NEWSLETTER ARTICLE ARCHIVES

 

The Most Important Investment Advice

(Feb 2017)

By George M. Klar…..President, Alternativ Solution Inc.

If you’re like me, it didn’t take long to feel overwhelmed at the volume of news focused on the actions of the new U.S. President. It seems the rapid pace of change is throwing people off balance. For some, its the direction as well as the pace that is worrisome. Historically, whenever profound or rapid change occurs, it impacts investors. The other day, a good friend called to ask if he should invest his money this week or wait a few weeks. Frankly, I didn’t know how to respond. His question is important because it really speaks to a huge challenge we see in the investment world. In reality, his question was more about timing, and specifically, when should he buy. The media and the internet makes us believe that “timing is everything”........


 

OMG! So What’s Coming Next for Investors?

(Dec 2016)

By George M. Klar…..President, Alternativ Solution Inc.

As I write this article, many new developments have taken place, the most notable being the U.S. Presidential election. The outcome shocked people everywhere. Since the results were announced and Trump became President-elect, equity markets and the US dollar have soared to new highs. There’s a growing “optimism’ about the U.S. economy. So what does this all mean for investors? And what is the impact for Canadian investors?.......


What Fishing and Investing have in Common?

(Sept 2016)

By George M. Klar…..President, Alternativ Solution Inc.

As we hit the dog days of summer, I escaped Toronto’s hustle and bustle to spend a few relaxing days on the French River where I relaxed, kayaked and fished. Reflecting on the experience and people I met, there were similarities between investing, running a vacation property and fishing. First, the lodge I stayed at on the French River was a quiet, refined yet relaxed place catering to a global crowd. There were Americans, Brits, Germans and Chinese among its small cadre of guests. Secondly, the weather was near perfect….with warm sunny days and cool nights punctuated by a few intense storms.......


Is Investing via Smart Beta really BETTER?

(Jun 2016)

By George M. Klar…..President, Alternativ Solution Inc.

Investors who purchase risky assets (like equities) love the potentially high returns that might be earned but hate the possibility of sudden and shocking losses. This is a global issue affecting sophisticated investors (pensions, endowments) and individual investors alike. Historically, the best way to cope with this problem was to hire professionals who would make solid decisions and diversify risk. Between 1930-80, such analytical firms became the wealth fiduciaries, gathering trillions in assets as they morphed into the mutual fund industry.......


How Smart is Smart Beta or Factor Investing?

(Apr 2016)

By George M. Klar…..President, Alternativ Solution Inc.

What are the most important things investors should understand when it comes to investing? The answer shouldn’t be a surprise. For amateurs and professionals alike, strong analytic skills and patience are the keys to success. We are often reminded that great results cannot be achieved using simple rules or models. Instead, every decision must be thoroughly and carefully analyzed. At a bare minimum, to get really good at investing you need a solid financial foundation and time to examine the many opportunities that arise each day.......


“Investing is Easy! Ain’t it?”— top 10 lessons

(Apr 2016)

By George M. Klar…..President, Alternativ Solution Inc.

Every year, I am fortunate to teach a few 3rd year undergraduate investment courses at the Schulich School of Business at York University. Students in each class form teams of 4 and get one million dollars to build a portfolio. For 10 weeks, teams try to maximize returns while managing risks. Securities can be purchased on New York, Toronto, London and Hong Kong stock exchanges. Teams can also leverage their portfolio by 100%. Positions can be either Long or Short. So effectively, this means teams can mimic either well known traditional mutual fund strategies or more risky hedge fund strategies.......


Anatomy of Panic in the Equity Markets

(Feb 2016)

By George M. Klar…..President, Alternativ Solution Inc.

Ouch! Such pain! We just had one of the worst January starts for US equity markets. The S&P500 plunged 9.00% in the first 20 days. By monthend, a rebound lifted the index to just a 5% loss. This decline was mirrored in other stock exchanges. China’s Shanghai Stock Exchange composite index fell 22.7%, Japan’s Nikkei 225 fell 8% and the MSCI European Index lost 6.8%. Why are equity prices falling? ........


May The (Investment) Force Be With You!

(Dec 2015)

By George M. Klar…..President, Alternativ Solution Inc.

There is a powerful force in the investment world that is frequently ignored but when used properly, achieves good returns with reasonable risk. The force is called patience. There is an economic rule that states that people will defer consumption and invest their excess funds only if they believe the funds will eventually grow to meet future spending requirements. While this rule tells us what to do (invest), it does not tell us when or how to do it. A key tenant of finance says that to induce people to defer spending, investors must be sufficiently compensated for accepting risk. It means, the higher the risk an investment has, the higher the returns need to be. To achieve higher returns ........


China and The Silly Season (Again)!

(Sept 2015)

By George M. Klar…..President, Alternativ Solution Inc.

When I started preparing this article, neither China nor a global equity meltdown were on my radar. But several surprise Chinese yuan devaluations in early August battered domestic and foreign equity markets. Panic and volatility soared. Now China is on everyone’s mind. Much has been written about what transpired. Most writers blame China for the financial mess. Their economy slowed down and authorities felt stimulus was necessary. Unfortunately, how this was handled triggered the angst and global sell-off. A Economist article titled “The Great Fall of China” had a disturbing three-part message.......


The Ultimate REAL End of Cheap Money

(July 2015)

By George M. Klar…..President, Alternativ Solution Inc.

Eleven years ago, one of the world’s most influential journals, The Economist, published an article titled ”The End of Cheap Money”. That was April 2004. The article’s theme was that money had “never been so cheap” in recorded history in USA, Europe or Japan. Warning signs appeared indicating inflation could rise(albeit modestly due to excess capacity) causing rates to rise. The US Treasury yield curve was anchored at 1% for short funds and 5% for longer term funds. The article went on to explain that super loose money policy was fueling all sorts of potential asset bubbles. Excess liquidity (caused by the Fed) was spilling into real assets and encouraging excessive borrowing to support speculation. As evidence, The Economist pointed to record high home prices in the US, UK and Australia. So what happened next?........


The Complex Matter of Invisible Risk

(May 2015)

By George M. Klar…..President, Alternativ Solution Inc.

Risk is one of those subjects that people discuss virtually any time. That’s because risk is universally understood. From an early age, we are taught that risk is a bad thing. This implies managing risk is a key factor to success in work and life. Whatever your day-to-day profession, I’ll bet a large part of your job pertains to managing risk. Whether you’re a physician, lawyer, chef, or sustainability expert, risk is the main ingredient that you must control. Obviously, not all risks are manageable or predictable. Despite tremendous scientific advances, we cannot predict when natural disasters will occur or their severity. Whether the risk emanates from earthquakes (Nepal) or tsunamis (Japan) or tornados (USA mid-west), their outcomes are unknown. There are other naturally occurring risks such as disease (Ebola or Influenza). And of course, there are certain........


The Biggest Investment Question Today

(Mar 2015)

By George M. Klar…..President, Alternativ Solution Inc.

What’s the most important investment question that investors (both individual and institutional) are faced with these days? In my opinion, that question deals with which method of investing provides a combination of good returns, a degree of safety and a high likelihood of achieving one’s goals without suffering capital losses. Risk-free yields (interest rates) on government debt in many developed countries are currently at historic lows. In some places, the nominal yields have become negative, which is counter-intuitive. It means lenders actually pay borrowers for the privilege of lending money. In such an environment, familiar investment rules need to be reconsidered. If investing money into relatively safe fixed-income securities result in a negative return, what is the correct course of action? You might expect the answer to be…”avoid this investment at all cost.” But that’s not happening.........


The Year in Review & Looking at 2015

(Jan 2015)

By George M. Klar…..President, Alternativ Solution Inc.

