State of the Union

by Scott Ronalds

2020 was a rather dull, uneventful year.

Only kidding, of course. By this point, you’ve probably read or watched more about 2020 than any year in history. We’ll spare a recap of the happenings around the globe and in the financial markets. Our objective here is to bring you inside the Steadyhand tent by sharing some metrics on our performance, client base, growth, and initiatives we’re working on.

If you’re interested in a deeper dive on the markets and our assessment of some of the current opportunities and challenges investors face, I encourage you to check out our Where to From Here? series of videos published last month.

Performance

In spite of experiencing one of the quickest bear markets in history in the first quarter, stocks had a pretty decent year. Bonds, too. Investors with balanced portfolios enjoyed returns in the neighbourhood of 5-10%, generally speaking. Our clients fared well, with our Founders Fund gaining 8.5% (many investors in the fund earned a higher return thanks to our fee reductions).

When we take all our clients’ statements and average their returns for 2020, their accounts grew by 8.0% in the year (using the money-weighted methodology). Over the last five years, the number is 6.3% (per year), and over 10 years it’s 7.4%.

Assets under management

At the end of the year, we managed $984 million for investors. Our asset base grew by $79 million, or 9%, over the year. Steadyhand employees account for over $35 million of AUM as our team has 94% of their own wealth invested alongside our clients in the Steadyhand funds.

Clients

We welcomed aboard 323 new clients in 2020. Of those, 260 are working with us directly and 63 purchased our funds through third-party dealers (e.g. discount brokers). The majority of new clients were referred to us by our existing investors or their financial planners.

Our client base is now over 3,600 investors strong, stretching from B.C. to Ontario. Our average client is 57 years old and holds two of our funds.

Our growth, particularly in Ontario, has led to us to begin the search for a third Investor Specialist in our Toronto office. We look forward to welcoming aboard our 18th team member at some point in 2021.

Initiatives

Delivering attractive investment returns continues to be our #1 priority. One of our recent initiatives was to conduct an in-depth review of our fund managers and assess how they navigated through one of the most challenging years in recent memory. Our findings leave us confident that we’ve got the right group of professionals selecting the companies that will grow your wealth over time.

Last year, we also concluded that integrating an assessment of environmental, social and governance (ESG) issues into our investment process can have a positive impact on performance. As such, we have established a new initiative coined Sustainable Steadyhand and have embraced a form of responsible investing known as ESG-integration.

Today, all our fund managers subscribe to this approach. You will not notice significant turnover in our portfolios as a result of this endeavour; rather, it means that our stock pickers will consider more criteria in their research and set a higher bar for companies that lag their peers in the important areas of E, S and G.

Looking forward

The world changed in 2020 and we were all forced to adjust. We adapted well to the new reality: we maintained a high service level during the March meltdown and throughout the rest of the year; communicated frequently and openly; and moved forward on new projects, all while most of our employees were working from home. We believe it speaks to the quality and commitment of our team.

Our priorities in 2021 are to continue to push forward with Sustainable Steadyhand and to revisit our efforts around better promoting our firm and services — we’re ambitious and believe that more Canadians would benefit by knowing about us. Of course, we don’t plan to skip a beat on delivering top-notch service, ensuring we’re as accessible as ever to our clients, and keeping you informed about the world of investing. Never a dull moment.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.

What would Warren Buffett make of this stock market silly season? He's already told us

This article was first published in the National Post on February 13, 2021. It is being republished with permission.

by Tom Bradley

This week, my wife put a Warren Buffett book out on the counter. I don’t know if it was intentional or not (I’ve been ranting about the craziness in the market), but I picked it up and quickly got immersed.

Mr. Buffett is eminently readable and forever logical, and his words were a wonderful counterpoint to the times we’re in. I’m calling it the “silly season” because of the explosion of stock trading and speculation, the proliferation of blank cheque IPOs (SPACs), 20% daily moves on no news, a cannabis revival and an intense love affair with cryptocurrencies and short squeezes.

As I read the book, I highlighted some Warren-isms that seemed particularly timely.

There’s been a surge of discount brokerage account openings. Firms can’t keep up and worse yet, are having trouble servicing their existing clients. More recently, bitcoin dealers have joined the party. Mr. Buffett’s insight:

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

For financial educators like me, this newfound interest in investing is overdue, but unfortunately, it’s mostly being fuelled by low (or no) cost trading and an insatiable appetite for risk. This combination has led to heavy trading in riskier stocks and increased use of leverage, options, and derivatives. Mr. Buffett’s words:

“The propensity to gamble is increased by a large prize versus a small entry fee, no matter how poor the true odds may be.”

“Derivatives are like sex. It’s not who we’re sleeping with, it’s who they’re sleeping with that’s the problem.”

“Wall Street makes its money on activity. You make your money on inactivity.”

Herd mentality is running strong right now (e.g. Reddit). Over many decades, Mr. Buffett has enhanced his reputation and wealth by zigging when others are zagging.

“I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy.”

“The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.”

“We know that the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”

Part of what makes the current landscape concerning is the apparent disregard for profits and valuation. Price-to-earnings multiples aren’t part of the narrative. It’s growth at all cost.

“Price is what you pay. Value is what you get.”

“For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it’s going up.”

The media is infatuated with commentators who feel compelled to predict the market. As with many investing principles, the importance of “time in the market,” as opposed to “timing the market” have been put aside. Investors want instant gratification. Indeed, I hear people asking what’s wrong with a stock when it’s gone sideways for two or three months. Sometimes two or three weeks.

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”

“The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses.”

“The stock market is a device for transferring money from the impatient to the patient.”

It would be easy to slough off the principles that Warren Buffett espouses, especially in these times of zero commissions, social media and cryptocurrencies. Some will say he’s a dinosaur, but his understanding of investor behavior and how businesses work is timeless.

To use his words: “If principles can be become dated, they’re not principles.”