in the backside.

I’ve changed my mind, darts, great sport…

M45BC

“Valuable Sports Teams in 2019: Is Your Team In?

We already know that professional sports is a major global industry, but not all sports franchises are equal. From the Dallas Cowboys to the New Orleans Saints, we put together a graphic to rank the top 50 most valuable sports teams around the world.

Traditional sports have large, dedicated fanbases, but eSports are on the rise. The forthcoming Fortnite Championship, for example, will have $10 million prize pool.

Though Football isn’t an international sport, Football franchises account for three of the top 10 most valuable sports teams in the world.

Pay gap issues continue to plague the sports industry and have come under additional scrutiny following the United States Women’s National Team World Cup win.

Several NBA teams have increased in value since last year. NBA franchises now take up nine spots in the list of top 50 most valuable sports franchises.
Every year, Forbes reveals its list of the world’s most valuable sports teams. We used this data to create an easy-to-read graphic demonstrating the world’s largest franchises.

Our graphic not only ranks the most valuable global sports teams, but also shows us the most valuable teams in each of the world’s major sports leagues, including the NFL, NBA, MLB, LaLiga, Premier League, and more.

Most Valuable Sports Teams in the World:

1. Dallas Cowboys: $5 billion
2. New York Yankees: $4.6 billion
3. Real Madrid: $4.24 billion
4. Barcelona: $4.02 billion
5. New York Knicks: $4 billion
6. Manchester United: $3.81 billion
7. New England Patriots: $3.8 billion
8. Los Angeles Lakers: $3.7 billion
9. Golden State Warriors: $3.5 billion
10. Los Angeles Dodgers: $3.3 billion

Despite not having won a championship in decades and not being a part of an international sports league, the Dallas Cowboys remain the world’s most valuable sports franchise at an astounding $5 billion.

But it’s not just the Cowboys. The NFL is the world’s most dominant league when it comes to the value of its franchises. More than half of the top 50 most valuable sports teams are football teams.

Aside from the NFL, the top 50 is made up mostly of the teams you would expect to see there, including major franchises like the New York Yankees, New York Knicks, Barcelona, Real Madrid, and more.

While traditional sports teams continue to dominate the sports industry, eSports is quickly rising in value and popularity. The Fortnite Championship Series, for example, will have more than $10 million in prize money up for grabs. It may not be too long before we see an eSports franchise take a spot on the list of most valuable sports teams.”

https://howmuch.net/articles/worlds-most-valuable-sport-teams

#3 Ponzius Pilatus on 11.02.19 at 12:17 pm

Just modern day Snake Oil Salesmen.
And people are as gullible as ever.

#4 Get on the Trump Train on 11.02.19 at 12:18 pm

The future is Trump.

#5 not 1st on 11.02.19 at 12:20 pm

Simple question to determine whether a company is a unicorn or not. Would your bank finance this? If not, its too risky for the average dude. If they would then buy the bank.

#6 Derek R on 11.02.19 at 12:25 pm

There’s nothing like a bit of a track record to boost confidence in where an investment is going. The trouble with these new concepts is that they don’t have one. So they are more of a gamble than an investment. Which is fine as long as you see them for what they are. A long shot that just might pay off.

Might…

#7 Ponzius Pilatus on 11.02.19 at 12:25 pm

Doug,
Does Garth make you go to these presentations, or are you a Glutton for punishment.
I hope the breakfast and/or snacks are okay.
Take home some donuts for the kids.

#8 Ponzius Pilatus on 11.02.19 at 12:50 pm

I’m sure someone out there (maybe Flop) must be tracking the success/failure of new investment ideas.
Would be interesting to know what the success/failure ratio is.
My guess would be that failures would outnumber the successes by quite a margin.

#9 earthboundmisfit on 11.02.19 at 1:04 pm

Like all video games …. replacing girlfriends everywhere since (choose your date)

#10 greyhound on 11.02.19 at 1:05 pm

Maybe the most useful non-Garth post I’ve seen here. Thanks & kudos to Mr Rowan.

#11 Robert B on 11.02.19 at 1:27 pm

Doug thanks for your blog today.