Wow. Another year has ended and what a year it was. The top news stories of 2014 included Ebola, the drop in oil prices, the conflict between Ukraine and Russia, airline disasters, the Middle East, a new Chair at the Federal Reserve and a slowing Chinese economy. So let’s review some of my articles from 2014 and highlight themes that were timely (and those that weren’t)........


“Investing is Easy!” — results from Fall ‘14

(Jan 2015)

By George M. Klar…..President, Alternativ Solution Inc.

Every year, I have the pleasure of teaching an investment course to 3rd year undergraduate students at the Schulich School of Business. Four-person teams are formed and each gets $1 million dollars to create their portfolio. Over the ensuing 10-week period, each team tries to maximize returns and control risk in this investment challenge. Teams can buy securities on New York, Toronto, London and Hong Kong stock exchanges. The portfolios can be leveraged up 100% using margin loans or ETFs........


Making Defined Benefit Plans Sustainable

(Dec 2014)

by Paul Owens...Deputy Superintendent of Pensions, Alberta

The new Alberta Employment Pension Plans Act (EPPA) was proclaimed into effect on Sept 1, 2014. This Act, which has been six years in the making, puts into place some recommendations from the Alberta - British Columbia Joint Expert Panel on Pension Standards (JEPPS) report that was issued in late 2008. Some of the JEPPS recommendations that have been adopted include: Highly harmonized legislation between Alberta and British Columbia – a significant feat in the increasingly divergent trend in Canadian pension legislation. (NB: while both Alberta and B.C.’s acts were passed in 2012, B.C. is still in the process of finalizing their regulations)........


A Funny Thing Happened on the Way to ...

(Nov 2014)

by George M. Klar…..President, Alternativ Solution Inc.

For those wondering about our title, it refers to the 1962 Broadway play “A Funny Thing Happened on the Way to the Forum”. This play (part farce, part slapstick and part musical) centers on an aspiring slave in Roman times who schemes to gain his freedom by helping his shy young master win the heart of the pretty girl next door. As you can imagine, a host of unexpected events ensue from the opening scene to the finale. For those who have not yet had the pleasure of seeing the play, the 1966 film adaptation with Zero Mostel and Jack Gilford is wonderful and also marks the final film appearance of silent film star Buster Keaton. Alas, I digress…or do I? No, not really. That’s because a funny thing happened on the way to the much ballyhooed equity market meltdown........


How Long Can Interest Rates Stay Low?

(Sept 2014)

by George M. Klar…..President, Alternativ Solution Inc.

If back in 2009 you would have asked me how long interest rates would stay at these depressed levels, I would have answered “not long”. And of course, I would have been 100% wrong. In fact, if you had asked the same question of the world’s top economists or financial prognosticators, they too would have guessed the answer incorrectly. Few would have believed that five years after the “Great Recession” began we’d still be in a period of economic limbo. The current interest rate environment in many countries, Canada included, is as low as its been in many generations. In Canada the bellweather 10-year Government of Canada bond is yielding 2.0%. By contrast, the 30-year Canada bond yield is 2.55%, or a mere 55 basis points more for waiting another 20 years.......


Are Equity Markets About to Crash?

(July 2014)

by George M. Klar…..President, Alternativ Solution Inc.

“Is the bull market over?” “Common sense’ says look out for a market drop.” These are just two recent examples of media headlines. Each proclaims we’re in an equity bubble that will soon burst. Warnings are even coming from respected sources. The World Bank recently predicted that “emerging markets calm may turn to volatility.” These headlines explain why people are scared to hold equities. Who’d want to own stocks if prices are going to fall. Let me be blunt. No one can predict the timing or size of a market crash.......


Some Questions About Foreign Exchange Hedging

(May 2014)

by George M. Klar…..President, Alternativ Solution Inc.

I recently attended a very interesting meeting that dealt with the topic of hedging foreign exchange for pension funds. The question being considered was whether pension plans should hedge their foreign exposure and if so, how. As you can imagine, there are many perspectives about these issues and on the surface, they seem logical. First, some background on why the issue exists altogether. Back when pension plans where still young and in their accumulation phase (the 1950-1970s), Canadian pension plans were restricted to a maximum of 10% foreign exposure. Most plans held far less than that, averaging closer to 5%.......


“Investing is Easy! Ain’t it?” — another update

(May 2014)

by George M. Klar…..President, Alternativ Solution Inc.

Every year, I have the pleasure of teaching a 3rd year undergrad investment course at the Schulich School of Business. Students form 4-person teams and get $1 million dollars to create an investment portfolio. Over the ensuing 10 weeks, each team tries to maximize returns while managing risk. Students can buy stocks or ETFs from New York, Toronto, London and Hong Kong. Teams can leverage up to 100%. Each position can be either Long or Short, thus allowing students to mimic either traditional mutual fund or hedge fund strategies. Students get very serious about this ‘game’ and it’s no wonder since part of the students’ grade is determined by the final rankings.......


Social Security Replacement Ratios (on a After-Tax basis)

(March 2014)

Special Guest Columnist...Paul Owens, Deputy Superintendent of Pensions, FRSP

In June 2013, we looked at how much income was provided by Canadian Social Security programs such as C/QPP, OAS and GIS. Depending on family status (single or married) the income provided by these programs ranged from $15,438 to $30,108. We suggested that if a higher replacement ratio is desired, this is achieved when the pre-retirement income threshold is low. What’s important to recognize is that these calculations were on a pre-tax basis. Feedback from retirement experts........


Why Do We Need Less Money in Retirement?

(March 2014)

By George M. Klar…..President, Alternativ Solution Inc.

At Schulich School of Business, I teach a variety of finance courses including one that explores the theory of personal finance. One question students often ask is why seniors need less money in retirement as compared to their working years. To them, it doesn’t make sense. Nonetheless, it is correct for a variety of reasons. Here’s the theory in a nutshell........


The Past and Future: Predictions for 2014

(January 2014)

By George M. Klar…..President, Alternativ Solution Inc.

Another year is over and yes, capital markets provided great returns in 2013. This despite the fact many pundits were weary about markets way back in January. And speaking of great... AlternativChronicle has just passed its 5th full year of publishing. Let’s review a few of the articles from 2013 to see what ideas were timely and actionable. Let’s start with our January 2013 newsletter. Our analysis suggested an equity bull market would continue throughout 2013 but bonds would produce negative yields........


The Never-Ending Debate Continues

(December 2013)

By George M. Klar…..President, Alternativ Solution Inc.

Question? In your view, what’s better; New Coke or Coke Classic? Grey Goose or Smirnoff? CFL or NFL football? Formula One or NASCAR auto racing? The Toronto Maple Leafs or the Montreal Canadiens? For these questions, and a host of similar ones, the answer is a function of belief. And it’s often impossible to change a person’s view on such items regardless how hard one tries. Why? Because a person’s views are linked to their emotions. One of the most enduring debates in finance is which method of investing is best. At its crux, it boils down to this; is active or passive management better?.........


It’s Always ‘Danger, Will Robinson!’ Time

(November 2013)

By George M. Klar…..President, Alternativ Solution Inc.

As any science-fiction aficionado will attest, the 1960s TV show Lost in Space was a bit corny yet produced a loyal following. The series’ most memorable line was ‘Danger, Will Robinson’. It has since entered the vernacular and signifies an approaching menace. Occasionally, a story surfaces that raises an issue that is a menace to investors. As a Board advisor and investment consultant, I am often asked about them. For example, in October a Bloomberg article purportedly exposed parts of the managed futures industry that are shocking......


Questioning If We Should Be Concerned?

(October 2013)

By George M. Klar…..President, Alternativ Solution Inc.

As October begins, a key political development has moved squarely into the limelight and could affect capital markets and volatility for a few weeks. For investors, the key question is whether it merits (i) zero attention, (ii) a little attention, or (iii) a heck of lot of attention. To a certain extent, the level of attention depends on whether this development is important only temporarily or has a sizable long-term impact. And naturally, determining this can be quite difficult. I am referring to the political feud in Congress between Republicans and Democrats that has resulted in a budget impasse. This feud is actually about healthcare reform, officially called the 2010 Affordable Care Act, but often nick-named ‘Obamacare’.......


