Is it better for company boards to have at least one director educated in board governance?

It is an honour to be part of the Rotman graduating class for the Directors Education Program, 2018.
The experience was top quality and I come away from the intense experience knowing a great deal more than when I started, despite having served on many boards.

The Rotman DEP assembled a great class of individuals and I valued the group work done with each of these terrific people. Rotman puts together a professional post in the newspaper to celebrate all the hard work, along with the message below.

ICD - D Rotman Graduating Class - Jacoline Loewen

"Congratulations, You have completed the ICD-Rotman Directors Education Program (DEP), and are a part of the 72^nd DEP, Toronto. "

"To recognize your achievement, the ICD ran a full page graduation advertisement in The Globe & Mail today. For your convenience, the ad has also been posted on the ICD website, available here"

The time invested in this program run by top academics and practitioners does yield much worth. I believe it will benefit the Canadian economy as the expertise flows through to publicly traded corporations, in particular.

Too many of these boards are appointed by the CEO or Founder which makes them far too docile. Many directors believe their prime role is governance and do not contribute towards the strategy.

Also, many directors believe their allegiance is to the person who hired them to the board, too often the CEO or Founder. Hopefully, Canadian companies will benefit from all this terrific business acumen.

Two steps to reduce complexity in performing a valuation

I was listening to Tom Deans, writer or Every Families Business and a good friend of mine, talk about how Founders of businesses transition from business owner to sale of business - to an outside buyer or to their family. One of the best practices recommended by Tom is to get a realistic valuation of the business. Tom recommends to do this years before any form of sale or succession.

To get a realistic understanding of the value of the business, here is an overview of how to get a rough estimate that you can do yourself:

While firstly, revenue and secondly, profit are obviously two key factors in determining your company’s worth, assessing them in a vacuum simply won’t result in an accurate valuation. Even the additional details you provide regarding the number of customers you served during the previous two years simply don’t amount to sufficient data to perform a reliable valuation.

What you have to remember is that any investor, regardless of the reason for the interest in your company, will not be satisfied with a “ballpark” estimate of your value. They will delve deep into every aspect of your business when performing their due diligence in this regard and so should you.

To give you an idea of the complexity involved in performing a valuation, allow me to describe the process:.

1) EBITDA

Firstly, we will establish the company’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) or Seller Discretionary Earnings (SDE).

EBITDA is used mostly for companies valued at over $5M and is calculated by adding interest, taxes, depreciation and amortization back to your net income.

For companies valued at under $5M, Seller Discretionary Earnings (SDE) is typically used. SDE is the profit left to the business owner after the costs of all goods sold as well as critical operating expenses have been subtracted from gross income. Importantly, the owner’s salary can also be added back to the profit to reflect the true earnings power of the business.

SDE can be calculated using the following formula:

2) The Multiple Applied

The second step of the valuation process is to calculate the multiple that is applied to the EBITDA or SDE figure.

There can be between 80 and 100 data points into consideration when conducting this comprehensive investigation. Here is a small extract from the checklist of factors that we delve into:

Niche

• What level of threat does established competitors pose?
• Are there any expansion options available within the company’s niche?
• Is the niche evergreen?

Operations

• What level of technical know-how is required to manage the business?
• How are current staff members and contractors managed?
• What standard operating procedures (SOPs) in place?

Financials

• How has the gross and net income been trending for the past 1 - 3 years?
• How stable is the company’s earning power?
• Are there any anomalies in the business’ financial history and can they be explained?

Customer base

• What is the customer churn rate and lifetime value?
• How much does it cost to acquire a new customer?
• Why is the business losing customers?

Traffic

• Are current referral programs effective and sustainable?
• How effective and secure are current search engine rankings?
• Has the site been affected by any Google algorithm changes or manual penalties?

Other

• Are there any specific locational responsibilities or physical assets with the business?
• Are there any licensing requirements in order to run the business?
• Is the company’s intellectual property (IP) protected?

This investigation and research process leads us to an eventual multiple figure that we apply to the EBITDA or SDE value to establish your company’s value.

Typically, this falls between the 2.5x to 4.0x range, although there are exceptions to both sides of this spectrum.