Have you Garth and Ryan considered an actively managed fund that would take advantage of these opportunities?

As you can see there is a time to enter and time to exit these “niche” investments. Even a higher management fee would be acceptable for the extra time that is involved.

#12 Danforth on 11.02.19 at 2:00 pm

This photo should be on a blog post about Robo Advisors!

#13 crowdedelevatorfartz on 11.02.19 at 2:10 pm

Interesting analysis of “the next big thing”.
I remember people bragging about Ballard Fuel Cells twenty five or so years ago.
And then there was Bre-x

#14 Sam on 11.02.19 at 2:16 pm

its fun to have a small portion of a portfolio in speculative assets. Life’s too short to be boring

:)

#15 Russ on 11.02.19 at 2:17 pm

I will take no pride killing monsters on the side. I guess jungling is not for me.

But how about those yields on preferred(s) eh?

Cheers, R

#16 TRUMP2020 on 11.02.19 at 2:20 pm

Fool’s GOLD surrounds us.

But there’s an oversupply of Fools so it’s always in high demand.

#17 Yanniel on 11.02.19 at 2:37 pm

Loved Eisenhower‘s phrase.

#18 SoggyShorts on 11.02.19 at 2:40 pm

#11 Robert B on 11.02.19 at 1:27 pm
Doug thanks for your blog today.

Have you Garth and Ryan considered an actively managed fund that would take advantage of these opportunities?

As you can see there is a time to enter and time to exit these “niche” investments. Even a higher management fee would be acceptable for the extra time that is involved.
*************************
“As you can see [in hindsight] there is a time to enter and a time to exit”

What you are asking is whether you should pay someone to try(and most likely fail) to time the market.
Not the whole market either, but rather a tiny fraction of it with no track record- worse yet, by definition they are new ideas which means that they are poorly understood and wildly unpredictable.

Doesn’t sound like a good idea…

#19 Tyler Durden on 11.02.19 at 2:46 pm

Not taking away anything from the fact that a globally diversified balanced portfolio should be the core for 90% of investors, but should an investment in a new space/sector be judged on a 2 year chart? Kind of the opposite of long term investing. Just because there was a dot com bubble and crash didnt end up meaning the internet shouldnt be a space to invest in.

#20 Stan Brooks on 11.02.19 at 3:05 pm

https://ca.finance.yahoo.com/news/why-canadians-bring-home-less-192017993.html

Why Canadians bring home less money than Americans

Tal notes average real annual disposable income per capita is up 1.3 per cent over the past four decades compared to 1.9 per cent in the U.S., which is 40 per cent faster on a cumulative basis.

“We estimate that the smaller increase in labour market income in Canada accounts for just over 50 per cent of the entire increase in the U.S.-Canada gross income gap since 1980,” he wrote.

Canada has been neck and neck with the U.S. in terms of job creation, but it’s a matter of quality versus quantity.

“Since the 1980s, part-time employment in Canada more than doubled, while in the U.S. it was little changed,” wrote Tal.

Tal also chalks up a big part of the gap to taxes, which account for 30 per cent of gross income in Canada compared to 10 per cent in the U.S. The discrepancy is mostly explained by the higher level of government-provided services in Canada.

This is what you get with stingy, greedy, stupid owners/elite/oligopolies and exceptionally corrupt and/or incompetent politicians and crown corps.

We are pretty much becoming the 2nd Mexico to US but with much higher taxes and very rapidly declining standard of living, combined with not-so-pleasant weather and exceptionally brainwashed populace (very few people in normal mental state can tolerate environment like GTA, combined with it’s cost of living)

It is like a Stockholm syndrome where the stupid believe that since you pay large premiums on everything you must be getting superior services in return… Like all the ‘free’ stuff that is paid by other people’s taxes.

It is quite amusing to bet on how long can this freak show continue, giving the rapid rise in cost of living in the big cities, I am quite frankly astonished that it has gone for that long, this place keep surprising me with it’s ignorance and conformity.