Is QE Coming To An End? Abolutely!

(September 2013)

by Guest Columnist….Peter Jarvis, Executive Director, CFA Society Toronto

One of the most asked questions this summer has been whether quantitative easing, or QE as it is commonly referred to, is coming to an end. My answer is ‘of course it is, and hopefully, sooner rather than later.’ If this does occur, it means the tremendous expansion of the monetary base and the Fed balance sheet will stop. But that doesn’t mean financial repression will end. I still expect short term rates to be held lower than is otherwise justified. But nevertheless short-term rates will rise. Why must this be so?........


A Cartful of Capital Markets Results

(August 2013)

by George M. Klar…..President, Alternativ Solution Inc.

For most Canadians, the main topic of conversation this summer has been the weather. From Vancouver to St. John’s, everyone has a story to tell. This is especially true for Calgary, which suffered from a catastrophic flood. The Calgary Stampede was almost cancelled but the city’s positive spirit prevailed and the festivities went ahead as best they could. Kudos to all in Calgary. In Toronto, the summer has not been very summerlike. Lots of rain and many cool days with temperatures in the 20s (vs. normal highs in the mid– to high 30s). When comparing Canada’s capital market results with other countries, our performance has been chilly too.........


Book Review: The Real Retirement

(July 2013)

Reviewed by George M. Klar…..President, Alternativ Solution Inc.

Who would have thought the feel-good book of the summer would be (i) about retirement in Canada, and (ii) written by two well-known actuaries. The Real Retirement (Wiley, 2013), written by Fred Vettese and Bill Morneau, has an upbeat subtitle “Why You Could Be Better Off Than You Think” and tackles Canadian’s deep rooted fears of not having sufficient money to last through retirement. In a nutshell, there’s much to like about the book …..especially if the message is correct. At its core, the book states that Canadians are better off than they think and retirement won’t be as bleak as we often believe........


 

Retiring On Gov’t Retirement Programs?

(June 2013)

By Special Guest Columnist….Paul Owens, Deputy Supt. of Pensions, Alberta

Over the last decade, the topic of pensions has moved from page 15 of the business section to the front page. As Canadian boomers age, they are giving more thought to retirement income, particularly how much they will need and where it might come from. How much they need is often expressed as a replacement ratio; retirement income as a percentage of their pre-retirement income. People typically draw retirement income from; (a) employer provided pension plans, (b) personal savings, such as tax-sheltered vehicles like RRSPs, and (c) government programs. Looking at employer provided pensions, the percent of the employed labor force with a pension plan has shrunk over time........


The Consequence of Investment Beliefs

(May 2013)

by George M. Klar…..President, Alternativ Solution Inc.

Six centuries ago, mankind held many strong beliefs including one that stated the world was flat. Seafarers were convinced that if they sailed too far towards the horizon, their ships would fall over the edge of the world. During that period, people believed the Sun revolved around the Earth. It was a mathematician named Copernicus that published a theory (just before he died) suggesting the reverse was true. Ninety years later, another scientist named Galileo tried to persuade the Church not to ban Copernicus's writing. For this he was forced to recant his beliefs and placed under house arrest. There he lived out the rest of his life. Belief is a very powerful force whether based on ethnicity, religion, nationality, physical appearance or any other factor. Once an idea is accepted by society, it’s very difficult to change.......


What the Most Experienced Minds Think?

(April 2013)

by George M. Klar…..President, Alternativ Solution Inc.

Wow, it’s a tough time to be in the capital markets. Fear is on everyone’s radar on a daily basis, Some of it stems from political issues such as those in USA, EU, Cyprus, Egypt, Argentina and others come from threats of war (North Korea). Fear also starts in the corporate world where the competitive landscape and profitability shifts like sand dunes in a desert storm. It’s no wonder equity volatility is so high. Confused where to invest? Why not trust the “experts”.......


The Reason We Worry About Investing

(March 2013)

by George M. Klar…..President, Alternativ Solution Inc.

Several news stories made me reflect on why so many of investors are unhappy with their investments. In a nutshell, it’s the results. They’re simply not as good as desired or needed. That’s not entirely surprising. Most individual investors are neither well-trained nor temperamentally well suited for this activity. Yes, that’s a bold statement. And no, I am not trying to be insulting.The fact is that many people vastly over-estimate their abilities and lose by playing. It’s similar to those who go to Vegas expecting to beat the casinos.........


Some February Musings & Outlook

(February 2013)

by George M. Klar…..President, Alternativ Solution Inc.

Now that January is over, it’s interesting to note that North American equity markets were up sharply. In local currency terms, the S&P500 rose 5.18% while the S&P/TSX Composite rose 2.25%. Does this imply anything? Yes, according to BofA MerrillLynch. When equity markets rise in January, markets end the year higher than where they began 72% of the time. And when this occurs during the first year of a presidential term (...like now), the statistic rises to 76%. So why did the market surge in January and why did Canada lag?........


Reviewing the Year Past to Predict 2013

(January 2013)

by George M. Klar…..President, Alternativ Solution Inc.

Wow. Another year has passed. When I started this newsletter in 2008, I’d never have imagined I’d still be publishing it four years later. But voila...here we are. At this point, let’s review some of my articles from 2012 and highlight themes that were timely. To start, last January I suggested that the best performing asset classes in 2011 (eg., cash, gold, North American sovereign bonds) would not continue their leadership, and this materialized. In February, despite widespread fears, my analysis explained why no country would default on their debt. And thankfully (so far) this has proved right........


A Heartfelt Thanks to Our Contributors

(January 2013)

by George M. Klar…..President, Alternativ Solution Inc.

One of the most wonderful (and humbling) things about publishing a newsletter (even if its just a free newsletter) is the wonderful array of contributors that take time from their busy lives to share perspectives and opinions with our readership. And 2012 was another exceptional year as AlternativChronicle attracted some very thoughtful people to write for us........


The Changing Face of Asset Management

(December 2012)

by George M. Klar…..President, Alternativ Solution Inc.

There is no doubt that the nature of the asset management industry has undergone massive changes in the last few decades. Whether you are an individual or an institutional investor, the impact has been enormous. But as two recent reports vividly show, even more changes are likely to occur. The first report titled The Asset Management Industry: Outcomes Are The Next Alpha is from McKinsey, a respected global consulting firm. It focuses on trends affecting the asset management industry......


Firing an Investment Management Firm

(December 2012)

by Russell Campbell…..CEO, YourSecondOpinion, LLC

According to Towers Watson, a leading consulting firm, Warren Buffett experienced two separate 3-year rolling periods of relative underperformance during his investment career. No doubt, at the time, those weak results resulted in lost clients. Imagine their chagrin as they examine his 45-year track record and see the phenomenal results he has produced. Underperformance is the single leading cause of manager firings. But other causes also exist. Let’s answer some questions related to the key reasons for terminating a manager. Q1. Is firing for underperformance a good idea?.....


Clarifying Some Confusion over ETFs

(November 2012)

by George M. Klar…..President, Alternativ Solution Inc.

AlternativChronicle got an email asking whether ETFs were safe investments for individuals. The concern was that ETFs were being targeted by a secretive group that use something called High Frequency Trading (HFT). The question implied that ETF unit values might be harmed by HFT activity and thus lead to lower returns. Having previously written about ETFs (Aug 2010) and owning them personally, I wanted a clear answer myself. So I did a little sleuthing. To begin, there is considerable controversy as to what impact HFTs have on security prices......


Advice for a Heart-Broken Investor

(October 2012)

by George M. Klar…..President, Alternativ Solution Inc.

