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Investment strategies 7 min read

Part 1: Don't take stock tips from Elon - real advice from investment experts

Stock markets have rebounded around the globe and are reaching record highs after the emergence of COVID-19 in March 2020. Canadians are asking what they should do with their money.

We spoke with two experts who have over 25 years’ experience providing in-depth analysis and client advice through market ups and downs: CWB Wealth Management’s Scott Blair, Chief Investment Officer, and Linnea McKercher, VP and Portfolio Manager. Scott oversees all of CWB Wealth Management’s investment solutions, investment process and philosophy, and research teams. Linnea, meanwhile, is responsible for managing CWB client investment portfolios and overall wealth strategies - including those for entrepreneurs and business owners across the country. Both have managed billions of dollars over the course of their careers. Here are their thoughts on the recent market mania, effective investing strategies and retirement planning.


CWB: You’ve both seen your fair share of market bubbles or froth over your careers. Is there one bubble that you can think of recently that just had you shaking your head? 

Scott: GameStop. This was pure speculation. Some investors have owned GameStop for years as a value play or turnaround story.  With the help of the internet it turned into speculative fury and then just pure gambling. It happened in such a short period of time that it was just a perfect synopsis of how stock market bubbles are created. At the end of the day, people make a lot of money if they get in early, and the people who are left holding the bag at the end when the bubble bursts are the individual investors who buy in after the stock hits the front page of the newspaper. 

Linnea: We call it a “social media bubble.” It was a narrative spread on social media. 

Scott: I read an article recently that summed it up well: “I don’t understand it, but I’d better buy it just to be safe.” And this seems to be happening in a lot of areas of the market these days. People are shooting first with their money and asking questions later. 

CWB: I heard a story recently about a student who used his Canadian Emergency Student Benefit (CESB) money to invest in GameStop and bragged that he made enough to pay for his university education in a week. What do you say to people who bring up stock market glory stories like this one? 


Linnea: Well, that guy is very lucky. He might want to take his money and make sure he gets his education. These stories are unusual. And congratulations to the people who cash out and actually keep the money, but these stories are few and far between. I don’t know anybody personally that has made a ton of money in the stock market and never had to work again because they did so well from one big win.

Scott: In the 1990s, I had a client who was getting mid-teen returns on his account and I went out to meet with him and he wasn’t happy with the returns at all. What he said to me was: “Scott, all we need is one Bre-X.” And this was before Bre-X was discovered to be one of the largest mining frauds in history. At the time, the stock was doing phenomenally well, and if you were in early, you made a lot of money if you sold out before it went bankrupt. So, people see these stocks like Bre-X before it blew up, and they see the fantastic wealth the stock creates. But there are very few people who make that fantastic wealth and there are a lot of people who lose money they can’t afford to lose. It’s a very risky game. 

CWB: A lot of people are embracing do-it-yourself (DIY) investing platforms thinking they can get rich quickly by buying a hot stock and riding it to the moon. Based on all the advertising out there, you’d think this is the path to extraordinary wealth. What’s the story here?


Linnea: I think we’ve heard this story before. It is just part of the market cycle.

Building wealth and getting wealthy is really about discipline, investing regularly and at regular periods of time. It’s not about hitting the big wins. You can be just as wealthy in the long run if you just take a disciplined approach to investing.

For people who want to do it themselves, it sounds really easy — especially right now because people are making all this money — but at the end of the day, are you going to be committed to looking at your portfolio on a daily basis, rebalancing things and trading out the stocks that don’t belong anymore? I'm well trained in this industry. I used to run the Canadian Equity Portfolio for our firm, I understand how to do it.  I choose to put my own money in our firm because I believe in the investment style and philosophy, I trust it and I know my money is going to be taken care of there. While I have the knowledge, I don't have the time at the end of the day to take care of my own money. It is better just to have our firm take care of it. 

CWB: Why would someone turn to an advisor or expert to invest their money? Especially a business owner, who might be used to being hands-on. I mean, isn’t it cheaper to do it yourself?

Linnea There’s a really good study that a well-known market research firm called Dalbar Inc. does annually. The report says that most people who embrace DIY consistently underperform. And usually by a substantial margin. DIYer’s don't stay well invested and rebalance their holdings on a regular basis. It's not that it's really difficult to do, but it takes time and research, and not everybody is equipped to do that on a full-time basis. Beyond that, the big thing is emotion. A professional takes the emotion out of the market. Last March, when the pandemic hit and the market was falling, clients called us and said they were worried and were unsure how long the market was going to decline. Many clients suggested to get out of the market for a bit until things calm down. It takes someone who's emotionally removed from your money to say: “No, we need to stay invested in the market now.” In fact, Scott’s investment team at CWB was actually buying more stocks when a lot of investors were selling. 

Scott: It always seems cheaper to do something yourself. I needed to put a new roof on my house a few years ago. Now, I could have done the repairs myself it’s far cheaper than hiring a professional roofer. But in the end, doing the work myself would have cost me a lot more money. The roof would have to be ripped up and re-shingled again, and I’d have water damage all over the house. It’s cheaper up front when you do it yourself, but are you really saving money?

In the case of investments, when we go through a bear market - and we will again - when the markets are down for two or three consecutive years, can you stick with it to get through that cycle when it matters the most? 

Because if you’ve already lost money for two or three years straight and then you sell out, you could be selling at the bottom and you’ll never regain your capital.

CWB: How do you manage money for your clients? Can you tell us a bit about your strategies?


Scott: A lot of funds out there might have 100 different stocks in them, we tend to hold about 35 to 40 stocks.  Sometimes a few more if it’s an international mandate that’s spread across many countries. The holdings are diversified by geography and different sectors of the economy. These are names and businesses we know really well and we know the management.
We’re not looking to buy something that makes no sense from a valuation standpoint. We’re focused on diversification, quality and valuation. That’s our philosophy.
So, a company like GameStop, for example, would have been sold out of our portfolios long before it peaked.  We just would not have participated in the mania. Once we couldn’t justify the price we would sell the stock. Timing a stock like that is luck. We’re investors, not gamblers. 

CWB: Are you changing the stock holdings in the portfolios you manage on a regular basis? 


Scott:The turnover is not that huge. It’s about 20-25 percent per year. So, in a year we’ll trim stocks as they start to get overvalued or the risk-reward is not as strong. If we see things sell off, we’ll add to that position. So, as Linnea said, last March we were actually in the market buying the whole portfolio as the market was falling. We went overweight on equities and sold out some of our fixed income because we thought it was an outstanding opportunity to buy. 

We thought it might take a year or two for the stocks to get back to where they were prior to March. We didn’t think it would take only six months. But we were buying for the long term. It’s about the long term. Buying durable, good quality companies that we can own for a long period of time. So, corrections for us are great opportunities to add value for our clients.

This interview took place on February 11, 2021. The interview was lightly edited for clarity and length. Read part 2 here.