Cheers,

#21 espressobob on 11.02.19 at 3:06 pm

A globally diversified and balanced portfolio has been knocking it out the park for years. Sector and commodity plays are a waste of time, always have been, always will.

Knowing entry and exit points is impossible to predict.

Many a hedge fund has gone broke engaging future bets.

#22 Doug Rowat on 11.02.19 at 3:07 pm

#11 Robert B on 11.02.19 at 1:27 pm

As you can see there is a time to enter and time to exit these “niche” investments. Even a higher management fee would be acceptable for the extra time that is involved.

Nine out of 10 fund managers underperform, so you will simply have replaced the huge effort of figuring out which niche investment will succeed with the huge effort of figuring out which manager can justify their added expense.

–Doug

#23 tccontrarian on 11.02.19 at 3:20 pm

“But would I ever directly invest our clients’ money in eSports? Never. I’ve been burned by too many sexy growth charts.”
– – – – – –

As a manager of other people’s money, Doug, you have to adhere to strict ‘risk’ guidelines, that’s for sure. But nothing stops you from dabbling in these ‘speculations’ with your own dollars (what you do with private funds is your business). If you get 1 right (out of 10), it makes up for all the losses. I caught a couple 10-baggers in the cannabis sector in 2017/18 (and actually sold enough to derisk), so the ones in the red now more than paid for. Gotta have discipline, that’s the key – no matter what you invest in.

I’m involved now with 2 private companies:
one is introducing a ‘new’ building product;
the other a new medical device.
Both have the potential for x50+ gains, IF successful.
The other side of this coin is that I lose 100% of my investment if unsuccessful. In my estimation, they both have at least 50-50 chance of succeeding (but it’s near impossible to know this exactly. A lot of it is subjective).
I was reading about the crazy returns that seed-investors have harnessed (in successful ventures). With seed-investors in UBER, for example, a $5,000 investment in 2010 would be worth $20 million today. Yup! How can you say ‘no’ to those numbers?
I choose to not play the lottery because I recognize that 1:20,000,000 odds of winning isn’t as good as 50-50. Sadly, many don’t.

tcc

#24 Axehead on 11.02.19 at 3:21 pm

Awesome analysis Doug. Agree with your investment logic.

#25 Rargary on 11.02.19 at 4:03 pm

So sell my huya stocks??

#26 Sail Away on 11.02.19 at 4:10 pm

Buffett buys great companies at good prices and also bases judgement on the person leading the company.

It’s hard to go wrong with that formula.

A startup with an experienced and previously successful person at the helm might be worth a look. Even then, give it 10 years, per Benjamin Graham, to prove the concept.

#27 Doug Rowat on 11.02.19 at 4:19 pm

#19 Tyler Durden on 11.02.19 at 2:46 pm

Not taking away anything from the fact that a globally diversified balanced portfolio should be the core for 90% of investors, but should an investment in a new space/sector be judged on a 2 year chart?

Of course not, a point I make when I say “at least not yet”. However, what if your timing is early by 10 years as it likely was with nanotechnology? What a waste of time.

You improve your odds of success if you already have a long trading history available to you. I’m also warning against ‘the compelling growth chart’. These charts are ubiquitous, misleading and are carried along by every salesman.

–Doug

#28 Doug Rowat on 11.02.19 at 4:47 pm

#23 tccontrarian on 11.02.19 at 3:20 pm

If you get 1 right (out of 10), it makes up for all the losses. I caught a couple 10-baggers in the cannabis sector in 2017/18…

You’ve explained a hypothetical route to profitability, but you’ve set the outcome (of this entirely unverifiable scenario) yourself.

What if there are no “10-baggers”?

–Doug

#29 Shawn Allen on 11.02.19 at 5:21 pm

Random RRSP thought…

AESOP: ” A bird in the hand is worth two in the bush”

Me (and math): A dollar of cash in a regular cash account is worth two dollars of cash in an RRSP account” (at a 50% marginal income tax rate).

This RRSP fact however is apparently news to all those who present net worth statements in financial newspapers and show RRSP assets without showing a deduction for income tax.