About a month ago, I read an article that offered investment advice for a recent widow. Unfortunately, becoming widowed in Canada is common and will increase in frequency as the baby-boomer generation ages. This particular widow was predeceased by her husband two years earlier. As is typical with couples, one spouse handled the finances. In this case, it was the husband. Suddenly, the widow needed to come to grips with her financial affairs. Thankfully, a financial expert was consulted and offered his views based on the data provided......


Who's to Blame for the Pension Mess?

(September 2012)

by George M. Klar…..President, Alternativ Solution Inc.

As we approach Fall, most financial professionals know we are entering ‘the silly season’. “Silly” not because people act childishly, but rather, because activity goes into hyperdrive. Travel escalates, conferences abound, there are many meetings, power lunches and dinners. Everything seems more serious. And the upcoming U.S. Presidential election might further escalate this situation. One topic that will (again) be on the radar this Fall is the state of our retirement plans. Lots of corporate DB and multi-employer pension plans are in rough shape. Many are closed or closing. Employees are being forced into the firm’s DC option. This certainly will have an effect on members’ retirement. So why are traditional plans in such bad shape?......


Competing for Investment Olympic Gold

(August 2012)

by George M. Klar…..President, Alternativ Solution Inc.

Ah the Olympics! For a few weeks this summer, the world is being treated to a sports extravaganza as top athletes from around the globe compete for medals and the pride of their nations. It’s such a positive, uplifting event. As the Games began, a question came to my mind — are there similarities between Olympic athletes and people managing money in the investment industry? I think yes. And it leads to an interesting insight......


Trying to Interpret the Many Risk Signals

(July 2012)

by George M. Klar…..President, Alternativ Solution Inc.

What a Canada Day long weekend! The weather here (in the GTA) was simply perfect…. sunny and warm for all three days. Like most people, I soaked in the sun and the outdoors. And in my spare time, reflected on one issue we encounter almost daily in the news — managing risk. Since 2008, the world has become focused on how to control and contain risk. Last month, we all learned of JPMorgan’s surprise trading losses exceeding $2 billion. That figure has since ballooned and calls into question the firm’s risk models and underlying assumptions......


Trust, Confidence & Alignment of Interest

(June 2012)

by Guest Columnist....Peter Jarvis, Executive Director, Toronto CFA

Financial markets are underpinned by a belief that the investment process is fair, markets are efficient and investors can expect financial institutions or advisors to be trustworthy. These conditions are necessary for participants to be comfortable and confident with the financial advice they receive. There is an equally important notion that people and organizations always strive to do what’s in their clients’ best interest. This underpins trust and investing confidence, which helps ensure market integrity. When integrity is high, participants feel positive about financial markets and their future prospects......


Moving Between the Dark Sides

(May 2012)

By Special Guest Columnist….Paul Owens, Deputy Superintendent of Pensions, FRSP

Traditionally, movement in the pension and investment industry was between the plan sponsor, consulting and investment segments. Moves towards the consulting or investments parts were often characterized as heading to the “dark side.” On January 3, 2012, I started a new phase of my career, this time as Deputy Superintendent of Pensions for the Financial Sector Regulation and Policy (FSRP) division with the Ministry of Finance for the Government of Alberta. One long-term colleague referenced this as going to the “alternative dark side”......


‘Investing is Easy! Isn’t It?’ (...redux)

(May 2012)

by George M. Klar…..President, Alternativ Solution Inc.

Readers of this newsletter know that aside from consulting to pension plans, investment managers and financial institutions, I am an instructor at the Schulich School of Business at York University. For the past four years, I’ve been teaching an undergraduate course on investing for students with money management aspirations. The course is as ‘real’ as it gets! Classes are limited to 44 students. After forming into groups of four, the resulting 11 teams are each given $1 million dollars to develop and execute an investment strategy for 10 weeks.......


Defusing the Global Debt Bomb

(April 2012)

Special Guest Columnist....Lloyd Atkinson, former CEO and Chief Economist

Sovereign debt is a problem so pervasive that it puts global economic prospects under a cloud. That's the principal reason why interest rates almost everywhere are at emergency low levels. And efforts to resolve those debt problems explain why those rates will remain at emergency lows levels for at least two more years. Monetary accommodation will continue as the norm as authorities attempt to offset the growth-sapping effects of persistent fiscal austerity. In countries where sovereign debt problems are serious......


Greener Grass on the Other Side?

(April 2012)

by George M. Klar…..President, Alternativ Solution Inc.

Remember the saying; “the grass is greener on the other side”? The lesson that might be learned from this statement is that things often look better from afar but once you get up close and investigate, you realize your assumptions aren’t right. On the surface, what appears to be easier or better elsewhere turns out to be just as difficult as on home turf. Like you, I am constantly reading stories about struggling Canadian pension plans, particularly in the defined benefit area. The plans are underfunded due to a combination of weak returns, historic low interest rates and retirees living longer.......


DC Plans: New Frontier or Fatal Flawed

(March 2012)

Special Guest Columnist....Gerry Wahl, Senior Partner, Ampersand Advisory Group

Defined Benefit (DB) to Money Purchase Plans, such as Defined Contribution (DC), is firmly entrenched in Canada and the USA. From an employer’s perspective, DC plans have advantages over DB plans because they minimize exposure to financial and legal risks and result in predictable lower contribution levels. DC plans also shift the funding and administration burden from employers to employees while retaining the less onerous fiduciary responsibilities.......


Is Retirement Going to be Derailed?

(March 2012)

by George M. Klar…..President, Alternativ Solution Inc.

Recently, a VIA train crashed just west of Toronto killing all three of its engineers and injuring 46 passengers, many of them severely. What’s already known at this stage is the train was travelling at over four times the recommended speed. What’s still unknown is who was driving and why signals warning the train to slow down weren’t obeyed. A friend who was on that ill-fated train and had made the trip repeatedly over the years, described the events.......


Two Issues to Ponder for the Future

(February 2012)

by George M. Klar…..President, Alternativ Solution Inc.

Can rational behavior stem from irrational beliefs? Maybe the answer is yes. Homo Sapiens feel they exert greater control over their future simply by predicting the outcomes of their actions. The other view, that everything happens randomly, is just too hard for many to accept. This helps explain why the business of predicting the future has grown so big. Given this, what financial issues loom large in our future? Looking at our crystal ball, the biggest issue revolves around what sort of global economic environment we will face — inflation or deflation?.......


Are Low Rates and Easy Money Good?

(January 2012)

By Special Guest Columnist....Peter Jarvis, Executive Director, Toronto CFA Society

It’s been said that economic analysis seems bizarre to the uninitiated and arcane to everyone else. So I’d like to discuss some important issues pertaining to unreasonably low interest rates and easy monetary policy. My goal is to question some basic policy beliefs. We’ve all heard the mantra (i) rates must be kept low to promote risk taking and encourage spending, or (ii) low rates and easy money promotes economic growth, or (iii) low rates are good for the economy. These saying are often accompanied with someone claiming that raising rates in today’s precarious economy is preposterous, harmful or........


Turning The Status Quo Right Side Up

(January 2012)

by George M. Klar…..President, Alternativ Solution Inc.

There’s no doubt that 2011 will go on record as being a hard year for many segments of the capital markets including equities, hedge funds and commodities. There were some bright spots such as North American bonds and Venezuelan stocks. And for a while, gold shined as it rose from $1,400 to peak at $1,900 per oz. It has since fallen to $1,550. However despite the occasional positives, for risk-taking investors this was a bad year. Geo-politically, 2011 was also remarkable and transformative........


Pooled Registered Pension Plans

(December 2011)

by Special Guest Columnist....Paul Owens, former CEO of CAAT Pension Plan

The Federal Government recently tabled the Pooled Registered Pension Plan Act in the House of Commons. If enacted, it provides another vehicle that encourages Canadians to save for retirement while also attempting to broaden coverage for people who now don’t have something via their employers. PRPPs are the result of many years of consultation between the federal government and the provinces to decrease retirement income inequalities. The basic features of PRPPs are........


