Prologue to Globe and Mail Article

I wanted to put today’s Globe and Mail article in context with Steadyhand.

  • The process described in the article occurred prior to the decision by Neil and I to go ahead with Steadyhand. Since we have started our funds, however, Lori and my assets have been substantially moved to Steadyhand. Only tax management issues have prevented us from getting all the way there.
  • The criteria for picking managers that were highlighted in the article are the same ones we subsequently used for selecting our Steadyhand managers. Unfortunately, when Lori and I were setting up our personal portfolio in 2005, our process couldn’t be as thorough as the Steadyhand search and we didn’t yet know about some managers (i.e., CGOV, Wutherich) or some managers didn’t have products we could tap into (i.e., CCLIM, Edinburgh Partners). Indeed, we were looking for a small cap manager at the time, but didn’t find one that truly fit the bill - they were either managing too many assets or were too benchmark oriented.
  • By creating our own funds, we have been able to pursue the criteria more purely than Lori and I were able to do through existing funds. This is particularly true in the areas of concentration (i.e. fewer stocks) and tax efficiency.
  • Lori and I had difficulty finding managers that fit our criteria and when we did, it was often in products that were not available to the average investor. That was the genesis for Steadyhand. Our clients can implement this strategy in low-cost, easily-accessible funds.

Passion was the Key in our Search for Money Managers

The Globe and Mail, Report on Business
Published Saturday, May 12, 2007

Other than the pittance that The Globe and Mail pays me for my columns, I haven’t received a paycheque in two years.

Despite not getting paid by anyone, I never really retired in the work sense – initially I was sorting out what my new venture was going to look like and then was immersed in getting Steadyhand going - but in many respects I got a feel for what retirement is like. My tan was better, even if my golf game and water skiing weren’t. I was much more inclined to meet with people dressed in jeans or shorts. And Lori and I could go cycling in Cuba on three days notice, which we did.

The most enlightening part of retirement, however, was living without a paycheque. A friend of mine, when he was urging me to get back into the work force, said “it was one thing to feel good about the wealth you’re building, but quite another to be living off of it.” He was right. Suddenly buying a new wedge or water ski took on a different perspective.

I think my time away from the industry made me a better investment executive and money manager. It sharpened my focus on what Lori and my risk tolerance is (nil and lots, respectively) and it made me more tax conscious.

And because I wasn’t working for a firm, the investment world was opened up to me. Instead of only being able to invest in the funds at Phillips, Hager & North (where I was formerly president) I was able to go anywhere.

Like any former money manager would do, I immediately carved off some money that I could manage. This was really exciting for me, because as president of a large, multidimensional firm, I’d had to move away from the investment process to a large extent. With this money I focused on investing in a handful of companies that I knew well and were run by money makers. We were getting lots of diversification from our other holdings, so concentration was not a concern. Our investment in Onex Corp. was an example of this. I wanted to have some of our money doing the same things that Gerry Schwartz and his team were doing.

Beyond our brokerage account, I looked outside for other firms to manage part of our assets. There were two objectives here. First and foremost, I wanted to latch on to money makers in areas of the market where I have no expertise. Second, I wanted to get a look at how other firms operated. After 14 years at a market leader, it’s easy to get a little myopic and lose touch with what’s going on out there.

In seeking out money managers, I had a defined set of criteria. These criteria determined how Lori and I set up our portfolio and subsequently they provided the investment basis for Steadyhand. In future columns as I write about my buy-side experiences, they will no doubt keep surfacing as themes.

As with my criteria for picking stocks, I wanted portfolio managers who were money makers. I’ve had the good fortune of talking to many investment professionals and there are certain people that just know how to make money. You can feel it. As best we could, we wanted to be invested alongside these people.

What goes hand in hand with that is experience. I was looking for managers who had lived through some ups and downs and had done well for his/her clients over the long haul. There are a zillions ways to make money, but I wanted managers who knew exactly how they did it and had been doing it successfully for a long time.

I wanted absolute-return oriented managers. These are people that don’t get hung up on what’s in the index or what their competitors own. They arrive at the office every morning with the goal of finding a security that is grossly undervalued by the market. My research over the years has revealed that this approach yields the best and most consistent long-term results. So I looked for talented money makers whose skills and instincts weren’t diluted by “filler” stocks that were in the portfolio for index reasons.

If a manager was going to work for us, they had to run a portfolio that was concentrated on their best ideas. I didn’t want portfolios that owned 60 or 70 stocks, let alone 150 as some foreign funds do. If we needed broad market exposure, we could buy low-cost exchange-traded funds.

We were also interested in minimizing our tax bill, so low portfolio turnover was a criteria. Fees were another concern. Funds with high management expense ratios, front or back-end loaded charges or trailers were simply out of the running.

And last, but far from least, our managers had to be passionate about investing. We wanted investment geeks, as I affectionately call them, who were wired into their portfolios at all times. There are lots of technically sound analysts and portfolio managers out there, but not all of them live and breathe stocks and bonds. We didn’t mind if our managers were a little wacko or imbalanced. We wanted our investment managers to make us money and leave the worrying about the work/life thing to us.

What were the results of our search process? The equity managers we ended up picking included Bill Kanko (prior to his Hartford comeback), Jenny Witterick at Sky Investment Counsel and Burgundy Asset Management. PH&N continued to do our fixed income investing and we placed money with alternative-strategy managers John Thiessen at Vertex and Paul Sabourin at Polar Capital. Not one wacko among them.