This does not at all mean an RRSP is a bad deal or a tax trap. But it does mean that for most people with RRSPs “You’re poorer than you think”.

Corollary: It takes two dollars of pretax income in a taxable account to amount to get the same net value as one dollar in an RRSP account (assuming 50% tax rate). This is why an RRSP is still a good investment despite what I note above.

#30 BillyBob on 11.02.19 at 5:34 pm

Both have the potential for x50+ gains, IF successful.
The other side of this coin is that I lose 100% of my investment if unsuccessful. In my estimation, they both have at least 50-50 chance of succeeding (but it’s near impossible to know this exactly. A lot of it is subjective).
I was reading about the crazy returns that seed-investors have harnessed (in successful ventures). With seed-investors in UBER, for example, a $5,000 investment in 2010 would be worth $20 million today. Yup! How can you say ‘no’ to those numbers?
I choose to not play the lottery because I recognize that 1:20,000,000 odds of winning isn’t as good as 50-50. Sadly, many don’t.

tcc

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

On what do you base your opinion that these amazing-potential “investments” chances of success are 50/50? A coin flip? Sounds like numbers pulled out of your, uh, I mean, thin air.

Wishful thinking is not investing.

If you’re into 50/50 “investing”, why not just head to Vegas and place your wad on black? Far more entertaining and you get free drinks too.

#31 Ronaldo on 11.02.19 at 5:47 pm

Here is one you could have gotten into for only .75 per unit back in December 2017. All you needed was a VISA or Mastercard.
——————————————————————-
https://coinmarketcap.com/currencies/naga/

#32 tccontrarian on 11.02.19 at 5:48 pm

What if there are no “10-baggers”?

–Doug
++++++++++

Not many, but they do happen. But not ‘a strategy’ for investment. These are pure speculations – just gotta know the difference.

I had three cannabis-related holdings do this:

From 5-cents to $0.65 (now at 4-cents)
From 9-cents to $0.78 (now at 24-cents)
From 50-cents to $7 (and now back to 40-cents)

I sold on the way up (years ago I’d still be holding the bag). I’ve learned to sell on spikes and don’t mind leaving money on the table (ie. keep ‘greed’ in check).

“Gotta know when to hold’m, know when to fold’m, know when to walk away, know when to run…”

tcc

#33 Brett in Calgary on 11.02.19 at 6:13 pm

This is an interesting post, thanks Doug!

#34 espressobob on 11.02.19 at 6:30 pm

Spec plays are what they is. Usually one buys too late or sells too soon.It is what it is, not buying enough on the upside or owning way too much when things go south.

Typical too.

#35 akashic record on 11.02.19 at 6:34 pm

What happens if no one invests in new companies, because they are too risky?

Investment return is taxed at lower rate – supposedly as a recognition of risk taking.

Are broad index ETF investments as risk free as it can get? Should they qualify for the same tax benefit, as real risky investments, which are needed for innovation?

#36 Nothing Surprises on 11.02.19 at 6:36 pm

To the long-winded.

Can’t make your point within 3 seconds!
Your ineffective…. full of hot air!

#37 SoggyShorts on 11.02.19 at 6:42 pm

#29 Shawn Allen on 11.02.19 at 5:21 pm
Random RRSP thought…

AESOP: ” A bird in the hand is worth two in the bush”

Me (and math): A dollar of cash in a regular cash account is worth two dollars of cash in an RRSP account” (at a 50% marginal income tax rate).

This RRSP fact however is apparently news to all those who present net worth statements in financial newspapers and show RRSP assets without showing a deduction for income tax.

This does not at all mean an RRSP is a bad deal or a tax trap. But it does mean that for most people with RRSPs “You’re poorer than you think”.

Corollary: It takes two dollars of pretax income in a taxable account to amount to get the same net value as one dollar in an RRSP account (assuming 50% tax rate). This is why an RRSP is still a good investment despite what I note above.
****************************
All of that really depends on how good/bad one is at adjusting their tax bracket by making strategic withdrawals.