Public Sector Pensions: A Tough Pill

(December 2011)

by George M. Klar…..President, Alternativ Solution Inc.

The other day in the UK, public sector employees organized a 1-day strike which involved teachers, hospital workers, border guards, weather forecasters and even staff from the Prime Minister’s office. In several UK cities, thousands marched to support their 2 million members. They were protesting plans to cut pensions benefits and avoid raising the eligible benefits age to 67. Both proposals are part of a much needed government austerity initiative. Notwithstanding the fact that life spans have increased since pensions were created........


An Evolution in Asset Allocation

(November 2011)

by Special Guest Columnist....Russell Campbell, CEO, YourSecondOpinion

Unquestionably, the collapse of financial markets in 2008 shocked investors everywhere. The good news is that the experience yielded lessons that are re-shaping how we think about asset allocation. Most importantly, it’s spurring some innovation. When I began my investment career in Canada during the 1980s, the output from most asset liability models suggested a policy asset allocation of 60% equities and 40% bonds, which most pension plans adopted. Other than real estate, alternative strategies didn’t really exist.........


OWS: What’s going on?

(November 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Frankly, the Occupy Wall Street (OWS) movement confuses me because its goals are so vague. It also stems from the media’s portrayal of the movement as a sudden groundswell of negative opinion aimed at irresponsible bankers who caused the world economy to collapse. Really??!! Was it a few bankers on Wall Street that caused the financial system to fail? They did all this on their own? No external parties were involved whatsoever? And they managed this feat by what journalists are calling unbridled recklessness in the capital markets?.........


Equity Investing in a Difficult Period

(October 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Excuse me for stating the obvious but it’s been a really difficult period for equity markets. Compared to the April highs, the recent meltdown has pared over $7 trillion dollars in wealth worldwide. So far this year, US stocks have fallen by 15% Canadian by 18%, parts of Asia by 20% and European nations by anywhere from 13%-50% with Greece falling the most. For individual and institutional investors, the past few months have been awful. Everyone’s wondering if this is just a typical correction after the big rebound from 2009 lows or whether it signals the start of something more serious.........


Making Sense of Recent Market Tumult

(September 2011)

by Special Guest Columnist....Dr. Lloyd Atkinson, Ph.D.

To understand the most recent tumult in financial markets, one needs only to appreciate the multiple contradictory perspectives about the state of the world economy. The need for a proper perspective could not be more evident. Start by throwing out any forecasts that hint at the possibility of robust growth within the next five years. Don't think for a moment that the EU will be able to solve its current economic crisis without wholesale and very painful changes to its welfare-state model. Discard the notion that the U.S. economy is headed toward insolvency, and instead view the S&P downgrade as being uninformed and naive. Stop worrying about inflation and focus instead on the risks of deflation. And forget about any meaningful rise in interest rates for the next several years. If what follows from this is a sustained period of trashed confidence, don't expect any serious retrenchment in the price of gold, an asset class once described as “for the confused and”.........


Investing & Medicine: Common Issues

(August 2011)

by George M. Klar…..President, Alternativ Solution Inc.

The recent long weekend in Ontario was picture perfect; hot and sunny. An invitation to a friend’s lakeside Muskoka cottage provided a welcome treat. My friend, a physician of 27 years, is also a pioneer and early adopter of Information Technology (IT) for improved medical care. In the late 1990s, my friend conceived and then developed a medical software application for the Palm Pilot. The software was found to improve the management of patients with chest pain, but most physicians were not using PDAs. Thus began a decade long project to study the use of IT in family medicine.........


Home Ownership & the Wealth Effect

(July 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Over the past few decades, it has been repeatedly said that the surest path to wealth is via real estate. This asset class has a special place in investors’ minds. Real estate is widely considered a safe investment because both population growth and supply constraints cause price appreciation. As Mark Twain said “buy land; they’re not making it any more.” While productive real estate farms, offices, malls, etc.) has a long history of slowly generating wealth, simple home ownership for wealth is a somewhat new concept and rests on a shaky foundation.........


Interview: On Active & Passive Investing

(July 2011)

by George M. Klar…..President, Alternativ Solution Inc.

In early June, Kevin Press of Sun Life Financial invited me to answer several investing questions for the blog “Today’s Economy”, which focuses on the individual investor. While the full transcript can be found here, a brief extract is included below: Last month, David Chilton described active investment management as a zero-sum game. In other words, not all managers can beat the market and it’s difficult to choose those that will outperform. Is that a fair criticism?.......


ESG: From Prohibition to Sustainability

(June 2011)

by Special Guest Columnist....Paul Owens, former CEO CAAT Pension Plan

Under Regulation 909 of the Ontario Pension Benefits Act, an administrator of a pension plan must establish and annually review a Statement of Investment Policies and Procedures (SIPP). There is currently no requirement to file the SIPP with the Financial Services Commission of Ontario (FSCO) – the Ontario pension regulator. On March 29, 2011, Finance Minister Dwight Duncan proposed.........


Pension Promises: Shortfalls Looming?

(June 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Last month, an article in Chronicle received a lot of feedback from readers. The article, about discount rate assumptions, suggested that plans using 7-8% might wish to lower rates in today’s low return environment. Right now, there are a slew of U.S. plans that use a 7-8% going concern rate, but respondents pointed out that most Canadian DB plans don’t. Readers also commented on three different discount rates used by Canadian DB plans; (a) solvency, (b) accounting and (c) going-concern........


Living In a World of Fairy Tales

(May 2011)

by George M. Klar, President, Alternativ Solution Inc.

Did you watch Prince William and Kate’s wedding? A large slice of the planet certainly did, many waking up in the wee hours of the morning to see the pageantry. Why did we bother? Was it important? Did mass curiosity get a hold of us? Were we manipulated by the media? Whatever the reason, an event that had little or no bearing on our lives was able to command an extraordinarily large global following. Don’t get me ....


Pension Returns After the Crash

(May 2011)

By Special Guest Columnist…..Ross Ferguson

In recent years, the financial press has featured many articles concerning the funding status of pension funds, with most pointing out that many plans do not have sufficient assets to meet their anticipated liabilities. While this is cause for concern, there may be another issue which pension stakeholders should examine, namely the rate of return assumption that actuaries make about investments. Admittedly, I have not scoured all the available material concerning this issue, but my understanding is that typical actuarial assumptions for plan returns are in the 7% to 8% range........


Spotlight on Risk and Natural Disasters

(April 2011)

by George M. Klar, President, Alternativ Solution Inc.

Does our perception of financial risk stay constant or change over time? To examine this, let’s review how investors viewed Japan after the earthquake, tsunami and nuclear meltdown. Japan’s triple disaster happened suddenly and response to it was almost as swift. The key Nikkei 225 equity index fell 20% in the week after the March 11th events. Some claim this was an irrational response due to the emotional shock while others say it was a rational response to a shift in risk. What we know from history.........


Primum Non Nocere (part 2)

(April 2011)

Special Guest Columnist…..Paul Owens, former CEO, CAAT Pension

In my January article, I identified two investment beliefs that are useful in fulfilling a Board of Trustees’ fiduciary obligations of “First, do no harm”. At a bare minimum, Trustees must preserve the value of assets entrusted to them. But prudence and the duty of care also force decisions beyond that. Trustees have an obligation to enhance the value of assets over time. To do this effectively, we suggested defining two key operational beliefs........


TDF — Before You Jump on the Wagon!

(March 2011)

by Guest Columnist….Gerry Wahl, ComprehensivePensionGovernance

Target Date Funds (TDFs) are very popular in the U.S. where a significant number of sponsors offer them in their 401k plans. Part of the enthusiasm stems from the safe harbor provisions for Qualified Default Investment Alternatives under the Pension Protection Act. While the U.S. ERISA safe harbor provisions aren’t available in Canada, TDFs are actively marketed as viable investments for Canadian CAPs. Nonetheless, TDFs should be seen as highly complex products for sponsors from both a fiduciary and investment perspective. What is a TDF?