Investigating these factors is dependent not only on a significant amount of experience in the M&A industry, but also on having the time and capacity to perform all the necessary research.

You can get more information on the valuation process by reading the full article at the website of FI International  - this article.

Jacoline Loewen on Twitter @jacolineloewen 

Investing and saving yourself from your emotions

As the stock market bumps along, there is a rising noise of worried analysts saying it is time to liquidate. 

One of the wealthiest, self made men is Ray Dalio, a leading Hedge Fund expert and author of Principles. Ray says one of the top three objectives of investing is to save yourself from your own psychological impulses. When the market goes down it is called a falling knife and many try to catch it by selling out. They forget their long term goals and give in to their fear.

"While we all tend to be emotional about money, we're far better off when we approach long-term investment strategy from a cool and rational perspective," Ray says. "Letting emotions influence our investing decisions can often lead us to lose opportunities and result in decisions we'll regret in the long term," he added.

Getting Caught Up in the Excitement

With stock markets continuing one of their longest bull runs in history, despite some recent whipsaw movements, it's hard to avoid getting caught up in the excitement. There's no shortage of tales of overnight success as certain hot investments skyrocket, which for some makes it seem like a great idea to jump on the bandwagon. Same goes for getting caught in panic mode and maybe selling prematurely when markets turn. Investing can be a roller coaster of emotions.

Goal-based investing helps to keep you going down that river and to survive the big waterfalls. Ray Dalio should know. He is the 13th richest person in the world (recorded).

Twitter:@ jacolineloewen

Linkedin: Jacoline Loewen Profile

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What’s driving “gray” divorce?

What’s driving “grey” divorce? More women are risking leaving the safe harbor of their long term marriages and launching out into the unknown waters of being single again after the age of 50.

Newly single women in the "grey" demographic are discovering that the new challenges can bring a wonderful time of renewal. The challenge is to shift their old mindsets and patterns. Once they get going in the new direction and stop looking backwards, their new lives are surprisingly positive.

What is driving this "grey" divorce trend?

1. Women are more financially independent. More than half of women ages 55 to 64 currently work. Women would rather be single or seek a new partner than remain unhappily married.
2. Staying together “for the kids” is less of an issue when children are grown adults.
3. Online dating creates hope for new and better relationships.
4. Gray divorce no longer means being alone forever.
5. With increased longevity, the prospect of another 20 or 30 years in an unhappy marriage is no longer acceptable.

What do golf and investing have in common?

What do golf and investing have to do with each other? To start, a good golfer needs to be patient, make solid strategic decisions and be able to focus on long-term goals. Seems pretty in line with what it takes to be a successful investor. When it comes to actually playing a good game of golf, there are a number of other similarities. I "tee up" five of them here:

1. There's more than one way to succeed

Brooke Henderson chokes up a few centimeters or two on an extra-long driver to rank in the top 20 in driving distance on the LPGA tour. Jim Furyk has won nearly $68 million in his career using a swing that golf analyst David Feherty famously described as resembling "an octopus falling out of a tree." Good golfers come in all sizes and shapes.

With investing, you can go heavy on stocks, bonds or foreign exchange, or have a portfolio that consists of several asset classes. While a mix of assets can offer some level of protection compared to an all-or-nothing-type strategy, there is no single right way to invest your money — it's all about knowing your own style and comfort zones.

2. Keeping your cool

It's easy to get upset and frustrated with a double or triple bogey. And responding by taking unnecessary risks will almost certainly compound your problems. The best way to deal with any golfing setback is to try to make a solid shot, followed by another solid shot. Before you know it, you're back on track.

Investing will definitely have its ups and downs. Think about the most recent market decline. Did you panic and sell off many of your investments? Or did you double down on previous investments because you were sure that the decline created bargains? Either response could be considered an overreaction. A calm and reasoned approach to your investments, always keeping an eye on your long game, is generally considered the best way to proceed.

3. Past performance doesn't predict future performance

You'd be hard-pressed to find a golfer who doesn't agree with this one. One good round doesn't make you a golf pro and one bad round doesn't mean you should give up the game.

Same with investing. It's best not to become too confident just because of some winning investments, but don't become gun-shy if you have a couple of losers. Research is the key to understanding your investment choices.