E.G. In year 1 of retirement, you could get
10K in dividends from non-reg
10K withdrawal from RRSP
10K from TFSA
10K from Capital gains in your non-reg

$40,000

Total tax bill? $437
That’s just over 1%.

One issue might be OAS and CPP depending on how late you retire, but still, if you add that in your total tax is around 7%, not 50% leaving you with nearly 100K after-tax income as a couple.

I think valuing your RRSP at 50% is only accurate in the unlikely scenario where your RRSP is both 7 figures and your only income source.

Note: I used https://simpletax.ca/calculator and Alberta, but I’m sure it’s fairly close across Canada.

#38 espressobob on 11.02.19 at 7:11 pm

#35 akashic record

Why would a retail investor invest in a risky and potentially illiquid holding? Your grubstake could be wiped out in a heartbeat.

The major indices by market cap provide liquidity, dividend, and way less risk. Historically they grow.

Why mess with concentration plays that can blow up in your face?

#39 CJohnC on 11.02.19 at 7:12 pm

ETF’s are not necessarily risk free. There are too many out there. 80% of ETFs are dogs. 80% of the remaining ETFs are very thinly traded. It is always wise to kick the tires and look under the hood before buying.

#40 crowdedelevatorfartz on 11.02.19 at 7:23 pm

Just talked to a friend from Edmonton.
He casually mentioned that a bunch of Starbucks closed there.
I said “Really? Starbucks closed? ”
“Six or seven have closed, plus a Tony Romas, Red Robin, etc.”

https://edmontonjournal.com/business/commercial-real-estate/handful-of-edmonton-starbucks-locations-close

Would the last private sector job to leave Edmonton please hand over your condo keys to the public sector workers there…..

#41 S.Bby on 11.02.19 at 7:24 pm

The next big thing (or not) : electric cars…

#42 crowdedelevatorfartz on 11.02.19 at 7:25 pm

@#36 Nothing
“Can’t make your point within 3 seconds!
Your ineffective…. full of hot air!”

++++++

I disagree, on so many levels.

#43 Linda on 11.02.19 at 7:25 pm

Doug, love the Eisenhower quote. It is highly relevant given the changes taking place in various industries today.

#44 TurnerNation on 11.02.19 at 7:31 pm

That’s all nice but our food supply and way of life is about to be taken over. I’ve always said we’ll see a time when armed government agents throw away good food as starving families wail. Too many emissions or maybe the correct carbon permit was not obtained.
Sustainability = total control over means of production.

Here we have the military meeting Dutch farmers protesting their shut down. When’s it coming here?

https://apnews.com/db28ed269ffd4fba935be04d2fc5b27c

“But it comes at an environmental cost, with farms emitting carbon and nitrogen.
Earlier this month, the Dutch government announced a raft of measures to rein in nitrogen emissions, including a voluntary program to buy up old, inefficient farms and subsidies to help other farms modernize.
Other measures take aim at the country’s construction and transport industries, which also are responsible for emissions.
One tractor in The Hague bore a sign saying simply: “No farmers. No food. No future.”
The government called in the military to block key intersections in downtown “

#45 akashic record on 11.02.19 at 7:33 pm

#38 espressobob

Do angel investors have lower tax rate than retail investors? The risk difference is obvious.

#46 prairie person on 11.02.19 at 8:09 pm

Some people go to Reno. Some people gamble on stocks. As long as it is just your pocket money and doesn’t affect your life if you lose it, it is fine. I bought a small mining stock awhile ago. 26 cents. It is now 68. I’ll be out shortly. This is not investing. This is shooting craps, betting the horses, good for fun. My real money is managed by the pros who follow all of Garth’s directions.

#47 The Real Mark on 11.02.19 at 8:23 pm

“This RRSP fact however is apparently news to all those who present net worth statements in financial newspapers and show RRSP assets without showing a deduction for income tax. “

Good point Shawn Allen, and I’d extend your logic to include RPPs, RESPs, etc. Even StatsCan falls victim to such, when they publish their net worth statistics. They are so eager to tally up official assets and debts of Canadians in their charts, but they do not include a proper entry for the deferred tax liability associated with such programs. Or even the deferred tax liability that is associated with taxable business investment (ie: stocks held in a non-registered account for example, or small business equity), or investment real estate.