Investment Lessons from Tahrir Square

(March 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Every now and then, an event occurs that comes out of nowhere and blindsides virtually everyone, particularly the so-called ‘experts’. And so it was recently as Egyptian President Hosni Mubarak, an autocratic ruler for almost 30 years, fell to a popular uprising and was forced from office in eighteen days. Now the contagion has spilled across the entire region. Apparently, none of the major intelligence services predicted this would occur. Are we surprised? If you’re a cynic, you’d probably answer no........


PRPP—Be Careful What You Wish For

(February 2011)

by Guest Columnist….Gerry Wahl, ComprehensivePensionGovernance

The Minister of Finance recently proposed the creation of Pooled Registered Pension Plans (PRPP) rather than expansion of the CPP program. The PRPP targets the self-employed or lower - income private sector worker lacking any employee sponsored pensions. The PRPP goal is to provide these groups with an effective and low cost retirement saving vehicle. It is acknowledged that PRPPs require a high level of regulatory harmonization across jurisdictions. Other pension reform initiatives in the past 18 months have proven to be difficult and the proposed 12 month deadline to implement the PRPP may be very optimistic. A further complication is whether..........


Watching a Dangerous Development

(February 2011)

by George M. Klar…..President, Alternativ Solution Inc.

Every sport, whether it’s baseball, soccer, football or hockey, comes with its own set of well-defined rules. Players who break the rules are penalized and if it happens too frequently, the team’s chances of winning are impaired. Coaches needs to trust their players. So repeat offenders eventually get benched or cut from the team. It’s just the right thing to do. Similarly, ‘trust’ stands at the core of every financial transaction. But now, there’s a movement afoot to alter the long-standing repayment rule in debt finance; one that’s existed for hundreds of years. It relates specifically to debt obligations of sovereign nations.........


Introspective: A Look Back & Forward

(January 2011)

By George M. Klar — President, Alternativ Solution Inc.

Can you believe it? Where does time fly? It feels like 2008 was yesterday but here we are now starting 2011. It’s been over 2 years since my tiny newsletter (or more precisely…..labour of love) commenced. Can you recall what it was like back in 2008? ‘Trepidation’ captured the mood perfectly. When Chronicle debuted, its goal was to be a voice of experience and express views that might be considered a touch controversial. That goal has not changed. With 25 issues now published, it’s reasonable to look back and see if any of our past analysis has proved to be....


Primum Non Nocere

(January 2011)

Special Guest Columnist…..Paul Owens, former CEO, CAAT Pension

One of the first things that aspiring medical students are taught before giving care is to “First, do no harm.” While the ancient Greek Hippocratic Oath contained a similar phrase “abstain from doing harm”, both the Latin and English versions are attributed to a 17th century English physician, Thomas Sydenham. This same admonition could be extended to Boards of Trustees and their staff. They are charged with managing, safeguarding and enhancing other people’s funds earmarked for retirement. Indeed, the whole notion of fiduciary responsibility mandates an application of prudence in the management of property belonging to someone else.........


Trillion Dollar Investment Strategies

(December 2010)

By George M. Klar — President, Alternativ Solution Inc.

Once again, the world has just barely avoided another large debt crisis. This week the culprit was Ireland and last spring it was Greece. Both had negative repercussions for the Euro and bond markets, with each episode confirming the fact that serious problems exist. Experts predict the leg of this contagion will be Portugal or Spain. Without government led bailouts, what would a rational bond investor do?.........


The Shrinking Corporate Bond Spread

(December 2010)

Special Guest Columnist — Ross Ferguson, fixed income market veteran

Readers of this newsletter may have heard that in the U.S. fixed income market, several large corporate bond issues have been floated carrying coupon rates of 1% or less. Surprisingly, there has been precious little discussion about these mesmerizingly low rates in the mainstream financial press. Personally, if these investments were offered to me, I’d be reluctant to purchase them for my RSP. Nonetheless, there are valid reasons why the collapse in corporate bond spreads happened in both Canada........


Termination — A Very Difficult Decision

(November 2010)

Special Guest Columnist — Gerry Wahl, former Pension Manager, Teck Inc.

One of the toughest, but often frequent, decisions for plan sponsors and individual investors is when to terminate a manager or end an investment mandate. It is not unusual for investment committee’s to seek “rules” to guide them in their decision. The situation usually arises after a sustained period of weak performance judged either on peer group basis or against a target benchmark.  However, there are many factors that must be considered........


The 'Best' Investment Advice (Really)!

(November 2010)

By George M. Klar — President, Alternativ Solution Inc.

Last month, I offered thoughts on the dangers of listening to ‘experts’ for investment advice. Simply put, these experts don’t know what the future holds regardless of how well respected or persuasive they are or how widely they’re read. While most advice won’t make you rich, there are some experts whose writings are both entertaining and provocative........


Using the Past to Predict the Future

(October 2010)

Special Guest Columnist — Paul Owens, former CEO, CAAT Pension Plan

How often have you heard the phrase “past performance is not an indicator of future results” when looking at historical returns? I’ll bet it’s often. Yet despite this, we continue to use historic data, and often the most recent year’s results, to influence our asset mix allocations. Why is this? In the absence of other information, there is an implicit assumption........


The Best Advice for Investors?

(October 2010)

By George M. Klar — President, Alternativ Solution Inc.

If you’re like me, throughout your career, you’ve probably spend a part of your day reading technical or industry related materials. In my case, it was finance and a large chunk of it dealt with investing, risk and portfolio management. Since forming a consulting company 3 years ago and joining the faculty at the Schulich School of Business, that hasn’t changed. Each semester, I teach a course on Investments. Students form teams to compete against each other over 10 weeks using stock trading software and starting capital of $1 million. They often ask me which strategy will work best........


Long Bonds….How Long is Too Long?

(September 2010)

Special Guest Columnist — Sheryl Smolkin, LL.B., LL.M.

When the Wall Street Journal reported in August that some bankers had begun sounding out investors about 100-year bonds, it seemed like just another symptom of the summer silly season. Yet within hours, it was revealed that the Norfolk Virginia based railroad Norfolk Southern had reopened its one-hundred year bond originally issued in March 2005 at a yield of 5.95%. More importantly, demand was high and ..........


A Quick Peek into Our Retirement?

(September 2010)

By George M. Klar — President, Alternativ Solution Inc.

In August, I received an article dealing with demographics, life expectancy and the deflationary challenges ahead caused by the Baby-Boom generation. It said the Demographic Dividend, which links the past 35-years of rising investment and economic growth to boomers, has ended. The article foresees a decline in both the economy and asset values, particularly for homes. Worse, it claims neither individuals nor governments will cope well with this. Today, the retirement liabilities of OECD nations far exceed the assets needed to discharge them. Measures, such as raising the retirement age or ............


Consolidations — Is Objectivity Dead?

(August 2010)

Special Guest Columnist — Christopher Page, HighView Financial Group

There’s been lots of change in the investment industry recently. In July, AON Corp announced that it had agreed to buy Hewitt Associates creating a global rival to Marsh & McLennon. Weeks earlier, Canadian investment firms Sceptre Investment Counsel and Fiera Capital Management announced their merger. That news got less fanfare. While change is inevitable, one wonders..........


An Unstoppable Investment Trend?

(August 2010)

By George M. Klar — President, Alternativ Solution Inc.

The other day at lunch, I asked a former executive for his views on who’s currently winning and losing within the investment industry. Without blinking, he said the clear winners are the Exchange Traded Funds (ETFs) while traditional mutual funds have lost some of their appeal. He claimed it’s because ETFs charge lower fees, offer excellent daily liquidity and can replicate a host of passive, active or leveraged........