4. Process is crucial

When you're facing a crucial situation in golf, one of the worst things you can do is tell yourself "I have to make a good shot now." That extra pressure can cause you to become tense, which can lead to a poor result. Focusing calmly on following your shot-making process can increase your chances of success greatly.

Likewise, when making an investment, it's not productive to say "I have to make money on this one." That is piling on the pressure! Instead, a disciplined process – careful research and thoughtful analysis — can help with reasoned investment decisions. If your process is sound, there's a better chance your investments will be sound as well.

5. Learn from the experts

Charity Golf and Jacoline Loewen

How many times have people in your foursome offered advice on your golf game? People are generally well-intentioned, but just because something works for someone else doesn't mean it's right for you.

The same goes for those dinner parties where friendly stock tips pile up from people who just happen to know someone who knows someone. Investment advice that seems too good to be true often is. I often hear clients say I got this tip from this wealthy person and I want to invest into that stock. Do a bit more of a deep dive before getting off track from your investment strategy.

Follow me on Twitter @jacolineloewen
My books can be found on Amazon: amazon.com/author/loewen

Top Market Forecast Award for Jacoline Loewen

Jacoline Loewen
receiving the trophy from
The Ticker Club
for #1 Market Forecast 2017

Jacoline Loewen was awarded #1 Top Market Forecast by The Ticker Club, and received a trophy January 2018. 

The Ticker Club is a 100 year old club with leading members of the finance community, including the Canadian banks,  large funds such as Blackstone, Teachers and wealth managers such as Gluskin Sheff. 

Jacoline says her secret to winning was Pierre Ouimet. This is the second year UBS placed in the top 3 forecasts.

The importance of the client experience for Wealth Management

I found this to be a useful report by Scorpio Partnership on the trends of Wealth management. Below is my pick of the most important trend.

Google the phrase “client centric wealth management” (no hyphen) and you’ll be rewarded with hundreds of thousands of results. After all, the client is always at the center of the relationship between financial advisers and their investment portfolio, and wealth management firms focus on clients’ needs. Right?

Apparently not.

In a recent report, Scorpio Partnership struck at the heart of what it says is lacking in the wealth management industry: the client experience, or as one executive put it, placing “the customer at the heart” of the service experience.
“Wealth management should absolutely be built around client needs,” the report said. “Given the intimacy of the client/advisor relationship it may be hard to believe that it isn’t already, but the truth is that while many firms invest in listening to their clients, few put what they learn to work delighting customers day-in-day-out.”
As 2018 gets underway, we asked April Rudin, founder and president of The Rudin Group, about this disconnect between clients and firms; the “new” client experience; and why she believes 2018 will be the “Year of the Client.”
Below is a lightly edited transcript of the conversation.

CFA Institute:

I’m a little surprised that it’s 2018 and we find ourselves still talking about the importance of the client experience. What have you observed over the past year that makes you think this is an area that needs attention?

April Rudin:

Over the past year, I have noticed that while many wealth managers, and other financial services executives, are high-end consumers who value the client experience offered by luxury brands, for example, they struggle with translating that same experience to their own client offerings. For many firms and advisers, it means doing a 180 to see things from the clients’ perspective and how they value services, offerings, and even client communication. Something else I have seen is that some people who are using their smartphones and a variety of apps in their personal lives are reluctant or slow to adopt technology in their professional lives.

With $32 trillion (estimated) in the wealth transfer clearly underway, women and the next generation are reshaping the client experience. They value being treated and understood as individuals, yet much of wealth management remains in the “one-size-fits-all” mentality. Reconciling what clients want with what firms are offering will be the single most important area for the wealth management industry to focus on in 2018 and beyond.

The good news is that firms that get this right stand to have the greatest advantage in 2018 and beyond to grow assets under management (AUM) and gather new assets. And by the way, it’s iterative; not “one and done” — there is no single action or magic bullet. It must be an ongoing effort.

It is key for firms and advisers to keep their online/digital best foot forward. And on all channels. Today’s global investors are online and connected. They want their advisers to be as well.

Has Elon Musk's launch impacted the energy of entrepreneurs?