On the flipside, when household “net worth” is described in the media, they rarely include the PV of government cash entitlement programs such as OAS, GIS, etc. In a low interest rate world, discounted to the rates applicable on federal government’s financial obligations, the PVs associated with those programs on the balance sheets of Canadian households is enormous.

#48 Erick on 11.02.19 at 8:33 pm

Basic rule that works 99% of the time:
don’t trust someone selling something with a powerpoint …

#49 The Real Mark on 11.02.19 at 8:35 pm

“#37 SoggyShorts on 11.02.19 at 6:42 pm “

Its worth noting that calculating effective tax rates is far more difficult than just punching numbers into an income tax calculator software. For example, in one province, if you make $59,999.99, you get most of your prescription drugs for a maximum cost of $25 a prescription.

If you make even 1 cent more, the cap on prescriptions disappears, and a person is potentially on the hook for an additional $2000 before another formula in the prescription drug program kicks in and provides government subsidy. Hence, the incremental tax rate at $60,000.00/year of income approaches infinity, and gradually tapers down.

While Shawn Allen’s claim of a 50% tax rate seems more pertinent to his own situation than that of most Canadian RRSP beneficiaries, the fact that Canada has a whole plethora of income-tested social benefits should not be ignored in the decision making calculus. Some low income individuals, even though they pay 1% tax rates (see your example), often have effective tax rates well in excess of 50% due to the loss of income-tested benefits associated with being low income.

#50 Long-Time Lurker on 11.02.19 at 8:44 pm

#57 Flop… on 11.01.19 at 8:14 pm
#44 Long-Time Lurker on 11.01.19 at 7:22 pm
#43 Flop… on 10.31.19 at 7:42 pm
#125 Fake Flop… on 10.31.19 at 11:50 am

…This is the part I normally come up with something funny.

This time I’ll pass…

>Yeah, sorry, Flop.

#51 Long-Time Lurker on 11.02.19 at 8:45 pm

WeScam or WeCon? Which is more accurate, Doug?

#52 MF on 11.02.19 at 8:53 pm

20 Stan Brooks on 11.02.19 at

BS from a bank guy.

Here’s the reality of why we save less:

Housing.

Rent and mortgage costs are too high and ruining everything. Tal is part of the problem (a bank).

It’s not difficult to figure out.

MF

#53 Tony on 11.02.19 at 9:30 pm

Stupid is fun to watch. The whole Cannabis thing is a perfect example. Legalize the drug to eliminate the crime of using it. Then imagine the people who have created the demand and met the supply through an excellent and robust supply chain, will simply no longer compete.

They have no problem providing product of the best quality at competitive prices in quantities that never allow shortages to impinge on its sales.

Against that the wizards at the government imagine that regulation and supply constraint will win the day. Dope shops opened and in short order had no product to sell.

That is what stupid looks like.

Don’t invest in stupid.

#54 Flop... on 11.02.19 at 9:36 pm

#50 Long-Time Lurker on 11.02.19 at 8:44 pm
#57 Flop… on 11.01.19 at 8:14 pm
#44 Long-Time Lurker on 11.01.19 at 7:22 pm
#43 Flop… on 10.31.19 at 7:42 pm
#125 Fake Flop… on 10.31.19 at 11:50 am

…This is the part I normally come up with something funny.

This time I’ll pass…

>Yeah, sorry, Flop.

//////////////

Don’t be sorry Lurker, you did nothing wrong.

I adjusted my blogging habits to try and appease someone who had become unhinged but it appears Fake Flop would like to see something happen to my wife just for entertainments sake.

My wife fully supported my efforts, at first I could tell she thought I was wasting my time, but then she saw all the mail roll in with people wanting help, and she realized I was making a small difference to people who had become disillusioned with the information being provided by the media and cartel.

As I wrote in my other post, people are still trying to join my blog today, I have no desire to bring it back after seeing the ugly side of things.