Trust—Have We Reached a Crossroad?

(July 2010)

By George M. Klar — President, Alternativ Solution Inc

In economics and finance, one of the key debates is how to deal with risk. Business schools teach students that risk should be minimized, or possibly, avoided. For two millennia, risk minimization has also been a key ingredient in the evolution of business. Historically, a critical point occurred when the concept of a “corporation” came into existence. This allowed........


Is Transition Management Important?

(July 2010)

Special Guest Columnist — John Halligan, Global Trading Analytics, LLC

A transition is defined as a unique or rare trading event whereby a large value of marketable assets, usually spanning multiple securities, must be sold and/or purchased within a very short time period. Due to the nature of such a rapid transaction, there is a significant risk of implicit, although sometimes hard to quantify, market impact costs. Furthermore, there are also explicit costs........


Just do the Math! — Part 2

(June 2010)

Special Guest Columnist — Paul Owens, former CEO, CAAT Pension Plan

Last month, we suggested that the Federal government increase the maximum annual pension limit under the Income Tax Act from the current level of $2,494.44 by $500 annually over five years so that it reaches $4,994.44 on Jan 1, 2015. Why hasn’t the government done this? The commonly stated reason, in the words of one provincial government’s website, is that there needs to a limit on the maximum pension in order to “control the amount of foregone tax”. Really? Let’s analyze this........


Fear & Loathing in Capital Markets

(June 2010)

By George M. Klar — President, Alternativ Solution Inc.

Question: What was the most hyped event in Spring? If you answered “Sex and the City 2”, you’re probably not involved with the capital markets. Actually, the answer we’re looking for is “volatility”. And this Spring, the financial markets showed Hollywood how the hype-machine is really supposed to work! Okay, the markets did have a smidgen of help. First, there was a slew of surprising international events including ash fallout from Iceland’s unpronounceable volcano. This induced.........


Just do the Math!

(May 2010)

Special Guest Columnist — Paul Owens, former CEO, CAAT Pension Plan

In Canada, the legislative regime governing pensions is comprised of two parts. The first part is the federal Income Tax Act (ITA) which sets out the maximum entitlements permitted under employer-sponsored pensions to ensure they are “registered”, contributions are tax deductible, and taxes on earnings are deferred until benefits are paid. The second part is comprised of provincial Pension Benefits Acts (PBA) which set out the minimum provisions that must........


What? Another boring presentation?

(May 2010)

Special Guest Columnist — James Clark, Dunhelm Consulting

Recently, I listened to a presentation where the presenter (a) used 50 slides for a 30 minute presentation, (b) carefully read every bullet on each slide so the audience didn’t miss a thing, (c) included charts and tables which were ‘so obvious’ that they weren’t explained, and (d) used 10pt Times Roman font so ‘all the information’ could be shown on one page. Frankly, from an audience perspective, it’s boring and a waste of time! So, what’s the problem........


Investing is Easy! Isn't It?

(April 2010)

What students learned by playing a stock market investment game.

Over the past academic year, I’ve had the pleasure of teaching two 3rd year courses on investments to undergrads at the Schulich School of Business. The first course started in September and the second in January. The course objectives are to learn about investing and how markets really work. One part of the course requires students to form teams of 4 to develop and execute........


The Not-So-Black-or-White Swan

(April 2010)

Special Guest Columnist - Ross Ferguson

These days, financial markets almost have a ‘Goldilocks’ feel to them – not too hot, not too cold, but rather, just right. How can this be given the horrible financial markets we all experienced in 2007, 2008 and 2009? Clearly, the tsunami of money committed by central banks around the world may have something to do with it. Also, we must remember that some individual and institutional investors are periodically........


Resurrecting the Never Ending Debate

(March 2010)

What's better -- active or passive investing? it's a hot topic once again.

For 40 years, a debate has raged in the investment industry as to whether active or passive investing is better. The ‘yes’ camp is dominated by professional money managers whereas the ‘no’ side is led by academics. Since 2008, the debate intensified as asset class correlations spiked dramatically and the values of both active and passive portfolios fell. These events hurt portfolio........


Tightening Canada's Mortgage Rules

(March 2010)

What the changes will mean for investment opportunities, such as equities.

Like most people, my mailbox is full with advertisements for a variety of things. What has captivated my attention recently are ads for new homes or condominiums. No, I’m not in the market, but often, what’s being promoted can provide a glimpse of investment opportunities. Several neighbourhood real estate brokers have also put me on their mailing lists. Their letters focus on........


The Pension Holy Grail: Can it be found?

(February 2010)

Special Guest Columnist: Paul Owens, former CEO, CAAT Pension Plan

Lately, much has been written about the ideal pension system for Canada. One of the biggest problems is the lack of unanimity as to what constitutes an ideal pension/retirement income scheme. The gap between where we are today relative to where we’d like to be is not solvable in one step. So instead, perhaps a more practical solution would be........


Analysis: The U.S. "War" on Big Banks

(February 2010)

Obama's goal to significantly transform banking is theatre. And he knows it.

President Obama’s first year has seen a number of setbacks. His key initiative, healthcare, may have been irreparably damaged and his popularity has plunged. In Houdini-like fashion, Obama is now trying misdirection in an attempt to regain public support. By oversimplifying and demonizing the banking industry, his advisors have found a perfect.......


What's Up, Up, in the Air?

(January 2010)

Superman? No, gold! And investors might wish to review this phenomenon.

Quick! What’s the price of gold today? Last month? Last year? Ten years ago? Unless you’re from a distant galaxy, there’s a good chance you’d be able to answer some of these. Regardless of gender, age, geography or level of education, virtually everyone tracks gold. And gold was definitely a hot commodity in 2009. As prices reached new and dizzying heights, the media had a field day........


Some Nuggets for Consideration

(January 2010)

A few interesting facts about everyone's favorite shiny yellow metal.

Since the dawn of time, mankind has shown a fascination for gold. That’s partly because it possesses some unique properties. Gold is malleable, ductile and totally unaffected by the elements; air, water and corrosion. It’s also a good conductor of electricity and heat. And it readily hardens into alloys when combined with other metals. It can even be ingested! These attributes make gold perfect for use in dentistry, jewellery and an array of modern electronic applications.......


In Praise of Innovation

(December 2009)

What investors should consider about both MPT & behavioral finance

Sometimes an idea can come from an unrelated field. Here’s an example. For several months, rumours circulated on the internet about an unorthodox medical breakthrough that dealt with a heart-wrenching disease called Multiple Sclerosis (MS). Conventional thinking said MS was an auto-immune disease whereby the body’s own defence system attacked the nerves’ myelin coating, rendering them inoperative. There is no known cure and treatments vary.......


Looking Back — The Year in Review

(December 2009)

Happy to see the year end? Will 2010 be an improvement?

What a year! Can you believe the roller coaster ride the global financial community has experienced? Regulators, investors, issuers and capital market participants continued to scramble, still reeling from the effects of the prior year. Government support for large institutions near the precipice continued to be the norm, albeit at a lessening pace. Still, everyone wondered (a) who might be next, and (b) what surprise bombshells might arise tomorrow?.......


HINI, Risk and Sensationalism

(November 2009)

What the swine flu, pick-up hockey and the media all have in common?

Sometimes ideas can arise in strange places. That’s the case this month. At my weekly pick-up hockey game two weeks ago, the pre-game locker room chatter was anything but normal. Usually, we argue about the fate of the Maple Leafs, Habs or some other NHL team. But on this particular night, one player asked a simple question: “Are you planning to take the H1N1 flu shot?”.......


Is there an Alternative to Alpha & Beta

(November 2009)

Special Guest Columnists ... Neil Simons & Adrian Hussey

For those working in the capital markets, the past two years have certainly been a very challenging period. We are reminded that whether investing by active or passive methods, risk should never be far from our minds. Meeting return objectives, yet with a renewed focus on risk, has led to the development of a concept dubbed Alternative-Beta.......