Money and scaling up your business is a key part of early day businesses. Self funding is one of the options, and then crafting the business and product until it is proven. Getting validation is a common characteristic of most of my best investments.

Holy Moly, Elon Musk achieved epic market validation for Space X by showing his Falcon Heavy launch to the world. 

Not only that, Elon has just executed what will become the text book case for branding with the video of the launch posted on Instagram. As I watched these videaos, the incredible achievements of reusable rockets returning to the launch pad, the cars lined up to watch just like the landing on the moon days, the thrill of seeing that iconic shot of the world with the astronaut sitting in a red Tesla, hood down, cruising through space on its way to Mars, my eyes filled with tears.

Suddenly,  Musk's crazy Tesla in space made on Earth by humans became obvious. This crazy, eclectic big dreamer, Elon Musk, just achieved his crazy goal. For attracting investors, crypto currencies seem dull by comparison.

The rocket launch highlight videos were created by Westworld co-creator Jonah Nolan. "The only way I know how to share [the Falcon Heavy launch] is a trailer," Nolan said. "It’s not for TV or a movie, it’s for the next part of the human story."

Elon Musk says your business should be about, "things that inspire you, that make you glad to wake up in the morning and be part of humanity."

This week, I am going to a startup lunch with top Toronto investors. I will be bringing that Elon Musk inspiration to fuel up my impact.

Game changer leadership of President Cyril Ramaphosa

Foreword by Cyril Ramaphosa

Since Cyril Ramaphosa became president of South Africa, many people know he wrote the foreword to one of my technology books and ask me about his character. What is he like?  If I were to sum up Cyril Ramaphosa, it would be to say he is all about disruptive leadership.

Cyril has an incredible mindset which is full of appreciation. He has emotional sense, people sense, but also an economic mindset. Gold appreciates, bitcoin appreciates, Cyril appreciates. What appreciation really means is that you give value. That is Cyril. He is not worrying about how he is going to get paid back. He is constantly giving greater value with generosity.

I was very fortunate enough to know Cyril when he wrote the foreword to my book on technology's impact on businesses and society in South Africa. He wrote about the changing potential for wealth in South Africa to reach more of the people.

Cyril's reflected on his own track record which was the accelerated African dream where he went from a poor Venda boy to President of South Africa. On that journey, Cyril had the courage to set up and run South Africa's first black union. It is easy to forget the brutal power of the government at that time and organizing any group could have resulted in death. Yet Cyril's inclusive leadership style helped the black union grow in power, He gained the respect of the union members and the management teams, becoming an essential part of the mining world. Cyril ran these union organizations for many years.

After being passed over by Mandela for the leadership of the ANC, Cyril went on to become the leading business man of South Africa, married into the wealthiest African family.

I was looking at Cyril's declared investments which give his stock ownership of South Africa's blue chip companies and also his private investments. It is great to see Cyril does private equity investments into exciting businesses such as Fever Tree consulting and McDonalds. This is a business man who understands all sides of the negotiation table. This is what will be the game changer for South African politics.

How did Cyril managed this meteoric rise in his level of success?

Cyril is a giver.

He has the mindset and behaviour of a man committed to win/win. As the head of the first black union, his ability to engage all people with his humour and warmth did its magic.  Mine owners and managers started to realize that their black workers were thinking people who could be brought on board for productivity boosts and better work practices to benefit all. Their opinions could be asked and they would no longer be silent. This is a happier work world. Win/win.
  

Women in South Africa were just beginning to rise up in the business world. At that time, I already had been the strategist for Investec Bank and my first book, The Power of Strategy, was a best seller and award winner. I remember Cyril was delighted to help me with my book. His foreword is full of the promise of the wealth of South Africa.  He gave me, a female, such support which in turn made me dedicated to my time in South Africa and to contribute to its economy and more.

Cyril was always making a bet on the future without concern about the returns. He is super succesful but also super generous. He now has become the leader of South Africa and he will bring that abundance of opportunities to the economy but also the society. The speed of change is accelerating. Cyril is the leader South Africa needs. He is the change South Africa needs and deserves. I am grateful to Cyril for believing in me and for all of his support.

Happy Valentine's Day