I will comment on Vancouver real estate as I see fit, but I couldn’t have done much more to de-escalate the situation , unfortunately there are people on here that seemingly just come here to try and cause trouble for others and try and spoil someone else’s day because they are miserable.

I showed my wife the offensive mail so she could make up her own mind.

She did not sleep a wink that night and it was my fault because I was too trusting…

M45BC

#55 crowdedelevatorfartz on 11.02.19 at 9:37 pm

@#49 The Real Mark

Geez!
Where in the “H” “E” “doublehockeysticks” have you been?

Did Trumpocalypse2019 have you chained up in a trunk in the bunker?

Or did the World Cruise get a tad boring?

#56 Westcdn on 11.02.19 at 9:52 pm

I was rebuked recently.

All I can say- https://www.biblehub.com/luke/17-3.htm

I respect those words those it since seems many things have not worked out for me and oddly I miss those that have – yet I have not given up. People tend to show up to cover my back (such as my former wife). I will return their faith.

#57 Ronaldo on 11.03.19 at 12:32 am

#49 The Real Mark

Some low income individuals, even though they pay 1% tax rates (see your example), often have effective tax rates well in excess of 50% due to the loss of income-tested benefits associated with being low income.
—————————————————————
That is the absolute truth and I can offer proof of that.

#58 Ponzius Pilatus on 11.03.19 at 12:40 am

#105 Blog Bunny on 11.02.19 at 3:31 pm
For the first time, I feel lucky to have a double citizenship.
———
Be careful what you wish for.
CRA and IRS will tax your on your worldwide income.
Double whammy.

#59 Russ on 11.03.19 at 12:47 am

espressobob on 11.02.19 at 7:11 pm

#35 akashic record

Why would a retail investor invest in a risky and potentially illiquid holding? Your grubstake could be wiped out in a heartbeat.

The major indices by market cap provide liquidity, dividend, and way less risk. Historically they grow.

Why mess with concentration plays that can blow up in your face?
=====================

Don’t have a cow, Man.

I have a hobby account for stuff like this. When it gets over 6 figured then it’s time to write a cheque to the pro’s account.

Similar to” prairie person” @ #46, above.

Have some fun.

Cheers, R

#60 Ponzius Pilatus on 11.03.19 at 12:51 am

#40 crowdedelevatorfartz on 11.02.19 at 7:23 pm
Just talked to a friend from Edmonton.
He casually mentioned that a bunch of Starbucks closed there.
I said “Really? Starbucks closed? ”
“Six or seven have closed, plus a Tony Romas, Red Robin, etc.”

https://edmontonjournal.com/business/commercial-real-estate/handful-of-edmonton-starbucks-locations-close

Would the last private sector job to leave Edmonton please hand over your condo keys to the public sector workers there…..
—————-
Good news.
People are tired of paying for crappy overpriced coffee and food.
F-150 dealerships next.

#61 Ponzius Pilatus on 11.03.19 at 1:18 am

Fartz,
Starbucks has probably run its course. BUT don’t worry
Popeye Chicken is coming.
But Canadians will have to wait a little longer.https://theprovince.com/news/local-news/british-columbians-will-have-to-keep-waiting-for-popeyes-chicken-sandwich/wcm/46fa766f-6a6c-4d10-bd30-9a25dac0ebf1
North Americans are so stupid.

#62 Ponzius Pilatus on 11.03.19 at 1:29 am

Maybe time to short Silicon Valley.
https://www.spiegel.de/plus/kalifornien-und-die-blackouts-das-stromnetz-ist-schrott-a-00000000-0002-0001-0000-000166735191

#63 Gordon Heavyfoot on 11.03.19 at 1:45 am

The gales of November are upon us.

#64 Smoking Man on 11.03.19 at 1:00 am

400 to 1 Hedged margin rocks.

Very similar to a balanced portfolio..

But loot like can’t believe… AI and Forex
Can’t lose….

#65 Toronto_CA on 11.03.19 at 4:06 am

Excellent analysis as always, Doug. If Garth wants more breaks from his 6 day a week posting, you guys are always welcome to post more in my book.