Dinosaurs & DB Pension Plans

(October 2009)

Special Guest Columnist…..Paul Owens, former CEO, CAAT Pension Plan

Critics of defined benefit (DB) pension plans have called them dinosaurs; presumably in reference to the fact that dinosaurs are extinct and these plans appear headed on the same path. No one is certain what caused the dinosaurs' demise but a commonly accepted theory is that a giant meteor collided with Earth, catastrophically changing the environment. Dinosaurs could not adapt quickly and perished.......


Just A Matter of FX

(October 2009)

Depending on who you ask, the direction of the Canadian dollar (CAD) is either (a) important, (b) really important, or (c) critical. Whether you’re a retired snowbird, Canadian pension plan, importer, exporter, or politician, the level of the CAD affects you materially. The machinations of the CAD have given many anxiety, sleepless nights and yes, even ulcers! For those involved.......


Revisiting the Bikini Test

(September 2009)

How statisitics influence our ability to make quality decisions: It was American author Mark Twain who attributed the now famous phrase “there are three kinds of lies—lies, damn lies and statistics” to 19th century British Prime Minister Benjamin Disraeli. Despite considerable research, no connection to Disraeli has ever been found, which is ironic. Nonetheless, the phrase has found permanence in our lexicon as it speaks volumes about using numbers for persuasion.......


Governance — Simplified

(September 2009)

A little while ago, my wife and I were heading to the U.S. for a short visit with family who are now living south of the border. In addition to our packed items for the trip, we were taking some items belonging to family members that were left behind at our house when they moved; just bits and pieces of clothing, high school memorabilia, photos and such.......


The Coming Boom in Equities

(August 2009)

Predicting the direction of financial markets isn’t normally the focus of this publication. However, there is too much pessimism these days about both the economy and equity markets. Why? Negative media coverage is one cause, but also contributing are economists who continue to sound alarm bells.......


Book Review: Are You a Stock or a Bond?

(August 2009)

Imagine you’re at a cocktail party and someone comes up to you and asks you if you’re a stock or a bond. You’d probably think they had a few too many drinks or were crazy. Yet this unusual question is asked by someone who is very thoughtful (and of course, sober). Indeed, while the question sounds silly, it’s actually a great example of how Prof. Milevsky considers an individual’s life-long investment framework.......


California Dreamin’

(July 2009)

Despite the title, this has nothing to with the Mama’s and the Papa’s famous song written on a blustery NYC winter day. Rather, it focuses on my 12-day trip through America’s largest state in mid-June. Along the way, I met many people and asked questions; (a) Has the economy impacted you? (b) What have you done in response?, and (c) What changes, if any, do you plan to make?.......


More Questions Than Answers

(July 2009)

The other day I asked an acquaintance with extensive experience in the pension industry for his thoughts about the critical issues facing pension plans today. Both of us agreed that there are many issues including funding shortfalls, disastrous investment returns, restrictive and conflicting legislation and tax limits, just to name a few.......


Some Lessons from the Ivy Leagues

(June 2009)

Over the years, I’ve had stimulating debates with colleagues on certain concepts. For example, one former colleague strongly believed that capital markets always price assets accurately by incorporating current and future risks. While his views were logical, I countered that mispricing do occur because of psychological factors and fat tail events, both rarely factored in the analysis.......


The Investment Conundrum

(June 2009)

In our previous edition, we noted the difficulty in rebalancing investment portfolios in the aftermath of a particularly nasty market meltdown. Let’s examine why this problem exists by using specific examples. We will begin by looking at money market instruments and government bonds, both safe-havens whenever markets experience frightful events.......


The Current Conundrum

(May 2009)

Given the dismal performance many asset classes had this past year, investing entities are now struggling with the question of when to rebalance their portfolios particularly if they have moved beyond asset mix guidelines. This question affects pensions, endowments, mutual funds, segregated insurance funds and investment managers.......


Inflation – Gone, But Not Forgotten

(May 2009)

As we muddle through the current recession, financial journalists are discussing the prospect of higher inflation down the road. With the amount of government stimulus being applied to national economies worldwide, this concern is understandable. My view is that inflation will continue to be modest, and likely remain within government targets over the medium term. There are a number of reasons for this.......


Dear Mister President...

(April 2009)

As pundits compare our current situation with the Great Depression and media headlines trumpet each negative economic statistic, policy-makers are desperately seeking a workable solution to reverse the financial meltdown. Unquestionably, authorities have responded quickly with a wide variety of innovative rescue programs including conservatorship for Freddie and Fannie, forced shotgun mergers.......


Further Insights to the Credit Crisis

(April 2009)

This is a follow-up to “Anatomy of this Credit Crunch” which I believe can be expanded upon, especially after noting the words “Heart of Darkness” which appear in the title. I think these words are the key, or certainly point us in the direction of what really happened in US financial markets in the last few years. As the author notes “…global regulatory reform can yield positive results, but it is not enough”.......


Anatomy of this Credit Crunch (Part 2)

(March 2009)

A “sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged”, according to the IMF World Economic Outlook Update. Today, battered financial institutions are unable to provide liquidity causing credit shortages and GDP contraction. The capital markets, which provide funds for longer-term projects, are not functioning properly.......


Insights from an Investment Manager

(March 2009)

Earlier this year, a senior partner in a successful money management firm invited me to lunch to chat about the capital markets. Given the investment climate, our moods could best be described as ‘dour’. The conversation quickly shifted to decision-making at pension plans. Despite the best of intentions, it was his opinion that decision-making in pension plans is seriously flawed.......


Anatomy of this Credit Crunch (Part 1)

(Febuary 2009)

Financial history is filled with periods of euphoria followed by intervals of fear and paralysis. This pendulum pattern is considered ‘normal’. But the current financial crisis is anything but! First, the problems today are truly global. Second, credit markets have seized up, and finally, all participants are being forced to de-lever.......


The Annual Performance Ritual

(Febuary 2009)

Recently, a former ‘traditional’ money manager who now operates a hedge fund, reminded everyone that investment pro’s love to brag about their great results. After a period of brilliant performance, they persuade listeners it was due to their unique talents. Conversely, after a period of weak performance, they try deflection, pointing blame elsewhere rather than admit to any skill deficiency. No surprise!.......


What surprised you most in 2008?

(January 2009)

“Shocking!” is how one person described today’s financial reality. But what surprised the majority of respondents about events of the past year was the sheer magnitude and unprecedented speed of the global financial collapse. Whether they spoke about the demise of investment banking, AIG and other formerly respected institutions, or sudden government intervention via massive bailouts, what was foremost on their minds was the ferocity and global reach of the credit crisis.......


Implications from a Credit Crunch

(January 2009)

Do you remember what 1981-1982 was like? No? Well, let me remind you...Interest rates were in the teens, North America in a deep recession, unemployment spiked and the outlook was very gloomy. Few people could think of anything positive to say. And what was the mantra back then? The rallying call was ”Cash is King!”. That’s a far cry from the last 25 years, where “Cash is Trash” has been the prevailing wisdom.......


Crazy Markets, Questionable Advice

(December 2008)

Since mid-2007, the world has witnessed an astonishing meltdown in capital markets. Worse still, the downward spiral accelerated in recent months. Problems plaguing U.S. subprime mortgages, also known as “Liar Loans”, morphed into an unprecedented global credit crisis. And with it, several financial systems built largely on trust have been battered.......


What do the Investment Pro’s Think?

(December 2008)

This has been a frustrating and difficult time for professionals working deep inside the investment industry. Regardless of whether they sit on the buy side, sell side, or just provide advice, they all simply want one thing — for the capital markets carnage to end. We wondered if investment professionals’ unique vantage point gave them some special insights to what’s happened. So we asked.......