3 Questions to ask to check your portfolio

The only limit to making impact is your imagination and your commitment. This is why I am proud to being part of a team dedicated to adding more value to investors and their families.

This past month has been interesting, in my role as business development for my team of financial advisers. I have heard the same three questions from prospective clients.

To see if you also share these, I thought I would give a quick answer to these important questions to ask in regards to managing your money:

1. How will you react in a coming correction? 

Most people will tell you they are cool under pressure, yet during a correction in the market, the truth is that many will panic and do the worst thing – sell at the wrong time. Selling is exactly what you should not do and this fear over common market occurrences is probably the number one reason you should partner with an expert to manage your wealth. They protect you from your own psychology.  The past years have been smooth sailing where most could have made money but what about when the correction arrives - and it will arrive. Talk to your adviser about an upcoming correction and how are you protected from the downside.

2.Are you overpaying for performance? 

It is no longer about the fees. In fact, it is about the economics. Do you understand the business model of a broker versus the Financial Adviser being rewarded to advise you to achieve your goals? What would you do if you had your doctor prescribing treatments where he got a kick back from the drug company? That is the broker model, which I believe is flawed, and people are realizing the economics are set up to reward the house, not the client. Ask your adviser for the economics of your portfolio. Are they able to source investments outside of their institution? How are they paid? Ask if they earn an additional fee when you accept their recommendation.

Does your adviser have conflicts of interest? 

Again, the broker model is set up to reward the broker, not you, the investor. If your financial adviser is pressuring you to trade often and to buy their own products, rather than offer an open-house architecture, your long term financial outcome will be compromised. Is your broker stuck selling you their in-house products or do they have a global diversification and product diversification capability at minimal cost?

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Money Magnet, by Jacoline Loewen

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).

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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.