Has the mood on Bitcoin or similar products changed at all? The price is surprisingly sticky, I would have expected a crash back to 3 digits by now rather than $9k or so. I have a few k in cash from dividends wasting space in my RRSP trading account that I could gamble with on one of these speculative areas…

#66 Lizard Man on 11.03.19 at 7:19 am

The Hill: Forget Greenland — Trump should offer statehood to these Canadian provinces | TheHill.
https://thehill.com/opinion/energy-environment/468606-forget-greenland-trump-should-offer-statehood-to-these-canadian

Wexit is a growing international movement. It isn’t only Westerners who know the outside influences have bought off Trudeau to kill Canada and rephrase it in terms of an evil UN agenda. People in the west are fighting for their lives, homes, families. Blood and Fire.

#67 Doug Rowat on 11.03.19 at 8:59 am

#65 Toronto_CA on 11.03.19 at 4:06 am

Has the mood on Bitcoin or similar products changed at all?…. I have a few k in cash from dividends wasting space in my RRSP trading account that I could gamble with on one of these speculative areas…

—-

At 10x the volatility of even the cannabis sector, you have, as my grandmother used to say, picked a hard way to make a livin’.

A gamble indeed.

—Doug

#68 Leo Trollstoy on 11.03.19 at 9:59 am

I watch esports on Twitch

Lots of great Canadian players. Snutz, Kripp, Hotform, etc

#69 oh bouy on 11.03.19 at 11:02 am

@#66 Lizard Man on 11.03.19 at 7:19 am
The Hill: Forget Greenland — Trump should offer statehood to these Canadian provinces | TheHill.
https://thehill.com/opinion/energy-environment/468606-forget-greenland-trump-should-offer-statehood-to-these-canadian

Wexit is a growing international movement. It isn’t only Westerners who know the outside influences have bought off Trudeau to kill Canada and rephrase it in terms of an evil UN agenda. People in the west are fighting for their lives, homes, families. Blood and Fire.
________________________________

LMAO, you’ve lost your marbles man.

#70 Shawn Allen on 11.03.19 at 11:40 am

Tax Rate on RRSP Withdrawals

Soggyshorts at 37 responded:

I think valuing your RRSP at 50% is only accurate in the unlikely scenario where your RRSP is both 7 figures and your only income source.

**********************************
Well, agreed my 50% figure is an exaggeration in most cases.

Consider anyone who has a decent DB pension.

A $50k pension gets you into the 30% marginal tax bracket in both Ontario and Alberta.

So okay, $1.00 in bank or cash account is equivalent to $1.43 in the RRSP account and the RRSP should be reduced by 30% for those people when looking at net worth.

Those with a really good pension are into clawback range and can face closer to 50% marginal tax rate.

AND, I suspect that people who had jobs with pension often also have at least some RRSP. They had limited contribution room but often had the cash to use whatever room they had.

Your scenario, Soggy, shows the extremely wide range of tax that can be applicable to an RRSP withdrawal. It ranges from 0% to over 50%.

It is interesting to see that the tax system and its various credits does even things out somewhat (quite a bit really). Someone collecting $70k in retirement does not net twice what someone collecting $35k does. Maybe 50% more? But I’d still rather be the one with the higher income and bigger net tax bill.

#71 crowdedelevatorfartz on 11.03.19 at 11:51 am

@#66 Lizard Brain
“People in the west are fighting for their lives, homes, families. Blood and Fire.’
+++++

Sounds epic.
Cant wait for the Netflix series

#72 HH on 11.03.19 at 12:03 pm

@ #2 Flop
> If you can’t make the other guy bleed, it’s not a sport.

Remember having similar argument about chess and poker with a co-worker. i.e. What is a sport vs. mere game / competitive activity? Loved the way he ended the argument with the following rule-of-thumb:

Anything you can do while resting a mug of beer on your pot belly is NOT a sport.

#73 Moister on 11.04.19 at 2:17 pm

You don’t own any Amazon or Microsoft? Literally they both run the biggest eSports streaming site in the world (Twitch and Mixer)

Sounds like you and your clients will be left behind.