He's got game: Tom Bradley inducted into Canada's Investment Industry Hall of Fame

Wed, 10 Aug 2022 08:18:48 PDT

Investor

by Neil Jensen

As you may have heard, Tom is being inducted into the Investment Industry Hall of Fame this year. Founded in 2013, the Hall honours “excellence, integrity and leadership in Canada’s investment industry”, and includes 58 members (including this year’s three inductees).

Back in the spring, Steadyhand celebrated its 15-year anniversary, and I had some time to reflect on our journey. You wouldn’t know it from his youthful good looks, but Tom is 13 years older than me, and co-founded Steadyhand at about the same stage in life that I’m at now (mid-50’s).

At a time in their lives when many are considering retirement or at least thinking about winding down their careers, Tom took the personal, professional, and financial risk of starting a new firm. And he did it with all the passion and investor-first mentality that’s defined his career.

Tom has a storied resume with close to 40 years of experience in the business, and stops at such venerable firms as Richardson Greenshields and Phillips, Hager & North. He’s always been a gifted speaker and writer, and has used these skills over the past four decades to help make Canadians better investors.

Tom’s induction into the Hall is a great recognition of his accomplishments as an investor and firm-builder, but equally impressive, in my view, are his achievements as a person. From his philanthropic contributions to serving on several boards (including the Vancouver Foundation and UBC Investment Management Trust), Tom has always been generous with his time and resources.

What makes the induction even more special to Tom is that many of his mentors are also members. Among them are Bob Hager (PH&N), Chuck Winograd (Richardson Greenshields) and Bob Krembil (Trimark), three people who played an important role in shaping his career and values.

Tom has also been a mentor to me over these past 15 years. He’s been that proverbial steady hand for our business and clients, and has taught me a lot. I could go on, but I’ll draw on one of the many lessons I’ve learned from him here — don’t lose your audience by rambling.

Congratulations my friend, this is well deserved.

What's baked into the cake? That's a question investors should always be asking

Tue, 09 Aug 2022 07:50:48 PDT

Investor

This article was first published in the National Post on August 6, 2022. It is being republished with permission.

by Tom Bradley

These are challenging times for investors. Interest rates are up, housing prices are down, inflation is on the march and there’s lots of talk about a recession. Your advisor’s response to this? “It’s all baked into the cake.”

Well, I’m a baker and know that what goes into a cake, and how much, is critical. I can be reasonably certain of the outcome by following the recipe and measuring carefully. But baking in the investment context is very different.

Before I go there, let’s define what your advisor means. “Baked into the cake” refers to the fact that investors in aggregate (the market) are aware of the gloomy outlook and have already factored it into stock prices. For example, Air Canada is down 30% from a year ago in anticipation of fuel-cost pressures and labour shortages. Amazon is down 20% because investors now assume bricks and mortar stores are here to stay, and the company will have to fight harder for market share.

We never know for sure what’s being anticipated, but there are tell-tale signs. If an issue or event is the lead story on the evening news or is dominating your newsfeed, you can be assured stock prices already reflect it. If a stock goes up after the company reports poor earnings, it’s a good indication that investors were expecting bad news.

To be clear, when something is said to be baked in, it doesn’t mean stocks won’t react if the negative scenario plays out. The market weighs the odds of something happening but doesn’t usually go all in. It considers all possible outcomes.

There are times, however, when the market is more certain than it should be. It assumes that everything will work out great, or conversely, there’s no way out of the mess. When too much is baked into the cake, there are usually wonderful opportunities for those who are willing to look in the other direction.

But let’s put the extremes aside and assume the market is all wise and forward looking. We need to fine tune our definition of risk. The stuff we’re reading about today is not what will take portfolios lower in the coming months, it’s the events and forces that are considered improbable or aren’t being talked about. Let’s look at some scenarios that aren’t being baked in.

We know investors are adjusting to inflation and a slower economy. These issues are in the headlines and every investment commentary. It would appear, however, they aren’t factoring in an extended period of high single-digit inflation. At least, the wise old bond market isn’t. Yields are still well below current inflation which means something has to give. Negative real interest rates of 4% to 5% (adjusting for inflation) are unsustainable.

Neither are investors looking for consumer spending to collapse. They’re relying on the fact that the U.S. consumer is in good financial shape and employment is strong.

Indeed, the tight labour market has been a shining light amongst all the negatives, although this too may be changing with increasing job cuts in the technology sector. Certainly, a serious deterioration of the job market is not yet factored into many economic forecasts.

Something else that isn’t fully baked in is stagflation. This economic term goes back to the 1970s and refers to periods when there’s slow (or no) growth and high inflation. This dreary combination is being talked about, but the assumption is still that a slowdown will take the pressure off supply chains and lessen demand for commodities.

The discussion wouldn’t be complete without considering the positives. At times like this, important factors that can take your portfolio higher are often obscured by the front-page risks. They get dropped from the analysis and are no longer baked in.

For instance, while we obsess about recession here, the world economy continues to grow, partially fuelled by an expanding middle class in India and China. Innovators keep doing amazing things and have plenty of open field ahead of them in healthcare, infrastructure and alternative energy. The adoption of established technologies is changing how businesses and governments are run.

And while it’s unlikely we’ll have peace in Ukraine any time soon, any accommodation that normalizes the flow of energy and agricultural commodities would be a pleasant surprise for the market.

There’s no set recipe for what’s baked into the investment cake. We never know for sure if an ingredient has been partially, fully, or more-than-fully added. We just have to keep asking the question.


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